Submitted by Elaine Magliaro, Guest Blogger
I’ve heard many politicians talk about what they believe were the causes of the financial meltdown of 2008 and the money problems facing our federal, state, and local governments today. These causes include: collective bargaining, pensions, healthcare costs for public workers; subprime mortgages taken out by poor people who couldn’t actually afford to buy homes; the high costs of Social Security, Medicare, and Medicaid. Many of these same politicians rarely put the blame for the financial crises we are experiencing in this country today on the cost of waging two wars—or on the financial shenanigans of the big banks of Wall Street.
In February of 2010, Mike Elk wrote an article for the Huffington Post titled How Big Banks’ Greek-Style Schemes Are Bankrupting States Across the U.S. In it, he talked about a financial instrument called the “interest rate swap”—which is a kind of unregulated derivative.
Here’s an excerpt from Elk’s article:
Just when you thought Wall Street couldn’t get any more clever in their attempts at predatory lending, they have.
Big Banks have created an exotic financial instrument that is the equivalent of a payday loan for cash-strapped state and local governments, innocently labeled an “interest rate swap.”
In the United States, states and local governments cannot run deficits. This year states face a $357 billion budget shortfall and local governments are facing an additional $82 billion budget shortfall. States have begun cutting basic services like snow removal, reduced garbage pickup, and in Colorado Springs they went to the pawn shop – selling police helicopters on the Internet.
In a desperate effort to meet budget needs, states and local governments over the last decade have gone to the big banks to ask for exotic instruments known as interest rate swaps. These desperate state and local governments were taken advantage of in the same way that Greece was by Goldman Sachs. Likewise, these swaps are threatening the economic health of local cities and states.
Shouldn’t there be more discussion on news programs and in Congress about these “exotic financial instruments” that may be a big contributing factor to the poor financial health in which many of our states and municipalities find themselves?
In Looting Main Street, an article Matt Taibbi wrote for Rolling Stone in the spring of 2010, the author detailed how interest rate swaps were helping to bankrupt Jefferson County, Alabama. Jefferson County’s troubles began when it had to finance a new sewer project and went looking for money. Then the vultures of Wall Street came swooping into town.
Taibbi wrote:
In 1996, the average monthly sewer bill for a family of four in Birmingham was only $14.71 — but that was before the county decided to build an elaborate new sewer system with the help of out-of-state financial wizards with names like Bear Stearns, Lehman Brothers, Goldman Sachs and JP Morgan Chase. The result was a monstrous pile of borrowed money that the county used to build, in essence, the world’s grandest toilet — “the Taj Mahal of sewer-treatment plants” is how one county worker put it. What happened here in Jefferson County would turn out to be the perfect metaphor for the peculiar alchemy of modern oligarchical capitalism: A mob of corrupt local officials and morally absent financiers got together to build a giant device that converted human shit into billions of dollars of profit for Wall Street …
He continued:
And once the giant shit machine was built and the note on all that fancy construction started to come due, Wall Street came back to the local politicians and doubled down on the scam. They showed up in droves to help the poor, broke citizens of Jefferson County cut their toilet finance charges using a blizzard of incomprehensible swaps and refinance schemes — schemes that only served to postpone the repayment date a year or two while sinking the county deeper into debt. In the end, every time Jefferson County so much as breathed near one of the banks, it got charged millions in fees. There was so much money to be made bilking these dizzy Southerners that banks like JP Morgan spent millions paying middlemen who bribed — yes, that’s right, bribed, criminally bribed — the county commissioners and their buddies just to keep their business. Hell, the money was so good, JP Morgan at one point even paid Goldman Sachs $3 million just to back the fuck off, so they could have the rubes of Jefferson County to fleece all for themselves.
According to Taibbi, the original cost for the sewer project was estimated to be about $250 million. That amount was reported to have ballooned into a total indebtedness of $5 billion for Jefferson County over the years. Because of the sewer debacle, the county was not only “saddled with an astronomical debt on its sewer project, it also saw a downgrade in its overall credit rating, which left it paralyzed in its attempts to borrow money to pay for general expenditures.” This is why people’s sewers bills exploded by 400%! This is why the county had to lay off many of its employees—who also lost their health insurance. This is also why Jefferson County had to file for bankruptcy last fall.
