Tracking the Bailout and Stimulus Programs
Making Ordinary People Bear the Burden of Bailing Out the Economic Elite Who Engineered the Banking Crisis
Big labor, big businesses and big banks haves successfully looted the public treasury at a cost of trillions of dollars to U.S. taxpayers. The bailout and stimulus programs, and the cost of running the bloated bureaucracy that is regulating every facet of our lives at our expense, is why we have a federal deficit. And now the pretext of deficit reduction is being used to transfer more wealth to those already with too much, while dictating austerity by cutting public spending and making ordinary people bear the burden.Planned austerity is the wrong solution for a sick economy, yet bipartisan support and two deficit-cutting commissions back it. Obama's debt commission's plan is a thinly veiled scheme to serve capital, not people when they most need it. The commission is proposing cuts to Social Security, Medicare, Medicaid, and other social benefit cuts which harm working households most. This is typical elitist boilerplate — proposing draconian measures on ordinary people for greater enrichment for themselves.
Now that the feds have handed out more that $11 TRILLION in taxpayer money to themselves, big banks and big businesses (and for the funding of Agenda 21), they are insisting that we lower the national debt by cutting programs that benefit ordinary people. In other words, the individual taxpayers from whom the majority of funds are received must suffer austerity measures while the feds and their partners in crime — big banks and big businesses — continue to plunder the public treasury.
Here's an idea: Instead of further plundering the public treasury, why not have the Federal Reserve use the money they earned in interest on the national debt (which has totaled $4.13 TRILLION since FY 2000) to bailout their partners in crime on Wall Street. Better yet, the Federal Reserve should give back all the real money it collected in interest from U.S. taxpayers since its inception in 1913 for money it printed out of thin air — this should be more than enough to pay off the national debt.
Furthermore, the banks (in particular, Goldman Sachs and JP Morgan) and businesses that received taxpayer-funded bailouts, and which are now making profits, should turn over those profits to the U.S. Treasury. We are rewarding the financial terrorists and penalizing the hardworking taxpayers, many with homes being seized by the same banks that engineered the financial crisis using mortgage-backed securities and collateralized debt obligations.
Instead, our corrupt leaders, controlled by the financial oligarchs, would rather raise our taxes, loot the Social Security trust fund, seize the private retirement assets of U.S. citizens, and make drastic cuts in Social Security and Medicare to pay down the national debt. They refer to Social Security and Medicare as "entitlement programs," which they are not.
A lot of people seem to think that Social Security payments are "handouts" by the government. Yes, the government does manage our SS funds; however, many of us have worked for years and have paid into Social Security. Between the employee and the employer, about 13 percent is paid right off the top of our wages. No, Social Security is not a freebie! Neither is Medicare! If we want decent care, we buy supplemental policies and prescription policies. Medicare pays the doctors a very low percentage of their actual fees; and most doctors/hospitals care enough about senior citizens that they accept what Medicare/supplements pays. Twenty to twenty-five years ago, we were told Social Security was going bankrupt. Do you remember why? The Federal Government was using our funds to support other programs; and now we have a stack of IOU's — if the funds were put back into the Social Security system, we would be in great shape! Don't say that those on SS/Medicare are taking government handouts! We have been ripped off! [Elizabeth Bausell, Social Security, Medicare Are Not Entitlements, HeroldDemocrat.com, May 17, 2010]
When asked, during his Senate confirmation, why he’d consider going after Social Security to help reduce the National Debt, Bernanke quoted bank robber Willie Sutton. He said, “That’s where the money is.”
