The Trillion Dollar Bank Job Continues Under Our Noses

How Wall Street and the banksters are perilously postponing America’s economic recovery so that they can extract ever more wealth from American taxpayers

Last two sentences in Matt Taibbi’s recent Rolling Stone article:

“Our burglar class now rules the national economy. And no one is trying to stop them.”

http://www.rollingstone.com/politics/story/30481512/wall_streets_naked_swindle/print

With their reckless behavior and unparalleled greed, the banksters have caused the most severe economic crisis since the Great Depression. We were told we had to bail the big banks out so they would start putting money back into our communities—and then our jobs and our homes would be saved. So taxpayers stepped in and bailed them out. A year later, what have we got for that investment? From each and every man, woman, and child in the United States, there has been a wealth transfer that’s averaged about $15,000 to our bankster overlords. But of course they didn’t hold up their end of the bargain. Their financial institutions have bounced back, but they have done nothing to fix the overall economy that they crashed.

While ordinary Americans are still struggling to stay afloat, the banksters are back to business as usual, paying out billions in bonuses, making profits on the backs of the very taxpayers who bailed them out, and throwing up roadblocks to meaningful regulatory reform that would prevent a repeat of the crisis.

http://ss29.squarespace.com/storage/Trillion_Dollar_Bank_Job.pdf

How Goldman Sachs Secretly Bet on the US Housing Crash

WASHINGTON — “In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

“Goldman’s sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation’s premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

“Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

“Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman’s failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.”

http://www.mcclatchydc.com/227/story/77791.html

Excerpt from Paul Craig Roberts’ recent article, “The US is a Failed State”

“Evidence that the US is a failed state is piling up faster than one can record it.

One conclusive hallmark of a failed state is that the crooks are inside the government — using government to protect and to advance their private interests. And this is leading to ever increasing income inequality as the insiders manipulate economic policy for their enrichment, at the expense of everyone else.

As most of us understand by now, the stark increase in US income inequality in the 21st century coincides with the off-shoring of US jobs, which has enriched executives with “performance bonuses” and the rapid rise of unregulated over-the-counter (OTC) derivatives, which enriched Wall Street and the financial sector at the expense of everyone else.

Frontline’s October 21 broadcast, “The Warning,” documents how Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin, Deputy Treasury Secretary Larry Summers, and Securities and Exchange Commission Chairman Arthur Levitt blocked Brooksley Born, head of the Commodity Futures Trading Commission, from performing her statutory duties and regulating OTC derivatives.

Greenspan may have bet our country on his free market ideology, but does anyone believe that Rubin and Summers were doing anything other than protecting the enormous fraud-based profits that derivatives were bringing Wall Street? As Brooksley Born stressed, OTC derivatives are a “dark market,” which means there is no transparency — regulators have perilously inadequate information on them just as do their buyers.”

(In actual fact, no one has any idea of the true value of all the derivatives that have been sold over the past decade or so. Some say $500 trillion, others $50 trillion, while many claim that the price at which most of them could be sold or redeemed may well be much much less than is consistent with even the lowest of those two figures.)

Roberts continues:

“The financial insiders running the Treasury, White House, and Federal Reserve shifted onto taxpayers the cost of the catastrophe they created. When the crisis hit, Henry Paulson, appointed by President Bush as Rubin’s replacement as the Goldman Sachs representative running the US Treasury, hyped fear to obtain from “our” representatives in Congress, with no questions asked, hundreds of billions of taxpayers’ dollars (TARP money) to bail out Goldman Sachs and the other malefactors of unregulated derivatives.

Yet despite the total insanity of unregulated derivatives, the high level of public anger, and Greenspan’s confession to Congress, nothing has been done to regulate derivatives. One of Rubin’s Assistant Treasury Secretaries, Gary Gensler, has replaced Brooksley Born as head of the CFTC. Larry Summers is the head of President Obama’s National Economic Council. Former Federal Reserve official Timothy Geithner, a Paulson protege, runs the Obama Treasury. A Goldman Sachs vice president, Adam Storch, has been appointed the chief operating officer of the Securities and Exchange Commission, which means that the Banksters are still in charge.

Is there another country in which, in full public view, so few so blatantly use government for the enrichment of private interests, with a coterie of “free market” economists available to justify plunder on the grounds that “the market knows best”? A narco-state is bad enough. But the US surpasses this horror with what can most accurately be called a financo-state.” http://www.counterpunch.com/roberts10262009.html

What did we get over the last year?

