How the bankers stole our prosperity

How the bankers did it.

The best way to rob a bank is to own one.

These two authors are among the few who can write about economics in a clear way. Here they describe how the bankers robbed the economy and caused the current recession.

Good Billions After Bad

By Donald L. Barlett and James B. Steele

Vanity Fair

October 2009

http://www.vanityfair.com/politics/features/2009/10/bailout200910?printable=true

Just inside the entrance to the U.S. Treasury, on the

other side of a forbidding array of guard stations and

scanners that control access to the Greek Revival

building, lies one of the most beautiful interior

spaces in all of Washington. Ornate bronze doors open

inward to a two-story-high chamber. Chandeliers line

the coffered ceiling, casting a soft glow on the marble

walls and richly inlaid marble floor. In this room,

starting in 1869 and for many decades thereafter, the

U.S. government conducted many of its financial

transactions. Bags of gold, silver, and paper currency

arrived here by horse-drawn vans and were carted

upstairs to the vaults. On the busy trading floor,

Treasury clerks supplied commercial banks with coins

and currency, exchanged old bills for new, cashed

checks, redeemed savings bonds, and took in government

receipts. In those days, anyone could observe all this

activity firsthand-could actually witness the

government and the nation's bankers doing business. The

public space where this occurred became known as the

Cash Room.

Today the Cash Room is used for press conferences,

ceremonial functions, and departmental parties. And

that's too bad. If Treasury still used the room as it

once did, then perhaps we'd have more of a clue about

what happened to the billions of dollars that flew out

of Treasury to selected American banks in the waning

days of the Bush administration.

Last October, Congress passed the Emergency Economic

Stabilization Act of 2008, putting $700 billion into

the hands of the Treasury Department to bail out the

nation's banks at a moment of vanishing credit and peak

financial panic. Over the next three months, Treasury

poured nearly $239 billion into 296 of the nation's

8,000 banks. The money went to big banks. It went to

small banks. It went to banks that desperately wanted

the money. It went to banks that didn't want the money

at all but had been ordered by Treasury to take it

anyway. It went to banks that were quite happy to

accept the windfall, and used the money simply to buy

other banks. Some banks received as much as $45

billion, others as little as $1.5 million. Sixty-seven

percent went to eight institutions; 33 percent went to

the rest. And that was just the money that went to

banks. Tens of billions more went to other companies,

all before Barack Obama took office. It was the largest

single financial intervention by Treasury into the

banking system in U.S. history.

But once the money left the building, the government

lost all track of it. The Treasury Department knew

where it had sent the money, but nothing about what was

done with it. Did the money aid the recovery? Was it

spent for the purposes Congress intended? Did it save

banks from collapse? Paulson's Treasury Department had

no idea, and didn't seem to care. It never required the

banks to explain what they did with this unprecedented

infusion of capital.

…Rather than targeting the weak for relief-or allowing

them to fail, as the government allowed millions of

ordinary Americans to fail-Paulson and Treasury pumped

hundreds of billions of dollars into the financial

system without prior design and without prospective

accountability. What was this all about? A case of

panic by Treasury and the Federal Reserve? A financial

over-reaction of cosmic proportions? A smoke screen to

take care of a small number of Wall Street institutions

that received 100 cents on the dollar for some of the

worst investments they ever made?

More than five months after the bulk of the bailout

money had been distributed into bank coffers, Elizabeth

Warren plaintively raised the central and as yet

unanswered question: "What is the strategy that

Treasury is pursuing?" And she basically threw up her

hands. As far as she could see, Warren went on,

Treasury's strategy was essentially "Take the money and

do what you want with it."

Donald L. Barlett and James B. Steele are Vanity Fair

contributing editors.