An Update on the “Bailout”: The Emergency Economic Stabilization Act (EESA)

 

EESA defrauds the public. Fleeces the treasury to reward criminal bankers. Arranged secretly behind closed doors. The $700 billion is just for starters. Another $150 billion was just added to it (discussed below). Trillions will be pilfered for this scheme. Millions of innocent people will suffer grievously. Crumbs at best are in it for them.

This goes way beyond a subprime crisis as author Ellen Brown explains. The real problem is a “black hole of ($180 trillion in bank-held) derivatives.” If enough of them implode, so will world economies. The “bailout” and various other schemes hope to prevent it, but there’s no guarantee anything will work. That’s the real dilemma.

Public pronouncements about EESA were deceitful on their face. George Bush calling it a plan for Main Street, not Wall Street. Nancy Pelosi saying that “All of this was done in a way to insulate Main Street and everyday Americans from the crisis on Wall Street,” and added: “The party is over. No longer will taxpayers be forced to bail out reckless investors.” That’s precisely what they’re being forced to do.

Both presidential candidates endorse the plan and voted for it. Most party leaders as well. A bipartisan conspiracy to compound the fraud. Reward criminals with public money. Empower the Treasury secretary as a financial czar. With unlimited authority to dispense public money. Direct it as he wishes. Stipulate the terms. Conceal the plan’s true purpose from the public. To save Wall Street and big banks. The entire financial system. Industrial capitalism in trouble. And make ordinary people pay for it.

The Senate passed EESA on October 1 – by a 74 – 25 vote. The same body that (on September 26) rejected a $56 billion stimulus plan that would have extended unemployment benefits, increased food aid, and funded new construction projects to create jobs at a time the economy is in a deepening recession.

After first rejecting EESA, the House reversed itself (263 – 171) on October 3. Global markets reacted convulsively. Plunging on September 29. Soaring the next day. Plunging again. Continuing the same volatile pattern begun last fall. From the crisis-level weakness of major banks worldwide and the effect on global economies. The possibility that nothing proposed will work. The likelihood that only mass worldwide infusions of public funds and recapitalizations have a chance.

Ignoring the core reason for the crisis. The extraordinary amount of criminal fraud. Rewarding and not prosecuting the fraudsters. Compounding the enormity of their crime. Looting the national treasury for it. Rejecting emergency measures with proven past success. Recapitalizing banks through government interest-bearing loans with guaranteed repayment provisions out of future profits. Temporarily nationalizing troubled banks. Letting governments take over weak ones until things stabilize. Restarting credit flows now frozen. Then designing a whole new system to replace the current failed one.

The present crisis shows industrial capitalism’s failure. Financialization-based. Speculative finance. Frankenstein finance. Unfettered. Unregulated. Greed-based. Rewarding fraud and harming people. The government – business partnership behind it. The inevitability that nothing this pernicious is sustainable. The naked truth about an ugly system.

EESA’s hidden details make the prima facie case. Besides add-ons, it’s little different from its initial version. It:

– directs the original $700 billion to Wall Street and big banks;

– lets the Treasury buy unlimited amounts of junk assets (some worthless or close to it) but hold no more than $700 billion at one time; pay whatever prices it chooses; hold-to-maturity prices if it wishes for toxic waste;

– includes whole mortgages in the program, not just securitized asset pools;

– compounds fraud by rewarding it;

– beyond tokenism and disingenuous rhetoric, provides no relief for beleaguered homeowners;

– excludes a measure to allow bankruptcy judges to amend mortgage terms to help homeowners avoid foreclosure;

– another one that would have allotted 20% of any government bank assets resale profit to a housing fund; set aside for the public;

– also a bank-imposed fee to compensate the government for buying junk assets at inflated prices;

– leaves executive compensation, golden parachutes, and lavish benefits unrestricted by inserting toothless provisions against them;

– establishes a fake independent oversight panel consisting of the Treasury secretary, Fed chairman, SEC chairman, Federal Home Finance Agency director, and Housing and Urban Development (HUD) secretary;

– an equally fraudulent Congressional Oversight Board composed of House and Senate leadership-chosen bankers and big investors – called “financial experts;” fraudsters to manage the “bailout;” business and government foxes in charge of the looting the national treasury;

– includes a provision authorizing the SEC to suspend GAAP (Generally Accepted Accounting Principles) standards requiring mark-to-market valuations to let banks (on their balance sheets) carry toxic assets at purchased prices, not fair market value, and be able to conceal their losses; and

– another providing tax breaks for companies holding Fannie Mae and Freddie Mac preferred shares.

The White House, Paulson and House and Senate leadership scrambled after EESA’s defeat. Cobbled together a revised plan. Kept the original’s core provisions unchanged, and added new ones:

– temporarily (maybe permanently) increases FDIC insurance per account to $250,000;

– lets FDIC borrow unlimited amounts from the Fed to protect against bank runs; thus exempts banks from paying premiums for additional deposit insurance;

– another provision to exempt the bill from constitutional challenge;

– includes about $150 billion in tax cuts and so-called “extenders”; provisions to renew or extend expiring tax breaks;

– $78 billion for business as well as extending current business tax breaks for renewable energy efforts;

– $8 billion for hurricane and other natural disaster relief; and

– another $65 billion extension for Alternative Minimum Tax relief; mostly to high-income earners.

