Bail out Could Cost Taxpayers Thirty Times more than Reported

Earl Ofari Hutchinson


In 2008 and 2009, 50 separate Federal programs offered $23 trillion in loans, grants, or asset guarantees to the financial sector. Huh! This item was buried in paragraph 11 of 12 paragraphs in a joint statement that California Senator Barbara Boxer and Virginia Senator Jim Webb issued demanding taxing TARP monies executives used to compensate themselves. That’s more than 30 times more than the official $700 billion that Congress authorized to bail out the big banks and failed Wall Street financial houses. The $700 billion figure tossed out quickly became etched in financial stone. Then President Bush, President Obama, Congress, and the Wall Street and banking industry and every financial pundit cited the $700 billion payout as the maximum that taxpayers would be stuck with. Now almost as an afterthought, Webb and Boxer casually toss out the $23 trillion number.

Boxer and Webb made mention of it in a press statement to bolster their call for passage of the Taxpayer Fairness Act. This would levy a one time 50 percent surtax on bonuses on amounts over $400,000 in compensation and bonuses that the big banks and firms ladled out to their executives. Don’t hold your breath on this one, though. Boxer, Webb and the Senate was unwilling to impose this tax on the obscene bonuses that the big bank execs paid each other as a condition of getting the TARP money. The only thing that’s changed since then is that public fury at the non-stop record bonuses they pay each other has risen to fever pitch. And even if there was a congressional epiphany and payment required, the big banks that got the taxpayer cash will argue as they have every time a squawk is made about their obscene money that they’ve paid the money back.
Boxer and Webb’s move smacks of yet another empty gesture by two Senators feeling election heat to tap into popular rage at the bankers by appearing to be anti-Wall Street crusaders.
The outrage, though, should be over whether Boxer, Webb, the White House and Congress have come clean over how much the banks and financial houses dinged taxpayers for. One, two, or three federal agencies involved in the fed giveaway is one thing but fifty different agencies is another. The agencies that may have shoved more money to the banks and houses were known as early as April, 2009. In testimony before the House Oversight and Government Reform Committee Tarp’s Inspector General listed the agencies and the projected dollar amounts.

Federal Reserve 6.8 trillion
Treasury –Non-Tarp 4.4 trillion
National Credit Union, Veterans Affairs, the Government National Mortgage Assn, the Federal Housing Administration, Federal Housing Finance Agency
7.2 trillion
Federal Deposit Insurance Corp (FDIC) 2.3 Trillion
US Treasury 7.4 trillion

Several house reps screamed loud then that the treasury was mute silent or had stonewalled every effort made to find out exactly how much of the cash that the treasury actually doled out to the banks and financial houses. Nearly a year later they still really don’t know. The issue from the beginning has been transparency or the absence of it by the treasury. Congress has failed to force the federal agencies to tell what they have spent, and how they spent it. At the time of his congressional testimony last April, the Tarp inspector general had 35 criminal and civil investigations of banks and financial houses for accounting fraud, securities fraud, insider trading, mortgage service misconduct, mortgage fraud and public corruption false statement and tax investigations going. This wasn’t enough to trigger bells and whistles that treasury had grossly low balled the figures on the bailout.

Boxer and Webb had ample opportunity to demand and fight that the treasury and other federal agencies fully open their books on the amounts that were being spent. The White House and Congress have repeatedly publicly assured that bail out money ladled out came in way under the official $700 billion that Congress authorized, and that much of the money has been repaid. That still doesn’t tell what other help the big banks and financial houses got in the form of loans, grants, insurance or asset guarantees, and what federal agencies were involved. Boxer and Webb haven’t told us that either.

Earl Ofari Hutchinson is an author and political analyst. His new book is, How Obama Governed: The Year of Crisis and Challenge (Middle Passage Press).

