Keepin' it real at the Fed

As a follow up to my article about HR 1207, I offer a brief reference to a related bill, HR 3232, the PROFIT Act of 2009. A little background, perhaps, is in order.

The Great Big Bank Bailout Bill of 2008 (HR 1424 of the 110th Congress), passed with votes from Barack Obama and John McCain, was sold to the public as a necessary evil (to "stabilize the economy", right before the election) with a potential upside. Publicly, the Treasury would provide funding to banks in return for stock (in the case of at least AIG, a controlling interest), a requirement to pay what was effectively interest, and warrants, options to buy bank stock at a later time at the current (lower) price. This last provision was sold as an "upside" - the Government would enter the global casino with the hope that when the economy recovered, there would be additional money to be made to the profit of taxpayers, and we could hold our breath, cross our fingers, and hope to maybe even make a profit from all this investment. Never mind the fact that by tying the program's success to the requirement that these institutions have a future as independent entities made it much more difficult to consolidate or close them down as part of the solution.

Of course, the TARP has operated much differently from how it was sold. Because the Federal Reserve is now providing financing to banks and "banking institutions" (outside Congressional oversight; see HR 1207), funding recipients are now repaying the money they received under the public TARP. And, shockingly, the Treasury are redeeming the warrants at a fraction of their value, according to a report by the Congressional Oversight Panel. In other words, effectively providing the banks another subsidy. And this is public funding to institutions like these (from the Bloomberg article above):

[TARP special inspector general Neil] Barofsky said the TARP inspector general’s office has 35 ongoing criminal and civil investigations that include suspected accounting, securities and mortgage fraud; insider trading; and tax investigations related to the abuse of TARP programs.

We need to collectively admit the obvious: the people in charge of "fixing" or "managing" this financial crisis were either responsible for it in the first place, or were negligent in their oversight of those responsible. Starting with Reserve Chairman Bernanke and Treasury Secretary Geithner (and his predecessor Paulson) on down, these public servants need public supervision and guidance, without which they seem to pretty much be doing whatever they please with our money as long as it keeps some favored institutions in business (and profitable), and perhaps even forces competitors to fail.

Please contact your Congressional Representative and ask them to support HR 1207, HR 3232 (which requires the above-mentioned warrants to be sold in public at market prices, so we can realize those promised "profits"!), and related bills. This is the sort of oversight which should have been in the bailout to begin with; we should have kept up the pressure on our Representatives to block the bill until these safeguards were in place. Hopefully we'll do that next time.