1. Taxpayer Bailout. Taxpayers have committed $4.7 trillion to the financial sector over the last year, only $700 billion of which was through TARP. Even banks like Goldman Sachs that returned their TARP funds earlier this year continue to benefit from other bailout programs, such as the $12.9 billion that Goldman received as an AIG counter-party that it will never have to pay back. Once all crisis-related programs are factored in, taxpayers could be on the hook for a grand total of up to $18 trillion for this economic rescue.

2. Trillions of Dollars in Lost Wealth for Ordinary Americans. The bank-induced economic crisis has cost Americans trillions of dollars already, on top of the trillions more we have committed through the bailouts.

• American families lost $11 trillion in wealth in 2008, nearly 18% of their net worth.

• Americans have lost $6.1 trillion in homeowner wealth since June 2006.

• Banks have generally refused to modify mortgages to help prevent foreclosures because it is more profitable for them to collect fees as a family loses its home than it is to save the home.

• Over 5.3 million Americans have lost their jobs since last September, and the national unemployment rate is at its highest in 26 years.

• Personal bankruptcies are soaring, and are expected to reach levels not seen since a 2005 law made it more difficult to file bankruptcy.

• Between October 2007 and December 2008, the top 1,000 US pension funds lost $1.75 trillion, or 23.3% of their value, the worst losses in 30 years.

• Declining property values and personal income have taken their tolls on state and local budgets, leading to cuts in essential services like public health programs, childhood education, and programs for the elderly and disabled.

3. Back to Greed & Business as Usual. While taxpayers are still suffering, the big banks are back to business as usual, paying out tens of billions in bonuses, making tens of billions in profits on the backs of American consumers, and returning to the same kinds of practices that caused the crisis in the first place.

• The nation’s top six banks paid out $31.2 billion in 2008 bonuses this past winter, and in the first half of 2009 alone, they set aside another $74.4 billion for bonuses and compensation for their employees.

• The top six banks posted $29.6 billion in profits in the first half of 2009, just months after accepting $160 billion in direct TARP infusions. However, as George Soros points out, their “profits” come from the American taxpayer. http://www.reuters.com/article/businessNews/idUSTRE59M5K720091023?feedType=RSS&feedName=businessNews

• The banks made these handsome profits by embracing the same kind of excessive risk-taking that caused the crisis in the first place: by trading highly-complex derivatives, by repackaging mortgage-backed securities, and by making predatory loans to low-income, high-risk consumers who typically cannot afford to pay them back.

• Rising fees also contributed to the banks’ bottom line. Americans will pay more than $38 billion in overdraft fees alone in 2009, more than $125 for every man, woman, and child in the United States.

• Banks also raised credit card interest rates on American consumers in an effort to boost their profits before the new credit card reforms take effect next year.

• Even as they continue lending to large corporations and private equity firms, the banks have drastically reduced their small business lending. Lending through the SBA’s main program decreased 42% over the previous year in the first seven months following the bailout.

4. Banks Standing in the Way of Reform. Despite taking trillions in bailouts, the banks are now using our money to lobby against reforms that would protect us from their abuses. In the nine months following the bailout, companies in the financial, insurance, and real estate sector spent $321 million lobbying against federal reforms such as the creation of the Consumer Financial Protection Agency, limits on bonuses, overdraft fee regulation, credit card reform, loan modification proposals that could help keep millions of Americans in their homes, and a ban on payday lending.

This is not what we signed up for!

It’s time for a real economic recovery. As Wall Street celebrates ‘green shoots’ in the economy and points to signs of recovery, its déjà vu. The market was celebrating signs of recovery last year too, just months before the Lehman Brothers collapse.

Meanwhile, Main Street is still hurting. We don’t need bankers trying to convince us that happy days are here again. We need real regulatory reform now so that we can have a real economic recovery on Main Street.

A year ago, Lehman Brothers’ collapse shook Wall Street to its core and set off an economic crisis that threatened the foundations of the entire global financial system. In the flurry of bank failures and near-failures that followed, household names like Merrill Lynch, Washington Mutual, and Wachovia either disappeared or got swallowed up by competitors. Within a week, there were no more big, independent investment banks on Wall Street.¹

As bankers across the country were fighting for their lives, taxpayers threw them a lifeline. We stepped in and bailed out Wall Street to the tune of trillions of dollars because we were told it was necessary to resuscitate the economy. The Treasury Department told us that banks would use taxpayer dollars to modify mortgages to help working families stay in their homes. Treasury also told us that the banks would resume lending to small businesses in order to stem rising unemployment rates and stimulate the economy. But that didn’t happen.

