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Friday
Apr022010

« Robert Reich: The Fed's In Trouble »

The Fed has finally come clean. It now admits it bailed out Bear Stearns -- taking on tens of billions of dollars of the bank's bad loans -- in order to smooth Bear Stearns' takeover by JP Morgan Chase. The secret Fed bailout came months before Congress authorized the government to spend up to $700 billion of taxpayer dollars bailing out the banks, even months before Lehman Brothers collapsed. The Fed also took on billions of dollars worth of AIG securities, also before the official government-sanctioned bailout.

The losses from those deals still total tens of billions, and taxpayers are ultimately on the hook. But the public never knew. There was no congressional oversight. It was all done behind closed doors. And the New York Fed -- then run by Tim Geithner -- was very much in the center of the action.

This raises three issues.

  • First, only Congress is supposed to risk taxpayer dollars. The Fed is not part of the legislative branch. Its secret deals, announced almost two years after they were done, violate the democratic process, if not the Constitution itself. Thomas Jefferson put a stop to Alexander Hamilton's idea of a powerful central bank out of fear it would be unaccountable to the public. The Fed has just proven Jefferson's point.
  • Second, if the Fed can secretly bail out big banks, the problem of "moral hazard" - bankers taking irresponsible risks because they know they'll be rescued - is far greater than anyone assumed after Congress and the Bush and Obama administrations bailed out the banks. Big banks will always be too big to fail because they know the Fed will secretly back them up if they get into trouble, even if Congress won't do it openly.
  • Third, the announcement throws a monkey wrench into the financial reform bill now on Capitol Hill, which gives the Fed additional authority by, for example, creating a consumer protection bureau inside it. Only yesterday, Sen. Jim DeMint (R-S.C.) blasted the Dodd bill for expanding the Fed's authority "even as it remains shrouded in secrecy."

The Fed has a big problem. It acts in secret. That makes it an odd duck in a democracy. As long as it's merely setting interest rates, its secrecy and political independence can be justified. But once it departs from that role and begins putting billions of dollars of taxpayer money at risk -- choosing winners and losers in the capitalist system -- its legitimacy is questionable.

That it chose to reveal the truth about its activities during a week when Congress is out of town, when much of official Washington and the Washington media have gone on vacation, and only after several federal courts have held that the Fed must release documents related to its bailout of Bear Stearns, suggests it would rather remain secret than become transparent.

Much of what Ben Bernanke and Tim Geithner did (when Geithner was at the New York Fed) in 2008 was presumably necessary. But the public has no way of knowing. The public doesn't even know who else the Fed has bailed out, or what entities it will bail out in the future. All we know is the Fed secretly bailed out Bear Stearns and AIG and thereby subjected taxpayers to risks that remain even today, without informing the public. That's not a record on which to build public trust.

Cross-posted from RobertReich.org



 

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Reader Comments (29)

No comments??? Guns and pitch forks!!!!
Apr 3, 2010 at 9:46 PM | Unregistered CommenterLert
"The public doesn't even know who else the Fed has bailed out....."

I know one.

Hint #1 - Their CEO is a Class B Director of the New York Fed (Class B directors are elected by the banks to REPRESENT THE PUBLIC!!!)

Hint #2 - The 100-plus year old company has over HALF A TRILLION in debt (1.67 million per employee).

Hint #3 - The company's flagship sale for 2009 was a $3 Billion dollar contract from the government of Iraq (Who knew Iraq had a government, let alone $3 Billion to spend? Hey maybe Iraq should get its own army too, so our kids can come home).

Hint #4 - After the CEO assured shareholders that the 2009 dividend was safe on Feb 5, 2009 the company cut said dividend by 67% 22 days later.

Hint #5 - This bastion of free-market capitalism was authorized to issue $139 Billion in debt backed by the FDIC (who incidently, is broke). The company insists "This is not a bailout"

Hint #6 Jim Cramer, Erin Burnett, and Dennis Keale are currently employed by this Government-backed, Propaganda machine/Ponzi scheme.

One of the reasons I hate Fox News and "Tea partiers" in general is that they're not smart enough to focus on issues like the government's treatment of General Electric. If you hate corruption, socialism, bailouts, handouts, corporate welfare, back-room deals and everything else that is truly wrong with this administration, this would be a really great place to start.

Of course, drawing Hitler mustaches is easier...
Apr 3, 2010 at 11:44 PM | Unregistered Commentermark mchugh
mark, if I end up at one of the rallies, I'll consider carrying an Immelt-Hitler poster. Or maybe a photo mock-up of Barry kissing Jamie -- the red-staters would LOVE it.
Apr 4, 2010 at 1:12 AM | Unregistered CommenterJames H
Well, I love that idea, but how many would really get it?
Apr 4, 2010 at 1:22 AM | Unregistered Commentermark mchugh
I'd like to think that if you stuck it in front of a news camera, you'd get a chance to explain it. "The reason I have Obama sucking face with Jamie Dimon is because...."

