This article was contributed by guest blogger, attorney Cameron Carter from the Shaw Law Groupin Portland Oregon. Shaw Law Group has helped Oregonians fight improper home foreclosures by financial institutions that failed to follow the rules. Shaw Law Group also practices in Indian, Business, Real Estate and Personal Injury law.
I wanted to draw your attention to a slowly evolving story that is not getting much play in the mainstream media right now. The investigative journos at Bloomberg Magazine are reaping the fruits of their multi-year legal litigation to get answers to their Freedom of Information Act requests (all the way up to the US Supreme Court and back down).
Because of their hard work, we now know that the Federal Reserve transferred the largest amount of money from public to private hands in this country's history to prop up the nation's largest banks - $ 7.7 trillion dollars in a matter of months (that's right - trillion with a "t"). The largest amount of free taxpayer money was given to JP Morgan, Bank of America, Citibank, Wells Fargo, Goldman Sachs, and Morgan Stanley. On a single day (12/05/08), $ 1.2 trillion was transferred to a handful of banks.
This was not TARP. This was not any bailout program you have heard of before. This was a secret program that the government took great effort to conceal, while during the time of the transfers the banks repeatedly misrepresented the true state of their conditions to regulators, Congress, and their shareholders. Most folks call this "lying."
The taxpayer money was loaned to the banks almost interest free, at well-below market rates. None of this was disclosed to the public, or to Congress. The fact these banks were allowed to borrow this money for almost free, and with no strings attached, is contrary to long-standing Fed policy and contrary to basic principles underlying the concept of centralized banking.
At the time of the transfers, Congress was debating how to bring the cleansing light of transparency to the shadowy boardrooms of Wall Street. "So what?" you might say. "Just another thread in a long string of complicated financial shenanigans I don't understand." Here's why it matters:
(1) The banks reaped a combined $ 13 billion in profits from investing the undisclosed gift money they received from the Federal Reserve, while the rest of the country entered its steepest period of financial decline since the 1930s.
(2) The banks then used some of those profits to aggressively lobby against any regulatory reforms to the banking industry. The most recent estimates peg the amount the banking industry spend lobbying against industry reforms in 2009 at $ 50.9 million (most of this spending occurred in the last quarter of 2009, when Congress was considering financial regulatory reform. See www.opensecrets.org.). And they ain't done yet. This means all this could happen again, because the banks have not had to suffer for their poor business decisions - taxpayers paid for all their losses, and will continue to do so unless the meaningful reforms are enacted.
(3) The rest of the profits derived from this tax-payer financed gift have given the banks the capital they need to perpetuate one of the largest land-grabs since the days of the early railroads, as home foreclosures have reached numbers not seen since the Great Depression. In fact, the massive volume of home foreclosures and the pace at which the banks are trying to ram them through the judicial system is the only thing that has slowed the land grab - the banks can't keep up with their own paperwork, and their mistakes have given some persistent homeowners the technical arguments to overturn foreclosures.
(4) This kind of secret subsidizing of industry is undemocratic and anti-capitalist - it subverts the fundamental principles of American democracy. As Matthew Yglesias writes, "Capitalism is supposed to have an evolutionary dynamic. Firms with sound business strategies survive and expand. Firms with unsound business strategies shrink and go bust. Consequently, over time the average quality of business strategies is improving. This evolution toward better firms over time is one of the key pillars of our prosperity. If ill-managed firms nonetheless survive, the system is broken in a fundamental way." This is particularly true when the government uses tax-payer money to prop up an industry whose leaders claim to live and die by the principles of free-market capitalism.
(5) As the reporting makes clear, lawmakers claim they would have voted in favor of the tougher regulations being proposed had they known how bad the industry was (of course that's easy to say now). It is also reasonable to assume that public sentiment would have turned overwhelmingly against preserving a banking system that required an infusion of taxpayer money equal to one half of this entire country's annual ecomonic output.
Keep in mind that the largest banks in this country suffered only two quarters of losses before going back to reporting record profits. This same economic success has not been replicated in any other industry in this country. The CEOs and executive management of these banks have not lost their jobs, they have not missed a pay check, and their annual earnings are more than most of us will earn in our entire working lives (even given the fact that most of us 40 and under will have to work until we are at least 70). In 2009, at the height of the financial downturn, the bonus pool of the US securities industry increased 17 percent over 2008 numbers, to more than $20 billion.
Following are links to articles that explain this secret program and its toxic consequences in greater detail.
Working men and women should not be forced to pay the banks for the privilege of being ground into the dirt. I urge you to write and call your elected representatives in Congress and the executive branch and demand full hearings on the secret lending program. Until we all know what happened, and how it happennd, we are at risk of having this happen again. There must be some accountability for this. I urge you to support efforts to force banks to disgorge all profits derived from this secret lending program, and that the funds disgorged be used to help homeowners facing foreclosure. I urge you to support legislation that will break up these banks into smaller and more manageable institutions.
http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html
http://www.slate.com/blogs/moneybox/2011/11/28/how_the_fed_s_generosity_made_13_billion_for_america_s_biggest_banks.html
http://www.slate.com/articles/business/moneybox/2011/11/the_7_trillion_secret_loan_program_the_government_and_big_banks_should_be_punished_for_
deceiving_the_public_about_their_hush_hush_bailout_scheme_.html
http://www.propublica.org/article/crony-capitalism-hank-paulsons-extraordinary-meeting