In a week, on March 25th, the government is set to giveaway up to $2 trillion to the "
shadow banking system," an almost completely unregulated, mostly entirely unknown sector within our nation's financial infrastructure comprised primarily of hedge funds. They're calling this program the "
Term Asset-Backed Securities Loan Facility ("TALF").
The purpose of this latest and greatest Wall Street welfare giveaway is to provide "loans" to "investors" so that they may purchase all of those toxic assets you've been hearing about from our formal banking system. (You remember them, right? They're the ones that have also received all of those TARP funds, to date.)
Here's why your head would explode if you were actually aware of what was going on with
this quintessential travesty--without exaggeration perhaps the biggest boondoggle of all time IMHO--of a program:
TEN THINGS ABOUT THE TALF PROGRAM THAT'LL MAKE YOUR HEAD EXPLODE:
1.) $2 trillion in taxpayer funds with no salary restrictions to recipients. The Federal Reserve has decided that all employee salary/bonus compensation restrictions--a la AIG et al--will be LIFTED for all of the unregulated shadow banking firms that will participate in this program.
2.) Shadow Bankers get almost all of their investment money for free, from you. The shadow bankers that participate in the TALF program will only be required to put up between 6 and 15 cents for every 85 to 94 cents that they "borrow" from the government (the Fed). (See link in third paragraph of this diary.) In other words, for every $1,000,000 in toxic assets that they buy from a bank, a shadow bank will post between $60,000 and $150,000 of their own funds, and they will receive the rest of this money from the Federal Reserve and/or the U.S. Treasury.
3.) Shadow bankers will skim administrative fees off the top of $2 trillion, first. Those funds are then supposed to go directly to those Wall Street entities that have been unable to offload their toxic trash up until now. Of course, the shadow bankers will also pile plenty of administrative fees on top of these transactions, diminishing the original toxic trash-holder's income as a portion of it is converted into immediate revenue for these shadow bankers before it ever reaches its intended source.
4.) Government has virtually no say in terms of regulating what these entities must do with the money once they give it to them. Among the many things that the government, the Treasury Department and the Federal Reserve are not telling is that they have virtually no control over these shadow banking entities, at all, from the moment they receive those loans from us, the taxpayers. In fact, many well-known Progressive economists are telling us that, perhaps, the most important reason why government bailout efforts have been so ineffective to date is due the fact that the Federal Reserve is, for all intents and purposes, broken. And, why is it broken? Unlike decades past, today, more banking activity now occurs in the totally unregulated shadow banking sector than in the formal, poorly-regulated banking industry. In short, the Federal Reserve is broken because it no longer controls the lion's share of the actual transactions that occur between financial institutions within our economy.
5.) In fact, the Shadow Bankers actually rewrote the government's guidelines for the use of this money. The Federal Reserve (and the government, in general) presented their TALF program participation "requirements" to the shadow banking industry a short while ago. The shadow bankers didn't like the original requirements that were presented to them, so they re-wrote our government's requirements themselves. (See link in third paragraph of this diary.)
6.) Shadow Bankers are guaranteed by us that they will not lose any money on their investments. The government is making a guarantee--backed by taxpayer funds--to all recipients of these TALF funds that, in they event they lose money on their "investments," the government will guarantee all of their losses.
7.) The hedge fund industry intends to create MORE derivatives (i.e.: CDS' and CDO's) from the toxic trash which they're buying--with our money--from Wall Street. What are many of these shadow bankers and formal banks intending to do with much of this toxic trash, once its disposition is resolved after all the smoke clears in the days and weeks following next Thursday? Well, of course, they're just going to create more of the same instruments that got us into this mess in the first place: derivatives, such as credit default swaps (CDS's) and and commercial debt obligations (CDO's)!
8.) The very folks that created our economy's meltdown are now running things in the Shadow Banking industry. And, who's running all of this shadow banking activity? The very folks who got us into this mess in the first place, too! (People like this person, and this person.)
9.) We're told that the TALF program is being established to bring credit liquidity back to consumers and small businesses; but that's impossible, since the banks receiving this money are virtually incapable of doing this--or they have no intention of doing this--going forward. The government's telling us they're embarking upon this program to enable Wall Street to bring credit liquidity back into the small business sector and the consumer credit marketplace, but the banking industry has already put them--and everyone else--on notice that they've either already eviscerated their current consumer credit infrastructure or they're planning upon doing so in the very near future.
10.) If the TALF program's designed to credit-enable small businesses and consumers why are ANNOUNCED plans already in place, or being implemented, by these very banks to the contrary? And, just in case we didn't know this, the business/financial press has been reminding us of all this in the past 24 hours, as well. In fact, Citigroup, American Express, JPMorgan Chase and Bank of America--just four firms--have already eliminated more than $1.6 trillion in consumer credit over the past few months while, at the same time, acknowledging that more than 92% of the public is still paying their credit card bills on time. But, we're told that if we just give 'em a couple trillion more taxpayer bucks, they'll absolutely, positively start opening up credit to small business and the public right away! (Which is great except for the minor details--which totally fly in the face of those promises--mentioned in the beginning of this paragraph.) Then again, have we heard of any stated commitments, and/or guarantees, from Wall Street that they will actually do what the government is telling us Wall Street will do?
So, if $165 measely million dollars' worth of AIG employee bonuses from within the overall $173 billion AIG bailout is causing...the President of the United States...535 members of the Senate and the House of Representatives...and the entire Progressive blogosphere...as well as the MSM....to all go into ballistic mode, then why isn't $2 trillion more of our future being poured directly into a big black hole next Thursday making everyone's head explode?
I can't wait to hear your answers to this last question in the comments, below. In advance, my sincere thanks for taking the time to respond!
NOTE: For the record, and according to the Wall Street Journal and TPM, we've just been informed that it's not a hundred-and-something million in bonuses to AIG employees, but actually $450 million or $1.2 billion (depending upon whom you believe--see both links in this paragraph) in taxpayer funds that are being pissed away, with $450 million of that going directly to the "...small division of the company created almost all the losses...(that's) still drawing in a vastly disproportionate share of the cash bonuses."