Posts tagged with 'Citigroup'

Campaign Cash: How Citizens United Will Change Elections Forever

Posted Oct 25, 2010 @ 11:00 am by
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Lawrence Lessig, Harvard law professorEd. Note: This blog is available for any organization or outlet to republish or excerpt. Please feel free to share it widely!

by Zach Carter, Media Consortium blogger

Undue corporate influence over U.S. elections has been a serious problem in American politics for decades, but this year’s Supreme Court ruling in Citizens United v. Federal Election Commission made things worse. Worst of all, we may never know the extent of the damage.

Citizens United freed corporations to spend unlimited amounts of money backing specific political candidates, and without congressional action, those expenditures can be completely anonymous. Major corporations are already capitalizing on the new legal landscape by the millions, and the public doesn’t really know who is buying what influence or why.

That’s why The Media Consortium will be carefully watching the effects of this ruling in the run up to this year’s midterm elections. Every day through Nov. 4, we’ll bring you some of the best independent reporting on the effects of corporate spending in an attempt to measure just how widespread the effect of Citizens United will be on this—and the next—election.  Keep your eye on “Campaign Cash” as we follow this issue in the coming weeks. If you want to tweet about it, use the hashtag #campaigncash. (more…)

Weekly Audit: Crashing the Corporate Christmas Party

Posted Dec 29, 2009 @ 8:46 am by
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By Zach Carter, Media Consortium Blogger

While Wall Street will ring in the new year with huge bonuses and taxpayer-fueled profits, there is little holiday cheer for the workers whose tax dollars funded the bank bailouts. Although bank stock prices have soared for most of the year, the unemployment rate has steadily climbed and the foreclosure crisis has swelled to epic proportions.

Nomi Prins details the disconnect between Wall Street and the rest of us for AlterNet. The government’s massive giveaways to big banks did not stop with the $700 billion Troubled Asset Relief Program. In fact, earlier this month, the Internal Revenue Service granted Citigroup a $38 billion tax break for, well, nothing. Like every other financial boon the Treasury and the Federal Reserve have granted banks since 2008, this special holiday gift will help boost Citigroup’s profits, but does little to boost lending to small businesses, lower credit card interest rates or help struggling borrowers stay in their homes. (more…)

Weekly Audit: Obama’s Regulation Overhaul Comes Up Short

Posted Jun 23, 2009 @ 7:35 am by
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by Zach Carter, TMC MediaWire Blogger

President Barack Obama rolled out his plan to overhaul financial regulation last week. While much of the Obama plan relies on the same regulators and structures that led to the current meltdown, there is one key exception. The establishment of an independent Consumer Financial Protection Agency would give ordinary citizens a seat at the financial policy table for the first time and prevent the abuses in credit card and mortgage lending that have wreaked havoc on households all over the country.

The new agency is the brainchild of Harvard University Law School Professor Elizabeth Warren. As chair of a key oversight panel for the Treasury Department’s bank bailout program, Warren has uncovered major deficiencies in the government’s handling of the plan, including nearly $80 billion in overpayments to bailed-out banks. American News Project features footage of an interview with Warren, who explains why we need a separate agency to regulate on behalf of consumers.

Several bank regulatory agencies, the Federal Reserve, the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision are already charged with writing and enforcing consumer protection rules for credit cards and mortgages, but have generally abandoned these duties to act as cheerleaders for their banks.The current structure’s problems are two-fold. First, the current regulators are funded by fees levied on the very banks they regulate. When there are several different bank regulators, regulators compete to offer the weakest oversight and attract more banks, and, in turn, more funding. The process quickly becomes a race to the bottom. When the subprime mortgage boom was surging in 2003, the OCC, a federal bank regulator, went to court to ensure that the state of Georgia’s tough predatory lending laws could not be enforced.

Second, the regulatory agencies tend to look at the health of the bank, rather than the quality of the loans it makes. If a commercial bank like Citigroup makes a really outrageous predatory loan, then sells that loan to an unregulated investment bank like Goldman Sachs, Citi’s regulator doesn’t particularly care. A new regulatory agency that answers exclusively to consumers rather than banks would be a very meaningful change for the financial system.