Bloomberg reported that Jefferson County’s Chapter 9 filing left creditors like JP Morgan “facing hundreds of millions of dollars in losses” and that it could “revive concern that defaults may rise in the $2.9 trillion municipal bond market.” The filing also leaves county residents uncertain as to how much they may be charged for sewage fees in order to repay the debt. Bloomberg also reported that JP Morgan agreed to a $722 million settlement with the SEC in 2009 “over payments its bankers allegedly made to people tied to county politicians in order to win business.” According to a Reuters report, at least twenty-two individuals have been convicted on charges of corruption, bribery, and fraud.
So…corrupt county officials and contractors have gone to jail. So…JP Morgan pays a multi-million-dollar fine to the SEC. So what? Does it fix things for all the people in Jefferson County who lost their jobs and health insurance because unethical politicians, contractors, and bankers were made to pay for their crimes? Does it help the poor people who can’t afford to pay their water and sewer bills? Does it help the poorest residents of Birmingham who say they can no longer afford to pay for running water?
One gentleman who lives in Birmingham says he has found it cheaper to purchase water from a gas station and to pay a sanitation company to remove waste from his “porta-potty” than to pay his water and sewer bill—which can amount to $300 some months. One Birmingham woman said that after she pays her water and sewer bill she doesn’t have much money left from her monthly $600 Social Security check to pay for food and electricity.
And so it goes. No help for the poor of Jefferson County. Yet, the wizards of Wall Street who are helping to bankrupt our communities are making a killing!
I’d say we need some REAL financial reform in this country NOW…before we become a third world country. Shouldn’t interest rates swaps and other “exotic financial instruments” be regulated? What do you think?
SOURCES
How Big Banks’ Greek-Style Schemes Are Bankrupting States Across the U.S. (Huffington Post)
Jefferson County Files for Chapter 9 Bankruptcy Protection (JEFFCOnline—The Offical Website of Jefferson County, Alabama)
Looting Main Street: How the nation’s biggest banks are ripping off American cities with the same predatory deals that brought down Greece (Rolling Stone)
Jefferson County, Alabama: Screwed By Wall Street, Still Paying (Rolling Stone)
“Looting Main Street”–Matt Taibbi on How the Nation’s Biggest Banks Are Ripping Off American Cities with Predatory Deals (Democracy Now)
Alabama county files biggest municipal bankruptcy (Yahoo/Reuters)
Alabama’s Jefferson County Declares Biggest Municipal Bankruptcy (Businessweek)
The Fleecing of Alabama: The Bills Come Due (Bloomberg)
Congress Tries To Undercut Wall Street Reform Provision Aimed At Regulating Risky Financial Instruments
http://thinkprogress.org/economy/2011/11/28/377059/bipartisan-swap-exemptions/
By Pat Garofalo on Nov 28, 2011
For months, Republicans have been trying to undermine the Dodd-Frank financial reform law — passed in an attempt to prevent a repeat of the 2008 financial crisis — by cutting budgets for market regulators, obstructing nominees, and advancing bills that would weaken the law’s key provisions. But sometimes efforts to dismantle the law take on a more bipartisan flavor.
One of the key sections of the Dodd-Frank law has to do with swaps, the complex financial instruments that felled, among others, insurance giant American International Group. Before the 2008 financial crisis, the swaps market was totally opaque, giving neither customers nor regulators any sense of what the instruments actually cost or how much risk was building up in the financial system.
Dodd-Frank brings transparency to this market by forcing swap trades onto open exchanges — where they can be seen by everyone — rather than allowing backroom wheeling and dealing in the instruments to continue. But a bill authored by Reps. Scott Garrett (R-NJ) and Carolyn Maloney (D-NY), as the New York Times’ Gretchen Morgensen explained, would take these bits of the bill out at the knees:
Representative Scott Garrett , a New Jersey Republican, has teamed up with Representative Carolyn B. Maloney, a New York Democrat, to introduce the Swap Execution Facility Clarification Act. It would bar the Securities and Exchange Commission and the C.F.T.C. from requiring swap execution facilities to have a minimum number of participants or mandating displays of prices. Both mechanisms promote transparency.
