Government Is Trying to Make Bailouts for the Giant Banks PERMANENT

George Washington's picture

Washington's Blog.

On September 25th, I wrote:

Paul Volcker and senior Harvard economist Jeffrey Miron both testified to Congress this week that the government is trying to make bailouts for the giant banks permanent.

 

Writing Wednesday in The Hill, Congressman Brad Sherman pointed out that :

In
my opinion, Geithner’s proposal is “TARP on steroids.” Section 1204 of
the proposal [the proposal being the "Resolution Authority for Large,
Interconnected Financial Companies Act of 2009"] allows the executive
branch to use taxpayer money to make loans to, or invest in, the
largest financial institutions to avoid a systemic risk to the economy.

Geithner’s
proposal reminds me of the Troubled Asset Relief Program (TARP), the
$700 billion Wall Street bailout adopted last year, but the TARP was
limited to two years, and to a maximum of $700 billion. Section 1204 is
unlimited in dollar amount and is a permanent grant of power to the
executive branch. TARP contained some limits on executive compensation
and an array of special oversight authorities. Section 1204 contains
absolutely no limits on executive compensation and no special oversight.

 

When
I asked Geithner whether he would accept a $1 trillion limit on the new
bailout authority (if the executive branch wanted to spend more, it
would have to come back to Congress), he rejected a $1 trillion limit,
insisting that the executive branch be able to respond without coming
back to Congress.

 

Both TARP and the Treasury proposal have
vague provisions under which taxpayers might possibly recover any money
lost through a special tax on the financial services industry. Under
the Treasury proposal, only the very largest institutions could benefit
from a bailout, but the special tax, if ever collected, would fall
chiefly on medium-sized institutions.

Thus, the medium-sized
institutions will be at a competitive disadvantage for two reasons.
First, the largest institutions will be able to borrow money more
cheaply because their creditors will believe that if the institution is
unable to pay, the taxpayers will. Second, if there ever is a bailout
benefitting a very large financial institution, the tax will be imposed
on the medium-sized institutions.

Sherman is a
senior member of the House Financial Services Committee and a certified
public accountant, so he has a good nose for analyzing proposed
financial regulations.

Last week, Sherman made the following comments to the Washington Independent regarding Congress' proposed bill on the too big to fails:

That
is a huge gravy train to the top 20 [financial institutions] because it
allows them to borrow money at a lower rate. Think of what this does to
moral hazard.

I’m not looking for a TARP on steroids with oversight. I’m looking for an end of TARP.

The House Committee on Financial Services will hold a hearing on the bill tomorrow,
with Tim Geithner, Sheila Bair, John C. Dugan (Comptroller of the
Currency), Daniel K. Tarullo (Governor, Board of Governors of the
Federal Reserve System), John E. Bowman (Acting Director, Office of
Thrift Supervision), Richard Trumka (President, AFLCIO), and others as
witnesses.

As the Washington Independent points out, Sherman is going to try to take Tarp off of steroids:

Sherman
said he intends to offer a series of amendments addressing the issue
during the Financial Services panel’s markup of the bill, which has yet
to be scheduled. Included will be a provision to cap the president’s
bailout authority at $1 trillion, and another to strip out the
resolution authority language entirely. A potential third proposal — to
create an oversight panel like that monitoring TARP funds — is one he’s
leaning against.

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Anonymous's picture

I don't think the little shit knows he & the rest of the elites have lost all credibility. He should be made to register as a lobbyist for Goldman Sachs.

-273's picture

Permanent supply of money flowing to big banks courtesy of taxpayers, with no special approval needed? And no limit? If this passes, it means game over, the people lost. SOld out by their own government.

It already happened pretty much, but this would really make it official.

 

Anonymous's picture

And all this in the sole hands of the Executive Branch?

Call it the Amerika Act.

time123's picture

Nice article. We really need to pay attention to what they are proposing and what is passing, otherwise, we'll likely get stuck with yet another bill!

time123

 

Anonymous's picture

The fact that they would bring this request up now, and not settle for a one trillion dollar limit, further proves that JPM, Citi, Bac, etc. have Trillions of off book losses still to come.
Geithner is certifiably insane, or else we who take this are.

