Spitzer: Punish the Fed, Wall St. for misleading us

Tea Partyers and slash-the-debt types on the right will greet this news with a yawn. "What about Solyndra!" they'll reply. $500 million vs. $7 trillion. They just don't get it. They're dupes.

Meanwhile, OWS has its heart in the right place but its head who knows where, and doesn't give a hoot about parties or elections, so we can't count on them.

The remaining adults in the room are either silent or crazy. It takes a lot of audacity to be hopeful these days....

A Secret Scandal

The government and the big banks deceived the public about their $7 trillion secret loan program. They should be punished.

By Eliot Spitzer

November 30, 2011 | Slate

Imagine you walked into a bank, applied for a personal line of credit, and filled out all the paperwork claiming to have no debts and an income of $200,000 per year. The bank, based on these representations, extended you the line of credit. Then, three years later, after fighting disclosure all the way, you were forced by a court to tell the truth: At the time you made the statements to the bank, you actually were unemployed, you had a $1 million mortgage on your house on which you had failed to make payments for six months, and you hadn't paid even the minimum on your credit-card bills for three months. Do you think the bank would just say: Never mind, don't worry about it? Of course not. Whether or not you had paid back the personal line of credit, three FBI agents would be at your door within hours.

Yet this is exactly what the major American banks have done to the public. During the deepest, darkest period of the financial cataclysm, the CEOs of major banks maintained in statements to the public, to the market at large, and to their own shareholders that the banks were in good financial shape, didn't want to take TARP funds, and that the regulatory framework governing our banking system should not be altered. Trust us, they said. Yet, unknown to the public and the Congress, these same banks had been borrowing massive amounts from the government to remain afloat. The total numbers are staggering: $7.7 trillion of credit—one-half of the GDP of the entire nation. $460 billion was lent to J.P. Morgan, Bank of America, Citibank, Wells Fargo, Goldman Sachs, and Morgan Stanley alone—without anybody other than a few select officials at the Fed and the Treasury knowing. This was perhaps the single most massive allocation of capital from public to private hands in our history, and nobody was told. This was not TARP: This was secret Fed lending. And although it has since been repaid, it is clear why the banks didn't want us to know about it: They didn't want to admit the magnitude of their financial distress.

The banks' claims of financial stability and solvency appear at a minimum to have been misleading—and may have been worse. Misleading statements and deception of this sort would ordinarily put a small-market player or borrower on the wrong end of a criminal investigation.

So where are the inquiries into the false statements made by the bank CEOs? And where are the inquiries about the Fed and Treasury officials who stood by silently as bank representatives made claims that were false, misleading, or worse?

Only now, because of superb analysis done by Bloomberg reporters—who litigated against the Fed and the banks for years to get the information—are we getting a full picture of the Fed and Treasury lending. The reporters also calculated that recipient banks and other borrowers benefited by approximately $13 billion simply by taking advantage of the "spread" between their cost of capital in these almost interest-free loans and their ability to lend the capital.

In addition to the secrecy, what is appalling is that these loans were made with no strings attached, no conditions, and no negotiation to achieve any broader public purpose. Even if one accepts the notion that the stability of the financial system could not be sacrificed, those who dispensed trillions of dollars to private parties made no apparent effort to impose even minimal obligations to condition the loans on the structural reforms needed to prevent another crisis, made no effort to require that those responsible for creating the crisis be relieved of their jobs, took zero steps towards the genuine mortgage-reform that is so necessary to begin a process of economic renewal. The dollars lent were simply a free bridge loan so the banks could push onto others the responsibility for the banks' own risk-taking.

If ever there was an event to justify the darkest, most conspiratorial view held by many that the alliance of big money on Wall Street and big government produces nothing but secret deals that profit insiders—this is it.

So what to do? The revelations of the secret loan program may provide the opportunity for Occupy Wall Street to suggest a few concrete steps that would be difficult to oppose.

First: Demand a hearing where the bank executives have to answer questions—under oath—about the actual negotiations, or lack thereof, that led to these loans; about the actual condition of each of the borrowing banks and whether that condition differed from the public statements made by the banks at the time.

Second: Require the recipient banks to use this previously undisclosed gift—the profit they made by investing this almost interest-free money—to write down the value of mortgages of those who are underwater. The loans to the banks were meant to solve a short-term liquidity problem, not be a source of profits to fund bonuses. Take back the profits and put them to a public use.

Third: Require the government officials responsible for authorizing these loans to explain why there was no effort made to condition these loans on changes in policy that would protect the public going forward.

Fourth: Ask congress to examine every filing and statement made to Congress by the banks about their financial condition and their indebtedness to see if any misrepresentations were made in an effort to hide these trillions of dollars of loans. Misleading Congress can be a felony, and willful deception of the Congress to hide the magnitude of the public bailouts should not go unprosecuted.

Finally: Demand that politicians return all contributions made by the institutions that got hidden loans. Pressure the politicians who continue to feed from the trough of Wall Street, even as they know all too well how the banks and others have gamed the system and the public.

