With regard to the headline of this diary, IMHO, it's not a joke; not at all. In fact, it should make you sick to your stomach. For all intents and purposes, "The Fed" (i.e.: The Federal Reserve, not the Federal Reserve branches) is funded by you, the US taxpayer.
Arianna Huffington posted a great piece, about 10 days ago, decrying Wall Street for the suffering going on throughout Main Street, particularly with regard to the majority of states being forced to implement draconian budget cuts that will brutalize millions of Americans in coming months: "States Forced to Cut Services to the Bone: The Opportunity Cost of the Bank Bailout."
States Forced to Cut Services to the Bone: The Opportunity Cost of the Bank Bailout
Posted: July 23, 2009 08:21 PM
Arianna Huffington
...We have pumped at least $4.7 trillion into the financial sector -- and the pumping isn't over. On Wednesday, Fed chair Ben Bernanke told the Senate Banking Committee that it "may be appropriate" for the government to guarantee the "mountains" of commercial real estate mortgage defaults the banks will likely be facing in the coming months.
At a certain point, these numbers are so huge it becomes hard to keep them in perspective, to be clear what $4,700,000,000,000 means in the real world. But reading about the effects of the massive budget cuts almost every state in the country is being forced to make puts the figure in perspective very fast.
--SNIP--
According to a report by the Center on Budget and Policy Priorities, at least 21 states have made cuts to public health programs, 22 states have cut programs for the elderly and disabled, 24 states have cut aid to K-12 education, and 32 states have cut assistance to public colleges and universities.
Arianna then continued to list some of the details of the devastation caused by these state budget cuts:
AL--services suspended that allow 1,100 seniors to stay in their own homes and avoid being sent to nursing homes.
AZ--cut cash assistance grants for 38,500 low-income families.
CA--500,000 children face being denied health coverage due to cuts in a welfare-to-work program.
CT--cut programs that help prevent child abuse and provide legal services for foster children.
GA--cut back on programs that offer the elderly Alzheimer services, drug assistance, and elder support, and made a $112 million cut in an initiative designed to help close the gap in funding between wealthy and poor school districts.
IL--cut funding for child welfare and youth services programs.
LA--cuts that could keep mentally ill individuals from receiving the medication they need to manage their conditions.
MA--cuts in geriatric mental health services, and prescription drug assistance, and made cuts in Head Start, universal pre-K programs, and services to help get special-needs children ready for school.
MD--cut funding for a school breakfast program.
ME--cut funding for homeless shelters.
MI, NV, CA, and UT--dropped coverage of dental and/or vision services for Medicaid recipients.
MN--elimination of a program that provides health care to 29,500 low-income 21 to 64 year olds.
NV--making rules significantly more stringent for low-income families to receive cash assistance and health insurance.
RI--eliminated health insurance for home-based childcare providers.
TN--projected 30,000 to 40,000 seriously ill people are expected to lose hospitalization and other needed medical services.
UT--cut Medicaid funding for physical therapy, occupational therapy, and speech and hearing services for adults.
VA--decreased payments for people with mental retardation, mental health issues, and problems with substance abuse.
WA--7,000 and 17,000 residents will no longer qualify for a public health care plan for people living just above the poverty line.
So, having re-read the above article tonight, I then get a headful over at Naked Capitalism--one of my favorite, left-leaning finance blogs, run by the no-less-than brilliant Yves Smith--where she informs us that we're basically clueless as to the true extent of the ripoff those vampire squids of Wall Street have perpetrated upon Main Street.
And, before I continue, let me explain something about Yves. IMHO, and unlike many other Wall Street blog publishers, she does not have a tendency to run a story without getting it fact-checked first.
From Yves Smith, at Naked Capitalism: "Government Taken in Dealings with Wall Street: Accident or Design?"
Government Taken in Dealings with Wall Street: Accident or Design?
Yves Smith
Naked Capitalism
August 3, 2009
We've grumbled at points during the process of throwing various lifelines out to the financial sector, that media has tended to focus unduly on the TARP (no doubt encouraged by the powers that be who are eagerly pushing "the banks are fine" line) at the expense of the vast net of additional subsidies. The ones garnering least attention are the various backdoor measures, in which it is hard to tally what the real costs are.
The famed PPIP, which is largely stillborn, was an effort to disguise the level of support. No one would see how much above current market prices the trades under PPIP were (recall they HAD to be above market prices, otherwise there would be no reason for all the incentives to bidders; the banks could just unload the paper).
Another subsidy is the government (we count the Fed as the government these days; it's acting as an arm of the Treasury) dealing with Wall Street on lousy terms. Wall Street's gain is the taxpayers' loss (Willem Buiter argue the Fed will ultimately need to be recapitalized rather than taking the inflationary step of printing to cover its losses). Remember all those quantitative easing purchases of MBS? Of course, we have to remember it's not QE, the Fed likes to claims it's something different, but let's dispense with those niceties now. The Fed is apparently taking crappy prices on its big programs.
The question is whether the poor terms are by design (as in another subsidy) or ineptitude?
