CFR Corporate Members Get Lion's Share of Bailout Funds

CFR Corporate Members Get Lion's Share of Bailout Funds

April 25, 2009

New American - Newspapers are fixated upon $160 million in bonuses given to American International Group (AIG) executives. And it’s nice to know where the millions are going (note: the bonuses could have been cancelled had the federal government let the company go bankrupt, as officials should have). But where are the trillions in TARP, TALC and Federal Reserve Bank bailout funds going?

The man in charge of administering the bailouts is Treasury Secretary Timothy Geithner, who served as a staff member of the New York City-based Council on Foreign Relations before being hired in 2003 to head the New York City branch of the Federal Reserve Bank (Fed).

As the vice chairman of the Fed’s Open Market Committee, Geithner is probably a poor choice to get the nation out of its current economic mess. He served as Alan Greenspan’s number two man at the Fed, so Geithner is as responsible as anyone for facilitating the severity of the real estate and financial bubble and its subsequent collapse. After all, the Fed was the driving force behind the asset bubble, inflating the bubble larger and larger through artificially low interest rates and an inflationary easy-money policy.

Under Geithner and his predecessor (former Goldman Sachs CEO Henry “Hank” Paulson), the majority of bailout funds have been awarded to high-level donors to Geithner's former employer: the Council on Foreign Relations (CFR). Here’s a survey of TARP bailout awards to the CFR’s corporate members (there are a total of only a little more than 200 corporate members at all levels):

Among the “Founders” (those who give $100,000 or more to CFR) can be found:

• American Express Company: $3.39 billion TARP
• Goldman Sachs: $10 billion TARP, plus a separate Federal Reserve bailout and more than $13 billion of the allotment to AIG (below)
• Merrill Lynch: $45 billion through its corporate parent, Bank of America, which is also a CFR Premium corporate member, plus $6.8 billion of AIG’s bailout funds

“President’s Circle” members (those who give $60,000 - $99,999 to CFR) received the following bailout funds:

• American International Group (AIG): $182 billion in total TARP/TALF funds to date
• Citibank: $50 billion TARP
• Morgan Stanley: $10 billion TARP

“Premium” members (those who give $30,000 - $59,999 to CFR):

• Bank of New York/Mellon Corporation: $3 billion TARP
• Freddie Mac: Sharing with Fannie Mae $1.25 trillion (that’s $1,250 billion in mortgage securities being purchased from the Federal Reserve Bank)
• Chrysler: $4 billion TARP, plus $1.5 billion TARP for Chrysler Financial
• JP Morgan Chase: $25 billion TARP
• CIT Group: $2.33 billion TARP

That’s a total of more than $1 trillion in bailout funds for CFR corporate members, easily the lion’s share of the total bailout funds awarded to date. CFR membership seems to have its benefits, and then some.

So why is no one asking questions about why most of the funds are going to the former employers of our Treasury secretaries? Perhaps because many of the entities who should ask "why" are also CFR corporate members. Among the financial press, the CFR counts among its members Bloomberg, General Electric (NBC, CNBC, MSNBC), News Corporation (Fox, Fox Business), Standard and Poor's, ABC News, Time Warner (CNN, Time magazine, etc.), Moody's, and McGraw Hill (book publishers).

Somebody should ask the question why the same people who brought us this financial crisis are now bringing us the "cure," and why that cure necessarily involves financing former employers of the people making the decisions.

Credit Card Defaults Could Be the Next Financial Storm

April 23, 2009

Politico - ...Consumer outrage about credit cards is at an all-time high. So are delinquencies, which hit 5.56 percent in the fourth quarter of 2008. That’s a 60 percent jump since 2005, according to the Federal Reserve.

And then there are the fears that credit card defaults could be the next financial storm to hit already struggling consumers. Even some of the industry’s longtime allies on Capitol Hill admit that change is coming. “Most of the banks realize that some of what they’ve done before — the processes being followed — don’t really look very good in the light of day,” said Sen. Tom Carper (D-Del.), whose state is home base for a large number of credit card firms.

What remains unclear is whether Obama will throw enough political capital behind the issue to get a bill passed into law...

The House Financial Services Committee approved credit card reform legislation Wednesday, and the bill is expected to pass the House easily as early as next week.

The House would largely codify into law new rules authored by Rep. Carolyn Maloney and approved by the Federal Reserve last year but not scheduled to take effect until July 2010. The House bill wouldn’t kick in much sooner, but Maloney won an amendment that speeds up the start date for a provision requiring card companies to provide consumers with a 45-day notice before they hike interest rates. Under Maloney’s amendment, the companies would be required to give 90 days’ notice...