One year later, what have the bailouts gotten us? While top bankers are continuing to make billions of dollars in bonuses, none of the promises made to the American people have been honored. Families continue to face rising foreclosures, rising unemployment, higher credit card interest rates, higher overdraft fees, and roadblocks to real financial reform that would protect us from a repeat of the same crisis in the future.

We’ve been duped. Our pension funds are in freefall, unemployment is skyrocketing, foreclosures and personal bankruptcies are on pace to set a record for the years after the passage of the new bankruptcy law in 2005.

Yet some of the big banks are raking in tens of billions in profits and paying out tens of billions in bonuses. And they returned to profitability through their same old tricks—by taking on even more risk with our money, by raising the fees and interest rates that they charge us, by continuing to foreclose on our homes, and cutting lending to small businesses in our communities. Furthermore, they are on a lobbying spree, again using our money . . to lobby against the perfectly sensible reform that Americans want, fighting tooth and nail against the very reforms we desperately need, such as the Consumer Protection Agency that would protect us from their abuses.

In short, despite taking our money, the banks have done little to help revitalize the economy. The bailout was supposed to rescue the larger economy, not turn into a handout/giveaway to Wall Street. Through their risky behavior and clever schemes, the banks have robbed average Americans of trillions of dollars of our wealth. They have taken trillions in bailouts and backstops and have done nothing to fix the overall economy that they crashed.

It’s time for the banks to start aiding in America’s economic recovery.

The banks need to:

1. Stop foreclosures and save Americans’ homes and state and local budgets;
2. Provide the same affordable loans to state and local governments that banks receive from the federal government;
3. Restore small business lending to save jobs and tax revenue; and
4. Lower interest rates on consumer credit cards and stop charging abusive overdraft fees that take billions out of consumers’ pockets.

And if they refuse to do this, they need to be taken over by the government, given new direction and directors, and eventually be sold back into the free market.

For more on this, see the William Black interview at Barron’s Online http://online.barrons.com/article/SB123940701204709985.html?page=2

Here’s an excerpt:

“With most of America’s biggest banks insolvent, you have, in essence, a multitrillion dollar cover-up by publicly traded entities, which amounts to felony securities fraud on a massive scale.

These firms will ultimately have to be forced into receivership, the management and boards stripped of office, title, and compensation. First there needs to be a clearing of the air — a Pecora-style fact-finding mission conducted without fear or favor. [Ferdinand Pecora was an assistant district attorney from New York who investigated Wall Street practices in the 1930s.] Then, we need to gear up to pursue criminal cases. Two years after the market collapsed, the Federal Bureau of Investigation has one-fourth of the resources that the agency used during the savings-and-loan crisis. And the current crisis is 10 times as large as that one.

There need to be major task forces set up, like there were in the S&L crisis. Right now, things don’t look good. We are using taxpayer money via AIG to secretly bail out European banks like Société Générale, Deutsche Bank, and UBS – in addition to our own Goldman Sachs. The single most obscene act of this scandal was to give billions in taxpayer money, via AIG, to secretly bail out UBS in Switzerland, while we were simultaneously prosecuting that very same bank for tax fraud. The second most obscene act: providing Goldman Sachs with almost $13 billion in AIG counterparty payments.”

Robert Scheer explains:

“Consider the $12.8 billion of the $170 billion that taxpayers gave AIG in bailout funds that AIG then secretly diverted to Goldman Sachs, a company that evidently has a lock on both the Treasury Department and the Federal Reserve no matter which political party is in power. It was the biggest payoff among those that AIG made to a score of foreign and domestic financial giants.

The bailout is a response to a banking crisis that resulted from the radical deregulation pushed by former Goldman Sachs honcho Robert Rubin when he was President Clinton’s treasury secretary. Another Goldman Sachs chairman-turned-treasury-secretary, Henry Paulson, in the Bush administration designed the trillion-dollar bank bailout that will go down as the greatest swindle in U.S. history.