Mr. Garrett said the bill directed regulators “to provide market participants with the flexibility” they need to obtain price discovery. This means maintaining the old system that can keep prices in the shadows.
On Nov. 15, a House subcommittee approved the bill by a voice vote.
As Commodity Futures Trading Commission Chairman Gary Gensler — whose agency is charged with regulating swaps under Dodd-Frank — explained, “economists for decades have shown that transparency lowers margins, leads to greater liquidity and more competition in the marketplace.” “Transparent pricing is also a critical feature of lowering the risk at the banks, and at the derivatives clearinghouses as well,” he said.
As David Min and I explained back in April, 2010, opacity in the swaps market “means that no one — regulators, investors, or even the dealers themselves — has a good handle on the systemic risk these instruments pose, or who is bearing the risk. This prevents regulators from being able to take steps to reduce systemic risk and creates the conditions for financial panics.” Dodd-Frank did a lot to deal with this problem, but Congress now seems to be aiming to undo that progress.
Gene,
Didn’t you know that corporate bribery is a great American tradition? Only the people who accept bribes are at fault–never the wealthy bribers who wear thousand-dollar suits and Rolexes and have lobbyists in Washington, DC.
Bron,
In an earlier comment, I provided a link to a summary and explanation of the Jefferson County sewer financing debacle. I’ve posted an excerpt from it below. Of course, the corrupt county officials and contractors are to blame for the bankrupcty of Jefferson County–and so are the unethical bankers from JP Morgan who bribed them.
http://www.inthepublicinterest.org/case/jp-morgan-investment-consulting-fraud
In 2003, Jefferson County, Alabama, sold bonds to refinance the debt on its sewer system. The county commissioners followed the advice of a consultant working for J.P. Morgan and set up an unorthodox financing scheme using adjustable interest rates, with no competitive bidding. The county paid $120 million in fees — six times the prevailing rate – to buy interest-rate swaps from J.P. Morgan, Bank of America, Lehman Brothers and Bear Stearns.
Within five years, the bad advice had increased the county’s debt by $277 million. Low- income residents bore the consequences as the county raised sewer rates again and again to stave off bankruptcy.
According to the New York Times: “The bonds and debt restructuring destabilized the finances of the county, which includes Birmingham, and its sewer system, helping to push the county to the brink of bankruptcy.”
Birmingham Mayor Larry Langford, was convicted in October 2009 of accepting cash, clothing and jewelry when he was president of the county commission, in exchange for steering business to J.P. Morgan.
On Nov. 4, 2009 the Securities and Exchange Commission charged in a lawsuit that J.P. Morgan arranged for illegal payments to consultants tied to the county commissioners, in an effort to win the profitable business selling the county bonds and trading in derivatives. To settle, J.P. Morgan dropped its claim for $647 million in termination fees it had been demanding from the county to unwind the interest-rate swaps, and agreed to pay $25 million in penalties to the SEC and $50 million to Jefferson County “for the purpose of assisting displaced County employees, residents, and sewer ratepayers.”
The former J.P. Morgan managing directors have denied any wrongdoing and their case is expected to go to trial. The SEC is currently pushing for a uniform federal standard defining improper activity in this area, since current standards vary state by state, and has implemented its own new rules to control pay-to-play abuses.
Key Issues
By recommending financial deals that were lucrative for themselves and other bankers, the consultants greatly increased the costs to the county. Officials of many other municipalities around the country also relied on investment advice to get involved in financing schemes they poorly understood before the 2008 financial meltdown.
The illegal payments made by J.P. Morgan to ensure its noncompetitive monopoly on the county’s business represents a classic example of pay-to-play corruption.
