“Honest bailout” is ღWashington’s biggest oxymoron.
After two fe𝓀derally insured banks crashed and burned over the past week, Presi🐭dent 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 alway👍s cost taxpaღyers far more than politicians promised.
The savings and loan crisis of the late 1980s was spurred by reckless lending staꦆndards 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 bil൩lion in bailouts.
“Reform” legislation boosted federal sway over the banking syst💛em while perpetuating systemic risks.
The 2008 housing crash was spurred by reckless federal programs for subpri꧃me mortgageไs.
Fannie Mae and Freddie Mac 🐬plowed more than $200 million into lobbying and campaign contribu🙈tions 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 Tr🔜easury secretary the czar of the economy, with vast discretion to decid🤪e how the money is spent.
The bailouts cost almost $500 billion, accordin💫g to an MIT analysis.
Financial insti𝐆tutions celebrated the taxpayer rescue by giving more than 4,000 employees “TARP bonuses” of $1 million ꦇor more.
Afte꧋r the TARP bailout, the Federal Reserve and banks shafted Americans for 14 years🐻 with near-zero interest rates for savings accounts.
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Former Treasury Department analyst Alex Pollock estimated that the zero-interest policy “has cost American savers about ” since 2ಞ008.
“The policy also created perverse incentives that are now disrupting financial markets.
The Paycheck Protection Program launched in 2020 ꦦgave 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 disrup💜tions 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 Bid𒅌en and donors🀅 to Democratic political candidates.
Federal law guarantees protection for bank deposits up to $250,000. Biden’s Treasury Department made a “systemic risk protection” decree to reimburse everyone with more than $250,000 in Silicon Valley Bank accounts — which coincidentally was tech firms that overwhelmingly support Democrats.
Roughly 97% of SVB deposits were uninsured. Former ❀Assistant Treasury Secretary Monica Crowley denounced the windfall for
Federal intervention to re♋scue 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 Dඣeposit Insurance Corp. reserve for all bank failures ($128 billion to cover more than $12 trillion in deposits).
Banks stocked up on long-termꦐ Treasury bonds with extremely low interest rates.
As inflation and🌸 interest rates soared, those bonds lost value.
Banks now have roughly $600 billion in unrea🐓lized lo💦sses from those government bonds and government-backed mortgage securities.
But Washington wizards found an easy solution.
To entitle banks to borrow more money from the Federal Res🔯erve, Team ꦑBiden 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 iss🙈ued 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 [entire] banking syst🅘em.”
Former Office of Management and Budget Director David Stockman scoffs that th🌞e feds “have essentially guaranteed 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 instaﷺbility.
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 feౠes on bank depositors (i.e🐈., taxpayers), will be wiped out.
Congress will probably need to bail out FDIC at some poi꧅nt — another huge hit on taxpayers.
After every finan✨cial crisis, politicians and federal officials get more arbitrary p꧋ower, 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 wa♛y to reduce systemic risk is to radically reduce Washington’s power o𝕴ver the economy and financial system.
James Bovard is the author of 10 books and a member of the USA Today Board of Contributors.
