Bernanke: Fed Bailout Creates Two Societies
A State of the Economy Report in Four Parts
PART ONE: The Greatest Bank Robbery Ever Told
The Federal Reserve is under attack due to two recent events: the plan to add $600bn of liquidity to the economy through a U.S. Treasury bond purchase and the disclosure of how trillions of dollars of taxpayer money were spent during the financial crisis.
Last week under Dodd-Frank regulations, U.S. taxpayers received answers to the question we have asked for 2 years: Where did our money go? Apparently, it went everywhere--except to the American People.
American investment banks and securities firms like Goldman Sachs, Morgan Stanley, and the now defunct Merrill Lynch apparently received many more billions than previously revealed. While Goldman claimed it was well-funded on its own, it dipped into the Federal Reserve treasure trove 84 times from 2008 through 2009, borrowing $24bn in addition to the $10bn "forced" on them in the initial TARP bailout and the $13bn received through the backdoor of AIG's rescue.
Morgan Stanley's subprime mortgaged-backed securities frenzy turned into a bailout nightmare. The formally conservative firm lost its shirt and its pants too borrowing from the Fed an astonishing 212 times. A quick refresher: Morgan Stanley like the rest of the big banks was long on subprime, CDOs, and CMBS (commercial mortgage real-estate securities). When Goldman's mortgage desk shorted subprime, Morgan Stanley's Howie Hubler was on the other side of the trade. The ill-fated Hubler, who is reported to have deliberately put customers into dubious trades, lost a cool 9 billion for the old white shoe firm. The Fed picked up the tab.
Bank of America was promised a $97bn backstop, and the unhappy marriage with the former Merrill Lynch cowboy bankers gave them a dowry of $45bn more. Citigroup was sucking up money so quickly from its limitless CDO losses, the Fed had to jump in with a $300bn guarantee. JPMorgan Chase, Suntrust, Wells Fargo and every other American bank under the Sun, Moon and Stars got oodles of greenbacks for their wayward ways. Fannie Mae and Freddie Mac, the government-backed mortgage lending joy riders, received $154bn more--a total that could rise to $1trillion. And no one can ever forget the gift that just keeps on giving -"the $180bn (to date) "rescue" of money pit AIG.
The shock of shockers in last week's disclosures was that the Fed also bailed out European banks including Germany's "subprime shorter" extraordinaire Deutsche Bank, and Lehman hustling British Barclay's, who refused to buy the banking giant for anything less than the $2bn bankruptcy price--a steal if there ever was one! Sneaky Swiss Bank UBS was indicted by one federal agency while borrowing $75bn from
another. Banks from Belgium, Japan, Korea, Ireland, Germany, France, Switzerland, Canada, and the UK (including the Bank of England) lined up to fill their pockets with Federal Reserve gold. The errant Royal Bank of Scotland received a bailout from the British government and the U.S. government too!
Perhaps even more remarkable were the corporate recipients of the Fed bailouts. General Electric was on the take for $16bn federal dollars to carry them through the storm. We know the car companies Ford, Chrysler and GM held their hands out for cash. Credit card companies American Express, Discover, and Capitol One who were borrowing federal freserve funds like crazy and hitting taxpayers with extra charges on their bills. IBM, Verizon, Caterpillar, Toyota, Harley-Davidson and McDonald's (yes it's true) were also receiving massive public aid. These are just a few of the 21,000 Federal Reserve transactions since 2007 of government favoritism.
PART TWO: America: The UnBeautiful
The poetic beauty of American radicalism established by our Founders lies in the basic premise that all men are created equal and endowed by their maker with the inalienable rights to life, liberty and the pursuit of happiness. This promise infused our political and legal evolution for the last two centuries. It was an ideology that shocked the 18th century monarchal world and required brave men and women to give
their lives for the cause.