The rest of the overhaul is a little frightening. As William Greider explains for The Nation, instead of crafting explicit rules to curb obvious abuses, Obama’s plan relies very heavily on ceding power to the Federal Reserve. Under the new framework, the Fed would both oversee “systemic risk” in the financial architecture and regulate the banks that have become “too big to fail.” This, Greider emphasizes, is a very bad idea. The Fed has repeatedly proven itself to be uninterested in regulating banks. Citi needed $45 billion in direct cash infusions from the U.S. taxpayer and hundreds of billions of dollars in other guarantees to stay afloat, as Nomi Prins writes for Mother Jones. Who was charged with regulating the company and making sure such an outrage never occurred? The Fed.

In a video spot for GritTV, former senior banking regulator William Black argues that it makes little sense to allow banks to become too big to fail at all. Sturdier regulations are better than nothing, but the real solution is to break them up. “Why would we allow banks to be so big that they threaten the global economy?” Black asks.

Going back to Prins in Mother Jones: Elsewhere, the regulatory revamp is simply too vague to be helpful. Regarding derivatives—the financial weapons of mass destruction that destroyed AIG—it’s not clear if Obama wants to regulate the entire industry, or a small, meaningless fraction. Obama’s plan is to require that “standardized” derivatives are traded on exchanges and allow “customized” derivatives to escape investor scrutiny. But the Treasury never explains what the difference is between these “standard” and “custom” products, or how it will make sure banks don’t game the system.

Lest we forget, this crazy finance system brought us the worst economic calamity since the Great Depression. The unemployment rate, by conservative measures, is at 9.4% and rising. You may have noticed the stories about “green shoots” signaling the first inklings of economic recovery circulating through the media. But these signs are only promising, AlterNet’s Joshua Holland explains, if you take them completely out of context and ignore all of the other terrible news. The economy is in great shape … except for the millions of foreclosures that will take place this year, the skyrocketing unemployment rate, the decimated retirement funds, and the mountains of credit card debt weighing down the average U.S. consumer.

Serious consumer protections are nothing to scoff at, especially after watching an outbreak of predatory mortgage lending spawn an economic collapse. It comes as no surprise then, as Tim Fernholz notes for The American Prospect, that the bank lobby is already working to water down the new consumer protection agency’s powers. But even if a regulator for consumers makes the final legislative cut, with so many drastic problems in the current financial regulatory structure, the Obama plan simply does not do what is necessary to fend off another crisis.

This post features links to the best independent, progressive reporting about the economy. Visit and for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out and This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.

Weekly Audit: Debt and Taxes

Posted May 19, 2009 @ 8:26 am by
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by Zach Carter, TMC MediaWire Blogger

Earlier this month, President Barack Obama rolled out a new plan to limit the use of offshore tax havens and crack down on corporate abuse of the tax system. These tax havens siphon over $100 billion a year from the government, and have allowed many U.S. banks to duck paying taxes despite receiving massive, taxpayer-funded bailouts. The president’s plan is far from perfect, but comes as a welcome acknowledgment of the unfairness embedded in the current tax code.

Corporate taxes are precisely the type of issue that mainstream media outlets prefer to avoid. Even though the government’s tolerance of corporate tax evasion is a major scandal, it takes time to explain the issue’s intricacies, and it’s easier to resort to pundit-jousting than to provide a detailed report on how companies are cooking the books.

Most discussions of corporate taxes are quickly distorted by focusing on the overall income tax rate for the wealthiest corporations. This rate is 35% in the U.S., which is relatively high when compared to other developed nations with complex economies. But corporate lobbyists have successfully pushed thousands of complex loopholes into the U.S. tax code, making the actual, paid tax rate much lower. In a battle between pundits, a talking head screaming “Thirty-five per cent!” tends to be more persuasive than an academic talking about offshore deferred compensation.

