(Article changed on March 18, 2014 at 16:37)
$700 BILLION BANK BAILOUT (OR WAS IT $5 TRILLION?)
In October of 2008, Congress passed a $700-billion bailout bill to save the largest banks in the nation, all of which were tottering on the edge of bankruptcy. Congressmen who voted for this had received 54% more in donations from banks than those who voted against it.1 The White House urged news services to stop using the word "bailout" and say "rescue" instead. They complied.
While the world was stunned by the sheer size of a $700-billion bailout, the reality was even worse. Credit Sights, an independent research firm in New York and London, looked at the total commitment, including deals made by the Federal Reserve and the FDIC that were not widely publicized, and concluded that the real figure was $5 trillion.3 That represents an additional $16,500 in lost savings and purchasing power for every American.
Shortly thereafter, American Express received $3.39 billion. Executives from the steel industry were lobbying for a similar deal. GMAC, the financial services division of General Motors, was allowed to change its structure to a commercial bank so it, also, could be eligible for bailout. Just before Thanksgiving Day, the government bailed out Citigroup to the tune of $45 billion. Goldman Sachs announced a $2.1-billion loss and began negotiations for a bailout. In November, the Bank of America received $15 billion and then invested $7 billion in China's Construction Bank.4 A few days later, the Treasury announced that the budget deficit would be $1 trillion, the highest in American history--up to that point.
BILLIONS FOR THE AUTO MAKERS
It was a busy time in Washington. Executives from the auto industry were making weekly trips to the Capital in private jets. They wanted billions of dollars, and they wanted them now. They were having trouble making interest payments on those pesky bank loans, and time was running out. GM and Chrysler wanted cash. Ford preferred credits, because they wanted to continue borrowing from banks, not the government, but the banks saw them as a bad risk and refused any new loans. The solution was simple. Ford asked the government to be a co-signer and guarantee repayment. What bank wouldn't loan money on that kind of a deal? Taxpayers would be on the hook either way. All together, the auto companies were given $17.4 billion. Two months later, Ford, which already had plants in Mexico, Germany, an d Spain, began producing cars in China. 1 GM soon followed suit and announced that it, also, would build more cars overseas.
1. "House Members Who Voted Yes on Bailout," Think Progress (Net), Sept. 30, 2008.
2. "The White House Says 'Rescue' not "Bailout," and Fox Does as It's Told,News Hounds (Net), Sept. 30, 2008.
3. "Washington's $5 Trillion Tab," by Elizabeth Moyer, Forbes (Net), Nov. 12, 2008.
4. "Bank of America's stake in China Construction Bank may play well," New York Times, Oct. 18, 2008.
(image by Peter Palms)
MERRILL LYNCH: A GIFT TO BANK OF AMERICA
In the fall of 2008, the giant brokerage house, Merrill Lynch, was out of money and on the verge of closing its doors. Bank of America agreed to buy the ailing firm for $50 billion, a strange offer considering that the bank, itself, was in trouble and recently received $25 billion in bailout. When the staggering fourth-quarter losses of Merrill Lynch were finally known, the bank decided to back out of the deal. But this was not to be allowed. According to the sworn testimony of Ken Lewis, Bank of America's CEO, Treasury Secretary Hank Paulson threatened to remove the bank's board of directors and its management if they didn't acquire Merrill as agreed. This threat was made at the request of Ben Bernanke, Chairman of the Federal Reserve.3 When Lewis asked if the government would cover the bank's inevitable losses, Paulson said yes but was not willing to put it in writing, because a written commitment, he said, "would be a disclosable event, and we do not want a disclosable event."4
On December 30, the bank's board dutifully approved the merger. Two weeks later, the Treasury delivered to Bank of America an additional $20 billion plus a $118 billion guarantee to pick up further losses from Merrill's assets. All of that was placed on the backs of the American people.
1. "U.S. Throws Lifeline to Detroit," by J. McKinnon and J. Stoll, Wall Street Journal (Net), Dec. 20, 2008.
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