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Will Americans Pay to Bailout Yet Another Foreign Bank ... in Afghanistan?

George Washington's picture




 

Washington’s Blog

As I have repeatedly pointed out, American taxpayers have been bailing out foreign banks for years.

For example, I noted in May:

As the Wall Street Journal points out, the Federal Reserve might open up its "swap lines" again to bail out the Europeans:

The
Fed is considering whether to reopen a lending program put in place
during the financial crisis in which it shipped dollars overseas through
foreign central banks like the European Central Bank, Swiss National Bank and Bank of England.

***

At a crescendo in the crisis in December 2008, the Fed had shipped $583 billion overseas in the form of these swaps.

As the BBC's Robert Peston writes:

There
is talk of the ECB providing some kind of one year repo facility
(where government bonds are swapped for 12-month loans) in
collaboration with the US Federal Reserve.

See this for more information on swap lines.

Indeed, the Federal Reserve has been helping to bail out foreign central banks and private banks for years.

For example, $40 billion in bailout money given to AIG went to foreign banks. Indeed, even AIG's former chief said that the government used AIG "to funnel money to other Institutions, including foreign banks".

As the Telegraph wrote in September 2008:

The Fed has also just offered another $125bn of liquidity to banks outside the US that are desperate for dollars and can't access America's frozen credit markets.

Congressman Grayson said that the Fed secretly "stuffed" half a trillion dollars in foreign pockets.

(Of course, the Fed won't tell Congress or the TARP overseer - let alone the American people - who got the cash).

And as I pointed out the same month:

A Fact Sheet from the U.S. Treasury says:


Participating
financial institutions must have significant operations in the U.S.,
unless the Secretary makes a determination, in consultation with the
Chairman of the Federal Reserve, that broader eligibility is necessary
to effectively stabilize financial markets.

An article from today in Politico explains

"In
a change from the original proposal sent to Capitol Hill,
foreign-based banks with big U.S. operations could qualify for the
Treasury Department’s mortgage bailout, according to the fine print of
an administration statement Saturday night."

Of course, even much of the bailout money which went to American banks ended up being shuttled abroad. As I wrote in March 2009:

Moreover, bailout money that went to Citigroup was loaned to Dubai, bailout money that went to Bank of America China was invested in China, and bailout money given to JP Morgan was invested in India.

And the government is in the process of providing billions more - along with trillions more in guarantees of worthless assets - to sovereign wealth funds and hedge funds.

So not only are Americans bailing out our own too big to fail banks, but we're bailing out foreign mega-banks as well.

Even
though bailing out Europe might make sense if America was flush with
cash, things are different now. As Congressmen Kucinich and Filner wrote last June:

Our country and this body cannot afford to spend American tax payer dollars to bail out private European banks.

In addition, the U.S. is - of course - also contributing tens of billions of dollars
towards the Greek bailout through its contributions to the
International Monetary Fund. Some allege that the U.S. will secretly
help bailout of all of Europe. See this and this.

As Tyler Durden pointed out last week, the IMF has now abandoned any cap on the bailouts it gives, and the U.S. is the largest funder of the IMF.

Now, the New York Times says that the U.S. is going to bail out Afghanistan's biggest bank:

Details
of the deal, including how much each government would contribute, were
still being worked out on Saturday between the Central Bank of
Afghanistan and the United States Treasury Department, officials
said...

Top officials at Kabul Bank and a senior leader at the
Central Bank declined to comment publicly on the proposed bailout,
which was still being negotiated. However a manager at the Central Bank
and a senior American official confirmed what the American official
called an "intervention."

Not surprisingly, there have been numerous allegations of corruption at the Kabul Bank.

Update: The New York Times has updated
their story with comments from U.S. Treasury officials insisting that
no American money will be used to recapitalize the Kabul Bank:

"No American taxpayer funds will be used to support Kabul Bank," said Jenni LeCompte, a Treasury Department spokeswoman.

Of
course, the IMF, World Bank or a foreign country could funnel the bailout
moneys and then the U.S. could print more money to "repay" them later.
Accounting shenanigans and under-the-table deals can work wonders to
hide the truth from angry American serfs taxpayers.

 

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Sun, 09/05/2010 - 01:16 | 564338 blindman
blindman's picture

fiat triangle

Sun, 09/05/2010 - 00:15 | 564294 Dr. Sandi
Dr. Sandi's picture

There's a strange symmetry at work here.

Undoubtedly, the original money the Kabul banks were loaning out 10 to 30 times was those wooden pallets of FRNs that 'nobody' can trace.

Now that they've been properly stolen, leveraged and restolen, the Fed is going to print up replacements. Probably shipping them over on more wooden pallets.

Maybe, if we're lucky, somebody will round up all the pallets and ship them back here for us senile citizens to play with. And that's probably about the best return we can hope for on our investment.

Sat, 09/04/2010 - 23:57 | 564281 whatsinaname
whatsinaname's picture

anything wrong with buying some prime property in Palmyrah (Dubai) ?

nah..BB will cover the costs.

Sat, 09/04/2010 - 23:50 | 564276 Segestan
Segestan's picture

Oh.. but I heard Americans only abuse Illegal Immigrants. How can American's now be told, without asking,  they are helping a foreign bank?  No way!!!