This sheer density of the tax code creates a destructive feedback loop for policymakers. “If the loopholes are very complicated, then the only people who know enough to argue over them will be the lobbyists dedicated to their preservation,” Ezra Klein writes for The American Prospect.

As a result of this information imbalance, lobbyists can convince Congress to gouge ordinary citizens, even when those lobbyists are representing companies dependent on taxpayer largess for their very existence. Financial firms are particularly fond of establishing small sub-corporations in the Caribbean to shield their income from the U.S. Treasury. By registering their headquarters in these tiny nations, companies pay tiny fees to their “home” country and shirk being taxed in the U.S.

Citigroup has received over $45 billion in direct capital injections from taxpayers and billions more in federal insurance, but as Jim Hightower notes, the banking behemoth has a total of 427 sub-corporations scattered around the globe, and they serve no purpose other than avoiding taxes.

It’s not as if these companies have actually moved their employees or their trading houses or their factories to these remote locales. Their existence outside the United States entirely a fiction of paperwork crafted by clever corporate lobbyists. About 400,000 companies are headquartered in the British Virgin Islands, and none actually do any business there.

“All 400,000 companies are located in one gray, two-storey building in the town of Tortola,” Hightower notes.

Similar situations exist in dozens of other tax-haven nations. The Cayman Islands have over 12,000 companies “housed” in a single building. As David Cay Johnston explains in The Nation, the Caymans bar these pseudo-firms from engaging in any business beyond hiding profits.

Corporate tax-dodging has real consequences. “Honest taxpayers have to make up for the revenues lost through this offshore cheating in three ways: we pay more in taxes, we get fewer government services and we incur rising government debt,” Johnston writes.

The practice also helps artificially inflate corporate profits—and fake profit-taking was one of the chief drivers of the current financial crisis. In an illuminating interview with GritTV’s Laura Flanders, former banking regulator William Black explains how top-level executives at major financial institutions used accounting gimmicks to score record bonuses at the expense of the greater economy.

“It was an epidemic of fraud lead by the CEOs, and they were using accounting to commit that fraud,” Black says.

Subprime loans have much higher interest rates than ordinary prime loans. This means subprime loans are actually worth more to banks, provided the borrower can actually pay the loan. An executive with an eye to his own paycheck might urge his company to gobble up massive quantities of subprime loans, according to Black, enabling the bank to book record profits for the few months or years that borrowers could actually keep up with their mortgage payments. Giant profits generate gigantic bonuses for the executives, so even when the company is destroyed by all this subprime binging, the executive walks away rich.

Executives also aligned the pay incentives of employees lower on the corporate food chain with this strategy, ensuring that lenders churned out as many loans as possible, regardless of quality. The result is a devastating chain of fraud starting at the Wall Street CEO and ending at the mortgage broker. In the below video for American News Project, Lagan Sebert outlines the operations subprime mortgage giant Ameriquest and their Wall Street enablers, Citigroup.

Obama deserves some credit for acknowledging that corporate tax-scamming is a problem—Presidents Bill Clinton and George W. Bush were happy to sign-off on laws that made it easier for wealthy companies to evade taxes. But Obama’s crackdown doesn’t go nearly far enough. His plan would only bring in about 10% of the revenue the U.S. Treasury Department thinks it is losing through these scams. If Obama is serious about restoring accountability to Wall Street, that commitment does not end with the tax code. It is equally essential for Obama to secure new regulations on CEO pay that tie compensation to meaningful, long-term profits instead of short-term risk-taking, and to hire financial regulatory officials who will not tolerate endemic fraud.

This post features links to the best independent, progressive reporting about the economy. Visit and for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out and This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.

Weekly Audit: Bank Execs Looting Consumers, Shareholders and Taxpayers

Posted Apr 21, 2009 @ 7:30 am by
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by Zach Carter, TMC MediaWire Blogger

Some of the largest U.S. banks may be on the ropes these days, but the disparity between the plight of financial executives and ordinary Americans has never been starker. Over the past two decades, the banking system has grown accustomed to scoring massive profits by preying on its own customers, making 2009’s transition to pilfering taxpayer wallets an easy one. After burying the economy under a mountain of unaffordable debt, bank CEOs are now finding ways to subsidize their own paychecks with taxpayer bailout funds.

