It took two years, a lawsuit and a ruling from a federal judge, but Judicial Watch finally got hold of a batch of documents from the Federal Deposit Insurance Corporation (FDIC) related to the Citigroup and Bank of America bailouts. (The FOIA lawsuit, you may recall, was filed on behalf of former Federal Reserve and FDIC employee Vern McKinley.)

Specifically, we received the unredacted minutes from FDIC Board meetings during which FDIC officials and staff discussed the rationale for the bailouts which centered on the “systemic risk” of allowing the two financial institutions to fail.

We also received never-before-seen documents regarding the FDIC’s Temporary Liquidity Guarantee Program, which guaranteed unsecured debt of private financial institutions and provided them “full coverage of non-interest bearing [sic] deposit transaction accounts, regardless of dollar amount.”

Here are the highlights:

• FDIC Board Meeting Minutes from approval of Citigroup bailout (November 23, 2008):According to the minutes from the meeting, government officials described in vague terms the consequences of allowing Citigroup to fail, including “the effects on money market liquidity could be expected on a global basis,” “term funding markets remain under considerable stress” and the fact that it would “significantly undermine business and household confidence.” One FDIC Board member who was in attendance, John Reich, cautioned Federal bank regulators and the Treasury Department to “avoid ‘selective creativity’ in determining what constitutes systemic risk and what does not and what is possible for the government to do and what is not.”
• FDIC Board Meeting Minutes from approval of Bank of America bailout (January 15, 2009):According to the meeting minutes, Sheila Bair, Chairman of the Board of the FDIC, admitted the agency “was relying on data analysis by the Federal Reserve” and for that reason the FDIC “very much needs to proceed with a systemic risk determination with respect to [Bank of America].” Chairman Bair characterized the decision to bail out Bank of America as demonstrating that the FDIC, an independent agency, was a “team player along with the Federal Reserve and the Treasury to prove the systemic risk case.” (Translation: Treasury and the Fed really want this so we have no choice but to go along.)

Incidentally, these meeting minutes are consistent with a separate report by the Special Inspector General for the Troubled Asset Relief Program released on January 13, 2011.

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On December 23, the United States District Court for the District of Columbia denied a motion by the Federal Deposit Insurance Company (FDIC) to dismiss a Judicial Watch FOIA lawsuit filed on behalf of our client, former FDIC employee Vern McKinley.

Actually, U.S. District Court Judge Emmett G. Sullivan did more than deny the motion to dismiss.  He also granted, in part, Judicial Watch’s motion for summary judgment and criticized the FDIC by saying the agency “has not fulfilled its obligations under FOIA.”  Now the FDIC must conduct a new search for responsive records and demonstrate that the records have been provided or properly withheld under FOIA law.

This lawsuit, filed on March 15, 2010, is one of several we’ve filed on behalf of Mr. McKinley.  (You can find them all here.)  And all of these lawsuits have a similar purpose:  to determine under what legal authorities and lawful rationales the federal government initiated these massive financial bailouts.

In this case we’re seeking records related to the FDIC’s decision to guarantee $306 billion of loans and securities held by Citigroup, Inc., and $118 billion held by Bank of America.  The lawsuit also seeks information about the Temporary Liquidity Guarantee Program (TLGP), the FDIC program that now guarantees $394 billion in bank deposits and debt.

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The great Charlie Gasparino in today’s New York Post:

The notion of “housing” as a God-given right had been promoted by people like Barney Frank for nearly two decades. Their vehicles to expand homeownership for all were “government-sponsored enterprises” Fannie and Freddie — which, starting in the mid 90s, began buying up and placing guarantees on mortgages taken out by people with lower incomes and lousy credit histories.

Giving low-income people access to the housing market sounds nice enough — but the reality was far different. Housing prices were bid up to levels that made repaying mortgages nearly impossible. When the bubble burst, the government “sponsored” agencies were in hock for billions — and so was their “sponsor,” the US taxpayer.

And once Fannie and Freddie stopped making loans to anyone with a hearbeat (and many people without jobs), housing prices began to deflate, taking the banking system and the rest of the economy with it.

