The Reasoned Review

Annie Lowrey over at The Washington Independent has a nice post deconstructing  the latest series of advertisments attacking the financial regulation bill now being debated in the Senate.

I admit I hadn’t seen this lovely bit of propaganda until she drew my attention to it, and it’s interesting to examine the claims it makes. The first rule of propaganda is to attribute to your enemy your own actions and intentions. Thus, the commercial rather cleverly accuses the Senate of setting up an apparatus for “unlimited bailout authority”, and, astoundingly, claims that “Goldman Sachs is in favor of the bill”.

Neither of these statements is true, of course, but the implications go deeper than that. As TPM revealed earlier this week, the sponsors of the ad, a front-organization calling themselves “Stop Too Big to Fail”, are funded entirely by corporate dollars, including, yes, Goldman Sachs. This attempt to dust up public anger against the financial reform bill indicates Wall Street’s fear of it, and their willingness to tell any lie in order to see that the reform bill doesn’t pass.

Not that they really have that much to worry about. As George Washington remarks, the reform bill currently being debated is “All Holes and No Cheese“, noting that:

Dodd’s bill:

• Won’t break up or reduce the size of too big to fail banks

• Won’t remove the massive government guarantees to the giant banks

• And won’t even increase liquidity requirements to prevent future meltdowns

What it will do, however, is set up new protections for consumers, specifically to protect them from predatory lending practices, overdraft fees, byzantine contracts that require a Ph.D to understand, etc. The bill will also (hopefully) enact some barriers to the trade of over-the-counter (unregulated) derivatives, those delightful instruments that got us into this crisis.

As with the health care bill, I feel really ambivalent about this.

On one hand, the Dodd bill does almost nothing to prevent too-big-to-fail, it proposes some watered-down reform on derivatives trading, it doesn’t reduce the size or power of our mega-conglomerate banks, it doesn’t reinstate Glass-Stegall, and it does nothing to rein in the frankly absurd amounts of cash the bank executives make, whether or not they happen to crash the economy

On the other hand, this bill does provide some new consumer protection services, it bans proprietary trading (whatever that is), and it does create a new regulatory body whose specific charge is to watch over our mega-banks (as opposed to the SEC, which has a universal mandate).

Is this good enough? Can we do better? With the flood of Wall Street money flowing into campaign coffers, and with the November election only 6 months away, I’m inclined to say no. Maybe we should take what we can get. And keeping in mind that, unlike the health-care bill which had full industry support, the Dodd bill is being opposed by nearly every major bank, maybe it isn’t so bad after all. If the banks are against it, there must be something good inside this bill.

Update: Also see Nomi Prins’ article in Alternet entitled “Ten Ways The Dodd Bill is Failing on Financial Reform“:

It won’t constrain the Fed’s future bailout operations. It appears to limit the Fed’s ability to lend money freely to firms in trouble by “allowing” its system-wide support only for healthy institutions or systemically important market utilities. But what’s to stop the Fed from designating any company a “systemically important market utility”? That was basically the rationale behind the AIG bailout.

Update II: It’s also important to keep in mind that Chris Dodd, the bill’s sponsor, is heavily funded by some of the most odious Wall Street titans, including Citigroup (who gave him $110,000 this cycle), AIG ($87,000), Merrill Lynch ($61,650), Morgan Stanley ($44,000), and JP Morgan ($37,000). Hooray for transparency!

The Times has a pretty strong piece in today’s issue about Britain’s massive debt problems. Yet more evidence that the “Greek Problem” isn’t limited to Greece alone. The whole European Union and most of its satellite economies are probably in for a rough decade:

As for the British government, it has been able to finance a budget deficit of 12.5 percent of G.D.P. — equal to Greece’s — at an interest rate more than two full percentage points lower only because the Bank of England bought the majority of the bonds it issued last year.

“It’s not just ‘basket cases’ like Greece that can be considered candidates for sovereign crises,” said Simon White of Variant Perception, a research house in London that caters to hedge funds and wealthy individuals. “Gilts and sterling will continue to come under pressure as scrutiny of the U.K. fiscal situation intensifies.”

Now, unlike the United States, other countries’ deficits actually mean something. They aren’t allowed to go around printing as much money as they want, running absurd amounts of debt, and forcing everyone to except their currency at the barrel of a gun. Running budget-busting deficits isn’t just something they can laugh off, like we can here in America – over a long enough time scale, those deficits can make a country’s currency worthless.