Or did you mean Immelt-Hitler? Yeah, that would take some explaining, wouldn't it. TLGP would probably be WAY over the head of your average news bimbo. Take Brian Williams, for instance.
Apr 4, 2010 at 1:52 AM | Unregistered CommenterJames H
The people to fear are not those who disagree with you, but those who disagree with you and are too cowardly to let you know. Napoleon Bonaparte

Buck up you two. Don't be so afraid of the truth.
Apr 4, 2010 at 2:18 AM | Unregistered CommenterZarathustra
I was referring to Immelt. I've listened to Obermann, Matthews, Maddow etc. beat relentlessly on Fox News (this is what happens when you don't turn off the TV after Dylan Ratigan). For the most part Fox deserves itccvsdfgswdfgh
Apr 4, 2010 at 9:09 AM | Unregistered Commentermark mchugh
Oops, spilled coffee on the computer and accidebtly submitted. Continuing.

Fox deserves what they get because they're trying to tell angry Americans "We're your leaders and we'll tell you what your agenda is....."

But when the most critical voices of Fox come from a company that shouldn't even exist anymore and Fox never discusses that, I can only come to two possible conclusions:

1) The people running Fox and their audience are stupid as hell. Or.

2) The Uni-party theory is real and the Red-Blue argument is moot. The object is to deflect people's attention away from anything that actually matters. So tea-partiers should take to the streets to repeal the death tax and rescind Social Security!

To which I can only say, "Yikes."
Apr 4, 2010 at 9:27 AM | Unregistered Commentermark mchugh
Wow, let me try this again...

The people to fear are not those who disagree with you, but those who disagree with you and are too cowardly to let you know. Napoleon Bonaparte

Buck up you two. Don't be so afraid of the truth.

Hint: Obama and his crew are the cowards.
Apr 4, 2010 at 1:09 PM | Unregistered CommenterZarathustra
Lefty Cenk Uyger has practically morphed into a Daily Bailer. He slams Geithner and Obama here on the banks and the bailouts, points out that practically NOTHING has been fixed at the big banks, and that the proposed "reform" of the financial sector is a nothing burger.

Cenk also (at last!) gets it, that the choice between doing nothing vs. giving the bankers everything they want is a STRAW MAN. Cenk slams the AIG back-door bailouts and questions why we never fired the execs at the TARP banks. Twelve months ago, Cenk was an Obama apologist who knew NOTHING about the bailouts. Now he sounds like one of us. I'm calling this a minor victory for the good guys.

http://www.youtube.com/watch?v=7JnggCib_cg
Apr 4, 2010 at 2:30 PM | Unregistered CommenterJames H
At least SC has one Senator (DeMint) who does the right thing more often than the other.

As to Fox News, they are part of the mainstream media. They sell entertainment and agendas just like the rest except they are better at the titillation aspect to draw in the 16-60 male genitalia demographic. The joke about them is that when called GOPTV, they say they're not and that sometimes they're anti-liberal and anti-democrat. They can be biased all day long as that is freedom of speech but my 2 objections are:
1. "fair and balanced" as a political content claim is false advertising
2. such obvious and biased support of a particular party should require involvement and oversight by the FEC.

The Fed is continuously proving that its claims at ineptitude are only covering for the reality of its corruption.
Apr 4, 2010 at 4:59 PM | Unregistered Commentercurtis
If they (media outlets) were not all in the tank for the current political structure, Obama would have had to show us his birth certificate and John McCain or Hillary would be the President. Oh, and the Fed would be a part of the Treasury or put out of business.
Apr 4, 2010 at 8:12 PM | Unregistered CommenterZarathustra
gobias,

Not to wind you up or anything, but WTF is up with that birth certificate? I've spent hours looking for a rational explanation of why Obama won't ask for his BC to be released. I can't find one. What's he hiding?

If anyone thinks *I'm* crazy, check out this crazy birther. (Guaranteed to change your mind about this issue.)
http://www.youtube.com/watch?v=gA6_k3NtXZs

Also, a Lt. Col. just refused deployment in order to invite a court martial, thereby bringing about the discovery process. Let's see if this becomes a trend (LOL).
http://www.youtube.com/watch?v=ea9JVnck_-E
Apr 4, 2010 at 9:28 PM | Unregistered CommenterJames H
We do occasionally see politicians who "get it", Curtis, but they're few and far between. I certainly agree with your thoughts on slant, too. I guess the point I'm trying to make is that no group seems to be able to properly rank problems, or they are unwilling to do so. Given the choice between producing a negative story on ACORN or the Fed, these guys will pick the ACORN story 100 times out of 100. Which says to me either you don't get it at all, ot you support the crooks as much as the other guys.

