banks, bank lobby and obama

7/28/2019 Banks, Bank Lobby and Obama

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KC & Associates Investigations Research Associates

Quinault Valley Guns & Blades / Urban Escape & Evasion CourseInternational Relations * Military * Terrorism * Business * Security

www.kcandassociates.org [email protected]

Kathleen Louise dePass Press Agent/Publicist.360.288.2652Triste cosa es no tener amigos, pero ms triste ha de ser no tener enemigos porque quin no tenga enemigos seal

es de que no tiene talento que haga sombra, ni carcter que impresione, ni valor temido, ni honra de la que se

murmure, ni bienes que se le codicien, ni cosa alguna que se le envidie. A sad thing it is to not have friends, buteven sadder must it be not having any enemies; that a man should have no enemies is a sign that he has no talentto outshine others, nor character that inspires, nor valor that is feared, nor honor to be rumored, nor goods to be

coveted, nor anything to be envied. -J ose Marti

From the desk of Craig B Hulet?

The Shooting Gallery: Obama and the Vanishing Point of Democracy

Billionaire Banker Bandit Likely to Become Next Commerce Secretary

Banks Find Extra Money to Hire Lobbyists in DC

Washington Lobbyists Crafted $850,000 Secret Plan For Bank Lobbyists To Undermine Occupy Wall Street

Banksters Take Us to the Brink
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Banks Find Extra Money to Hire Lobbyists in DC

Wednesday, 23 November 2011 05:33By Andrew Dunn,

The money banks spend on lobbying is on pace to reach a record high again this year as theindustry battles to weaken or repeal hundreds of rules being crafted by federal regulators.

Lobbying outlays by the five biggest spenders in the commercial banking sector increased12 percent in the first three quarters of 2011 over the same period last year, an Observeranalysis of federal lobbying disclosure records shows.

Wells Fargo in particular is turning into a major player in Washington. The San Francisco-based bank's spending on lobbying is up 80 percent in the first three quarters of the year,compared with the same period in 2010.

"If these firms and these organizations keep spending money at the rate they've beenspending it, they will shoot through the ceiling again this year," said Michael Beckel,spokesman for the research group Center for Responsive Politics, which tracks federal

lobbying.

At this time last year, the commercial banking industry had spent about $42 million onlobbying, the center's data show. So far this year, the figure stands at nearly $47 million.

Should this year's pace continue, 2011 will be the sixth straight year that commercial banklobbying has set a record, according to the center.

A Wells Fargo spokeswoman said that while the bank is transparent with the figures it mustdisclose, it doesn't comment on lobbying strategy or philosophy.

What's driving banks' increased spending is a growing array of new federal regulations,

mostly stemming from the Dodd-Frank financial reform law. Since it passed last year,federal agencies have been scrambling to write more than 300 new rules, from the cap onswipe fees merchants pay on debit transactions to the terms of a ban on proprietary tradingknown as the Volcker Rule.

"What you're seeing are dramatic shifts," said Marty Mosby, an analyst with financialservices firm Guggenheim Securities. "It was a time to be out there explaining the story."

But consumer advocates decry the banking industry's influence on the legislative process.

"Most ordinary Americans don't have lobbyists that they're sending a paycheck to, but all ofthe major banks and financial institutions do," Beckel said.

One bank bucking the trend this year: Bank of America, which has decreased its spendingon lobbying.

That's partially because of the companywide cost cutting initiative known as Project NewBAC, said a spokeswoman for the Charlotte-based bank. The program aims to cut $5 billionin recurring expenses over the next few years.
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Spokeswoman Shirley Norton said in a statement that spending fluctuates depending onwhich issues are at hand.

"We think we are deploying our resources prudently based on the volume and significanceof the issues," she said.

Numerous issues

After the 2008 financial crisis that thrust the country into recession, Congress began todevelop legislation to strengthen consumer protections and lessen the systemic risk of bankfailure. The result was Dodd-Frank, which President Barack Obama signed in July 2010.

Even as agencies hammer out the details, the law has emerged as a hot topic on thecampaign trail, with candidates for the Republican presidential nomination arguing thegovernment overstepped its authority.

At the same time, U.S. and international regulators are drawing up new capital requirements

for banks. Mortgage servicing issues have come to the forefront as banks battle legalproceedings.

And seizing on the anti-bank sentiment epitomized by the Occupy Wall Street movement,some Democratic lawmakers have introduced bills that would cap loan interest rates andmandate a standardized fee disclosure form.

That all leaves the banks anxious to be heard.

"They are trying to slow new regulations down, sometimes nip them in the bud before theyare even floated as an idea," Beckel said. "There's a lot that these banks are interested in,and they want to make sure that they get as favorable treatment as possible."

Those lobbying for the banks included staffers from Washington lobbying firms, as well asgovernment relations staff at the banks, who kept busy preparing for congressional hearingsor talking with regulators while rules were being drafted.

"All hands on deck"

Much of the lobbying took place in the first half of the year as the Federal Reserve weighedthe caps on swipe fees.

"Those guys were all hands on deck for months," a Senate banking aide told the Observer,declining to be named in order to speak candidly on the issue. He added that the cap's easily

quantifiable impact made it a flashpoint.

While the banks themselves are hesitant to comment, industry analysts say the spending isvital to mitigate the heat of public discontent with major banks stemming from the financialcrisis and government bailouts.

"You really have to go through and educate legislators," Mosby said. "There's just so muchdiscussion and banter and misinformation going around, it helps for industry leaders to be


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involved in the process and be sure there's some kind of tie-back to what's reallyhappening."

Opponents, however, see the lobbying as a calculated business decision.

"That lobbying and political spending is a large figure, but it's a small investment to protect

half a billion dollars," said Bartlett Naylor, financial policy advocate for consumer groupPublic Citizen. His organization has reported spending $150,000 on lobbying so far thisyear.

"You would argue from a cold business standpoint that you would expect them to spend thatkind of money."

He said the bank lobbyists have undue influence partly because the industry's issues are socomplex that they don't generally get played out in the public arena.

Wells Fargo takes the lead

No major bank has increased its lobbying expenditures as much as Wells Fargo, which hasspent nearly $6 million so far this year.

"Wells Fargo is one of those companies that has just skyrocketed in recent years," Beckelsaid.

Some of the increase is just playing catch-up with its peers.

Wells Fargo, which bought Charlotte-based Wachovia in 2008, is the fourth-largest bank byassets and the country's largest home lender. But as little as three years ago, the bank hadfive lobbyists working in Washington. This year, it has 28, according to Center for

Responsive Politics data.

"As it has emerged into an industry leader, it became incumbent on them to take the mantleand do more of that industry leadership," Mosby said.

Consumer impact

Big banks' deeper pockets get them access to regulators more often than their opponents.Wall Street lobbyists have had more than 350 meetings with regulators about the VolckerRule in the past year, while "progressive" groups in favor of a stricter rule have had only 20,Public Citizen's Naylor said.

