| | |  Editorials | Issues | December 2008 
Where Have the US Bailout Billions Gone?
 Adrianne Appel - Inter Press Service
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Thursday 18 December 2008
| | ANP: Though congress wrote oversight into the 700 billion dollar bailout bill, they left a gaping hole | |
Boston - A new U.S. investigative panel is demanding answers from the U.S. Treasury about how the agency has spent money from the 700-billion-dollar bailout fund.
The Congressional Oversight Panel, a four-person board authorized by Congress and led by consumer advocate Elizabeth Warren of Harvard Law School, is charged with finding out what the Treasury has done with the billions it has already spent.
"We are here to ask the questions that we believe all Americans have a right to ask: who got the money, what have they done with it, how has it helped the country and how has it helped ordinary people?" the panel says in its first report, which lays out its work.
The panel has begun gathering documents from Treasury and also is holding a series of public meetings across the U.S., to hear the public's concerns about the bailout and the economy. The panel expects to have some answers for Congress and the public by Jan. 9, when it will issue a report on its website, cop.senate.gov.
"We will be running very hard over the next 40 days," Warren told members of Congress recently. Also on the panel are Rep. Jeb Hensarling, a Republican from Texas; Richard Neiman, Superintendent of Banks in New York; and Damon Silvers, a lawyer with AFL-CIO.
"The recession has visited every household in the country. More than 100,000 families last month headed into bankruptcy courts. Americans are watching Washington's every move with great concern," Warren said.
In a desperate attempt to ease lending, the Federal Reserve Tuesday dropped the federal funds interest rate to between 0 and .25 percent, the lowest in decades.
The Warren panel lacks subpoena power but will work together with Special Inspector General Neil M. Barofsky, who will wield significant legal power, and the General Accounting Office, in auditing and overseeing the funds.
"The public has a right to know how financial institutions that have received public money are using that money," the panel says. "Treasury should be responsible for holding individual institutions accountable for how they use the public's money."
After considerable protests from the public, legislators approved on Oct. 3 700 billion dollars in special funding for the U.S. Treasury, which was requested by Treasury Secretary Henry Paulson who said the funds were needed to prevent a wholesale collapse of the U.S. financial sector.
Paulson has since doled out the equivalent of 1,900 dollars per U.S. family to banks and financial institutions, according to Warren's panel. None of the Treasury funds have been aimed at slowing foreclosures.
Paulson gave 40 billion dollars to insurance giant AIG, 165 billion dollars to 87 banks, including Citigroup and eight other of the largest financial institutions in the U.S., plus an additional 20 billion dollars to Citigroup. The nine large banks were required to give the U.S. a limited amount of stock and returns in exchange for the money.
The Treasury bailout programme, run by Assistant Secretary Neel Kashkari, did not require the banks to use the money in any particular way. Kashkari told Congress recently that Treasury has not audited the money to see how it is being spent.
"There is a casual impression that this money is being used to pay bonuses for top executives and dividends for shareholders," James Crotty, professor emeritus in economics at the University of Massachusetts, told IPS.
"There are ways to measure what's happening to the lending. This may be something to question Treasury vigorously about," Warren said. Great Britain has kept track of its bank bailout money, and required concessions, unlike the U.S., she said.
"The money was given to financial institutions in return for those institutions to lend to small and medium enterprises. There was an explicit quid pro quo," she said.
Paulson and Kashkari, both formerly of Goldman Sachs, have spent additional millions to hire private firms and some of the same institutions that received bailout money, to help administer the bailout programme.
Much secrecy surrounds the spending of the money, with the amount of money in some contracts blackened out and the work actually underway by the contractors not described or audited.
"We are disturbed that so much of [the bailout] activities are opaque. There is a lack of adequate oversight and a lack of transparency," Beverley Lumpkin, an investigator with the Programme on Government Oversight, a Washington non-profit, told IPS. POGO praises the panel's work so far.
"We like the questions they ask. We feel they are pretty much tracking the major questions that need to be looked at," Lumpkin said.
Despite the spending of these funds and more than two trillion by the U.S. Federal Reserve, the economy remains in turmoil, marked by job losses and climbing unemployment, business closings, more than 2 million home foreclosures in 2008 and a severe drop in the value of the stock market.
"The funds haven't done what they are supposed to do. They hoped interest rates would come down and that loans would take place. It doesn't appear that either of those things have happened," Crotty said.
The nation's largest banks are not loaning money to each other out of fear that they will lose it if a bank defaults, due to their heavy investment in risky, unregulated products based on mortgages with sky-high interest rates and unfair terms, many of which are now in foreclosure and without value. This in turn has crimped loans to businesses and brought the economy almost to a halt.
