Throughout the past ten years, Democratic politicians have increasingly relied on the term “centrism” as a euphemism for “corporatism”. As centrism has been replaced by adherence to corporatism, it has become difficult to identify any politician who advocates centrist views. Republican politicians are too afraid of offending their party’s “base”, whose opinions are shaped by the Trump/Fox News axis. By now, nearly all Democrats who identify as centrists are actually corporatists.
During the current campaign cycle, the Democratic National Committee (DNC) and most mainstream news outlets have advanced the cause of promoting a “centrist” presidential candidate as the best route for defeating Donald Trump in 2020. The chant, “Vote Blue no matter who” seems to mean “Shut up and vote for the corporatist, designated as your candidate by the DNC”.
In a recent interview, Michael Moore explained that the majority of Americans agree with the progressive Democrats who support “Medicare for all”, increased measures to limit climate change, increasing the minimum wage and reducing this nation’s absurd incarceration levels. Moore emphasized that a significant majority of the American people hold views to the left of what mainstream news outlets define as “the center”.
Moore’s point is now reverberating through news reports, which acknowledge voters’ increasing support for Bernie Sanders. On December 26, The New York Times ran a piece by Sydney Ember entitled, “Why Bernie Sanders Is Tough to Beat”. At Newsweek, an article by James Crowley offered the following perspective about the Sanders campaign from President Obama’s senior advisor, Dan Pfeiffer:
“He has a very good shot of winning Iowa, a very good shot of winning New Hampshire, and other than Joe Biden, the best shot of winning Nevada,” said Pfeiffer, noting that these early odds improved Sanders’ chances going forward. “He could build a real head of steam heading into South Carolina and Super Tuesday,” …
Although the DNC and CNN have pushed hard to promote the candidacy of Joe Biden (Hillary 2.0) Biden’s popularity waned as he began to prove himself worthy of Kim Jong-un’s now-famous label, “dotard”. At that point, former Republican Mike Bloomberg jumped into the race, offering Democratic voters a billionaire alternative to progressivists, such as Bernie Sanders and Elizabeth Warren. Mainstream news outlets began to express excitement about the candidacy of Pete Buttigieg (Hillary 2.1) who could carry the corporatist banner. However, as political commentators demanded that Buttigieg identify the corporations for whom he did work as a consultant at McKinsey & Company, Buttigieg’s polling numbers became stalled in the single digits. When the Ukrainegate scandal began to dominate the news, Biden’s popularity experienced a rebound. Nevertheless, many commenters remained doubtful that Biden could maintain his leading position long enough to secure the Democratic nomination. As a result, several news sources attempted to boost support for the charisma-deficient corporatist, Amy Klobuchar (Hillary 2.2).
At this point, it is clear that the political center – which formerly embraced a balance of liberal and conservative views – has become irrelevant to the 2020 presidential campaign. Centrism died with the rise of Trumpism and the Democrats’ insatiable quest for money from deep-pocketed corporate activists. Worse yet, a May 23, 2018, opinion piece by David Adler for The New York Times revealed that only 42 percent of people identifying as “centrists” considered Democracy as a very good political system. Adler’s analysis of polling data revealed that in the United States, fewer than half of people in the political center viewed elections as essential. Adler reached this disturbing conclusion:
“As Western democracies descend into dysfunction, no group is immune to the allure of authoritarianism — least of all centrists, who seem to prefer strong and efficient government over messy democratic politics.”
Regardless
of the accuracy of David Adler’s analysis, America’s current appetite for “centrism”
is restricted to those policies most beneficial for advancing a corporatist
agenda.
The aftermath of the 2016 presidential election brought a flood of outrage concerning Russia’s hacking into the email accounts of Democratic Party leaders and officials at the Democratic National Committee. However, it was only after Hillary Clinton lost the election when the level of righteous indignation reached a fever pitch. The period between the outset of the Democratic Convention (when the hacked emails were made public) and Election Day brought some heat for those few DNC officials who were caught plotting against Bernie Sanders to secure the nomination of Hillary Clinton. Nevertheless, the plot to steal the nomination for Hillary involved a broader cast of characters.
From the outset of the 2016 primary season, the corporate media – particularly CNN – made a point of suppressing any publicity about the Bernie Sanders campaign. Sanders supporters took their protests to social media, using #BernieBlackout and #OccupyCNN to expose the conspiracy of silence. Once the nomination of Hillary became a fait accompli, a victory celebration took place on CNN’s New Day program, for Friday, June 10, 2016. Throughout that morning, Chris Cuomo and the other tools on the program made no secret of their disdain for Bernie Sanders. The spirit seemed to go beyond mere celebration to a feeling of accomplishment, as though they had helped place Hillary on what appeared to be a clear path to the presidency. Surprisingly, Donna Brazile was not on hand for the festivities.
Did Russian Hackers Help Steal the Nomination for Hillary?
