Subscribe to Common Dreams News Updates
Most Popular This Week
Popular content
Today's Top News
Secret Bailouts for Giant Failing Banks of the Future?
BOSTON - Big banks will not be
forced to downsize and the public will be the last to know when they
fail, a controversial bill unveiled by U.S. Treasury Secretary Timothy
Geithner and Congressman Barney Frank proposes.
The long-awaited "too
big to fail" legislation was roundly criticised during a congressional
hearing Thursday as a nod to the biggest financial firms in the U.S.
"This
is TARP on steroids," said Rep. Brad Sherman, a Democrat, referring to
the U.S. Treasury programme that gave trillions to financial companies.
The legislation was called for by Congress and President Barack
Obama in the wake of the trillions recently spent by the U.S.
government to rescue behemoth financial institutions like AIG and Bank
of America, out of fear that their failure would bring down the whole
financial system.
"Taxpayers simply must not be put in the
position of paying for losses incurred by private institutions," Obama
said in a letter to Frank this week praising the legislation. "When
major financial firms fail, government must have the ability to
dissolve them in an orderly way, with losses absorbed by equity holders
and creditors."
Leading up to the bill, many economists on the
left and the right said the only way to protect the finance system and
consumers is to break up the gargantuan finance companies that now
exist. Former Federal Reserve chairmen Paul Volker and Alan Greenspan,
and former labour secretary Robert Reich all favour this approach.
As
a result of the mergers and acquisitions during the past 18 months,
Bank of America, CitiGroup and J.P. Morgan Chase now control about
one-third of U.S. finance and bank business, analysts say.
"The Wall Street giants should be split up - and soon," Reich said.
But
the bill does not propose breakups, and instead takes a more "subtle"
approach, current Federal Reserve Chairman Ben Bernanke told reporters.
Reich
says this is a mistake. U. S. Treasury Secretary Timothy Geithner and
financial advisor Lawrence Summers "continue to bend over backwards to
make Wall Street happy, and in doing so continue to risk the
credibility of the president, as well as the long-term financial
stability of the system," Reich said.
The bill probably will not
be sorted out in time for the next round of bailouts. GMAC, the former
financial arm of General Motors, is in line for its third government
handout and CitiGroup is reportedly still on shaky ground. GMAC has
already received 12.5 billion dollars from Uncle Sam and CitiGroup, 45
billion dollars.
GMAC, like other businesses, made itself
eligible for a government bailout by purchasing a bank last year, and
becoming a bank holding company.
The bill was criticised at a
Thursday hearing by Frank's House Finance and Banking Committee, by
Democrats and Republicans, and even an Obama administration official.
Sherman
said the bill would grant the Federal Reserve and U.S. Treasury the
authority to bail out institutions in unlimited amounts without the
approval of Congress.
"We are given no authority to limit the
biggest institutions but we are allowed to help them when they fail?"
said Democrat Rep. Paul Kanjorski, calling for the bill to allow
downsizing of big financial firms.
Under the bill, sprawling
bank-holding companies would continue business as usual, unless in
trouble. The bill would not allow any new bank holding companies to be
created.
A new government oversight council, led by the
Treasury secretary, would watch for danger signs in the finance system
as a whole, and identify firms at risk of failure, referred to as "the
list" by Frank. The firms would be subject to heightened regulation,
and monitored closely by the Federal Reserve. Investors and other
business parties, and possibly Congress, would be alerted to firms on
"the list", but not the public.
"Even a cursory reading shows
that the administration has chosen to continue its failed policy of
costly taxpayer bailouts orchestrated behind closed doors by officials
at the Treasury and the Federal Reserve," said Republican Rep. Spencer
Bachus.
"The legislation keeps the names of the 'too big to
fail' firms secret. It allows the picking of winners and losers behind
closed doors," said Republican Rep. Randy Neugebauer.
If a firm
fails and can't pay back its loan, the FDIC would step in and attempt
to dismantle it in an orderly way, outside of bankruptcy. Solvent firms
of 10 billion dollars or greater would be assessed a tax to pay for the
cost of the failed institution.
Sheila Bair, chief of the
Federal Deposit Insurance Corporation, the entity that regulates
community banks, criticised the bill.