Too bad your memory is always distorted by your Objectivist religion and ridiculous non-scientific Austrian School economics (also a religion). Another argument that the finance people “know better” than everyone else too. So I guess that means they should be in charge; an oligarchy/plutocracy. Utter fucking nonsense. Debt can be a useful tool, but unfortunately the financial services community has figured out that it is a tool that can be turned on a user to politically gain control of the user. But thanks for your paternalism, Bron. Too bad for you, you and the financial industry aren’t our collective parents. If they don’t want to lend the money because of risk? More power to them. But to make arguments that they should have control because “they know better”? Is anti-democratic idiocy.
http://bhamwiki.com/wiki/index.php?title=Jefferson_County_sewer_construction_scandal
Elaine:
It seems to me this problem is with the county government. If I remember the story, they ran into cost overruns because of corruption between the contractors and the county government members. They ran to wall st. to fix their monumental screw-up.
Most of the elected government officials in this country along with the general population know nothing about money and finance. If sound economics were taught in public schools starting in 6th grade, I dont think we would have these problems.
You cannot spend what you dont have. We should learn to either pay cash or do without. And savings should begin as soon as we start having an allowance so that saving becomes a habit.
Elaine,
Fabulous post particularly because concentrating it on one locality helps clarify the issue in its macrocosm. This has been going on for years across the country and represents a long history of fraudulent activity by the banking industry directed at State and Local governments.
“What tends to mystify me is that this has been going on for generations, but our society seems to have some sort of amnesia about it.”
Dredd is totally correct about this being a long term practice where these scams have been run by financiers, in close relationship to municipal officials.
“The Power Broker: Robert Moses and the Fall of New York”, by Robert A. Caro http://en.wikipedia.org/wiki/The_Power_Broker is an incredible book which lays out the infrastructure corruption rotting New York that began with the ascension of this evil man to power in the 20’s. While this book magnificently explains the machinations used to turn “public works” into profit centers to the detriment of citizens, the corruption it details is in fact country-wide.
What we see today with the 40 years of conservative propaganda that has made taxation seem akin to robbery, is that States and municipalities have to use elaborate “schemes” to finance needed infrastructure improvements. The willing corruption of local politicians works hand in glove with the financial con-men in providing services that are overpriced and whose reckoning is put off until later dates.
http://www.washingtonpost.com/politics/romney-sharpens-attack-on-dodd-frank-financial-regulations/2011/06/20/AGPbUwdH_story.html
Sewers, Swaps and Bachus
By JOE NOCERA
Published: April 22, 2011
New York Times
http://www.nytimes.com/2011/04/23/opinion/23nocera.html
Excerpt:
Though the county no longer has to pay fees to JPMorgan — the bank agreed to void the swaps as part of a settlement with the Securities and Exchange Commission — its bond debt for the sewers now totals almost $4 billion. The Birmingham News described Jefferson County as a “poster child” for all that can go wrong when municipalities start playing with unregulated derivatives peddled by Wall Street sharpies.
Has Spencer Bachus, as the local congressman, decried this debacle? Of course — what local congressman wouldn’t? In a letter last year to Mary Schapiro, the chairwoman of the S.E.C., he said that the county’s financing schemes “magnified the inherent risks of the municipal finance market.” (He also blamed, among other things, “serious corruption,” of which there was plenty, including secret payments by JPMorgan to people who could influence the county commissioners.)
Bachus is not just your garden variety local congressman, though. As chairman of the Financial Services Committee, he is uniquely positioned to help make sure that similar disasters never happen again — not just in Jefferson County but anywhere. After all, the new Dodd-Frank financial reform law will, at long last, regulate derivatives. And the implementation of that law is being overseen by Bachus and his committee.
Among its many provisions related to derivatives — all designed to lessen their systemic risk — is a series of rules that would make it close to impossible for the likes of JPMorgan to pawn risky derivatives off on municipalities. Dodd-Frank requires sellers of derivatives to take a near-fiduciary interest in the well-being of a municipality.
