In his State of the Union address, President Barack Obama said: "We face
a deficit of trust — deep and corrosive doubts about how Washington
works that have been growing for years. To close that credibility gap,
we have to take action on both ends of Pennsylvania Avenue — to end the
outsized influence of lobbyists; to do our work openly; to give the
people the government they deserve."
The day after the president uttered those words, a senior administration
official offered private policy briefings to lobbyists on the
administration's plans.
"In the upcoming elections, voters will face a choice between
Republicans who are standing with Wall Street fat cats, bankers and
insurance companies — or Democrats who are working hard to clean up the
mess we inherited by putting the people's interest ahead of the special
interests," Sen. Robert Menendez, D-N.J., the head of the Democratic
Senatorial Campaign Committee, said in a press release Jan. 27.
That weekend Sen. Menendez and 11 other Democratic senators hosted
hosted a "winter retreat" at the Ritz Carlton South Beach resort in
Miami for 108 prominent lobbyists, who paid up to $30,000 each to
attend.
"The retreat's guest list is a marked contrast to Menendez's recent
rhetoric, which has echoed the White House denunciation of 'special
interests' and 'fat cats,'" noted Ben Smith of the Politico, who broke
the story.
In a report issued Feb. 1 which drew remarkably little attention from
the news media given its importance, Neil Barofsky, the Special
Inspector General for the Troubled Asset Relief Program, the $700
billion bailout for financial institutions, said TARP has not done what
it was supposed to do, and could be setting the stage for a worse fiscal
meltdown in the future.
"Even if TARP saved our financial system from driving off a cliff back
in 2008, absent meaningful reform, we are still driving on the same
winding mountain road, but this time in a faster car," Mr. Barofsky
wrote in his most recent quarterly report to Congress.
Gorged on taxpayer money, the banks that were "too big to fail" have
gotten even bigger, Mr. Barofsky said. Implicit and explicit federal
guarantees could encourage them to take ever more reckless gambles, he
said.
You'll recall that Congress approved TARP, the single largest
expenditure in the history of our republic, on the understanding the
funds would be used to buy the so-called "toxic assets," the subprime
mortgage loans that had gone bad. But no sooner was the ink dry on the
legislation than Treasury shifted course, investing the money instead
directly into the banks. Later, TARP funds were used to buy into
General Motors and Chrysler.
This bait and switch has been a good deal for banks. Goldman Sachs,
teetering on the edge of bankruptcy in September of 2008, has done so
well since that its chief executive officer, Lloyd Blankfein, thinks
he's entitled to a $100 million bonus.
Then Treasury Secretary Hank Paulson, who preceded Mr. Blankfein as CEO
of Goldman Sachs, justified the switch on the grounds it would make it
possible for banks to keep open lines of credit to small business. But,
according a report issued by Treasury in January, the 22 banks which
received the most TARP funds cut their small business loan balances by
$12.5 billion since last April.
The banks have been restoring their balance sheets because they've been
lending the TARP money, which they received for virtually no interest,
back to goverment "at a phenomenal markup of at least 3 full percentage
points," said Henry Blodget of the Business Insider.
This system, in which we taxpayers bear the risk and costs, works very
well for Wall Street, not so well for Main Street. So why has Barack
Obama supported it?
OpenSecrets.org provides a clue. Employees of Goldman Sachs were the
largest private sector source of contributions to Barack Obama's
presidential campaign (second overall to employees of the University of
California). Two other bailed out banks — Citigroup and JP Morgan
Chase, ranked 6th and 7th.
To get off "the same winding mountain road," the zombie banks need to be
broken up, and strict limits placed on the amount of debt banks which
accept federally insured deposits may incur. But these reforms would
not be popular with the banksters whose contributions fill Democratic
campaign coffers.
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