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Original Content at https://www.opednews.com/articles/Under-the-Thumb-of-the-Cor-by-Kevin-Gosztola-080918-134.html (Note: You can view every article as one long page if you sign up as an Advocate Member, or higher). |
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September 18, 2008
Under the Thumb of Corporations
By Kevin Gosztola
How do you grapple with the Dow falling 500 points in one day? How do you comprehend the largest bankruptcy in American history? And how do you even begin to understand the implications of the Bank of America's buyout of Merrill Lynch or the implications of the nationalization or quasi-socialization of banks as the government bails out banks whose board of directors conducted operations like gamblers at a casino?
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How do you grapple with the Dow falling 500 points in one day? How do you comprehend the largest bankruptcy in American history? And how do you even begin to understand the implications of the Bank of America’s buyout of Merrill Lynch or the implications of the nationalization or quasi-socialization of banks as the government bails out banks whose board of directors conducted operations like gamblers at a casino?Why not take a step back from it all and look at the idiosyncrasies of the situation?
In a segment on The Daily Show w/ Jon Stewart, Stewart said, “Don’t worry. Lehman’s commercial real estate is insured by the massive American International Group better known as “Notorious A.I.G.”, which today nearly collapsed. Why? Because A.I.G. sought to solve their financial problems by lending money to themselves. Try that sometime.”
He went on to show a clip of Bush responding to the event and uttering with peaceful serenity, “Americans are concerned about the adjustments that are taking place in our financial markets.” And then he juxtaposed that insensitive remark with clips of the media wigging out in reaction to what happened on Wall Street. The media described what happened as, “blood on the floor”, “a financial tsunami”, “nightmare on Wall Street”, “the atomic bomb”, “a financial hurricane”, and “almost Armageddon.”
This led Stewart to characterize the situation by saying: “The state of the American economy [lies] somewhere between the four horsemen riding steeds and wielding blades of fury over a charred hulls cape and something you get at your chiropractor. That’s your range, America! Go confidently and plan your financial future.”
Stewart demanded to hear an expert speak to the situation, and the Herman Munster-like Secretary of the Treasury Henry Paulson came forward. But first, Dana Perino had this introduction to give:
“Secretary Paulson has graciously given us some of his time today. He doesn’t have an endless supply of it so please keep that in mind.”
In other words, thank you for coming, press, but Mr. Paulson really is not in the mood for your attempts to collect information that might help the public better understand the crisis our economy is experiencing.
After Perino warned the press, Paulson stepped up to speak and the first thing he said was, “Good afternoon everyone and I hope you all had an enjoyable weekend.”
Stewart commented on this saying, “[laughter] you’re bad at what you do. I hope [that] little joke distracted you from the fact that you’ve lost everything. Hey, here’s an economic indicator. The economy is so bad that the first thing the Treasury Secretary does is protect his own job.”
A clip came on with Paulson saying “the president has been a great boss” and “he’s been focused on the right thing” and “I strongly support his economic policies.”
As McCain would say, “The fundamentals are strong.” But, anybody who is reading this probably thinks otherwise. You might actually find yourself identifying with and praising a man who many Americans love to ridicule, shoo away, and ignore.
For those struggling to comprehend and understand fully (like myself) what took place on Wall Street this week, it only makes sense to me to use Ralph Nader's writing and rhetoric because it is a result of a mind that looks through a lens which rejects the two-party system. Since Democrats and Republicans bear a huge responsibility for what has happened, obviously, anything written or said by Nader because of this rejection will not leave out important details. Details that would be left out if you simply asked a Democrat or Republican to describe the situation will be mentioned. And with Nader, you can always count on him to go straight to the core of the situation, address it, provide a solution, and explain why Democrats and Republicans will fail at implementing or working towards such a solution.
Ralph Nader, as Politico reports, “predicted this” and had been “writing about this “five, 10 years ago.”
Nader said, “Pure greed, coupled with concentrated power on Wall Street and elsewhere” brought about this mess.
Ralph Nader wrote a letter on July 23, 2008, to Senator Chris Dodd, the Chairman of the U.S. Senate Committee on Banking, Housing and Urban Affairs and Congressman Barney Frank, the Chairman of the House Committee on Financial Services. The letter suggested that the House and Senate “jointly hold hearings on the Federal Deposit Insurance Corporation’s ability to deal with potential bank failures in the next several years.”
Nader cited a memorandum from March 10, 2008, on insurance assessment rates by Arthur J. Murton, the Director of the Division of Insurance and Research for the Federal Deposit Insurance Corporation (FDIC). Murton’s thought then that, “the U.S. economy and the banking sector currently face[d] a significant amount of uncertainty from ongoing housing sector problems, financial market turbulence and potentially weak prospects for consumer spending.” And Murton believe that the fund which the FDIC uses to deal with bank failures “could suffer insurance losses that are significantly higher than anticipated.”