Crips and Bloods
Hell's Angels, Pagans and Outlaws
Coke and Pepsi

Same difference to me.
Apr 4, 2010 at 10:26 PM | Unregistered Commentermark mchugh
Crips and Bloods
Hell's Angels, Pagans and Outlaws
Coke and Pepsi

and

Rethuglicans and Demoncraps
Apr 4, 2010 at 10:47 PM | Unregistered Commentercurtis
James H,

Aside from the fact that there may be no BC to show. I think his high-handed behavior is shows his true nature. Remember, we were promised televised debates on healthcare reform - before he was elected. His so-called "summit" was a national disgrace. It wasn't a dialogue - it was a bitch-slapathon. I'm no McCain fanboy but for Christ's sake, address the man as Senator McCain, not John.

He wasn't showing disrespect for Republicans as much as showing disrespect for the entire system this Country was founded on.

We elected him President - not King. I've seen enough. If the birthers can get him tossed, I'm cool with that.
Apr 4, 2010 at 10:50 PM | Unregistered Commentermark mchugh
@ Curtis,

Yup :)
Apr 4, 2010 at 11:08 PM | Unregistered Commentermark mchugh
Yes, the "summit" was absolute fucking bull shit. Even when Paul Ryan (Bailout Socialist -- Wisconsin) asked Barry about the accounting BS in the CBO score, Barry just ignored it. To paraphrase our esteemed VP, Paul Ryan pointed out that the health care bill was a Big Fucking Lie -- and yet, no one is talking about it.

This is just outrageous. Every Democrat in the country should be answering this question about the fake "savings" from the health care bill.
Apr 4, 2010 at 11:21 PM | Unregistered CommenterJames H
mark,

I've figured out gobias's true identity. Here he is having just discovered that Michelle Obama is a birther.
http://www.youtube.com/watch?v=P3a2Yy1b2Tg
Apr 4, 2010 at 11:50 PM | Unregistered CommenterJames H
Holy Shit.

She says Kenya is "Home Country."

I must say, I like Michelle.

Dude - I think that guy blew out my speakers.
Apr 5, 2010 at 1:23 AM | Unregistered Commentermark mchugh
Yes James H, let's all go back to praising Obama. Why dwell on the negative freedom movements.

Mm, mmm, mm!
Barack Hussein Obama

He said that all must lend a hand
To make this country strong again
Mmm, mmm, mm!
Barack Hussein Obama

He said we must be fair today
Equal work means equal pay
Mmm, mmm, mm!
Barack Hussein Obama

He said that we must take a stand
To make sure everyone gets a chance
Mmm, mmm, mm!
Barack Hussein Obama

He said red, yellow, black or white
All are equal in his sight
Mmm, mmm, mm!
Barack Hussein Obama

Yes!
Mmm, mmm, mm
Barack Hussein Obama
Apr 5, 2010 at 1:41 PM | Unregistered CommenterZarathustra
excellent comments just getting through them all...


I've figured out gobias's true identity. Here he is having just discovered that Michelle Obama is a birther.
http://www.youtube.com/watch?v=P3a2Yy1b2Tg


---------------

that was some clip...for comedy's sake i want to publish it...but won't because of the language...
Apr 5, 2010 at 1:47 PM | Registered CommenterDailyBail
complete agreement on Fox News (actually all cable news)...sensational wins over substance...
Apr 5, 2010 at 1:49 PM | Registered CommenterDailyBail
He (Okay, I) made some very good points.

Spend millions of dollars or make a quick call to Hawaii. We know Barry likes to spend money but it does make you think.

All that talk about fat people is silly, Burger King tastes good. They knew that shit. Jesus, that guy is a fraud. The untimate con. No freaking love for America. WE are the champions. Your Mom is on my TOP? What country are you from? He's black, he's bald. Does he look like a bitch? Yes you did. I dare you MF, say teabagger one more time, go on, I double dare you MF. http://www.youtube.com/watch?v=snW3cM1KipQ

He (Sorry, I) am not mad enough.

Thank you DB.
Apr 5, 2010 at 2:12 PM | Unregistered CommenterZarathustra
"John McCain or Hillary would be the President. Oh, and the Fed would be a part of the Treasury or put out of business. "

John McCain has been under the control of the FED since the Keating 5, if Hillary stood a chance she would be to, no FED ending in either of them...

Follow the contributions.
Apr 5, 2010 at 8:56 PM | Unregistered CommenterS. Gompers
Gomp...What about Sarah Palin? Who controls her?
Apr 5, 2010 at 9:29 PM | Unregistered CommenterZarathustra
If she gets close enough to run in a couple of years, follow the contributions...

Seek and you shall find grasshopper.

No one makes it that is not controlled, they are left lying in the dust of the primaries...
Apr 6, 2010 at 5:34 AM | Unregistered CommenterS. Gompers

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