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Secret Fed loans led to $13 billion in bank profits. The Fed concealed from Congress which banks borrowed, when, how much and at what interest rate.

By Robert Reich
Former U.S. Secretary of Labor, Professor at Berkeley

But why exactly should America be so concerned? Yes, we export to Europe – but those exports aren’t going to dry up. And in any event, they’re tiny compared to the size of the U.S. economy.

If you want the real reason, follow the money. A Greek (or Irish or Spanish or Italian or Portugese) default would have roughly the same effect on our financial system as the implosion of Lehman Brothers in 2008.

Financial chaos.

Investors are already getting the scent. Stocks slumped to 13-month low on Monday as investors dumped Wall Street bank shares. (more…)

Robert Kuttner

By Robert Kuttner
Co-Founder and Co-Editor of The American Prospect

My friend, the late Mike Harrington, used to describe his politics as “on the left wing of the possible.” It’s a fine aspiration. But if anything, economic problems have become more politically intractable since Mike died in 1989.

Scanning the various economic ills afflicting our Republic and its citizens, it’s evident that nearly all of the solutions lie beyond what is currently deemed thinkable in mainstream politics — beyond the left edge of the possible.

It’s not that my own views and values have become more radical in two decades. What has changed is that the American political center has shifted further to the right, while the twin assault on the good society by the private financial system and the organized right has become more intense.

There are only two possibilities: either we act to expand the boundaries of the possible, or we suffer the consequences.

Consider these five prime economic challenges:

Economic Recovery and the Budget. We are told by Beltway solons of both parties that the prime malady harming the economy is the budget deficit. But nobody can explain how fiscal austerity will promote economic recovery. On the contrary, the more we cut, the more we retard economic recovery and the more we remove the cushions that make the recession slightly more bearable for regular people. (more…)

Dean Baker

By Dean Baker
Co-Director, Center for Economic and Policy Research

As we mark the 100th anniversary of Ronald Reagan’s birth, his most important legacy has gone largely overlooked. Reagan helped to put a caricature of politics at the center of the national debate, and it remains there to this day. In Reagan’s caricature, the central divide between progressives and conservatives is that progressives trust the government to make key decisions on production and distribution, while conservatives trust the market.

This framing of the debate is advantageous for the right since people, especially in the United States, tend to be suspicious of an overly powerful government. They also like the idea of leaving important decisions to the seemingly natural workings of the market.

It is therefore understandable that the right likes to frame its agenda this way. However, since the right has no greater commitment to the market than the left, it is incredible that progressives are so foolish as to accept this framing.

In reality, the right uses government all the time to advance its interest by setting rules that redistribute income upward. As long as progressives ignore the rules that are designed to redistribute income upward, they will be left fighting over crumbs. There is no way that government interventions will reverse a rigged market. For some reason, most of the people in the national political debate who consider themselves progressive do not seem to understand this fact.

To take the most obvious example, fighting inflation has come to be seen as the holy grail of central banks; a policy that it is supposed to be outside of the realm of normal political debate. On slightly more careful inspection, the inflation fighting by the Fed and other central banks is actually a policy that is designed to ensure that the wages of ordinary workers do not grow too rapidly. (more…)

Mike Lux

By Mike Lux
Author, “The Progressive Revolution: How the Best in America Came to Be”

Everything I am reading these days on financial issues points to some serious reckoning soon to come, especially because of — as the folks at Third Way are calling it — foreclosure-gate. The Massachusetts Supreme Court ruling in the Ibanez case, along with a growing body of cases where the banks and/or their servicers have been ruled against in foreclosure cases, and even the banks’ lawyers are being castigated in court by judges for bringing in made-up paperwork, is causing a growing sense of panic among the biggest banks that hold the most mortgages. Spokespeople for the banks are talking bravely, trying to dismiss the situation as some minor paperwork errors, but everyone who has been paying attention to the situation fears that there are really big consequences afoot.

The plain fact is that over the last decade, in their overwhelming rush to make bigger and bigger profits from trading in the bubble-driven real estate securities market, the banks ran roughshod over the home mortgage and title system that had served this country (and England and many others) quite well for hundreds of years — and they made a serious mess of it. Because of the way these mortgages have been sliced and diced and sold into complicated securities, homeowners, judges, and the banks themselves are having quite a bit of trouble figuring out who actually owns the note in more cases than is easy to believe. The “paperwork” — figuring out who owns the note – is not just a little messed up, it is a disaster area. (more…)

By Dean Baker
Co-Director, Center for Economic and Policy Research

Many of us have long advocated a green economy where jobs were generated in sectors like alternative energy and recycling. It was our hope that this economy could be both environmentally friendly and offer opportunities for high and rising living standards. Well, we’ve now got a green economy and there’s plenty of recycling, but it’s not exactly what most of us had in mind.