"While the death grip of Wall Street might have relaxed enough for some reasonablelegislation to pass through Congress in 2010, Main Street has to worry that that grip isretightening," Naylor said. "Those important reforms will be stifled, chilled, overturned,repealed."

But any desire to curtail becomes a freedom-of-speech issue, said Nancy Bush, a banking-industry analyst and contributing editor to SNL Financial.


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"I'm like everybody else. I'm extremely torn by it," Bush said. "Lobbying is pervasive, notonly for banks, but for any other company in American corporate culture. Should banks notlobby, and be left out?"

Washington Lobbyists Crafted $850,000 Secret Plan For Bank Lobbyists To Undermine

Occupy Wall Street

Monday, 21 November 2011 10:33By Zaid Jilani

This weekend, the MSNBC show Up! With Chris Hayesbroke a stunning storyabout howWashington lobbyists are scrambling to undermine the protesters on Wall Street and acrossthe country.

Hayes report, which can be viewedhere, details how the Washington, D.C.-based lobbyingfirmClark Lytle Geduldig & Cranford(CLGC) compiled a secret plan to undermineOccupy Wall Street for the American Bankers Association (ABA).

Theplan, which CLGC was demanding $850,000 to implement, was presented in a secretmemo that was leaked to Hayes staff. The memo warns that Occupy Wall Street,particularly if it is embraced by the Democratic Party, threatens to have very long-lastingpolitical, policy, and financial impacts on the companies in the center of the bullseye.

Interestingly, the memo also cautioned that Tea Party protesters may join forces withOccupy Wall Street because well-known Wall Street companies stand at the nexus ofwhere [Occupy Wall Street] protesters and the Tea Party overlap on angered populism. [...]This combination has the potential to be explosive later in the year when media reportscover the next round of bonuses and contrast it with stories of millions of Americansmaking do with less this holiday season.

In order to combat Occupy Wall Streets growing movement, the firm offered to engage inresearch and advocacy to undermine their credibility in a profound way. This includedresearching activists financial histories and civil and criminal information, and monitoringsocial media. The goal of this research was to create negative narratives of the [OccupyWall Street] for high impact media placement to expose thebackers of this movement:
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Our Government Relations staff did receive the proposal it was unsolicitedand we chosenot to act on it in any way, said ABA spokesperson Jeff Sigmund to Hayes show.However, CLGCadmits on its websitethat it has had ABA as a client before in the past, inaddition to the Financial Services Roundtable, U.S. Chamber of Commerce, FidelityInvestments, and other financial players.

Billionaire Banker Bandit Likely to Become Next Commerce Secretary

Tuesday, 12 February 2013 13:16By Greg Palast
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(Cartoon: Ted Rall)A parade ofmedia reports this week name Penny Pritzker as Obama's prime choice for Secretary of

Commerce. No longer will criminal bankers have to lobby the administration - because nowthey'll have one of their own in the Cabinet.

We never heard of this guy Barack Obama until 2004. Less than three years before takingthe presidency, he was in the Illinois state senate, a swamp of scammers, backhanders, andparty machine tools - not a stellar launch pad for the White House. And then, one day, stateSen. Barack Obama was visited by his fairy godmother. Her name is Penny Pritzker.

Penny's from Heaven?

Pritzger's net worth is listed in Forbes as $1.8 billion, which is one hell of a heavy magicwand in the world of politics. Her wand would have been heavier, and her net worth higher,except that in 2001, the federal government fined her and her family $460 million for thepredatory, deceitful, racist tactics and practices of Superior, the bank-and-loan-sharkoperation she ran on the South Side of Chicago.


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Superior was the first of the deregulated go-go banks to go bust - at the time, the costliestfailure ever. US taxpayers lost nearly half a billion dollars. Superior's depositors lostmillions and poor folk in Sen. Obama's South Side district lost their homes.

Penny did not like paying $460 million. No, not one bit. What she needed was someone togive her Hope and Change. She hoped someone would change the banking regulators so shecould get away with this crap.

This article is based on the New York Times bestseller:Billionaires & Ballot Bandits, byGreg Palast with comics by Ted Rall. Available for a donation toTruthout.org.

Pritzker introduced Obama, the neophyte state senator, to the Ladies Who Lunch (that'sreally what they call themselves) on Chicago's Gold Coast. Obama got lunch, gold andbetter - an introduction to Robert Rubin. Rubin is a former Secretary of the Treasury, formerchairman of Goldman Sachs and, when Robert met Barry, co-chairman of Citibank. Evenatheists recognized Rubin as the Supreme Deity of Wall Street.

Rubin opened the doors to finance industry vaults for Obama. Extraordinarily for aDemocrat, Obama in 2008 raised three times as much from bankers as his Republicanopponent.

So what did Citibank's Rubin get for showering Obama with gold? Obama agreed to takecare of Rubin's poodles, Larry Summers and Tim Geithner. They became Obama's firstcabinet picks: Summers as Economics Czar and Geithner as his czarina, Secretary of theTreasury.

Geithner and Summers were the gents who, under Treasury Secretary Rubin, designed thederegulation of banking. In effect, they had decriminalized the kind of financial flim-flammery that brought the planet to its knees while bringing Rubin, Pritzker and thebanksters loads of lucre.

So, in 2008, Summers and Geithner were put back in the saddle - Obama's horse but Rubin'ssaddle.

Rubin received more than $100 million from Citigroup, the gargantuan commercialbank/investment bank/casino created by deregulation. It is worth a mention that Rubin'scenti-million-dollar payoff went unchallenged by Citi's new owner, the US Treasury, whichhad put up more than a trillion dollars in loans and guarantees to pull Rubin's creature out ofbankruptcy.

Rubin rocked, but Penny was pissed off.

Pritzker had taken this state senator/community organizer from the ghetto, made him a USSenator, then, as Obama's campaign finance chairwoman, raised a mind-blowing three-quarters of a billion dollars to make him president.

In return, in 2008, Obama decided to make his patron Penny the Secretary of Commerce.But then, in November 2008, just as Obama was about to submit her nomination to
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Congress, a bunch of Pritzker's victims marched on Washington. They were not from herbusted bank, but unhappy workers from the lucrative nursing homes that her family ownsthrough a string of complex offshore trusts. Obama slammed the door on Penny pronto.

In the 2012 campaign, Obama, to his credit, kept the door shut on Pritzker, reducing her tohosting an election fundraiser at her Gold Coast digs, which she had to bill as a GoldmanSachs PAC event. This marks possibly the first time anyone has used Goldman Sachs as aPR cover.

The Pritzker family made its billions mostly from Hyatt Hotels and Hyatt nursing homes.Penny, on the Hyatt board of directors, is an infamously combative anti-union apostle.UNITE HERE, the union that represents Hyatt workers, has called for an internationalboycott of Hyatt hotels. In 2012, UNITE HERE and its parent, the AFL-CIO, were crucialto Obama's winning Ohio, Michigan and Wisconsin. So, in this last campaign, Obama hadto keep his billionairess heiress on the down-low.

