As the Occupy Wall Street movement continues to throw light on the economic hardship of the 99%, the United States Federal Reserve continues to do its part to widen the economic gap between Wall Street and Main Street. The new plan is to purchase $545 billion worth (that’s a b) of mortgage-backed securities from the biggest banks in the universe – the ones who created the toxic debt in the first place. And that is on top of the $2.3 trillion (that’s a t) already vacuumed up by the Federal Reserve’s defaulting debt sucking machine.
So here we go again – one more time. The Federal Reserve is giving away taxpayer billions to those who deserve it least: the commercial and investment banking bond holders that crashed and burned the financial system and continue to be the biggest beneficiaries of government aid. Fed Chair Ben Bernanke, otherwise known as Uncle Ben, has authorized another unstimulating stimulus on top of the other unstimulating stimulus programs since the fall of 2008.
Bloomberg reports that the Fed “will start another program next quarter, [serving] 16 of the 21 primary dealers of U.S. government securities that trade with the central bank.” So who are these primary dealers? Let’s see….Merrill Lynch (now part of BofA), Goldman Sachs, Morgan Stanley, Citigroup, Credit Suisse, Nomura, Jeffries (highly exposed to MF Global), HSBC, BNP Paribas, Deutsche Bank, Barclays, JPM, UBS (a mess), RBS (didn’t they go bankrupt?)! Yup – the Fed is absorbing another half trillion dollars worth of the fruits of the 99%’s labor to the same folks who did them in.
This means that on top of the $700bn TARP funds authorized by Congress in October 2008, the Federal Reserve has authorized WITHOUT Congressional approval the purchase of nearly three trillion of mortgage-backed securities that nobody else wants. These paper docs might even be worthless.
Well, it proves one thing – crime does pay if you don’t call it a crime. The real crime is the one-sided backdoor bailout that continues to flow from the autocratic playbook of the Federal Reserve. Where have our democratic principles gone? Where is government of the people and by the people? Who are these “officials” making unilateral decisions for the American public who have never been elected to any office?
How is it possible in a democratic republic that the Federal Reserve spends trillions of our dollars without our permission, indebts us for generations to come without even a vote by Congress? Granted Congress is miserably inept, but at least there should be a public debate!
One of the primary reasons we got into this mess is lack of transparency in the institutional debt markets. Yet the Federal Reserve deliberately hid trillions of dollars worth of loans and payouts to the biggest U.S. financial institutions. In fact, it took two years and the well-funded Bloomberg parent company to sue the Federal Reserve to find out where the money went. This week, Bloomberg reported again on the absurd inequity of secret Federal Reserve policy.
Here are some facts: The six “biggest” U.S. banks, JPM, Morgan Stanley, Goldman Sachs, Wells Fargo, Citi, BofA “received $160 billion of TARP funds.” And after all that loose change they “borrowed as much as $460 billion from the Fed’ at near zero percent. Richard W. Fisher, president of the Federal Reserve Bank of Dallas calls this policy “Un-American.”
Actually this shameless double standard in credit policy that allows the biggest most reckless financial institutions to benefit from clandestine taxpayer bailouts seems remarkably American. After all, greed really is “good” when you don’t have to follow basic rules of fair play. If you are too-big-to-fail and have $29 million to spare to hire lobbyists to do your bidding, you are made in the shade in U.S. finance. That’s capitalism American style: those with their hands in the pockets of the Fed pull the get out of jail card first.
The rest of us have quaint little customs to follow – like fiscal responsibility. We have to pay our bills with our own money, often at rape and pillage interest rates or suffer severe consequences. If you are a big bank with bad credit no problem – you can dip your hands into taxpayer coffers with abandon at little or no cost. And even better, with no shame or embarrassment to your good name – because no one will even know about it! But if you are one of the 99% and struggling to make ends meet, overburdened with bills and debt, you follow different rules: the Ordinary American Public rules.
It doesn’t matter if you lost your job, closed your business, had your income slashed, watched your home lose value, or are mired under mortgage or credit card debt, you are stuck. No one is going to lend you a hand. Ironically, least of all the lender or creditor who has one rule for you – pay or suffer – and another for themselves. This is what the government and politicians call “moral hazard.” It creates a moral “hazard” if the Fed relieves American consumer or homeowner debt. But it is sound fiscal policy if the Fed absorbs big bank debts and liquidates them with middle class money. The same people who find themselves in court facing judgments and foreclosure by too-big-to-fail lenders are bankrolling their legal teams. To the majority of Americans this is beyond moral hazard: it’s downright depraved.
So how does the Fed justify this outrageous policy? Fed spokesman, William English claims, “Our lending programs served to prevent a collapse of the financial system and to keep credit flowing to American families and businesses.” Really? Credit to American families, consumers and small-to-medium sized business is at record lows. The irony is that borrowers cannot relieve their debt due to high interest rates and poor credit histories that have left them rowing upstream without a paddle. The growing unrest among the nation’s overburdened middle class reveals far more than inequity of wealth distribution. It lays bare a deepening inequity of democracy in 21st century America.
Early Americans fought a revolution over taxation without representation. Little more than two centuries later, we are burdened once again with “bailouts without representation.” Moral hazard is real in post-crisis America. But you must have a moral framework to create hazard in the first place. The undemocratic Federal Reserve policies and continuing injustice of backdoor bailouts prove one thing: the American government no longer has a moral compass to stray from.
Read more of Monika Mitchell’s views on the economic crisis in: “Conversations With Wall Street: The Inside Story on the Financial Armageddon and How to Prevent the Next One.”
Category: Sustainable Small-B