"The oversight council
described in the proposal currently lacks sufficient authority to
effectively address systemic risks," Bair said at the hearing. It
should be led by a presidential appointee, not the Treasury secretary,
she said.
A very controversial part of the bill is the authority
that would be granted to the Federal Reserve to act apart from the
council and Congress, and to bail out troubled firms or solvent firms
with unlimited amounts of U.S. government funds, with quiet approval
from the Treasury.
The Federal Reserve is a quasi-government
entity, that helps direct U.S. monetary policy but is governed by its
members - private banks and financial firms. It operates with great
secrecy, and is not required to disclose the loans it makes to firms,
estimated to be in the trillions during the past two years.
Americans
for Financial Reform, a broad coalition of labour and consumer
organisations, opposes the bill because of the greater autonomy granted
to the Fed, Richard Trumka, president of AFL-CIO trade union, told
Frank. The Fed was in charge during the meltdown of the past 18 months,
Trumka said.
"Instead of repeating and deepening the mistakes
associated with the bank bailout, Congress should be looking to create
transparent, fully publicly accountable mechanisms for regulating
systemic risk and for acting to protect our economy in any future
financial crises," Trumka said.
The committee may vote on the bill next week, though no similar legislation has yet been drafted in the Senate.
20 Comments so far
Show AllSomebody needs to put some achin' on Franks bacon!
Reich sez: Timothy Geithner and financial advisor Lawrence Summers "continue to bend over backwards to make Wall Street happy, and in doing so continue to risk the credibility of the president ..."
***
Obama has credibility?
Hell, I doubt if Obama even has an opnion when tailking with Geithner or Summers. Obama is hired help. Geithner and Summers are the bosses. of the criminal enterprise.
Wtf? Wtf? wtF? We are dying out here on the street and the pigs are lining up at the troughfor ANOTHER round of bailouts?? Now Timmy wants a bill to keep it on the down low?
Holy craP!!! ALCHEMISTS! we need ALCHEMISTS, because if GOLD is "free speech" in the halls of congress, then so is LEAD.
Let them eat lead.
Were crazy enough to send asassination squads to take out GYNACOLOGISTS for petes sake we got the rocks to whack suits... right?
Or maybe we can appeal to their sense of fair play??
What "SECRET BAILOUTS?"
it's ALWAYS been out in the OPEN.
people just didn't NOTICE much - BANKS - USA style - have ALWAYS been on BAILOUTS for their entire existence as an "institution".
as Thomas Jefferson said:
americans ought to be WARY of the accumulation of wealth in the hands of "BANKS" because the day shall "come when they will find themselves HOMELESS and all their belongings OWNED by these institutions".
from the moment "banks" were institutionalised in the USA and then spread out as a "system" of "economics" - they've BEEN on BAILOUTS - and their "product?"
has been nothing more than the FICTION of being able to 'create wealth' just by the power of legalizing and just by the stroke of a pen...
when in reality - beyond their proper function as PUBLIC UTILITIES - they are just interlopers INTO the economy created by PEOPLE with their labor.
that's why - karl marx was very emphatic about naming it "MONEY CAPITAL"....
because it's something private enterprises use to INSERT something made ouf of thin air and assign to it "value" and then "sell" it to the public and making the public PAY for the privilege of "using" money that actually substitutes ITS made-up "value" for their labor and then promotes itself as more valuable than THEIR labor.
and therefore - as "monetarism" implies "MONETIZES" everything under the sun.
and THAT"S where the issues of "affordability" - "cost" , "profit" comes from.
all of it tied to the "value" of money - by the banks - who have gotten beyond what should be their LIMITED ROLE as public servants and utilities to facilitate the movement and consumption of "wealth" created by LABOR of people.
BANKS ought to be regulated SEVERELY. and never be allowed to be "hedge funds" or "investors" AT ALL .
they should exist only as "holders" to the extent that they are the repository of the value of common wealth but be PUBLIC EMPLOYEES.
Ever since I crashed & burned in the second semester of high-school freshman Honors Algebra, I knew I wasn't a "numbers" person and would never be one.
Whereas Wall Street-- including its new US Executive Branch division-- is chock-full of mathematical and financial whiz-kids, superstars, prodigies, virtuosos, savants, geniuses, and mandarins.