It was because of Paulson that AIG was saved from bankruptcy hours after Goldman rival Lehman Brothers was allowed to go down the drain. Why that reversal of strategy in a top-secret meeting called by then New York Fed Chair Timothy Geithner, a Rubin protégé and now Barack Obama’s treasury secretary? Why was Goldman’s Lloyd Blankfein the only financial industry CEO in attendance? When that news leaked out, his role was defended as that of a noninvolved concerned citizen with expert knowledge, and whose firm had no direct monetary stake in the outcome.

But that was a lie.

Goldman Sachs was into AIG insurance policies for at least $20 billion, which is why the firm got that $12.8 billion while Paulson was in charge. It took six months for the embarrassing facts to finally come out. The bailout program was administered by Neel Kashkari, a former Goldman Sachs VP; why are we not surprised at that?

http://www.huffingtonpost.com/robert-scheer/perp-walks-instead-of-bon_b_176145.html

What, then, is staying the federal government’s hand? Have the banks become too difficult or complex to regulate?

The government is reluctant to admit the depth of the problem, because to do so would force it to put some of America’s biggest financial institutions into receivership. The people running these banks are some of the most well-connected in Washington, with easy access to legislators.

Prompt corrective action is what is needed, and mandated in the law. And that is precisely what is not happening.”

The Bailout: A Year in Review

A year ago, as the banks fell apart, the federal government moved in with a variety of programs to bail them out and prevent them from taking the entire economy into freefall.

Although the $700 billion Troubled Assets Relief Program (TARP) is the best-known, in reality the federal government set up a variety of programs to backstop, guarantee, infuse, and hold up the banks. Taxpayers have already committed $4.7 trillion to the financial sector over the last year through an alphabet soup of programs like TLGP, TALF, and HAMP.²Moreover, while banks like Goldman Sachs, Morgan Stanley, and JPMorgan Chase can now brag about getting approval for and, in some cases, actually returning TARP funds, they will continue to benefit from this plethora of other taxpayer handouts,³ such as the $12.9 billion that Goldman Sachs received as a counterparty to AIG that it will never have to pay back.⁴

The Federal Reserve has set up emergency lending facilities that give banks access to cheap money to get them to start lending again. The FDIC has unveiled guarantee programs to protect the banks against losses. The Treasury has pledged $200 billion to support Fannie Mae and Freddie Mac. HUD has put $300 billion into the Hope for Homeowners Program. Once all of the crisis-related programs are factored in, including the stimulus package and the auto bailout, the total that taxpayers could be on the hook for is close to $18 trillion.⁵

These programs have saved the banks from their risky bets on toxic securities. However, banks now claim they are back to profitability and doing well, despite their continued reliance on taxpayer-funded programs.

Trillions of Dollars in Wealth Lost to the Banksters

One year later, the American families who funded the bailout are not doing well. The fallout from this bank-induced economic crisis has hit Americans hard. American families lost $11 trillion in wealth in 2008 alone, nearly 18% of their net worth.⁶ Millions of us have lost our jobs or been thrown out of our homes. Personal bankruptcies have shot through the roof. Our life savings and retirement funds have been decimated. And because of billions in budget shortfalls, our state and local governments are being forced to cut back on services like public health programs and childhood education. This is all above and beyond the trillions in bailouts and backstops that we’ve had to fork over to the banks.

Rising Foreclosures

Our communities have been devastated by the foreclosure crisis. American families have lost $6.1 trillion in homeowner wealth since 2006.⁷The average homeowner has lost $110,000 in equity.⁸ In a vicious cycle, foreclosures cause property values of neighboring homes to decline, making it more difficult for neighboring homeowners to refinance their loans, in turn causing them to fall into foreclosure as well. Every thirteen seconds another American home goes into foreclosure.⁹

According to the New York Times, a recent survey by the Mortgage Bankers Association found that “six million loans were either past due or in foreclosure in the second quarter of 2009, the highest level ever recorded by the group.”¹⁰ By 2011, nearly half of all Americans will be underwater on their mortgages.¹¹In parts of California, Nevada, and Florida, the number will be over 90%.¹²

For most Americans, our home is a major source of wealth for our families. This is a staggering loss of wealth that most of our families will likely never recover.

