Community | December 02, 2011 | 17 comments

Eliot Spitzer: 5 Ways to Make Banks Pay for Their Secret $7 Trillion Free Ride

source: http://t.co/sb5MS9VI

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letsliveinpeace
Imagine you walked into a bank, applied for a personal line of credit, and filled out all the paperwork claiming to have no debts and an income of $200,000 per year. The bank, based on these representations, extended you the line of credit. Then, three years later, after fighting disclosure all the way, you

were forced by a court to tell the truth: At the time you made the statements to the bank, you actually were unemployed, you had a $1 million mortgage on your house on which you had failed to make payments for six months, and you hadn’t paid even the minimum on your credit-card bills for three months. Do you think the bank would just say: Never mind, don’t worry about it? Of course not. Whether or not you had paid back the personal line of credit, three FBI agents would be at your door within hours.

Yet this is exactly what the major American banks have done to the public. During the deepest, darkest period of the financial cataclysm, the CEOs of major banks maintained in statements to the public, to the market at large, and to their own shareholders that the banks were in good financial shape, didn’t want to take TARP funds, and that the regulatory framework governing our banking system should not be altered. Trust us, they said. Yet, unknown to the public and the Congress, these same banks had been borrowing massive amounts from the government to remain afloat. The total numbers are staggering: $7.7 trillion of credit—one-half of the GDP of the entire nation. $460 billion was lent to J.P. Morgan, Bank of America, Citibank, Wells Fargo, Goldman Sachs, and Morgan Stanley alone—without anybody other than a few select officials at the Fed and the Treasury knowing. This was perhaps the single most massive allocation of capital from public to private hands in our history, and nobody was told. This was not TARP: This was secret Fed lending. And although it has since been repaid, it is clear why the banks didn’t want us to know about it: They didn’t want to admit the magnitude of their financial distress.

The banks’ claims of financial stability and solvency appear at a minimum to have been misleading—and may have been worse. Misleading statements and deception of this sort would ordinarily put a small-market player or borrower on the wrong end of a criminal investigation.

So where are the inquiries into the false statements made by the bank CEOs? And where are the inquiries about the Fed and Treasury officials who stood by silently as bank representatives made claims that were false, misleading, or worse?

Only now, because of superb analysis done by Bloomberg reporters—who litigated against the Fed and the banks for years to get the information—are we getting a full picture of the Fed and Treasury lending. The reporters also calculated that recipient banks and other borrowers benefited by approximately $13 billion simply by taking advantage of the “spread” between their cost of capital in these almost interest-free loans and their ability to lend the capital.

In addition to the secrecy, what is appalling is that these loans were made with no strings attached, no conditions, and no negotiation to achieve any broader public purpose. Even if one accepts the notion that the stability of the financial system could not be sacrificed, those who dispensed trillions of dollars to private parties made no apparent effort to impose even minimal obligations to condition the loans on the structural reforms needed to prevent another crisis, made no effort to require that those responsible for creating the crisis be relieved of their jobs, took zero steps towards the genuine mortgage-reform that is so necessary to begin a process of economic renewal. The dollars lent were simply a free bridge loan so the banks could push onto others the responsibility for the banks’ own risk-taking.

http://t.co/sb5MS9VI
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17 comments // Eliot Spitzer: 5 Ways to Make Banks Pay for Their Secret $7 Trillion Free Ride

  • kvb1
    • +1
      kvb1  

    • I have sent the following to my three reps in Congress as well as my email list:

      Thanks to litigation by Bloomberg reporters, we are now finding out about the full extent of Federal Reserve and Treasury lending pre and post TARP. It is my opinion that the following actions need to happen:

      First: You need to demand a hearing where the bank executives have to answer questions—under oath—about the actual negotiations, or lack thereof, that led to these loans; about the actual condition of each of the borrowing banks and whether that condition differed from the public statements made by the banks at the time.

      Second: You should require the recipient banks to use this previously undisclosed gift—the profit they made by investing this almost interest-free money—to write down the value of mortgages of those who are underwater. The loans to the banks were meant to solve a short-term liquidity problem, not be a source of profits to fund bonuses. Take back the profits and put them to a public use.

      Third: You should hold government officials responsible for authorizing these loans to explain why there was no effort made to condition these loans on changes in policy that would protect the public going forward.

      Fourth: Congress needs to examine every filing and statement made to Congress by the banks about their financial condition and their indebtedness to see if any misrepresentations were made in an effort to hide these trillions of dollars of loans. Misleading Congress can be a felony, and willful deception of the Congress to hide the magnitude of the public bailouts should not go unprosecuted.

      Finally: You should return all contributions made by the institutions that got hidden loans. Politicians need to stop feeding from the trough of Wall Street, even as they know all too well how the banks and others have gamed the system and the public.

    • 6 months ago
  • corderodedios
    • 0
      corderodedios  
    • kvb1:

      It seems obvious that the OWS movement is a response to the futility of expecting our legislative bodies to execute any of the sensible action items you have suggested.

      It's tempting to ask you "why are you even writing this?" when there is zero chance anything of the sort will be done. Both pollitical parties have left the room, and the only artifact of their one-time presence is political theater, now a continually running video clip - like the clips running over and over again on a small video/tv combination in Home Depot advertising products to clean the moss off your roof.

      The clip we're seeing is one of talking heads engaging in "meaningful" political debate, when the truth is that our elected representatives are completely lost, and have reverted to thinking with the reptilian side of their brain - Republicans are frantically grabbing all the cash they can get their hands on, and Democrats are senselessly repeating now-meaningless psuedo-populist blabber.