Dems: Freeze rate hikes on credit cards
Dealing with the Next Crisis: Credit Cards

Geithner Defends Bank Rescue Program Amid Warnings

April 21, 2009

AP - Treasury Secretary Timothy Geithner defended the bank rescue program devised by the Obama administration Tuesday as the International Monetary Fund predicted U.S. financial institutions could lose $2.7 trillion from the global credit crisis.

Geithner testifying before the rescue plan's Congressional Oversight Panel (and expressing concern over "the capital needs of the 19 largest banks in the country"), faced several questions about how Treasury is using the $700 billion Troubled Asset Relief Program and how it intends to help rid financial institutions of their bad loans and securities.

His testimony came in the wake of a watchdog agency report that warned Obama administration initiatives could increasingly expose taxpayers to losses and make the government more vulnerable to fraud.

A special inspector general assigned to the bailout program concluded in a 250-page quarterly report to Congress that a private-public partnership designed to buy up bad assets is tilted in favor of private investors and creates "potential unfairness to the taxpayer."

Geithner said the new plan "strikes the right balance" by letting taxpayers share the risk with the private sector while at the same time letting private industry use competition to set market prices for the assets.

"If the government alone purchased these legacy assets from banks, it would assume the entire share of the losses and risk overpaying," Geithner said in his remarks. "Alternatively, if we simply hoped that banks would work off these assets over time, we would be prolonging the economic crisis, which in turn would cost more to the taxpayer over time."

Geithner said "the vast majority of banks" have more capital than they need to be considered well-capitalized. But he said the economic crisis and the bad assets have created uncertainty about the health of individual banks and reduced lending across the system.

"For every dollar that banks are short of the capital they need, they will be forced to shrink their lending by $8 to $12," he said.

While credit conditions have improved in the past few months, "reports on bank lending show significant declines in consumer loans, including credit card loans, and commercial and industrial loans," Geithner said.

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In a letter Tuesday to oversight panel chairwoman Elizabeth Warren, Geithner said that $109.6 billion in resources remain in the rescue fund. But officials expect the fund will be boosted over the next year by about $25 billion as some institutions pay back money they have received.

But under questioning from panel members, Geithner said that even if banks want to pay back the money, that doesn't mean the government would necessarily accept the payment.

"Ultimately we have to look at two things, one is do the institutions themselves have enough capital to be able to lend and does the system as a whole, is it working for the American people for recovery," Geithner said.

The government's effort to stabilize the financial sector and unclog the credit markets has come under heavy scrutiny. Treasury officials say the Obama administration has been holding participants more accountable. Geithner sent key members of Congress six-page letters last week spelling out his department's measures.

Still, Inspector General Neil Barofksy, using blunt language, offered a series of recommendations to protect the public and took the Treasury to task for not implementing previous advice.

Overall, the report said the public-private partnership — using Treasury, Federal Reserve and private investor money — could total $2 trillion. "The sheer size of the program ... is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives," the report stated.

In particular, the report cited funds that would be used to purchase troubled real estate-related securities from financial institutions. Under plans unveiled by Treasury, for every $1 of private investment, Treasury would invest $1 and could provide another dollar in a nonrecourse loan. That money could then leverage a loan from another government fund backed mostly by the Federal Reserve, a step that Barofsky said would dilute the incentive for private fund managers to exercise due diligence.

Barofsky recommended that Treasury not allow the use of Fed loans "unless significant mitigating measures are included to address these dangers."

Among Barofsky's recommendations:

• Treasury should set tough conflict of interest rules on public-private fund managers to prevent investment decisions that benefit them at taxpayer expense.
• Treasury should disclose the owners of all private equity stakes in a public-private fund.
• Fund managers should have "investor-screening" procedures to prevent asset purchase transactions from being used for money laundering.

Bank of America: It May Take a While to Payback $45 Billion to U.S. Taxpayers

April 2, 2009

Reuters - Bank of America Corp (BAC.N) Chairman and Chief Executive Kenneth Lewis said it may take several quarters for the bank to repay its $45 billion of federal bailout money, although he believes the U.S. economy may bottom out in the second half of this year... Bank of America took $25 billion from the federal Troubled Asset Relief Program (TARP) last year and another $20 billion in January to absorb losses at Merrill. Lewis said he regretted taking that much and said the bank would not need more aid...

Report: B of A CEO says he was told to be quiet on Merrill