Archive for November, 2011

Flickr by wwarby

While Congress’s spending has recently been the topic of much fiery debate, one big spender hasn’t received enough scrutiny—the Federal Reserve. However, that is changing, as Americans are becoming further aware of the Fed’s actions during the recent financial crisis and the extent to which the Fed doled out taxpayer money to financial institutions.

When the financial crisis hit, the Fed created or expanded a variety of financial support measures to avoid a total collapse of the financial system. But these actions highlighted just how little oversight, transparency, and accountability there was of the Fed. According to a Government Accountability Office report mandated by The Dodd-Frank Wall Street Reform and Consumer Protection Act, the Fed spent over $16 trillion in government loans, purchases, and guarantees. Congress approved only a tiny fraction of this money through TARP.

The government and the public had no other knowledge of the Fed’s spending.

Now, courtesy of a Bloomberg article published on Sunday, we know that banks were able to secure a $13 billion windfall by investing the support funds that the Fed provided.

That’s not a bailout. That’s a handout.

The Fed has vigorously defended its secrecy, claiming that working behind closed doors is necessary to prevent panic in financial markets. According to the central bank, disclosing information about the Fed’s actions would create a stigma for the banks that took advantage of the measures, and cause investors and counterparties to shy away from doing business with them.

But these excuses just don’t hold water. When the Fed spends money, it creates a government liability, for which the public is ultimately on the hook. And when the public is on the hook, it must be done in the light of day.

Thankfully, much needed reforms of the Federal Reserve may soon be a reality. Senator Bernie Sanders recently convened a panel of nationally renowned economists to help draft legislation to reform the Fed. The panel includes esteemed Levy scholars James K. Galbraith, L. Randall Wray, and Stephanie A. Kelton.

With Senator Sanders’s efforts and these scholars’ assistance, we hope to move one step closer to a Federal Reserve that serves all Americans, not just Wall Street.

This is a post from Public Citizen’s Democracy is For People Campaign, get involved here and follow @RuleByUs for more information.

Another “Black Friday” blitz of sales and shopping, some of it sadly of the violently “competitive” variety, has passed us by. Consumer spending for the “holiday” was at record levels, with online sales by major retailers leading the way and expected to continue with today’s “Cyber Monday” discounts.

Consumers camped out in front of a Best Buy in Bakersfield, CA on Thanksgiving Day 2010. Flickr image from Bill Ward's Brickpile.

This is ostensibly good for the economy, but a number of voices have been questioning the creeping commercialization of Thanksgiving. From employees of “big box” stores forced to give up their family holiday plans in order to open at midnight or earlier, to activists and business leaders who doubt the long-term sustainability of our present consumer culture, some important critiques have been leveled.

In terms of both the broader public good and big-picture economics, however, an important piece has been missing: the fact that an increasing share of some major corporations’ profits from consumer events like “Black Friday” aren’t going toward job creation or investing, but to attempts to influence and distort our democratic politics.

As Charles Kolb, President of the Committee for Economic Development (CED), an esteemed non-partisan organization of business leaders, recently told Dylan Ratigan, this political spending is basically a form of “rent-seeking” that isn’t good for business or for our democracy. Rather than competing in the marketplace or investing in economic growth, corporations seek a narrow advantage by garnering favored access to politicians and obtaining favorable policy outcomes—often at the expense of investing in long-term national priorities like education and infrastructure.

A landmark study of corporate governance released this month by the Investor Responsibility Research Center highlighted deeply problematic trends in this regard. The study, which looked at campaign-related spending and investor transparency among the S&P 500 companies, is fairly long and detailed, but some key findings highlighted at the report release (which I attended) are illuminating.

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With Rep. Barney Frank’s (D-Mass.) announcement that he will not seek re-election in 2012, America will lose one of Congress’ sharpest minds on financial policy.

The former chairman of the House financial services committee proved it is possible to pierce the armor plating of the Wall Street lobby with intelligence, committed effort and an understanding of the banking industry.

History will remember Frank as the co-author and prime champion of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The shortened name of the bill disguises the countless contests with deep-pocketed industry agents in which Frank’s rapier wit and agile tactics proved pivotal.

As the financial industry and its congressional allies continue to attack the 2010 law and weaken its implementation, the Massachusetts lawmaker will be sorely missed.

Bartlett Naylor is Public Citizen’s financial policy advocate.

"Bart Naylor" "Financial policy"Wall Street’s attention on Washington currently centers on the Volcker Rule, a brief but ballistic section of the Dodd-Frank Wall Street Reform act often characterized as ending casino-like practices by taxpayer-backed banks. The law forbids proprietary trading, or speculating for the bank’s own benefit. Heads, the bank wins for its shareholders and its highly paid traders; tails, the taxpayers pay off the losses.

But to denigrate American banks by likening them to casinos may be inaccurate and unfair—to the casinos.
Casino’s churn out money from slots geared to take in more quarters than they pay out. Even in the high stakes tables, a casino enforces limits, guarding against the possibility that one gambler could break the house. Bets themselves are capped. At a ‘high rolling” black jack table, such as at Caesar’s Palace, gamblers can place bets of no more than $50,000, the so-called table limit. Further, spotters watch from above for sharks using illegal counting techniques at black jack. In fact, the most significant “risk” factors about which Caesars warns shareholders are competition from the rival casino down the street, the economy, and its pension plan. As Jim Ensign, the former Nevada senator once said, “In Las Vegas, most people know that the odds are stacked against them. On Wall Street they manipulate the odds while you’re playing the game.”And finally,

Las Vegas casinos have never begged Americans for a bailout because some MIT geniuses figured out how to game the black jack table.

In contrast to casinos, American banks and their Washington regulators didn’t properly prepare for the the risks that savaged the financial sector and the global economy three years ago. Former Federal Reserve Chairman Alan Greenspan claimed no government agency—not even the industry—could detect the major risk of such major problems as a bubble. “History tells us they cannot identify the timing of a crisis, or anticipate exactly where it will be located or how large the losses and spillovers will be,” he testified before Congress. Whether or not that’s true, it seems clear neither the agencies nor the collective industry prepared.

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If we’re lucky, we’ll all sit down tomorrow with family and/or friends and give thanks for what we have. There are a lot of people out there who don’t have much, and this time every year I include them in my thoughts. I hope their lives will improve and I go to work every day trying to help make that happen, in any way my humble efforts can.

And like most of us, I take some time to reflect on what I am thankful for, sometime between the Lions annual football game and the meal I am lucky enough to be able to serve.

This year, in this climate of the Big Business war on public safeguards, I am thankful to live in a country where our government has taken the responsibility to protect its citizens. I feel fortunate to live in the United States in the 21st century, when we as a people recognize the importance of clean air and water for all, for food and consumer products that are inspected and deemed safe.

I’m thankful for rules that insist that airline pilots fly a reasonable amount of hours and must be off to rest before their next flight. I’m glad here are laws preventing the exploitation of children in the workplace.

I’m glad there are standards the automakers must uphold and the ones in place for the steel that make our buildings and bridges.

Without these things, our nation would crumble into chaos. The regulations that have been established make us safer, more healthy and productive members of our society. Turning them back would be a terrible admission that the public welfare is not as important as the bottom line… and that is something only Big Business would be thankful for.

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