But today, with the unions' money and votes already pocketed and counted, Obama can give

working folks The Finger and give Penny her pound of flesh: the Commerce post.

The New York Times says that, "At Commerce, Ms. Pritzker could provide the presidentwith a new way to reach out to the business community." The last time Pritzker reached outto the business community was to sell them sub-prime mortgage securities, worthless bagsof financial feces manufactured by Superior Bank.

If Penny the Piggy Banker gets Commerce, we'll have to drop Obama's rating to sub-prime.

The Shooting Gallery: Obama and the Vanishing Point of Democracy

Tuesday, 12 February 2013 10:27By Henry A Giroux

(Image:Jared Rodriguez / Truthout)We liveat a time in the United States when the notion of political enemies has become a euphemism
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for dismantling prohibitions against targeted assassinations, torture, abductions andindefinite detention. Under the elastic notion of permanent war and the use of Orwellianlabels like terrorists, enemy combatants, enemies of the state or the all-encompassing "evil-doers," the United States has tortured prisoners in Iraq and Guantanamo for more than adecade. It also kidnapped suspected terrorists, held them in CIA "black sites," and subjected

them to extraordinary rendition - "the practice [of] taking detainees to and from US custodywithout a legal process ... and often ... handing [them] over to countries thatpracticedtorture."1As a new report from the Open Society Foundation, "Globalizing Torture," pointsout, since 9/11 the CIA has illegally kidnaped and tortured more than 136 people and wasaided in its abhorrent endeavors by54 countries.2All of this was done in secrecy and whenit was eventually exposed, the Obama administration refused to press criminal chargesagainst those government officials who committed atrocious human rights abuses, signallingto the military and various intelligence agencies that they would not be held accountable forengaging in such egregious and illegal behavior. The notion that torture, kidnapping and thekilling of Americans without due process is an illegitimate function of any state, includingthe United States, has overtly suffered the fate of the Geneva Conventions, apparently too

quaint and antiquated to be operative.

Excessive torture, cruel and unusual punishment, secret detention and the violation of civilliberties are not only deeply ingrained in American history; they also have becomenormalized in both popular culture and in government policy. For example, popularrepresentations of and support for torture extend from the infamous former television series24 to the more recent highly acclaimed Hollywood film, Zero Dark Thirty.3 Whereaspopular representations of torture and other legal illegalities prior to 2001 were viewedlargely as the acts of desperate and psychologically unbalanced individuals or roguegovernments, the post- September 11, 2001 climate has accommodated suchrepresentations, as torture has become common fare in mainstream culture - from actionfilms and TV dramas to comedies. As torture moves from state policy to screen culture it

contains "an echo of the pornographic in maximizing the pleasure of violence."4In thisinstance, the spectacle of violence mimics a new kind of mad violence that has engulfedAmerican society. Torture is now a mainstay of what might be called the state-sanctionedcarnival of cruelty, designed to delight and titillate while in real life torture has beenshamelessly sanctioned as a military necessity and state policy. At the same time, torture,violence and the culture of cruelty have been removed from the discourse of ethics,jurisprudence, accountability and human rights.5

This retreat from moral responsibility reveals more than political failure, more than aperverse victory for those who argue for the acceptability of what was once consideredunthinkable in a democracy. It signals the emergence of a kind of anti-politics, the

dismantling of a politics in which matters of power, justice, governance and socialresponsibility are inextricably connected to democratic institutions, laws, values andeducation. This is an anti-politics in which the obligations of justice and responsibility toothers has been overtaken by a rhetoric of fear, national security and war that has madeAmericans accomplices of a tyrannical and terrorist state apparatus. Under suchcircumstances, the critical project of democracy, if not politics itself, is replaced by theshared experience of fear, the instrumentalization of culture and society and a state ofemergency that "eradicates political freedom, democratic processes and legality as such."6
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The move toward an authoritarian and dystopian state - one marked by its flight from moraland political responsibility - has been made more acceptable by the widespread popularwillingness to overlook, if not legitimate, the ongoing violation of civil liberties as a centraltheme of government policy, military conduct, mainstream news media and popular culturein general. Mainstream culture is flooded with endless representations of individuals,

government officials, and the police operating outside of the law as a legitimate way to seekrevenge, implement vigilante justice and rewrite the rationales for violating human rightsand domestic law. TV programs likeDexterandPerson of Interest, as well as a spate ofHollywood films like as Gangster SquadandDjango Unchainedhave provided a spectacleof legal lawlessness and violence unchecked by ethical considerations and allegedlyjustified by the pursuit of noble ends.

The culture of violence, fear and sometimes manufactured terror takes a toll politically andethically on any democratic society, especially when it becomes the most popular spectaclein town. Unfortunately, the line between fiction and material reality, along with the morehallowed spheres of politics and governance, has collapsed and it has become more difficultto determine one from the other. Forms of violence and violations of civil rights that shouldbe unthinkable in a democracy are now lauded as necessary and effective tactics in the waron terrorism, and so rarely subject to critical interrogation. Some of the more notabletransgressions are evident in former Vice-President Dick Cheney's infamous statement toTim Russert on NBC'sMeet the Press in which he stated that the Bush administration wouldhave to "work ... the dark side" and the 2006 comment by John Brennan in which heclaimed that we have "to take off the gloves" in some areas in order to wage a war againstterrorism. And while torture has been denounced by President Obama, the administrationhas in actuality created a new foundation for violating civil rights and promoting humanabuses.

As the White Paper memo produced by the Justice Department's Office of Legal Counsel

makes clear, Obama has put into play government policies so extreme and brutal that theadministration has propelled itself to the vanishing point of legal illegalities. This is partlyevident in the Obama administration's claim, duly noted even in the mainstream press, that itcan target and kill Americancitizens anywhereon the globe. The emergence of suchpractices has little to do with a legitimate need to promote national security and a country'sright to self-defense. On the contrary, such policies represent America's slide into barbarism,made all too vivid by the fact that the officials who are responsible for them are not onlyheld unaccountable, but nominated to the highest positions in the American government.Witness the nomination of John Brennan as the next director of the CIA. Moreover, theObama administration now has carried this institutionalization of mad violence to anextreme with the assertion that a few officials in the highest reaches of government can

decide which Americans and foreigners can be targeted and killed as enemies of the UnitedStates.

The winter 2013 release of the Justice Department's "White Paper," the confirmationhearings for John Brennan as the next CIA Director, and the publication of "GlobalizingTorture: CIA Secret Detention and Extraordinary Rendition"8all provide powerful evidenceof the ongoing assault on American democracy under the Bush and Obama administrations,and the consolidation of a culture in which fear and punishment reign unchecked and the
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law is on the side of the most frightening of anti-democratic practices. These indices reveal,in turn, a society in which terror becomes as totalizing as the loss of any sense of ethical andpolitical responsibility. These revelations are about more than the fact that the United Statesis losing its moral compass or is violating civil liberties and promoting human rights abuses,though these registers should not be dismissed.