It’s tough to see where this will end. The whole EU and attached economies are vulnerable to this “contagion”, which, I cannot stress enough, has a lot to do with Wall Street’s reckless bets during the aughts. If we were living in a fair world, these Wall Street firms would pay reparations to the affected countries for essentially destroying their economies. As it is, it looks as though we’re going to have to watch the EU go down in flames before anyone does anything.

Then, likely, we’ll see some backdoor deals, a few hurried conferences, and the US Government will come out with a new TARP program, this time for Europe. Washington has always had a flair for publicity – maybe they’ll call it a “second Marshall Plan”. It’s inconceivable that the US would allow its most favored “allies” to go down without assistance. And such a move would likely have incidental benefits – namely, bringing the EU firmly under our political control.

Sure, the American taxpayer will eventually have to foot the bill, but who ever cared about that?

The London Telegraph has the scoop:

Mr Dimon told investors at the Wall Street bank’s annual meeting that “there could be contagion” if a state the size of California, the biggest of the United States, had problems making debt repayments. “Greece itself would not be an issue for this company, nor would any other country,” said Mr Dimon. “We don’t really foresee the European Union coming apart.” The senior banker said that JP Morgan Chase and other US rivals are largely immune from the European debt crisis, as the risks have largely been hedged.

California however poses more of a risk, given the state’s $20bn (£13.1bn) budget deficit, which Governor Arnold Schwarzenegger is desperately trying to reduce.

A little part of me dies when I read stories like this. I mean, I know Wall Street “owns” Congress, as Rep. Dick Durbin was kind enough to inform us, and so the chances of any meaningful punitive action towards them are virtually nil, but still these developments never fail to outrage.

And through it all, one cannot help but wonder: What exactly do these bankers do to deserve their multi-million dollar salaries? People tell me they “work hard”, sure, but then so does a ditch-digger outside Kuala Lumpur, and no one pays him a million dollars. It isn’t even as though their work helps anyone, or at least not objectively. I’ve heard all manner of explanations that “the economy stops without Wall Street” – as though it hadn’t done that with Wall Street’s help.

The part most perplexing to me is how these bankers seem immune to shame for their theft. Surely they read the newspapers, every one of which carries countless stories of everyday citizens who had their lives turned upside-down by this crisis of their making. The Times had a particularly good one the other day about how millions face years of unemployment because of the crisis. The article is entitled “The New Poor“. Several of the people they interviewed had their savings wiped out and are now on the verge of homelessness. I mean, don’t they read articles like that and feel bad?

Apparently not. I recently spoke with a high-school buddy of mine (well, maybe buddy is the wrong word) who, after an economics degree at Duke, found a comfortable position at a prominent Wall Street firm.

“Yeah, I’m a fat cat”, he said, with an unmistakable note of pride.

I wanted to know how he felt about the new poor, particularly as the company to which he attached himself had a direct hand in causing the financial crisis.

He shrugged. “Those people deserved it. They should have been smarter with their money.”

I was appalled. “But your company sold them predatory loans! I mean, you guys willfully misled them.”

“Look”, he countered, “No one put a gun to their heads and forced them to trust us. They’re idiots. If they were smarter, they would have gone to school, gotten business degrees, and been in a position to know what they’re talking about. You play with fire, you get burned.”

“But then what’s the point of your business? Aren’t you in the business of handling the money of people who lack the knowledge to handle it themselves?”

He laughed mirthlessly. A cold look crept into his eyes. “Are you stupid or something? We’re in the business of making money. That’s it. Sometimes we make money by making other people money – sometimes we make money when other people lose money. That’s the bottom line.”

I was at a loss for words. “How can you be so callous?” I managed to stammer.

“Stop it with this gay shit. Like its my responsibility to worry about every poor loser who comes through my door. I’m only responsible for myself. Period. I don’t go around telling people to watch my back – I watch my own. They should do the same. I’m fucking sick of you assholes coming up to me and whining about all these idiots who lost money during the crash. Those retards deserved it. I looked out for myself – my company looked out for itself – and we’re making money. Those idiots didn’t look out for themselves. They expected someone else to do it. And look what happened.”

Nearly defeated, I asked, “So the banks have no responsibility for all these people who are now financially ruined?”

“If they want to blame someone, they should take a long, hard look in the mirror. These dickheads were happy enough with us when we were making them 15% per year, but now that things go sour they look for someone to blame. It’s their own damn fault. What, they think we’re in business just to help them out? Fucking retards.”

Conscious that I was beginning to sound like a broken record, I persisted. I just couldn’t believe what I was hearing.

“Well, you guys were ready enough to take the government bailouts. I mean, how can you justify that?”

