Around the Web: Bigger Than Wikileaks

While the Wikileaks dump of secret diplomatic got more publicity, the Federal Reserve’s reluctance release of data on details of what it was up to in the bailout is actually the bigger story.

It’s a giant step towards the direction of democracy in a financial system that hasn’t had any.

What are we finding out? For one thing, just how much dishonesty is built into our knowledge of the financial system. Because corporate leaders never expected the data to be released, they lied, mischaracterized or downplayed their reliance on the Fed’s largesse.

Aaron Elstein lays it out at CrainsBusinessNewYork.com in a blog post headlined `Whoppers from the Bailout Binge’, (ht the Audit, which provides an excellent roundup of Fed dump coverage).

“In some cases,” Elstein writes, “the actions taken by companies jarringly contrast with their executives’ public comments about the bailout program.”

Along with the stunning secrecy that has surrounded the process and the dishonesty of the corporate recipients of the taxpayers’ generosity, a couple of other main themes emerged from scrutiny of the Fed data.

First, not only did U.S. taxpayers come to the aid of large European banks, they also gave emergency loans to many of the biggest U.S. businesses, like GE, Verizon and even Harley-Davidson. All of these institutions were deemed too big to fail, or even suffer more than a some sleepless nights’ worth of economic distress in the financial meltdown. About the only entities not deemed worthy of saving in the meltdown were many of the taxpayers themselves ­ who foot the bill for the whole extravaganza. The institutions that dreamed up the toxic loans got a bailout the taxpayers should have read the fine print more carefully, dammit!

Second, the Fed’s $3.3 trillion rescue scheme was rife with conflicts of interests. Members of regional Fed boards sat in on decisions to help out their own institutions, and corporations like BlackRock acted as paid advisers to the process and also bought securities on behalf of clients as part of the Fed’s efforts.

To put what’s happening in perspective, Matt Stoller, former senior policy adviser to former Rep Alan Grayson, the fiery Florida Democrat who recently lost his re-election bid, wrote this fine piece in Naked Capitalism.

Around the Web / Martin Column - 12/04/2010

Around the Web: Will the Dodd Abide?

The fight for financial reform enters a new stage this week when Sen. Chris Dodd launches his latest version of his proposal. The New York Times highlights the senator’s weak nods in the direction of granting shareholders more power: giving them “advisory” votes on executive pay and the ability to nominate board members.

Dodd’s earlier proposal was considered stronger than the House reform bill, which was strongly supported by consumer advocates and opposed by bankers and the Obama administration. Dodd is a long-time ally of financial and insurance industries who have backed him over the years. But those close ties were undermining him politically after the financial crisis, so he was attempting to forge the appropriate image of a tough politician. Then Dodd dropped out of his tough reelection bid and he began to back off from some of his positions, like support for a strong and independent Consumer Financial Protection Agency. His effort to negotiate a bipartisan bill broke down and now some are reporting that Dodd has returned to some of the tough positions he had advocated. Here’s Calculated Risk’s breakdown of the proposal Dodd is about to unveil. Though it’s hard to imagine the push for financial reform going any slower, that’s what Republicans want, the Washington Post reports.

At the same time, the American Bankers Association meets in Washington this week, Business Week reports. They are ready to battle any attempt at greater consumer financial protections. They’ll defeat it outright if they can, and fight to water it down if they can’t kill it.

Around the Web / Consumer Financial Protection Agency - 03/14/2010

Fed Up: Down With Bernanke

President Obama can’t credibly rail against Wall Street fat cats while fighting for their chief enabler.

Here’s all you need to know right now to decipher the confusing messages from the White House and the Democratic leadership:

Ignore the faux populist rhetoric and keep your eyes on the contentious U.S. Senate vote on confirmation of Ben Bernanke to a second term as chair of the Federal Reserve.

If Obama and Democrats want to show they now “get it” on why people are so angry over the mishandling of the bailout and the economy, they should dump Bernanke without delay.

But the White House and Democratic leadership, including senators Harry Reid and Chris Dodd, continue to strongly support Bernanke. Other Democratic senators, like Russ Feingold, Bernie Sanders and Barbara Boxer, as well as Republicans such as senators Richard Shelby and John McCain, oppose him.

The prime reason Bernanke deserves to be dumped is that he is not a reformer or strong regulator during a time of reform and increased regulation. The crisis hasn’t caused him to reconsider. Bernanke even opposes a key plank in President Obama’s reform proposal – the Consumer Financial Protection Agency.

He may nod reassuringly in the direction of Main Street but he’s an insider of the Wall Street elite whose prevailing philosophy is a combination of “What’s good for Wall Street is good for the U.S.A” and “There’s a sucker born every minute.”

Some observers credit Bernanke with keeping the country from slipping into another Great Depression.

The country managed to avoid an economic fiasco on the scale of the depression. But why should Bernanke get the credit?

Everything the Fed does is cloaked in a secrecy and doublespeak that mocks the president’s promise of the most transparent administration in history.

What we know for sure about the Fed’s response is that it shoveled cash and cheap credit in the direction of its favored Wall Street targets. Bernanke and the Fed have resisted disclosure of any facts and figures about what they did. When the details do emerge, they smell fishy.

For example, Reuters reported on emails that were obtained through subpoena by Rep. Darrell Issa, R-California, who is investigating the role of the Fed in the AIG bailout.

What Reuters found was that the Fed, under Bernanke’s direction, along with the SEC, wanted to protect the details of the AIG bailout with a level of secrecy usually reserved for matters of national security.  In the emails, Bernanke’s staff ridicules the clamor for more public disclosure about the bailout.

At issue are payments the Fed made to firms that carried insurance with AIG on bed bets those firms had made on investments. Those firms, called counterparties, included the likes of Goldman Sachs. The Fed paid off AIG's counterparties 100 cents on the dollar on their bad bets: extremely unusual with companies in such deep distress relying on the kindness of taxpayers not to take some losses.

Just what do Bernanke and the Fed have to hide? Whose interests are being protected?  We need to get to the bottom of those questions, not reward those keeping us from the answers to them.

Even if Bernanke did get credit for his role in the bailout, that wouldn’t be enough reason to confirm him for another term. He missed the housing bubble before the meltdown and has shown no indication he would recognize another bubble when it occurs. He has also misread the impact of the economic stimulus.

In addition, the Fed under Bernanke's watch failed at on one of its cores missions – reducing unemployment. Bernanke is more afraid of increasing inflation than he is of increasing unemployment. It’s time for the Fed to shed its cloak of secrecy and elitism and push for an economy that benefits everybody, not just Wall Street. That transformation will be challenging; Bernanke has shown he’s not the kind of leader for these times.

Obama’s treasury secretary, Tim Geithner, is trying out the old scare tactics, threatening that the markets will fall if Bernanke loses his job. But these are the same kinds of scare tactics that a previous administration used on Congress to forestall debate in its haste to push a poorly considered bailout scheme. We may have expected such tactics from the Bush Administration, but President Obama set higher standards for his administration. Now is the time for him to live up to them.

Contact the president and let him know what you think. Let your senator know too.

Federal Reserve / Martin Column / President Barack Obama - 01/25/2010