Monday, December 6, 2010

The Fed's Backdoor Bailout: Even More Welfare for Big Banks and Large Corporations--Plus, Obama Caves to Republican Blackmail on Tax Cuts for the Rich

[Heavily Edited in the Evening of 12/6/10]


- The Fed's Backdoor Bailout
- Video: Sen. Bernie Sanders' Floor Speech on the Economy
- GRIST TV Videos on Bailout and Republican Blackmail Using the Unemployed
- Note from Yours Truly & Warren Buffett
- Krugman Advises Obama to Just Say No to Blackmail
- Obama Announces He's Willing to Cave to Republican Blackmail
- Other Notes from Sen. Bernie Sanders, including "Socialism for the Rich"


The Fed's Backdoor Bailout

In the article below, Sen. Bernie Sanders (Vermont) writes how Fed Chairman Bernanke refused to tell the Senate Budget Committee the details of a $3.3 trillion "backdoor bailout" provided by the Fed to big banks and corporations, a bailout that dwarfed the $700 billion TARP bailout initiated by the Bush administration. Now, 18 months later, the Fed has released some of the information, and a few of those details are shared by Sen Sanders in the article.

A Real Jaw Dropper at the Federal Reserve

by Sen. Bernie Sanders

At a Senate Budget Committee hearing in 2009, I asked Fed Chairman Ben Bernanke to tell the American people the names of the financial institutions that received an unprecedented backdoor bailout from the Federal Reserve, how much they received, and the exact terms of this assistance. He refused. A year and a half later, as a result of an amendment that I was able to include in the Wall Street reform bill, we have begun to lift the veil of secrecy at the Fed, and the American people now have this information.

It is unfortunate that it took this long, and it is a shame that the biggest banks in America and Mr. Bernanke fought to keep this secret from the American public every step of the way. But, the details on this bailout are now on the Federal Reserve's website, and this is a major victory for the American taxpayer and for transparency in government.

Importantly, my amendment also required the Government Accountability Office to conduct a top-to-bottom audit of all of the emergency lending the Fed provided during the financial crisis to be completed on July 21, 2011, which will take a hard look at all of the potential conflicts of interest that took place with respect to this bailout. So, in many respects, details that the Fed was forced to divulge on Wednesday about the $3.3 trillion in emergency loans that until now were totally kept from public scrutiny, marked the beginning, not the end, of lifting the veil of secrecy at the Fed.

After years of stonewalling by the Fed, the American people are finally learning the incredible and jaw-dropping details of the Fed's multi-trillion-dollar bailout of Wall Street and corporate America. As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions and how we can make our financial institutions more responsive to the needs of ordinary Americans and small businesses.

What have we learned so far from the disclosure of more than 21,000 transactions? We have learned that the $700 billion Wall Street bailout signed into law by President George W. Bush turned out to be pocket change compared to the trillions and trillions of dollars in near-zero interest loans and other financial arrangements the Federal Reserve doled out to every major financial institution in this country. Among those are Goldman Sachs, which received nearly $600 billion; Morgan Stanley, which received nearly $2 trillion; Citigroup, which received $1.8 trillion; Bear Stearns, which received nearly $1 trillion, and Merrill Lynch, which received some $1.5 trillion in short term loans from the Fed.

We also learned that the Fed's multi-trillion bailout was not limited to Wall Street and big banks, but that some of the largest corporations in this country also received a very substantial bailout. Among those are General Electric, McDonald's, Caterpillar, Harley Davidson, Toyota and Verizon.

Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations including two European megabanks -- Deutsche Bank and Credit Suisse -- which were the largest beneficiaries of the Fed's purchase of mortgage-backed securities.

Deutsche Bank, a German lender, sold the Fed more than $290 billion worth of mortgage securities. Credit Suisse, a Swiss bank, sold the Fed more than $287 billion in mortgage bonds.
. . . .

At a time when Wall Street executives are now making more money than before the financial crisis, how many big banks that paid back TARP funds in 2009 to avoid limits on executive compensation received no-strings-attached loans from the Federal Reserve?