Concern about Russia’s hacking of DNC emails to expose the ugly truth about Hillary Clinton’s priorities has focused on the idea that Vladimir Putin was determined to see Donald Trump defeat Hillary. The more important question should have been whether Putin made sure that the defeatable Hillary, rather than Bernie Sanders, was Trump’s opponent. Polls conducted during the primary season indicated that Sanders could have beaten Trump, while Hillary was a vulnerable candidate who faced a serious risk of losing the election. This could have explained why the hacked emails were not released until a few days before the Democratic Convention began. The Russians did not want their efforts to deliver the Democratic nomination to a candidate who could have beaten Putin’s choice for the American presidency.
Although President Obama and others have emphasized that the Russians could not have hacked the actual voting machines, there was another vulnerability which the hackers could have exploited to deliver the nomination for Hillary. After Clinton secured her party’s nomination, some Sanders supporters formed an investigative unit: ElectionJustice.net (originally: ElectionJusticeUSA.org). The group’s final report, Democracy Lost documented how registration tampering removed the names of registered Democratic voters from the voting rolls in those states which required voters to specify their party affiliation in order to vote in primary elections.
Election Justice verified reports of voter registration tampering in more than 20 states. A hacker could have hacked the Sanders campaign database for the names of contributors residing in states requiring party preference designation as part of the voter registration process. The hackers would then invade each state’s voter registration database to change the party affiliations of those voters, making them ineligible to vote on primary day. The investigation by Election Justice revealed that a significant number of would-be Sanders supporters were unable to vote in their state primaries because their registrations had been changed. Did those voters contribute to the Sanders campaign or were they on a Sanders campaign mailing list? A proper investigation into the Russian hacking should cover this area because a similar event could take place in a future election.
Many Republicans have criticized the inquiries into Russia’s hacking of the DNC as an attempt at de-legitimizing the election of Donald Trump. Don’t count on the Democrats to support a broader investigation into voter registration tampering because it could reveal that it was conducted by DNC operatives or Russian hackers. In either case, the illegitimacy of the Clinton nomination could be exposed and the people at CNN might not be too happy about that.
Comments Off on Federal Reserve Bailout Records Provoke Limited Outrage
On December 3, 2009 I wrote a piece entitled, “The Legacy of Mark Pittman”. Mark Pittman was the reporter at Bloomberg News whose work was responsible for the lawsuit, brought under the Freedom of Information Act, against the Federal Reserve, seeking disclosure of the identities of those financial firms benefiting from the Fed’s eleven emergency lending programs.
The suit, Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, (U.S. District Court, Southern District of New York) resulted in a ruling in August of 2009 by Judge Loretta Preska, who rejected the Fed’s defense that disclosure would adversely affect the ability of those institutions (which sought loans at the Fed’s discount window) to compete for business. The suit also sought disclosure of the amounts loaned to those institutions as well as the assets put up as collateral under the Fed’s eleven lending programs, created in response to the financial crisis. The Federal Reserve appealed Judge Preska’s decision, taking the matter before the United States Court of Appeals for the Second Circuit. The Fed’s appeal was based on Exemption 4 of the Freedom of Information Act, which exempts trade secrets and confidential business information from mandatory disclosure. The Second Circuit affirmed Judge Preska’s decision on the basis that the records sought were neither trade secrets nor confidential business information because Bloomberg requested only records generated by the Fed concerning loans that were actually made, rather than applications or confidential information provided by persons, firms or other organizations in attempt to obtain loans. Although the Fed did not attempt to appeal the Second Circuit’s decision to the United States Supreme Court, a petition was filed with the Supreme Court by Clearing House Association LLC, a coalition of banks that received bailout funds. The petition was denied by the Supreme Court on March 21.
Bob Ivry of Bloomberg News had this to say about the documents produced by the Fed as a result of the suit:
The 29,000 pages of documents, which the Fed released in pdf format on a CD-ROM, revealed that foreign banks accounted for at least 70 percent of the Fed’s lending at its October, 2008 peak of $110.7 billion. Arab Banking Corp., a lender part- owned by the Central Bank of Libya, used a New York branch to get 73 loans from the window in the 18 months after Lehman Brothers Holdings Inc. collapsed.
As government officials and news reporters continue to review the documents, a restrained degree of outrage is developing. Ron Paul is the Chairman of the House Financial Services Subcommittee on Domestic Monetary Policy. He is also a longtime adversary of the Federal Reserve, and author of the book, End The Fed. A recent report by Peter Barnes of FoxBusiness.com said this about Congressman Paul:
. . . he plans to hold hearings in May on disclosures that the Fed made billions — perhaps trillions — in secret emergency loans to almost every major bank in the U.S. and overseas during the financial crisis.
* * *
“I am, even with all my cynicism, still shocked at the amount this is and of course shocked, but not completely surprised, [that] much [of] this money went to help foreign banks,” said Rep. Ron Paul (R-TX), . . . “I don’t have [any] plan [for] legislation … It will take awhile to dissect that out, to find out exactly who benefitted and why.”
In light of the fact that Congressman Paul is considering another run for the Presidency, we can expect some exciting hearings starring Ben Bernanke.