He highlighted the failure of IndyMac and held it up as an example of why Congress needed to investigate and hold hearings.
Nader specifically said, “Banking experts have indicated that the cost of the collapse of IndyMac alone will be between $4 billion and $8 billion. The FDIC has approximately $53 billion on hand to deal with bank failures. This amount may not be adequate given the cost of IndyMac and given the approximately $4 trillion in deposits the FDIC insures.”
He ended his letter with a series of questions that were primarily designed to ask about the FDIC list of “Problem Institutions” which is put together to anticipate bank failures. Nader wanted to know if any banks that failed this year were on the FDIC list, what banks are likely to fail in 2008 and 2009 based on the list, what is the estimated range of costs for dealing with bank failures, and what FDIC planned to do to adjust the Designated Reserve Ratio (DRR) for the Deposit Insurance Fund (DIF).
In closing, Nader wrote, “The FDIC is not likely to address its own inability to clearly assess the current risks posed to depositors and taxpayers by the high-rolling banking industry.”
How did Sen. Chris Dodd and Rep. Barney Frank respond to the letter?
Ralph Nader wrote on Counterpunch.org, “When Congress reconvenes after Labor Day it would be prudent for Senator Dodd and Congressman Frank to focus on the FDIC and our nation’s troubled banks through some tough no-holds-barred hearings. These two lawmakers are going to have to hear from the people back home soon.
Neither Senator Dodd nor Congressman Frank has responded to my letter of July 23, 2008.”
What kind of response if any has either of these politicians fashioned so that something can be done?
Sen. Dodd had a hearing scheduled for today, which was postponed:
Title: (Hearing has been POSTPONED) Recent Bank Failures and the Regulators' Response Date: 9/18/08 Time: 10:30 AM Place: 538 Dirksen Senate Office Building
Panel 1 Honorable Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation
Honorable John C. Dugan, Comptroller of the Currency, United States Department of the Treasury
Honorable John M. Reich, Director, Office of Thrift Supervision
Sen. Dodd’s plans appear to be the textbook type of hearing that Congress convenes. Invite the perpetrators into the room to defend themselves and make sure a majority doesn’t assail them or go on the offensive with tough questions. Make it evident that the perpetrators were just doing their job and there were much bigger things at work here that could not have been controlled. Use lofty rhetoric to explain what purpose the hearing will serve and expect the American people to nod their head “yes” to your decision to what should have been done months ago.
Sen. Dodd has thought since January that the housing crisis is at the core of all the economic problems being experienced. Dodd had this to say about the market turmoil. These remarks are posted on his government webpage:
“The economic crisis facing our country is deepening, as we saw over the weekend with the failure of Lehman Brothers and the sale of Merrill Lynch. To fully understand the implications of these events, we need to learn more about the Administration’s involvement, and its plans going forward. At the Treasury Secretary’s request, I have postponed tomorrow’s hearing.
“Millions of Americans are struggling to make ends meet as unemployment rises, home values plummet, and everyday necessities like food and gas cost more than ever before. The Banking Committee has played a vital role both in revealing the pattern of lax regulatory oversight that helped to create this financial crisis, and in addressing related economic problems by crafting comprehensive legislation passed earlier this year. As Chairman, I will continue to work on solutions to help Americans weather this storm, including strengthening the housing sector, developing a second stimulus package, and of restructuring the regulation of the financial sector.”
Dodd (and other Democrats) specifically want to package this disaster into something that can be used to fuel populist rhetoric in this election. As they battle the Republicans and lose on the offshore drilling issue, the Democrats have the capability of convincing Americans that if home foreclosures were dealt with properly than these financial giants would not be collapsing. It’s a fair assumption, but how does addressing the housing problems and offering another stimulus package even begin to address the profound issues our economy faces as it trudges on?
Congressman Frank’s hearing has neither been postponed nor convened urgently. Frank would rather wait for the debris from the “financial hurricane” to settle, he would rather let the flood waters ebb and flow and then a week from today on Sept 25th hold a hearing.
Financial Service Committee to Hold Oversight Hearing on Treasury Action on Housing GSEs
Committee to hear testimony from Paulson, Bernanke, Lockhart and Montgomery
Washington, DC – House Financial Services Committee Chairman Barney Frank (D-MA), today announced that the committee will hold an oversight hearing to examine the actions announced last week by the Treasury Department regarding the housing government sponsored enterprises of Fannie Mae and Freddie Mac.
Witness List & Prepared Testimony:
I’m surprised Paulson will be attending given the fact that he does not have an “endless supply of time.” In fact, he is primarily why Dodd's hearing was postponed. One would have to wonder if this man is capable of doing his job if he cannot manage the time and tackle all of the tasks necessary to address the economic crisis we are in. If Paulson for some reason cannot make it, well, obviously we can turn to Mr. Bernanke. He can tell us whether we need to adjust inflation and/or bailout more banks this week or next week.