At a time when millions of Americans are paying outrageously high credit card interest rates, why didn't the Fed require credit card issuers to lower interest rates as a condition of the bailout?

The four largest banks in this country (Bank of America, JP Morgan Chase, Wells Fargo, and Citigroup) issue half of all mortgages in this country. We now know that these banks received hundreds of billions from the Fed. How many Americans could have remained in their homes, if the Fed required these bailed-out banks to reduce mortgage payments as a condition of receiving these secret loans?

We have begun to lift the veil of secrecy at one of most important agencies in our government. What we are seeing is the incredible power of a small number of people who have incredible conflicts of interest getting incredible help from the taxpayers of this country while ignoring the needs of the people.

Copyright © 2010, Inc.
Bernie Sanders was elected to the U.S. Senate in 2006 after serving 16 years in the House of Representatives. He is the longest serving independent member of Congress in American history.


See Also:

Bernie Snders' Nov. 30th Floor Speech on the Economy

Text of Speech.

The F Word: The Big Float's a Big Scam


Blackmailing the Unemployed: Talking to ‘99ers’

More GRITtv

[Note From Chris: Back in 1990, I belonged to the Peace and Freedom Party in California and attended anti-war rallies during the build-up to the first Gulf War (when Barbara Boxer was a "real Democrat") where I met a fellow named Bernie, who had retired from his successful and very profitable New York business. Bernie told me that when he was making lots of money, he didn't mind paying taxes at the high top marginal tax rates at 70% and above during the 60's and 70's for taxable income above $200,000 because he didn't really need it and it did the country some good--quite a bit of good actually. You may remember that the country was quite prosperous then by today's standards, and at that time our corporations hadn't sent much, if any, of our productive capacity overseas. We made more than cardboard boxes and speculative, risky investments back then, and the top rates were at least twice as much as today's top rates of 35%. Instead of raising those top rates, during our current time of need and historically high unemployment, in the direction of those earlier rates experienced when we were a functioning country with a partially developed conscience, the Republicans have now successfully, it seems, blackmailed Obama to keep the rates outrageously low for the rich so that the middle and lower classes can keep their needed relief, and so that the unemployed can still receive benefits to keep them in their homes with some food on the table.

Top US Marginal Income Tax Rates, 1913--2003
Historical Top Tax Rate

See Also:

Published on Monday, December 6, 2010 by The Nation
If Obama Will Not Fight for Fair Taxes and Fiscal Stability, What Will He Fight For?
by John Nichols

When Barack Obama walked out of last week's meeting with Mitch McConnell and John Boehner and started talking about developing a "productive" working relationship with Republican congressional leaders who have sworn the political equivalent of a blood oath to destroy his presidency, it was clear that the president planned to abandon his many years of advocacy for ending Bush-era tax breaks for millionaires.

Now, with the lame-duck session of a Congress still entirely controlled by Democrats races toward a earlier-than-expected conclusion, the deal is being cut.

Obama's representatives-Treasury Secretary Tim Geithner and White House budget director Jack Lew-have reportedly entered the final stages of a negotiation with the Republican team of Arizona Senator Jon Kyl and Michigan Congressman Dave Camp to extend all Bush tax cuts for for at least two years.

In return, federal unemployment benefits will be extended for up to one year.

The only remaining sticking point has to do with the question of whether to offer a small tax credit for working Americans-the "Make Work Pay" provision-and a tax credit for students, both of which were developed as part of the 2009 economic stimulus package. Remarkably, Republican negotiators who are going to the mat to defend $140 billion in tax breaks for the wealthiest 2 percent of Americans are objecting to maintaining $70 million in tax credits for the other 98 percent.

This negotiation is not headed toward a compromise. It is headed toward a complete capitulation.
. . . .

In other words, there is no political argument for compromise in order to extend unemployment benefits. Democrats could win this fight, in the current Congress and in the next one. To think otherwise is to presume that Republicans are not politicians who, when everything else is said and done, will cast the necessary votes to secure their reelection.
[More at If Obama Will Not Fight for Fair Taxes and Fiscal Stability, What Will He Fight For?]