Spitzer: Break the banks

Yeah, he slept with a hooker, and he lost the NY governorship for it, but if he's right he's right.

Break the Banks

By Eliot Spitzer

October 1, 2009 | Slate.com

The Obama administration, which has spent much of the past year bailing out banks and protecting the markets, has done shockingly little to help the middle class that has borne the brunt of the financial meltdown. Two acts are particularly revealing. First, the administration failed to go to the mat to give judges the power to reform mortgages in the bankruptcy context. The administration barely winced as the Senate caved to the banks on this critical issue, risking no political capital to protect one of the few reforms that could have totally transformed the mortgage crisis. As the foreclosure wave continues, and as adjustable-rate mortgages hit reset points that are going to cause havoc for millions of additional families, this failure of political leadership by the administration stands as one of the early warning signs that things were amiss.

The second act is the recent—equally difficult to understand—concession to the banks, allowing them not to be required to offer what are called "plain vanilla" mortgages and other products to consumers. These products are simpler, more understandable, less ridden with fees, and less prone to long-term risk than most of what banks try to sell consumers on a regular basis. These are the very products consumers need.

Trillions of dollars of taxpayer infusions—direct cash, loan guarantees, capital purchases, policies to keep banks' cost of capital at virtually zero—have kept the banks afloat. It is amazing that the administration didn't leverage these infusions to negotiate these two simple policies that would have made banking more sensible for the middle-class Americans whose tax dollars have bailed out the banks.

The administration's failure on these two policies is symptomatic of its larger failure of vision when it comes to banking reform. The administration has spent more time worried about the musical chairs of regulatory jurisdiction than it has asking fundamental questions about what banks should be doing, what we should expect in return for the vast sums we have invested in the banks, and how discomforting it is that the banks—in an effort to forestall these very questions—are already trying to assert that things have reverted to normal. It's worth recalling that the greatest impact of the New Deal was not the money spent on particular programs but, rather, the fundamental restructuring of the banking and securities sector that President Roosevelt imposed over the objections of business leaders.

Among the advisers to the White House, only Paul Volcker appears to be asking the tough questions. Volcker is asking what banks should be permitted to do if they want to have explicit federal guarantees on deposits and implicit guarantees that they are too big to fail. Unfortunately, Volcker does not seem to have a central role in any of the critical decisions.

The administration also hasn't asked whether the banks are using the capital we have given them in ways that will generate the economic recovery we need. The administration may believe that guiding bank investment through limits or obligations would not be good policy. Yet most thoughtful observers agree that even if a precise return to a Glass-Steagall separation of investment and commercial banking may not be wise, some constraints on how banks with federal support deploy their capital are absolutely necessary.

Too many banks refuse to reform mortgages and refuse to lend to midsize companies yet simultaneously pursue the activities that do little to create jobs but do much to generate the type of paper profits that fueled the last bubble: proprietary trading, highly leveraged private-equity deals, and foreign investment. These activities are not the fuel for domestic job growth that federal dollars and guarantees should provide. They are also more likely to lead to significant losses that will once again require taxpayer intervention.

For 50 years, under a regime of careful constraints on how and to whom banks lent, we avoided a meltdown of the sort we have just suffered though. The least we should now expect is a serious conversation about where banks should be active and how we can avoid rebuilding the same system that just collapsed.

The message we should be sending is clear: If banks want to participate in the high-risk activity that generates outsize bonuses but also outsize risk, they must do so only with their own capital, separated from guaranteed deposits and a taxpayer backstop to their debt and borrowing capacity. Unfortunately, this message is not being sent. If, after all the fuss of supposed banking reform, we do not redefine the relationship between banks and their customers and redefine what banks do with our capital, we will have failed. We will get neither the real economic recovery we need nor the assurance that another round of bailouts will not be necessary in the near future.

Eliot Spitzer is the former governor of the state of New York.

Spitzer on MSNBC: The Fed is a Ponzi scheme

This bit on MSNBC's Morning Meeting show starts with a very nice, simple, prop-aided explanation of the U.S. banking and financial crisis.

What follows is overdue analysis and criticism of the Fed and Ben Bernanke.

Sure, Spitzer slept with hookers, but he asked all the right questions here about the $12 trillion the Fed has pledged to risky U.S. banks. "This begs and cries out for hard examination.... This is a Ponzi scheme, this is an inside job," said Spitzer.

Then host Dylan Ratigan responded: "I feel as if America has suffered the greatest theft and coverup ever... Where banks created a pile of garbage that they paid themselves billions themselves billions of dollars in personal compensation and then stuck the trillions of dollars of garbage with the American taxpayer. That to me is stealing."

Watch this video!

http://dailybail.com/home/eliot-spitzer-the-federal-reserve-is-a-ponzi-scheme-inside-t.html

Then tell your Congressmen that you support Rep. Ron Paul's bill to audit the Fed! Just follow the link to Paul's site and type in your ZIP code:

http://www.ronpaul.com/on-the-issues/audit-the-federal-reserve-hr-1207/