Five years ago, at the height of the housing bubble, President Bush spoke at Greece Athena Middle and High School in Greece, New York, about the political resistance in Washington to Medicare and Social Security cuts. The attendees were sympathetic to the President's remarks, and even applauded his blunt admission that the nature of his job requires endlessly repeating a few talking points. The President said: "As I mentioned to you earlier, we're going to redesign the current system. If you've retired, you don't have anything to worry about -- third time I've said that. (Laughter.) I'll probably say it three more times. See, in my line of work you got to keep repeating things over and over and over again for the truth to sink in, to kind of catapult the propaganda (Applause)." Reading it now, what's most revealing about the comment is not that Bush confirmed people's worst impressions of him in a moment of honesty, but that he is capable of speaking the truth far more than the current President is. In my book, that means Bush is a better man than Obama. [The Global Financial Oligarchy Eyes Government Cuts from Greece to New York , The Excavator, June 15, 2010]
CNNMoney's Bailout Tracker
The government is engaged in a far-reaching - and expensive - effort to rescue the economy. Here's how you can keep tabs on the bailouts.| Program | Committed | Invested | Description |
|---|---|---|---|
| American International Group | $70 billion | $69.8 billion | $40 billion in preferred shares were converted to so-called non-cumulative shares that more closely resemble common stock. Treasury later offered another $30 billion in preferred shares for up to 5 years, in return for a 10% dividend. |
Asset Guarantee Program
| $12.5 billion
| $5 billion
| Funds set aside to backstop potential losses to government from Citigroup and Bank of America loans. |
Auto Supplier Support Program
| $5 billion
| $3.5 billion
| Program to help stabilize auto suppliers by guaranteeing debt owed to them for shipped products, and providing financing to continue operations. |
Automotive Industry Financing Program
| $80.1 billion
| $77.6 billion
| Program that provides capital on a case-by-case basis to systemically significant auto and auto-financing companies that are at substantial risk of failure. |
Capital Purchase Program
| $218 billion ($96.2 billion) | $204.7 billion ($96.2 billion) | Preferred investments in banks to prop up capital reserves and encourage lending, in return for dividend payments and stricter executive compensation requirements. |
Consumer and Business Lending Initiative
| $70 billion
| $20 billion
| Programs to support private lending purchases of toxic assets and backing SBA loans. Also sets aside funds to backstop potential losses to government from purchases of mortgage-backed securities and other securities backed by consumer loans. |
| Making Home Affordable | $50 billion | $27.4 billion | Multipronged foreclosure prevention plan to help as many as 9 million borrowers by modifying or refinancing loans. |
| Public-Private Investment Program | $100 billion | $26.7 billion | Taxpayer funds used in partnership with private investment that will buy up at least $500 billion of toxic assets from financial institutions. |
Targeted Investment Program
| $40 billion
| $40 billion
| Emergency funding, in addition to previous $25 billion capital investments, for Citigroup and Bank of America |
| Funds paid back | ($118.5 billion) | ($118.5 billion) | |
| New initiatives | $172.9 billion | n/a | |
| TARP total | $700 billion | $356.2 billion |
| Program | Committed | Invested | Description |
|---|---|---|---|
| Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility | Unlimited | $0 million | Financing to banks for purchases of three-month asset-backed commercial paper from money market mutual funds to promote money market liquidity. |
| Bank of America loan-loss backstop | $97 billion | $0 | Funds set aside to insure against bank's potential losses from Merrill Lynch merger. |
| Bear Stearns bailout | $29 billion | $26.3 billion | Program to guarantee potential losses on Bear Stearns' portfolio; smoothed the way for JPMorgan Chase to buy the failed investment bank. |
| Citigroup loan-loss backstop | $220.4 billion | $0 | Funds set aside to insure against bank's potential losses from mortgage-backed securities investments. |
| Commercial Paper Funding Facility | $1.8 trillion | $14.3 billion | Purchases of short-term corporate debt aimed at boosting the struggling market and providing critical three-month financing to businesses. |
| Foreign exchange dollar swaps | Unlimited | $29.1 billion | Exchange of dollars to 13 foreign central banks for collateral. Aim is to provide liquidity to foreign financial institutions. |
| GSE debt purchases | $200 billion | $149.7 billion | Program to buy debt issued by Fannie Mae and Freddie Mac. Aim is to reduce rates on home loans. |
| GSE mortgage-backed securities purchases | $1.25 trillion | $775.6 billion | Program to buy mortgage-backed securities held by Fannie Mae and Freddie Mac. Aim is to reduce rates on home loans. |
| Money Market Investor Funding Facility | $600 billion | $0 | Programs to help money market funds by lending to funds directly. |
| Primary Dealer Credit Facility | n/a | $0 | Long-time lending facility for commercial banks that was opened to investment banks for first time in March 2008. |
| Term Asset-backed securities Loan Facility | $1 trillion | $43.8 billion | Program to buy consumer loan-backed securities. Aim is to revive the securitization market for consumer loans like credit cards and auto loans. |
