The president's pledge that the new financial reform bill will somehow insure that the American public will never have to bailout Wall Street again is just one of the many bold-faced lies he and his cohorts told the American public this week. by Walt Thiessen
(libertarian)
Saturday, July 24, 2010
President Obama on Wednesday signed into law what most major media outlets called the most sweeping financial industry reform legislation since the Great Depression, hailing the reforms as establishing "the strongest consumer financial protections in history". In actual fact, they failed to report that President Obama, Chris Dodd of Connecticut, who sponsored the bill in the Senate, Barney Frank of Massachusetts, who sponsored the bill in the House of Representatives, Fed Chairman Ben Bernanke, and all the top talking heads of the Obama administration, Wall Street, the major parties, and the media, have all been telling some of the most brazen, most blatant, most bold-faced lies ever told in human history in defense of their new law. Let's take a moment to examine some of these lies.
Mr. Obama vowed that because of the law, "the American people will never again be asked to foot the bill for Wall Street's mistakes. There will be no more taxpayer-funded bailouts. Period." And then later in his remarks, the President said, "If a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy." This is a lie in so many ways.
First, the FDIC already had the power to shut down the big banks before the passage of this landmark law. The FDIC didn't use their power in the Fall of 2008, not because they didn't want to, but rather because they didn't have anywhere near enough money on hand to cover the losses the big banks would have incurred, and with all the bank failures over the past two years, they currently have no huge sums of money available for such a bailout available to them now. In fact, there are serious questions as to how sustainable the FDIC is going to be over the next few years. That's why the banks were labeled "too big to fail" in the first place: the FDIC couldn't cover the losses, and financially it's even weaker now!
Second, and more blatantly obvious, the President's statement is a lie because the legislation itself grants the FDIC the authority to liquidate failing firms while the Treasury Department fronts the money to do so. In other words, the U.S. Treasury is now required, by law, to bail out Wall Street whenever the FDIC doesn't have enough funds on hand to do it themselves. This is a new feature under American law. For the first time in American history, Main Street is now, by law, permanently on the hook for the ultimate consequences of whatever creative lending schemes the bankers care to dream up in years to come.
Ladies and gentlemen, this new law isn't a law which prevents future bailouts. This new law insures and guarantees future bailouts will occur. When the Treasury Department puts up taxpayer money to cover bank losses, that's the definition of a bailout! Never mind that the law requires a repayment plan, so that taxpayers are supposedly guaranteed to get their money back. That part really doesn't matter! It doesn't matter whether that money gets paid back or not...it's still a bailout! It's still Main Street being required...not asked...required to bail out Wall Street! All this law does is make what Wall Street wanted all along to be a permanent legal feature...the automatic bailout of the banking industry by the U.S. Treasury no matter how much trouble they get themselves into! This was never a part of American law before now. Wall Street may be publicly complaining about the new law, but in their private boardrooms they're turning handstands, because now there is nothing left to hold them back from running rampant with their power to create and lend money out of thin air.
Mr. Obama reiterated the old lie that the financial crisis was caused by "unscrupulous lenders," firms like AIG that placed "massive, risky bets with borrowed money," while leaving "taxpayers on the hook if a big bank or financial institution ever failed." So what has this law changed? NOTHING!
The Republican response came from House Republican leader John Boehner, who said the law "provides permanent bailouts for [Obama's] Wall Street allies at the expense of community banks and small businesses around the country, while doing nothing to reform Fannie Mae and Freddie Mac, the government mortgage companies that triggered the financial meltdown by giving too many high-risk loans to people who couldn't afford them."
And what did the Republicans want to do about Fannie and Freddie? Their answer was mostly silence. The proposals they floated were vague and poorly defined, but here's what they amounted to in a nutshell. (1) They wanted to "wind down" Fannie and Freddie. Unfortunately, this really means nothing more than either bailing them out before they fail or bailing them out after they fail. (2) Some wanted to unplug Fannie and Freddie from the government, the best of the bad proposals they floated, although at this point it can't be done without taxpayers taking the hit, because the government now owns both of them since they were nationalized. (3) They wanted to block Fannie and Freddie from engaging in a number of forms of investment, a clear case of arguing for locking the barn door after the horse left.