Anonymous's picture

rob kirby gave a mind boggling interview here: http://www.miningstocks.com/radio/radio_archives/taylor20091027-2.mp3

the reason for the arbitrarily low interest rates and the tbtf bank guarantees is that these banks' issuances of interest rate swaps and like derivatives is that they consume an inordinate amount of treasury bonds....so although there may well be huge fed purchases of bonds especially from the cayman islands, the more likelier scenario is the need to support the vast centi-trillion sized derivatives markets....

he goes on to note that there are large scale failures to deliver which is indicative of enormous demand....

this is the story of the century....anyone looking for a collapse in the bond market is crazy....at least not until the derivatives market implodes.....

the vampire squids are raping and vandalizing the nation in a most ingenius way.....these thugs should be lynched....

Anonymous's picture

Oh dont you worry, they are going to get theirs!

We only have a little while longer before what Rob Kirby, Jim Sinclaire, FOFOA, and Jim Willie say is going to happen!

THE PONZIE ZOMBIES ARE AWAKING FROM THEIR SLUMBER AND THEY ARE HUNGRY FOR GOLD AND SQUID BLOOD!

GOT GOLD SUCKAS!

Anonymous's picture

Its real easy to end all of this folks!

STEP 1
WITHDRAW ALL PONZI PAPER PROMISES FROM BANKS.

STEP 2
EXCHANGE ALL PONZI PAPER PROMISES FOR PHYSICAL GOLD

STEP 3
STOP PAYING ALL FAKE DEBTS DENOMINATED IN PONZI PAPER.

Wow I feel like a free man now!

And Im actually supporting the constitution by not supporting the criminal bankers that have hijacked our financial system since 1913.

Join US! And share with a friend your freeing experience!

Anonymous's picture

Word!

Done!

Well at least 2 of us here will be rich ;)

Bear's picture

I thought Congress had the sole responsibility to spend money. If the Executive Branch can print money, give it to the banks and then direct them at will, why do we need congress ... and then if the Executive appoints the Judiciary to rule that the Executive can do this, why do we need the judiciary. And if BHO keeps going around saying 'I, I, I, I' then why do we need the executive branch. Fait de complete, he becomes Too Big To Fail.

Dr Horace Manure's picture

Too Black To Fail.

If you oppose Him you are a racist.

Pondmaster's picture

I think a civil imposed death penalty is appropriate at this time . Send em all to the park to feed the worms . Cement shoes would also be fitting . I hear Chicago harbor is beautiful this time of year .

TimmyM's picture

TBTF banks get bigger and more insolvent. FDIC premiums for regional and community banks skyrocket. Special assessments to prop up TBTF also crush smaller banks. Smaller banks have to compete in lending markets at a deposit liability cost disadvantage with TBTF banks. Smaller banks have to compete with bailed out institutions like Ally(GMAC)in brokered CD market. TBTF banks can issue pref stock and corporate bonds at better rates.
As propped up big banks use all these subsidies to artificially exist, they create massive excess capacity in banking services. This artificial and subsidizrd excess capacity strangles all bank profitability in Japanese lost decades situation. As the non TBTF business model is priced as dead money by equity markets, TBTF banks go on acquisition binge.
Meanwhile TBTF banks remain insolvent and subjected to more credit allocation type regulation. As in-if you want this next bailout, you must lend like this. New mandated lending through these zombie acquisition machines is the final completion of nationalized banking and central planning fascism from the left.

The only solution is for well capitalized community banks to create their own central bank and deposit insurance-hmmm

 

Anonymous's picture

TBTF banks get bigger and more insolvent. FDIC premiums for regional and community banks skyrocket. Special assessments to prop up TBTF also crush smaller banks. Smaller banks have to compete in lending markets at a deposit liability cost disadvantage with TBTF banks. Smaller banks have to compete with bailed out institutions like Ally(GMAC)in brokered CD market. TBTF banks can issue pref stock and corporate bonds at better rates.
As propped up big banks use all these subsidies to artificially exist, they create massive excess capacity in banking services. This artificial and subsidizrd excess capacity strangles all bank profitability in Japanese lost decades situation. As the non TBTF business model is priced as dead money by equity markets, TBTF banks go on acquisition binge.
Meanwhile TBTF banks remain insolvent and subjected to more credit allocation type regulation. As in-if you want this next bailout, you must lend like this. New mandated lending through these zombie acquisition machines is the final completion of nationalized banking and central planning fascism from the left.