Unfortunately, banks are not doing their part to help fix the problem. A study by the Federal Reserve Bank of Boston shows that banks are not modifying loans to help homeowners avoid foreclosure because “Loan modification is not profitable for lenders.” According to the Boston Globe, the study found that “only 3 percent of seriously delinquent borrowers—those more than 60 days behind—had their loans modified to lower monthly payments.”¹³

Industry insiders say that the reason banks are reluctant to modify loans is that delinquent loans allow the banks that service the loans to collect fees from the homeowner—late fees, fees for insurance, appraisals, title searches, and legal services.¹⁴ Because mortgages are typically sold off to third-party investors who absorb the losses when a house goes into foreclosure, the banks that service the loans often do not have a vested interest in avoiding foreclosure.¹⁵ In fact they are able to maximize their profits by charging fees as homeowners fall behind on their payments and slowly slip into foreclosure.

According to an attorney at the National Consumer Law Center quoted in the New York Times, “Servicers thus have an incentive to push homeowners into late payments and keep them there: if the loan pays late, the servicer is more likely to profit.”¹⁶

According to the Treasury Department’s first monthly report on loan modifications in August, Bank of America and Wells Fargo were the worst performers among the big banks when it came to loan modifications.¹⁷ Despite the fact that the two banks have taken $70 billion in direct TARP funds and posted over $13 billion in profits in the first half of this year,¹⁸ they still are not doing their part to help the very taxpayers who bailed them out to stay in their homes.

Rising Unemployment

Over 5.3 million Americans have lost their jobs since last September,¹⁹ and the national unemployment rate has climbed 56%, from 6.2% in September to 9.7% in August,²⁰ its highest in 26 years.²¹ Additionally, another 291,000 Americans have been added to the ranks of “discouraged workers” who are no longer included in unemployment figures because they have stopped looking for work. The number of discouraged workers is up 62% since last September.²² Altogether, there are 25.8 million unemployed, underemployed, or discouraged workers in the US, 16.8% of the national workforce.²³

Rising unemployment has taken a huge toll on our families: for the first time ever, the number of Americans receiving food stamps topped 34 million, or roughly one in nine Americans.²⁴

Because unemployment reduces disposable income, it leads to decreased consumer spending, which serves to deepen the recession, leading to even more layoffs and unemployment. This leads to bankruptcies.

Rising Personal Bankruptcies

Personal bankruptcy filings have surged over the last year during the economic downturn. 1.25 million people filed for personal bankruptcy in the year ending in June, up 34% from the previous year.²⁵ Experts predict filings this year will be reach levels not seen since 2005, when 2.04 million people rushed to file before a new law went into effect making it more difficult to file for bankruptcy.²⁶ In July already, more than 126,000 people filed, the highest monthly figure since the 2005 law went into effect, thanks to Congressmen desperate for the big campaign contributions that will allow them to get re-elected.²⁷

Lost Retirement Security

The turmoil in the stock markets caused by Wall Street’s missteps has had profound ramifications for

Main Street

American workers’ pensions have taken a serious hit during the crisis, putting millions of hard working Americans’ retirement security at risk. In the twelve months between October 2007 and September 2008, the top 1,000 pension funds in the country lost $1 trillion in value. In the three months following the Lehman Brothers collapse, the losses accelerated rapidly, and by December 2008, they had lost an additional $754 billion. The funds lost 23.3% of their value ($1.75 trillion) in just fifteen months, the worst losses in 30 years.28

Cuts to Services

Falling home values and rising unemployment have taken a toll on our state and local tax revenues. The $6.1 trillion in homeowner wealth that has been lost in the last three years has led to a $58 billion reduction in annual property tax revenues.²⁹ The decline in tax receipts has contributed to budget crises all over the country. In a National League of Cities survey, 67% of cities reported hiring freezes or layoffs and 62% reported having to delay or cancel capital projects because of deterioration in the economy.³⁰ According to the Center for Budget and Policy Priorities, “At least 48 states have addressed or still face shortfalls in their budgets for fiscal year 2010 totaling $165 billion or 24 percent of state budgets,” and 34 states are already anticipating holes in their 2011 budgets totaling at least $180 billion.³¹

As a result, states have been forced to make drastic cuts:³²

• 21 states have made cuts to public health programs.

• 22 states have made cuts to services for the elderly and disabled.

• 24 states have made cuts in K-12 education.

• 32 states have made cuts in higher education.

• 40 states have made cuts in their government workforce, often through layoffs

Back to Business as Usual

While taxpayers suffer under the crushing burden of the economic crisis and are on the hook for the Wall Street bailouts, the banksters are back to business as usual. They are ignoring their commitments to taxpayers and are helping themselves instead, setting aside tens of billions for bonuses, returning to the same risky behavior that caused the crisis in the first place, and making tens of billions in profits – all on the backs of American consumers and home owners.