Senator Bernie Sanders of Vermont became an unlikely ally of Ron Paul in their battle to include an “Audit the Fed” provision in the financial reform bill. Senator Sanders was among the many Americans who were stunned to learn that Arab Banking Corporation used a New York branch to get 73 loans from the Fed during the 18 months after the collapse of Lehman Brothers. The infuriating factoid in this scenario is apparent in the following passage from the Bloomberg report by Bob Ivry and Donal Griffin:
The bank, then 29 percent-owned by the Libyan state, had aggregate borrowings in that period of $35 billion — while the largest single loan amount outstanding was $1.2 billion in July 2009, according to Fed data released yesterday. In October 2008, when lending to financial institutions by the central bank’s so- called discount window peaked at $111 billion, Arab Banking took repeated loans totaling more than $2 billion.
Ivry and Griffin provided this reaction from Bernie Sanders:
“It is incomprehensible to me that while creditworthy small businesses in Vermont and throughout the country could not receive affordable loans, the Federal Reserve was providing tens of billions of dollars in credit to a bank that is substantially owned by the Central Bank of Libya,” Senator Bernard Sanders of Vermont, an independent who caucuses with Democrats, wrote in a letter to Fed and U.S. officials.
The best critique of the Fed’s bailout antics came from Rolling Stone’s Matt Taibbi. He began his report this way:
After the financial crash of 2008, it grew to monstrous dimensions, as the government attempted to unfreeze the credit markets by handing out trillions to banks and hedge funds. And thanks to a whole galaxy of obscure, acronym-laden bailout programs, it eventually rivaled the “official” budget in size – a huge roaring river of cash flowing out of the Federal Reserve to destinations neither chosen by the president nor reviewed by Congress, but instead handed out by fiat by unelected Fed officials using a seemingly nonsensical and apparently unknowable methodology.
As Matt Taibbi began discussing what the documents produced by the Fed revealed, he shared this reaction from a staffer, tasked to review the records for Senator Sanders:
“Our jaws are literally dropping as we’re reading this,” says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. “Every one of these transactions is outrageous.”
In case you are wondering just how “outrageous” these transactions were, Mr. Taibbi provided an outrageously entertaining chronicle of a venture named “Waterfall TALF Opportunity”, whose principal investors were Christy Mack and Susan Karches. Susan Karches is the widow of Peter Karches, former president of Morgan Stanley’s investment banking operations. Christy Mack is the wife of John Mack, the chairman of Morgan Stanley. Matt Taibbi described Christy Mack as “thin, blond and rich – a sort of still-awake Sunny von Bulow with hobbies”. Here is how he described Waterfall TALF:
The technical name of the program that Mack and Karches took advantage of is TALF, short for Term Asset-Backed Securities Loan Facility. But the federal aid they received actually falls under a broader category of bailout initiatives, designed and perfected by Federal Reserve chief Ben Bernanke and Treasury Secretary Timothy Geithner, called “giving already stinking rich people gobs of money for no fucking reason at all.” If you want to learn how the shadow budget works, follow along. This is what welfare for the rich looks like.
The venture would have been more aptly-named, “TALF Exploitation Windfall Opportunity”. Think about it: the Mack-Karches entity was contrived for the specific purposeof cashing-in on a bailout program, which was ostensibly created for the purpose of preventing a consumer credit freeze.
I was anticipating that the documents withheld by the Federal Reserve were being suppressed because – if the public ever saw them – they would provoke an uncontrollable degree of public outrage. So far, the amount of attention these revelations have received from the mainstream media has been surprisingly minimal. When one compares the massive amounts squandered by the Fed on Crony Corporate Welfare Queens such as Christy Mack and Susan Karches ($220 million loaned at a fraction of a percentage point) along with the multibillion-dollar giveaways (e.g. $13 billion to Goldman Sachs by way of Maiden Lane III) the fighting over items in the 2012 budget seems trivial.
The Fed’s defense of its lending to foreign banks was explained on the New York Fed’s spiffy new Liberty Street blog:
Discount window lending to U.S. branches of foreign banks and dollar funding by branches to parent banks helped to mitigate the economic impact of the crisis in the United States and abroad by containing financial market disruptions, supporting loan availability for companies, and maintaining foreign investment flows into U.S. companies and assets.
Without the backstop liquidity provided by the discount window, foreign banks that faced large and fluctuating demand for dollar funding would have further driven up the level and volatility of money market interest rates, including the critical federal funds rate, the Eurodollar rate, and Libor (the London interbank offered rate). Higher rates and volatility would have increased distress for U.S. financial firms and U.S. businesses that depend on money market funding. These pressures would have been reflected in higher interest rates and reduced bank lending, bank credit lines, and commercial paper in the United States. Moreover, further volatility in dollar funding markets could have disrupted the Federal Reserve’s ability to implement monetary policy, which requires stabilizing the federal funds rate at the policy target set by the Federal Open Market Committee.
In other words: Failure by the Fed to provide loans to foreign banks would have made quantitative easing impossible. There would have been no POMO auctions. As a result, there would have been no supply of freshly printed-up money to be used by the proprietary trading desks of the primary dealers to ramp-up the stock market for those “late-day rallies”. This process was described as the “POMO effect” in a 2009 paper by Precision Capital Management entitled, “A Grand Unified Theory of Market Manipulation”.