| Term Auction Facility | $500 billion | $109.5 billion | Lending program that allows commercial banks to unload hard-to-sell assets, including mortgage-backed securities: Fed takes assets as collateral and banks get cash. |
| Term Securities Lending Facility | $250 billion | $0 billion | Federal Reserve facility that loans Treasurys to banks against hard-to-sell collateral like mortgage-backed securities. |
| U.S. government bond purchases | $300 billion | $295.3 billion | Federal Reserve will buy up to $300 billion of U.S. debt to support Treasury market and help keep interest rates down for consumer loans. |
| Fed total | $6.4 trillion | $1.5 trillion |
| Program | Committed | Invested | Description |
|---|---|---|---|
Economic Stimulus Act of 2008
| $168 billion
| $168 billion
| Refundable tax rebates of up to $600 for individual filers and $1,200 for couples in effort to boost the economy. Businesses also received tax breaks. |
| Unemployment benefit extension | $8 billion | $8 billion | Federal funds to extend benefits for the unemployed. |
| Student loan guarantees | $195 billion | $32.6 billion | Program to purchase federal student loans from private lenders. Aim is to provide financing to companies that provide student loans. |
American Recovery and Reinvestment Act
| $787.2 billion
| $358.2 billion
| Infrastructure spending, funding for states, help for the needy and tax cuts for individuals and businesses to stimulate the economy. |
| Advanced Technology Vehicles Manufacturing program | $25 billion | $8 billion | Energy Department loans to help auto manufacturers and parts suppliers create new fuel-efficient vehicles. The funds are awarded through a competitive process to companies that can increase fuel standards at least 25% beyond 2005 levels. |
| Car Allowance Rebate System (“Cash for Clunkers”) | $3 billion | $3 billion | Rebate program that gives car buyers up to $4,500 for trading in qualifying gas-guzzling vehicles if they're buying more fuel efficient cars. |
| Stimulus total | $1.2 trillion | $577.8 billion |
| Program | Committed | Invested | Description |
|---|---|---|---|
Asset purchases
| $52.5 billion
| $38.6 billion
| $30 billion from New York Fed for purchasing clients’ collateralized debt obligations and $22.5 billion for purchasing clients’ mortgage-backed securities. |
| Bridge loan | $25 billion | $44 billion | Loan to be reduced from $60 billion to $25 billion as government takes shares in AIG subsidiaries and receives cash flows from life insurance policies. AIG must pay 3% plus 3-month Libor rate to government in interest on the 5-year loan. |
| Government stakes in subsidiaries | $26 billion | $0 | Government to hold preferred interest in entities holding all the common stock of American Life Insurance Company and American International Assurance Company, two life insurance holding company subsidiaries of AIG. |
| TARP investment | $70 billion | $44.8 billion | $40 billion in preferred shares were converted to so-called non-cumulative shares that more closely resemble common stock. Treasury later offered another $30 billion in preferred shares for up to 5 years, in return for a 10% dividend. |
| Other | $8.5 billion | $0 | Government giving AIG $8.5 billion and, in exchange, is receiving cash streams from the premiums of blocks of life insurance policies. |
| AIG total | $182 billion | $127.4 billion | |
| Program | Cost to fund |
|---|---|
| 2008 FDIC bank takeovers | $17.6 billion |
| 2009 FDIC bank takeovers | $27.8 billion |
| FDIC total | $45.4 billion |
| Program | Committed | Invested | Description |
|---|---|---|---|
| Credit union deposit insurance guarantees | $80 billion | $0 | Temporary guarantee of all corporate credit union deposits above former $250,000 limit. |
| Money market guarantee program | $50 billion | $0 | Treasury program to help money market funds by insuring against losses. |
| NCUA bailout of U.S. Central and WesCorp credit unions | $57 billion | $57 billion | Cost to NCUA credit unions, with backing of government, to place two troubled credit unions into conservatorship |
| U.S. Central Federal Credit Union investment | $1 billion | $1 billion | Cost to NCUA credit unions, with backing of government, to help troubled credit union cover anticipated losses on asset-backed securities. |
| Temporary Liquidity Guarantee Program | $1.5 trillion | $308.4 billion | Guarantees on newly issued bank bonds backed with assets on company balance sheets with maturities of more up to ten years. Aim is to restore liquidity to the corporate bond market and provide long-term financing to banks. |
| Other financial total | $1.7 trillion | $366.4 billion |
| Total | $11 trillion | $3 trillion | |
The National Debt Is $13.7 Trillion
TheFederalBudget.comEach year since 1969, Congress has spent more money than its income. The Treasury Department has to borrow money to meet Congress's appropriations.
Here is a historical deficits chart.We pay interest on that huge debt. And now the Treasury is having trouble finding lenders!
Here is an excellent graphic depicting the budget process.Your money is spent through Appropriations Bills passed by the U.S. Senate and signed by the President. The Government does not have any money: it takes your money from you and borrows more, then spends that!Here is some info about the "FED" and a video.
Here are the Top Ten Budget Time Bombs.
The bailouts of 2008 and 2009 are purely deficit spending. Expect to see enormous deficits in the foreseeable future, leading to much more debt; and interest payments on that debt will become the largest item in the federal budget. On C-SPAN, President Obama boldly told Americans: "We are out of money."