You would think Bachus would want these regulations in place as quickly as possible, given the pain his constituents are suffering. Yet, last week, along with a handful of other House Republican bigwigs, he introduced legislation that would do just the opposite: It would delay derivative regulation until January 2013.
It is hard not to see this move as an act of hostility toward any derivative regulation. After all, by 2013 a presidential election will have taken place, and if the Republicans take the White House and the Senate, one can expect that the next step would be to roll back derivative regulation entirely. Even if it is just about delay, rather than outright obstruction, that means the Republicans are asking for two more years during which the industry will add trillions of dollars worth of “financial weapons of mass destruction” (to use Warren Buffett’s famous description) to the $466.8 trillion of unregulated derivatives already in existence. How can this possibly be good?
J.P. Morgan Settles SEC Charges in Jefferson County, Ala. Illegal Payments Scheme
SEC Separately Charges Two Former Managing Directors at Firm
http://www.sec.gov/news/press/2009/2009-232.htm
Excerpt:
Washington, D.C., Nov. 4, 2009 — The Securities and Exchange Commission today charged J.P. Morgan Securities Inc. and two of its former managing directors for their roles in an unlawful payment scheme that enabled them to win business involving municipal bond offerings and swap agreement transactions with Jefferson County, Ala. This is the SEC’s second enforcement action arising from Jefferson County’s bond offerings and swap transactions.
*****
J.P. Morgan Securities settled the SEC’s charges and will pay a penalty of $25 million, make a payment of $50 million to Jefferson County, and forfeit more than $647 million in claimed termination fees.
The SEC alleges that J.P. Morgan Securities and former managing directors Charles LeCroy and Douglas MacFaddin made more than $8 million in undisclosed payments to close friends of certain Jefferson County commissioners. The friends owned or worked at local broker-dealer firms that performed no known services on the transactions. In connection with the payments, the county commissioners voted to select J.P. Morgan Securities as managing underwriter of the bond offerings and its affiliated bank as swap provider for the transactions.
J.P. Morgan Securities did not disclose any of the payments or conflicts of interest in the swap confirmation agreements or bond offering documents, yet passed on the cost of the unlawful payments by charging the county higher interest rates on the swap transactions.
“The transactions were complex but the scheme was simple. Senior J.P. Morgan bankers made unlawful payments to win business and earn fees,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.
Glenn S. Gordon, Associate Director of the SEC’s Miami Regional Office, added, “This self-serving strategy of paying hefty secret fees to local firms with ties to county commissioners assured J.P. Morgan Securities the largest municipal auction rate securities and swap agreement transactions in its history.”
The Continual Screwing of Jefferson County, Alabama
by Matt Taibbi
May 31
http://www.rollingstone.com/politics/blogs/taibblog/the-continual-screwing-of-jefferson-county-alabama-20110531
Excerpt:
It has been established in various courts that bank officials literally bribed Jefferson County Commissioners to refinance using outrageously expensive interest rate swap deals, but despite a number of convictions of local pols like former Commissioner Larry Langford (who got 15 years for accepting bribes), Jefferson County will still be stuck paying this tab for the next gazillion years.
All of which sucks, of course, but the news keeps getting worse. The House Financial Services Committee has just voted to delay the scheduled implementation of reforms in the Dodd-Frank bill that would limit the ability of banks to pull Jefferson-County style scams in the future. Among other things, the new rules would have required banks to act in the best interests of their clients, and disclose daily pricing information about swaps, making it harder for banks to gouge clients.
In Jefferson County, the Alabamans were massively overcharged by Chase and other banks in large part because interest rate swaps, unlike, say, stocks, are not traded on open exchanges, so nobody knows how much they really cost. The situation is similar to what sports betting would be like if casinos did not publish the point spreads. If you walk into a casino the day before the Super Bowl and you’re told the spread is Green Bay -6, you might think you’re getting a good deal – but the actual spread might be nine or ten points. Wall Street is making a killing similarly overcharging states and cities and counties (and even countries like Greece) for interest-rate swaps, regularly stealing half a touchdown here and there in these billion-dollar finance transactions.