The fifth annual conclave of the Netroots Nation (a group of liberal bloggers) took place in Las Vegas last week. Among the stories emerging from that event was the plea that progressive bloggers “quit beating up on Obama”. I found this very amusing. After Obama betrayed his supporters by pushing through a faux healthcare “reform” bill, which lacked the promised “public option” and turned out to be a giveaway to big pharma and the health insurance industry – the new President turned the long-overdue, financial “reform” bill into yet another hoax.
As I pointed out on July 12, Mike Konczal of the Roosevelt Institute documented the extent to which Obama’s Treasury Department undermined the financial reform bill at every step. On the following day, Rich Miller of Bloomberg Newsexamined the results of a Bloomberg National Poll, which measured the public’s reaction to the financial reform bill. Almost eighty percent of those who responded were of the opinion that the new bill would do little or nothing to prevent or mitigate another financial crisis. Beyond that, 47 percent shared the view that the bill would do more to protect the financial industry than consumers. Both healthcare and financial “reform” legislation turned out to be “bait and switch” scams used by the Obama administration against its own supporters. After that double-double-cross, the liberal blogosphere was being told to “pay no attention to that man behind the curtain”.
Despite the partisan efforts by Democrats to blame our nation’s economic decline exclusively on the Bush administration, reading between the lines of a recent essay by Senator Bernie Sanders provides some insight on how the problem he discusses has festered during the Obama administration:
The 400 richest families in America, who saw their wealth increase by some $400 billion during the Bush years, have now accumulated $1.27 trillion in wealth. Four hundred families! During the last fifteen years, while these enormously rich people became much richer their effective tax rates were slashed almost in half. While the highest-paid 400 Americans had an average income of $345 million in 2007, as a result of Bush tax policy they now pay an effective tax rate of 16.6 percent, the lowest on record.
Let me get this straight . . . Is Senator Sanders telling us that it took the 400 families the entire eight Bush years just to pick up $400 billion and that once Obama came to the White House, those families were able to pick up another $827 billion in less than two years? In fairness, Senator Sanders made a great argument to reinstate what I call, “the tax on dead millionaires”. He began by discussing the harsh reality experienced by mere mortals:
And while the Great Wall Street Recession has devastated the middle class, the truth is that working families have been experiencing a decline for decades.
Nevertheless, to understand how the middle class has been destroyed by those 400 families, their corporate alter egos and the lobbyists they employ, one need not rely on the words of a Senator, who is an “avowed socialist” (a real one – not just someone called a socialist by partisan blowhards). Consider, for example, a great essay by Phil Davis, avowed capitalist and self-described “serial entrepreneur”. The title of the piece might sound familiar: “It’s the End of the World As We Know It”. Mr. Davis discussed the latest battle in the war against Social Security and the current efforts to raise the retirement age to 70:
So, what is this all about? It’s about forcing 5M people a year who reach the age 65 to remain in the work-force. The top 0.01% have already taken your money, they have already put you in debt, they have already bankrupted the government as well so it has no choice but to do their bidding. Now the top 0.01% want to make even MORE profits by paying American workers even LESS money. If they raise the retirement age to 70 to “balance” Social Security – that will guarantee that another 25M people remain in the workforce (less the ones that drop dead on the job – saving the bother of paying them severance).
Those who believe that President Obama would never let this happen need look no further than a recent posting by Glenn Greenwald (a liberal Constitutional lawyer – just like our President) at Salon.com:
Despite the efforts to characterize Social Security as an “entitlement program” – it’s not. It’s something you have already paid for – as documented by your income tax returns and W-2 forms. Pay close attention and watch how our one-party system, controlled by the Republi-cratic Corporatist Party steals that money away from you. Both Phil Davis and Glenn Greenwald have each just given you a big “heads-up”. What are you going to do about it?
Comments Off on Ron Paul Criticizes Fed Audit Compromise
May 13, 2010
The Federal Reserve had two big wins this week. At least their most recent win made some sense. Bloomberg BusinessWeek put it this way:
U.S. senators voted 90-9 yesterday to void a provision in regulatory-overhaul legislation that would have stripped the Fed of oversight of 5,000 banks with less than $50 billion in assets. A day earlier, senators rejected a measure to allow continuous congressional audits of Fed policies.
* * *
Bernanke may now have a freer hand to decide when and how fast to unwind record monetary stimulus begun during the financial crisis, while being less vulnerable to criticism that the Fed favors large Wall Street financial institutions. The Senate votes also removed a threat to the 12 regional Fed banks from a provision that would have limited the supervision of many of them to a few banks or none at all.