Assetman's picture

They shouldn't even have a hearing on the merits of this Act.  They should dismatle it, burn it to the ground, and bury it 6 feet under.

Then they should start over with the concept of breaking up banks into functional pieces-- and treating the commercial banks no different than public utilities.  Let investment banks take their levered risks and casino profits... but let them die quick deaths if they guess wrong.

Mr. Geithner should be burned at the stake for suggesting limitless powers be given to the executive branch to finanically assist "interconnected" institiutions ad infinitum.  At least you can count on him being consistent about protecting is concentrated interests.

Congress would be well advised not to bring this bill past the committee stage.  Placing amendments in this piece of $hit, won't change the fact that it will still be a piece of $hit.

Anonymous's picture

If this passes muster , then the only way back to Capitalism from the current Deficitism is Nationalisation of the banking and financial industry. Lock stock and barrel.

Anonymous's picture

It seems as if this sad act of asking the American taxpayer to compensate for insolvency within the financial sector is akin to some given Northumbrian or Irish king taxing his populace in order to reimburse the Vikings for longboat fleet maintenance costs so that they can continue to raid aforementioned populace.

There is obviously a risk level at which enforcing the RICO Act becomes a politically unfeasible proposition.

Oft times when the inflation/deflation argument arises, I ponder the $600T derivatives complex (yeah, yeah, 'nominal value', blah, blah), and what an implosion of that brings to the argument. So many products, so little inherent value.

Anonymous's picture

Mmm $600T of mouth watering derivatives!

GOT GOLD SUCKAS!

Anonymous's picture

Indeed, they making us pay for the rope which will hang us.

Anonymous's picture

Hmm, Im not being hung. Nor am I paying for any rope. On the contrary, I took all my fake money out of the banks, bought physical Gold and am now sitting back relaxing and watching the epic catastrophe unfold that is our FAKE PAPER PONZI financial system.

GOT GOLD, PONZI SLAVES!

KevinB's picture

GOT GOLD, PONZI SLAVES!

I don't know where you live, but where I live, you can't spend gold to buy food, gas, or any of a dozen sundry items. You could buy gold coins, but since the 1oz Maple Leaf has a face value of $100, even though it costs $1200 to buy one, you'd be throwing 90% of your money away.

I believe gold is a good investment, but it's not practical for everyday life.

Anonymous's picture

You're just renting it until Obama and Company declares it illegal to own or sell. It may be a last ditch effort but part of the repeat script we're following. History repeats itself. Better just hope that it's more than $23 an ounce redeemable like back in 1933.

tip e. canoe's picture

wow only $1,000,000,000,000?

phew...nice to know someone in Congress is fiscally responsible.

Go get em, Brad!  you got our backs bro!

(pssst, by the way, why isn't this number ZERO?)

aus_punter's picture

anyone who voted in Obama should have paid more attention to his voting record and less to all the populist bullshit..

they are socialists

socialists take money from the masses and concentrate it in their own hands, protecting the weak and rewarding the failures

is, was, now and forever shall be comrades

Enkidu's picture

Rest easy - he is no socialist...

Dr Horace Manure's picture

Take "In God We Trust" off of our green toilet pap...um....money.

Our new moto should be "Reward Failure By Penalizing Success." 

Anonymous's picture

Uuhh...no, actually the last administration put TARP in place. Also, do yourself a favor and learn what socialism is. You are talking out of your anus.

Anonymous's picture

aus,

Firm grip you have on reality there, NOT! TARP was put in place by the last administration. Remove head from anus!

Anonymous's picture

Democrats and Republicans, black and white. Does it really matter when the Squid and the FED control them all.

heatbarrier's picture

From the homeland of modern Capitalism. At least they get it.

UK Government to break up the banks
Lloyds, RBS and Northern Rock will be split up in state sell-off

Lloyds, Royal Bank of Scotland and Northern Rock will be broken up and parts of their businesses sold off to create three new banks, it emerged last night.

