We’ve been played …

There is little doubt in my mind that the major financial players have played the American people. Through a combination of “revolving door” political appointees and paid lobbyists, they have managed to corrupt politicians and the regulatory agencies to manipulate the financial sector to their own advantage.

And it is all starting to make sense …

On December 3, 2007, I posted a list of financial institutions and asked if the top three banks were candidates for merger/acquisition to prevent their collapse.

Looking back over the list, we find that:

• Citibank, being one of the nation’s signature financial institutions is still in business – apparently by the grace of unseen hands at the U.S. Department of the Treasury and the Federal Reserve.
• Countrywide Bank is no longer in existence, the assets were acquired by the Bank of America.
• Washington Mutual Bank is no longer in existence, the assets were acquired by JPMorgan Chase.
• RBS Citizens Bank still operates as a wholly owned subsidiary of the Royal Bank of Scotland Group, with the company's controlling shareholder being the British government.
• Sovereign Bank is still operating and is a wholly owned subsidiary of the Spanish Grupo Santander.
• World Savings Bank is no longer in existence, the assets were acquired by Wachovia. Wachovia was acquired by Wells Fargo.
• U.S. Bank is still operational and appears to be one of the best managed banks in the group.

So why am I not surprised to find that Bloomberg Financial is reporting …

“Secret Fed Loans Helped Banks Net $13B”

“The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. No one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.”

“The Treasury Department relied on the recommendations of the Fed to decide which banks were healthy enough to get TARP money and how much, the former officials say. The six biggest U.S. banks, which received $160 billion of TARP funds, borrowed as much as $460 billion from the Fed, measured by peak daily debt calculated by Bloomberg using data obtained from the central bank.”

We now know that the Treasury Department was either disingenuous or incompetent because it is apparent that some of these financial institutions may have been technically insolvent when decisions were being made. It is one thing to argue that these institutions are systemically important and needed to be kept afloat to prevent a domino-like cascading crash of the financial industry; and quite another to pretend that these institutions were solvent and posed little systemic risk.

I remember one story floated in the media that some of these big financial institutions were “forced” to take billions of government cash in order to protect the weaker institutions among them from being stigmatized and precipitating a bank run. What a crock?

“The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma -- investors and counterparties would shun firms that used the central bank as lender of last resort -- and that needy institutions would be reluctant to borrow in the next crisis.”

The big six …

‘The six -- JPMorgan, Bank of America, Citigroup Inc., Wells Fargo & Co. Goldman Sachs Group Inc., and Morgan Stanley --accounted for 63 percent of the average daily debt to the Fed by all publicly traded U.S. banks, money managers and investment-services firms, the data show. By comparison, they had about half of the industry’s assets before the bailout, which lasted from August 2007 through April 2010. The daily debt figure excludes cash that banks passed along to money-market funds.”

How big a bailout?

“$7.77 Trillion”

“The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he“wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.”

So where did it go? What counterparties were made whole and what counterparties were disadvantaged?

What should happen to those who have been caught overtly lying to their shareholders or even lying by omission?

“On Nov. 26, 2008, then-Bank of America Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed ‘one of the strongest and most stable major banks in the world.’ He didn’t say that his firm owed the central bank $86 billion that day.”

Compared to Citibank, perhaps he was telling the truth; as I had always believed that Citibank may have been technically insolvent and much of the government’s machinations were designed to protect this signature bank.

“JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed’s Term Auction Facility ‘at the request of the Federal Reserve to help motivate others to use the system.’ He didn’t say that the New York-based bank’s total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program’s creation.”

But he wasn’t the only one lying through his teeth as there were those in Congress swearing that the Government Sponsored Entitites, Fannie Mae and Freddie Mac, were well capitalized and soundly run enterprises. Had these statements been made by corporate officers without the protections of Congressional immunity, they would be behind bars.

Bottom line …

What have we learned?

One, through massive government corruption, many financial institutions were allowed to engage in unsound practices which were never detected, deterred or prosecuted by the regulatory agencies.

Two, through the Federal Reserve’s ZIRP (Zero Interest Rate Program) the financial institutions were re-capitalized at the expense of shareholders and depositors. Forcing those who lived on fixed incomes, required their nest-egg or who were facing retirement, earned a paltry return on their investment while the financial institutions were charging 22.9% or more to carry the debt of daily living expenses. Not to mention the multi-million dollar bonuses for executives who did little or nothing to earn these windfall profits.

Three, many of the financial institutions that were judged to be “too big to fail” have gotten larger.

Four, the executive bonuses which were roundly criticized by all – continue unabated and undisclosed.

What can we do?

Other than march around like fools on Wall Street, perhaps we should be marching on the White House and institutions of government that allowed this economic catastrophe to occur on their watch.

But more than that, we need to boot the bastards out of office – along with their political nominees who turned a blind-eye to the developing tsunami or incompetently failed to do their jobs.

People are upset, myself included, as we continue to learn the depths of the corruption within the political system that allowed the resources of our nation’s citizens to be drained into the pockets of the politically-connected special interests.

Perhaps presidential candidate Ron Paul is correct when he calls for the Federal Reserve to be abolished. Not that I endorse Paul or his whack-job foreign policies, but it seems that the Fed has not been truthful with the American people and has been operated like the private bank it is – for the profit of its owners. And perhaps that’s where we need to start, even before an audit, to disclose the ownership shares of the Federal Reserve and how much money has been down-streamed to these investors.

The 2012 election cycle is now upon us and we have little choice but to make things right. We can no longer trust President Obama, a socialist who is out to bankrupt our nation. We can no longer trust the democrats with the progressive policies which brought our nation to the brink of insolvency. And we are barely able to trust the GOP which proved that they were not the party of fiscal restraint and could act like progressives given the opportunity by circumstance.

We need to elect constitutional conservatives and unlike my best friend Al who believes that Barack Obama will be re-elected, we are now faced with only two viable candidates: Romney and Gingrich. And as the lesser of evils, I will go with Gingrich because he has proven he can work with competing congressional factions and has balanced a budget.

-- steve

Reference Links …

ARE THE TOP THREE BANKS ON THIS LIST AT RISK FOR MERGER/ACQUISITION TO PREVENT THEIR COLLAPSE? (Updated)

Secret Fed Loans Helped Banks Net $13B – Bloomberg

Banks forced to take bailout money they don’t want or need