Who the heck approved this thing?
At hearings in Las Vegas Tuesday, Nevadans who have lost their jobs or their homes — or both — told a federal panel that $700 billion transferred to their Wall Street pals by Treasury Secretary Henry Paulson and (Federal Reserve) Inflation Secretary Ben Bernanke have done nothing to improve financial conditions outside New York.
The three-week-old panel, created by Congress to monitor the bailout monies it authorized in October and chaired by Harvard law professor Elizabeth Warren, chose to hold its first “field” hearing in Southern Nevada, according to the hearing schedule, because of its status as “Ground Zero of the Housing and Financial Crises.”
Nevada has led the nation in foreclosures for nearly two years; by the end of 2008, Clark County is expected to see 30,000 foreclosures. Unemployment in the state is at a 25-year high, about 1 percentage point above the national level, and is likely to hit 10 percent in 2009, according to Keith Schwer, director of the Center for Business and Economic Research at UNLV.
“Our country is in peril,” Ms. Warren said Tuesday. “Taxpayer dollars are flowing into banks, but there is little evidence of what effect these hundreds of billions of dollars are having on the very obvious troubles facing us: mortgage foreclosures, restricted small-business lending and rising unemployment. …There was no evidence today that the money is making it past the top levels of the financial institutions. …”
In a possible indication of how much Congress really cares, the only congressman assigned to the panel, Rep. Jeb Hensarling, R-Texas, did not attend.
To her credit, local Rep. Shelley Berkley, D-Nev., did show up. She was highly critical of the bailout plan, acknowledging that her misgivings over Secretary Paulson’s initial demand that Congress, in essence, “give him the money and not ask any questions” led her to vote against the proposal the first time it came before the House of Representatives.
When she visited Las Vegas shortly after that first vote, she has told the Review-Journal, constituents convinced her to go back and approve the measure, asking “What were you thinking?”
As a result, Ms. Berkley said Tuesday, hundreds of billions of dollars have gone “to prop up Wall Street banks and investment companies, but little to help people in Las Vegas who are losing their homes.”
She also was skeptical there was much the current panel could do to help. “This is after the fact. The money is gone,” Ms. Berkley said.
She said a mouhtful.
The real question is why anyone should be surprised.
The people who run the Treasury Department and the private banking combine to which Congress since 1913 has delegated its power to “coin money and establish the value thereof” — the Federal Reserve — are largely drawn from the same big investment banking firms which have received the lion’s share of these taxpayer bailout funds. Discouragingly, President-elect Obama’s choices to run the show after Jan. 20 hail from the same exclusive club.
The big bankers wanted extra billions to add to their balance sheets because they were and are overinvested in inflated real estate and real estate derivatives which have lost nominal value in the housing collapse, leaving their loan portfolios “upside down” and their balance sheets without enough dollar-denominated collateral to meet regulatory reserve requirements.
In other words, the big banks were in a situation similar to that of Southern Nevada’s Silver State Bank, whose lending practices were given a green light by bank examiners as recently as November of 2007, but which was seized and shut down by regulators in September of 2008 because the value of the land pledged to the bank as loan collateral had dropped too far.
Silver State would be a going concern today, if Messrs. Paulson and Bernanke had merely “loaned” it a billion dollars to nestle safely in its vaults to meet “reserve requirements” while it rode out the real estate slump, as they’ve done for their pals on Wall Street.
The big investment banks wanted the tax money to avoid the fate of Silver State. They got it. Taxpayers will pay the real price, as this massive inflation of the money supply will likely lead to hefty price inflation, starting as soon as next year.
Under what scenario did Congresswoman Berkley — or anyone else — expect those smug and fixed-up bankers to then suffer pangs of belated altruism, picking up the phone and dialing mom-and-pop outfits in Nevada or anywhere else, asking, “About to lose your home or business? Can we ship you some of this ‘free’ money we just got from our pals Ben and Hank? How much do you need?”
Credit is tight because of lender uncertainty. Lenders, borrowers and investors are totally uncertain about what the future may bring because Hank and Ben — and Congress, tool — are playing “Eenie-Meanie-Minie-Moe” to decide who gets bailed out and who doesn’t.
The time to ask by precisely what mechanism those big sweetheart loans were supposed to help Mr. and Mrs. Man-on-the-Street, Ms. Berkley, was before you signed the check. The time to set up oversight and accountability — as you now so wistfully note — was before the money was handed over.
Ms. Berkley’s first instinct — to vote ‘No” until there was some realistic, detailed plan and explanation for how the money would do any good to average Americans — was correct. The Review-Journal congratulated her on that first vote, at the time. Ms. Berkley’s mistake came a few days later, when she threw up her hands and abdicated her responsibility to insist on that kind of due diligence, instead bending to pressure from the mob, casting a vote based on widespread wailing that “Something must be done” (a worthwhile example of why we don’t make such decisions through “instant electronic mass refefrendum.”)
Shoveling more billions of taxpayer dollars into the furnace because “Something must be done” is not a credible economic recovery plan. For the banks, for Detroit, for anyone.
Between the options of “bailing out” failed money managers or allowing them to seek bankruptcy — the latter being the normal, orderly way in which established law allows failing firms to shed unsustainable debt while their productive assets are reallocated to new managers — it would have been far better for the Congress to do nothing, rather than intervening to delay the inevitable financial correction, thus prolonging the nation’s pain merely so some of Hank and Ben’s pals could keep their jobs, their mansions, and their private planes.
Panel member Damon Silvers, associate general counsel for the national AFL-CIO, did attend Tuesday’s hearing. Fundamental questions need to be asked about the bailout that was rushed through Congress with little built-in oversight, Mr. Silvers said Tuesday.
Indeed. Especially before they do it again.