I’m angry – and you should be too.
President Bush, at the request of President-elect Obama, requested that the second $350 billion that makes up the balance of the TARP program be released so that the money is immediately available for use with troubled banking institutions.
It’s likely to be good money after bad since no one seems to know exactly what the first $350 billion was used for. And, on top of that money, the Federal Reserve has been making additional loans to banks, increasing their balance sheet by $1.2 trillion. When asked what institutions got the money and how much each received, Federal Reserve Vice Chair Donald Kohn was elusive.
Watch the 6 minute video below, if you pay taxes, it’ll make you stomping, red-faced, steam-out-the-ears mad. The video contains the testimony of Federal Reserve Vice-Chair Donald Kohn as he’s questioned by Congressman Alan Grayson – if you don’t have the 6 minutes to watch the video here’s a summary – Kohn says it would be a bad idea to reveal to taxpayers who got the $1.2 trillion in financial assistance and loans from the Fed. I only wish I was making this up.
There’s plenty to get mad about. On top of that disturbing video, a GAO (Government Accountability Office) report released last week revealed that many of the companies getting bailout money from the government are also using offshore tax havens to conduct business. Senator Brian Dorgan one of the two senators who worked on the report said, “This report shows that some of our country’s largest companies and federal contractors, many of which are household names, continue to use offshore tax havens to avoid paying their fair share of taxes to the U.S.,” adding that some of the companies received emergency funds.
Specifically Dorgan noted that Citigroup recipient of $300 billion in bailout money operated 427 tax haven subsidiaries to conduct its business including 91 in Luxembourg and 90 in the Grand Cayman Islands.
The report estimates that the use of offshore tax havens costs the government $100 billion each year in tax revenues. (Source: RTT News, January 18, 2009)
Here’s even more:
Last Friday, the 5 member Congressional Oversight Panel released a report that stated, “The panel still does not know what the banks are doing with taxpayer money. So long as investors and customers are uncertain about how taxpayer funds are being used, they question both the health and sound management of all financial institutions.”
$350 billion spent and no one seems to know what it was used for.
Here’s another from the ‘Chicago Sun Times’ yesterday:
“Bank of America checked in with a $15.3 billion loss and got a second government infusion, bringing its Treasury commitment to $45 billion, to help it complete its Merrill Lynch (MER) purchase. Merrill has become a problem child, but none of that was evident in early December when Bank of America Chairman Kenneth Lewis was peddling the deal to shareholders. They approved it, and within a matter of days, he was secretly in Washington saying it necessitated another TARP bailout that dilutes shareholder ownership.”
The quote should have said that none of this was publically evident in December – Lewis, days after the purchase was approved, dusted off his tin cup and went back to Washington a second time.
As I stated at the outset of today’s posting, the Washington politicians are going to do it again. Even though no one knows exactly how the first $350 billion was used, Obama requested that the next $350 billion be released, insisting to congress in a letter that there would be greater accountability with these funds.
This just in from Dow Jones Newswires:
(The letter) was sent to House Speaker Nancy Pelosi, D-Calif., Senate Majority Leader Harry Reid, D-Nev., and their Republican counterparts, House Minority Leader John Boehner, R-Ohio, and Senate Minority Leader Mitch McConnell, R-Ky.
“President-elect Obama believes there has been too little transparency and accountability; too much upside for financial institutions and executives who acted irresponsibly without providing enough help for small business owners, families who are struggling to keep their jobs and make ends meet, and innocent homeowners,” Summers, one of Obama’s economic advisors said in the letter.
The letter containing these commitments were sent to lawmakers just hours after Obama made it clear to officials in the Bush administration he wanted them to request Congress release the second tranche of $350 billion in TARP funds to the Treasury.
It stated that firms receiving money under TARP would be subject to limits on executive compensation, the level of dividends they could pay shareholders, and share buybacks. There would also be limits on acquisition activity – a particularly sore point with many lawmakers, who believed some firms used money they received under TARP to embark on a spending spree.
The letter didn’t include specifics on how these limits would be imposed, or how the restrictions on corporate behavior would be structured.
It’s that last line that bothers me. The corporate cheese line continues and the positive effect on the economy, in my opinion, will be minimal.
I explore the current economic situation and the financial markets in my 1st Quarter Market Update. For a complimentary copy go to www.usawealthmanagement.com.
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