With over $550 billion in government money already dedicated to shoring up the financial system under the Troubled Asset Relief Program (TARP), it’s easy to wonder just what Wall Street and its highly-compensated executives actually do for the economy. Federal Reserve Chairman Ben Bernanke offered one explanation in a speech last week in Washington, D.C. At its best, Bernanke claimed, Wall Street innovates, creating new financial products that expand access to credit, making it easier to run small businesses and improving living standards for households. Armed with ever-expanding paydays, Wall Street has indeed innovated over the past thirty years, radically altering the economic landscape in the process.

But as Ezra Klein emphasizes for The American Prospect, much of Wall Street’s so-called innovation is sheer gimmickry. Financiers have intentionally designed loan contracts to be mystifying and complex to the ordinary consumer, tricking bank customers into racking up unaffordable levels of debt. From credit cards to credit default swaps, these new products have indeed signaled progress for bank balance sheets, but in many cases, banks have enjoyed outsized profits at the expense of the broader economy.

“Innovations are not always win-win,” Klein emphasizes. “They’re often win-lose.”

Of course, some financial stunts were so convoluted that many of the nation’s most revered financial brands– including AIG, Lehman Brothers, Bear Stearns and Wachovia– crumbled under their complexity. Today, something as simple as mortgage has become a byzantine, hard-to-value security, once Wall Street wizards bundle it together with hundreds of other mortgages and sell it off to dozens of investors. In the below video for American News Project, Lagan Sebert and David Murdock put a human face on Wall Street’s toxic assets, telling the story of Sandra Berrios, a mother of two who was conned into a predatory loan by a deceptive mortgage broker. The broker provided Sandra with documents promising her a 30-year fixed-rate mortgage, but instead sold her an outrageous adjustable-rate mortgage in order to collect a fee from Flagstar Bank, which actually funded the loan.

“We believed the broker . . . but what they were telling us was not the truth,” Berrios says.

Even though Flagstar has received $266 million in government bailout money, the company still refuses to renegotiate Berrios’ loan. While some money from TARP went to healthy banks, but Flagstar was truly desperate for the funding. The company’s stock is trading at around $1.00 per share thanks to fears over its financial stability, and Flagstar recently agreed to be acquired by a private equity company for still less to avoid complete financial ruin. The source of the company’s difficulties? Losses on loans like the one Sandra Berrios is struggling with.

Writing for The Nation, Christopher Hayes highlights a letter from a reader who questions malfeasance on the part of Goldman Sachs, which received $10 billion in taxpayer funds under the Troubled Asset Relief Program. Executives at Goldman recently decided to pay back the government before it paid off the investment from billionaire Warren Buffett, even though Buffett is reaping double the interest rate that the government is receiving from Goldman.

The scenario speaks volumes about just how lousy a deal taxpayers got under the bank bailout. Paying Buffett back first would clearly be the better deal for shareholders of the Wall Street titan, as it would save them years of payments at higher interest rates. But Buffett’s plan does not involve the same restrictions on executive compensation that are included under TARP. By prioritizing the TARP repayment, Goldman’s top brass are screwing their own shareholders to guarantee a bigger payday.

Exorbitant CEO compensation, especially on Wall Street, has played a major role in deepening income inequality in the United States. But even the onset of the worst recession since the Great Depression was cause for little alarm for top executives at American corporations last year, as Laura Flanders explains for GritTV.

“While wages and benefits have been going down for most Americans, more U.S. chief executives got pay raises than had their pay cut in 2008,” Flanders said, noting that “CEO’s weren’t just making more, they were making more while laying their workers off.”

Flanders notes that Citigroup CEO Vikram Pandit slashed 74,000 jobs at his company in 2008, but did not object to paying himself a whopping $38 million salary. The outrage is compounded by the fact that Pandit allowed his company to collapse last year, ultimately tapping taxpayers for multiple bailouts that have reached $45 billion in scope, an amount nearly three times Citigroup’s current stock market value.