Frank’s statement on the Fannie Mae/Freddie Mac takeover raises some questions. Frank said he spoke to Paulson who informed him “that the Treasury Department intends to use the powers that Congress provided it to ensure the continued and stable functioning of Fannie Mae and Freddie Mac. I am pleased by the Secretary's strong reaffirmation that the vital roles these institutions play in our nation's housing markets must continue.”
Then, he closed saying, “While I don't know the details of the proposed interventions, I expressed to the Secretary that I will evaluate them in three dimensions: protecting the American taxpayers; restoring stability to the financial markets; and ensuring the continued availability of affordable housing.”
What could we possibly expect to gain from your hearing? It will no doubt just cost Americans taxpayer money because although Paulson was invited, you were “pleased by the Secretary’s strong reaffirmation that the vital roles these institutions play in our nation’s housing markets must continue.” Doesn’t that mean you support the way the institutions have been operating and are pleased that the Treasury would think it important to bailout Fannie Mae/Freddie Mac?
And what does it mean you wish to evaluate this in terms of “protecting the American taxpayers, restoring stability to the financial markets, and ensuring the continued availability of affordable housing”? Doesn’t any pursuit of these goals put you at odds with these financial giants whom you say play “vital roles” and “must continue” to do so?
You can diagnose how Dodd and Frank have handled Wall Street and the U.S. Treasury and call them “spineless.” Labeling them “spineless”, however, does not begin to address how they have been acting in collusion with Wall Street.
Note how much money Dodd and Frank have received from the banking industry and specifically, banking giants which have collapsed in the past weeks.
According to OpenSecrets.org, Chris Dodd has been the top recipient of Fannie Mae and Freddie Mac campaign contributions from 1989-2008. He has received a grand total of $165,400 ($48,500 from PACs, $116,900 from individuals).
In Dodd’s career, from 1989 to 2008, Dodd has accepted nearly 6 million from the “Securities & Investment” industry, which is 3.5 million more than he has taken in from “Lawyers/Law Firms.” The “Securities & Investment” industry is and has been his top campaign financier.
Dodd’s top donors for his career include, from most contributions to least contributions: Bear Stearns, American International Group (AIG), Goldman Sachs, Morgan Stanley, Merrill Lynch, JPMorgan Chase & Co., and Lehman Brothers, who all donated hundreds of thousands of dollars to Dodd’s campaign coffer in the past two decades.
Congressman Frank has received tens of thousands of dollars from the American Bankers Association, JPMorgan Chase & Co., and the Securities & Financial Market Association, but fortunately, none of the banking giants that have knocked on the doors of the federal government demanding to be bailed out have donated to Frank.
But, what of Spencer Bachus who said in a Congressional hearing in reference to Nader’s letter, “Our banks are well capitalized, our deposit insurance fund is sound. There's absolutely no factual basis for saying that there's not money there to pay."?
Mr. Bachus, in terms of industries, has received the most campaign contributions from “Commercial Banks.” How much? Nearly 1 million dollars, according to OpenSecrets.org.
And trailing closely behind the “Commercial Banks” industry are Bachus’ contributions from “Real Estate”, “Insurance”, and “Securities & Investment.” Collectively, all of those industries have contributed over 3 million dollars during Bachus’ career.
Specifically, Bachus has no donors who have donated more than $100,000 to him, but he also is affiliated with a Republican Leadership PAC, the Growth & Prosperity PAC, which has received over $200,000 from individual donors who work for Wall Street and K Street.
It’s like Nader said to Politico. Nader suggested that the politicians are “too worried about containing fallout to take on the banks’ irresponsible behavior.” And chided the Democratic and Republican presidential nominees who earlier this year bailed out Bear Stearns,“Look at how they are knee-jerking similar approaches…McCain, Obama: Rubber stamp. No detail. We will go along with the bill.”
I won’t give Ralph Nader the last word. While he has been warning Americans of future bank catastrophes for the past two decades and following developments on Wall Street extensively, I will turn to the man I think has the ability, capacity, and fortitude to really tackle this situation. I will close with the remarks of Ron Paul, who gave a huge boost to the Nader/Gonzalez campaign last week when he called on all his supporters and all Americans to reject the two-party system and consider a third party option.
Ron Paul stood before the House of Representatives, and on May 4th, 2005 in response to the Federal Deposit Insurance Reform Act being considered, he put out a clarion call to “reject taxpayer bank bailouts.” The following is his remarks given on the House floor:
Mr. Speaker, H.R. 1185, the Federal Deposit Insurance Reform Act, expands the federal government's unconstitutional control over the financial services industry and raises taxes on all financial institutions. Furthermore, this legislation increases the possibility of future bank failures. Therefore, I must oppose this bill.