In a remarkable coincidence, last week we saw President Obama’s deficit commission hold its final hearing. Just two days earlier, the Federal Reserve Board released data revealing the specifics of the trillions of dollars of secret loans it made at the peak of the financial crisis in 2008 and 2009.

While the specifics of the Fed loans may not have been especially surprising to most observers, it was still striking to finally know for sure what many of us had long suspected: the Fed had made trillions of dollars of loans, at well below market rates, to Goldman Sachs, Morgan Stanley, Citigroup and Bank of America. Without this bailout from the government, these Wall Street behemoths would have gone under. This would have wiped out their stockholders, left their creditors with big losses and sent their high-flying executives to the unemployment lines.

However, as a result of the taxpayers’ generosity, the Wall Street banks are back on their feet again. The financial sector is again reporting record profits and the top executives at these companies are once more pocketing salary and bonuses in the tens of millions of dollars a year.

The fact that Wall Street’s prosperity comes at a time when the rest of the country is experiencing near double-digit unemployment is undoubtedly annoying to many. But the Wall Street titans don’t just take their money and walk away. The Wall Street gang recycles their money, supporting the politicians who ensured that they would have the government loans and guarantees necessary to get them through the crisis they had created.

In fact, because the Wall Street crew is forward looking and thinking about the potential tax burden on their children, they are demanding that the politicians whose campaigns they finance work to cut benefits like Social Security and Medicare. If these benefits are cut, then there will be less need for government revenue and, therefore, it will be less likely the children and grandchildren of the executives at Goldman Sachs, Morgan Stanley and the rest will have to pay higher taxes.

Of course, cuts to Social Security and Medicare are hugely unpopular. This could make it difficult for the politicians who support them to get reelected, even with their Wall Street funding.

The Wall Street crew has thought about that one as well. It has promoted the line that the cuts in Social Security and Medicare are actually necessary for the workers who are seeing their benefits cut. The story doesn’t make much sense, as can be easily shown. But when you can get $1 billion from people like Wall Street investment banker Peter Peterson to push your case and a fawning media, you can get pretty far even with complete nonsense. Recycling really is great.

Of course, the ultimate triumph of recycling in Wall Street’s green economy was getting Erskine Bowles as co-chair of President Obama’s deficit commission. Bowles was openly getting $335,000 a year as a director of Morgan Stanley, even as he drew out plans for the future of Social Security, Medicare and tax policy for decades to come. In deference to Wall Street, none of the major media outlets noted this seeming conflict of interest.

This omission was especially striking when the co-chairs issued a report that excluded any mention of a tax on Wall Street speculation, a route now endorsed by even the International Monetary Fund. Instead, the Washington Post, National Public Radio, and other leading news outlets heaped praise on the co-chairs for their willingness to inflict pain on ordinary working people.

Bowles is also a tremendously important symbol for the politicians who worry that voting to cut Social Security and Medicare may hurt their political careers. Bowles himself is a failed politician who lost twice in runs for the Senate. Despite these setbacks, Bowles enjoys an enormous income and great prestige thanks to his Wall Street benefactors. In short, losing an election for serving Wall Street is no defeat.

In this new green economy, the money flows from taxpayers to Wall Street and then back to politicians who ensure that the flow continues and increases. Anyone got a problem with that?

***

Dean Baker is the author of the new book, “Plunder and Blunder: The Rise and Fall of the Bubble Economy.”

***

This post originally appeared at The Guardian.

Sen. Bernie Sanders

By Sen. Bernie Sanders
Independent U.S. Senator from Vermont

At a Senate Budget Committee hearing in 2009, I asked Fed Chairman Ben Bernanke to tell the American people the names of the financial institutions that received an unprecedented backdoor bailout from the Federal Reserve, how much they received, and the exact terms of this assistance. He refused. A year and a half later, as a result of an amendment that I was able to include in the Wall Street reform bill, we have begun to lift the veil of secrecy at the Fed and the American people now have this information.

It is unfortunate that it took this long and it is a shame that the biggest banks in America and Mr. Bernanke fought to keep this secret from the American public every step of the way. But, the details on this bailout are now on the Federal Reserve’s website and this is a major victory for the American taxpayer and for transparency in government.

Importantly, my amendment also required the Government Accountability Office to conduct a top-to-bottom audit of all of the emergency lending the Fed provided during the financial crisis to be completed on July 21, 2011, which will take a hard look at all of the potential conflicts of interest that took place with respect to this bailout. So, in many respects, details that the Fed was forced to divulge on Wednesday about the $3.3 trillion in emergency loans that until now were totally kept from public scrutiny, marked the beginning, not the end, of lifting the veil of secrecy at the Fed.