The financial system doesn’t have to be a contest between citizens and executives. There is no good reason why responsible regulations cannot be enacted to rein in CEO pay, ban socially destructive lending practices and reduce the influence of banking behemoths on public policy. We’d all be better off with that kind of innovation.

This post features links to the best independent, progressive reporting about the economy. Visit and for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out and This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.

Weekly Audit: Time to Shake Off the Bank Lobby

by Zach Carter, TMC MediaWire Blogger

While the national economy struggles under the weight of a massive bank bailout effort, the banking lobby’s ability to influence public policy is more problematic than ever. The too-big-to-fail bankers may be dependent on U.S. taxpayers for their survival, but corporate lobbyists still have members of Congress, the Treasury Department and the Federal Reserve asking the banks’ permission to bring the Big Finance behemoths under control. The relationship between Wall Street and the government is so out of whack that it’s difficult to distinguish the political players from the panhandlers.

In Mother Jones, Daniel Schulman and Jonathan Stein detail the ease with which important congressional staff switch careers and move into the banking sector. In recent years, dozens of key staffers for powerful Senators have left the political arena to work for as lobbyists for the financial sector, and policy gurus from both sides of the aisle are jumping ship for lucrative careers as influence peddlers on Wall Street.

“Financial firms seeking big bucks and favorable terms from Congress and the White House are deploying Capitol Hill aides turned lobbyists to win favorable treatment from the congressional lawmakers,” Schulman and Stein write. Many lawmakers, including Senate Banking Committee Chairman Chris Dodd, D-Conn., are refusing to disclose whether they’ve had contact with former staff who now work for Wall Street. Small surprise, then, that so many of the recent bailout packages have allowed failed bank CEOs to stay in power and saved their shareholders from bad investments in inept, even predatory, companies.

Sometimes these reinvented bank defenders are even former Senators. Susan Douglas of In These Times highlights the career of former Sen. Phil Gramm, R-Texas, who is currently a lobbyist for UBS. The Swiss banking giant has been plagued by a seemingly endless stream of scandals over the past year, for everything from diamond smuggling to tax fraud. And Gramm helped push for looser predatory lending laws—including those pertaining to the now-decimated mortgage sector—while he on the UBS payroll.

This would be a shameful legacy for any former public servant, but for Gramm, Douglas notes, this behavior is particularly disgraceful: his two chief legislative “accomplishments” helped create and intensify the current financial crisis. Gramm co-authored the Gramm-Leach-Bliley Act of 1999, which compounded the financial world’s too-big-to-fail problem by letting traditional commercial lenders like Bank of America and Citigroup buy up riskier, unregulated investment banks like Merrill Lynch. Gramm then pushed the Commodity Futures Modernization Act of 2000 through in a midnight budget amendment, a tactic which made sure that “credit default swaps” were not subject to either securities regulations or gambling laws. Just eight years later, credit default swap gambling destroyed insurance giant AIG, to the dismay of taxpayers everywhere.

When lawmakers stop cowing to the bank lobby and start answering to their constituents, the result is a big boost for the entire economy. Last week, committees in both the House and Senate dealt the credit card industry a rare defeat by approving bills that crack down on abusive credit card billing practices. Even though Sen. Dodd insists keeping his lobbying contacts a mystery, he is capable of crafting responsible legislation. The bills were introduced by Dodd and Rep. Carolyn Maloney, D-N.Y., but still face major uphill battles clearing the full House and Senate.

As Harry Hanbury details for the American News Project, conservative lawmakers and bank lobbyists are already hard at work watering down the legislative language to ensure that it will not actually curb any abuses if enacted. Take a look:

The bills would ban dozens of billing gimmicks that are as outrageous as they are common, including raising interest rates on credit card debt after it has been accumulated and hiking rates due to completely unrelated activity, like returning a library book late. The banking industry deploys a lot of clever words to mask the predation inherent in the tactics, and most common of all are the terms “price according to risk” and “risk-based pricing.” These phrases make it sound as if all the poor little credit card companies want to do is set interest rates at levels appropriate for a borrower’s credit profile. Of course, that’s not what’s actually happening: lenders are radically changing the terms of loan agreements for no other purpose than to gouge borrowers, and give borrowers no say in what happens.

