selise's blog


$114 Million, $5.1 Billion

March 16th, 2009 by selise

More bad news today:

From naked capitalism: Wiliam Black Savages Treasury’s Conduct on AIG

And to Black’s point, the real issue is fraud. Why is no one at Treasury willing to use the F word? Who would it embarrass? There is not reason for NOT pursuing that angle, save that AIG must have the 5×7 glossies on some pretty influential people, or that pursuing fraud at AIG would, via a daisy chain of connections, reveal that fraud was pervasive, and the Treasury is desperate to preserve the false image that the system has integrity.

From bernhard at MoA, A New ‘Paulson Plan’:

Luckily for the administration the public, while watching the AIG show, misses the real robbery.

Most of the money used for the general bailout is coming from the Federal Reserve and is not under control of Congress. The new version of the Term Asset-Backed Securities Loan Facility (TALF) will put another trillion Fed/taxpayer money at risk. The program will lend to banks and hedgefunds to buy up ‘asset’ backed papers (bundled consumer and loans, commercial real estate loans etc.). It allows for great profits for those bank entities with the Fed taking 90% of the risk (also here):

Through the program, an investment fund can put down $5 to $14 for every $100 it plans to spend, borrowing the remaining $95 to $86 cheaply from the Fed. It agrees to buy highly rated securities issued by lenders that the Fed deems eligible collateral for the loans.

The aim is said to be to create more consumer lending, but I see no signs that consumers are willing to borrow more. Saving rates are going up as people become more frugal.

I suspect the more likely but unspoken real aim of the program seems to move ‘toxic’ assets from the banks balance sheets by subsidizing the buyers of these assets with the default risk transfered to the Fed.

Our own government, now controlled by the Democrats, continues with the giant rip off. Why?

Maybe it has something to do with those two numbers at the top of the post: $114 million and $5.1 billion.

$114 Million

From TARP Recipients Paid Out $114 Million for Politicking Last Year:

The struggling companies whose freewheeling business practices have contributed to the country’s economic woes are getting a lucrative return on at least one of their investments. Beneficiaries of the $700 billion bailout package in the finance and automotive industries have spent a total of $114.2 million on lobbying in the past year and contributions toward the 2008 election, the nonpartisan Center for Responsive Politics has found. The companies’ political activities have, in part, yielded them $295.2 billion from the federal government’s Troubled Asset Relief Program (TARP), an extraordinary return of 258,449 percent.

“Even in the best economic times, you won’t find an investment with a greater payoff than what these companies have been getting,” said Sheila Krumholz, the Center’s executive director. “Some of the companies and industries that have received payments may now consider their contributions and lobbying to be the smartest investments they’ve made in years.”

Grand totals from the excel file available for download:

“Campaign Contributions, 07-08 Cycle” = $37,477,300
“Campaign Contribs to Democrats” = $21,423,761
“Campaign Contribs to Republicans” = $15,991,543

That’s right, last year the Democrats raked in $5+ million more than the Republicans from TARP recipients.

$5.1 Billion

From the Democracy Now! transcript: “Sold Out”: New Report Follows Lobbying Money Trail Behind Deregulation that Helped Cause Financial Crisis

ROBERT WEISSMAN: Well, we saw over the last decade and really the last three decades, with both parties in power in Congress and the executive branch, this long series of deregulatory moves. And as you go step-by-step through them, you see that those are the things that really paved the way for the current financial collapse.

Perhaps the signature move was the 1999 repeal of the Glass-Steagall Act, which had prevented co-ownership of commercial banks and securities firms, investment banks. That was precipitated by and directly authorized the creation of Citigroup, which is now sucking so much public taxpayer money and has really been at the cutting edge of driving the financial crisis we’re now in.

You can go forward another year and see that Congress, with the Clinton administration authorization, prohibited the executive branch agencies from regulating financial derivatives, the instruments that no one can really understand or get a handle on but which have multiplied the problem from the housing crash many-fold over. So we now have $600 trillion in financial derivatives being traded around the world, with no one having a handle on what they are, who owes whom, and all of this requiring us to pour tens of billions of more dollars more every day, it seems, into AIG.

You can step forward and look at the failure to enforce rules against predatory lending, beginning with the Clinton administration, but really accelerating in a really terrifying way with the Bush administration, so that there were about three actions taken by federal regulators in the peak period of predatory lending—three—against some of the commercial lenders and mortgage brokers who were undertaking some of the most abusive predatory lending activities. And on and on it goes.

And there was, of course, over the last three decades a real surge in deregulatory ideology. And perhaps the people who were putting this stuff forward believed in it. But it also makes sense to think that, maybe a little bit, they were influenced by the staggering amounts of money that the financial sector was pouring into Washington, as you said, more than $5 billion in campaign contributions and lobbying money. And, you know, they got a good return on investment, and it was good for them while it lasted. It’s turned out to be quite a disaster for them but, more importantly, for the rest of the country and the world.

For more on the history of the repeal of Glass-Steagall and the prohibition of financial derivative regulation, see my previous diaries (here, here and here).

The amount of money at stake is mindblowing. That, in addition to ideology, is what we’re fighting against.

I’ll just end by quoting phred:

This is not a D v. R problem, this is absolutely an elite v. the rest of us problem and it is global. Obama picked his side, now we have to see whether he is willing to reconsider the team he picked and join us instead.

x-posted at oxdown


Note: This is part 4 of a series on the (mostly) legislative history of financial deregulation that has contributed to our current financial and economic crisis. For the entire series, including the timeline (where most of the reference links are), see the Financial Regulation Timeline page. Please use the comments to contribute links and other information. Thanks, selise.

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