The plan ballooned from its original 3-page version to the House’s 106 pages. Then to the final 451 pages (not likely written in 48 hours) with various additional earmarks for:

– film and television productions;

– wooden arrows for children;

– Exxon Valdez oil spill litigants;

– Virgin Island and Puerto Rican rum;

– railroads;

– auto racing tracks;

– wool research and more.

In addition, Section 128’s Acceleration of Effective Date refers to Section 203 of the Financial Services Regulatory Relief Act of 2006. EESA moved up its original effective date from October 1, 2011 to October 1, 2008, and thereby changed the United States Code Title 12 – Banks and Banking, Chapter 3 – Federal Reserve System, Subchapter XIV – Bank Reserves. The measure is solely to help banks. Foreign ones included. The changes:

– no longer require banks to maintain cash reserves to cover deposits;

– abolished the Fed’s Earnings Participation Account for the supplemental reserve fees it charges banks; meaning the Fed can retain them; and

– lets the Fed create its own rules for distributing earnings as well as payments to foreign banks.

EESA greatly expands Treasury and Federal Reserve powers. Rewards fraudsters and does nothing for beleaguered homeowners. Both presidential candidates voted for the bill. Obama hypocritically saying that the plan is “our best and only way to prevent an economic catastrophe (and be able to help families) on Main Street.” McCain pretty much agreed in a bipartisan show of homage to their big Wall Street backers.

Ignored is their criminal fraud. The harmful fallout to many millions, and the fact that $700 billion (now $850 billion) is a down payment with trillions more to come. A systematic looting of public funds. Nearly all of it to fraudsters.

Ahead of EESA’s initial defeat, the American Bankers Association (ABA) was pleased with the plan. Its chief executive, Ed Yingling, called the financial crisis “like a big Category 4 hurricane.” Unleashed an army of lobbyists on Congress. To assure final legislation contained wanted measures and excluded ones bankers opposed.

In the end, the ABA prevailed. It got nearly everything it asked for. So did Wall Street, but they’re far from out of the woods. Nonetheless, big banks are taking advantage by devouring smaller and some big ones. Weaker ones on the cheap. Merrill Lynch to Bank of America. Bear Stearns and Washington Mutual to JP Morgan Chase, and Wachovia’s retail banking operations (including $400 billion in deposits) to Citigroup for $1 a share. Then Wells Fargo trumped Citi for most of Wachovia for $7 a share. A deal now held up after New York Supreme Court Justice Charles Ramos blocked it temporarily.

The above acquisitions were giveaways under planned creative destruction. Enabling greater consolidation in the hands of fewer giant players. The result is less competition and a fundamentally unfair system less fair.

The announced deals are for starters. Many more will follow as a powerful industry concentrates into few, larger hands. But providing no help for distressed households. Nor relief for over-indebted homeowners facing foreclosure. Rejecting better, fairer ways to recapitalize banks in crisis. Measures proved effective in the past yet unconsidered.

Also unaddressed are severe money market stresses and unwillingness of banks to lend to each other. Resume a free flow of credit. It shows in unprecedented spreads on unsecured inter-bank lending. Only confidence can change that. Something no government can legislate. It can make good policy as a way to start building it.

On September 30, the Financial Times columnist Martin Wolf headlined his commentary: “Congress decides it is worth risking depression” and said “We are watching the disintegration of the financial system.” Such a “dire outcome is no longer impossible.” The free flow of credit is frozen and unless thawed “no modern economy can survive. Yet that is now threatened.”

We’re experiencing a “downward spiral of panic.” What economist Hyman Minsky called “revulsion.” A “Minisky Moment.” The final stage of bubble deflation when cheap credit ends or is frozen like now. Investors dump assets. Any bad news roils markets, and it’s infectious. Quickly turning euphoria into “revulsion” and creating downward momentum much greater and faster than the upside.

Wolf has mixed feeling about EESA. Calls it flawed and directed by the wrong man. A “titan of high finance charged with bailing out Wall Street,” but worrying mostly about Congress doing nothing and causing “ruin.” He wants something passed and much more. Ensuring “liquidity needs are fully met during this period.” Europeans addressing the same issue. Worrying about a greater crisis ahead, yet ending with a hopeful thought. Winston Churchill’s words that “The United States invariably does the right thing, after having exhausted every other alternative.” The greater issue now is a deepening crisis so great that no constructive intervention can work.

Events are fast-moving and changing almost daily. So far in an intensifying contracting cycle. A perfect storm of:

– recession;

– rising unemployment;

– public trauma;

– failing banks;

– frozen credit;

– multi-trillions in toxic debt;

– the worst housing slump since the Great Depression; spilling over into commercial real estate as well;

– millions of homeowners threatened with foreclosure;

– trillions of eroded household wealth;

– hugely over-indebted consumers; and

– contagion spreading everywhere and the danger that it may be uncontainable.

What next?

 

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