He scowled. “Look, you have no idea what the fuck you’re talking about. What did you study in undergrad? Engineering? Leave this shit to the experts, troll. If the government allowed the banks to fail, the economy would have crashed. Done. The world would have been over. And all those bullshit sob stories you’re trying to sell me, they would have been 100 times worse. Anyway, we’re paying you assholes back, so I don’t see what you’re crying about.”

He left me with a bit of advice. “You really need to pull your head out of your ass. All this crying over others isn’t gonna get you anywhere. You’re what – 22? How much money do you make?”

I told him. He burst into laughter.

“See, that’s what I’m talking about! You’re gonna grow up to be one of these losers we take advantage of, if you aren’t careful. Here, what you should do – read some Ayn Rand. She’ll tell you all you need to know.”

And that, ladies and gentlemen, is the mentality of Wall Street, that collection of companies without whom we cannot survive.

(c/o The Daily Digest)

Ron Paul makes sense (on this, at least):

Is it possible that our Federal Reserve has had some hand in bailing out Greece?  The fact is, we don’t know, and current laws exempt agreements between the Fed and foreign central banks from disclosure or audit.

Greece is only the latest in a series of countries that have faced this type of crisis in recent memory.  Not too long ago the same types of fears were mounting about Dubai, and before that, Iceland.  Several other countries (Spain, Portugal, Ireland, Latvia) are approaching crisis levels with public debt as well.  Many have strong ties to Goldman Sachs and the case could easily be made that default could have serious implications for big US banking cartels.  Considering the ties between the Fed and these big banks, it is not outlandish to wonder if the US taxpayer is secretly bailing out the entire world, country by country, even as our real unemployment tops 20 percent.  Unless laws are changed to allow a complete and meaningful audit of the Federal Reserve, including its agreements with foreign central banks, we might never know if this is occurring or not.

The point is, we don’t know. In fact, we know very little about what the Federal Reserve does with the trillions and trillions of dollars in cash that it’s empowered to print and distribute as it sees fit. I remember a couple months ago people were seriously discussing whether or not to audit the Fed. This never happened, and after a couple weeks people just stopped paying attention and turned their gaze to the next shiny object on the horizon.

Without a meaningful audit of the Federal Reserve, we will never know where our money goes. The Fed, as we all know, as been bestowed massive new powers as a result of this crisis (which they helped cause), and this makes an audit all the more important. I guess I would suggest you phone your congressperson about this, but we all know how much good that’ll do.

Well, it’s that time of year again: the snow has fallen, the air bitter cold, and AIG decides to award its criminal executives hundreds of millions of dollars in “bonuses”. But wait, haven’t we seen this before? I seem to remember a huge uproar about this sometime last year… hang on – let me check the interwebs…

Okay I found it! It’s a March 15, 2009 Times article entitled “AIG Planning Huge Bonuses after $170 Billion Bailout.” Yeah, now I remember. It was really a big deal back then – there were hearings, emotional speeches, widely publicized resignations – it even came out that AIG owed Goldman Sachs a lot of money, and that much of the AIG bailout really went to GS.  In the end, AIG said it was sorry and it would never do it again.

Well, I guess they must think we’re stupid or something, because it’s a year later and they’re doing the exact same thing again. Okay well, maybe not the exact same thing – last years’ bonuses added up to $170 million – this year they’re cutting back and only handing out a paltry $100 million.

But lets look at some of the similarities:

March, 2009:

The senior government official, who was not authorized to speak on the record, said the administration was outraged. “It is unacceptable for Wall Street firms receiving government assistance to hand out million-dollar bonuses, while hard-working Americans bear the burden of this economic crisis,” the official said.

February, 2010:

“A.I.G. has taxpayers over a barrel,” said Senator Charles E. Grassley, an Iowa Republican, in a statement on Tuesday night. “The Obama administration has been outmaneuvered. And the closed-door negotiations just add to the skepticism that the taxpayers will ever get the upper hand.”

March, 2009:

The second group of bonuses covers some 2008 retention payments from contracts entered into before government involvement in A.I.G. Indeed, in his letter to Mr. Geithner, Mr. Liddy wrote that he had shown the details of the $450 million bonus pool to outside lawyers and been told that A.I.G. had no choice but to follow through with the payment schedule.

February, 2010:

The holdouts seem determined to make A.I.G. pay the full contractual amounts, knowing they can make a reasonably good case under law, because A.I.G.’s own lawyers have previously issued an opinion that the contracts are binding. If they succeed, A.I.G. would have to pay them more money at some point in the future, and might even have to pay penalties for breaking its employment contracts.