The amendment to the financial reform bill allowing the 12 regional Federal Reserve banks to maintain oversight of banks with less than $50 billion in assets was a bipartisan effort by Senators Kay Bailey Hutchison (R-Texas) and Amy Klobuchar (D- Minnesota). The downside to the passage of this amendment is that it has provided the Fed with back-to-back legislative victories. One day earlier, Congressman Ron Paul’s “Audit the Fed” amendment was replaced by a rewritten, compromise amendment, sponsored by Senator Bernie Sanders. Senator Sanders is now being criticized for caving in to pressure exerted by President Obama, who opposed ongoing scrutiny of the Federal Reserve, under the pretext that continuous audits would interfere with the Fed’s purported “independence” in setting monetary policy. The Sanders compromise proposed a one-time audit of the Fed to uncover information including the loans made to financial institutions by the Fed in response to the financial crisis of 2008. The Sanders amendment was passed in a 96-0 vote. Subsequently, Senator David Vitter (R-Louisiana) proposed an amendment (#3760) containing the stronger language of Ron Paul’s H.R. 1207, allowing for repeated audits of the Fed. The Vitter amendment was defeated by 62 Senators opposing the measure, with only 37 Senators supporting it. You can see how each Senator voted here. Ultimately, the complete financial reform bill — S. 3217 (Restoring American Financial Stability Act of 2010) — will be subject to approval by the Senate and reconciliation with the House version (H.R. 4173) before it can be signed into law by the President.
On May 11, Congressman Ron Paul expressed his displeasure with the Sanders compromise in a statement from the floor of the House of Representatives. The New American website has the video and text of Congressman Paul’s statement here. Ron Paul emphasized that the Fed’s use of currency swaps to facilitate the bailout fund for the sovereign debt crisis in the European Union, has provided the latest example of the need for a continuous audit of the Fed’s activities:
The reason this is so disturbing is because of the current events going on in the financial markets. We are right now involved in bailing out Europe and especially bailing out Greece, and we’re doing this through the Federal Reserve. The Federal Reserve does this with currency swaps and they do this literally by giving loans and guarantees to other central banks, and they can even give loans to governments. So this is placing the burden on American taxpayers — not by direct taxation, but by expanding the money supply this is a tax on the American people because this will bring economic hardship to this country. And because we’ve been doing this for so many years the economic hardship is already here [and] we’ve been suffering from it.
But the problem comes that once you have a system of money where you can create it out of thin air there’s no restraint whatsoever on the spending in the Congress. And then the debt piles up and they get into debt problems as they are in Greece and other countries in Europe. And how they want to bail them out? With more debt. But what is so outrageous is that the Federal Reserve can literally deal in trillions of dollars. They don’t get the money authorized, they don’t get the money appropriated, they just create it and they get involved in bailing out their friends, as they have been doing for the last two years, and now they’re doing it in Europe. So, my contention is that they deserve oversight. Actually they deserve to be reined in where they can’t do what they’re doing.
* * *
Now, what has this led to? It has led to tremendous pressure on the dollar. The dollar is the reserve currency of the world; we bail out all the banks and all the corporations. We’ve been doing it for the last couple years to the tune of trillions of dollars….
The real truth is that the dollar is very, very weak, because the only true measurement of the value of a currency is its relationship to gold. … In the last ten years, our dollar has been devalued 80 percent in terms of gold. That means, literally, that just means that we have printed way too much money, and right now we’re just hanging on, the world is hanging on to the fact that the dollar is still usable. …
So we face a very serious crisis. To me it is very unfortunate that we are not going to have this audit the Fed bill in the Senate. It has passed in the House, possibly we can salvage it in conference and make sure this occurs. But since the Federal Reserve is responsible for the business cycle and the inflation and for all the problems we have it is vital that we stand up and say, you know, its time for us to assume the responsibility because it is the Congress under the Constitution that has been authorized to be responsible for the value of the currency.
At the Financial Times, John Taylor pointed out that not only is the Fed’s decision to provide currency swaps a bad idea – it might actually aggravate the EU’s problems:
Making matters worse for the future of monetary policy is the Fed’s active participation in the European bail-out. The US central bank agreed to provide loans – technically called swaps – to the ECB so that the ECB can more easily make dollar loans in the European markets. In order to loan dollars to the ECB, the Fed will have to increase the size of its own balance sheet. Such swap loans were made to the ECB back in December 2007, but they did not help end the crisis or prevent the panic of autumn 2008. Instead, they merely delayed inevitable action to deal with deteriorating bank balance sheets, thereby making the panic worse.
Was it necessary for the Fed to participate in the European bail-out? At least as evidenced by quantitative measures such as the spread between 3-month Libor and the overnight index swap (OIS), the funding problem in the interbank markets is far less severe now than in December 2007. The international loans also raise questions about the Fed’s independence at a time when many in Congress are calling for a complete audit of the Fed. Even though monetary policy does not warrant such an audit, extraordinary measures such as the loans to the ECB do. By taking these extraordinary measures, the Fed is losing some of its independence as well as adding to the perception that the ECB is losing its independence.
At some point, everyone will be forced to admit that “Fed independence” is a myth.