They're smart; I'm dumb.
So how is it that the first time I encountered the lapidary phrase "too big to fail" applied to high-class Amerikan bankster operations, I thought: "Too big to fail? Too big to fail? What a scandalous and reprehensible mutation of the nefarious Ponzi Principle! It turns a vile and depraved criminal confidence game, so well-known that it's become a cliché, into a VIRTUE! And a salvific necessity, at that! The noive!"
So I'm seized by this conviction that the government bailout is a Through the Looking Glass scam. If "too big to fail" is the golden key to loot-- pillage?-- the US Treasury, EVERY pyramid-scheme pimp and Ponzi artist should qualify for the amnesty-with-benefits program: unlimited government handouts to provide "relief", with a minimum of nominal questions asked, to forestall the inevitable crash point. Not to mention that, in accordance with the dubious principle of "honor among thieves", the beneficiaries are trusted not to take advantage of this virtually-unconditional largesse.
It seems preposterous that Math-Challenged Me figured something out that the über-experts, including the highest government officials, haven't.
· Yr Obd't Servant
Well said.
U. S. Treasury Secretary Timothy Geithner and financial advisor Lawrence Summers are criminals. Geithner's lies get more egregious as the financial condition of our country gets worse. I did, however, enjoy the walloping that Wall Street got today. I'm sure the screaming back and forth between Bernake, Geithner and Goldman Sachs must have been entertaining.
Obedient Servant. any of us "not so mathematically adept" people could have accepted a PITTANCE of a salary compared to these "geniuses" in wall street and the corporations
just to commit the SAME MISTAKES and idiotic "predictions" and "calculations"......
and any of us would COST FAR LESS for the same effect.
as an article months ago said:
"IT TURNS OUT -- at the end of the day...these Geniuses of Wall Street and the Corporate leaders coming from yale, harvard and the other highclass educational institutions of the United States are just as DUMB as we are".
but a Hedge fudn manager from england who fooled all these folks in wall street - recently said:
since years ago - "i was aware of the rigging - and i AIMED for the big boys -- these are the LOW HANGING fruit of the economy coming from yale, harvard etc...who think they are so smart - they and their investors...but are just as dumb as the rest".
The "too big to fail" rubric is another import from the UK. There, the government sends some junior minister round to let the risk-taking wealthy know that, should they eff up, they can count on the Bank of England coming to their rescue because they're deemed "too big to be allowed to fail".
They usually don't get two bites at that apple, though. The second time they step on their collective dicks, the government sends round the bailiffs instead.
Honored YOS, You said in the next to last paragraph ---- These folks are thieves, and I believe someone in a previous post mentioned an appropriate remedy --- best I recall, it had to do with their consuming a heavy metal.
It appears to be on a rung of ladder from Gold Standard, to The Fed, to Tax Repaid Debt as measurer of money, ie, defining the calculable value of money.
We need to accept that there really are (at least) two kinds of money. Common Currency and Funny Money. These definitions are of course very gross, are extreme indicators in many respects, and subject to refinement and experience, but I think the general drift is presented. Common Currency is what most taxpayers use to get on with the ordinary course of their lives, most of the time. Funny Money comes in amounts so large as to defy the understanding of most voters, and is leveraged, subject to massive legal machining, and inflated. The objective of those who hold Funny Money is to convert it into Common Currency, and as much of it as possible.
The proposal then portends some increased tax-payer ownership of money, so it ain't all bad. Maybe this would facilitate more voter control of Fiscal Policy, ie, is the "cost" of health care ultimately a liability or an asset? All that must be done is to create (some) proper policy controls in the election stream. Accountability.
"Taxpayers simply must not be put in the position of paying for losses incurred by private institutions," Obama said
Wow, deep thinking there. Too bad he didn't make this momentuous decision before we bailed out out Wall Street and Detroit.
There were two major candidates in last year's presidential elections. Both of them senators, both of them supported the initial bank bailout. I think that if one of them would have said he's against it and would have voted no, he could have stopped campaigning right then go and enjoy a nice Hawaiian vacation and return in Jan for his inauguration. But I guess that's too much to ask from a politician.
obama and frank will respond to this as soon as they get out from
under wall sts desk take off their knee pads and gargle.
they will reply at 11.
