By Isaac MacMillen
The Red Queen broke the silence by saying, to the White Queen, “I invite you to Alice's dinner-party this afternoon.”
The White Queen smiled feebly, and said “And I invite you.”
“I didn't know I was to have a party after all,” said Alice; “but, if there is to be one, I think I ought to invite the guests.”
“We gave you the opportunity of doing it,” the Red Queen remarked; “but I daresay you've not had many lessons in manners yet.”—Lewis Carroll, Through the Looking Glass, Chapter IX.
The Federal Treasury has reached its endgame. And some of the banks on the losing end didn't even know they were invited to the party.
At the very inception of the economic crisis that has engulfed the nation, the government manufactured an “emergency”—government policies to expand home ownership, coupled with an expansive monetary policy, helped trigger the housing bubble. And then, that bubble popped, causing the banks to run into the government's waiting arms.
Only now they are too late discovering that the government's hold is not easily relaxed. What started as a (seemingly) warm embrace is now turning into a vice-grip of death. An Op-Ed in the Wall Street Journal laid out the trap in which the banks are finding themselves, describing how banks are unable to return Troubled Asset Relief Program (TARP) funds.
Back in September, one of the nation's top banks was pressured into taking $1 billion in TARP funds. The CEO argued against it. The bank was in good shape, no bad debt, no reason for 'needing' government money, he argued. But he was overruled by the Board of Directors, which was swayed by the government's threat of a public audit, a costly PR negative, even though he was confident the bank would come out clean.
Fast-forward to today. The bank—still anonymous, for fear of repercussions—has been attempting to give the money back to the government—with interest. But the Obama Administration is icily refusing to accept the cash, going so far as to threaten the CEO if he continues attempting to repay.
It was Milton Friedman who stated that “nothing is so permanent as a 'temporary government program.'” The veracity of that statement has been demonstrated throughout the financial crisis. The steps that brought us to this point in time, to this—endgame,' if you will—are as clear as a Dantesque descent into the inferno:
1. First, the manufacture of a crisis. Whether itw as natural (i.e., cyclical) or artificial, it was sold to the American people as absolutely devastating. This was done many times by those in power during last fall's financial meltdown—the people were threatened with a “depression greater than the Great Depression.”
2. Second, a “quick fix” must be introduced. After the fear-inducing claims regarding the crisis were laid out, the “solution” was presented as 'man's last hope.' Once popular opinion was seemingtly behind the measure, those in power forced it upon those who they deemed 'needed' the 'help,' regardless of rational minds that objected. This was all to be done hastily—much like the stimulus, upon which the very “survival” of civilization depended, one would think, after the intense, coordinated political assault launched on its behalf.
3. Third, tighten the jaws of death. Once the government had a foot in the door, they refused to remove it, claiming that doing so would result in crisis all over again. To be sure, some smaller banks are being allowed to return their TARP funds. But the big banks are being forced to hold onto the taxpayer funds. And many politicians are no doubt salivating over the opportunities for increased power that exist through the bailout funds.
Already the auto industry is reeling from the tightening grip of government's mailed fist. Last week, President Obama fired GM's CEO. Now, Treasury Secretary Timothy Geithner is pledging to give government “assistance” to banks, and force a “change in management and the board,” if required. Of course, its already too late for those banks that agreed to government oversight via TARP. They are now finding that money from Washington does indeed come with strings—no, make that a noose—attached.
This de facto nationalization—the endgame of all the bailouts and fear mongering—will ineluctably result in the biggest destruction of a nation's economy ever seen in such a short period in history.
And yet the blame does not solely lie at the feet of the federal government; the bankers too played a role in their own demise. The very Federal Reserve whose bailout actions doomed them to live as pawns of the government was at one time viewed as a mechanism by which the banks could influence the government. Then, the tables were turned.
Indeed, a quick look at the New York Federal Reserve—which, under Mr. Geithner, delivered the first of the bailouts to give $29 billion to JP Morgan to purchase Bear Stearns and $85 billion in initial loans to AIG—reveals a large number of banks represented. Of the seven members of the NY Fed's Board of Directors, a disproportionate number are high profile bankers. Stephen Friedman, the retired chairman of Goldman Sachs and present chair of another financial institution, was appointed by the Board of Governors to the Fed's Board of Directors, to “represent the public.” He also currently serves as chairman of the NY Fed.
The three board members elected by “member banks” to represent their interests are bank CEOs. Richard Carrion is “chairman and chief executive officer of Banco Popular de Puerto Rico,” as well as its holding company. Charles Wait is the “president, chief executive officer and chairman of the board of The Adirondack Trust Company.” Jamie Dimon is the “chairman of the board and chief executive officer of JPMorgan Chase & Co.”
And Mr. Geithner's replacement, as president of the NY Fed, William Dudley, served for over 20 years at Goldman Sachs, including as its chief US economist for 10 years, and later a “partner and managing director.”
Similarly, the Fed itself was founded by the largest banks of its day nearly 100 years ago. Top associates of financial giants such as J. P. Morgan and William Rockefeller, and institutions such as the National City Bank of NY and First National Bank of NY were among those who met together with Senator Nelson Aldrich in secret to draw up the plans for the Federal Reserve.
No doubt the banks, now chafing under Big Government's rigid lash, hoped that their marriage to the government would enable them to impact economic policy in a way that would be favorable to their own interests. But, unfortunately for the banks, they are learning the hard way that, once the tables are turned and control is given to the federal government, the Leviathan's appetite proves insatiable.
So as the banks complain of the federal government's dictatorial involvement, they must examine themselves in the mirror of history and acknowledge that they are merely reaping what they sowed.
Still and all, the worst may be yet to come. As the chess match between the banks and government reaches its endgame, and the final pieces are held by the Treasury, soon the American people may find themselves receiving their own mandatory “invitations” to the party in the mail—with a massive confiscatory tax bill from a ravenous IRS.
Isaac MacMillen is a Contributing Editor of ALG News Bureau.