It’s crazy that banks are legally permitted to raise interest rates on cardholders after they have charged debt to their credit card. If you pay full price for anything else—a shirt, a bag of groceries, a guitar—it would be laughable if the shop clerk demanded more money from you months later.

Banker apologists insist that banning these practices will restrict the flow of credit. But more credit cards will not fix a problem caused by massively over-indebted consumers. We need higher wages, not a fresh flood of predatory, high-interest debt.

But if taxpayers can win on credit cards, we can win on the bailout, too. Yes! Executive Editor Sarah van Gelder posted an open letter to President Barack Obama this week, citing half a dozen economic experts and urging him to change his bailout strategy before it’s too late. “Watching your appointees’ latest bank bailout makes me wonder if all your administration’s good work on health care, education, and jobs will be swept away by the extraordinary giveaway of trillions in taxpayer money to a group of powerful Wall Street operatives,” van Gelder writes.

And indeed, in other arenas of economic policy, the president has made significant steps in the right direction. While Obama’s proposed federal budget is less than perfect, it moves away from some of the worst trends of the past eight years. GritTV’s Laura Flanders details some of this progress in a roundtable discussion with Irasema Garza, President of Legal Momentum, former New York Times reporter David Cay Johnston, and New York City Coalition Against Hunger Director Joel Berg. By implementing robust job creation plans and a massive increase in anti-hunger and nutrition programs, Obama has signaled that the plight of those hardest hit by the recession cannot simply be ignored.

But these positive budget strides do not involve the banking lobby, which still maintains a stranglehold on any realm of U.S. public policy it can loot for a profit. Obama standing up to the financiers is not an improbable pipe dream, it’s a prerequisite for economic recovery and a necessary step toward rebuilding the integrity of our democracy.

This post features links to the best independent, progressive reporting about the economy. Visit and for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out and This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.

Weekly Audit: Budget Good, Bailout Bad

Posted Mar 3, 2009 @ 9:38 am by
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President Barack Obama rolled out his highly anticipated federal budget proposal on Thursday, and while the plan represents a dramatic departure from the priorities of the Bush administration, its ultimate impact may be crippled by a counterproductive bank bailout.

First, the good news: The budget is awesome.

“Obama would raise taxes on the wealthy to pay for healthcare for the uninsured; cap pollution emissions; put billions more dollars into infrastructure and new technology; … invest in new education programs; and roll back the U.S. troop presence in Iraq,” Mike Madden writes for Salon. “There were proposals to save money by modernizing the healthcare system … and by eliminating federal farm subsidies to the biggest and wealthiest recipients.”

While it’s refreshing to see a set of priorities that put economic stability ahead of entrenched corporate interests, Obama’s call to reduce the federal deficit comes as a bit of a surprise. He has inherited a massive recession and defecit. Over at The American Prospect, Ezra Klein highlights an analysis of spending by Media Consortium alum Brian Beutler. Both bloggers agree that government debt is not a major problem, provided that borrowed funds are used to invest in something meaningful.

“Debt can be good if you expect that spending will offer a greater return than saving,” Klein writes. “And right now, because Treasury bonds are the last safe investment, it’s the cheapest it’s been for the government to borrow money in 50 years.”

Republicans are screaming about the enormous deficit that Obama’s budget requires, but most of that debt was passed down by President George W. Bush. Obama has actually taken cues from Congressional Republicans to find funding for financial shortfalls. Steve Aquino of Mother Jones notes that Obama’s move to raise premiums on Medicare received by wealthy Americans is a longstanding Republican priority. Additionally, Obama’s move to cap the itemized deduction tax subsidy at 28 cents on the dollar would re-establish Reagan-era levels.