What such commentary misses is the degree to which the Obama administration exercisesscorn toward democracy itself, such that it now resembles an authoritarian state. TheWhitePaper, for instance,revealsa mode of governance, policy, and practice that is deeply anti-democratic in its claim to be able to use lethal, yet legal, force against American citizensanywhere on the globe. When secrecy replaces judicial review and presidential power canbe evoked without limits to kill Americans, it becomes difficult to recognize the UnitedStates as a democratic nation. Evoking the language ofOrwellian legality to legitimate theclaim that Americans can be killed without due process, theWhite Paperjustifiesassassinating American citizens if they are a "senior operational leader of al-Qaeda orassociated force," if they "pose an imminent threat of violent attack to the United States"and if their "capture is infeasible."9

This Orwellian language operates in the dead zone of morality and jurisprudence. Moreover,this discourse becomes meaningless in light of the administration's claim that the use of suchsweeping authority and actions do not need judicial review, can be done in secret, awayfrom the public domain and does not need to provideevidenceto a judge before or after anattack.10What is truly shocking is that an American citizen can be targeted forassassination by the US government without the latter having to provide any proof of guilt -or the former being given the right to establish innocence. This is more than an attack onconstitutional rights or a violation of human rights; it is a capitulation to authoritarianism.Glenn Greenwald captures this in his insightful comment:

The most extremist power any political leader can assert is the power to target his own citizens

for execution without any charges or due process, far from any battlefield. The Obamaadministration has not only asserted exactly that power in theory, but has exercised it inpractice.... The definition of an extreme authoritarian is one who is willing blindly to assume thatgovernment accusations are true without any evidence presented or opportunity to contest thoseaccusations. This memo - and the entire theory justifying Obama's kill list - centrally relies onthis authoritarian conflation of government accusations and valid proof of guilt. They are not thesame and never have been. Political leaders who decree guilt in secret and with no oversight,inevitably succumb to error and/or abuse of power. Such unchecked accusatory decrees areinherently untrustworthy.... That's why due process is guaranteed in the Constitution and whyjudicial review of government accusations has been a staple of western justice since the MagnaCarta: because leaders can't be trusted to decree guilt and punish citizens without evidence and

an adversarial process. That is the age-old basic right on which this memo, and the Obamapresidency, iswaging war.11

The administration's legal rhetoric and the practices it legitimates increasinglymake the United States look like the ruthless Latin American dictatorships thatseized power in the 1970s, all of which appealed to paranoia, fear, security and theuse of extra-legal practices to defend barbaric acts of assassinations, torture, abuseand disappearance. The writer Isabel Hilton rightly invokes this repressed piece ofhistory and what it reveals about the current Obama administration. She writes:
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The delusion that office-holders know better than the law is an occupationalhazard of the powerful and one to which those of an imperial cast of mind areespecially prone. Checks and balances - the constitutional underpinning of thedemocratic idea that no one individual can be trusted with unlimited power -are there to keep such delusions under control.... When disappearance became

state practice across Latin America in the 70s, it aroused revulsion indemocratic countries where it is a fundamental tenet of legitimate governmentthat no state actor may detainor killanother human being without havingto answer tothe law.12

Not only has the Obama administration discarded the principles of justice, judicialreview and international law in its willingness to kill Americans without limits onits authority, it openly flaunts such behavior as integral to how the United Statesdefines itself in a post- 9/11 world. And while it has agreed recently to release itslegal reasoning for killing US citizens by armed drones, it has done so only "toease pressure on John Brennan, the architect of the drones strategy, at his Senateconfirmation hearing asCIA Director."13How can any American possibly talkabout living in a democracy in which the President of the United States claims thathe and a few high-ranking government officials have the right and "the power ... tocarry out the targeted killing of American citizens who are located far away fromany battlefield, even when they have not been charged with a crime, even whenthey do not present any imminent threat in any ordinarymeaningof that word."14

In a democracy, citizens have constitutional rights, checks and balances limitunaccountable authority and human rights are upheld rather than scorned. The taskof governance and political leadership is not to promote dangerous policies, but todraw out injustices embedded in the recesses of the past and present, to make clearthat the cover of secrecy and silence will not protect those who violate the law, and

to reject forms of patriotic militarism that sanction illegality in the name of apermanent war on terrorism. But there is more at stake here than a call fortransparency, the embrace of human rights and the rejection of a government thatimprisons, eavesdrops on US citizens or kills them without charges, trial and dueprocess. There is also an obligation of democratic leadership and governance touphold some measure of accountability and to redress the policies and practicesthat implicate the United States in a long history of torture - one that extends fromthe genocide of Native Americans to the enslavement of millions of Africans andtheir descendants, to the killing of 21,000 Vietnamese under the aegis of the CIA'sinfamous Phoenix Program. The purpose of this history is not to induce shame butto recognize that such crimes were legitimated by political conditions and

institutionalized policies that must be excised from American domestic and foreignpolicies if there is to be hope for a future that does not simply repeat the past.

What is missing in the refusal to make visible the United States' descent intoauthoritarianism is the necessity for the American people to see what is wrong withsuch actions, who should be held accountable, why such acts of human crueltyshould not happen (again) and what actions must be taken to open up thepossibilities for society to exercise collective judgments that enable a rejection of
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past actions as well as the possibility of a more just future. Moreover, asphilosophy professor Maria Pia Lara argues, refusing to narrate human cruelty istantamount to relinquishing the moral imperative to build a transformeddemocratic community. She contends that exposing and engaging the hiddendimensions of cruelty and the abuse of human rights is part of a moral imperative

"directed at making others understand that what happened did not need to happen."Moreover, such "stories [provide] us with a moral sense of the need to keepexamining the past in order to ... build a space for self-reflection [and] define theprocess of establishing a connection between the collective critical examination ofpast catastrophes and the learning processes in which societies engage."15

At a time in history when American society is overtly subject to the quasimilitarization of everyday life and endlessly exposed to mass-produced spectaclesof commodified and ritualized violence, a culture of cruelty and barbarism hasbecome deeply entrenched and more easily tolerated. Beyond creating in thisinstance a moral and affective void in the collective consciousness - a refusal torecognize and rectify the illegal and morally repugnant violence, abuse andsuffering imposed on those alleged to be dangerous and "disposable" others - sucha culture contributes to the undoing of the very fabric of civilization and justice.The descent into barbarism can take many forms, but one version may be glimpsedwhen torture becomes a defining feature of what a country considers acceptablepolicy (to say nothing of riveting entertainment), or the majority of its inhabitantsremain passive when the President of the United States claims he has the right toput together a kill list in order to assassinate American citizens. How else toexplain the fact that 49 percent of the American public "consider torture justified atleast some of the time [and] fully 71 [percent] refuse torule it outentirely"?16

Frank Rich has suggested that the American public's indifference to national

security issues is partly due to the massive hardships and suffering manyAmericans have endured as a result of theGreat Recession.17This may be true butwhat it overlooks are the ever-growing anti-democratic forces, or what might becalled authoritarianism with a soft edge, which haunt American politics and themodern ideal of democracy. The civic imagination is in retreat in American societyand the public spheres that make it possible are disappearing.