Let's be clear about this. Fannie and Freddie cannot survive on their own. There are no scenarios under which anyone really believes they can become successful, private entities again. So, given the fact that the government nationalized them, putting Main Street on the hook for Wall Street's troubles, there's only one possible outcome: bailout, followed by the failures of Fannie Mae, Freddie Mac, and at some point, the American (and likely the world) economy, in that order.
So while the Republicans tried to make it appear to their conservative constituents that they disagree with the President's assessment of what caused the financial crisis in the first place, in reality they make the same, false claims that the President makes...that the crisis was caused by risky lending practices, when in fact it was caused by the power of banks to create money out of thin air and lend it out at interest, all via the process of accepting bank deposits. The Republicans don't want America to notice this fact any more than the Democrats do. That's the real reason why the Republicans focused on Fannie and Freddie, not to mention that it takes attention away from their own culpability during the Bush years. Notice that not one politician who spoke this week gave even the remotest acknowledgment that so-called good loans contributed to the crisis just as much as risky loans did.
The Specifics
Let's take a moment to focus on some of the things the law's supporters claim that the law will address.
First, the law's supporters claim that banks will no longer be able to charge high overdraft fees and credit card fees. Now, here's the reality. The next time you overdraw your checking account, if you don't have some kind of credit line already in place, you'll get hit with high overdraft fees. The next time you miss a credit card payment, you'll get hit with high fees there, too. And the next time you use your credit card, your merchant will continue to get hit with substantial fees for processing that transaction, just as has always happened. So there's nothing significantly new with this provision of the new law.
Second, if a lender refuses a potential borrower's loan, that lender is now required to let the applicant know their credit score for free. This requirement is just plain laughable. What's the disappointed borrower supposed to do with this wonderful, free information? Is he supposed to apply again? Is he supposed to make the bank recalculate his credit score? How, exactly, does this new rule protect the borrower who didn't qualify for the loan in the first place? Presumably, the borrower is now expected to take his low credit score to one of those rip-off operations that promise to repair your credit, for a hefty fee, which in most cases accomplishes nothing but to make the victim even poorer. Now there's a new take on the notion of "consumer protection"!
Third, the newly established Financial Stability Oversight Council will monitor systemic risk across the entire financial system and make recommendations to the Federal Reserve to alleviate that risk. The ten-member council will include the heads of the federal financial agencies. Put the impressive-sounding title aside, and what you have here is a bunch of government bureaucrats giving advice to Wall Street bankers, advice which the bankers can choose to ignore if they wish. Notice how this leaves the Federal Reserve in exactly the same position they were in before...with complete control of the banking and monetary system that caused the crisis in the first place. And, putting aside all the smoke-and-mirrors, who really caused the financial crisis? Why, the Federal Reserve, of course!
Now let's look at what didn't make it into the new law. This stuff will really make you roll your eyes in disgust, and to a tiny extent, in relief.
The Republicans biggest beef with the whole law is that it does nothing to address the problems, and sustainability, of mortgage giants Fannie Mae and Freddie Mac. This one really makes me laugh. There are really only two possibilities where Fannie and Freddie are concerned: either bail them out, or let them fail and bail them out. It's important to emphasize that there are no other possibilities. There are no circumstances under which either Fannie or Freddie can survive on their own merits. Despite their demise, that result is exactly what the Republicans hoped to achieve. How? They didn't say, except to say they wanted to "unwind their affairs"...a euphemism for shutting them down and making the taxpayer pick up the tab for any losses. The Republicans don't have any better ideas than the Democrats have. They just made all that noise in order to sound good to their conservative constituents.