Huh.  Well, at least they’ve paid back some of the taxpayer money, right?

March, 2009:

The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve…

February, 2010:

The government has extended roughly $182 billion in total to A.I.G. It is selling some of its units to help repay the debt.

D’oh!

Bloomberg has a fantastic timeline of the fortunes and despairs our favorite International Group has suffered and celebrated over the past two years. This will be very useful for anyone still confused about how AIG ended up with trillions of taxpayer dollars (read: everyone)

The Economist has a pretty good rundown of Mr. Obama’s proposed financial “regulations”. You can tell they really want to be in favor of this, but even The Economist realizes that short of breaking up the big banks once and for all, any “regulation” is bound to fall short.

This is one of my favorite lines in the article:

Though not a full return to Glass-Steagall, the law that separated commercial banking and investment banking in the wake of the Great Depression (and was repealed in 1999), [the plan] is at least a return to its “spirit”, as one official put it.

Ha! Its spirit! Well, that oughta teach those bad ol’ banks a lesson.

But at least The Economist is honest enough to call a spade a spade:

Moreover, the plan is unlikely to help much in solving the too-big-to-fail problem. Even shorn of prop-trading, the biggest firms will still be huge (though also less prone to the conflicts of interest that come with the ability to trade against clients). As for the new limits on non-deposit funding, officials admit that these are designed to prevent further growth rather than to force firms to shrink.

They may, in any case, be pointed at the wrong target. Curbing the use of deposits in “casino” banking is an understandable impulse, but some of the worst blow-ups of the crisis involved firms that were not deposit-takers, such as American International Group and Lehman Brothers. And much of the losses stemmed not from trading but from straightforward bad lending (think of Washington Mutual, Wachovia and HBOS).

So how is Wall Street reacting? The Journal and The Times each emphasize the stock-market response (with colorful verbs such as “plunges” and “sinks”), but Kevin Drum over at Mother Jones got an e-mail which I think illustrates Wall Street’s mood a bit better:

Nobody I’ve talked to on Wall Street seems to think the proposed reforms (although details remain vague) are anything more than PR, aimed in the wrong direction, don’t do anything to make risk-taking more expensive, and are mere structural reforms that will be annoying to get around, but will be gotten around.

We’ll see what comes out in the next few days. Maybe there’s more to it than telling a bank you can’t invest in PE funds. We can hope anyway.

But if the intent was to “go after the banks” and get the HuffPo crowd revved up, it seems to be working. Hey, maybe we can throw in Geithner or Bernanke’s scalp and “hope” will re-spring eternal.

Yeah, that seems closer to the mark.

I mentioned this before, but I really want to stress that “financial reform” is completely meaningless without reinstating the Glass-Stegall Act. Enacted in 1933 and foolishly repealed in 1999, Glass-Stegall drew a firm line between commercial and investment banks and prohibited the “securitization” that lay at the heart of this crisis. Previously, “commercial” banks – ones in which you deposit your paycheck and which might later loan you money for a house or car – were completely separate entities from “investment” banks – ones that invest your money in whatever way they see fit. Commercial banks were low risk, low rate-of-return, while investment banks carried a higher risk, but with more earning potential. When current Economic Council Director Larry Summers chose to repeal Glass-Stegall back in 1999, he abolished the distinction between commercial and investment banks, allowing erstwhile “safe” organizations to make wildly irresponsible bets and grow so intertwined that they eventually brought the whole system down. Repealing Glass-Stegall created the “Too Big to Fail” banks.

The famous Elizabeth Warren, Paul Vlocker, and even John McCain (whose chief adviser’s name is on the G-S repeal) have come out in favor of reinstating Glass-Stegall. All the “too big to fail” banks are now even bigger, and this is largely because legislation which was traditionally used to keep them from conglomerating was idiotically repealed. This is the biggest one thing Congress can do right now to prevent the need of a future bailout. It would be so easy – they could do it tomorrow! The legislation is already written; all they have to do is sign it.

Sens. John McCain and Maria Cantwell have done a great service by recently proposing a Glass-Stegall reinstatement in the senate last month, but the bill doesn’t seem to have much support. This is totally baffling to me. The only reason I can think why the Senate wouldn’t do this right now is the massive donations they would have to sacrifice. Predictably, all the financial institutions, from Bank of America to Goldman Sachs, are vehemently against Glass-Stegall, as it would require them to break up, and likely diminish their ludicrous profits. Hence in the Bloomberg article you can hear Senators conceding that the bill “makes a lot of sense”, but “[they] don’t know if it’ll ever happen.” Uh…

The toll-free numbers for the Congressional switchboard are: 1-877-851-6437, 1-800-828-0498, or 1-800-614-2803. I think this is one issue where calling your congressman could conceivably sway them. Congress bows to the financial industry only insofar as its money can help them get elected. Public outcry can influence our legislators on legislation as specific as this. Remember, the TARP bailout originally failed in the House because their switchboards lit up with calls from angry voters.