In 1913, when the Federal Reserve was created with the duty of preserving the dollar, one 20-dollar bill could buy one 20-dollar gold piece. Today, fifty 20-dollar bills are needed to buy one 20-dollar gold piece. Under the Fed's custody, the U.S. dollar has lost 98 percent of its value. The dollar is the storehouse of our wealth. Has the Fed faithfully safeguarded that storehouse? Was it not Thomas Jefferson who taught us:
"In questions of power let us hear no more of trust in men, but bind them down from mischief with the chains of the Constitution" ...?The Treasury Department has the third largest expense in the federal budget. Only Defense and income redistribution [the Departments of Health and Human Services, HUD, and Agriculture (food stamps) is higher]. As the debt increases, so does the interest payment.
Social spending is the largest item in our federal budget. Do you have "compassion" for lower income earners?
In FY2010, the Treasury Department spent $414 BILLION of your money on interest payments to the holders of the National Debt. Compare that to NASA at $19 Billion, Education at $93 Billion, and Department of Transportation at $78 Billion.
And here is a great example of government efficiency in operating a project. And one more. It's going to be much worse this year!
When you buy something, all the companies involved in producing that something and delivering it were charged a wide range of taxes; and it's part of the cost of everything you buy. The U.S. Leadership is planning to raise all corporate taxes. The price of everything you buy will go up to cover that tax cost increase. You will be paying those corporate taxes! Read more about this Energy Tax.
The "Economic Stimulus" is shifting us from an "economic crisis" to a debt crisis! Consider this: If businesses could print their own money and give it away to customers so they could buy the products, many folks would be happy for a while; but the businesses would go bankrupt. Well, that's what our government is currently doing, printing and giving away money.
Government exists for just two purposes:
- To provide its citizens with the freedom to live their lives as they so choose, and
- To protect us from those, both foreign and domestic, who would try to take away that freedom.
The definition of freedom is the absence of coercion or constraint in choice or action.
SOCIAL SECURITY
Social Security is not part of the Federal Budget. It is a separate account and has its own source of income ("Payroll Taxes"). Social Security payments go in the Social Security trust fund, and should NOT be counted as general revenue. The trust fund is supposed to be used to pay future benefits. But....keep reading....
As of August 2010, there is less being paid into the Social Security Trust Fund than is being paid out to beneficiaries. Social Security is now using its "surplus." Government agencies that borrowed from the trust fund now have to pay the money back. But they've spent it. Where will they get it? More bailouts (taxes) are coming. And here is a "must read" about the problem. Your payroll taxes are going into a bottomless hole!
Here is a link to the Social Security Administration's FAQ page about the Trust Fund, and their latest Report (August 2010).
Beware the term "Social Security Surplus;" there is no such thing. Social Security is a Ponzi Scheme; there is never more in the Trust Fund than will ever be needed.
Social Security must be fixed. Here is a debate page. And here is more information on the Root Problem with Social Security.
House Applauds Passage Bill to Increase Debt Limit by $1.9 Trillion to $14.3 Trillion
February 4, 2010On February 4, 2010, House Democrats, led by Steny Hoyer (D-MD), stood and applauded the increase of the nation's debt limit by $1.9 trillion to $14.3 trillion, which Obama signed into law behind closed doors with no cameras present on February 12, 2010. Four days later, on February 16, 2010, Obama signed into law the Stimulus Bill, which is being used to fund the New World Order Agenda or, more specifically, Agenda 21. Now that he and other corrupt politicians have given trillions from the public treasury to their buddies in big banks and big businesses, plus doubling the salaries of federal workers who now earn twice that of the private sector, they're talking about reducing the national debt by cutting Social Security and Medicare for average Americans who were forced to pay into the system their entire working lives.
Read more here about career politician Steny Hoyer.
