OpenGov - Open Government Brainstorm

Why Is This Idea Important?: The finance industry has effectively captured our government. ... recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we're running out of time. Simon Johnson Trading derivatives which does nothing for the real economy, were rightfully outlawed until December 2000. On December 14, 2000, Senator Phil Gramm, supported by then Fed Chairman Alan Greenspan, then Treasury Secretary Larry Summers, attached a 262 page amendment, that deregulated trading of derivatives and credit default swaps, to an omnibus appropriations bill. Gramm's amendment. The amendment was never debated by the House or Senate and by-passed the substantive policy committees in both the House and the Senate so that there were neither hearings nor opportunities for recorded committee votes. This and other laws passed by Congress, unleashed the now worldwide derivatives market, paved the way for banks to become more aggressive about investing in mortgages, and opened the door to an explosion in new, unregulated wagers/securities. The amendment also contained a provision lobbied for by Enron, a generous contributor to Gramm that exempted energy trading from regulatory oversight, allowing Enron to run rampant, wreck the California electricity market, and cost consumers billions before it collapsed. Our legislators, government executives and regulators blamed it on on a “few bad apples” and did nothing and are not planning to do anything constructive. The unregulated trading of derivatives is arguably the primary cause of the current massive worldwide recession. The Bank of International Settlements in Switzerland reports that the current notional (vague or general) value of derivatives held by the world’s financial institutions is $1,140 trillion which is over 16 times the annual gross domestic product of the entire world. According to the Comptroller of the Currency, the books of U.S. banks now carry over $180 trillion of derivatives derivatives.Obviously, these derivatives are not worth nearly their book value and they in general become worth less and less each day Derivatives are often called “toxic or troubled assets” if they are not worth as much as financial institution show that they are worth on their books. Since assets minus liabilities equals net worth, the actual value of the derivatives determines if the financial institution is solvent or not and whether or not the financial institution should be restructured or remain in business. It is estimated that the actual value of derivatives in U. S. financial institutions are worth several hundred trillion dollars less than what their values is listed on the financial institutions’ books. Obviously many of the largest banks are bankrupt and have been and are concealing this bankruptcy by listing these assets on their books at prices that are far above their market value. Current law and regulations requires that books show actual value of assets and liabilities and that insolvent financial institutions be seized and restructured. Over the past 16 months or so the Federal Reserve and the U. S. Treasury provided or committed at least $12.8 trillion of taxpayers money to prop up selective financial institutions under the guise of getting them to increase lending. Lending has not increased and banks are charging exorbitant interest rates on the money that they are willing to lend. However, foreclosures on homes, unemployment, poverty, huger, the price of food and pension fund losses have increased. The former Secretary of the Henry Paulson, Fed Chairman Bernake and the current Secretary of the Treasury Geithner’s were instrumental in distributing the $12.8 trillion. They have done nothing to fix the real problems in the financial systems and have not announced which financial institutions are insolvent and by how much. Instead they used taxpayers money to buy stock in these institutions some of which are probably insolvent. They paid at least $78 billion more than the stock in financial institution that they bought was worth The $12.8 trillion was provided in such a way that the U.S. Government and taxpayers have no say as to how the money was spent or over the management of institutions that they bought shares in or provided funds too. It would have been infinitely better to have used this money for jobs and recovery. Under their “new" plans to try to fix the financial system, Geithner and Bernanke are unwisely and illegally, giving hundreds of billions of dollars more to financial institutions and draining more resources needed for jobs and other recovery efforts. Geithner and Bernanke are allowing some of the banks to convert the preferred stock, that they and Secretary Paulson bought with taxpayers dollars, into common stock. This means that the banks will not have to pay the government dividends or buy back the stock in cash as they and Paulson had promised that the banks would do. At any point the common stock could become worthless. Geithner and Bernanke are misleading the public under their so called new Consumer and Business Lending Initiative they will lend money to investors not to consumers or to businesses. According to the Treasury’s Document: The Consumer and Business Lending Initiative the Federal Reserve Bank of New York will lend up to $200 billion to holders of eligible asset backed securities (ABS) with the ABSs as collateral . [An ABS is a derivative]. Eligible ABS includes newly issued securitizations backed by credit card loans, private and government-guaranteed student loans, and loans guaranteed by the Small Business Administration [none of these items are assets] and they can easily become worthless with the taxpayers will be left holding the bag. Likewise under their “Homeowner Affordability and Stability Plan” billions of more taxpayers’ dollars will be given to banks. This will not work. It follows several other federal efforts to prevent foreclosures that have failed, including the Hope for Homeowners program, which was enacted last year. Bernanke is also purchasing hundreds of billions of troubled mortgage-backed securities from Fannie Mae and Freddie Mac. Buying troubled assets will slow down effort the effort to actually determine what they are worth and reward the business executives who caused the problems with taxpayers money. There are several articles on the internet that show how Geitner’s Public-Private Investment Program (PPIP) will transfer more taxpayer money to Wall Street. Basically, The Federal Deposit Insurance Corporation (FDIC) will put up 87%, the Treasury 7% and a “private assets funds manager”, such as Goldman Sachs, 7% of the funds to setup essentially a hedge fund to buy toxic assets. The private investor will have absolute control over the assets. Geithner has apparently already picked the firms that will bid against one another to run up the price of the toxic assets to close to full price, which are probably worth less than 30 cents on the dollar. The asset manager could buy the toxic assets at full price and then sell them later for 28 cents on the dollar to another investor. The firm is supposed to give half of the sales price, 14 cents or 14% to the government and retain the other 14%. Under this scenario the brokerage firm will double it’s investment, the bank get over three times what the toxic asset are worth and the taxpayer will lose 86% of their investment. The FDIC falsely represented to Congress that they needed $500 billion to protect depositors but is using the $500 billion for the PPIP. Neither Geithner or Bernake are saying that these new plans will actually remove all the toxic assets from the financial systems. There is simply no way that the financial systems in the U.S. or the world can be bailed out. The Fed and U.S. government must not provide any additional funds to banks or to Wall Street. This money is needed for jobs and other recovery efforts. On April 2, 2009, the Financial Accounting Standards Board (FASB) approved changes to fair-value, or mark-to-market accounting rules approved by FASB on April 2 allow firms to use "significant" judgment in gauging prices of some investments on their books, including mortgage-backed securities. Banks will also be allowed to exclude from net income any losses they deem "temporary," making it easier to provide a flattering earnings picture, said Kersting at Edward Jones. If just two or so of the $12.8 trillion wasted on investment bankers and stockbrokers had been spent on jobs, there would be no recession today. Investing in jobs rather than enriching corporate executives, stock brokers, bankers, and mortgage lenders will restore prosperity to Main Street, Wall Street and all the side streets.