This is good news, even if it does fall short of anything one could describe as “punitive” toward the banks. The plan, I guess, is that Mr. Obama collects $90 billion over the next decade (that’s $9 billion per year) from the 50 banks he deems were “most responsible” for the late crisis.

At one point, Mr. Obama channels Michael Moore:

“We want our money back and we’re going to get it,” Obama said. “If these companies are in good enough shape to afford massive bonuses, they are surely in good enough shape to pay back every cent they received from taxpayer.

Right. And while this $90 billion (over ten years) may go some distance in repaying the $2,000,000,000,000 we printed as a result of this imbroglio, I seriously doubt it’ll cover the tab. Mr. Obama seems to follow the strictest definition of “borrowed” imaginable – he only counts the TARP program (you remember, the first $700,000,000,000 back in November ’08), and not the trillions we’ve simply distributed as behind-the-scenes gifts.

The Washington Post sums it up in a quote:

“The new big-bank tax is just like charging a nickel sin tax on a half-gallon of cheap liquor — it may make moralists feel good, but it doesn’t do much to stop bad behavior,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, which tracks regulatory issues for financial industry clients.

Exactly. I would hasten to compare this half-assed bonus tax to the one recently levied in Britain and France (50% of all bonuses, whether or not your bank received a bailout). These taxes have a punitive element to them that the US counterpart completely lacks. What, are we supposed to feel good because our government finally worked up the nerve to ask for some of the money back? The towering levels of fraud and malfeasance perpetrated by our financial sector deserves, I think, a little more than a light admonishment and the extraction of a promise of repayment.

As always, any talk of “financial regulation” and “congressional oversight” (let alone “repayment”) mean absolutely nothing without mentioning the Glass-Stegall Act. You know, that rule they made after the Great Depression that said “commercial” and “investment” banks must be separate entities? The one whose repeal in 1999 allowed our banks to assume epic risk, gamble away people’s 401(k)s, and eventually bring the whole system down? Yeah, that one. If we don’t correct the shoddy legislation that allowed this crisis to happen in the first place, we’re just setting ourselves up for another one however many years down the road.

Bloomberg has a fantastic front-page report on Treasury Secretary Geithner’s latest abuses. I mentioned previously that Geithner was instrumental in AIG receiving 100 cents on the dollar in their bailout. Essentially, the Federal Reserve agreed to print the full value of AIG’s misbegotten “derivatives” and hand it to them, no questions asked. AIG initially indicated it was willing to “get a haircut” (that is, receive 95 or even 90 cents for every dollar they lost gambling), but quickly backpedaled when it became clear the Fed was going to bail them out 100%.

Now Bloomberg reports that in addition to giving AIG an essentially blank cheque, Geithner instructed AIG to deceive the public on who their “counter-parties” were, on who would benefit from the AIG bailout. Much as the Banking Trusts of the 1920s, our mega-conglomerates today are heavily invested in one another – a bailout to one goes to pay back its creditors elsewhere in the banking system. This proved invaluable in convincing the public to bail AIG out. As Machiavelli wrote, if one must rule by robbery, it is best to conduct a big crime all at once, rather than small ones continuously. By giving a massive ($200 billion +) bailout to AIG, the government could thereby distribute their gift to other banks (the “counter-parties”) without the attention of the public, whose ire would be focused solely on AIG.

Later it turned out that Goldman Sachs, the firm which regularly gets to choose the Treasury Secretary (Geither was their first choice, and his predecessor, Hank Paulson, worked at Goldman for 35 years), was one of the AIG counterparties.

One of the most salient passages in Hugh Son’s excellent article, way up high in the 3rd paragraph:

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.”

So it seems obvious that Geithner did not want the public to know the extent of Goldman Sach’s involvement with this bogus “derivative” scheme, likely so as not to tarnish Goldman’s image of having never received a bailout.

But whatever the reason, this latest report adds to the already exhaustive list of opacity, malfeasance, and outright cronyism that has plagued this crisis.  We cannot approach any semblance of fair economic policy (let alone fantasies of a “free market”), if one corporation regularly gets to appoint Treasury officials and make policy.