U.S. Debt Proposal Would Cut Social Security, Taxes, Medicare
From the start of the program in 1936 till 2005, an estimated $8.9 trillion have been paid out as Social Security benefits. In the same period, the program has received $10.7 trillion in income. - Interesting Facts About Social Security Numbers, Money, Matter and More Musings, March 5, 2007With $2.6 trillion left in the Social Security war chest, there is no immediate threat to the status quo. - What’s Really in the Social Security Trust Fund?, The Daily Reckoning, September 28, 2010
During FY 2009, the federal government collected approximately $2.1 trillion in tax revenue. Primary receipt categories included individual income taxes (43%), Social Security/Social Insurance taxes (42%), and corporate taxes (7%). Other types included excise, estate and gift taxes. Tax revenues are significantly affected by the economy. Recessions typically reduce government tax collections as economic activity slows. For example, during FY 2009, the U.S. government collected about $400 billion less than FY 2008. Individual income taxes declined 20%, while corporate taxes declined 50%. At 15% of GDP, the 2009 collections were the lowest level of the past 50 years. During FY 2009, the federal government spent nearly $3.52 trillion on a budget or cash basis, up 18% versus FY 2008 spending of $2.97 trillion. Primary expenditure categories include: Defense and Homeland Security ($782B or 23%), Social Security ($678B or 20%), and Medicare & Medicaid ($676B or 19%). Expenditures are classified as mandatory, with payments required by specific laws, or discretionary, with payment amounts renewed annually as part of the budget process. In FY 2008, Social Security received $180 billion more in payroll taxes and accrued interest than it paid out in benefits. This annual surplus is credited to Social Security trust funds that hold special non-marketable Treasury securities. The Social Security surplus reduces the amount of U.S. Treasury borrowing from the public. The total balance of the trust funds was $2.4 trillion in 2008 and is estimated to reach $3.7 trillion by 2016. At that point, payments will exceed payroll tax revenues, resulting in the gradual reduction of the trust funds balance as the securities are redeemed against other types of government revenues. [Source: Wikipedia]
Bloomberg
November 10, 2010
A presidential commission’s leaders proposed a $3.8 trillion-cutting plan that would trim Social Security and Medicare, reduce income-tax rates and eliminate tax breaks including the mortgage-interest deduction.
The plan would throw out hundreds of tax breaks for items such as capital gains and child care. It would raise the gas tax, slash defense spending and bring down health-care costs by clamping down on medical malpractice suits. The Social Security retirement age would rise to 68 in about 2050 and 69 in about 2075.
“This country’s out of money and we better start thinking,” said Erskine Bowles, co-chairman of the panel created by President Barack Obama. Without “tough choices,” Bowles said, “we’re on the most predictable path toward an economic crisis that I can imagine.”
Bowles, former President Bill Clinton’s chief of staff, and former Senator Alan Simpson, a Wyoming Republican, announced the proposal in Washington today, stressing that it was intended as a starting point for discussion.
Click here for a transcript of this video. Here's an excerpt:
ALAN SIMPSON: When I was your age there were 16 people paying into the [Social Security] system and one taking out, and today there are three people paying into the system and one taking out. And in 15 years there will be two people paying in. [They didn't plan for that] because they thought — the retirement — that you would die at 57, and that’s why they set the date at 65. The thing was setup when the life expectancy was 57 years, and that’s why they set 65 as the retirement date. Now the life expectancy is 78, whatever it is, and so we have to adjust that and make it work for the future people like you in the United States… They never dreamed that the life expectancy [would go] from 57 years of age to 78 or 75 or whatever. Who would dream that? No one. They just died. People worked. Social Security was never a retirement. It was setup to take care of poor guys in the Depression who lost their butts, who were digging ditches, and it was to give them 43% of their wages…when they got out…and that’s what it was. It was never a retirement. It was an income supplement.
The savings would come between 2012 and 2020. The result would be a deficit totaling about $400 billion or about 2.2 percent of the nation’s gross domestic product in 2015. That would exceed Obama’s goal for the panel of a reduction to 3 percent, from the current 9 percent of GDP.
White House spokesman Bill Burton said in an e-mail the proposals “are only a step in the process towards coming up with a set of recommendations.” He said Obama wants to give the panel “space to work on it” and wouldn’t comment on the plan.
Lawmakers Balking
The chairmen’s plan is already causing some Democrats and Republicans on the 18-member commission to balk. While most economists say some combination of spending cuts and tax increases is necessary, Republicans are wary of tax hikes and Democrats are reluctant to reduce U.S. government benefits.
“This is not a package that I could support,” Representative Jan Schakowsky, an Illinois Democrat, said during a break in a private meeting by the commission before the chairmen released details of their plan.She said any package able to win the necessary 14 votes on the panel would have to look “very different” from the options under discussion.
House Speaker Nancy Pelosi of California called the plan “simply unacceptable,” saying older Americans “are counting on the bedrock promises of Social Security and Medicare.”
Boehner Backs Freeze
House Republican leader John Boehner of Ohio, who will become speaker in January, said before the plan’s release that he supported a freeze on federal hiring and the pay of U.S. government workers.