Ben Bernanke’s four-year term as chairman of the Federal Reserve ends on January 31. There is presently no vote scheduled to confirm President Obama’s nomination of Bernanke to that post because four Senators (Bernie Sanders, D-Vt.; Jim Bunning, R-Ky.; Jim DeMint, R-S.C. and David Vitter, R-La.) have placed holds on Bernanke’s nomination. In order for the Senate to proceed to a vote on the nomination, 60 votes will be required. At this point, there is a serious question as to whether the pro-Bernanke faction can produce those 60 votes. A number of commentators have described last week’s win by Scott Brown as a “chill factor” for those Senators considering whether to vote for confirmation. Ryan Grim of The Huffington Post put it this way:
Opposition to the reconfirmation of Federal Reserve Chairman Ben Bernanke is growing in the Senate in the wake of a Republican Scott Brown’s victory, fueled by populist rage, in the Massachusetts Senate race.
James Pethokoukis of Reuters explained the situation in these terms:
Liberals in Congress want him gone. Then again, they want pretty much the whole Obama economic team gone. But Geithner and Summers aren’t up for a Senate vote. Bernanke is. And if Dems start bailing, don’t expect Republicans to save him. No politician in America gains anything by voting for Bernanke. A “no” vote is a free vote. Wall Street still loves him, though. Geithner, too.
Bernanke has taken heat as Wall Street’s profits have soared while unemployment has become stuck in double digits, and the wave of economic populism soaring through Washington in the wake of a stunning Democratic loss in the Massachusetts Senate races comes at a bad time for his confirmation.
If Bernanke is not confirmed, he will continue to sit on the Federal Reserve Board of Governors because each Fed Governor is appointed to a 14-year term. Donald Kohn, the vice chairman, would serve as the interim chairman until Bernanke’s successor is nominated and confirmed.
The forces pushing for Bernanke’s confirmation have now resorted to scare tactics, warning that dire consequences will result from a failure to re-confirm Bernanke. Senator “Countrywide Chris” Dodd warned that if Bernanke is not confirmed, the economy will go into a “tailspin”. An Associated Press report, written by Jennine Aversa and carried by The Washington Post, warned that a failure to confirm Bernanke could raise the risk of a double-dip recession. At The Atlantic, Megan McArdle exploited widespread concern over already-depleted retirement savings:
Spiking his nomination may have grim effects on 401(k)s throughout the land.
Not to be outdone, Judge Richard Posner issued this warning from his perch at The Atlantic:
If he is not confirmed, the independence of the Fed will take a terrible hit, because the next nominee will have to make outright promises to Congress of bank bashing, and of keeping interest rates way down regardless of inflation risk, in order to be confirmed.
I guess that these people forgot to mention that if Bernanke is not confirmed:
A plague of locusts shall be visited upon us,
The earth will be struck by a Texas-sized asteroid,
An incurable venereal disease will be spread via toilet seats,
The Internet will vanish, and . . .
Osama bin Laden will become the next Justice of the United States Supreme Court.
At the Think Progress website, Matthew Yglesias pondered the issue:
What happens if Ben Bernanke isn’t reconfirmed? Well, some folks seem to think it will send markets into a tailspin. But it’s worth emphasizing that in literal terms almost nothing will happen.
The Federal Open Market Committee — which consists of the presidentially appointed Fed governors in Washington and the presidents of the regional Fed banks — meets Jan. 26-27 and traditionally elects a chairman and vice chairman at its first meeting of the year. The committee, which makes monetary policy decisions, is set to elect Mr. Bernanke as its chairman at that meeting, a move that doesn’t require approval of the White House or the Senate.
Min Zeng of The Wall Street Journal filled us in as to what else we can expect from the FOMC this week:
Next week, the two-day FOMC meeting will end Wednesday afternoon with a statement on an interest-rate decision and policymakers’ latest outlook on the economy and inflation.
The FOMC is widely expected by market participants to keep its main policy rate — the fed-funds target rate — at ultra-low levels near zero as recent data haven’t demonstrated a persistent and strong economic recovery, with a jobless rate still hovering around the highest level in more than two decades.
Fed policymakers are also likely to stick to their plan to end the $1.25 trillion mortgage-backed securities purchases program at the end of March. The central bank should also reiterate its plan to let some emergency lending programs expire Feb. 1.
The Fed could soon hike the rate it charges on emergency loans, known as the discount rate, but that would largely be symbolic now that banks have been borrowing less and less from it as financial markets stabilized.
Meanwhile, the battle against the Bernanke confirmation continues. Mike Shedlock (a/k/a Mish) has urged his readers to contact the “undecided” Senators and voice opposition to Bernanke. Mish has also provided the names and contact information for those Senators, as well as the names of those Senators who are currently on record as either supporting or opposing Bernanke.
I’d like to see Bernanke lose, regardless of the consequences. The rationale for this opinion was superbly articulated by Senator Jim Bunning during the confirmation hearing on December 3. If you’re not familiar with it — give it a read. Here is Senator Bunning’s conclusion to those remarks, delivered directly to Bernanke:
From monetary policy to regulation, consumer protection, transparency, and independence, your time as Fed Chairman has been a failure. You stated time and again during the housing bubble that there was no bubble. After the bubble burst, you repeatedly claimed the fallout would be small. And you clearly did not spot the systemic risks that you claim the Fed was supposed to be looking out for. Where I come from we punish failure, not reward it. That is certainly the way it was when I played baseball, and the way it is all across America. Judging by the current Treasury Secretary, some may think Washington does reward failure, but that should not be the case. I will do everything I can to stop your nomination and drag out the process as long as possible. We must put an end to your and the Fed’s failures, and there is no better time than now.
