GIVING BAILOUTS TO WALL STREET!
Thursday,
January 29th, 2014
Baton
Rouge, Louisiana
GIVING BAILOUTS TO WALL STREET!
Well,
here we go again. Big banks and major
insurance companies are “high-fiving” each other after they won big in
Washington last month. We thought lawmakers had learned an expensive lesson
after the financial crash in 2008 that led to massive bailouts at taxpayer’s
expense. Back then, the financial
industry was allowed to carry on high stakes gambling with your money. And now, it’s déjà vu as congress has reopened
the casino doors.
Following
the 2008 financial meltdown, congress used a little common sense and passed
legislation known as Dodd-Frank, that limited banks and insurance companies
from engaging in risking investments backed up by the taxpayer. “Go ahead and gamble on high-risk investments
if you want, but don’t expect a bailout,” so the logical reasoning went.
High-risk
derivatives were one of the major financial culprits that led to the financial
reforms. Insurance companies like A.I.G.
were insuring risky Wall Street investments, knowing full well that if things
went bad, old Uncle Sam would be there to pay for the damage done. And since insurance companies like A.I.G. are
regulated at the state level, regulators in Washington paid little attention.
Here’s what happened that caused the financial crisis.
Insurance regulators had for years allowed A.I.G and other insurance companies to
privatize the gains but socialize the losses. The fat cats at A.I.G. got multi-million
dollar bonuses year after year, but when the losses had to be paid, it was the
taxpayer, you and me, that were called on to cover all the wild-eyed spending
spree that regulators allowed to take place.
The tipping point of much of A.I.G.’s problems was an insurance
product called a credit-default swap. A CDS, in its simplest form, is just a
bet on an outcome. It’s a way of insuring a variety of investments
including mortgages. There is nothing wrong with selling such insurance as long
as there are reserves in place to pay up in case major losses occur. But
that was the clinker. A.I.G. kept virtually nothing back to pay the
piper. And any way you cut it, CDSs were insurance that should have been
closely regulated by insurance regulators.
A.I.G. sold over $500 billion worth of CDS insurance in only
seven years, with more than $64 billion of that tied to the subprime mortgage
market. Yet the company didn’t even have a fraction of that amount on hand to
cover the losses that eventually took place. They operated in a vacuum
with no one looking over their shoulder. Then Treasury Secretary Timothy
Geithner took a shot at insurance regulators when he called A.I.G. “A
huge, complex global insurance company attached to a very complicated hedge
fund that was allowed to build up without any adult supervision.”
So after all was said and done, A.I.G. execs keep their lavish
bonuses, continued to run up huge losses, kept squealing for bailouts of your
tax money, and for all practical purposes, continued to operate with little or
no regulation.
Dodd-frank was pass in 2010 to put an end to all these
shenanigans. But the campaign
contributions from the financial industry rolled in during last fall’s
congressional elections. And low and
hold, just last month, congress dramatically weakened Dodd-Frank to allow Wall
Street to once again play their financial games with government-guaranteed
funds.
Sad to say the Louisiana congressional delegation joined in the
efforts to allow risky financial behavior.
Senate opponents Mary Landrieu and Bill Cassidy were in lock step in
voting for huge financial loopholes that puts taxpayers on the hook for Wall
Street gamblers. The only responsible
voice in the whole debate from the Bayou State was Louisiana Senator David
Vitter, who actually led the charge in opposing any weakening of financial
oversight, and who deserves kudos for his efforts.
So although America has had enough of Wall Street and insurance
welfare, taxpayers are the losers again.
And it also looks like we could be hearing the 1930s song, “Brother can
you spare a dime.” But with different
words this time.
“Once I worked on
Wall Street, it was such fun-sold risky investments by the million.
Once I worked on
Wall Street, now it’s done. Brother, can
you spare a billion?”
*******
“I sincerely
believe… that financial establishments are more dangerous
than standing armies,
and that the principle of spending money to be
paid by posterity under the name
of funding is but swindling futurity on
a large scale.” –Thomas Jefferson
Peace and Justice
Jim Brown
Jim
Brown’s syndicated column appears each week in numerous newspapers throughout
the nation and on websites worldwide. You can read all his past columns
and see continuing updates at http://www.jimbrownusa.com. You can also hear Jim’s
nationally syndicated radio show each Sunday morning from 9 am till 11:00 am,
central time, on the Genesis Radio Network, with a live stream at http://www.jimbrownusa.com.