      My own Senator just today sent me an e-mail promising to fight for a "middle-income-wage-earner" tax cut of up to $1750.00 - up to that number, mind you - for the citizens of our State, and this "Senator" says that the Republicans are holding it hostage for further tax cuts for the wealthy 1%. WTF?? People who pay taxes have jobs or other income. The problem is people who DON'T have jobs. And, to top it off, there's a slight problem with the deficit, so any talk of tax cuts is not sane. After writing to this "Senator" my thoughts on the matter (not that she'll ever see them), the page linked to a pander for money - political contributions. I could not avoid the thought that there was the smell of a kickback there - if I get a tax cut, I might earmark part of such a tax cut for a political contribution to the Democratic Party.

      At this point it is meaningless that the Bush/Obama tax cuts for the wealthy have actually created the deficit, and if they were never operant, there would be no insurmountable deficit problem. What's meaningful is the road to war we are on. As we speak, the Russians are augmenting their power in the Mideast by sending cruise missiles and warships to their friend Syria, Iran is building the bomb, even the stooges we installed in power in Pakistan are starting to hate us (and need I remind you that Pakistan actually has "the bomb,") and Egypt has transcended the so-called Arab Spring and is flirting with Islamic totalitarianism. Right in line with John Kenneth Galbraith's theories on the genesis of countervailing power structures. But as always, though it'll be horrible, the "reset" button will have been pressed, and the cycle will start anew.

      So the writing is on the wall. There will be war. There will be inflation, perhaps not Weimar-type hyperinflation, but crippling inflation nonetheless, unless you grabbed enough dough before it was too late and salted it away in gold and what not. But the collapse has already started, and is now, as I've said before, little more than a slo-mo nightmare. Don't waste your time on twaddle about what amounts to our legislative bodies' responsibilities. They're gone. You're talking to that tv that's running the endless clip. There's no one there. Anyone whose attention you get will just end up either asking for your money (Democrats), or taking it (Republicans, including Obama). If you're not in the street, the only sensible thing to do now is to get out of dollars and make sure you know where the exits are.

    • 6 months ago
  • kvb1
    • 0
      kvb1  
    • corderodedios:

      I agree with most of what you said, however, I refuse to be so fatalistic. We must make the effort to fix what has been f'd up. If we don't, we and the rest of the world will disappear much as our ancient civilization have. We are better than that.

    • 6 months ago
  • corderodedios
    • 0
      corderodedios  
    • kvb1:

      Yours is a noble sentiment, but "fatalistic" is the wrong term. The term is "realistic," based upon humankind's repeated cycles since the time of the Iliad of Homer.

      "Better than that" is also a relative statement without reference. Things are going just swimmingly for the 1%, and since they control the world, why should they change things? It's why they call themselves "conservatives." If you're making multi-millions or billions out of the status quo, as it were, as some individuals do, it pays to consider the cycles as inevitable and the "best" we can expect. It's great for them.

      It's not great and could be a lot better for the "mumbling masses," as the Straussian view holds them, but the masses are little more than brainwashed consumer-zombies who, if they escape ruination by unemployment (hunger, loss of the family home, illness, and an early death), are fearful of running afoul of the "strongmen" - and Democrats are not among the "strongmen" - and are eager in the majority to be lickspittles for their elite masters. The same sentiment that led the most miserable of serfs, in large numbers, to consider the tsar of Russia as their "little father" as he sent them off by the millions to be slaughtered in the first battles of the capitalist wars that continue to this day. The same sentiment that will send these fearful obedient zombies to the polls next November, amid the wreckage of our nation, to select some liar, con man, or lunatic as our next President.

    • 6 months ago
  • konakine
    • +2
      konakine  

    • corderodedios, see Jack Rasmus. The Federal Reserve board decided to act on their own, regardless of the politics of the big bailout money, and gave the "too big to fail banks" 7 trillion bucks behind closed doors. Like Spitzer said. The corporate / political corruption dependent, Wall Street, also took down Spitzer with scandal as he was about to blow the lid off the corruption at the currency office. And now the right are pouring in the funding to keep Elizabeth Warren out of the Senate. Wall Street, the big banks, big insurance, big oil, and big pharma want to continue to shaft the 99% with impunity. Spitzer and Warren, long may they work for us.

    • 6 months ago
  • corderodedios
    • +1
      corderodedios  

    • The post says the $7.7tn was paid back. Where'd the banks get the money, exactly, to pay back that kind of money in that short a time? That would make an interesting analysis, because in some way shape or form, the money came from the rest of us. Or, we owe it.

    • 6 months ago
  • VoyagerFilms
    • +3
      VoyagerFilms  

    • So, why can't the Fed provide the rest of us the same terms and conditions, or the banks? Abolish all debts of the American people and we'll call it even, how about that!?

    • 6 months ago
  • artemis6
  • letsliveinpeace
  • crabbyoldguy
  • PressCore
    • +2
      PressCore  
    • crabbyoldguy:

      Nice rack. Definitely not the type of rack with antlers you'd see in a hunting
      lodge. But that's only the kind you'd hang your hat on. Those snuggle puppies
      look ripe enough to rest your head on.

    • 6 months ago
  • Ambill94
    • +1
      Ambill94  

    • You have to follow the link...you will find 5 excellent suggestions...not sure there is anyone in Congress with b_lls enough to follow through though...

    • 6 months ago
  • JustZ
    • +1
      JustZ  

    • Am I missing something here? Where exactly in this story are the 5 ways to Make Banks Pay for Their Secret $7 Trillion Free Ride?

    • 6 months ago
  • lazloman
  • letsliveinpeace
  • letsliveinpeace
  • letsliveinpeace
    • +2
      letsliveinpeace  

    • The CEOs of major banks maintained they were in good financial shape. Meanwhile, they secretly borrowed massive amounts from the government to stay afloat.

    • 6 months ago
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