Trumka's lame comment is more of the same from the heads of organized Labor. The politicians in Congress represent the banks and Wall Street. Working people have no political voice in this congress, the capitalist class with their two parties have a monopoly; it's a great deal for them.
The Unions spent some $400 million of workers hard earned dues money getting a Wall Street president in a Wall Street political party in to power.
http://weknowwhatsup.blogspot.com/2009/07/democrats-and-republicans-savage.html
"The Wall Street giants should be split up - and soon," Reich said.
Another smarty pants. The market was about to take care of the "too big to fail" last year. Instead the gov bailed them out with our money.
They're going to just keep doing this chit until we throw a wrench into this wild bankster political machine. My 401K has been sitting in dollars for almost a year. I know it's dumb. But I just don't have any other way to protest. I only keep a few bucks in the bank account: every time I can, I demand CASH. Bugs the hell out of them, since fake digits in a computer can be phonied up like Bernie Madeoff's Ponzi Scheme, but a cash withdraw cannot.
I'm not buying anything but the bare essentials. I'm boycotting all big companies if I can.
Great posts by everybody especially Obedient Servant. Teddy is dead-balls-right-on. Bob Pomeroy post is most interesting. Since we're in economic free-fall down the rabbit hole here, I made the following wall street observation: An Asset = A liability disguised. This chit started as an art form at ENRON where according to the book: "Conspiracy of Fools" the same crap that is going on as "derivatives" happened to make ENRON look wildly profitable. The Raptor funds leant fictitious money to each other and charged up to 100 percent interest on it. Of course, ENRON exectutives made 20-50 percent "management fees" on every transaction. Great work if you can get it. Kennyboy Ken Lay, GWB's pal floated himself a 100 million dollar credit line. ENRON failed of course, and the employees and retirees got left holding the bag.
And these guys never did hard time. Kenny was convicted, but conveniently had a heart attack the week he was supposed to turn himself in. Nobody in Houston ever saw the body since it was cremated (switcherooo?) before an autopsy could be completed. What Fortune 500 executive that mysteriously dies out of the blue doesn't have an autopsy performed to rule out foul play? Insurance companies insist on it since these CEO's and COO's etc are covered by million dollar policies.
Anyway, that's what I heard. If I looted a billion dollars off the California electric grid, you can bet I would find a plastic surgeon in Dubai to let me start over as Luxx Luther on an artificial island next to Dick Cheney's artifical island in the Persian Gulf.
These guys are going to keep doing this schit until either we're all slaves or we say STOP.
TJ
"All tyranny needs to gain a foothold is for people of good conscience to remain silent." - Thomas Jefferson
The same will happen to Bernie Madeoff. He has already been quoted as saying he knows he will die in prison.
"Bank of America, CitiGroup and J.P. Morgan Chase now control about one-third of U.S. finance and bank business, analysts say."
I'm guessing that Goldman Sachs was left off that list because they are an investment bank again, now, and not a bank bank.
Banking was a highly regulated public utility. Investment banking was a casino. The regulators were supposed to keep the two separate, but took part instead. The Fed was supposed to take away the punch bowl when the party got going, but spiked it instead. Now along comes the former head of the NY Fed Reserve telling us that instead of holding the Fed accountable for collusion with investment bankers, we should give them--as always, just like with Bush-- MORE POWER. And we're supposed to believe the fake president they gave us to make speeches while they pull off this latest heist.
If our government cannot make banking a safe, functional institution for the public good and effectively regulate investors who pose a risk to that system and to the nation as a whole, but colludes instead with those who harm us, then our government is being run as organized crime. This is why the beloved consumer confidence isn't recovering; it is because of the stench of corruption and betrayal from both parties and all branches of government.
I just learned that the CIT bank has gone bankrupt. This is the fourth largest bankruptcy case in US history after General Motors, Worldcom, Lehman Brothers, and Washington Mutual. Apparently there will be no bailout by the Federal Government this time. When combined with the huge loss on Wall Street last Friday it is glaringly obvious that all of the talk that we are over the hump and that the economy is recovering is once again so much hot air emanating from the White House. We are still standing on the edge of a cliff with the White House beseeching us to look in the other direction.