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The current recession and, especially, the related financial panic in the fall of 2008 have given rise to an extraordinary surge in the U.S. government’s size, scope, and power. As I write, the financial panic has subsided, but the recession, already the longest since the 1930s, seems likely to continue for a long time. Even when it has passed, however, the government will certainly retain much of the augmentation it has gained recently. Hence, this crisis will prove to be the occasion for another episode of the ratchet effect in the growth of government.

According to the National Bureau of Economic Research, the recession began early in 2008, but the decline became severe only in the latter part of the year. The financial panic that came to a head in late September 2008 proved to be the catalyst for an accelerated decline in real GDP and rise in the rate of unemployment. The so-called credit crunch in the fall of 2008 prompted the Fed, the Treasury, and the Congress to take a series of extraordinary actions in quick succession.

In September 2008, the Federal Reserve System (“the Fed”) took control of the insurance giant American International Group (AIG), and the Federal Housing Finance Authority took over the huge government-sponsored enterprises Fannie Mae and Freddie Mac, secondary lending institutions that held or insured more than half of the total value of U.S. residential mortgages. On October 3, the president signed the Emergency Economic Stabilization Act, which, among other things, created the Troubled Assets Relief Program (TARP), authorizing as much as $700 billion for the purchase of so-called troubled assets, primarily mortgage-related securities, held by banks and other financial institutions. Instead of making the authorized purchases, however, the Treasury used the TARP to inject funds into the banks by purchasing their preferred shares. In this way, the government acquired an ownership interest in nearly 600 commercial banks.

Meanwhile, the Fed made a series of unprecedented types of asset purchases and loans, loan guarantees, and asset swaps, and provided other forms of assistance to securities dealers, money-market mutual funds, Fannie Mae, Freddie Mac, the Federal Home Loan Banks, Citigroup, fourteen foreign central banks, and buyers of certain asset-backed securities based on consumer and small-business loans. As a result, the monetary base of the United States increased by more than 100 percent between August 2008 and January 2009.

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The Central Illinois 9/12 Project became one of the first to expose — beginning this past March on BigGovernment.com – Shorebank’s extensive green and microfinancing agendas, in anticipation of that bank’s impending bailout.  Shorebank, a Chicago-based, community-based investment bank, is focused on domestic and foreign microfinancing, is heavily engaged in the financing of “green” projects and “green” jobs, and has a host of ties to the Obama and Clinton administrations.  Most recently, we wrote in April about Shorebank seeking a “bailout” from larger financial firms that have previously received bailout money from the federal government. Congresswoman Jan Schakowsky had previously proposed that the bank receive funds from the State of Illinois to help cover its loss of capital since the beginning of the nation’s economic downturn in 2008.

As we previously wrote, Shorebank would potentially be eligible for TARP funds if it were to be recognized as a “Community Development Financial Institution.” In order to to received needed federal TARP money and prevent seizure by the FDIC, Shorebank needed to receive appropriate matching funds from private sources.  News stories have been released over the past several days indicating that Shorebank has potentially received such funding.

Shorebank has reportedly received $20 million from General Electric, $20 million from Goldman Sachs, and $20 million from Citigroup – with additional large funds being promised by J.P.Morgan Chase, Bank of America, and Morgan Stanley. Shorebank also has received funds from the Northern Trust Corporation, State Farm, and Harris N.A.  It has been reported that the bank could also receive funds from Wells-Fargo and PNC Financial Services.  Assistance from these financial institutions puts Shorebank’s raised capital from private sources within the range needed to make it eligible for TARP funds.

As we reported previously, Citigroup, Bank of America, and Chase all received tens of billions of dollars in taxpayer money from TARP.  Does this then mean that Shorebank is being bailed out by bailout money?

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Today it was reported that Goldman Sachs CEO Lloyd Blankfein has been calling Wall Street friends to cough up $125 million to save ShoreBank, which faces federal closure next week. Rep. Jan Schakowsky suggested in January that Illinois taxpayers foot the bill. That would have been the first state-led bank bailout in U.S history. The idea was abandoned–so it appears the government is shaking down Goldman Sachs instead.