Warren Buffett: Read My Lips, Raise My Taxes


Warren Buffett: ‘Trickle Down’ Theory Hasn’t Worked (VIDEO)

Published on Wednesday, October 6, 2010 by The Capital Times (Wisconsin)
There Is Class War, and Rich Are Winning
by Dave Zweifel

A University of Chicago law professor created a firestorm of controversy last month when he blogged that he and his wife are barely making ends meet with their $250,000-plus combined salaries.

The 80-year old billionaire [Warren Buffett] said [way back in 2006]: “There’s class warfare, but it’s my class, the rich class, that’s making war, and we’re winning.”

Professor Todd Henderson was protesting President Obama’s plan to let the George W. Bush tax cuts on income above $250,000 per couple expire at the end of the year while extending the cuts for everyone below that threshold.

Needless to say, the good professor didn’t get much sympathy. As well he shouldn’t.
. . . .
Yet, thanks mainly to a united Republican minority in the U.S. Senate and a handful of nervous Democrats, Congress cannot bring itself to vote on Obama’s plan that would lock in the tax cuts for a huge percentage of the people and begin tackling the budget deficit by raising taxes on the rich. Republicans claim it is important to reduce the deficit yet hypocritically oppose the Democrats’ effort to do so by letting the Bush tax cuts expire for individual incomes above $200,000 a year and couples’ earnings over $250,000.

Everyone should get their tax cuts extended, insist Republicans like Senate Minority Leader Mitch McConnell, yet they offer no plan for how they would make up the $700 billion the treasury would lose over the next 10 years if the cuts for the upper echelon are allowed to continue.

Some insist that increasing taxes on the wealthy would hurt job creation in this economy, but that ignores the simple reality that the Bush cuts didn’t do a thing to help the economy the past several years. George Bush left office in 2009 with the number of working Americans essentially the same as it was when he took over in 2001 -- roughly 137 million -- and the economy in a shambles. During Bill Clinton’s eight years the tax rate on the top income bracket was increased, but millions more people went to work. By the end of his second term, the budget deficit had been essentially eliminated.

Perhaps it’s all coincidental, as many Republicans argue, but there is not any more proof that the GOP’s formula of lower taxes on the wealthy creates more jobs and spurs the economy than there is for the Democratic formula seeking to have the wealthy pay progressively more.

Besides, the rich should pay more because they get more from the government. All those Wall Street and S&L bailouts, the funding of regulatory agencies, and the public school training of workers aren’t services used by the middle and lower classes. There are some studies that have estimated that the tax breaks and services that benefit the wealthy add up to $400 billion a year, compared to the $116 billion spent on programs for the poor.

Class warfare?

One of the richest Americans, Warren Buffett, replies to that notion:

“There’s class warfare, but it’s my class, the rich class, that’s making war, and we’re winning.”
. . . .
© 2010 The Capital Times]

Krugman Advises Obama to Just Say No to Blackmail

New York Times, December 5, 2010
Let’s Not Make a Deal

Back in 2001, former President George W. Bush pulled a fast one. He wanted to enact an irresponsible tax cut, largely for the benefit of the wealthiest Americans. But there were Senate rules in place designed to prevent that kind of irresponsibility. So Mr. Bush evaded the rules by making the tax cut temporary, with the whole thing scheduled to expire on the last day of 2010.

The plan, of course, was to come back later and make the thing permanent, never mind the impact on the deficit. But that never happened. And so here we are, with 2010 almost over and nothing resolved.

Democrats have tried to push a compromise: let tax cuts for the wealthy expire, but extend tax cuts for the middle class. Republicans, however, are having none of it. They have been filibustering Democratic attempts to separate tax cuts that mainly benefit a tiny group of wealthy Americans from those that mainly help the middle class. It’s all or nothing, they say: all the Bush tax cuts must be extended. What should Democrats do?

The answer is that they should just say no. If G.O.P. intransigence means that taxes rise at the end of this month, so be it.