But the line items missing from Obama’s budget are just as noteworthy. The Washington Monthly‘s Steve Benen dissects the Republican angst over Obama’s refusal to push for cuts in Social Security benefits. During his speech before Congress last week, Obama breezed right by the alleged Social Security crisis without asking elderly Americans, who have already seen their 401k plans cut in half over the past year, to take further cuts in their retirement income.

That’s a good thing, because as Matthew Rothschild explains for The Progressive, Social Security’s looming implosion is a Republican myth. “Social Security isn’t going bankrupt,” Rothschild writes. “It’s fully funded until 2041, and could remain so for many more years simply by making the wealthiest Americans kick in their share.”

The income limit for Social Security taxes is $105,000 a year, so billionaires pay the same Social Security as those making $105,000 annually. If Social Security ever does run into trouble, it can be easily fixed by charging rich people more for the program.

On to the bad news.

The government bailed out Citigroup and its shareholders for the third time on Friday, converting $25 billion in preferred stock into ordinary, run-of-the-mill, we-own-this-company common stock. But while Citi’s stock market value was hovering around $13 billion at the time, taxpayers only received a 36% stake in return for their largesse.

The Real News has a great interview with economist William Engdahl about the banking lobby’s ability to exercise control over public policy, despite the industry’s self-inflicted collapse. Engdahl argues persuasively that it is time for the government to stop propping up bank shareholders under the hope that “market prices” will magically appear for worthless assets. “Write those assets, those toxic assets, down to zero,” Engdahl says. “Only the state can do that at this point. You don’t find the market price for these things.”

The government has been playing for time for the last 18 months in hopes that the financial crisis could iron itself out. Rather than reward investors who put money into bad companies, Engdahl says Obama needs to wipe out the shareholders of failed banks and kick out the management teams that steered their companies into catastrophe.

Playing for time was the central economic strategy of Henry Paulson’s tenure as Treasury Secretary, but as Lagan Sebert and David Murdoch make clear in the below video for The American News Project, Paulson also managed to slip in major giveaways to big U.S. banks in the process.

The Troubled Asset Relief Program (TARP) allowed the government to inject capital into banks, but Paulson charged them a much lower than market rate of return on the investment. As a result, taxpayers missed out on about $78 billion that they could have expected to receive in interest payments had their money been managed by, say, Warren Buffett instead of Paulson. To put that number in perspective: President Obama’s entire plan to avert foreclosures will cost taxpayers $75 billion.

The U.S. banking system is completely broken and will need an enormous taxpayer commitment to return to any semblance of health. But there are good ways and bad ways to go about doing that. A bailout should be accompanied by control over how a bank is managed.

The banking industry is working very hard to portray TARP as something other than a bailout. When Northern Trust, for example, throws decadent parties after receiving taxpayer funds, its executives justified those lavish expenditures by claiming that their company was not “bailed out,” but merely received capital which it is paying for. The pricing of TARP was so favorable to banks and so disadvantageous for taxpayers that this claim cannot be taken seriously. Northern Trust got a bailout, and even if they pay back their TARP funds ahead of time, the interest they are paying is so far below market rates that the company will still be coming out ahead.

Obama’s budget shows that he knows what it takes to turn the economy around, but his financial policy indicates that he lacks the political will to shake off the banking lobby and do what is necessary to save ordinary Americans from disaster.

This post features links to the best independent, progressive reporting about the economy. Visit and for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out and This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.

Weekly Audit: Geithner’s Terrible, Horrible, No-Good, Very Bad Bailout

Posted Feb 17, 2009 @ 9:10 am by
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In this week’s Audit, we’re examinig Treasury Secretary Timothy Geithner’s thoroughly uninspiring bank bailout plan, which fails on almost every level. What’s more, some of the most insightful (and stinging) critiques of the proposal are coming from progressive media.

Robert Kuttner offers a strong analysis of Geithner’s strategy to salvage the banking industry in The American Prospect, noting that Geithner is explicitly avoiding the simplest and cheapest solution in favor of propping up the current Wall Street regime. The current plan is designed to support a financial architecture that has proven completely ineffective in maintaining the nation’s basic economic functions.

