We Profited From Bank Bailouts

Posted by Ray on August 31, 2009 under Main | Be the First to Comment

According to the New York Times the US taxpayer has profited from the bank bailouts, I am still waiting for my tax credit or dividend check, either is fine by me. However, I find this hard to believe since we really do not know the full extent of the bailouts given out by the Fed. Since we do not know the full extent of the bailout I think it is unrealistic to assume we made any money at all.

According to the article the taxpayer earned about $4B from the bailout, but CIT received some $2.2B which we are not likely to see any return of principal from at all. Not to mention that we do not know if any of the 84 bank failures received any Federal funds or not there is no way we can make the judgment that we made any money on anything. I am not saying that we definitely did not profit or will not profit, but I am saying that there are only a few instances that we know of that we can verify we made or lost anything.

Certainly we will suffer some losses on the AIG, Freddie and Fannie rescue which cost us hundreds of billions of dollars which would make a $4B gain seem truly insignificant. Not to mention that, supposedly, the Fed made some $12 trillion available to banks, but that money is completely unaccounted for. Based on just that evidence I find it extremely difficult to see what or where we stand and with the Fed blocking everyone’s view of who received what last fall we will likely never know exactly what we risked and what we own from these banks.

The article goes on to say that we should all breathe a sigh of relief that the government acted and no further catastrophe happened in the financial system. Of course, they must not remember the time between November and March where the S&P had a pretty steady decline to 666, ironic if I do say so myself. During that decline those who did not go out lost trillions on their investments and more than likely sold near the lows. If they did not then they are just about flat since that time frame. My point is that people did feel more pain as the banks received their bailouts and bonuses in most cases. I guess I just don’t feel as lucky as the expert’s claim I should.

The irony is that we are still owed some $6.2B from banks that have not paid their dividends yet to the government. It is unclear whether they were referring to the quarterly dividends or if the banks received a pass on interest payments because of their weakened state, I am betting on the latter. One must not forget that BoA and Citi are still deeply troubled, according to the Times, and we could still suffer substantial losses on those investments.

The complete irony to this whole situation is the fact that none of these institutions showed any sign of strength until the FASB curbed its mark-to-market rules. It is a very safe bet that if the mark-to-market rules were in effect we would still have tremendous problems with most of these banks, of course profits went through the roof upon the relaxing of these rules. The banks also survived the stress test which was nothing more than, in my opinion, propaganda as we are at the top end of the ‘rigorous’ parameters of that test as we speak. If things do get worse then it is safe to assume that the stress tests were, more or less, for show and confidence.

Considering the escalating rate of delinquencies across all types of credit lines these institutions are facing more trouble in the near future. If the FASB gets its way and banks have to mark loans-to-market then forget it as most banks would have to write down hundreds of billions more in bad loans. Because of that I do not think that the FASB will get its way, even though they should because it is honest accounting.

The bottom line seems to be that fancy accounting seemed to fix the problem, but that will not be the long-term solution. I am not rooting for bank failures, but I am rooting for full disclosure of bank assets, like SIV’s and other “off” balance sheet assets to be thrown into the mix. If you do not truly know what risk the bank has, on or off the balance sheet, then you cannot make an educated or informed decision. Without knowing exactly who and what the Fed did last year we have no idea if we are profitable or not on these bailouts, not that it matters because even though we put up the money we never get any of the return.

We simply cannot have the Fed printing and loaning out money to banks and not be told what is going on. This is our money that we are talking about and we deserve to know what exactly happened and who benefited. No one is talking about politicizing the Fed, but what we are asking for is transparency of what they are doing because at the end of the day we, the taxpayer, will either suffer from their mismanagement or benefit. Until we know what happened or who got what then there should not be any reports of a profit or loss because we just do not know. Government, under any circumstances, is not entitled to privacy, period.

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The Fed Audit Bill

Posted by Ray on July 29, 2009 under Main, The Federal Reserve | Be the First to Comment

The Federal Reserve is fighting tooth and nail to prevent the bill to audit its balance sheet. When asking yourself why the Fed would fight this bill so hard one only needs to look at how they conduct their business, in secrecy.

The FMOC meetings are done privately with vague notes released well after the meeting. During these meetings the reserve governors decide on interest rate policy, whether to lower or raise them, and give their general predictions on the economy. Bernanke believes that the bill to audit the Fed may impact these meetings by applying political pressure on these decisions. That argument is just plain ridiculous.

What the Fed does not want anyone to know is how much money is outstanding and who is borrowing what, that is what the bill aims to gather information about. The Fed is the countries bank and we know very little about it other than what is released to us by the fed itself. What kind of transparency do we really have with that type of system?

Since the fed has resisted telling us who borrowed TARP funds, which is a simple request I might add, why should we trust anything they tell us. We have no idea how much gold is left in our reserves and we have very little idea of what other emergency lending the fed has done over the past year. To resist an audit is admission that there is something they do not want us to see.

The fed is a private company who has shareholders, the very banks it lends to, and those shares pay a 6% dividend yield. The shares are not redeemable on any open market, they are private shares. Every time the US Mint prints a dollar it literally borrows the money from the federal reserve which charges the government interest, in other words it is their money we are borrowing, not the countries money.

Given that we pay the fed through interest on our debt I would think they would be happy to accommodate requests of its client for transparency. For example, the fed stopped issuing the M3 money report, why, it is relevant because it gives us a real snapshot of how much money is in the system. They simply want to keep their power and do not want the US citizens to know what they are doing.

As Ron Paul, who introduced the bill, said; “The Fed clearly cherishes its vast power to create and spend trillions of dollars. The only accountability the Federal Reserve has is ultimately to Congress.” and we know how effective Congress is at asking questions, they spend 5 minutes kissing ass before the first question is even asked.

Here is another great quote; “I understand your concern about the Fed’s independence, but you are the one that threw away the independence by acting as an arm of the Treasury and engaging in fiscal policy,” Kentucky Republican Senator Jim Bunning told Bernanke at a July 22 hearing. “Would you rather have an audit of the Fed or give up all of your non-monetary-policy functions?”

Bernanke told the Financial Services Committee that the Fed’s ability to repair the credit markets demonstrates the value of leaving the central bank with broad lending authority.

“We’ve been fairly successful,” he said.

Successful, are you kidding me? The US dollar has lost 95% of its buying power since 1913, when the fed was enacted, and you think that is a good job? The fed left rates extremely low and encouraged “more innovative” mortgage products over the past decade, i.e. ARM and inverse amortization loans. The fed caused our probles and they did a good job? What kind of drugs are they taking. However, Senator Bunning made a point, let us audit you or we will take some of your powers away.

We need to know what our central bank is doing and the only way we can do this is through a real audit.

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Investigate the Federal Reserve

Posted by Ray on July 10, 2009 under Main | Be the First to Comment

There is talk about investigating the Fed and to do an audit. The media is saying it is politicizing the Federal Reserve, that’s bull. The idea is to make sure the people who print and LOAN us our money, and is a private organization, is following the rules.

Frankly, our founding fathers would be ashamed that we have the Federal Reserve, let alone taxes and the Patriot Act. We need to make sure that the organization who is the lender of last resort and the US’s own bank, is following the basic rules.

Guess what, they probably are not. We deserve to know what the Fed is doing and how they are doing it, regardless of the unintended consequences, which are few if any. I full support investigating and auditing the Federal Reserve and to accuse the investigation with politicizing the Fed is the biggest piece of yellow journalism I have seen in a long time. If you do not understand the difference between investigating and politicizing an organization you should just shut up.

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