Hillary Clinton announced a $100 billion fund to help “developing” countries cope with the effects of climate change at Copenhagen today. The EU had already promised $200 billion for the same purpose, and I suppose the US was shamed into throwing its own symbolic dime into the hat.

So, for the record: the US will spend upwards of $2,000 billion bailing out its banks and another $3,000 billion prosecuting its murderous rampage in Iraq, Afghanistan and Pakistan. But to help poor countries suffering from the effects of climate change (of which the US stands as the primary culprit), only $100 billion can be found.

Astonishing.

The Financial Times has a list of 14 reasons why US bankers should be taxed for their outsize bonuses. Both Britain and France have begun to do this.

1. People on Main Street are furious about Wall Street bonuses.

2. This anger is justified because the bonuses are based in large part on windfall profits. These profits derive from taxpayer-backed interventions that stabilised the financial system, paving the way for a  recovery in financial markets and collapse of risk spreads.

3. All banks benefited from this bailout – not just the ones that took or still have Tarp funds. Even the strong gained hugely from Fed liquidity and government actions to ensure none of their weaker counterparties failed (including but by no means limited to the AIG case).

4. In an ideal world, these interventions would have been structured up front in a way that ensured the value created did not leak out to banks and bankers. But they were not.

The Financial Press is busy crowing over the loss estimates for the Paulson Bailout, claiming that losses have been “cut” by $200 Billion dollars. Of course, this still leaves $500 Billion unaccounted for, but standards for good news have fallen to the extent that a $500 billion loss is considered a ray of hope.

Unfortunately, we will be spared even that brief ray. Research from ProPublica conclusively debunks the claim that TARP losses have been mitigated, if only for the fact that the program has not yet finished.

As they say:

The latest estimate accounts for only the first year of spending, and the TARP’s spending isn’t done. Treasury says it expects the ultimate cost to be higher. Treasury Secretary Tim Geithner extended [8] the TARP thru Oct. 3, 2010, the TARP’s second birthday, earlier this week. He said, though, that Treasury didn’t expect to deploy more than $550 billion of the $700 billion available. As of today, Treasury has committed a total of about $407.3 billion [2] (that’s excluding companies that have refunded their bailout money [6]).

The TARP still has a little less than half its funds to distribute; meanwhile bank failures haven’t even begun to slow (three more failed this Friday, bringing the total to 167 this year), and unemployment still hovers around 17-20 per cent. It seems a bit premature to be declaring victory for the TARP.

Yet more evidence that our friends across the Atlantic have a firmer grasp on democracy than we do: Britain is set to levy a major one-time tax on those scurrilous “bonuses” the banks are handing out with taxpayer money.

The UK government will hit the bankers with a 50% tax on any bonuses greater than $40,000, this year only. In doing so, they will make up a good portion of their budget shortfalls and send a clear message to the financial industry that the taxpayer bailouts are not a gift to the few.

Can such a thing happen here? In the words of the Brookings Institution: not likely.

“I think it is very unlikely that you would see this kind of tax on bonuses here in the U.S.,” Douglas J. Elliott at the Brookings Institution in Washington said. But, he added, “There are going to be big bonuses this season. There will be high levels of public anger. Therefore there will be some bills introduced. I just don’t think they are going to make it through.”

Why? Because unlike in Britain, our entire legislative process has been bought by the major financial institutions, part and parcel.

As Finance Minister Alistair Darling said:

“If they insist on paying substantial rewards, I am determined to claw money back for the taxpayer.”

Can one even imagine such words coming from our own Bailout Chiefs?

I know I’m somewhat late to this party, but I wanted to point out to all who are still unaware that the ‘too big to fail’ banks which caused our late crisis are even bigger.

JP Morgan, AIG, Citigroup, Goldman, and Bank of America were the winners of Geithner-Paulson’s free money giveaway (with Lehman a bad loser), and together they have swallowed the hundreds of small and medium banks that have failed since. They now present an even bigger and more systemic risk, should they choose to gamble away their money once again.

Despite repeated calls from almost every respected economist (notably Joseph Stiglitz) that these banks are a menace, Lords Geithner and Bernanke have done nothing to restrict their size – indeed, they have made them impossibly more dangerous and lucrative.

Furthermore, none of the incentives which led to such reckless gambling (ludicrous bonus packages, easy credit, low intrest, short-term rewards) have been addressed, and instead have been reinforced.

The next bailout will have to be 700 trillion instead of a mere 700 billion.