The Dodd-Frank bill, ball-less as it mostly was, did have a few provisions in it that would have tightened up the rules governing such derivative transactions. But the House Financial Services Committee voted to stall implementation of these new rules until September 2012, at the very least. The cruel irony here is that the Committee is chaired by… Jefferson County’s own congressman!
JPMorgan Proves Bond Deal Death in Jefferson County No Bar to New Business
Bloomberg
8/12/2011
http://www.bloomberg.com/news/2011-08-12/jpmorgan-proves-bond-deal-death-in-jefferson-county-no-bar-to-new-business.html
Excerpt:
JPMorgan Chase & Co. (JPM)’s Charles LeCroy said the key to landing bond deals in Jefferson County, Alabama, was finding out whom to pay off. In one example, that meant a $2.6 million payment to Bill Blount, a local banker and longtime friend of County Commissioner Larry Langford.
“It’s a lot of money, but in the end it’s worth it on a billion-dollar deal,” LeCroy told a colleague in 2003, according to a complaint filed by the Securities and Exchange Commission.
That’s because in the $2.9-trillion market for state and local government debt, where 80 percent of all financings are negotiated in private, conflicts of interest prevail. While Langford and Blount are in jail, LeCroy is fighting an SEC action. JPMorgan, which provided most of the toxic debt that devastated Jefferson County, has suffered no loss of business as the nation’s third-largest underwriter of municipal bonds, according to data compiled by Bloomberg.
Just 21 months ago, JPMorgan agreed to a $722 million SEC settlement to end a case over secret payments to friends of Jefferson County commissioners. The financings arranged by JPMorgan, a package of floating-rate debt and derivatives, exposed taxpayers to the 2008 credit crisis and dealt a blow that may lead the county to approve the biggest U.S. municipal bankruptcy as soon as today.
“As an outsider looking in, it just certainly appears to me that JPMorgan ravaged this county,” said Robert Brooks, a finance professor at the University of Alabama in Tuscaloosa and the author of a textbook on derivatives. “They convinced Jefferson County to pursue a strategy they never would have followed to generate a lot of fees.”
You’ll find a good summary and explanation of the JP Morgan/Jefferson County Sewer Financing Story at the “In the Public Interest” website:
JP Morgan Investment Consulting Fraud
http://www.inthepublicinterest.org/case/jp-morgan-investment-consulting-fraud
Tom Woods,
“It helps if you actually know something about the process before you start ranting.”
Wait till you find out that I dont think the government should even be in the business of providing infrastructure! Oh noooos.
Jill
“Thus, my point is, the bailout gave people money for engaging in multiple criminal fraud. If we were going to hand out 23 trillion dollars we could have paid off the original fraudulent mortgages and most of those people would have spent the money in ways that could have kept the economy afloat. ”
My point is that those financial firms and the federal reserve itself was “engaging in multiple criminal fraud” in their day to day operations since the establishment of the federal reserve. The problem is the federal reserve’s interest rate manipulation and credit expansion through fractional reserve banking wrecks everyone ability to make economic calculations. So no handing out money to people who couldnt afford the homes they bought would not have saved us from the crisis we faced.
However, should you float the idea that people should get to keep the homes they purchased from banks that engaged in so much fraud that the unmitigated clusterfuck of “robo-signing” defaults is next to impossible to legally untangle, I probably wouldnt be opposed to that. The case for ownership going to the bank that lent out money it never had is less than rock solid.
“I understand you do not believe there should be any form of govt. I can’t argue that point with you except to say we differ on that issue. ”
At least thats probably the most polite way ive been disagreed with on that issue.
Elaine,
“Did I say it was the bank’s fault that Jefferson County was run by idiots?”
No you did not, i just thought it was worth mentioning since they were the ones agreeing to put taxpayer money on the line to finance a sewer at an outrageous cost.
“The title of this post is “How the Bankers of Wall Street Are Helping to Bankrupt America.” I think I showed how that is happening. ”
I agree, I simply felt like pointing out who it was they were helping. Maybe “How wall street is helping government beauracrats loot taxpayers.” ?