Clearly, political and popular culture are in dire need of being condemned,interrogated, unlearned and transformed through modes of critical education andpublic debate, if American democracy is to survive as more than a distant andunfulfilled promise. Americans have lived too long with governments that use

power to promote violent acts, conveniently hiding their guilt behind a notion ofsecrecy and silence that selectively punishes those considered expendable - in itsprisons, public schools, foster care institutions and urban slums. As TomEngelhardt points out, what has not sunk in for most Americans, including themainstream media, is that the United States has become a lockdown state, or moreappropriately an authoritarian state, as evidenced by the fact that the Obamaadministration can:
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torture at will; imprison at will, indefinitely and without trial; assassinate atwill (including American citizens); kidnap at will anywhere in the world and'render' the captive in the hands of allied torturers; turn any mundanegovernment document (at least 92 million of them in 2011 alone) into aclassified object and so help spread a penumbra of secrecy over the workings

of the American government; surveil Americans in ways never beforeattempted (and only 'legalized' by Congress after the fact, the way you mightback-date a check); make war perpetually on their own say-so; and transformwhistleblowing - that is, revealing anything about the inner workings of thelockdown state to other Americans - into the only prosecutable crime thatanyone in the complex cancommit.18

The fateful consolidation of an authoritarian state reaches its tipping point when agovernment engages in these practices along with the claim that it can kill its owncitizens anywhere in the world without recourse to due process or any moralqualms. Such policies point to more than an ethically empty space and the atrophyof democratic modes of governance, politics and culture, they point inexorably tothe dark caverns of a society that has embraced the foundations ofauthoritarianism. Democracy has been hijacked in the United States by right-wingextremists, the financial elite, the military-industrial-academic complex and ademagogic cultural apparatus that has created a state of emergency that appears to"lack the kind of collective sense of urgency that would prompt us tofundamentally question our own ways of thinking and acting, and form new spacesof operation."19All of us are now in the shooting gallery and we are all potentiallythe targets.

Endnotes

[1]Spencer Ackerman, "More Than 50 Countries Helped the CIA Outsource Torture," Wired, (February 5, 2013).

[2]Amrit Singh, Globalizing Torture: CIA Secret Detention and Extraordinary Rendition (New York: OpenSociety Foundation, 2013).

[3]Steve Coll, "Why Zero Dark Thirty Fails," The New York Review of Books (February 7, 2013), ppp. 4-6.

[4]Rustom Bharacuha, "Around Adohya: Aberrations, Enigmas, and Moments of Violence," Third Text (Autumn1993), p. 45.

[5]

Fabiola Salek and Fabiola Fernandez Salek, eds., Screening Torture: Media Representations of State Terrorand Political Domination (New York: Columbia University Press, 2012).

[6]Michael Halberstam, Totalitarianism and the Modern Conception of Politics (New Haven:Yale UniversityPress, 1999), p. 6.

[8]Ibid., Amrit Singh, Globalizing Torture: CIA Secret Detention and Extraordinary Rendition. Also see, Amrit
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Singh, "Globalizing Torture: Ahead of Brennan Hearing, International Complicity in CIA Rendition Exposed,"Democracy Now, (February 7, 2013)

[9]For some insightful critiques of this document, see: Interview with Jameel Jaffer, "Kill List Exposed: LeakedObama Memo Shows Assassination of US Citizens "Has No Geographic Limit," Democracy Now, (February5, 2013); Jameel Jaffer, "The Justice Department's White Paper on Targeted Killing," ACLU, (February 4,

2013); Glenn Greenwald, "Chilling legal memo from Obama DOJ justifies assassination of US citizens," TheGuardian, (February 5, 2013; Juan Cole, "Top Five Objections to the White House's Drone Killing Memo,"Reader Supported News, (February 6, 2013); Dennis Bernstein, "An Interview With Legal Scholar MarjorieCohn: Why Targeted Assassinations Violate US and International Law," CounterPunch (February 8-10).

[10]As Jameel Jaffer points out, "Without saying so explicitly, the government claims the authority to killAmerican terrorism suspects in secret." Jameel Jaffer, "The Justice Department's White Paper on TargetedKilling," ACLU, (February 4, 2013).

[11]Glenn Greenwald, "Chilling legal memo from Obama DOJ justifies assassination of US citizens," TheGuardian/UK, (February 5, 2013).

[12]

Isabel Hilton, "The 800lb Gorilla in American Foreign Policy," The Guardian/UK (July 28, 2004).

[13]Chris McGreal, "White House to release legal rationale for killing of US citizens with drones," TheGuardian/UK(February 4, 2013).

[14]Interview with Jameel Jaffer, "Kill List Exposed: Leaked Obama Memo Shows Assassination of US Citizens"Has No Geographic Limit," Democracy Now, (February 5, 2013).

[15]Maria Pia Lara, Narrating Evil: A Postmetaphysical Theory of Reflective Judgement (NewYork: ColumbiaUniversity Press, 2007), pp. 1416, 19.

[16]Roy Eidelson, "How Americans Think about Tortureand Why," TruthOut.org (May 11, 2009).

[17]Frank Rich, "America Yawns at Obama's Assassination Policy," New York Magazine (February 7, 2012).

[18]Tom Engelhardt, "The American Lockdown State," TomDispatch.com (February 5, 2013)

[19]Teddy Cruz. "Democratizing Urbanization and the Search for a New Civic Imagination," in Living as Form:Socially Engaged Art from 1991-2011, ed. Nato Thompson (New York: Creative Time Books, 2012), p. 57.


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Banksters Take Us to the Brink

Friday, 13 July 2012 13:10By Bill Moyers andMichael Winship, Moyers & Company

(Photo:Justin Bianchi / Flickr)Every daybrings more reminders of the terrible unfairness that besets our country, the tragic reversalof fortune experienced by millions who once had good lives and steady jobs, now gone.

An article in the current issue ofRolling Stonechronicles The Fallen: The Sharp, SuddenDecline of Americas Middle Class and describes a handful of middle class men andwomen made homeless, forced to live out of their cars in church parking lots in Southern

California.

One of them, Janis Adkins, drove a van filled with her belongings to Santa Barbara, whereshe panhandled at an intersection with a sign reading, Id Rather Be Working Hire MeIf You Have a Job. Once upon a time she had a successful plant nursery business in Utahthat annually grossed $300,000. But two years after the nations financial meltdown hersales had dropped by fifty percent and the value of her land plunged even more. She tried torefinance but four banks turned her down flat. Everyone was talking about bailouts,Adkins told reporter Jeff Tietz. I said, Im not asking for a bailout, Im asking you to workwith me. They look at you, no expression on their faces, saying, Theres nothing we cando.