ShoreBank has close connections to the Obama administration, including controversial figures such as former “green jobs czar” Van Jones. Its executives have contributed in the past to Rep. Schakowsky and other Illinois politicians. ShoreBank did not just make loans in poor communities–there are other local banks that do that without getting into trouble–but also specifically made loans that the recipients had little hope of repaying.

Now ShoreBank is calling in some political favors, and the politicians are responding with a classic Chicago-style shakedown. It is probably no coincidence that Goldman Sachs suddenly took an interest in ShoreBank after it was slapped with a federal civil fraud lawsuit and a criminal investigation. Many Wall Street observers believe that the charges against Goldman Sachs were politically motivated, in timing if not in substance.

Regardless, Mr. Blankfein got the message, telling Goldman Sachs shareholders last week that he would try to rebuild the company’s image. He called up other bailed-out institutions that are being threatened with federal charges–Bank of America, Citigroup, and JP Morgan Chase–and got them to cough up millions for ShoreBank. So although the ShoreBank bailout is “private,” American taxpayers are still indirectly on the hook.

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News reports last week suggested that 130 companies that cater to main street concerns — like Harley Davidson — had hired lobbyists because of the impact the financial reform legislation will have on their business. The regulatory boondoggle will affect almost every entity that caters to middle class America — from car dealers to dentists. That’s right dentists.

News from Washington is that the group representing America’s dentists are now in freakout mode over the bill. Most dentists offer payment plans. If Johnny need braces, dentists offer payment plans that help the middle class afford them. If the financial reform bill is enacted into law, the federal government would regulate the plans.

This is a prime example of how the legislation — while proporting to regulate Wall Street will actually regulate Main Street.

Yet Citi and Goldman Sachs are supporting the legislation supposedly aimed at them. If Wall Street wants this bill and Main Street is harmed by the bill, how exactly is this Wall Street reform?

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The more details that emerge about the Obama-Dodd financial “reform” bill, the worse it smells. The bill is most certainly an attempt to give the government vastly more power and control over the economy. And despite the vocal, condescending, even mocking protestations from Democrats and their allies, this bill does in fact contain unlimited bailout authority for the Fed. It’s right there in the bill for the world to see.

But it is increasingly evident that there may be something more sinister going on behind the scenes that is driving this debate.  The President trotted up to New York to give a big televised speech and scolded Wall Street for “resisting reform” saying that if we are to prevent another crisis, we must pass his bill.

The whole charade amounted to little more than political theater.  Big Wall Street banks actually WANT this bill.  Executives for Citigroup and Goldman Sachs (two firms that both received bailout funds) have both made statements in favor of Obama’s financial reform bill.

So, one must ask, if this is so draconian on Wall Street, why do they want it so badly?  The answer to this question is in the details of the bill: Not only does this bill not rein in big Wall Street banks, its actually a very big gift to Big Banks and other special interests—gifts that will cost Main Street, the taxpayers and consumers.

The large financial institutions at the root of the financial crisis wouldn’t even be regulated by the CFPA. Their oversight would remain at the porn-surfing Securities and Exchange Commission. But of course the bill is full of burdensome regulations for smaller institutions with which they will struggle to comply and also remain profitable.  The larger banks that are covered will not only have the resources to adapt but will also likely grow even larger by swallowing up smaller institutions that can’t make it.

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At the end of 2007, hedge fund billionaire John Paulson invested $15 million in the leftist non-profit, Center for Responsible Lending, their largest single donation ever. Around the same time, Paulson and his employees contributed over $100,000 to the Democratic Senatorial Campaign Committee, headed, at the time, by Sen. Chuck Schumer. Roughly six months later, CRL and Sen. Schumer both launched a highly public attack on the California-based mortgage lender, Indymac. The lender failed, wiping out the investment of thousands of people. Roughly six months after that, John Paulson, in partnership with George Soros, bought up the remnants of Indymac for pennies on the dollar.

