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Paulson and Bernanke Spread the Wealth Around
During the campaign, then-Senator Obama provoked a media flurry and right-wing outrage over his comment to Joe the Plumber about "spreading the wealth around." They told us that this view was contrary to the American Way, that this was socialism.
Given all the concern over Obama's ideas about spreading the wealth, it is remarkable how little attention is being given to Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke's much more ambitious effort to spread the wealth. They are putting in practice measures that swamp any plans put forward by Obama in the presidential campaign, yet this massive government redistribution of wealth is drawing almost no attention whatsoever.
The basic story is that the Treasury and Fed together now control several trillion dollars of bailout funds. This money is being used with almost no accountability, especially with the Fed's portion of the bailout, which is by far the bulk of the funds.
Fortunes will be made or lost depending on how this bailout money is used. For example, Secretary Paulson just agreed to lend another $20 billion of the Treasury's bailout money to Citigroup.
In addition, the Federal Reserve Board agreed to guarantee up to $300 billion of presumably bad assets. This is an enormously valuable guarantee. If Citigroup had to arrange a comparable guarantee in the private market, it would almost certainly pay more than $30 billion a year.
This decision sent Citigroup's stock soaring. In the week since the bailout was announced, Citigroup's stock more than doubled, adding more than $25 billion to the company's capitalization. (The government could have bought the bank outright with the money it lent to Citi.) This is great news for Citigroup's shareholders, who would be holding almost worthless stock if Mr. Paulson had not been so generous.
Paulson's decision was also good news for Robert Rubin and other top executives at Citigroup. If the government had not stepped in, Citigroup would almost certainly be in bankruptcy and most of its highly paid executives would likely be out on the street.
Creditors of Citigroup also benefited. If Citigroup went into bankruptcy, their loans would be frozen for a period of time while the court determined what percentage of Citi's debts could be paid. At the end of this process, many creditors would only receive back a fraction of what they are owed.
The fact that money is being redistributed doesn't make it wrong to bail out Citigroup or any of the other companies now being aided by the various Fed and Treasury funds. We need to keep the financial system functioning. However, there is every reason in the world to be concerned about the extent to which these policies may be enriching the wealthy and well-connected at the expense of the rest of us.
In the case of the Citi rescue, there was no obvious reason why the shareholders should not be wiped out. They understood (or should have) that when they bought shares of the company that they could lose their whole investment if the company was poorly managed and went bankrupt. Similarly, there is no obvious reason that the management that wrecked Citi should not be thrown out and replaced with a more competent and lower paid team.
Even among creditors there are serious grounds for concern. Many holders of Citi debt may have dumped their bonds for a small fraction of their face value because they did not know a bailout was imminent. On the other hand, those with more insight into the operations of the Fed and Treasury could have made enormous fortunes buying up debt, or shares of stock, at discount prices.
Of course, Citi is just a small portion of the bailout story, but the same issues arise everywhere. Corporations that would be out of business if the market was left alone, are instead kept operating courtesy of the taxpayers' dollars. Due to the secrecy surrounding the bailout, the taxpayers can't even know whose vacation homes and private jets they've saved. (How can we know if we should expect a thank you note?)
While we may not know the details, we can be fairly certain that many people are making millions, and some might be making hundreds of millions or even billions of dollars, as a result of the Fed and Treasury's bailouts. Money is being redistributed to those who are skillful in anticipating Fed and Treasury actions, or alternatively who are politically connected, or perhaps just lucky.
In other words, we are spreading the wealth around in a really big way right now, and most of it seems to be going upward. The amount at stake in the tax increases that President-elect Obama plans to put in place is almost certainly less than $50 billion a year. The money that is being redistributed upwards through this bailout may be twenty times as much.
The politicians and media types who were upset about Senator Obama's interference in the market should be yelling bloody murder about the bailout. Their silence shows that they care nothing about the market; they only care about ensuring that money flows upward. They are fine with "spreading the wealth around" as long as it lands with those already at the top.
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16 Comments so far
Show AllAlert the Guiness Book of World Records! There is a new entry for the largest theft ever perpetrated.
www.wunderman-comics.com
That title is wrong. Those two rascals are not spreading the wealth around. They're still containing it and reserving it for only the criminally insane monied goons who started this mess to begin with. The moral of this fiasco seems to be that if you're a rich goon, you can have all the bailouts you want whereas if you are poor and/or black, all you're gonna get is the bird ! Disgusting !
Yep, it's wealth concentration or consolidation.
It is only "socialism" when the bulk of the money would go the average citizen who works for a living and is subject to the whims of upper management. It is also "socialism" cause the Repugs say it is!? God forbid that the average American get a break.
When upper management fucks-up; the bailout money is called "free market capitalism". Sort of a Robinhood in reverse; steal from the working people to give to the rich and ultra rich!
Maybe with a new administration coming in, some transparency can be had with all of the bailout money for the criminally incompetent and their ivy league educations. What would also be great, would to re-regulate the finance and banking industry and do what Norway has done, which is legally set borrowing standards for people buying homes. We also need to set standards for the credit card industry, so we aren't bailing them out of their stupidity.
Definitely, no pay raises or bonas should be given for any company executives who take taxpayer money to save their asses from ruin. The banking and finance industry needs to be held to the same, if not more stringent scrutiney that our "beloved" Congress is demanding from the auto companies in Detroit. If business plans, cutbacks and reorganization is being demanded from Detroit, then it is more than good enough for Wall Street.
While we are at it, if a company is "too big to fail", then, we need to have them sell off some of their inhouse entities to make them smaller, so failure due to their own incompetence is their reward for being poor managers. All of the big boys at the top of this food chain we call America, all seem to think the free market form of capitalism if great, except when it comes to their own failure. If I have to live or die by my own performance, then maybe we should demand the captains of industry do the same.