"Virtually all the things that indicate the health of the economy are deteriorating rapidly. Everything looks horrible at the moment," Crotty said.
Fed Refuses to Disclose Recipients of $2 Trillion
Mark Pittam - Bloomberg News
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Friday 12 December 2008
The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.
Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.
The Fed responded Dec. 8, saying it's allowed to withhold internal memos as well as information about trade secrets and commercial information. The institution confirmed that a records search found 231 pages of documents pertaining to some of the requests.
"If they told us what they held, we would know the potential losses that the government may take and that's what they don't want us to know," said Carlos Mendez, a senior managing director at New York-based ICP Capital LLC, which oversees $22 billion in assets.
The Fed stepped into a rescue role that was the original purpose of the Treasury's $700 billion Troubled Asset Relief Program. The central bank loans don't have the oversight safeguards that Congress imposed upon the TARP.
Total Fed lending exceeded $2 trillion for the first time Nov. 6. It rose by 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren't rated AAA.
"Been Bamboozled"
Congress is demanding more transparency from the Fed and Treasury on bailout, most recently during Dec. 10 hearings by the House Financial Services committee when Representative David Scott, a Georgia Democrat, said Americans had "been bamboozled."
Bloomberg News, a unit of New York-based Bloomberg LP, on May 21 asked the Fed to provide data on collateral posted from April 4 to May 20. The central bank said on June 19 that it needed until July 3 to search documents and determine whether it would make them public. Bloomberg didn't receive a formal response that would let it file an appeal within the legal time limit.
On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It filed suit Nov. 7.
In response to Bloomberg's request, the Fed said the U.S. is facing "an unprecedented crisis" in which "loss in confidence in and between financial institutions can occur with lightning speed and devastating effects."
Data Provider
The Fed supplied copies of three e-mails in response to a request that it disclose the identities of those supplying data on collateral as well as their contracts.
While the senders and recipients of the messages were revealed, the contents were erased except for two phrases identifying a vendor as "IDC." One of the e-mails' subject lines refers to "Interactive Data - Auction Rate Security Advisory May 1, 2008."
Brian Willinsky, a spokesman for Bedford, Massachusetts- based Interactive Data Corp., a seller of fixed-income securities information, declined to comment.
"Notwithstanding calls for enhanced transparency, the Board must protect against the substantial, multiple harms that might result from disclosure," Jennifer J. Johnson, the secretary for the Fed's Board of Governors, said in a letter e-mailed to Bloomberg News.
"Dangerous Step"
"In its considered judgment and in view of current circumstances, it would be a dangerous step to release this otherwise confidential information," she wrote.
New York-based Citigroup Inc., which is shrinking its global workforce of 352,000 through asset sales and job cuts, is among the nine biggest banks receiving $125 billion in capital from the TARP since it was signed into law Oct. 3. More than 170 regional lenders are seeking an additional $74 billion.
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.
The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg lawsuit, filed in New York, doesn"t seek money damages.
"Right to Know"
"There has to be something they can tell the public because we have a right to know what they are doing," said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press.
"It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed," she said.
The Fed's five-page response to Bloomberg may be "unprecedented" because the board usually doesn't go into such detail about its position, said Lee Levine, a partner at Levine Sullivan Koch & Schulz LLP in Washington.
"This is uncharted territory," said Levine during an interview from his New York office. "The Freedom of Information Act wasn't built to anticipate this situation and that's evident from the way the Fed tried to shoehorn their argument into the trade-secrets exemption."
The Fed lent cash and government bonds to banks that handed over collateral including stocks and subprime and structured securities such as collateralized debt obligations, according to the Fed Web site.
Borrowers include the now-bankrupt Lehman Brothers Holdings Inc., Citigroup and New York-based JPMorgan Chase & Co., the country's biggest bank by assets.
Banks oppose any release of information because that might signal weakness and spur short-selling or a run by depositors, Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a Washington trade group, said in an interview last month.
"Complete Truth"
"Americans don't want to get blindsided anymore," Mendez said in an interview. "They don't want it sugarcoated or whitewashed. They want the complete truth. The truth is we can't take all the pain right now."
The Bloomberg lawsuit said the collateral lists "are central to understanding and assessing the government's response to the most cataclysmic financial crisis in America since the Great Depression."
In response, the Fed argued that the trade-secret exemption could be expanded to include potential harm to any of the central bank's customers, said Bruce Johnson, a lawyer at Davis Wright Tremaine LLP in Seattle. That expansion is not contained in the freedom-of-information law, Johnson said.
"I understand where they are coming from bureaucratically, but that means it's all the more necessary for taxpayers to know what exactly is going on because of all the money that is being hurled at the banking system," Johnson said.
The Bloomberg lawsuit is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan). |
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