The story linked to this is a long one, but it is important. The recent Shirley Sherrod farce in which the trigger for a solution was pulled way too early, before anyone had taken a sober look at the facts and the options, illustrates the damage that can be done to one person's life. Apply that same reasoning to the taxpayer bailout of some of the wealthiest businesses and people both in this country and outside of it and it becomes clear that in the rush to "do something", the keys to the kingdom were handed to people with vested interests by government officials with whom their relationship was simply too close.
By bringing in parties who did not stand to gain from the giveaway we might have saved millions of people from foreclosure, re-directed trillions of dollars to better purposes, and our citizens could have been protected from the reckless trading brought on by financial institutions who clearly breached their fiduciary responsibility. There is every reason to believe, despite the new regulations, that it may happen again.
If, after (or before) reading the information in these links, you think Elizabeth Warren would very likely make a strong head of the new Consumer Protection Agency, and advocate for the people, not the banks, there is a petition on Bernie Sanders page in support of her nomination
here...by William Greider - The Nation - August 6, 2010
The government’s $182 billion bailout of insurance giant AIG should be seen as the Rosetta Stone for understanding the financial crisis and its costly aftermath. The story of American International Group explains the larger catastrophe not because this was the biggest corporate bailout in history but because AIG’s collapse and subsequent rescue involved nearly all the critical elements, including delusion and deception. These financial dealings are monstrously complicated, but this account focuses on something mere mortals can understand—moral confusion in high places, and the failure of governing institutions to fulfill their obligations to the public.
Three governmental investigative bodies have now pored through the AIG wreckage and turned up disturbing facts—the House Committee on Oversight and Reform; the Financial Crisis Inquiry Commission, which will make its report at year’s end; and the Congressional Oversight Panel (COP), which issued its report on AIG in June.
The five-member COP, chaired by Harvard professor Elizabeth Warren, has produced the most devastating and comprehensive account so far. Unanimously adopted by its bipartisan members, it provides alarming insights that should be fodder for the larger debate many citizens long to hear—why Washington rushed to forgive the very interests that produced this mess, while innocent others were made to suffer the consequences. The Congressional panel’s critique helps explain why bankers and their Washington allies do not want Elizabeth Warren to chair the new Consumer Financial Protection Bureau.
The most troubling revelation in this story is the astonishing weakness of the Federal Reserve and its incompetence as a faithful defender of the public interest.
The rest of the story here....
Nouriel Roubini talks in his book "Crisis Economics" about "moral hazard", or the problem that occurs when people act differently because they are protected from risk. The hedge funds and banks counted on the Federal Reserve and their relationship to bail them out, and became so reckless in their behavior they threatened the very foundations of this country. Then they were rewarded for it.
Risk and moral hazard are referred to in the Congressional Oversight Panel's Report on the AIG Bailout
here... and
here..."The Congressional Oversight Panel's June oversight report, "The AIG Rescue, Its Impact on Markets, and the Government's Exit Strategy," found that the Federal Reserve and Treasury failed to exhaust all other options before undertaking their unprecedented, taxpayer-backed rescue of American International Group (AIG) and its creditors. This rescue resulted in extraordinary risk to taxpayers and a fundamental redefinition of the relationship between the government and the country's most sophisticated financial institutions."
"The Panel believes that the moral hazard problem unleashed by making whole AIG‟s
counterparties in unregulated, unguaranteed transactions has turned out to be a key act in
undermining the credibility of America‟s system of financial regulation and the credibility of the
specific efforts at addressing the financial crisis that followed, including the entirety of the
TARP program."
The latest Bailout Tally Report can be found
here...
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