We also need to outlaw golden parachutes for those that need to get gone. I say this, as so many retirees in the auto industry are being threatened with overt poverty and denial of healthcare benefits just to save this sorry mess from it's rightful conclusion. Maybe, to ensure domestic tranquilly, we need to modify our monetary system so that everyone gets some benefit from the wealth, not just those who made it to the top [and often, not by performance or merit]. This deadly sin called greed has caused so much misery and we need to put the brakes on ASAP.
Our children have been sold into economic slavery to bail out the Banks and Wall Street Brokens.
Now General Motors Corp., Ford and Chrysler LLC are sucking at the public teat.
What's next? Will the Big Oil Vampires, EXXON, Chevron and all the rest be sucking blood from our necks at the point of an IRS bayonet?
What's next?
CLEVELAND – A financially ailing Ohio school district has joined the ranks of banks and automakers clamoring for a portion of the $700 billion economic bailout package.
Olmsted Falls Superintendent Todd Hoadley said Tuesday that if automakers and big U.S. cities can ask for federal bailout money, schools should be able to follow suit.
Note to Rockerbabe1:
Robinhood in reverse is more succinctly called fascism.
The CEO's of these banks, you American taxpayers bailed out, actually sold their own shares in 2005-2007, before this mess.
“Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting,...We think that’s counterproductive.”
- Fed Chairman Ben Bernanke, Nov. 18, to the House Financial Services Committee regarding $3 Trillion already handed out and $4 Trillion more pledged
"(The government could have bought the bank outright with the money it lent to Citi.)"
Same could probably be said for a lot of other corps too. The US government ought to buy all Ford's stock and retrofit the company to build windmills. Buy Chrysler and then use it to build concentrated solar power. And then takeover GM and start building EV1s again. This would do more to improve the US has a whole and provide prosperity for a much greater number of people through manufacturing and energy versus the financialization of the economy that we've gotten. This would strengthen the country as a whole and possibly buy us some goodwill from the rest of the world. But the fascists running (destroying) the country would have to suffer lower profit margins. Oh you poor parasites! You might have to sell one of your jets, mansions, or limousines.
The banks and the corporations running out of money is a farce. These are foreign owned entities that are being given the money because congress wants to keep borrowing and spending.
At this time the banks and credit card companies are realizing there are no more hard working americans to rip off.
Not only was this and exploitation of the middle class and poor. This very conspiracy will disallow the working person to obtain employment because of "bad credit."
Who condoned this kind of behavior. Well our elected officals of course.
WE WANT SOCIALISM FOR EVERYONE, NOT JUST THE RICH. AND WE WANT IT NOW.
"The politicians and media types who were upset about Senator Obama's interference in the market should be yelling bloody murder about the bailout. Their silence shows that they care nothing about the market; they only care about ensuring that money flows upward."
What the lying dirtbags on Captiol Hill won't reveal to us is that they have NO OVERSIGHT over the President's "Plunge Protection Team" or the "Exchange Stabalization Fund" which many economic analysts believe are the tools being used to manipulate the market and suppress the price of precious metals.
The finacial vortex is coming. Be prepared!
http://www.gata.org/node/11
http://www.slate.com/id/2200816/
http://www.ustreas.gov/offices/international-affairs/esf/basis.shtml
Congratulations to Congressman Scott Garrett, a member of the House Financial Services Committee who recently said:
“The time has come that we consider what sort of limitations we should be placing on the Fed so that authority returns to elected officials as opposed to appointed ones.”
Logic at its finest!
Funny how Obama voted for the very first bailout, while Ron Paul and many other conservatives voted to block it. In fact, the Democrats were about 2-1 in FAVOR of the first bailout package vote, while Republicans were about the same ratio AGAINST. Why were the Democrats so willing to enrich these Wall Street thieves?
I guess what people should be thinking is what can be DONE about the transfer of wealth from the masses to the rich. I guess it's somewhat satisfying to vent on a website; unfortunately that doesn't seem to get much accomplished. I've been venting and reading other peoples vents (?) for years. Most of the people complaining are really bright people, and usually if they take the time to write, they're pretty decent people (most people actually don't give a sh*t, especially if they must take time away from the idiot box to write). So all of us pretty decent people read each other's vents and feel some consolation. But it actually doesn't accomplish much. I'm not sure that anything truly can be done about these terrible situations given the fact that most people are truly ignorant, stupid, and cowardly. Even if you really do decide to fight, you are fighting not only the rich but the ignorant, stupid, and cowardly masses. Still, I was raised in a ghetto, and I did better when I resisted than when I appealed to the sympathies of my attackers (in this case, that would be the rich bastards who are "cashing out," stealing our money, trashing the country). But why don't we assume that everyone knows that these rich bastards are indeed bastards, and there's no sense wasting your time complaining about it. The time would be better spent figuring out ways, collectively, to defeat them. Elections, civil disobedience, and violence don't seem to work. I think the only way to defeat rich bastards is to fight them in some financial way (boycotts, property destruction, etc.). If we could figure out a way for 15 million of us to cheat on our taxes and get away with it legally, that would make an impression for example. I felt a little guilty when I went bankrupt and left Citibank holding the bag. I shouldn't have because they charge usurious interest rates, and now they're taking it back from me. But at least I'm even with them.
Does anybody happen to think that this theft of the U.S. Treasury on behalf of favored financial institutions is going to change after Barack Obama, who pushed hard in Congress for the bailout legislation, and his Treasury Secretary designate, Timothy Geithner, he of IMF shock doctrine and NY Fed background, go into office in January?