None of the proposals would take effect next year to avoid disrupting the economic recovery. Under one option, income-tax rates would be reduced to three levels: 8 percent, 14 percent and 23 percent. Currently there are six tax levels ranging from 10 percent to 35 percent. The corporate income-tax rate would be cut to 26 percent from 35 percent.
Wiping out all tax breaks, including the home mortgage deduction, while lowering rates would cost taxpayers $100 billion a year under the plan. Members of the panel could decide to keep some of the breaks by offering offsetting cuts, Bowles said.
‘Harpooned Every Whale’
John Courson, chief executive officer of the Mortgage Bankers Association in Washington, said eliminating or reducing the mortgage deduction would drive down home values.
“Of all the times to do it, now is not the time,” he said in an interview.
Bowles said about three-quarters of the savings would come from spending cuts, with the remainder from tax increases.
“We have harpooned every whale in the ocean and some of the minnows,” Simpson said. “No one has done this before.”
The proposal calls for discretionary spending to be cut by $1.4 trillion over 10 years, while mandatory spending -- including Social Security, Medicare and Medicaid -- would be reduced by $733 billion. Taxes would be raised by $751 billion, including a 15-cent increase in the gas tax starting in 2013.
Tax increases would begin in 2012, when they would total $69 billion. They would ramp up to $372 billion in 2015, $588 billion in 2018 and $761 billion in 2020.
Farm subsidies would be cut by $3 billion a year. The proposal would also attempt to slow the growth of health-care costs by paying doctors participating in the Medicare health program for the elderly less and calling for “comprehensive” legislation to reduce malpractice costs.
Freezing Federal Salaries
Discretionary spending cuts in the plan include reducing congressional and White House budgets by 15 percent, freezing federal salaries and cutting the federal workforce by 10 percent. The discretionary reductions would be split equally between defense and domestic programs, Bowles said.
The plan spells out $100 billion in defense cuts, including freezing Defense Department salaries and noncombat military pay at 2011 levels for three years, cutting overseas bases by one-third and doubling proposed cuts in defense contracting.
The government is projected to run $8 trillion in deficits over the next 10 years, which would push the national debt up to more than $20 trillion.
The panel’s goals drew praise from Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, a Washington-based group that advocates balanced budgets. The plan “would fix our fiscal problems and truly reflects a balanced compromise across party lines,” she said.
‘Drop Dead’
Some of the plan would be painful, she said, “but we must be mindful of the consequences if we fail to act.”
AFL-CIO President Richard Trumka said the panel chairmen “just told working Americans to ‘drop dead.’” In an e-mailed statement, Trumka said,
“The very people who want to slash Social Security and Medicare spent this week clamoring for more unpaid Bush tax cuts for millionaires.”
John Rother, executive vice president for policy at the senior citizens’ group AARP, said his group would oppose the plan because it would be “dramatically lowering benefits over time” in Social Security and Medicare.
Simpson said the plan was designed to give members of the panel something to “chew on” for further discussions. The panel will meet again next week, said Senate Budget Committee Kent Conrad of North Dakota.
“This is Al’s and my proposal, nobody else’s,” Bowles said. “The president hasn’t seen this proposal.”
‘Witness Protection’
Some members of Obama’s financial team have seen the plan and they liked some things and not others, he said.
Asked how interest groups would react, Bowles joked, “we’re going to be in the witness-protection program.”
Senator Dick Durbin, an Illinois Democrat, called the plan a “starting point for the conversation.”
“We’re not going to have an up-or-down vote on this,” said Durbin. “There are proposals in there that are painful. I told them I said there are things in here which inspire me and other things which I hate like the devil hates holy water. I’m not going to vote for those things.”
Some Republicans also expressed skepticism that the report would survive in its current form. New Hampshire Senator Judd Gregg called the plan a “starting point.” Representative Jeb Hensarling of Texas said “some of it I like, some of it disturbs me.”
See: The Final Red Herring: The Threatened Bankruptcy of Social SecuritySee: Opinion: President Obama Plans to Cut Social Security Next
See: The Government Has Looted the Social Security Trust Fund
The amount subject to Social Security tax has had an average annual increase of 5.85% through 2007, while the maximum tax itself has increased 6.58% over the same time period. If you were 22 when you started working 30 years ago [which would now make you 52 years old] and you continued to work and pay the maximum amount into Social Security, how much could you have by the time you were 62? For 2008, the maximum Social Security tax is $6,324. If we increase that amount by the average annual increase of 6.58% for the following 9 years, you could have over $789,000 by age 62 [the forward-looking numbers are adjusted for inflation and assume a conservative 8% ROR minus a 3% inflation rate]. A 4% withdrawal rate would give you a first-year income of over $31,584 or $2,632 per month. [I left out the employer’s portion of the Social Security tax, which is equal to the amount the employee pays]. - How Much Could You Have If Social Security Was YOUR Money?, AllFinancialMatters, May 16, 2008
The Bailout of Big American Banks Has Cost Trillions More Than We’ve Been Told
Washington’s BlogMay 16, 2010
Granted, the $700 billion dollar TARP bailout was a massive bait-and-switch. The government said it was doing it to soak up toxic assets, and then switched to saying it was needed to free up lending. It didn’t do that either. Indeed, the Fed doesn’t want the banks to lend.