Billions in Bonuses

Wall Street’s bonus structure emphasized and incentivized short-term profits over long-term stability. Bankers were awarded bonuses based on how their trades performed in the short run. If their bets went bad a couple of years down the road, they got to keep the money anyway. This encouraged excessive risk-raking, since the bankers’ trades only had to perform well until they were paid their bonuses. This perverse compensation structure has been identified as a central culprit in the economic crisis.³³

In his report on Wall Street bonuses, New York State Attorney General Andrew Cuomo wrote of Wall Street’s “heads I win, tails you lose”³⁴

bonus system:

[T]here is no clear rhyme or reason to the way banks compensate and reward their employees”[I]n these challenging economic times, compensation for bank employees has become unmoored from the banks’ financial performance.

Thus, when the banks did well, their employees were paid well. When the banks did poorly, their employees were still paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well.³⁵

The Rip-Off Continues

Despite this recognition that excessive and perverse compensation structures helped fuel the economic crisis, the big banks are continuing to pay their executives astronomical salaries and bonuses. This past winter, the nation’s top six banks (Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo) paid out $31.2 billion in 2008 bonuses to reward their bankers for posting $84.6 billion in losses last year and wreaking havoc on the global economy.³⁶

In the first half of 2009, these six big banks set aside $74.4 billion in bonuses and compensation for their employees.³⁷ At this rate, total 2009 compensation at these banks could top $148 billion, almost as much as the $160 billion in direct TARP infusions that these six banks took last fall. This would be even higher than the banks paid out any year during the subprime boom.³⁸

Even more outrageous, the two most heavily bailed-out banks, Bank of America and Citigroup, are increasing employees’ base salaries to get around limits on bonuses for TARP recipients.³⁹ Citigroup will hike salaries by as much as 50%, so that most employees’ compensation will not come down from last year’s levels.⁴⁰ Bank of America is also offering signing packages to its new Merrill Lynch hires that are even richer than what Merrill paid out at the peak of the economic boom in 2006 and 2007.⁴¹

Billions in Profits

The same banks that were on life support a year ago posted billions in profits just months later. In the first half of 2009, the top six big banks alone brought in $29.6 billion in profits.⁴² Goldman Sachs posted the biggest quarterly profit in its 140-year history this past June, bringing in an average of $50 million a day.⁴³

The banks did it by resorting to the same old tricks as before—increasing risk, hiking up bank fees and credit card interest rates, cutting small business lending, and by refusing to modify mortgages to prevent foreclosures, so that they can collect the more lucrative fees instead, as already mentioned.

Increasing Risk

The banks are once again embracing the same kind of excessive risk-taking that caused the crisis in the first place:

Goldman Sachs turned a record profit in the second quarter by making even riskier bets than it was making before the crisis hit. The bank actually increased its risk profile after getting taxpayer bailout funds, making its record profits by gambling with our money.⁴⁴

Bank of America, Chase, and Citigroup are all linking corporate credit lines to credit default swaps, the same complex derivatives that caused AIG to collapse.⁴⁵

Morgan Stanley, Smith Barney, and UBS are now selling “structured notes”, which are essentially highly risky and complex derivatives for small businesses.⁴⁶

In recent months, investment banks have once again started repackaging old mortgage-backed securities and selling them, again, as new products. These were the same toxic securities that helped cause the crisis in the first place, and banks are now repackaging and marketing them as super-safe AAA-rated investments.⁴⁷ Why should they worry when they have the US taxpayer to bail them out should things go awry? All they have to do is threaten us with the possibility of system-wide collapse of our economy and they will get the bailout they need. It’s called “too big to fail.” It should be called “too big to avoid the Sherman Anti-trust Act.” In other words, such gigantic firms should be broken up into smaller companies just like Standard Oil was broken up into 34 separate companies by the US Supreme Court in 1911, and just like AT&T’s local operations were split into seven independent Regional Holding Companies, also known as Regional Bell Operating Companies, or “Baby Bells” in 1984.