Democrats Hands Aren’t Clean in the Financial Mess

Earl Ofari Hutchinson

The normally expansive Democratic House Speaker Nancy Pelosi was anything but that when she was asked if the Democrats should get some of the blame for the Wall Street financial mess. Pelosi answered with a terse “no.” But Pelosi quickly got expansive when she finger pointed Bush and the Republicans for creating the mess. This is the standard Pelosi line. Bush and the Republicans eagerly cut sweetheart deals with financial industry lobbyists to gut lending and stock trading regulations, winked and nodded at the banks and brokerage houses as they engaged in an orgy of dubious stock swapping, buys, and trading, conned millions of homeowners into taking out catastrophic sub prime loans, and watered down the oversight powers of government regulatory agencies.
But Pelosi’s Bush rap is disingenuous. Democratic president Jimmy Carter and Congressional Democrats kicked off the rush to deregulate in the late 1970s when they cajoled Fannie Mae and Freddie Mac to relax lending standards for banks and S&Ls to provide more home loans for home seekers. Their goal was noble. It was to get the financial industry to loosen the lending purse strings to lower income and minority home buyers.

But relaxing the standards heightened the risk to banks and lenders and sent the signal that Democrats were willing to also relax regulations and oversight on banks and lenders. It was a short step from that to relaxing regulations and oversight on other financial transactions by the banking and brokerage houses.
It didn’t take long for Democrats and Republicans in Congress to take that step. Under relentless pressure from top bankers during the 1990s, Congress scrapped most of the provisions of the decades old Glass-Steagall Act. The Act was a Depression era measure that kept federally insured banks out of the go-go world of stock trading, exotic lending, and financial speculation. It also set rigid standards for mortgage lending and strict oversight over banking practices.

Clinton’s Treasury secretary Robert Rubin lobbied hard for dumping the Act. The rationale being that U.S. banks and brokerage houses needed to have the restrictions snatched off to stay competitive with Asian and European bankers and financial traders. President Clinton bought the line. The revision bill passed with bipartisan support in 1999 and Clinton quickly signed it.
Despite the havoc to the financial markets and damage to consumers the gut of the Act has created, Clinton still says that he has no regrets over signing the bill. The one regret that Clinton has in hindsight is that he didn’t push harder for tougher oversight of Fannie Mae and Freddie Mac and financial traders. Clinton’s regret rings hollow given that it was Congressional Democrats and Democratic mayors who clamored the loudest to relax the oversight rules under the guise of bumping up minority homeownership. And it was Rubin and other Clinton administration officials who pushed Congress to loosen the constraints on financial trading.
In 2005, Senate Democrats had another chance to reform Fannie Mae and Freddie Mac. The Senate Banking Committee passed a bill to give regulators the power to require companies to shed their investments in risky assets (the so-named government-sponsored enterprises GSE reform bill).
The bill never got to the Senate floor thanks to Democrats. They killed it in committee. Democrats continued to parrot the line that any limitations on the financial industry would hamper its ability to compete in the financial markets. This was only part of the reason Democrats flacked for the financial industry. The other part is the sway that industry lobbyists have over Congress through the gargantuan amounts of cash they dump into the campaign coffers of top Democrats. That includes Barack Obama, Hillary Clinton, and Banking Committee Chair and short lived Democratic presidential candidate Christopher Dodd.
Obama got more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac. Obama’s top presidential campaign contributors and bundlers read like a who’s who of Wall Street bigwigs. They have either directly contributed or bundled millions of dollars into his campaign.
Clinton ranks number 12 on the Fannie and Freddie PAC gift list. She has received more than $75,000 from the two enterprises and their employees.
Dodd grabbed the top spot on the list of Fannie and Freddie PAC campaign payouts. He has received more than $165,000. Yet, Dodd has screamed just as loud as Pelosi that the blame for the financial muddle lay exclusively with Bush and Republican bungled policies.

Dodd griped that the Bush Bailout scheme was too skimpy on details. That’s a sure sign that if, or when, the Bush plan gets to the Senate, Dodd and other Senate Democrats will back it. Why not? They’re no different than Bush and Congressional Republicans in giving Wall Street pretty much everything else it has wanted, Pelosi’s Republican saber rattle notwithstanding.

Earl Ofari Hutchinson is an author and political analyst. His new book is The Ethnic Presidency: How Race Decides the Race to the White House (Middle Passage Press, February 2008).