New York Post, March 15, 2023
by James Bovard
Honest bailout” is Washington’s biggest oxymoron.
After two federally insured banks crashed and burned over the past week, President Joe Biden promised Monday, “No losses will be borne by the taxpayers” from federal relief efforts.
But for 40 years, financial bailouts have been shrouded in deceit and almost always cost taxpayers far more than politicians promised.
The savings and loan crisis of the late 1980s was spurred by reckless lending standards engineered by members of Congress (including the notorious “Keating Five”) who profited massively from S&L donations and served on the boards of some of the shadiest S&Ls.
More than a thousand savings and loans failed, costing taxpayers $124 billion in bailouts.
“Reform” legislation boosted federal sway over the banking system while perpetuating systemic risks.
The 2008 housing crash was spurred by reckless federal programs for subprime mortgages.
Fannie Mae and Freddie Mac plowed more than $200 million into lobbying and campaign contributions to Congress in the years before the crash, which wiped out half the net worth of black and Hispanic households.
Despite that debacle, the Biden administration is championing more risky subprime mortgages.
President George W. Bush boasted in 2008, “I’ve abandoned free-market principles to save the free-market system.” The result was the Troubled Assets Relief Program, which authorized spending $700 billion to shore up banks and other entities.
Bailout legislation practically made the Treasury secretary the czar of the economy, with vast discretion to decide how the money is spent.
The bailouts cost almost $500 billion, according to an MIT analysis.
Financial institutions celebrated the taxpayer rescue by giving more than 4,000 employees “TARP bonuses” of $1 million or more.
Former Treasury Department analyst Alex Pollock estimated that the zero-interest policy “has cost American savers about $4 trillion” since 2008.
“The policy also created perverse incentives that are now disrupting financial markets.
The Paycheck Protection Program launched in 2020 gave businesses $800 billion to “compensate” them for the horrendous losses COVID lockdowns imposed.
Much of the PPP windfall was snared by swindlers.
But the entire program was a charade to buy submission to pointless disruptions that continue to hobble the economy.
Announcing his bank-salvation scheme Monday morning, Biden sought to reassure Americans that “no one is above the law.”
Except for Team Biden and donors to Democratic political candidates.
Roughly 97% of SVB deposits were uninsured. Former Assistant Treasury Secretary Monica Crowley denounced the windfall for large depositors as “illegal.”
Federal intervention to rescue the uninsured depositors boosts the costs of the SVB bailout from a manageable loss to up to $175 billion.
It could easily cripple the Federal Deposit Insurance Corp. reserve for all bank failures ($128 billion to cover more than $12 trillion in deposits).
Banks stocked up on long-term Treasury bonds with extremely low interest rates.
As inflation and interest rates soared, those bonds lost value.
Banks now have roughly $600 billion in unrealized losses from those government bonds and government-backed mortgage securities.
To entitle banks to borrow more money from the Federal Reserve, Team Biden will value those bonds “at par” — face value — instead of their current market value, which is far lower.
This makes as much sense as decreeing that 1864 Confederate currency issued in Richmond, Va., now has full value and is redeemable for US dollars.
With its latest intervention, Yale University’s Steven Kelly says the Federal Reserve has “basically underwritten the [entire] banking system.”
Former Office of Management and Budget Director David Stockman scoffs that the feds “have essentially guaranteed $9 trillion of uninsured bank deposits with no legislative mandate and no capital to make these sweeping promises good.”
But every new wrench the feds throw into the financial system sows more instability.
The “at par” fraud will only delay more bank collapses and more bailouts — which are practically guaranteed by Bidenflation.
FDIC reserves, which are paid for by fees on bank depositors (i.e., taxpayers), will be wiped out.
Congress will probably need to bail out FDIC at some point — another huge hit on taxpayers.
After every financial crisis, politicians and federal officials get more arbitrary power, regardless of their follies that led to the fiasco.
There is no reason to expect politicians and policymakers to be less reckless in the future: It’s not their money they’re burning.
The only way to reduce systemic risk is to radically reduce Washington’s power over the economy and financial system.
James Bovard is the author of 10 books and a member of the USA Today Board of Contributors.