I primarily object to the provisions in H.R. 1185 which may increase the premiums assessed on participating financial institutions. These “premiums,” which are actually taxes, are the primary source of funds for the Deposit Insurance Fund. This fund is used to bail out banks that experience difficulties meeting commitments to their depositors. Thus, the deposit insurance system transfers liability for poor management decisions from those who made the decisions to their competitors. This system punishes those financial institutions that follow sound practices, as they are forced to absorb the losses of their competitors. This also compounds the moral hazard problem created whenever government socializes business losses.
In the event of a severe banking crisis, Congress likely will transfer funds from general revenues into the Deposit Insurance Fund, which would make all taxpayers liable for the mistakes of a few. Of course, such a bailout would require separate authorization from Congress, but can anyone imagine Congress saying no to banking lobbyists pleading for relief from the costs of bailing out their weaker competitors?
Government subsidies lead to government control, as regulations are imposed on the recipients of the subsidies in order to address the moral hazard problem. This certainly is the case in banking, which is one of the most heavily regulated industries in America. However, as George Kaufman (John Smith Professor of Banking and Finance at Loyola University in Chicago and co-chair of the Shadow Financial Regulatory Committee) pointed out in a study for the CATO Institute, the FDIC's history of poor management exacerbated the banking crisis of the eighties and nineties. Professor Kaufman properly identifies a key reason for the FDIC's poor track record in protecting individual depositors: regulators have incentives to downplay or even cover-up problems in the financial system such as banking facilities. Banking failures are black marks on the regulators' records. In addition, regulators may be subject to political pressure to delay imposing sanctions on failing institutions, thus increasing the magnitude of the loss.
Immediately after a problem in the banking industry comes to light, the media and Congress inevitably blame it on regulators who were “asleep at the switch.” Yet most politicians continue to believe that giving more power to the very regulators whose incompetence (or worse) either caused or contributed to the problem somehow will prevent future crises!
The presence of deposit insurance and government regulations removes incentives for individuals to act on their own to protect their deposits or even inquire as to the health of their financial institutions. After all, why should individuals be concerned when the federal government is ensuring banks following sound practices and has insured their deposits?
Finally, I would remind my colleagues that the federal deposit insurance program lacks constitutional authority. Congress' only mandate in the area of money, and banking is to maintain the value of the money. Unfortunately, Congress abdicated its responsibility over monetary policy with the passage of the Federal Reserve Act of 1913, which allows the federal government to erode the value of the currency at the will of the central bank. Congress' embrace of fiat money is directly responsible for the instability in the banking system that created the justification for deposit insurance.
There is much more to this and more to be written about it. I will be posting in an OEN diary the list of all the boards of directors whose names I hope OEN writers will research to expose how they have made the economy dive into a crisis that like the Iraq War appears to have no end in sight.
Today, OpenSecrets.org posted the latest in their series of exposés on how the bundlers of McCain and Obama are among Wall Street’s tumblers. What is most alarming to me is not the fact that both are under the thumb of the corporations but that Obama, the candidate of change, seems to be duping Americans.
For example, OpenSecrets’ posting says, “Obama's list gives the appearance that he has not leaned so heavily on Wall Street, although since his campaign has ignored repeated requests from the Center for Responsive Politics and other watchdog groups to disclose his bundlers' employers and occupations, these figures are probably undercounts.”
How appalling is it that the candidate for the “change we need” or the “change we can believe in” will not disclose his bundlers’ employers and occupations? How shameful is it that Obama and the Democratic Party would risk Americans’ hopes and aspirations by hiring corporate financiers (people who have created the economic strife Americans are experiencing) and then attempt to hide it or pass off these financiers as something they are not? How despicable that he would do this and make it easier for McCain to remain neck-and-neck with him in the polls because he is just as tied to Wall Street as McCain is and even worse, he refuse to fully disclose that fact to the public because he knows his supporters would resent him for having such close ties?
There’s more to be written. There’s more to be said about Obama and his ties to the giants that have fallen or come crawling to the federal government asking to be rescued. There’s much more to be said about the way Congress has not taken action.
In the meantime, all I can think of is, how do you satire satire? The Daily Show has been offering A+ commentary on the fumblings and tumblings on Wall Street. The show has been especially attentive to the way our leaders respond to the crisis. But, it’s so easy---just watch Secretary of the Treasury Henry Paulson or White House Press Secretary Dana Perino and you’ll see how easy it is.
Such is the state of affairs in America. The downward spiraling economy and the reckless foreign policy of America combine in a way that does not move people to act. It does not result in people Googling extensively to find out what is really going on (although some Americans will). It does not move people to throw off the chains of the two-party system. Rather, it moves them to tune into The Daily Show (or even The Colbert Report) at 11 pm ET.
And why not? I'm tuning in. It's times like these that satire is the most entertaining.