Think about the logic of the situation. Right now, the Republicans see themselves as successful blackmailers, holding a clear upper hand. President Obama, they believe, wouldn’t dare preside over a broad tax increase while the economy is depressed. And they therefore believe that he will give in to their demands.

But while raising taxes when unemployment is high is a bad thing, there are worse things. And a cold, hard look at the consequences of giving in to the G.O.P. now suggests that saying no, and letting the Bush tax cuts expire on schedule, is the lesser of two evils.

Bear in mind that Republicans want to make those tax cuts permanent. They might agree to a two- or three-year extension — but only because they believe that this would set up the conditions for a permanent extension later. And they may well be right: if tax-cut blackmail works now, why shouldn’t it work again later?

America, however, cannot afford to make those cuts permanent. We’re talking about almost $4 trillion in lost revenue just over the next decade; over the next 75 years, the revenue loss would be more than three times the entire projected Social Security shortfall. So giving in to Republican demands would mean risking a major fiscal crisis — a crisis that could be resolved only by making savage cuts in federal spending.

And we’re not talking about government programs nobody cares about: the only way to cut spending enough to pay for the Bush tax cuts in the long run would be to dismantle large parts of Social Security and Medicare.

So the potential cost of giving in to Republican demands is high. What about the costs of letting the tax cuts expire? To be sure, letting taxes rise in a depressed economy would do damage — but not as much as many people seem to think.

A few months ago, the Congressional Budget Office released a report on the impact of various tax options. A two-year extension of the Bush tax cuts, it estimated, would lower the unemployment rate next year by between 0.1 and 0.3 percentage points compared with what it would be if the tax cuts were allowed to expire; the effect would be about twice as large in 2012. Those are significant numbers, but not huge — certainly not enough to justify the apocalyptic rhetoric one often hears about what will happen if the tax cuts are allowed to end on schedule.

Oh, and what about confidence? I’ve been skeptical about claims that budget deficits hurt the economy even in the short run, because they undermine confidence in the government’s long-run solvency. Advanced countries, I’ve argued, have a lot of fiscal leeway. But anything that makes permanent extension of obviously irresponsible tax cuts more likely also sends a strong signal to investors: it says, “Hey, we aren’t really an advanced country; we’re a banana republic!” And that can’t be good for the economy.

Last but not least: if Democrats give in to the blackmailers now, they’ll just face more demands in the future. As long as Republicans believe that Mr. Obama will do anything to avoid short-term pain, they’ll have every incentive to keep taking hostages. If the president will endanger America’s fiscal future to avoid a tax increase, what will he give to avoid a government shutdown?

So Mr. Obama should draw a line in the sand, right here, right now. If Republicans hold out, and taxes go up, he should tell the nation the truth, and denounce the blackmail attempt for what it is.

Yes, letting taxes go up would be politically risky. But giving in would be risky, too — especially for a president whom voters are starting to write off as a man too timid to take a stand. Now is the time for him to prove them wrong.


But Obama Announces He's Willing to Cave to Republican Blackmail

The payroll tax cut would put about $120 billion back in the pockets of workers and the unemployment benefits would cost about $60 billion, officials said. Continuing the lowered tax rates for the highest-earners, by contrast, would cost the government $700 billion in lost revenue over the next 10 years, according to budget analysts.

New York Times
December 6, 2010
Pact on Bush Tax Cuts Trims Payroll Levy

WASHINGTON - President Obama said Monday that he had agreed to the main elements of a deal with Congressional Republicans to extend the Bush-era tax cuts at all income levels for two years as part of a package that would also extend jobless aid for long-term unemployed, cut payroll taxes for all workers for a year and take other steps to bolster the economy.

Speaking to reporters at the White House, Mr. Obama said there were elements of the framework that he did not like, but that he had agreed to it in order to avoid having taxes go up on middle class Americans at the end of the year. He said that in return for agreeing to Republican demands that income tax rates not go up on upper-income brackets, he had secured substantial assistance to lower and middle income workers as well as the unemployed.

