I've been really encouraged to see Obama hit the ground running and, for instance, announce the coming repeal of tons of Bush (de)regulatory decisions.
But things are happening so fast on the financial side that even such rapid action may not be sufficient to limit the damage currently being done by the Busgh administration in its dying days.
Consider the following appalling stories from this week-end:
First, this item reported in the WaPo (and also diaried by skosb) about yet another present made to banks:
A Quiet Windfall For U.S. Banks
With Attention on Bailout Debate, Treasury Made Change to Tax Policy
The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.
But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.
Then this new plan for AIG announced in the Wall Street Journal:
The U.S. government reached a deal Sunday night to scrap its original $123 billion bailout of American International Group Inc. and replace it with a new $150 billion package, according to people familiar with the matter.
(...) the arrangement stands to considerably ease terms on the faltering insurer
which is described as follows on naked capitalism:
AIG should have no rights at this point. Zero. Zip. Nada. The government already on the hook for an open-ended liability. Yet the Fed is treating AIG as a party that has rights and is negotiating with them, as opposed to dictating terms. This is staggering.
not only was the initial AIG de facto bankruptcy a case of looting, the government has now decided to aid and abet AIG management in further looting.
But wait, this is not over. paul94611 linked to the following articles earlier this morning:
Nov. 10 (Bloomberg) -- The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.
Total Fed lending topped $2 trillion for the first time last week and has risen by 140 percent, or $1.172 trillion, in the seven weeks since Fed governors relaxed the collateral standards on Sept. 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank's purchase of Fannie Mae and Freddie Mac bonds.
So, there you go:
- the $700 billion bailout;
- an additional $140 billion in tax breaks for banks;
- $150 billion for AIG, on much sweeter terms than they were paying for the earlier $85 billion bailout (with a whoopping 5% drop in the interest rate they have to pay, for instance);
- lest we forget, the $29 billion guarantee to JPMorgan for Bear Stearns assets (but that's almost small change now);
- and $1,200 billion new liabilities on the Fed's (ie ultimately the taxpayers') balance sheet, backed by mostly junk paper;
But maybe this explains things:
Nov. 10 (Bloomberg) -- Let’s say you were the chief risk officer of the former Bear Stearns Cos. in the two years preceding the bank’s collapse in March.
And let’s say, just for argument’s sake, that the postmortems revealed Bear to have had too much risk and too little management of it. The only way JPMorgan Chase & Co. would agree to acquire Bear was with a $29 billion sweetener from the Federal Reserve for some of the less-palatable assets.
Following the acquisition of Bear Stearns by JPMorgan, you would expect said chief risk officer to:
a) Retire quietly to his country home;
b) Open a "consulting" business, allowing him to deduct the costs of a home office at the country home;
c) Land a plum job offer from another Wall Street bank;
d) Land a job as a bank supervisor at the Federal Reserve.
If you picked a, b or c, you would be incorrect. The correct answer is d.
Michael Alix, chief risk officer at Bear Stearns from 2006 until its demise in March, was named senior vice president in the Bank Supervision Group of the New York Fed on Oct. 31.
It’s not unusual for Wall Street to reward its own, offering rogue traders -- the ones who escape criminal prosecution -- new jobs at different firms. But the Fed? At a time when its balance sheet is exploding with increasingly risky assets?
Lack of accountability seems to be the hallmark of the outgoing administration, this is sadly not news. But right now that painful fact is bringing about a transfer of wealth of close to $2 trillion from the taxpayers to the financial world which needs to be stopped before it's all gone.
The tax rule seems reversible, as might be the terms of the AIG loans (given who now owns AIG). The Fed's behavior and its disclosure behavior should be reviewed urgently.
I hope Obama and his team are on the case right now.