True, as I wrote in March 2009:
The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:
• Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes• A lot of the bailout money is going to the failing companies’ shareholders
• Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”
• The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)
And as the New York Times notes, “Tens of billions of [bailout] dollars have merely passed through A.I.G. to its derivatives trading partners”.
***
In other words, through a little game-playing by the Fed, taxpayer money is going straight into the pockets of investors in AIG’s credit default swaps and is not even really stabilizing AIG.
But the TARP bailout is peanuts compared to the numerous other bailouts the government has given to the giant banks.
And I’m not referring to the $23 trillion in bailouts, loans, guarantees and other known shenanigans that the special inspector general for the TARP program mentions. I’m talking about more covert types of bailouts.
Like what?
Guaranteeing a Fat Spread on Interest RatesWell, as Bloomberg notes:
“The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks,” said Christopher Whalen, managing director of Torrance, California-based Institutional Risk Analytics. “It’s a transfer from savers to banks.”
The trading results, which helped the banks report higher quarterly profit than analysts estimated even as unemployment stagnated at a 27-year high, came with a big assist from the Federal Reserve. The U.S. central bank helped lenders by holding short-term borrowing costs near zero, giving them a chance to profit by carrying even 10-year government notes that yielded an average of 3.70 percent last quarter.
The gap between short-term interest rates, such as what banks may pay to borrow in interbank markets or on savings accounts, and longer-term rates, known as the yield curve, has been at record levels. The difference between yields on 2- and 10-year Treasuries yesterday touched 2.71 percentage points, near the all-time high of 2.94 percentage points set Feb. 18.
Harry Blodget explains:
The latest quarterly reports from the big Wall Street banks revealed a startling fact: None of the big four banks had a single day in the quarter in which they lost money trading.
For the 63 straight trading days in Q1, in other words, Goldman Sachs (GS), JP Morgan (JPM), Bank of America (BAC), and Citigroup (C) made money trading for their own accounts.
Trading, of course, is supposed to be a risky business: You win some, you lose some. That’s how traders justify their gargantuan bonuses–their jobs are so risky that they deserve to be paid millions for protecting their firms’ precious capital. (Of course, the only thing that happens if traders fail to protect that capital is that taxpayers bail out the bank and the traders are paid huge “retention” bonuses to prevent them from leaving to trade somewhere else, but that’s a different story).
But these days, trading isn’t risky at all. In fact, it’s safer than walking down the street.
Why?
Because the US government is lending money to the big banks at near-zero interest rates. And the banks are then turning around and lending that money back to the US government at 3%-4% interest rates, making 3%+ on the spread. What’s more, the banks are leveraging this trade, borrowing at least $10 for every $1 of equity capital they have, to increase the size of their bets. Which means the banks can turn relatively small amounts of equity into huge profits–by borrowing from the taxpayer and then lending back to the taxpayer.
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The government’s zero-interest-rate policy, in other words, is the biggest Wall Street subsidy yet. So far, it has done little to increase the supply of credit in the real economy. But it has hosed responsible people who lived within their means and are now earning next-to-nothing on their savings. It has also allowed the big Wall Street banks to print money to offset all the dumb bets that brought the financial system to the brink of collapse two years ago. And it has fattened Wall Street bonus pools to record levels again.
Paul Abrams chimes in:
To get a clear picture of what is going on here, ignore the intermediate steps (borrowing money from the Fed, investing in Treasuries), as they are riskless, and it immediately becomes clear that this is merely a direct payment from the Fed to the banking executives…for nothing. No nifty new tech product has been created. No illness has been treated. No teacher has figured out how to get a third-grader to understand fractions. No singer’s voice has entertained a packed stadium. No batter has hit a walk-off double. No “risk”has even been “managed”, the current mantra for what big banks do that is so goddamned important that it is doing “god’s work”.
Nor has any credit been extended to allow the real value-producers to meet payroll, to reserve a stadium, to purchase capital equipment, to hire employees. Nothing.