“It’s not perfect, but this compromise is an essential step on the road to recovery,” Mr. Obama said. “ It will stop middle-class taxes from going up. It will spur our private sector to create millions of new jobs, and add momentum that our economy badly needs.”

Congressional Democrats gave the announcement a lukewarm reception. But it generally won praise from Republicans, and suggested that how the White House and the newly empowered Republicans on Capitol Hill might work together.

Some details remain to be worked out, and Mr. Obama could have trouble bringing his party along with him. The package would cost about $900 billion over the next two years, all to be financed by adding to the budget deficit.

It includes reducing the 6.2 percent Social Security payroll tax on employees by two percentage points for a year, putting more money in the paychecks of workers. That tax cut would replace the central tax break for middle and low-income Americans included in last year’s economic stimulus measure, White House officials said.

It also includes continuation of a college-tuition tax credit for some families, an expansion of the earned income tax credit and a provision to allow businesses to write off the cost of certain equipment purchases.

The deal would include a 13-month extension of jobless aid for the long-term unemployed. Benefits have already started to run out for some people, and as many as 7 million people would potentially lose assistance within the next year, administration officials said.

The White House was also said to have agreed to Republican demands on the estate tax that would result in an exemption of $5 million per person and a maximum rate of 35 percent. Some Democratic aides said that concession alone was reason enough for Democratic lawmakers to oppose the deal when it comes up for votes in the House and Senate.

Administration officials sought to cast the deal in a positive light, saying many of the new provisions would do more to accelerate the economic recovery than the tax cuts at high income levels.

But Congressional Democrats have expressed increasing anger that the payroll tax cut and the jobless aide, which Mr. Obama demanded in exchange for continuing the Bush-era tax rates for the highest-income Americans, were not enough in return for such a big concession.

The payroll tax cut would put about $120 billion back in the pockets of workers and the unemployment benefits would cost about $60 billion, officials said. Continuing the lowered tax rates for the highest-earners, by contrast, would cost the government $700 billion in lost revenue over the next 10 years, according to budget analysts.

Some Democrats expressed wariness about the emerging deal. But it was clear that Republicans were happier with the results.

“Nothing has been finalized yet,” Senator John Barasso, Republican of Wyoming said in a television interview. Still he said, “I am encouraging Democrats to get on board.” He added, “They good news is it doesn’t raise taxes on anyone in this country.”

Democratic Congressional leaders were non-commital. An aide to the House speaker, Nancy Pelosi of California, said that she would meet with rank-and-file lawmakers to discuss the plan. And a spokesman for the Senate majority leader, Harry Reid of Nevada, said similarly that Mr. Reid would discuss the proposal at a lunch meeting with his colleagues on Tuesday, pointedly referring to the plan as Mr. Obama’s.

Representative Dave Camp, Republican of Michigan and the soon-to-be chairman of the tax-writing Ways and Means Committee, issued a statement praising the tentative deal.

"Preventing a massive, job-killing tax increase on families and small businesses is my number one priority," Mr. Camp said. "This framework will allow us to extend all current tax rates and give economic recovery and job creation a chance. The failure to reach and pass an agreement preventing a tax hike would have been devastating for families, especially those who are still looking for work."

Among the provisions in the package sure to get intense scrutiny is the temporary payroll tax cut. Under current law, workers in 2011 would pay 6.2 percent in Social Security payroll tax on income up to $106,800, or a maximum of $6,621.60. For a family earning $50,000, the two percentage point cut would mean a savings of $1,000.

For workers paying the maximum, the two percentage point cut would mean a savings of $2,136.

Critics of the proposal said it would undermine the stability of Social Security, which is financed by the payroll tax. Legally, the government wouldbe obligated to continue paying the same benefits levels and would have to make up the short fall from general revenues or borrowing.

See Also: Obama announces compromise on extending tax cuts

"Socialism for the Rich"

A letter from Sanders to Fed Chairman Ben Bernanke questioning those and other transactions

G.E. and JP Morgan Got Lots of Fed Help in '08

Billy Bragg and Wilco-- "The Unwelcome Guest"
By Woodie Guthrie

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