But the second provision left out of the new law is a real doozy. Apparently, this provision is the main reason why it took them so long to cobble this 2300 page legislation together into a form Congressional thieves were willing to support. According to CBS News, "The House wanted to create a $150 billion fund to pay for any future bailouts. The fund would have been paid for by the banks. This provision was gutted from the bill before it was passed." Why? Apparently, conferees agreed that this kind of fund could only be created after a massive collapse, according to CBS. Lest any conservatives try to claim that Republicans were against this provision, in reality they favored it, provided that it only required a $50 billion bailout fund, rather than the $150 billion fund the Democrats wanted. So much for conservative's complaints about the bill, given their idea of what fiscal responsibility apparently entails.
I have to admit, that one had me laughing in hysterics when I read it. I mean, how are they supposed to create such a fund when the country has suffered a massive financial collapse? Where do they expect that money to come from under such circumstances? Back in the 60's and 70's, this kind of thinking would have come under the heading, "good drugs".
Finally, the new law's supporters claim that, by law, lenders must now verify that borrowers are able to repay the loans that they issue. Lenders would pay penalties for irresponsible lending. But in reality, there's nothing new here. Lenders have always had this responsibility! How high would the penalties be? No one knows for sure, but they'd have to be measured in hundreds of billions of dollars to have any real effect on the industry as a whole, because making huge numbers of loans like these is extremely profitable, to say the least. That's why the banks made those loans in the first place.
You can bet your bottom counterfeit dollar that these so-called penalties will never be very high. They'll like be no more than slaps on the wrist.
As for "irresponsible lending", notice that the law's proponents don't consider the lending of money which doesn't belong to the banks while simultaneously promising depositors they can withdraw that same money at any time to be "irresponsible". To the contrary, this kind of lending is considered highly "responsible". Case in point: in a radio interview with CBS News, White House economic adviser Austan Goolsbee insisted the new financial regulatory reform law won't affect businesses that play by the rules.
Goolsbee said, "For anybody, which are the majority, who have been responsible, you know, following good business practices, I think the bill has the positive potential to reestablish public trust in our financial institutions and financial markets, which was lost in the crisis, and it's quite detrimental when you lose that...It's not intended to change the fundamental reality which is, if you take out a loan, you're supposed to pay back your bills. "
He described the measure as "the toughest consumer protection law that we've ever had in this country."
There are three important points to notice about his remarks.
First, he essentially blames the financial crisis on credit card penalty fees and effectively applauds the banks' practice of lending out and collecting interest on money that doesn't belong to them. This is what he means by "good business practices".
Second, his remarks imply that banks that do business by collecting interest on such loans made with money they never owned in the first place, are not behaving in an abusive or deceptive manner. But that's one of the most blatant forms of legalized fraud in existence today, one which has been in existence for over 300 years, causing one financial crisis, panic, recession or depression after another during that time period.
Third, and most important of all, every major financial crisis in American history was followed by extensive increases in financial regulation by the federal government with the promise that each of those legislative packages were the toughest ever, and that they would prevent future crises from occurring. In every case, it was a lie, and this case is no different.
Goolsbee claimed in his remarks that critics were wrong about it "back in the 1930s when they established the FDIC. Many of the same types of critics were saying, 'This will be detrimental. It will ruin banking as we know it.' And those proved not only to be false, the FDIC proved to be one of the best things that ever happened to banking in this country, that people could feel safe about the operation of the financial system."
You mean, Mr. Goolsbee, like the way the FDIC made them feel safe in 2008, when it didn't have anywhere near enough money on hand to cover the big bank failures, thus leading to them being labeled, "too big to fail"? That's one more lie told by the current administration. At the rate they're going, they're going to easily match the number of lies told by the previous president before they're through.
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You put 'em to shame, Walt, with an example of how a free and independent press outlet would have reported on this topic all along. The highest possible contrast to fawning and faulty MSM coverage. It's safe to say that you won't see any of your indictments in an AP "FACT CHECK" report any time soon, except to whitewash them.