The policy blogs are abuzz with the recent news that the Federal Reserve System might finally undergo an audit. The bill, sponsored by Ron Paul and endorsed by nearly everyone else, passed with a lopsided 43-26 victory in the House and would be the first comprehensive inquiry into what the Fed does with the trillions of dollars it commands. Glenn Greenwald has the best dissection of what went down.

Some highlights:

Our leading media outlets are capable of understanding political debates only by stuffing them into melodramatic, trite and often distracting ”right v. left” storylines.  While some debates fit comfortably into that framework, many do not.  Anger over the Wall Street bailouts, the control by the banking industry of Congress, and the impenetrable secrecy with which the Fed conducts itself resonates across the political spectrum, as the truly bipartisan and trans-ideological vote yesterday reflects.  Populist anger over elite-favoring economic policies has long been brewing on both the Right and Left (and in between), but neither political party can capitalize on it because they’re both dependent upon and subservient to the same elite interests which benefit from those policies.

Beyond the specifics, a genuine audit of the Fed would be a major blow to the way Washington typically works.  The Fed is one of those permanent power centers in this country that exert great power with very little accountability and almost no transparency (like much of the intelligence and defense community).  The power they exert has exploded within the last year as a result of the financial crisis, yet they continue to operate in a completely opaque manner and with virtually no limits.  Its officials have been trained to view their unfettered power as an innate entitlement, and they express contempt for any efforts to limit or even monitor what they do.

The Times reports on a recently released audit which concludes, beyond the shadow of a doubt, that Timothy Geithner (now Treasury Secretary, then President of the New York Fed) voluntarily gave up vast negotiating powers when choosing to shower AIG with billions upon billions of dollars.

The article is written in standard Times-ese, which is to say that it seeks to relate truly scandalous information in such a way as to cause as little uproar as possible, but although it must be translated into standard English, some truly damning testimony emerges:

Just two days before the New York Fed paid A.I.G.’s partners 100 cents on the dollar to tear up their contracts with the insurance giant, one bank volunteered to take a modest haircut — but it never got the chance.

UBS, of Switzerland, alone offered to give a break to the New York Fed in the negotiations last November over how to keep A.I.G. from toppling and taking other banks down with it. It would have accepted 98 cents on the dollar.

The Fed “refused to use its considerable leverage,” Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, wrote in a report to be officially released on Tuesday, examining the much-criticized decision to make A.I.G.’s trading partners whole when people and businesses were taking painful losses in the financial markets.

So this means: The New York Fed decided to print 100% of the value of AIG’s investors’ bad loans in order to get them to divest from AIG, and (hopefully) save the money-laundering giant. Realize, now, that the Fed was under no obligation whatsoever to guarantee these loans with taxpayer dollars, and certainly not guarantee them at full value. Given that these CDS loans were later revealed to be totally fraudulent, this decision makes even less sense.

If I convinced you to give me real dollars for Monopoly Money, and then you complained to the government that the Monopoly Money you received was actually worthless, would you expect them to just print 100% of the value and give it to you, no questions asked? Or would you expect them to give you nothing and tell you, in effect, to be smarter next time?

What’s truly astounding about this episode is that some of the banks offered to take less than 100% of the value of their worthless investments, but Geithner refused! He said to them, essentially, that “oh well, it doesn’t matter – it’s taxpayer dollars anyway! Go ahead, take the full value!”

This is the man who is now our Treasury Secretary.

The Wall Street Journal reports in today’s issue that our financial apparatus stands poised to dispense the largest package of executive bonuses ever. All told, more than $140 Billion will be dispersed among those wizards of finance. They recieve their multi-million dollar paychecks at a time of extreme economic privation for the rest of the US. Unemployment still surges upward to an astonishing 18% of the working-age population, while median incomes have remained stagnant for the past fifteen years.

According to The Economist, the top 1% of earners in America receive almost 25% of the total income generated. This puts income inequality at a level not seen since 1928. But in the midst of such a wide gap between rich and not-so, it is impossible to have any reaction but gaping awe to the figures quoted above. For what does it truly mean that 1% of the population can amass more than a quarter of the country’s wealth?

What it means, unfortunately, is that the consequences of the stock market meltdown have been completely lost on those who perpetrated it. Members of our financial industry haven’t found themselves thrown on the street from foreclosure. A few have heard those bitter words:  “I’m sorry, but we’re going to have to let you go,” but they weren’t exactly living paycheck-to-paycheck before, and most handily found new jobs in a matter of weeks. They have not seen their paychecks shrink – indeed, most of their checks have expanded, if The Journal can be taken at its word. In short, then, the crisis represents to its architects little more than an abstract concept: a set of numbers and figures on charts or a grim human-interest piece on the nightly news. The actual effects of their malfeasance (economic privation, anxiety, fear, hopelessness) are as far away to Wall Street as the moon.