Geithner has thus far refused to nationalize the big, insolvent U.S. banks and give taxpayers ownership authority in exchange for their financial assistance. Instead, the new Treasury Secretary’s proposal devotes $1 trillion to writing insurance policies on bad mortgage assets to encourage private companies to buy those assets from troubled financial firms. This complicated strategy is designed to reduce the amount of money the government will have to pay to save the financial sector by bringing private enterprise into the bailout. However, the sheer convolutedness of the plan makes it much less efficient than temporary nationalization would be. Instead of simply putting a troubled bank’s balance sheet in order, the government now has to make sure hedge funds and private equity companies can profit from the move. The end result? Showering more taxpayer dollars on Wall Street.

As Matthew Rothschild highlights in The Progressive, the government’s current commitments to banks exceed the stock market values of those banks. Citigroup has received over $50 billion in direct capital injections, plus insurance on $300 billion worth of assets, but the company could have been purchased outright for well under $20 billion since October, 2008.

The worst part, Kuttner notes, is Geithner’s seeming determination to rehabilitate the failed loan securitization network, in which loans are packaged into securities and sold to various investors. Loan securitization encouraged excessive risk-taking on Wall Street, spawned millions of predatory mortgages and turned the simple process of buying a home into an absurd game of hot-potato amongst speculators. The loan securitization system needs to be carefully dismantled, not restored. “Geithner, using public funds, hopes to restart the engine of loan securitization,” Kuttner writes. “In effect, he wants to rebuild the very model that caused the crash.”

Nobel Prize-winning economist Joseph Stiglitz argues that much of the resistance to nationalizing the nation’s largest banks is based on a misunderstanding about how the nationalization process works. In an illuminating interview with Talking Points Memo, Stiglitz states that banks fail all the time and are placed into government hands to be disposed of. Lately, a handful of banks have failed every week.

“Banks have failed over and over again in the history of America, in the history of capitalism,” Stiglitz says. “To mention some recent examples, Washington Mutual went into bankruptcy, a number of banks went into bankruptcy . . . . It didn’t lead to a fundamentally systemic problem.”

When this happens, the government either takes the bank over for a short period of time and sells it to another bank, or liquidates the failed bank’s assets. The nationalization solution that progressive economists are pushing is simply the first approach. The nationalized bank is even kept open while its books are put in order, and when its affairs are straightened out, the government sells the company back out into the marketplace. The FDIC has decades of experience with this kind of operation.

Merely patching up the old economic model will not only fail to loosen Wall Street’s grip on the economy, it will also turn a blind eye to the severe ecological challenges we face. As the authors of Right Relationship: Building a Whole Earth Economy, Peter Brown and Geoff Garver, write in a blog for The Huffington Post, unlimited growth and production is nonsensical in the context of finite natural resources. Taking the environmental crisis seriously will mean not only investing in technology to fend off catastrophe, but cultivating a culture that places value on sustainable lifestyles.

Geithner offered a few vague comments about averting foreclosures in his bailout roll-out last Tuesday, but the glacial pace of government-sponsored foreclosure relief may mean that it’s time for more direct action. Last month, Rep. Marcy Kaptur, D-Ohio, called for evicted home-owners to exercise squatter’s rights and refuse to leave their homes.

In the Nation, Nicholas Von Hoffman proposes organizing community groups to take a stand and block banks from repossessing homes. While the current economic crisis looks much like the early days of the Great Depression, those hit hardest by today’s downturn have a few more tools to weild—most notably, the Internet. If the Treasury Department will not save the people from Wall Street, the people can, and should, save themselves.

The situation is already dire. As James Ridgeway writes for Mother Jones, today’s sky-high jobless statistics mask the actual number of people enduring tough times. While the official unemployment rate is at 7.6%, far more people who have given up looking for a new job or are stuck in part-time positions. If those people are included in the metric, the rate soars to 13.9%.

Geithner is scheduled to release more details on his bank bailout on Wednesday. Let’s hope the second time is the charm. Keep your eyes on the Weekly Audit for independent media’s response.

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