Subject: [SocialistWorker.org] The $16 trillion bailout
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Analysis: Petrino DiLeo
======== THE $16 TRILLION BAILOUT ============================================
Petrino DiLeo explains how Wall Street banks are still raking in taxpayer
dollars.
September 7, 2011
WHILE THE media focused on the Washington charade over raising the federal
debt ceiling and cutting the estimated budget deficit, a a one-time audit of
the Federal Reserve released in late July [1] showed that the Treasury
Department and Federal Reserve Bank have doled out an incredible $16 trillion
in assistance to financial institutions and corporations in the U.S. and
around the world.
The audit, conducted by the U.S. Government Accountability Office (GAO), was
mandated as part of the Wall Street Reform and Consumer Protection Act
sponsored by Democratic lawmakers Christopher Dodd and Barney Frank.
The audit revealed that the various emergency lending facilities, guarantee
programs and bailouts for Wall Street--a project wholeheartedly supported by
both major parties--was in itself far larger than the deficit that now has
the same parties gunning for deep cuts to critical social programs.
A table--buried on page 131 of the audit--shows the staggering figures. Of
the $16.1 trillion in bailout money overall, most went to a handful of U.S.
and international financial institutions. Through the various mechanisms,
Citigroup borrowed $2.5 trillion, Morgan Stanley took $2 trillion, Merrill
Lynch received $1.9 trillion, and Bank of America got $1.3 trillion. With a
total of $8.8 trillion among them, the four banks account for more than half
of the total bailout.
Other recipients that received loans worth $500 billion or more included the
British banks Barclays and the Royal Bank of Scotland Group, as well as Wall
Street colossus Goldman Sachs and the defunct investment bank Bear Stearns.
The Bloomberg news service [2] made a big deal of the results of its own
audit, which showed that Wall Street banks received $1.2 trillion in secret
loans. That number has been widely reported, and a number of politicians
postured over the findings.
But the $16.1 trillion bailout money trail turned up by the GAO audit has
been met with silence.
The outrage goes beyond the numbers alone. The audit also revealed that the
people making decisions about what banks were to receive emergency loans
often had investments in those same banks. A summary of the audit on Vermont
Sen. Bernie Sanders' website noted [3]:
>For example, the CEO of JPMorgan Chase served on the New York Fed's board of
>directors at the same time that his bank received more than $390 billion in
>financial assistance from the Fed. Moreover, JPMorgan Chase served as one of
>the clearing banks for the Fed's emergency lending programs.
>
In addition, the report found that the Federal Reserve awarded 103 contracts
worth $659.4 million from 2008 through 2010 to help carry out their emergency
activities--often to the very same firms that were beneficiaries of those
programs.
Most of these contracts were also awarded "non-competitively," meaning that
the banks didn't even have to submit rival bids to receive the work.
Furthermore, the audit shows that on-site reviews to manage potential
conflicts of interest didn't taken place for up to 12 months after the
contracts were awarded.
So not only were the banks administering programs that doled money out to
their own firms, but they also got paid big fees to do the work. They didn't
have to compete with anyone to receive the contracts, and had nobody looking
over their shoulders for up to a year.
- - - - - - - - - - - - - - - -
IN ADDITION to the GAO report, in mid-August, the blog EconMatters did a
rundown [4] of various assessments of the original $700 billion Wall Street
bailout program passed by Congress in 2008, alongside other giveaways, and
how much of that cash had been paid back.
EconMatters noted that although the Treasury Department declared in July 2010
[5] that the federal government's outlays had been paid back, estimates by
the Center for Media and Democracy [6] found that a whopping $1.5 trillion
out of $4.8 trillion in federal bailout funds are still outstanding:
>This comprehensive assessment of the bailout goes beyond the relatively
>small Troubled Asset Relief Program (TARP) program to look at the rest of
>the Treasury and Federal Reserve's multi-trillion-dollar response to the
>financial crisis. It shows that while the TARP bailout of Wall Street (not
>including the bailout of the auto industry) amounted to $330 billion, the
>government also quietly spent $4.4 trillion more in efforts to stave off the
>collapse of the financial and mortgage lending sectors. The majority of
>these funds ($3.9 trillion) came from the Federal Reserve, which undertook
>the actions citing an obscure section of its charter.
>
Moreover, most of these loans and handouts were made interest free. So even
in instances where banks have paid back the funds, the government didn't get
anything out the deal or take in any funds that could have gone toward
reducing the deficit. Instead, that burden is being thrust upon working
people.
At the same time, the non-stop bailout via extremely low interest loans
allowed the banks to maximize profits.
With TARP, for example, R.J. Eskow pointed out [7], "These banks received
short-term loans at 1.1 percent, instead of the prevailing 3.8 percent. That
means each bank received a gift of $27 million each--tax-free, no less--for
every billion they received under that particular program."
The kicker to all of this is that he banks are still getting special
treatment, receiving nearly free money from the Fed and profiting off it,
too.
That's because the Fed is paying banks 0.25 percent interest on "excess
reserves" that banks aren't lending, but are keeping on deposit at the Fed
[8]. In essence, banks are being paid to not lend money. Overall, banks have
$1.6 trillion in excess reserves locked up on deposit.
As one disgraced former Wall Street analyst, Henry Blodget, wrote:
>0.25 percent interest may not sound like much, but it's more than the banks
>are paying you to keep money in your savings or money-market account. It's
>also more than you'll earn if you lend the federal government money for two
>years.
>
>Oh, by the way, why, exactly, are you earning so little interest in your
>savings accounts and money-market funds? Well, because, thanks to another
>one of its bank-bailout programs, the Fed is keeping short-term interest
>rates at zero. In other words, the Fed is paying banks not to lend money and
>screwing you.
>
Of course, that only applies to Americans lucky enough to have some savings
in the bank. With unemployment at high levels, wages and benefits under
sustained attack, houses underwater, and health care costs skyrocketing,
that's fewer and fewer people.
Blodget was right about his last thought: "God, it's great to be a banker."
- - - - - - - - - - - - - - - - -
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[1] http://sanders.senate.gov/imo/media/doc/GAO%20Fed%20Investigation.pdf
[2] http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html
[3] http://sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3
[4] http://www.econmatters.com/2011/08/wall-street-bailout-too-big-to-collect.html
[5] http://www.treasury.gov/press-center/press-releases/Pages/tg742.aspx
[6] http://www.prwatch.org/news/2011/08/10924/money-still-owed-federal-bailout-15-trillion-still-owed-treasury-federal-reserve
[7] http://www.huffingtonpost.com/rj-eskow/what-that-expos-of-the-fe_b_936865.html
[8] http://www.businessinsider.com/government-paying-banks-not-to-lend-2011-8
