In for a Penny, In for $2.98 Trillion
The good news on the government’s “No Banker Left Behind” program is that, according to the special inspector general’s report on Tuesday, the total handout to date is still less than 3 trillion dollars. It’s only $2.98 trillion, to be precise, an amount six times greater than will be spent by federal, state and local governments this year on educating the 50 million American children in elementary and secondary schools.
The bad news is that even greater amounts of money are to be thrown down what has to be the world record for rat holes.
Where did the money go? Almost all of it went to the bankers and stockbrokers who got us into this mess by insisting that the complex-by-design derivatives they trafficked in should not be regulated by government since they were private transactions between consenting professionals. Sort of like a lap dance: If it doesn’t work out, that’s the problem of the parties involved and no concern of the government.
For the government to intervene would have created “legal uncertainty” in the derivatives market, an argument that a Republican-dominated Congress and President Clinton bought in authorizing the Commodity Futures Modernization Act in December of 2000. That law brought “legal certainty” to the market, a phrase that Lawrence Summers, then Clinton’s secretary of the treasury and now Barack Obama’s top White House economics adviser, deployed incessantly as a calming mantra as the financial derivatives market swirled out of control.
Now Summers and the other finance gurus who move so easily from Wall Street to Pennsylvania Avenue assure us that those professionals who made the toxic swap deals are too big to fail and must be entrusted with 3 trillion of our dollars to save themselves from disaster. And thanks to the laws they wrote, the bankers are likely to be covered for their socially destructive behavior by a get-out-of-jail-free card.
Well, maybe not all of them. A shudder must have run through the former Wall Street buddies of Bernie Madoff — once the highly respected chairman of the Nasdaq stock exchange — when Inspector General Neil Barofsky warned on Tuesday that “we are looking at the potential exposure of hundreds of billions of dollars in taxpayer money lost to fraud.”
How naive. The fraud no doubt has occurred and will occur again, but the exposure part is more questionable, if by that is meant bringing the criminals to account. As opposed to welfare cheats who end up imprisoned over scams that involve hundreds of dollars, these guys have brilliant lawyers who tell them how to steal legally when it comes to billions in fraud.
But most likely the white-collar criminals, if they are high enough up the food chain, will not even be quizzed about their activities. As the independent Congressional Oversight Panel has reported, there has been no serious accounting of the bailout money. It took major pressure from a Congress reacting to an outraged public to discover that AIG, in addition to handing out hundreds of millions in bonuses to the very hustlers who created the firm’s swindles, was a conduit for at least $70 billion in taxpayer money to reimburse the banks and stockbrokers who got us into this crisis with their bad bets.
No surprise there, given the incestuous world of finance, where the revolving doors between the Treasury Department, the Fed and executive offices in the industry have been swinging throughout both Republican and Democratic administrations. As a result, those orchestrating the bailout and those grabbing the money are for the most part friends and former colleagues, with enormous respect for each other but not for the American taxpayer and homeowner. Or for the autoworkers who had nothing to do with creating this problem but stand to lose their retiree health benefits and pensions if the Obama administration goes though with its threat to use bankruptcy to discharge GM and Chrysler from their obligations to their workers. Why float a company like AIG to the tune of $170 billion to keep that massive conglomerate from bankruptcy but balk at a much smaller commitment to keep GM solvent?
The money involved in the auto bailout is chump change compared with what Wall Street got, and it is far better spent. As opposed to the financial high rollers richly rewarded for crawling in and out of balance sheets, the folks who crawl in and out of cars along an assembly line are left with permanent aching backs and hard-won health care and retirement plans about to disappear through their company’s bankruptcy. Where’s their bonus package?