Some questions for you:
– If the bankers didn’t provide money to middlemen to bribe county officials, do you think Jefferson County and its residents would be facing the financial problems they are today?
Perhaps not of the same scale, but i have little faith in beauracrats. They do not have the ability to collect the information needed to make sound economic calculations. Refer to F.A. hayeks work on decentralized knowledge. He won one of those nobel things they like to give out as bad jokes.
– Do you think the bankers are blameless?
Of course not. They’re depraved parasites. However to go back to your previous question and address your next one at the same time, if there were no county officials with political power, especially the power to indebt taxpayers, there would be noone for the banks to bribe. The only course of action, absent political power is to address everyone individually and convince them they really needed to go into massive debt to continue removing their bodily wastes. I think most people would not have come to the conclusion that it was in their best interest.
– Do you approve of bankers bribing government officials?
If banks or anyone for that matter decide that the rewards from bribing someone is worth more than what they are offering as a bribe and the risk involved, it will happen regardless of my approval. It is an economic transaction, it may not be moral or legitimate but that is just the reality. It is a purchase of political favor at the expense of taxpayers, but if there is no accumulation of political power to decide who and what taxpayers are economically beholden too, and no favors to hand out, there will be no gatekeeper of public coffers to bribe.
Raff,
“Why don’t we make the Banks pay back all of the money that they
” borrowed” from the Fed at ridiculous interest rates not to mention how much they lost the economy? ”
This is kind of a tricky question. The long and short of it is, the fed never had money to loan, they simply created “liquidity” by literally adding a few zeros to the end of Too Big To Fail accounts. Same thing will happen if there is ever a bank run and the FDIC steps in to “insure” deposits. So its hard to advocate the banks giving back money they never had to a federal reserve bank that never actually had it, and counterfieted whatever funds they did loan out. If restitution is truly the goal then the entire operation should be audited and dismantled immediately. It will not make whole the loss of purchasing power of the dollar but at least it will stop future theft and fraud of the massive scale the fed is capable of now.
“If they don’t have to pay it back why should the middle class?”
Taxpayers of any class should not be on the hook for the bad behavior of failed businesses. Constructing a financial system where the risk takers can keep their profits and subsidize their losses is the very defintion of moral hazard. Risk taking increases exponentially because if you win you get to keep it, and if you lose, hey no big deal the fed or those taxpayer suckers will bail you out.
No thief can have such an undertaking workin’ alone,
Wall Street must have been helped by our eager-to-serve “representatives.”
This also includes the current Nobel (Noble?) Laureate, commander-in-chief, Constitutional – Law Scholar and many more adjectives lavishly flown not too long ago – the Honorable Obama!
Remember: It is not the mouse who stole the cheese in the kitchen – it is the hole-in-the-wall that did it!
[A Talmudic judgement]
Ekeyra writes: “Not only that, but if jefferson county was having to borrow money to cover its general expenditures, then it sounds like they were already in financial trouble. Maybe the culprit here is beaurcrats expanding their short term budget by sticking their constituents with long term unpayable debt.”
Apparently Ekeyra doesn’t realize that if you don’t borrow to finance infrastructure, then you have to finance with higher taxes; and you can only finance with higher taxes if capital costs (infrastructure) is part of the regular budgeting process. Which, actually, a lot of state and local governments don’t allow; their regular budgeting process involves operational costs only and they require capital projects (such as sewer building) to be financed separately through bonds and borrowing. It helps if you actually know something about the process before you start ranting.
My group, the Cult of the Fifth Grade, met after class to discuss a local issue about sewer rate increases. We have developed a device for home owners who live near woods–the woods have to be behind the house or on either side and be sixty feet deep. This eliminates the need for the sewer bill. One sits in the dental chair on the patio surrounded by a nice warm screen in cold weather. One emits the poo poo into the porta potty. Then the catapault comes into play. The lid is tipped up out of the way and the slingshot is activated sending the load off into the woods. The direction is moved ever so slightly after each sitting. We will post the photo on this blog when the patent application is complete. PoopBeGone.