Comments Off on Somebody Really Loves Goldman Sachs
May 17, 2009
The recent article about Treasury Secretary “Turbo” Tim Geithner by Jo Becker and Gretchen Morgenson, appearing in the April 26 edition of The New York Times, seems to have helped fan the flames of the current outrage concerning the Federal Reserve Bank of New York. Turbo Tim was president of the New York Fed during the five years prior to his appointment as Treasury Secretary. Becker and Morgenson pointed out many of the ways in which “conflict of interest” seems to be one of the cornerstones of that institution:
The New York Fed is, by custom and design, clubby and opaque. It is charged with curbing banks’ risky impulses, yet its president is selected by and reports to a board dominated by the chief executives of some of those same banks. Traditionally, the New York Fed president’s intelligence-gathering role has involved routine consultation with financiers, though Mr. Geithner’s recent predecessors generally did not meet with them unless senior aides were also present, according to the bank’s former general counsel.
By those standards, Mr. Geithner’s reliance on bankers, hedge fund managers and others to assess the market’s health — and provide guidance once it faltered — stood out.
The New York Fed is probably the most important of the nation’s twelve Federal Reserve Banks, since its jurisdiction includes the heart of America’s financial industry. As the Times piece pointed out, this resulted in the same type of “revolving door” opportunities as those enjoyed by members of Congress who became lobbyists and vice versa:
A revolving door has long connected Wall Street and the New York Fed. Mr. Geithner’s predecessors, E. Gerald Corrigan and William J. McDonough, wound up as investment-bank executives. The current president,William C. Dudley, came from Goldman Sachs.
The New York Fed’s current chairman, Stephen Friedman, has become a subject of controversy these days, because of his position as director and shareholder of Goldman Sachs. Goldman sought and received expedited approval to become a “bank holding company” last September, thus coming under the jurisdiction of the Federal Reserve and becoming eligible for the ten billion dollars in TARP bailout money it eventually received. After Goldman became subject to the New York Fed’s oversight (with Friedman as the New York Fed chairman) the Fed made decisions that impacted Goldman’s financial state. Although this controversy was discussed here and here by The Wall Street Journal, that publication’s new owner, Rupert Murdoch, now requires a $104 annual on-line subscription fee to read his publication over the Internet. Sorry Rupert: Homey don’t play that. Although Slate provided us with an interesting essay on the Friedman controversy by Eliot “Socks” Spitzer, the best read was the commentary by Robert Scheer, editor of Truthdig. Here are some important points from Scheer’s article, “Cashing In on ‘Government Sachs’ “:
When N.Y. Fed Chairman Stephen Friedman bought stock in the company that he once headed, and where he still serves as a director, he was already in violation of Federal Reserve policy and was hoping for a waiver to permit him to hold his existing multi-million-dollar stock stash and to remain on the Goldman board. The waiver was requested last October by Timothy Geithner, then the president of the N.Y. Fed and now Treasury secretary. Yet,without having received that waiver, Friedman went ahead in December and purchased 37,300 additional shares. With shares he added in January, after the waiver was granted, he ended up with 98,600 shares in Goldman Sachs, worth a total of $13,330,720 at the close of trading on Tuesday.
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As Jerry Jordan, former president of the Fed Bank in Cleveland, told the Journal in reference to Friedman’s obvious conflict of interest, “He should have resigned.”
Unfortunately, this was not the view during the reign of Geithner, who argued that Friedman needed to remain chairman of the N.Y. Fed board to find a suitable replacement for Geithner as he moved on to be secretary of the Treasury. Friedman chose a fellow former Goldman Sachs exec for the job.
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Geithner is a protege of former Goldman Sachs chairman Rubin. And it was therefore not surprising when he picked Mark Patterson, a registered lobbyist for Goldman Sachs, to be his chief of staff at the Treasury Department. That appointment was made on the same day that Geithner announced new rules for limiting the influence of registered lobbyists. Need more be said?
Yes, there are a couple more things: Goldman Sachs was the second largest contributor to Barack Obama’s Presidential election campaign, with a total of $980,945 according to OpenSecrets.org. President Obama nominated Gary Gensler of Goldman Sachs to become Chairman of the Commodity Futures Trading Commission. As Ken Silverstein reported for Harpers, this nomination has stalled, since a “hold” was placed on the nomination by Vermont Senator Bernie Sanders. Mr. Silverstein quoted from the statement released by the office of Senator Sanders concerning the rationale for the hold:
Mr. Gensler worked with Sen. Phil Gramm and Alan Greenspan to exempt credit default swaps from regulation, which led to the collapse of A.I.G. and has resulted in the largest taxpayer bailout in U.S.history. He supported Gramm-Leach-Bliley, which allowed banks like Citigroup to become “too big to fail.” He worked to deregulate electronic energy trading, which led to the downfall of Enron and the spike in energy prices. At this moment in our history, we need an independent leader who will help create a new culture in the financial marketplace and move us away from the greed, recklessness and illegal behavior which has caused so much harm to our economy.
