The Secret $7.77 Trillion Bailout

[blueduck37.livejournal.com]

Apologies if this story was posted here already; I couldn't find a post on it.

Now we've all heard the lie statement that the Tea Party began as a cultural backlash to a new President, who to conservatives was the face of a changing America that scared them protest and backlash to the 2008 TARP program even though no conservative protests occurred until early 2009.

So I assume they will join Occupy Wall St in demanding major changes to Wall St and our banking system after Bloomberg News' big story about a shadow bailout that was occurring, via the Federal Reserve. They gained this info through the invaluable Freedom of Information Act. As the article notes, "It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year."

The article discusses how this "secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger."

To me, the most anger-inducing facts are the lies and deception that surrounded this, from the Wall St. end. We learn that Wall St firms lied to investors (pretending to be healthy, while this was going on), as well as to Congress, who passed a weak reform bill with bad information.

For instance, we learn that-

Bankers didn’t disclose the extent of their borrowing. On Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed “one of the strongest and most stable major banks in the world.” He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day.
....

JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed’s Term Auction Facility “at the request of the Federal Reserve to help motivate others to use the system.” He didn’t say that the New York-based bank’s total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program’s creation.

And that-

New York-based Morgan Stanley (MS), took $107 billion in Fed loans in September 2008, enough to pay off one-tenth of the country’s delinquent mortgages. The firm’s peak borrowing occurred the same day Congress rejected the proposed TARP bill, triggering the biggest point drop ever in the Dow Jones Industrial Average. (INDU) The bill later passed, and Morgan Stanley got $10 billion of TARP funds, though Paulson said only “healthy institutions” were eligible.

Free market!

Multiple Senators are quoted as saying “We didn’t know the specifics," which is great for a democracy. It notes that having all of the information of what was really going on would have likely resulted in a different (stronger?) Wall St reform bill. As it is, it doesn't really fix anything. Too big to fail still exists, etc.

If news about a secret bailout and its surrounding deception doesn't spur any action for real change, nothing will. This is why many in the OWS movement feel the system is hopeless. And that's not good for democracy either.

[PS- Bloomberg News also has another great story about how, as Bush's Treasury Secretary, Hank Paulson passed on insider info to his hedge fund friends.]

Comments

[telemann.livejournal.com]

Well clear that up for us then. What regulatory policies in the financial and banking industry do you support at the Federal level?

[politikitty.livejournal.com]

I have to ask. Doesn't it concern you a little that an independent agency acted in a way that you find so badly?

Congress and lobbyists, sure. But when you have an independent agency as insulated from influence as possible, and even they aren't protected from greed and corruption, doesn't it shake your confidence in creating good regulation a little?

(I haven't looked at the program to determine if it did more harm than good. I'm a big supporter of the existence of an independent Central Bank, so I'm walking into this a bit skeptical that 7.7 trillion wasn't warranted.)

[badlydrawnjeff.livejournal.com]

Odd that you're asking me to "clear up" something entirely separate from the smear tossed out there.

I'll resist all the bells going off in my head that know this isn't actually a serious question, and instead first note that I do not know every regulation on the books. I have my doubts that, for national banks that are engaging in interstate commerce, none of those regulations make sense. Maybe ones that involve having a base amount of assets/equity for international traders compared to what they're trading in might make sense?

The problem with banking regulations in particular is that they're less about doing what may be necessary, and are instead about covering the asses of those in power. Either they're reactionary, like TARP or Glass-Stegall, or Dodd-Frank ("This won't happen on my watch (again)") or they're needlessly proactive, like the Durbin rule in Dodd-Frank, for example ("We cannot allow X to happen, so we're going to do Y before it's too late"). This can be said about any number of regulations in any number of markets, but there's this rather insane fixation on banks and financial markets that isn't exactly sane. In banking in particular, this sort of face-saving as opposed to actual protection means that it's hard to sort through the good and bad, especially considering the compounding nature of the regulatory process.