Sat, 09/04/2010 - 23:49 | 564274 tom a taxpayer
tom a taxpayer's picture

Next the U.S. and Afgan govts will issue joint communique saying that the Kabul bank run crisis is "contained".

Sat, 09/04/2010 - 21:28 | 564141 knightmare
knightmare's picture

At the bank’s main branch, an environmental engineer named Hamid disagreed. He had waited more than five hours to fill his straw vegetable sack with his entire savings: $100,000.

“I don’t trust my government,” he said, gripping the sack tightly. “They lie. I’m an old man, and I have enough experience in my life to know how this government is."

 

He understands Austrian Economics. Run on the Bank!!

Sun, 09/05/2010 - 02:16 | 564363 SoCalBusted
SoCalBusted's picture

I can't quite tell, is Hamid located in the US?

Sat, 09/04/2010 - 22:08 | 564167 johnnynaps
johnnynaps's picture

New age economics:

1. Pay taxes when you are young enough to establish a base with social security.

2. As you age, learn the blackmarket.

3. Make as much as you can in the blackmarket in the last 10 years before retirement.

4. Don't trust anyone.

5. Invest 10% of your income in physical gold.

6. Forget that $60k sports car, a $10k crotch-rocket goes even faster.

7. Materialism just leaves you susceptible to being "let down", for everything breaks quickly these days and costs money to replace.

8. Exercise, eat healthy and cut your hair like a state trooper to avoid unneccessary tickets and prolong the quality of your life.

9. Your home is not an ATM.

10.Travel, Drink, Bone and have fun.......then look back and say "at least I accomplished something"!

Sun, 09/05/2010 - 00:09 | 564293 Dr. Sandi
Dr. Sandi's picture

Wise words, napster!

Two comments though. Number 6. Bikes scare the crap out of me, so I'm sticking with the 8 year old Odyssey.

And the second part of number 8:

8. Exercise, eat healthy and cut your hair like a state trooper to avoid unneccessary tickets and prolong the quality of your life.

After cutting my hair like a state trooper, intriguing bull dykes keep pestering me, which makes my regular mates nervous.

Sat, 09/04/2010 - 19:39 | 564065 digalert
digalert's picture

"No American taxpayer funds will support Kabul Bank"

                   Now listen to me,

US taxpayer funds will be used to BAIL out Kabul Bank.

whether you like it or not.

Sun, 09/05/2010 - 07:22 | 564458 Treeplanter
Treeplanter's picture

True.  They will deny it.  Time will pass.  They will do it.

Sat, 09/04/2010 - 21:59 | 564161 knukles
knukles's picture

"No American taxpayer funds will be used to support Kabul Bank,"

But, technically, that is absolutely, positively, without question, undeniably True.

The spokes person was from treasury, which is the repository for all governmental receipts and disbursements.  That, is undeniably Taxpayer Money.

Swap lines from of the Federal Reserve and attendant collateral are respectively liabilities and assets of and on the balance sheet of the Federal Reserve and thus, do not constitute Taxpayer Monies.  The Fed is owned by member (private) banks, not the Federal (Taxpayer) Government.

The statement is correct. 

However, the expansion of the US dollar denominated money supply (liability side of the Fed's balance sheet) has a material effect upon the economic well being of every single American as does the quality of the collateral held against the swaps (asset side of the Fed's balance sheet) and when those get to big and or the quality thereof deterioratestoo far (read Zimbabweization) the the American taxpayer is negatively impacted.

This is exactly why Ron Paul and others of the same ilk (author included) keep worrying and warning of.  The Fed is not audited, reports loosely to Congress and pretty much does as it damned well sees fit.

To wit.....  Bernankethe other day said that the Fed had no power to save Lehman.  Let's, for the sake of argument, accept that as is, complete, correct, honest and indisputable.  Then, where the fuck did they get the power to bail out AIG? 

Why do most in DC not take Ron Paul's efforts seriously?  Not wanting to kill it's own Candy Land Machine?

Sat, 09/04/2010 - 19:31 | 564052 DavidC
DavidC's picture

Hmmm, always thought how well dressed the Karsais are.

DavidC

Sun, 09/05/2010 - 06:56 | 564454 Popo
Popo's picture

No, that money comes from being on the board of Chevron. (you know, the company that miraculously got the Afghan gas rights).

Condy Rice is also on the board. She championed Karzai's appointment.

Any questions?

Sat, 09/04/2010 - 19:18 | 564040 max2205
max2205's picture

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Breaking News Alert: Obama's economic team considering new stimulus package September 2, 2010 5:21:20 PM
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With the recovery faltering less than two months before the November congressional elections, President Obama's economic team is considering another big dose of stimulus in the form of tax breaks for businesses -- potentially worth hundreds of billions of dollars, according to two people familiar with the talks. Among the options are a temporary payroll tax holiday and a permanent extension of the research and development tax credit, say people familiar with the talks.

http://link.email.washingtonpost.com/r/0H2RO6/0GGQXY/2V9IAW/F1R6GN/NGQ5Z...

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