The Bankster’s reckless gambling on Wall Street has collapsed the global economy, and rather than being busted, they are being rewarded by an extraordinary series of taxpayer-backed programs. So what is happening with those programs? Are we getting our dollar’s worth? A few independent watchdogs have been trying to make sure that the bailout is being undertaken lawfully. They keep one eye on the regulators – trying to make sure their decisions are in the best interest of the public – and one eye on the banks – trying to make sure that the funds are used for their intended purpose.
Watchdogs Cry Foul on the Use of Bailout Funds
Elizabeth Warren is the Harvard law professor and consumer advocate who was appointed the chair of the Congressional Oversight Panel (COP), an official watchdog group for the $700 billion TARP bailout program, only a small portion of the bailout directly authorized by Congress. In 2009, Warren’s group produced two block-buster reports.
In February 2009, COP reviewed the original top ten TARP bailouts given to the largest financial institutions in October 2008. COP learned that every time Treasury invested $100 in one of the banks, it took back assets (stock options called “warrants”) that were worth, on average, $66. This equals a $78 billion shortfall for the $254 billion spent on these deals! That was only the first ten warrant purchases. By now taxpayers are even deeper in the hole. Read the report here.
Later in the year, many of the banks wanted to give back the bailout funds because they wanted to evade limitation on CEO pay in the pipeline. In July 2009, COP reviewed the government’s performance in selling back the taxpayer-owned warrants to the banks. They discovered that the government was under-charging the banks by as much as 66%! COP concludes that taxpayers could lose out on $2.7 billion or more. Read the report here.
Also in July 2009, New York Attorney General Andrew Cuomo released a report focusing on the bank bonuses paid out by the bailed out banks in 2008. The report notes that in many instances, bank bonuses exceeded bank profits. In other words, the money borrowed from the TARP allowed them to pay these bonuses. And, if they are unable to repay the government, then our tax dollars effectively went to support the living standards of top bank executives. Read the report here.
We are talking billions and billions of taxpayer dollars being squandered here. How much are we potentially in the hole for? Two good sources have put the bailout allocation at $10-12 trillion with $3 trillion having been accessed as of September 2009. The SIGTARP, the Independent Inspector General for the TARP bailout program, tells us that if you add up all the federal bailout plans and government guarantees – the American people have extended a $23 trillion line of credit to the Banksters. $23 trillion! That is double the size of our economy! We won’t spend $23 trillion and we will get some of our money back, but these astonishing numbers illustrate the lengths that the government will go to take care of friends on Wall Street. Read the report here.
While money that hasn’t even been printed yet is being thrown at the banks, nothing meaningful has been done to help families facing foreclosure. As of September 2009, 88% of Adjustable Rate Mortgages have not even reset to their higher rates, a ticking foreclosure time bomb.
Let’s Take it Back!
It’s simple justice, we want our money back!
The best way to do it? Nobel Prize-winning economist Joseph Stiglitz, Dean Baker, Robert Pollin and others are calling for a teeny tiny Bankster tax, 0.25 %, on the sale or purchase of a share of stock, bond or derivatives would allow us to recoup our losses and put the money to work rebuilding America. The idea was even touted in 1989 by President Obama’s chief economic adviser Larry Summers.
The idea is called a “financial transaction tax,” but we prefer to call it a FAT CAT Tax (Financial Accountability Tax on Corporate Agents and Traders).
Dean Baker, the economist who predicted that the housing bubble would explode with disastrous consequences years before the crisis, explains how it could work to generate funds while taming some of the worst abuses on Wall Street:
Just like that perfect sweater, a financial transactions tax (FTT) would look just great on those Wall Street bankers and financiers. A modest tax, which would be too small for normal investors to even notice, could easily raise more than $100 billion a year. That’s real money even in the land of AIG and Citigroup bailouts.
The Wall Street boys and the politicians they support just hate it when people talk about an FTT. They start huffing and puffing and get out their best indigent voices to quickly dismiss such naïve notions by those not initiated in the ways of finance. These arrogant dismissals are usually sufficient to scare reporters away from writing about the idea and to keep most interest groups and politicians from seriously pressing the idea.
But for those not easily intimidated by blowhard bankers and their hired flacks (which include many economists), an FTT makes a huge amount of sense.
A small increase in trading costs would be a very manageable burden for those who are using financial markets to support productive economic activity. However, it would impose serious costs on those who see the financial markets as a casino in which they place their bets by the day, hour, or minute. Speculators who hope to jump into the market at 2:00 and pocket their gains by 3:00 would be subject to much greater risk if they had to pay even a modest financial transaction tax.
When we withdraw 30 or 40 bucks of our own money from certain ATM machines, we are charged a fee of about 9%. But we aren’t as greedy as the Banksters. We only want to charge them a tiny fraction of this amount, 0.25%.
And for the Banksters that say it is not possible, it would make them uncompetitive, it can’t be enforced etc., we remind them that there is a 0.5 percent stamp tax imposed on each trade on the London stock exchange – one of the largest stock exchanges in the world. This tax raises more 4 billion pounds annually, the equivalent of almost $40 billion in the U.S. economy. Fortunately, some in Congress are not listening to the Banksters and are moving forward with the idea in an effort to literally rebuild America.
DeFazio Bill Goes After Some of the Worst Banksters of All – Oil Speculators
Congressman Pete DeFazio (D-OR) has introduced a modest transaction tax on the worst of the worst – Wall Street gamblers who needlessly jack up the price of oil and gas on average Americans. DeFazio wants a transaction tax on crude oil speculators as a way of paying for the Surface Transportation Authorization Act of 2009, which would boost the economy by creating much needed jobs in transportation and infrastructure.
DeFazio’s idea is to place a transaction tax on crude oil at 0.02% on futures contracts (a contract to buy crude oil at a previously set price on a future date) and 0.5% on the option for a futures contract (the premium paid to have the option to buy a futures contract).
He makes the case: “Taxing these derivatives of crude oil will reduce the price and volatility of the market. The tax is simple; it imposes a small burden that penalizes short-term traders for speculating on the price of oil. The CFTC distinguishes between end users and legitimate hedgers, like airlines and railroads, and short-term speculators. This proposal would rebate all transaction taxes paid by legitimate hedgers. Since the tax is on speculation only, it deters speculation and undermines much of the crude oil price bubble.”
FAT CAT TAX = SIMPLE JUSTICE
Talk about a “win-win.” A FAT CAT tax would reign-in stock market speculators while protecting small investors and providing much needed funds to rebuild our Bankster-shattered economy. As Joseph Stiglitz puts it: “The financial sector polluted the global economy with toxic assets and now they ought to clean it out.”