Banks like Wells Fargo, US Bank, and Fifth Third are starting up or expanding usurious payday loan programs that charge interest rates as high as 400% to low-income, high-risk consumers who typically cannot afford to pay back the loans.⁴⁸

Hiking Bank Account Fees

Banks are also boosting their bottom lines by raising fees on consumers to offset their losses on risky loans and toxic securities.⁴⁹ American consumers will pay more than $38 billion in overdraft fees this year,⁵⁰ more than the annual revenues of most Fortune 500 firms including Apple, Google, and Nike.⁵¹ That is $125 for every man, woman, and child in the United States.⁵² The national median overdraft fee rose to $26, the first time the fee has gone up during a recession.⁵³ Earlier this year, Bank of America more than doubled its daily overdraft fee limit from $160 to $350.⁵⁴

But the fee increases are not limited to overdrafts. Bank of America also increased its monthly maintenance fee for its MyAccess Checking Accounts by 50% this year.⁵⁵ Meanwhile, Wells Fargo, JPMorgan Chase, and US Bank are passing increased costs for deposit insurance onto customers.⁵⁶ As the New York Times put it, the result is that “Americans are paying more to save and spend their money.”⁵⁷

Raising Credit Card Rates

Banks are also running up interest rates and fees on credit card rates in an effort to boost profits before the new credit card reforms take effect next year.⁵⁸ This year, Citigroup has raised interest rates on 13-15 million credit cardholders, by an average 24%, or nearly three percentage points.⁵⁹ Bank of America, JPMorgan Chase, and Capital One also hiked up interest rates on many of their cardholders that had never missed a payment.⁶⁰ Bank of America had already been arbitrarily raising interest rates on at least one million play-by-the-rules, pay-on-time customers even before the bailout.⁶¹ Bank of America, Chase, and Discover have all raised transaction fees for balance transfers on credit cards by at least 20%.⁶² As Senator Durbin said of the US Senate, “Frankly speaking the banks own this place,” or words to that effect. http://www.huffingtonpost.com/2009/04/29/dick-durbin-banks-frankly_n_193010.html

Cutting Small Business Loans

Even though bailout funds were intended to get banks to start lending again, the banks have drastically reduced their small business lending. When small businesses like Republic Windows and Doors in Chicago lose their financing, they often have to shutter their doors, leading to mass layoffs. In a National Small Business Association survey, the 56% of small businesses that have problems finding credit reported having to lay off employees as a result.⁶³ Between October 2008 and April 2009, small business lending through the Small Business Administration’s main program decreased 42% over the previous year.⁶⁴ Meanwhile, the national unemployment rate skyrocketed, from 6.2% in September 2008 to 9.7% in August 2009.⁶⁵

But at the same time that banks are cutting small business loans, they are continuing to lend to large corporations and private equity firms. For example, Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs, and Morgan Stanley all helped finance the $68 billion Pfizer-Wyeth merger, which will likely result in thousands of layoffs.⁶⁶ Bank of America, JPMorgan Chase, Citigroup, and Morgan Stanley are all among the banks providing $3.1 billion in financing to help private equity-owned Warner Chilcott buy Procter and Gamble’s drug business.⁶⁷

Standing in the Way of Reform: After crashing the economy and taking trillions of dollars in bailouts and backstops, the banks are now using our own money against us!

The fact is that they are spending millions of dollars of our money to lobby against reforms that would protect us from their abuses in the future. In the nine months following the bailout, companies in the financial, insurance, and real estate sector (which includes banks and other bailed-out companies like the insurance giant AIG), spent $321 million on lobbying.⁶⁸ The top six banks alone spent $28.4 million lobbying during this time.⁶⁹

Many banks lobbied against policies that would help protect Americans, both as taxpayers and consumers. They fought against:

• The formation of Brooksley Born’s Consumer Financial Protection Agency to protect consumers’ interests;⁷⁰
• Limits on executive compensation and bonuses to ensure banks don’t use taxpayer dollars to pay out bonuses;⁷¹
• The regulation of overdraft fees to protect American consumers from misleading and potentially predatory bank policies;⁷²
• Credit card reform, including caps on interest rates and a ban on anytime-for-any-reason rate hikes;⁷³
• Loan modification proposals to help keep millions of Americans in their homes;⁷⁴
• A ban on payday lending.⁷⁵

Bottom line: The big banks’ predatory and abusive business practices cost us trillions of dollars in lost wealth and brought the economy to the brink of collapse. Now they are fighting an all out war to preserve the ability to do it all over again, and they are using our money as the ammunition!

A Real Economic Recovery

Now that the big banks are back to profitability, their promoters would have us believe that the worst is behind us. Wall Street celebrates ‘green shoots’ in the economy and points to signs of an economic recovery. But Main Street is still hurting.