Nothing we can do. And yet it was banks like these who helped get people like JanisAdkins into such desperate jams in the first place. When faced with their own financialcatastrophes, all those big-time bankers came running to the government and taxpayers forthose aforementioned bailouts worth hundreds of billions of dollars, then scooped up bigbonuses and perks for themselves, and went back to business as usual.
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And what a business! Youve most likely been hearing about the newest scandal in banking,centering on Barclays Bank in Great Britain and something calledLibor. That stands forLondon Interbank Offered Rate, and involves a group of bankers who set a daily interestrate affecting trillions of dollars of transactions around the world. Your home mortgage,your college debt, your credit card fees; all of these could have been affected by Libor.

Now you would think the rates would be set by market forces, right? Arent they whatmakes the world go round? But it turns out some of those insiders were manipulating theindex for their own gain, to make their banks look better off during the financial crisis,lower their borrowing costs, and raise their profitsby cheating. Picking our pockets andlining theirs.

The Economistdescribes it as the rotten heart of finance. Here are some of the e-mails thathave come to light: A banker in on the fix writes another, Dude. I owe you big time! Comeover one day after work and Im opening a bottle of Bollinger. One employee after beingasked to submit false information, answered: Always happy to help. And another,recruiting a colleague in the fix, wrote: If you know how to keep a secret, Ill bring you in

on it.

Caught with its hand in the cookie jar, Barclays agreed to paynearly half a billion in fines toBritish and American authorities, and as many as 20 other megabanks are underinvestigation, including Deutsche Bank, Citigroup, UBS, HSBC, and JPMorgan Chase. Asone MIT authority on finance told CNN, This dwarfs by orders of magnitude any financialscams in the history of markets.

In the middle of this mess is an American named Bob Diamond. He was the CEO ofBarclays and the man behind Barclays takeover of what was left of Lehman Brothers when,at the height of the financial crisis in 2008, Lehman filed for the largest bankruptcy in U.S.

history. His goal was to make Barclays a global investment powerhouse but his enormoussalaryhis net worth has been estimated at $165 millionand unrepentant defense of thefinancial industrys behavior led one British government official to describe him as theunacceptable face of banking. Diamond did wind up apologizing for Barclays' role in theLibor interest rate scandal, even offering to forfeit his annual bonuslast year he receivedone worth more than $4 million. But in the end, under pressure from stockholders andpublic opinion, he was forced to resign.

Meanwhile, the ripples from the scandal continue to spread. The New York Timesreportsthat the city of Baltimore, stricken by financial losses and layoffs, is in the midst of a courtbattle against the banks that set the Libor index and that, Now cities, states and municipalagencies nationwide, including Massachusetts, Nassau County on Long Island, andCalifornias public pension system, are looking at whether they suffered similar losses andare weighing legal action

American municipalities have been among the first to claim losses from the supposed rate-rigging, because many of them borrow money through investment vehicles that directlyderive their value from Libor. Peter Shapiro, who advises Baltimore and other cities on theiruse of these investments, said that about 75 percent of major cities have contracts linked tothis.
http://billmoyers.com/content/explainer-the-libor-scandal/http://billmoyers.com/content/explainer-the-libor-scandal/http://billmoyers.com/content/explainer-the-libor-scandal/http://www.economist.com/node/21558281http://www.economist.com/node/21558281http://money.cnn.com/2012/07/03/investing/libor-interest-rate-faq/index.htmhttp://money.cnn.com/2012/07/03/investing/libor-interest-rate-faq/index.htmhttp://money.cnn.com/2012/07/03/investing/libor-interest-rate-faq/index.htmhttp://dealbook.nytimes.com/2012/07/10/libor-rate-rigging-scandal-sets-off-legal-fights-for-restitution/http:/http://dealbook.nytimes.com/2012/07/10/libor-rate-rigging-scandal-sets-off-legal-fights-for-restitution/http:/http://dealbook.nytimes.com/2012/07/10/libor-rate-rigging-scandal-sets-off-legal-fights-for-restitution/http:/http://dealbook.nytimes.com/2012/07/10/libor-rate-rigging-scandal-sets-off-legal-fights-for-restitution/http:/http://money.cnn.com/2012/07/03/investing/libor-interest-rate-faq/index.htmhttp://money.cnn.com/2012/07/03/investing/libor-interest-rate-faq/index.htmhttp://www.economist.com/node/21558281http://billmoyers.com/content/explainer-the-libor-scandal/


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Whats more, indications are that government agencies like the Bank of England and theBritish treasury also may have been involved, or at least looked the other way, raisingquestions whether other government agenciesincluding our own Federal Reservemayhave played a role. That remains for the investigators to find out butaccording to TheWashington Post, the Federal Reserve Bank of New York said it had received word as

early as 2007 from the British bank Barclays about problems with Libor.

In testimony last week before the British Parliament, former Barclays chief executiveRobert E. Diamond said the bank had repeatedly brought to the attention of U.S.regulators as well as U.K. regulatorsthe problems that the bank was experiencing inthe Libor market He said the banks warnings to regulators that Libor was artificially lowdid not lead to action. Barclays regulator in the United States is the Federal Reserve Bankof New York, which was run at the time by current Treasury Secretary Timothy F.Geithner.

This week the Senate Banking Committee asked for meetings with the principals involvedand the House Financial Services Committee sent a letter to the New York Fed asking for

transcripts of a dozen phone calls with Barclays executives.

But how far will inquiries go, especially when both American political parties are sobeholden to high finance for cash? Just hours after Bob Diamonds resignation, MittRomneys campaign announced that, sadly, the disgraced financier would no longerbehosting one of two Romney fundraising events for American expatriates being held inLondon later this month. But no worries. TheBoston Globe notesthat still among thosehosting the events is Patrick Durkin, a registered lobbyist for Barclays Durkin, who hasbeen a top Romney bundler, is one of seven chairs for the reception and among the 13 co-chairs for the dinner.

Others involved in hosting the events are Dwight Poler, managing director at the Europeanbranch of Bain Capital, the firm Romney founded; Raj Bhattacharyya, managing director atDeutsche Bank; and Dan Bricken, a managing director at Wells Fargo Securities.

Each guest at the dinner event will pay between $25,000 and $75,000 for the opportunity tosup with the Republican presidential nominee.

The non-partisan Center for Responsive Politics (OpenSecrets.org)reports that through theend of May, Bob Diamond and other Barclays employees had donated nearly a quarter of amillion dollars to the Romney campaign, and of course, the entire securities and investmentindustry has been a major donor to the Republicanmore than any other. Theyre givingto President Obama, too; just not as much, although theyre Number 3 on the list of top ten

interest groups sending cash to the president and the Democratic National Committee.

And you wonder why the banksters still roam free, like gunslingers in a Wild West townwithout a sheriff.
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Simon Johnson: "A Healthy Financial System Cannot Be Built on the Expectation of

Bailouts"

Saturday 05 March 2011by: Simon Johnson | The Baseline Scenario | Op-Ed

Testimony submitted to the Congressional Oversight Panel, Hearing on the TARPs Impact on

Financial Stability, Friday, March 4, 2011.