All this is dismal news for those of us who would like to avoid a repeat of last September’s performance. Indeed, these reports – for instance, of JP Morgan Chase’s record profit this year – belie the essential divestment between Wall Street and the rest of the economy. Not only do they make money when times are good, they also make it when times are rough, the people be damned. Given that the reckless lending and casino-like practices of these firms caused the economic devastation we see today, these bonuses represent the ultimate “moral hazard”. Financial executives and their employees now have literally zero incentive to act in the interests of the greater economy. They make money either way.

The Huffington Post gives us a nice preview of an insider report in the upcoming issue of Vanity Fair, detailing the secret meetings between Goldman Sachs and the US Treasury at the height of last year’s stock market crash.

Here is a nice little Q&A with the author, Andy Sorkin, to get you warmed up. Look out for this article.

The G-20 economies are set to meet in Pittsburgh in three weeks to discuss various matters, among the most divisive of which stand the obscene “bonuses” awarded to the executives of our once-failing financial institutions.

What the Europeans want, according to The Times, are “‘global standards on pay structure, emphasizing long-term results in awarding pay and urging provisions to take back bonuses if bank profits tumble”, along with “limits on guaranteed bonuses”.

Reasonable enough. However, according to an anonymous source from The Times,  the US is reluctant to accede to such requests (in essence, allowing bankers unlimited pay completely divorced from performance), for the following reason:

American counterparts were seeking to sidestep the bonus issue out of fear the White House could be accused of yielding too easily to European pressure, which might endanger progress on health care reform.”

A likely story. It would be useful to contrast The Times’ coverage with that of Al-Jazeera, who wrote a similar story on the upcoming G-20 summit, but with a far different interpretation. To them, US reluctance to restrain the scandalous pay of its reckless bankers is attributable to its desire “to protect the status of Wall Street and the City of London as the world’s leading financial centers“.

Now that seems to make a bit more sense.

As an addendum, I would like to again point my readers to the Institute for Policy Studies report which informs us that the top five executives at the 20 banks that received the most federal bailout funds received an average of $32 Million in annual personal compensation.

The Institute for Policy Studies in Washington DC just released a report on executive compensation for banks currently under US oversight. Some poignant facts:

“From 2006 through 2008, the top five executives at the 20 banks that have accepted the most federal bailout dollars since the meltdown averaged $32 million each in personal compensation. One hundred average U.S. workers would have to labor over 1,000 years to make as much as these 100 executives made in three.”

“A generation ago, typical big-time corporate CEOs seldom made more than 30 or 40 times what their workers took home. In 2008, the IPS report shows, top executives averaged 319 times more than average U.S. worker pay.”

Should we be outraged yet?

A dark patch in our media’s otherwise cheery coverage of the economy. After three weeks of exultation over Bernake’s re-appointment (even from administration critic Paul Krugman!), endless blather over so-called “green shoots”, and an outright declaration from the Dallas Fed Chief that “The Recession is Over”, our Federal Deposit Insurance Corporation announced it is down to its last $10 Billion. 20% of their funds were reportedly wiped out this quarter alone, bringing them back to early ’90s levels.

The wave of small and mid-level bank failures has not yet abated, though it receives far less coverage than it once did. Here is the FDIC list of failed banks in its stewardship. You will notice a majority failed this year.

If this trend does not reverse quickly, the FDIC will the likely require a government cash infusion. Our wheel of bailouts has come full circle.

In particular, this development throws new light on President Obama’s re-appointment of Ben Bernanke for Fed Chief. The administration would have us believe Bernanke acted “boldly” to “rescue the economy from another Great Depression”, but actual signs of recovery are hard to see. Unemployment still skyrockets (though not with such horrifying swiftness as it did earlier this year), and the banking crisis has clearly not been solved.

Bernanke was also in a leadership position all throughout the run-up to the crisis. He did nothing to stop it, and even tried to convince us not to worry. He repeatedly claimed the subprime issue would not threaten housing in general -  and certainly not the economy as a whole. How quaint such comments seem after all this devastation!

Bernanke may have a very dubious record of public governance, but he has an excellent record of corporate “partnership”. The net effect of his actions since the crisis has been to secure the fortunes of a very few at the expense of our public coffers. It is then not surprising that the corporate world viewed his nomination with great jubilation. Google the words “Bernanke” and “Reassure” together to get a picture of how true this is.

And if there is one thing we can say of President Obama, it is that he has the financial sector’s interests in mind.