Government sources said ministers were "determined" to see more competition in the market, following the £1.2 trillion bailout of the sector which resulted in the loss of three independent banks and several building societies.

Ministers want to drive competition in a sector they believe is too concentrated in the hands of the "Big Four" of Barclays, HSBC, Lloyds and RBS.

"We are keen to see greater competition in the banking sector as soon as possible," said a government source.

http://www.independent.co.uk/news/business/news/government-to-break-up-t...

GW: Good posts, I;m a fan. Great stuff.

Enkidu's picture

Breakup of Northern Rock going to need 8 billion quid and taxpayer to keep junk! Plus taxpayers to keep off-balance-sheet rubbish like Granite. Where do they get this money and why do we pay taxes - they seem to have an unlimited supply.

Mad Max's picture

Anyone have that Mussolini quote handy?  Seems like it should be chanted every morning in our public schools by now.

Anonymous's picture

If Barry O had his way, it would be chanted every morning in every home from sea to shining sea.

All hail Barry O and his Master the Vampire Squid!

Sqworl's picture

 BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius or employee of Government Goldman.

Miles Kendig's picture

True enough.

Yankees 0-1.  Better luck next time.

Anonymous's picture

The bailout of the auto industry is permanent.

Also, there seems to be a nervousness in Administration, Treasury and Fed officials.

None of them got particularly over joyed when the capital markets seemed to thaw the past six months. Normally politicians would claim victory at the slighest turn. Presumably they know we are no where near out of the woods....or worse, we have not seen the depth of the woods.....

snorkeler's picture

Perhaps nervous because they see that everyday more and more people are seeing that Wall Street & International banks control the US government.

99.9% of the population is sucking hind tit and Wall Street continues to gain, gain, gain. 

The administration" in kabuki theater like fashion scolds the bankers. They turn around 20 seconds later and the party they just scolded the bankers for is raging on like a fucking out of control ether binge in a glass blowing factory.

Anonymous's picture

If this seems a bit conspiratorial it might be....but some good interviews with Black, Keiser, and others

Fall Of The Republic - The Presidency Of Barack H Obama

http://www.youtube.com/watch?v=F8LPNRI_6T8

Anonymous's picture

anyone who thinks that conspiracies don't and can't
happen is a stupid fucktard....

obama is a kenyan born indonesian usurper of
the throne and the sooner that fuck is thrown
out from office the sooner we can start reclaiming
the republic....

until that happens you can give up your country
and put your ankles in shackles, carry a ball
and chain, and put a dunce cap on your pointed
little head....

www.obamacrimes.com

Anonymous's picture

BURN THE PAPER PONZI TO THE GROUND!

ghostfaceinvestah's picture

Highly recommended, I have watched it 3 times myself.

snorkeler's picture

Don't understand why more people don't see this clearly. This is great stuff.

The internet has been the only medium that has allowed this type of communuication to be widely distributed. That is why they want to take control of it.

 

 

Miles Kendig's picture

The hits just keep on rolling as all pretense is stripped away.  Makes me wonder why they are seeking this particular authority at this particular time.  After all, the time for prophylactic action is long past.

Missing_Link's picture

Are you sure?

Might I suggest that not all the shit has yet hit the fan.  And in fact, there may be a great deal more.

SWRichmond's picture

Agree.  This thing ain't over yet.  Spread the fuck out.

Miles Kendig's picture

Agreed ML, big time.  More mop up is on the way for sure.  Especially since most of the actions to date have done little to nothing to minimize and deflate risk and have simply been a transfer mechanism to the public.  There are the known knowns and there are known unknowns, but what will be interesting will be the unknown unknowns.  Thank you DR for this lingo.

Anonymous's picture

The time for prophylactic action was about 9 months before these clowns were born

agrotera's picture

I'm wondering if it isn't for a regional bank/broker/gambling house....this may be a way of giving the toobigtofail  a particularly good deal...since barney frank says that it will be painful it will probably bepainful for a smaller regional bank, that means someone else is getting a great deal--so I am thinking it is to make the toobigtofail bigger with the pieces of smaller houses on the cheap.