Yves then refers us to the following Financial Times story:
...The Fed has emerged as one of Wall Street's biggest customers during the financial crisis, buying massive amounts of securities to help stabilise the markets. In some cases, such as the market for mortgage-backed securities, the Fed buys more bonds than any other party.
The FT tells us that a former Fed official commented on the Fed's practice of publicizing its intent to purchase specific securities well in advance: "...this strategy enables banks to sell these securities to the Fed at an inflated price." Here are some other snippets from the FT piece:
The resulting profits represent a relatively hidden form of support for banks, and Wall Street has geared up to take advantage....
--SNIP--
A former official of the US Treasury and the Fed said the situation had reached the point that "everyone games them. Their transparency hurts them. Everyone picks their pocket."
We also learn from the FT that even the Fed knows that when they telegraph their intent to purchase certain securities, "...that dealers load up on securities to sell to the Fed."
Larry Fink, chief executive of money manager BlackRock, has described Wall Street's trading profits as "luxurious," reflecting the banks' ability to take advantage of diminished competition.
"Bid-offer spreads have remained unusually wide, notwithstanding the normalisation of financial markets," said Mohamed El-Erian, chief executive of fund manager Pimco in Newport Beach, California.
NOTE: BlackRock and PIMCO probably make more off the Fed than just about anyone; and, even their execs are telling us it's pretty excessive.
Yves tells us to take note of Roger Ehrenberg's comments posted at InformationArbitrage.com. Ehrenberg is still young, but prior to retiring from the industry just a few years ago, he was a Wall Street insider and widely recognized as one of the sharpest derivatives traders in the world:
What we have is a return to business-as-usual. Except it's worse than that. The US taxpayer has been systematically looted out of hundreds of billions of dollars, yet the press is focused on Andy Hall and his $100 million payday. Whether this is too much pay for Mr. Hall misses the big picture. Yes, the Wall Street pay model is messed up, and I recently provided an alternative approach. But how about the fact that Goldman Sachs is posting record earnings and will invariably be preparing to pay record bonuses, not nine months after the firm was in mortal danger? Whether anyone will admit it or not, without the AIG (read: Wall Street and European bank) bail-out and the FDIC issuance guarantees, neither Goldman nor any other bulge bracket firm lacking stable base of core deposits would be alive and breathing today.
--SNIP--
...When the crisis hit. It stood with the rest of Wall Street as a firm with longer-dated, less liquid assets funded with extremely short-dated liabilities....In exchange for giving the firm life (TARP, FDIC guarantees, synthetic bail-out via AIG, etc.), the US Treasury (and the US taxpayer by extension) got some warrants on $10 billion of TARP capital injected into the firm...
--SNIP--
...There is not a Wall Street derivatives trader on the planet that would have done the US Government deal (with Goldman Sachs) on an arms-length basis. Nothing remotely close. Goldman's equity could have done a digital, dis-continuous move towards zero if it couldn't finance its balance sheet overnight. Remember Bear Stearns? Lehman Brothers? These things happened. Goldman, though clearly a stronger institution, was facing a crisis of confidence that pervaded the market. Lenders weren't discriminating back in November 2008. If you didn't have term credit, you certainly weren't getting any new lines or getting any rolls, either. So what is the cost of an option to insure a $1 trillion balance sheet and hundreds of billions in off-balance sheet liabilities teetering on the brink? Let's just say that it is a tad north of $1.1 billion in premium. And the $10 billion TARP figure? It's a joke. Take into account the AIG payments, the FDIC guarantees and the value of the markets knowing that the US Government won't let you go down under any circumstances. $1.1 billion in option premium? How about 20x that, perhaps more. But no, this is not the way it went down....
--SNIP--
Where we are left today, dear taxpayer, is a lot poorer. Unless you are a major shareholder and/or bonusable employee of Goldman Sachs...Further, such a crisis could have provided the opportunity and the impetus for a re-look at capital markets risks, getting CDS users to support a central credit derivatives exchange and revised capital rules to incentivize better gap management. The banks lobby like hell against these changes, because it cuts into their fees, notwithstanding the systemic benefits such changes could have on the global financial markets. Banks now lobbying with US taxpayer dollars against changes that could protect the US taxpayer from more harm in the future. SOMETHING IS TERRIBLY WRONG WITH THIS PICTURE, yet all anyone wants to talk about are executives getting paid too much. It's called missing the forest for the trees, and it is a fixture of both those trying to sell newspapers (get clicks) and run our Government, and it pisses me off.
And, Arianna Huffington, talking of the urgent need for additional funds on Main Street, has the same observation:
...services are being cut (on Main Street) at a time when more and more people are finding themselves in need of them.
--SNIP--
It's a perfect storm of suffering.
--SNIP--
(Main Street is) ...seeing programs slashed, services cut, and state budgets balanced on their backs.
SOMETHING IS VERY WRONG WITH THIS PICTURE.
Bold type and caps are diarist's emphasis.
Yes, indeed, something is very wrong...