After years of stonewalling by the Fed, the American people are finally learning the incredible and jaw-dropping details of the Fed’s multi-trillion-dollar bailout of Wall Street and corporate America. As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions and how we can make our financial institutions more responsive to the needs of ordinary Americans and small businesses. (more…)

Zach Carter

Zach Carter
Economics Editor, AlterNet; Fellow, Campaign for America’s Future

Unbelievably, the U.S. Senate has approved legislation making it easier for banks to get away with foreclosure fraud. The bill would make it much harder for consumer advocates to show that banks are engaging in fraud, bailing out megabanks who cut corners in order to boost bonuses and slap borrowers with massive, illegal fees. The political fight between big banks and troubled homeowners is on, and President Barack Obama must take a side.

If President Obama signs this legislation into law, he’s sending a clear signal that his administration stands ready to bailout the banks again, whatever the consequences for American homeowners. The new legislation is a clear attempt to provide legal cover to GMAC’s robo-signing scandal, and should be firmly opposed by Obama.

Banks are running into big trouble in foreclosure courts right now because they have kept shoddy mortgage records for years in order to cut costs and boost bonuses. Those records are so bad that banks routinely cannot prove that they have the legal right to foreclose on the homes they attempt to foreclose on. That’s a major problem, because banks have repeatedly demonstrated that they cannot be trusted to figure out their own foreclosures for themselves. They’ve foreclosed on people who haven’t missed any mortgage payments, and even on borrowers who have fully paid off their loans.

So banks and their lawyers have been fabricating documents, forging signatures, and lying to judges in order to go through with foreclosures. All of this is fraud– especially when committed systematically, en masse by large corporations and their clients. It gets even worse when banks try to use fraudulent documents to slap borrowers with thousands of dollars in illegal fees. (more…)

Zach Carter

Zach Carter
Economics Editor, AlterNet; Fellow, Campaign for America’s Future

I didn’t expect to see serious economic policy discussions in the “Republican Pledge To America,” but even by Washington, D.C. standards, this document is staggeringly disingenuous. Not once in the entire 48-page screed do Republicans mention the words “Wall Street,” “subprime,” or “foreclosure.” It’s a deliberate effort to obscure the fact that today’s economic mess is the direct result of financial malpractice on Wall Street — and that Republican economic policies would encourage more of it.

As my CAF colleague Richad Eskow has noted, this Pact to Rob The Middle Class has plenty of other problems — but fundamentally, it’s supposed to be a discussion about government spending and the federal budget deficit. For anyone to even pretend to discuss those issues without mentioning the past decade’s Wall Street excess is simply laughable. The increases in government spending under President Barack Obama have been an attempt to counter economic damage wreaked by Wall Street under President George W. Bush. They haven’t been enough, but they’ve helped — just ask economist Mark Zandi, former adviser to Sen. John McCain’s presidential campaign (.pdf file).

But after watching a deregulated Wall Street pump out trillions of dollars worth of ridiculous predatory mortgages and then amplify their bets tenfold in the unregulated derivatives market, Republicans now promise to hold up any new government regulation that “costs” the economy more than $100 million.

This is pure insanity. Any serious Wall Street regulation will cost every megabank far more than $100 million over the 10-year span devoted to budget projections — that’s the whole point of serious financial regulation. Republicans are defending the basic housing bubble accounting scam: book huge, illusory short-term profits with reckless lending and gambling– when those bets blow up, stick taxpayers with the bill. You can measure the short-term costs to bank profitability, but you can’t measure the costs of future financial collapse. Plenty of free-market activists thought decades of deregulation had worked until markets cratered in 2008. At that point, we lost eight million jobs, and the amount of government debt held by the private sector increased by 40 percent of GDP. Without Obama’s stimulus package, the cost in jobs would have been far higher. (more…)

Les Leopold

By Les Leopold
Author, “The Looting of America”

As thousands of demonstrators marched in European capitals on Wednesday to protest recent austerity measures, officials in Brussels proposed stiffening sanctions for governments that fail to cut their budget deficits and debt swiftly enough. (“Workers In Europe Protest Austerity Measures”, New York Times, 9/30/2010)

Oh, do the super-rich hate the sound of “class struggle.” Dare to utter the words and they’ll reach for their red-baiting paint guns and spray you silly with invective. It’s un-American. It’s socialistic. It’s an insult to democracy and freedom.

But try as they might, they can’t paint over the reality, which the new Fortune 400 listings make so clear: Wall Street billionaires have more money than they’ll ever be able to use–at a time when more than 29 million of us don’t have that most basic necessity, a full-time job. A hidden class war got us to this point. It’s not hidden anymore.

Once upon a time there was a tangible connection between the plutocrats and the rest of us. Carnegie, Mellon and Rockefeller built sprawling enterprises that employed tens of thousands of workers (even if they did treat them brutally). But today’s billionaire financiers, about 100 of whom are on the Fortune 400 list, have a tough time explaining how their money-making schemes produce any jobs at all. Very few of us have a clue about how they even make their money.

But we are clued in to the way our society is splitting apart. What’s good for the Wall Street tycoons is not good for America. The wealthy may loathe hearing about “class struggle,” but we’re in the middle of one — and it’s a doozy. (more…)