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Bailout Money - Instead of Being Used to Stabilize the Economy - is Just Going to Line the Pockets of the Wealthy

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The bailout money is just going to line the pocket of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:

  • A lot of the bailout money is going to the failing companies' shareholders
  • Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is "a massive redistribution of wealth to the bank shareholders and their top executives"
  • The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)
And as the New York Times notes, "Tens of billions of [bailout] dollars have merely passed through A.I.G. to its derivatives trading partners". Josh Mashall provides some of the details:

By law, the Fed isn't allowed to buy assets -- it can only lend, as lender of last resort. That was a problem for the Bear Stearns bailout, because JP Morgan said it would only buy Bear if someone else assumed responsibility for the crap. [The] Fed came up with this idea to start a shadow company, called a special purpose vehicle (SPVs were how Enron operated, creating "Chewco" and the like named after Chewbacca - the New York Fed called their SPV "Maiden Lane LLC" for name of the street the NY Fed is located on in southern Manhattan). The deal then was JP Morgan put $1 billion into Maiden Lane, the Fed put $29 billion in cash into it. Maiden Lane paid Bear Stearns $30 billion, which went straight back to JP Morgan as this deal happened simultaneously to JP's purchase of Bear. So Morgan got $30 billion in cash ($29 billion net) and the Fed got stuck owning the crap, but was legally only making a loan to Maiden Lane, who was the legal owner (Maiden Lane was incorporated not in NYC, but in Delaware to avoid paying taxes). By the Fed's own accounting - which is very different from a real company's accounting - Maiden Lane has lost $5 billion between its creation and today....

Using the loophole it had learned during Bear Stearns, the Fed set up two new companies: Maiden Lane II and Maiden Lane III [to help bail out AIG's investors]. Two dealt with the secured lending and Three the shitty credit default swaps. The Fed lent each Maiden Lane $20 billion and $25 billion and then Maiden Lane paid off the investors that had either lent AIG the money to buy the shitty mortgage backed securities (ML II) and those who had the shitty mortgages and the corresponding insurance (ML III). To avoid booking a loss on the Fed's balance sheet, because the Fed had some legal problems if either of these Maiden Lanes lost money, and because of a reporting requirement that Dodd had put into TARP which actually required the Fed to report to the Congress and the public about the cost to taxpayers from ML I, the Fed did some creative accounting. They still paid all of the investors off at full value (par), so that they didn't lose anything. But they booked the loss on AIG's balance sheet and kept Maiden Lane clean. This is the hidden story behind how AIG went from losing $38 billion during the first 9 months of 2008 to losing $61 billion in the 4th quarter.

This was all exposed at today's hearing. And despite repeated requests from Senators on both sides - Dodd, Shelby, Corker, Warner - the Fed is still refusing to say who it bailed out through Maiden Lane II and III.

In other words, through a little game-playing by the Fed, taxpayer money is going straight into the pockets of investors in AIG's credit default swaps and is not even really stabilizing AIG.

 

 

George Washington


As a political activist for decades, I have rejoiced in victories for the people and mourned in defeats. I chose the pen name "George Washington" because - as Washington's biographies show - he wasn't a (more...)
 

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This latest robbery of taxpayer dollars should be ... by Dennis Kaiser on Friday, Mar 6, 2009 at 5:03:49 AM
Companies should be broken up not made larger.... by Virgil Smith on Friday, Mar 6, 2009 at 5:11:34 AM
The majority of people asking for money will have ... by Gallaher on Friday, Mar 6, 2009 at 1:27:19 PM
You do understand that when you ask for that money... by Deborah Wells on Friday, Mar 6, 2009 at 7:17:37 PM
Sounds just like something you would do Gallaher. ... by William Whitten on Friday, Mar 6, 2009 at 9:34:41 PM
But....this has been a scam for close to a hundred... by William Whitten on Friday, Mar 6, 2009 at 2:36:00 PM
I'm shocked. Shocked.... by Jeff Leon on Friday, Mar 6, 2009 at 3:08:52 PM
If you're a member of John Q. Public, know that yo... by Ned A. Delaney on Friday, Mar 6, 2009 at 3:27:32 PM
  Quo Warranto"The common law writ of qu... by William Whitten on Friday, Mar 6, 2009 at 4:38:47 PM
The 911 attacks were an "unforeseen disaster&... by Michael McCoy on Friday, Mar 6, 2009 at 5:21:22 PM
I have been really, really stumped. Any ideas beyo... by Stephen Fox on Friday, Mar 6, 2009 at 5:23:57 PM
I have been really, really stumped. Any ideas beyo... by Stephen Fox on Friday, Mar 6, 2009 at 5:24:05 PM
Let your neighbors know what is happening.  M... by Deborah Wells on Friday, Mar 6, 2009 at 7:24:34 PM
Stephen,What to do?"When in the course of Hum... by William Whitten on Friday, Mar 6, 2009 at 9:29:17 PM
that it is too late for the tax paying American ci... by Stanimal on Friday, Mar 6, 2009 at 6:04:28 PM
Yes Stan,The military option is right there on sta... by William Whitten on Friday, Mar 6, 2009 at 8:27:21 PM
...within the "military" and that is sol... by waldopaper on Friday, Mar 6, 2009 at 11:24:35 PM
"The police in the United States are a troubl... by William Whitten on Saturday, Mar 7, 2009 at 12:59:18 AM
As for bailout money going to investors of AIG and... by Simple Truth on Saturday, Mar 7, 2009 at 1:26:06 PM
  MOSCOW (SR) - Russian Prime Minister Vladim... by William Whitten on Saturday, Mar 7, 2009 at 5:11:50 PM