Déjà vu. The market was celebrating signs of recovery last year too, just months before the Lehman Brothers collapse. In July 2008, according to the Los Angeles Times, President George Bush tried to calm the markets by saying, “We will come through this challenge stronger than ever before. Our economy has continued growing, consumers are spending, businesses are investing, exports continue increasing, and American productivity remains strong.”⁷⁶ A month later in late August, the new GDP report showed US economic growth to be “much stronger than previously believed.”⁷⁷ And finally, two weeks later, on September 15th, the morning that Lehman collapsed, Senator John McCain asserted forcefully that “the fundamentals of our economy are strong.”⁷⁸

Similarly, this year, we’ve seen repeated efforts to sound the trumpets and declare victory prematurely. For example, even though the market has celebrated big banks profits so far this year, the Huffington Post reported that “The percent of banks that lost money [in the second] quarter set an all-time high.”⁷⁹ In fact, the percentage of banks that were unprofitable in the first half of 2009 is up 59% from last year. In fact, 2008 was the industry’s worst year for profitability — and 2009 is currently on pace to beat it.⁸⁰

This has been going on all summer. First in May, even before the results of the Treasury Department’s “stress tests” of the largest financial institutions came out, the New York Times reported that the Obama administration “seems prepared to argue that”the broad financial system is healthier than many investors fear.”⁸¹ So here we go again.

The stress tests showed that the biggest financial institutions needed to raise an additional $75 billion.⁸² It was later revealed that the number had actually been revised downwards at the behest of the banks, and that the Federal Reserve’s initial findings had put the number even higher.⁸³

Then in June, Dow Jones reported that a decline in credit card delinquencies in the previous month was “igniting hope of a turnaround among investors of plastic,” even though the same article also noted that actual credit card losses had continued to climb.⁸⁴ A month and a half later, the government celebrated that “the overall economy contracted at an annual rate of only 1 percent in the spring quarter.”⁸⁵

To Wall Street, that may be a reason to rejoice. To the average American, it means things continued to get worse.

In early August, the New York Times reported that “The most heartening employment report since last summer suggested on Friday that a recovery was under way.⁸⁶ This “heartening” report actually showed an additional quarter million job losses in the month of July, and while the seasonally-adjusted unemployment rate declined a tenth of a percentage point, it was “mainly because so many people dropped out of the hunt for work, ceasing to list themselves as unemployed.”⁸⁷

Once again, the market was not celebrating things getting better, but that they were getting worse more slowly!

Then towards the end of August, another New York Times article reported that Standard & Poor’s Case-Shiller Home Price Index was showing improvements in major cities across the country, “in a convincing sign that the worst housing slump of modern times is coming to an end.⁸⁸ But at the end of the same article, there was a brief mention of the fact that “with unemployment nearing 10 percent, there are probably more foreclosures to come,” which could push prices back down,⁸⁹ making that “convincing” sign of a reversal of fortunes seem a little less convincing!

That same week, Federal Reserve officials started pushing out the message that taxpayers had actually made multibillion dollar profits off of the banks that had repaid their TARP funds.⁹⁰ But as Rolling Stone writer Matt Taibbi pointed out in his blog, “This is sort of like calculating the returns on a mutual fund by only counting the stocks in the fund that have gone up,” since only the healthiest banks have repaid their TARP funds so far.⁹¹ However, a recent study actually found that TARP was $148 billion in the red as of June.⁹²

All the chatter about economic recovery and the end of the recession is no more credible now that it was a year ago. In fact, as financial stocks tumbled at the start of September, even CNNMoney reported about “worries that market gains have raced ahead of any economic recovery.”⁹³

Wall Street’s eternal optimism when it comes to the economy is just a distraction to keep us from demanding real regulatory reform. This allows the big banks to carry on with business as usual, continuing to rob us of trillions of dollars — perhaps for decades to come.

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Obviously we need a real economic recovery. The banks broke the economy, made us pay for repairs that benefited bankers but have had little or no good effect on most of the rest of us, and now they are ready to break the economy again, at our expense but certainly not at theirs.

It is high time that our government fix what they broke and get the economy back on track in a way that works for us, the taxpayers who bailed them out when their backs were against the wall. But this will not happen if most Americans and most politicians remain oblivious to what has actually taken place and what continues to take place.

To access the footnotes in this article, go to: http://ss29.squarespace.com/storage/Trillion_Dollar_Bank_Job.pdf

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