Tell Chris Dodd His Services Are No Longer Required
Just one more reason to send Chris Dodd home permanently and to vote against him in his upcoming election because of sheer stupidity, pandering to the banking crowd, his sweetheart mortgage deal, and lest we forget, punishing Americans with good credit ratings (pay attention at 2:33), but let’s go back a few years.
Fed’s Bailout Authority Sat Unused Since 1991
On the day before Thanksgiving in 1991, the U.S. Senate voted to vastly expand the emergency powers of the Federal Reserve.
Almost no one noticed. (emphasis added)
The critical language was contained in a single, somewhat inscrutable sentence, and the only public explanation was offered during a final debate that began with a reminder that senators had airplanes to catch. Yet, in removing a long-standing prohibition on loans that supported financial speculation, the provision effectively allowed the Fed for the first time to lend money to Wall Street during a crisis.
That authority, which sat unused for more than 16 years, now provides the legal basis for the Fed’s unprecedented efforts to rescue the financial system.
Since March 2008, the central bank’s board of governors has invoked its emergency powers at least 19 times: to contain the wreckage of Bear Stearns and ease the fall of American International Group, to preserve Goldman Sachs and Morgan Stanley, to limit losses at Bank of America and Citigroup, to lend more than $1 trillion.
The repeated use of the once-dusty law has surprised and alarmed a wide range of people, including economists and members of Congress. It has even raised worries among presidents of the regional banks that make up the Federal Reserve system.
Many critics are concerned that an institution not accountable to voters is risking vast amounts of public money and choosing which companies get help. Others are concerned that the Fed’s new role will interfere with its basic responsibility for regulating economic growth.
Enter H.R. 1207, the Federal Reserve Transparency Act of 2009. Is this bill likely to pass? Probably not considering the NY Banks that we just bailed out ARE THE FEDERAL RESERVE!
There is also a question about the roots of the crisis: Did investment banks take greater risks in the past two decades because they knew the Fed could rescue them?
The 1991 legislation, authored by Sen. Christopher J. Dodd (D-Conn.), was requested by Goldman Sachs and other Wall Street firms in the wake of the 1987 market crisis, and it would save some of them a generation later.
Fed Chairman Ben S. Bernanke and other leaders of the central bank have argued that the emergency authority has allowed it to rescue the financial system and that without it, the economy would be in far worse shape. And they argue that they are using the power as Congress intended.
As Congress intended, but isn’t the Fed unconstitutional to begin with? Were not the Founding Fathers against a central bank system from the very start?
“This provision was designed as a last resort to make sure credit flows when times are tough and credit isn’t being extended,” said Scott Alvarez, the Fed’s general counsel. “That’s exactly what it’s being used for today.”
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said that the actions taken by the Fed have been necessary and important but that those actions should have been taken by an agency accountable to voters. He said he was not aware of the Fed’s emergency power until September, and he favored removing much of that authority from the Fed once the crisis has passed.
Barney was not aware because he, like his peers in the House and Senate, DO NOT READ!
“This is a democracy, and there is a problem with too much power going to an entity that is not subject to democratic powers,” Frank said.
I thought the United States was a Republic?
“By necessity, the Fed was the institution everybody looked to because they had the balance sheet and the legal authority to act,” said Phillip L. Swagel, an assistant Treasury secretary in the George W. Bush administration who is to become a professor at Georgetown University’s business school.
See video below as to how their balance sheet is coming out…
But the government’s reliance on the Fed has roused critics.
“There’s no accountability,” said Walker F. Todd, a former economist at the Federal Reserve Bank of Cleveland whose writings raised some of the earliest questions about the 1991 law. “How much power do you want to concentrate in a few people who are not directly accountable to the political process?”
Those criticisms have been heightened by the Fed’s refusal to disclose which firms have benefited from many of the emergency programs, such as the names of the companies that have used the Fed’s “commercial paper funding facility” to issue short-term debt.
The Fed ‘loses’ $9 Trillion:
Rodgin Cohen, a partner at Sullivan & Cromwell, suggested to several of his clients the idea of modifying the 1932 law to allow lending to investment banks, according to people involved in the discussions. Cohen is a legendary figure on Wall Street, building a career as perhaps the preeminent legal adviser on banking mergers, in part through his command of the minutiae of federal regulations.
Dodd, at the time chairman of the securities subcommittee of the Senate Banking, Housing and Urban Affairs Committee, agreed to insert the language into a bill whose primary purpose was to reform the Federal Deposit Insurance Corp., which guarantees commercial bank deposits.
Dodd declined to comment for this story, but at the time, he said the legislation gave the Fed “greater flexibility to respond in instances in which the overall financial system threatens to collapse.”
The Fed has extensive regulatory authority over commercial banks, to keep them from needing its safety net. But after Dodd’s language passed into law, the Fed did not seek new regulatory authority over investment banks, nor did Congress move to provide new authority.
So not only do we have the Community Reinvestment Act being ramped up to give mortgages to people without jobs, but we have a Congress that did not regulate investment banks. (For those of you that have not seen the above linked video – take the time and vote it up.)
Instead, over the next two decades, federal officials would emphasize that investment banks had an incentive to be cautious because they were operating without a safety net.
Has the absence of a safety net has ever stopped any little kid from death-defying acts of insanity, or any capitalist on steriods from trying to make just one more buck because they lack a moral center, or any corrupt politician from making promises they won’t keep to get just one more vote?
I believe everything we are seeing today goes back to current and former congresses that DID NOT FOLLOW THE CONSTITUTION. I do compare the people who are running our country to crack addicted fiends that are just looking for their next fix of financial kickbacks or votes for re-election.
The Community Reinvestment Act and Dodd’s part in it: