Monday, October 22, 2012


I know this is off of every body's radar screen, for now. But Congress has been asleep at the switch while the American taxpayer has been put on the hook for trillions in financial guarantees to Wall Street. As a public service, I'm going to remind everyone how trillions in obligations have been dumped on to our lap.

Let's start with this. Through the Federal Reserve and Treasury Department - who get their resources from the U.S. taxpayer - we have covered over $4.7 trillion in bets and obligations for the financial sector since the 2008 market collapse.

The key here is keeping in mind that this $4.7 trillion is not included in the TARP (Bush) and the Stimulus (Obama) programs that cost us a little over $1.5 trillion.  But wait. It gets better. In addition to the $4.7 trillion the Fed and the Treasury have put us on the hook for, as of today, they have underwritten an additional $13 trillion ... which you and I backstop.

That's a total of $17.7 trillion for you and me. How much is this, you ask? Think about this. It would be the functional equivalent of you going out to spend all the money you earn in a year in just one month. Nice.

Think about it. Our nation's GDP (what we produce) is expected to hit about $15.7 trillion in goods and services this year. You would think that our representatives in Congress might want to ask how and why the Federal Reserve and Treasury have been able to put us on the hook for $17.7 trillion.

Fortunately, several members of Congress have been asking questions.

To date Rep. Ron Paul (R-TX) and former Rep. Alan Grayson (D-FL) are on record for pressing the Fed on the topic (and more). Former Rep. Grayson was especially good at questioning the Fed's Inspector General about trillions (much of it in credits) that suddenly appeared on its books.

To his credit, even Terry Phillips (I-CA), Majority Whip Kevin McCarthy's (R-CA) opponent in Bakersfield, brought up the issue in their only debate in Bakersfield (Rep. McCarthy ignored the topic).

But - as you can imagine - no one in a real position of power wants to have this discussion. With former representative Alan Grayson out of office (for the moment), Bernie Sanders (I-VT) acting as a voice in the wilderness, and Rep. Ron Paul effectively marginalized by his own party the Fed's cash machine is largely ignored.

At the very least we can ask, where's the money going, right? So let's do that  ...

The simplest way to put it is that there is a veritable cash machine for Wall Street, and it's operated and funded by the Federal Reserve and the Treasury Department. You can try and walk through the maze of credits, guarantees, and loan programs here. Created after the 2008 market collapse among the programs created to cover the bets of Wall Street and the financial sector include

* $3.3 trillion in federal guarantees for private mutual funds.
* Over $2 trillion to underwrite toxic financial crap and "private" business ventures (TALF and PPIP).
* At least $1.8 trillion in Federal Reserve guarantees for short term business loans (or "commercial paper").

If you're wondering what these programs are all about welcome to the club.

Most Americans (and members of Congress) don't have a clue about any of this either (if you want to know a little more about these market subsidizing programs check out thisthis, and this). But let's be clear here. These programs were essentially created to underwrite market stupidity and create a perpetual bailout culture that make it appear that the market is recovering. It's not.

The market is being being resuscitated by a life support cash machine that you and I pay for, but only a small group on Wall Street are using to get fabulously rich.

And, as a reminder, that cash machine is stuffed with $17.7 trillion in taxpayer backed guarantees.

The worst part of all of this is that these guarantees aren't directed to build bridges, roads, schools and dams. These guarantees were created to prop up and backstop incredibly stupid market bets made by market players who are more interested in creating paper empires (which we knew about as far back as the Clinton administration).

The focus is not in making hard investments in the American economy, but in extracting wealth from middle class taxpayers. Oh, it's also going to prop up the financial stupidity of our nation's financial mandarins.

With Congress asleep at the switch, this is what's behind the Fed's cash machine.

- Mark 

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