Congress should put an immediate halt to this practice. Banks should have to show that the money they are borrowing from the Fed is to provide credit to businesses, or consumers, or homeowners. Not a penny should be allowed to be used to purchase Treasuries. Otherwise, the Fed window should be slammed shut on their manicured fingers.
And, stiff criminal penalties should be enacted for those banks that mislead the Fed about the destination of the money they are borrowing. Bernie Madoff needs company.
There is another type of guaranteed spread that allows the giant banks to make money hand over fist. Specifically, the Fed pays the big banks interest to borrow money at no interest and then keep money parked at the Fed itself. (The Fed is intentionally doing this for the express purpose of preventing too much money from being lent out to Main Street. That’s just dandy.)
The giant banks are receiving many other covert bailouts and subsidies as well.
Too Big As Subsidy
Initially, the fact that the giant banks are “too big to fail” encourages them to take huge, risky gambles that they would not otherwise take. If they win, they make big bucks. If they lose, they know the government will just bail them out. This is a gambling subsidy.
The very size of the too big to fails also decreases the ability of the smaller banks to compete. And – since the government itself helped make the giants even bigger – that is also a subsidy to the big boys (see this).
The monopoly power given to the big banks (technically an “oligopoly“) is a subsidy in other ways as well. For example, Nobel prize winning economist Joseph Stiglitz said in September that giants like Goldman are using their size to manipulate the market:
“The main problem that Goldman raises is a question of size: ‘too big to fail.’ In some markets, they have a significant fraction of trades. Why is that important? They trade both on their proprietary desk and on behalf of customers. When you do that and you have a significant fraction of all trades, you have a lot of information.”
Further, he says, “That raises the potential of conflicts of interest, problems of front-running, using that inside information for your proprietary desk. And that’s why the Volcker report came out and said that we need to restrict the kinds of activity that these large institutions have. If you’re going to trade on behalf of others, if you’re going to be a commercial bank, you can’t engage in certain kinds of risk-taking behavior.”
The giants (especially Goldman Sachs) have also used high-frequency program trading which not only distorted the markets – making up more than 70% of stock trades – but which also let the program trading giants take a sneak peak at what the real (aka “human”) traders are buying and selling, and then trade on the insider information. See this, this, this, this and this. (This is frontrunning, which is illegal; but it is a lot bigger than garden variety frontrunning, because the program traders are not only trading based on inside knowledge of what their own clients are doing, they are also trading based on knowledge of what all other traders are doing).
Goldman also admitted that its proprietary trading program can “manipulate the markets in unfair ways”. The giant banks have also allegedly used their Counterparty Risk Management Policy Group (CRMPG) to exchange secret information and formulate coordinated mutually beneficial actions, all with the government’s blessings.
In addition, the giants receive many billions in subsidies by receiving government guarantees that they are “too big to fail”, ensuring that they have to pay lower interest rates to attract depositors.
DerivativesThe government’s failure to rein in derivatives or break up the giant banks also constitute enormous subsidies, as it allows the giants to make huge sums by keeping the true price points of their derivatives secret. See this and this.
Toxic Assets
The PPIP program – which was supposed to reduce the toxic assets held by banks – actually increased them, and just let the banks make a quick buck.
In addition, the government suspended mark-to-market valuation of the toxic assets held by the giant banks, and is allowing the banks to value the assets at whatever price they desire. This constitutes a huge giveaway to the big banks.
As one writer notes:
By allowing banks to legally disregard mark-to-market accounting rules, government allows banks to maintain investment grade ratings.
By maintaining investment grade ratings, banks attract institutional funds. That would be the insurance and pension funds money that is contributed by the citizen.
As institutional money pours in, the stock price is propped up ….
Mortgages and Housing
PhD economists John Hussman and Dean Baker (and fund manager and financial writer Barry Ritholtz) say that the only reason the government keeps giving billions to Fannie and Freddie is that it is really a huge, ongoing, back-door bailout of the big banks.
Many also accuse Obama’s foreclosure relief programs as being backdoor bailouts for the banks. (See this, this and this).
Foreign Bailouts
The big banks – such as JP Morgan – also benefit from foreign bailouts, such as the European bailout, as they are some of the largest creditors of the bailed out countries, and the bailouts allow them to get paid in full, instead of having to write down their foreign losses.
These are just a few of the secret bailouts programs the government is giving to the giant banks. There are many other bailout programs as well. If these bailouts and subsidies are added up, they amount to many tens – or perhaps even hundreds – of trillions of dollars.
And then there is the cost of debasing the currency in order to print money to fund these bailouts. The cost to the American citizen in less valuable dollars will be truly staggering.
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