It was the opportunity for a “game-changing move” in the 2008 Presidential campaign. Just as John McCain was dropping back in the polls, providing Barack Obama the chance to “close the deal” even more decisively than he did with Hillary Clinton, McCain missed the opportunity to turn the game around. Last week, he arrived in Washington (after the pseudo-suspension of his campaign) on a mission to save us all from the crisis declared by Treasury Secretary Henry Paulson. After McCain arrived, he found a number of both Republican and Democratic members of the House of Representatives opposed to the revised, 110-page, economic “bailout bill” (the Emergency Economic Stabilization Act of 2008). At that point in time, McCain had the opportunity to break with the unpopular Bush Administration and band together with the 133 Republican and 95 Democratic House members (who eventually voted against the bill) to form a “coalition of mavericks” (oxymoron, non-sequitur or both?) resisting this bailout of the big banks and other “fat cats” on Wall Street. He didn’t. He chose instead, to copy whatever Barack Obama was doing. Besides, his move dovetailed well with the pseudo-“bipartisan” duet he had been playing, throughout the entire campaign, with Joe “The Tool” Lieberman. Had McCain stood with those 133 young Republican members of the House and the 95 Democrats (many of whom consider themselves conservative, “Blue Dog” Democrats) he could have re-ignited his flatulent campaign. (Is it really safe to do that? — Let’s ask Johnny Knoxville.)
Howard Fineman provided an interesting retrospective of this phase in the evolution the economic “bailout bill” at the Newsweek website on September 30:
The Paulson Plan is not great. Some two hundred academic economists have ridiculed it, and so have the House Republicans, by a 2-1 margin. Public opinion (and not just the angry phone callers) is turning against the measure—to the extent that anybody understands it.
But the consensus is that Washington has to do something, and that the current version is far better than what the lawmakers started with.
McCain made a show of returning to Washington to try to jam the original measure through. He deserves credit for the instinct. An old Navy motto is: Don’t just stand there, DO something! That is McCain to the core, and so much the better for it.
But when he got to town, he realized something that no one had bothered to tell him, apparently: the grassroots of his own party (the grassroots that has never really trusted him) hated the Paulson Plan. They weren’t about to support it and risk their own necks. McCain worked the phones, but fell back in the ranks.
When the second revision of this bill (at over 400 pages) finally made it to the Senate floor for the vote on Wednesday, October 1, there were 9 Democrats, 15 Republicans and Independent Senator Bernie Sanders of Vermont, voting against it. McCain again missed the opportunity for a truly bipartisan resistance to this measure. Such an act would have demonstrated genuine leadership. He could have rejoined his old buddy, Wisconsin Senator Russ Feingold, as well as Florida Democrat Bill Nelson and rising Democratic star, Maria Cantwell from the State of Washington, all of whom voted against this measure. Such a move would have emboldened resistance to the “bailout bill” in the House of Representatives, where the term of office lasts only two years. (The short term results in greater accountability to American voters, who are believed to have notoriously short memory spans.)
Is this bill really necessary? On the October 1 edition of MSNBC’s Countdown with Keith Olbermann, Paul Krugman, Economics Professor at Princeton University, admitted that:
… it will be relatively ineffective, although rejecting it will cause a big run on the system. Then we will come back and do it right in January or February …
When Keith Olbermann asked Krugman about the likelihood that nothing consequential would happen if this bill did not pass, Krugman responded by saying that such possibilities have “shrunk in the past week”. Krugman went on to claim that “the credit crunch has started to hit Main Street”, using, as an example, the rumor that: “McDonald’s has started to cut credit to its franchisees.” McDonald’s has issued a press release stating that this was not the case. What is really happening is that the banks are acting like spoiled children, holding their breath until the government gives them what they want, using the threat of unavailable credit as a gun to the head of Congress.
Public opposition to this bailout was best summed up by Peggy Noonan, when she appeared on The Daily Show with Jon Stewart on October 1:
But we are in a real economic crisis and the American political establishment said we must do A, B and C to deal with it and the American people … said: “No. We don’t trust you to handle this. We don’t trust you to do the right thing.”
John McCain had the opportunity to stand with those people, as well as the 133 House Republicans and 15 Senate Republicans, to do “the right thing”. He decided to forego that opportunity. Barack Obama said, on the Senate floor Wednesday, that it was not worth risking the American economy and the world economy by challenging this bill. John McCain decided that it was not worth risking his Presidential campaign on such a challenge. That’s too bad for him. The gamble probably would have paid off.
TheCenterLane.com offers opinion, news and commentary on politics, the economy, finance and other random events that either find their way into the news or are ignored by the news reporting business. As the name suggests, our focus will be on what seems to be happening in The Center Lane of American politics and what the view from the Center reveals about the events in the left and right lanes. Your Host, John T. Burke, Jr., earned his Bachelor of Arts degree from Boston College with a double major in Speech Communications and Philosophy. He earned his law degree (Juris Doctor) from the Illinois Institute of Technology / Chicago-Kent College of Law.
