Global IssuesECONOMY-US: Trillions to Banks as Taxpayers Left in the Dark
The U.S. Federal Reserve and U.S. Treasury have doled out trillions in taxpayer dollars to banks and corporations and now the boom may be falling on what lawmakers say is a shroud of secrecy that surrounds their actions.
In separate hearings on Capitol Hill this week, lawmakers expressed support for a bill to make the Fed's decisions more transparent, and for the findings of a special inspector general report that calls for greater transparency in the Treasury's bailout of banks, called the Troubled Asset Relief Programme (TARP).
'Although Treasury has taken some steps towards improving transparency in TARP programmes, it has repeatedly failed to adopt recommendations that [the special inspector general] believes are essential to providing basic transparency and fulfill Treasury's stated commitment to implement TARP with the highest degree of accountability and transparency possible,' says the report of Special Inspector General Neil Barofsky.
'If Treasury doesn't put this information up on its website, this committee will. And if Treasury doesn't turn over this information voluntarily, Secretary [Timothy] Geithner will be brought before the committee to explain,' said Democrat Edolphus Towns of New York, chair of the House Committee on Oversight and Government Reform.
In yet another sign of change to the institutions, President Barack Obama has fielded a proposal to create a Consumer Financial Protection Agency, which would rearrange and strip some powers now held by the Fed. The proposal seems to have wide support among leading lawmakers.
'I don't see why there shouldn't be 100 percent, crystal clear transparency of the actions taken at the Fed,' said Republican Rep. Bill Posey of Florida. 'The public has a right to know.'
Posey made his comments directly to Fed chairman Ben Bernanke as he presented his semi-annual report on the economy to a House Committee Tuesday.
Bernanke argued that actions taken by the Fed in the previous 12 months helped prevent a wholesale collapse of the global financial system.
'The financial shocks that hit the global economy in September and October were the worst since the 1930s, and they helped push the global economy into the deepest recession since World War II,' Bernanke said.
At the end of 2008, the Fed had 1.5 trillion dollars in short-term loans outstanding to the nation's biggest banks and financial institutions, compared to 600 billion dollars today, Bernanke said.
The attention of the Fed has worked and credit is flowing again among the largest banks and corporations, and the nation's gross domestic product will nudge up to two percent and maybe a near-normal three percent in 2010, he said.
The rest of the economy is not fairing as well, he conceded. The Fed predicts that unemployment will reach 10 percent by the end of 2009, and foreclosures will continue to rise.
'Financial conditions remain stressed and many households and businesses are finding credit difficult to obtain,' Bernanke said. It is likely that the nation will soon see many foreclosures in commercial real estate, he said.
The Fed expects to raise the interest rate it pays to banks with accounts held by the Fed, when the economy improves. That interest rate is now at 0.25 percent.
This and other decisions, like the short-term loans it makes to banks through its discount window, should continue to be made in secret, he said.
'We are taking all the steps necessary to protect taxpayer money. One sensitive area is to have Congress second-guessing monetary policy,' Bernanke said.
Bernanke was directing his comments at a bill supported by many lawmakers that would require more auditing of the Fed's actions. It proposes conducting audits of decisions made by the Fed, including setting interest rates, six months after the decision is made.
The bill is sponsored by Republican Rep. Ron Paul, the Texan known for his outspoken opposition to the deficit and his maverick run for president.
The Fed 'doesn't want Congress to know what it is doing', Paul said.
Such an audit could welcome 'political interference' in The Fed's decisions, Bernanke warned.
'If we raise interest rates at a [Fed meeting] and someone in Congress didn't like the decision and ordered an audit, isn't that interference?' he said.
Elsewhere in Congress, the Treasury's actions were under scrutiny, as Special Inspector General Barofsky detailed the shortcomings of that institution's bank bailout programme.
Twelve separate programmes recently created at the Treasury have handed out nearly three trillion dollars to banks, financial companies, auto companies and insurers, Barofsky said.
The eventual, total price tag for all the government's bailout programmes could reach 27.3 trillion dollars, if the economy continues to flag, Barofsky said.
The Treasury has refused to audit the money loaned to the banks to see how they are spending it. The Treasury has called such audits 'meaningless', Barofsky said.
So Barofsky's office went ahead and pursued the information.
The office surveyed 360 banks that received Treasury bailout funds and found that almost all were using the money in ways other than to lend - which was the intent of the programme. The banks used some of the funds to lend, but also to purchase other banks, to pay off debts and to simply hold in reserve should they need the funds in the future.
'TARP has become a programme in which taxpayers are not being told what most of the TARP recipients are doing with their money, have still not been told how much their substantial investments are worth, and will not be told the full details of how their money is being invested,' Barofsky said.
'The taxpayers now have a 700-billion-dollar spending programme that's being run under the philosophy of 'Don't ask, don't tell,' Towns said.
Sociologist Saskia Sassen of Columbia University said from her London office that it is important to step back and look at the big economic picture. The bailout is not going to ease unemployment or foreclosures, she said.
'The fundamental problem with the bailout is that it is a financial solution to a non- financial crisis. The bailout works for the financial sector. Along with that relative success is growing unemployment among workers and growing foreclosures that are forecast to reach 10-12 million over next four years,' she told IPS.
© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service