I. Summary

1) The financial crisis is not over, in the sense that its impact persists and even continues to

spread. Employment remains more than 5 percent below its pre-crisis peak, millions of

homeowners are still underwater on their mortgages, and the negative fiscal consequencesat

national, state, and local levelremain profound.

2) To the extent that a full evaluation is possible today, the financial crisis produced a pattern of

rapid economic decline and slow employment recovery quite unlike any post-war recessionit

looks much more like a mini-depression of the kind the US economy used to experience in the

19th century. In addition, the fiscal costs of the disaster in our banking system so far amount to

roughly a 40 percentage point increase in net federal government debt held by the private sector,

i.e., roughly a doubling of outstanding debt.

3) In this context, TARP played a significant role preventing the mini-depression from becoming

a full-blown Great Depression, primarily by providing capital to financial institutions that were

close to insolvency or otherwise under market pressure.

4) But part of the cost is to distort further incentives at the heart of Wall Street. Neil Barofsky,

the Special Inspector General for the Troubled Assets Relief Program put it well in hislatest

quarterly report, which appeared in late January, emphasizing: perhaps TARPs most significant

legacy, the moral hazard and potentially disastrous consequences associated with the continued

existence of financial institutions that are too big to fail.
http://baselinescenario.com/2011/03/05/a-healthy-financial-system-cannot-be-built-on-the-expectation-of-bailouts/http://baselinescenario.com/2011/03/05/a-healthy-financial-system-cannot-be-built-on-the-expectation-of-bailouts/http://baselinescenario.com/2011/03/05/a-healthy-financial-system-cannot-be-built-on-the-expectation-of-bailouts/http://cop.senate.gov/press/releases/release-022811-hearing.cfmhttp://cop.senate.gov/press/releases/release-022811-hearing.cfmhttp://cop.senate.gov/press/releases/release-022811-hearing.cfmhttp://www.bloomberg.com/news/2011-01-27/banking-toxic-cocktail-is-too-big-to-forget-commentary-by-simon-johnson.htmlhttp://www.bloomberg.com/news/2011-01-27/banking-toxic-cocktail-is-too-big-to-forget-commentary-by-simon-johnson.htmlhttp://www.bloomberg.com/news/2011-01-27/banking-toxic-cocktail-is-too-big-to-forget-commentary-by-simon-johnson.htmlhttp://www.bloomberg.com/news/2011-01-27/banking-toxic-cocktail-is-too-big-to-forget-commentary-by-simon-johnson.htmlhttp://www.bloomberg.com/news/2011-01-27/banking-toxic-cocktail-is-too-big-to-forget-commentary-by-simon-johnson.htmlhttp://www.bloomberg.com/news/2011-01-27/banking-toxic-cocktail-is-too-big-to-forget-commentary-by-simon-johnson.htmlhttp://cop.senate.gov/press/releases/release-022811-hearing.cfmhttp://cop.senate.gov/press/releases/release-022811-hearing.cfmhttp://baselinescenario.com/2011/03/05/a-healthy-financial-system-cannot-be-built-on-the-expectation-of-bailouts/


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5) Adjustments to our regulatory framework, including the Dodd-Frank financial reform

legislation, have not fixed the core problems that brought us to the brink of complete catastrophe

in fall 2008. Powerful people at the heart of our financial system still have the incentive and

ability to take on large amounts of reckless riskthrough borrowing large amounts relative to

their equity. When things go well, a few CEOs and a small number of others get huge upside.

6) When things go badly, society, ordinary citizens, and taxpayers get the downside. This is a

classic recipe for financial instability.

7) Our six largest bank holding companies currently have assets valued at just over 63 percent of

GDP (end of Q4, 2010). This is up from around 55% of GDP before the crisis (e.g., 2006) and no

more than 17% of GDP in 1995.

8) With assets ranging from around $800 billion to nearly $2.5 trillion, these bank holding

companies are perceived by the market as too big to fail, meaning that they are implicitly

backed by the full faith and credit of the US government. They can borrow more cheaply than

their competitors and hence become larger.

9) In public statements, top executives in these very large banks discuss their plans for further

global expansionpresumably increasing their assets further while continuing to be highly

leveraged.

10) There is nothing in the Basel III accord on capital requirements that should be considered

encouraging. Independent analysts have established beyond a reasonable doubt that substantially

raising capital requirements would not be costly from a social point of view (e.g., seethe work of

Anat Admati of Stanford University and her colleagues).

11) But the financial sectors view has prevailed they argue that raising capital requirements

will slow economic growth. This argument is supported by some misleading so-called research

provided by the Institute for International Finance (a lobby group). The publicly-available
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analytical work of the official sector on this issue (from the Bank for International Settlements

and the New York Fed) is very weakif this is the basis for policymaking decisions, there is

serious trouble ahead.

12) Even more disappointing is the failure of the official sector to engage with its expert critics

on the issue of capital requirements. This certainly conveys the impression that the regulatory

capture of the past 30 years (as documented, for example, in13 Bankers) continues todayand

may even have become more entrenched.

13) There is an insularity and arrogance to policymakers around capital requirements that is

distinctly reminiscent of the Treasury-Fed-Wall Street consensus regarding derivatives in the late

1990si.e., officials are so convinced by the arguments of big banks that they dismiss out of

hand any attempt to even open a serious debate.

14) Next time, when our largest banks get into trouble, they maybe beyond too big to fail. As

seen recently in Ireland, banks that are very big relative to an economy can become too big to

save meaning that while senior creditors may still receive full protection (so far in the Irish

case), the fiscal costs overwhelm the government and push it to the brink of default.

15) The fiscal damage to the United States in that scenario would be immense, including through

the effect of much higher long term real interest rates. It remains to be seen if the dollar could

continue to be the worlds major reserve currency under such circumstances. The loss to our

prestige, national security, and ability to influence the world in any positive way would

presumably be commensurate.

16) In 2007-08, our largest bankswith the structures they had lobbied for and builtbrought

us to the verge of disaster. TARP and other government actions helped avert the worst possible

outcome, but only by providing unlimited and unconditional implicit guarantees to the core of

our financial system. This can only lead to further instability in what the Bank of England refers

to as a doom loop.
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II. TARP Compared

1) In the immediate policy response to any major financial crisisinvolving a generalized loss

of confidence in major lending institutionsthere are three main goals:

1. To stabilize the core banking system,

2. To prevent the overall level of spending (aggregate demand) from collapsing,

3. To lay the groundwork for a sustainable recovery.

2) IMF programs are routinely designed with these criteria in mind and are evaluated on the basis

of: the depth of the recession and speed of the recovery, relative to the initial shock; the side-

effects of the macroeconomic policy response, including inflation; and whether the underlying

problems that created the vulnerability to panic are addressed over a 12-24 month horizon.

3) This same analytical framework can be applied to the United States since the inception of the

Troubled Asset Relief Program (TARP). While there were unique features to the US experience

(as is the case in all countries), the broad pattern of financial and economic collapse, followed by

a struggle to recover, is quite familiar.

4) The overall US policy response did well in terms of preventing spending from collapsing.

