NEW REPORT: $700 BILLION BAILOUT BEING ABUSED BY BANKS - FRANKEN DEMANDS HEARINGS

Franken Opposed Bailout, Now Calls For More Oversight As New York Times Reports Taxpayer Dollars Are Being Used To Help Wall Street Profits Instead Of Economy

New York Times Editorial Today: “The Bailout Should Not Be An Occasion For Banks To Make A Killing.”

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SAINT PAUL [10/29/08] - DFL Senate candidate Al Franken, the only candidate for Senate who opposed the $700 billion Wall Street bailout, today called for immediate hearings in light of reports indicating that banks may not be using those funds to unfreeze credit markets but rather for other purposes - with the encouragement of the Treasury Department.

Al Franken:

“Washington sprung into immediate action when Wall Street was in trouble, but there’s been no help for struggling homeowners on Main Street and no solutions for middle-class families and small businesses hurt by the failed economic policies of the last eight years. And now we find that the $700 billion bailout is being used not to solve the problem, but to handpick winners and losers on Wall Street. That’s an outrage. Taxpayer dollars should be helping taxpayers, not going to pad the bottom lines of the Wall Street bankers whose bad bets got us into this mess. This is exactly why we should never have passed this bill without proper accountability. And it’s time for Congress to take action.”

Earlier this month, the Bush administration announced that it would use bailout funds to inject capital directly into banks. They claimed that this would allow credit to start flowing again as banks lent that money to other entities. But recent reports indicate that, instead, the banks receiving these funds are using them to buy up other, smaller banks. And the Treasury Department, according to a column by New York Times financial columnist Joe Nocera, is encouraging the practice.

Meanwhile, Wall Street financial institutions like Morgan Stanley and Merrill Lynch continue to pay out billions in bonuses despite receiving bailout funds.

Today, Franken called for:

– Immediate hearings into potential abuses of the $700 billion bailout by Wall Street banks.
– Straight answers from the Bush administration on its real plans for these taxpayer dollars.
– An administration guarantee that banks receiving bailout funds will use them to lend
– A revocation of Secretary Paulson’s authority to implement the bailout if he cannot explain how his plan is serving taxpayers.

New York Times: “With $250 Billion In Bailout Funds Committed To Dozens Of Large And Regional Banks, It Turns Out That Many Of The Recipients Of This Investment From Taxpayers Are Not All That Interested In Making Loans.” In an editorial, the New York Times wrote, “Shortly after the bailout was enacted, The Times’s Mark Landler reported that Treasury officials also wanted to steer the bailout billions to banks that would use the money to buy up other banks. Now, lo and behold, with $250 billion in bailout funds committed to dozens of large and regional banks, it turns out that many of the recipients of this investment from taxpayers are not all that interested in making loans. And it appears that Mr. Paulson is not so bothered by their reluctance.” [New York Times, Editorial, 10/29/08]

• New York Times: “If Treasury Won’t Impose Conditions, Congress Must.” In an editorial, the New York Times wrote, “However, when [banks are] using taxpayer-provided capital, as they are now, Congress and the public have every right to require that the money be used to benefit the public directly, even if doing so crimps the banks’ profits. If Treasury won’t impose conditions, Congress must, including a requirement that banks accepting bailout money increase their loans to creditworthy borrowers and limit their acquisitions to failing banks, such as those listed as troubled by the Federal Deposit Insurance Corporation. The bailout should not be an occasion for banks to make a killing. An even bigger problem is that the bailout was sold as a way to spur loans. If that never was — or no longer is — the primary aim, Congress and the public need to know that. Lawmakers should not release the second installment — $350 billion — until they have answers and guarantees that the bailout money will be spent in ways that put the public interest first.” [New York Times, Editorial, 10/29/08]

Administration Officials Are Encouraging Banks To Use Bailout Funds To Buy Other Banks. According to the New York Times, “In a step that could accelerate a shakeout of the nation’s banks, the Treasury Department hopes to spur a new round of mergers by steering some of the money in its $250 billion rescue package to banks that are willing to buy weaker rivals, according to government officials. As the Treasury embarks on its unprecedented recapitalization, it is becoming clear that the government wants not only to stabilize the industry, but also to reshape it. Two senior officials said the selection criteria would include banks that need more capital to finance acquisitions. ‘Treasury doesn’t want to prop up weak banks,’ said an official who spoke on condition of anonymity, because of the sensitivity of the matter. ‘One purpose of this plan is to drive consolidation.” [New York Times, 10/20/08]

“The Dirty Little Secret Of The Banking Industry Is That It Has No Intention Of Using The Money To Make New Loans.” According to New York Times business columnist Joe Nocera, “Treasury Secretary Henry M. Paulson Jr. had decided to use the first installment of the $700 billion bailout money to recapitalize banks instead of buying up their toxic securities, which he had then sold to Congress and the American people as the best and fastest way to get the banks to start making loans again, and help prevent this recession from getting much, much worse. In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans.” [New York Times, Joe Nocera, 10/24/08]

• “It Is Starting To Appear As If One Of Treasury’s Key Rationales For The Recapitalization Program … Is A Fig Leaf.” According to New York Times business columnist Joe Nocera, “On the contrary: at another point in the conference call, the same executive … explained that ‘loan dollars are down significantly.’ He added, ‘We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.’ In other words JPMorgan has no intention of turning on the lending spigot. It is starting to appear as if one of Treasury’s key rationales for the recapitalization program — namely, that it will cause banks to start lending again — is a fig leaf, Treasury’s version of the weapons of mass destruction.” [New York Times, Joe Nocera, 10/24/08 (emphasis added)]

Merrill Lynch Is Laying Employees Off … And Paying Out Billions In Bonuses. According to Bloomberg, “Five straight quarters of losses and a 70 percent slide in its stock this year haven’t stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses … The money Merrill has set aside for bonuses equates to an average $110,000 for each of its 60,900 people, up from $108,000 a year ago because more than 3,000 jobs have been cut.” [Bloomberg, 10/27/08]

Morgan Stanley And Lehman Are Both Setting Aside Billions For Bonus Payments. According to Bloomberg, “Even some employees at Lehman Brothers Holdings Inc., which declared the biggest bankruptcy in U.S. history last month, will get the same bonus they received a year ago … Morgan Stanley, the second-biggest securities firm until it also converted to a bank, has $6.44 billion for bonuses, or $138,700 per person, down 20 percent from last year.” [Bloomberg, 10/27/08]

This entry was posted on Wednesday, October 29th, 2008 at 15:11 and is filed under Press Releases. You can follow any responses to this entry through the RSS 2.0 feed.