Outrage: America’s moneychangers and the Federal Reserve under intense scrutiny
Posted in Op-ed on February 13, 2010 – 2:32 pm
By Bill Koenig
U.S. Treasury Secretary Tim Geithner and former U.S. Treasury Secretary Hank Paulson, the former chairman of the Board of Goldman Sachs (a major beneficiary of the AIG and the TARP (Toxic Asset Relief Program) bailout), testified before the House Committee on Oversight and Government Reform about the handling of the AIG bailout when Wall Street firms and U.S. and foreign banks received $70 billion arranged by the Federal Reserve Bank of New York (which Geithner oversaw).
Geithner said if the Federal Reserve Bank of New York hadn’t arranged the AIG bailout, the entire financial system would have collapsed.
Paulson stated, “The decision to rescue AIG was correct, and I strongly supported it.
“Although the road to complete recovery is slow and unemployment is still high, had AIG failed I believe we would have seen a complete collapse of our financial system, and unemployment easily could have risen to the 25 percent level reached in the Great Depression,” he said.
Federal Reserve
The federal government’s bailout of AIG remains controversial because it funneled nearly $70 billion to 16 major U.S. and European banks that had bought credit default swaps from AIG.
Financial companies that received multi-billion-dollar payments were: Goldman Sachs ($12.9 billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion).
Big foreign banks also received large sums from the rescue, including Société Générale of France and Deutsche Bank of Germany — which each received nearly $12 billion; Barclay’s of Britain ($8.5 billion); and UBS of Switzerland ($5 billion).
Reuters reported that lawmakers on Capitol Hill have labeled the AIG bailout, in which the New York Fed created a special entity to purchase those securities from the banks at essentially their face value, a “backdoor bailout” for the 16 financial institutions.
The new batch of emails, along with others that have become public in recent weeks, reveal that some at the New York Fed went to great lengths to keep the terms of the bailout private; and the SEC may have played a role in contributing to some of the secrecy surrounding the AIG rescue package.
“The New York Fed was orchestrating what can only be characterized as an extreme effort to ensure that details of the counterparty deal stayed secret,” Rep. Darrell Issa from California, the ranking Republican on the House Oversight Committee, said through a spokesman. “More and more, it looks as if they would’ve kept the details of the deal secret indefinitely, if they could have.”
The U.S. securities regulators originally treated the New York Federal Reserve’s bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security, according to emails obtained by Reuters.
Reuters said the request to keep the details secret were made by the New York Federal Reserve — a regulator that helped orchestrate the bailout — and by the giant insurer itself, according to the emails.
The emails were included in the mountain of documents the New York Fed turned over last week to the House Committee on Oversight and Government Reform, which held a hearing Wednesday into the AIG bailout and the New York Fed’s role in trying keep the specific terms of that Fed-engineered rescue secret.
The ‘perfect financial storm’
The perfect financial storm was created by enormous greed, Washington incompetence, lack of integrity and conflicts of interest that left the U.S. taxpayers with the trillion-dollar tab while some of the same financial institutions that were saved from collapse are paying out record bonuses for 2009 performance.
How did it happen?
President Bill Clinton, Clinton Secretary of Treasury Robert Rubin and Treasury Secretary Larry Sumner stopped an attempt to regulate the financial derivatives market in 1998. Clinton admitted in 2009 that this was likely a mistake.
Two Republicans, former Sen. Phil Graham and former Speaker of the House Tom DeLay, stopped the push for greater regulation and oversight of the securities market in 1998-1999.
President Bill Clinton, along with then-Treasury Secretary Larry Summers, removed restrictions on banks owning insurance companies in 1999. Were Mr. Clinton and Mr. Summers (now an Obama adviser) motivated by quick profit or by the belief that the reform was necessary to modernize our financial industry?
During Clinton’s term, home loan standards were further relaxed to put more people in homes.
Two of President Bush’s Securities and Exchange Commission chairmen did nothing to stop or regulate Wall Street excesses:
Billions of dollars were spent by financial sector companies on lobbyists who influenced the Clinton and GW Bush Administrations and Congress to deregulate the financial markets.
The Congressional enablers’ judgment was affected by the millions they received in campaign contributions from the financial industry and their lobbyists.
Congress allowed people to buy homes they couldn’t afford.
Financial institutions made massive profits on the packaging of those loans before millions of home mortgages defaulted, leaving massive losses that the U.S. taxpayers were obligated to absorb.
There was an unrestrained Wall Street casino gambling environment.
Major U.S. banks funded wealthy individuals’ leveraged buyouts of companies for fees and a piece of the appreciation, which led to more expensive products and services and companies now strapped with enormous debt.
Federal Reserve policies and lack of oversight exacerbated the problems.
Today, the Federal Reserve refuses to release the details on who received $2 trillion from them since late 2008.
Banks and Wall Street firms were considered to big to fail, so the U.S. taxpayers became obligated to a $700 billion bailout of the mountainous rotten assets of major banks and investment firms — which are making the public swallow their losses to the tune of many hundreds of billions of dollars, maybe much more.
A record $145 billion in bonuses will be paid out by Wall Street and major U.S. banks for 2009 which, 16 months earlier, were on the verge of bankruptcy.
The U.S. federal deficit has now reached $12.327 trillion — or $40,000 for every man, woman and child in America.
Due to the greed of major American banks, large Wall Street firms and their Congressional and White House enablers, a mammoth $5 trillion in fiscal and monetary stimulus was committed to by the world’s central banks since September 2008.
The American taxpayers were put on the hook for the $700 billion TARP (Toxic Asset Relief Program) bailout for major banks and Wall Street firms, a $770 billion stimulus commitment designed to jumpstart the U.S. economy, while the Federal Reserve committed $2 trillion to financial institutions but refuses to say who received the money.
Beyond that, the worsening finances of both governments and individuals raise the specter of sovereign [nations] debt defaults and may also mean the next leg of the crisis is social, Klaus Schwab, executive chairman of the World Economic Forum that organizes the Davos gathering, said on Wednesday.
“As a consequence of the debt situation of governments, of the fiscal situation of governments, we will have certainly squeezed public and private households and we will have increased unemployment figures,” Schwab told a news conference this week.