Monetary policy responded quickly and appropriately. After some initial and unfortunate

hesitation on the fiscal front, the stimulus of 2009 helped to keep domestic spending relatively

buoyant, despite the contraction in credit and large increase in unemployment. It was also

consistent with parallel countercyclical fiscal moves in other countries. This was in the face of a

massive global financial shockarguably the largest the world has ever seenand the

consequences, in terms of persistently high unemployment, remain severe. But it could havebeen much worse.

5) There is no question that passing the TARP was the right thing to do. In some countries, the

government has the authority to provide fiscal resources directly to the banking system on a huge

scale, but in the United States this requires congressional approval. In other countries, foreign


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loans can be used to bridge any shortfall in domestic financing for the banking system, but the

U.S. is too large to ever contemplate borrowing from the IMF or anyone else.

6) Best practice, vis--vis saving the banking system in the face of a generalized panic involvesthree closely connected pieces (see chapter 2 of13 Bankersand the references provided there):

1. Preventing banks from collapsing in an uncontrolled manner. This often involves at least

temporary blanket guarantees for bank liabilities, backed by credible fiscal resources. The

governments balance sheet stands behind the financial system. In the canonical emerging

market crises of the 1990sKorea, Indonesia, and Thailandwhere the panic was

centered on the private sector and its financing arrangements, this commitment of

government resources was necessary (but not sufficient) to stop the panic and begin a

recovery.

2. Taking over and implementing orderly resolution for banks that are insolvent. In major

system crises, this typically involves government interventions that include revoking

banking licenses, firing top management, bringing in new teams to handle orderly

unwinding, andimportantlydownsizing banks and other failing corporate entities that

have become too big to manage. In Korea, nearly half of the top 30 pre-crisis chaebol

were broken up through various versions of an insolvency process (including Daewoo,

one of the biggest groups). In Indonesia, leading banks were stripped from the industrial

groups that owned them and substantially restructured. In Thailand, not only were more

than 50 secondary banks (Finance Houses) closed, but around 1/3 of the leading banks

were also put through a tough clean-up and downsizing process managed by the

government.

3. Addressing immediately underlying weaknesses in corporate governance that created

potential vulnerability to crisis. In Korea, the central issue was the governance of

nonfinancial chaebol and their relationship to the state-owned banks; in Indonesia, it was

the functioning of family-owned groups, which owned banks directly; and in Thailand it

was the close connections between firms, banks, and politicians. Of the three, Korea

made the most progress and was rewarded with the fastest economic recovery.
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7) If any country pursues (a) unlimited government financial support, while not implementing (b)

orderly resolution for troubled large institutions, and refusing to take on (c) serious governance

reform, it would be castigated by the United States and come under pressure from the IMF.

Providing unlimited implicit guarantees does not help underpin financial stability.

8) At the heart of any banking crisis is a political problempowerful people, and the firms they

control, have gotten out of hand. Unless this is dealt with as part of the stabilization program, all

the government has done is provide an unconditional bailout. That may be consistent with a

short-term recovery, but it creates major problems for the sustainability of the recovery and for

the medium-term. Serious countries do not do this.

9) As Larry Summers put it, in his 2000 Ely Lecture to the American Economic Association,

[I]t is certain that a healthy financial system cannot be built on the expectation of bailouts

(American Economic Review, vol. 90, no. 2, p.13).

10) Seen in this context, TARP was badly mismanaged. In its initial implementation, the signals

were mixedparticularly as the Bush administration sought to provide support to essentially

insolvent banks without taking them over. Standard FDIC-type procedures, which are best

practice internationally, were applied to small- and medium-banks, but studiously avoided for

large banks. As a result, there was a great deal of confusion in financial markets about what

exactly was the Bush/Paulson policy that lay behind various ad hoc deals.

11) The Obama administration, after some initial hesitation, used stress tests to signal

unconditional support for the largest financial institutions. By determining officially that these

firms did not lack capitalon a forward looking basisthe administration effectively

communicated that it was pursuing a strategy of regulatory forbearance (much as the US did

after the Latin American debt crisis of 1982). The existence of TARP, in that context, made the

approach crediblebut the availability of unconditional loans from the Federal Reserve remains

the bedrock of the strategy.


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12) The downside scenario in the stress tests was overly optimistic, with regard to credit losses in

real estate (residential and commercial), credit cards, auto loans, and in terms of the assumed

time path for unemployment. As a result, our largest banks remain undercapitalized, given the

likely trajectory of the US and global economy. This is a serious impediment to a sustained

rebound in the real economyalready reflected in continued tight credit for small- and medium-

sized business.

13) Even more problematic is the underlying incentive to take excessive risk in the financial

sector. With downside limited by government guarantees of various kinds, Andrew Haldane of

the Bank of England bluntly characterizes our repeated boom-bailout-bust cycle as a doom

loop.

14) Exacerbating this issue, TARP funds supported not only troubled banks, but also the

executives who ran those institutions into the ground. The banking system had to be saved, but

specific banks could have wound down and leading bankers could and should have lost their

jobs. Keeping these people and their management systems in place serious trouble for the future.

15) The implementation of TARP exacerbated the perception (and the reality) that some

financial institutions are Too Big to Fail. This lowers their funding costs, probably by around

50 basis points (0.5 percentage points), enabling them to borrow more and to take more risk with

higher leverage.

16) The Obama administration argues that regulatory reforms, including the Dodd-Frank Act and

associated new rules, will rein in the financial sector and make it safer. Unfortunately, this

assessment is not widely shared.

17) There was an opportunity to cap the size of our largest banks and limit their leverage, relative

to the size of the economy. Unfortunately, the Brown-Kaufman to that effect was defeated on the

floor of the Senate, 33-61, primarily because it was opposed by the US Treasury. (See

http://baselinescenario.com/2010/05/26/wall-street-ceos-are-nuts/, which contains this quote
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from an interview in New York Magazine: If enacted, Brown-Kaufman would have broken up

the six biggest banks in America, says the senior Treasury official. If wed been for it, it

probably would have happened. But we werent, so it didnt.)

18) Regulation remains weak and many regulators are still captured by the ideology that big

banks are good for the rest of the economy. Capital requirements will increase but are likely to

remain below the level that Lehman had in the days before it failed (11.6 percent tier one

capital). There will be no effective cap on the size of our biggest banks. They have an incentive

to take on a great deal of leverage. This confers private benefits but great social costslowering

economic growth, increasingly volatility, and making severe crises more likely.

This testimony draws on joint work with Peter Boone, particularly The Next Financial Crisis:

Its Coming and We Just Made It Worse (The New Republic, September 8, 2009), and James

Kwak, including The Quiet Coup (The Atlantic, April, 2009) and13 Bankers: The Wall Street

Takeover and The Next Financial Meltdown.
http://economix.blogs.nytimes.com/2010/04/01/capital-requirements-are-not-enough/http://economix.blogs.nytimes.com/2010/04/01/capital-requirements-are-not-enough/http:/

banks, bank lobby and obama

Documents