It is a drama that no longer surprises us, unfortunately. Wealthy investors use their access to elected officials and their checkbook to advocacy groups for private profit. But this story has a twist; a top executive of CRL when this deal went down, Eric Stein, is now working at the Treasury Department,  heading up the proposed Consumer Financial Protection Agency. Mr. Stein will be the chief federal official designing regulations to protect consumers. Right.

This is that story.

Financial crises create opportunities. Prudent and discerning entrepreneurs who save their capital for a rainy day are able to acquire assets at firesale prices and put these assets to higher and better uses. Market forces cleanse wasteful malinvestments, innovative business models make existing ones obsolete and the economy roars forward all the stronger for it.

But while market entrepreneurs generally prosper during times of great dislocation, ultimately to the benefit of all participants in the economy, today political entrepreneurs have hijacked the economic system. The politically connected elites have used this downturn to carry out a massive wealth transfer from the people to the public and private sectors, fleecing the middle class for their own enrichment.  In their hypocrisy, the long ago small businesses that grew large because of free markets have helped chain these markets through lobbying for regulations and subsidies to shield themselves from competition and their own errors.

This has occurred most egregiously in the financial sector, where there has been a veritable free-for-all in legalized political plunder.  Those who understand the illusory nature of our monetary and symbiotically related political and financial systems have clamored to profit as much as possible before the house of cards falls, with the sanction of our supposed representatives.

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As the Central Illinois 912 Project has addressed previously on BigGovernment.com, Shorebank is a community bank based out of Chicago that is engaged in microfinancing – a hybrid of capitalism and social justice.  They have been supported and promoted by individuals like Van Jones, President Obama, President Clinton, and Secretary Clinton. They have also become heavily involved in the financing of green projects (see here and here).

In 2009, Shorebank received more than $35 million in federal funds for grants and new market tax credits. Despite this new flow of funds to extend to their customers and loan recipients, Shorebank reported a loss of $50 million in 2009 alone and was issued a “cease and desist” order by the FDIC and the Illinois Department of Financial and Professional Regulation.  In addition, ShoreBank was receiving strong warnings from the Federal Reserve Bank of Chicago. Their dire financial state had lead them to initially seek a “bailout” from the State of Illinois, promoted by Chicago Congresswoman Jan Shakowsky and Senator Dick Durbin. However, they have since decided that they can find capital without seeking state help.

Interestingly, Shorebank is currently seeking support from a few large banks –all of which have received federal bailout money from the Toxic Asset Relief Program (TARP) and are Shorebank stockholders. These banks include Citigroup, Bank of America, and Chase. Citigroup initially received $25 billion in taxpayer money (plus another $20 billion soon after), and Bank of America initially received $15 billion (plus another $20 billion after that). Neither of these banks has completely paid back their TARP loan. Chase also received $25 billion in bailout funds, but repaid its loan in December of 2009. So rather than seeking a bailout from a state that has a $13 billion budget deficit, Shorebank is seeking to be bailed out by banks that have already been bailed out by federal taxpayers – which is, in essence, an indirect, federally-funded bailout.

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One year ago this month, I opined about taxpayers footing the bill for several college football bowl games.  I decided to revisit the college football bowl scene and find out who’s sponsoring this year’s post-season gridiron clashes.

Perhaps most surprising among my findings is the fact that a UAW-General Motors entity, the UAW-General Motors Human Resources, is listed here as a sponsor, alongside Ford and a few other organizations, of the Little Caesar’s Pizza Bowl (formerly known as the Motor City Bowl) to be played at Ford Field in Detroit Dec. 26.

This sponsorship deal makes me wonder how many football fans of the matchup between Marshall University and Ohio University will spend halftime visiting this sponsor’s exciting web site.

The Eagle Bank Bowl is set for Dec. 29 at RFK Stadium in Washington, D.C., and appears to be back stronger than ever in 2009. The bowl’s “strength”– not found in the battle between UCLA and Temple — could be due to the fact that it’s title sponsor, Bethesda, Md.-based Eagle Bancorp Inc., received $38.2 million via the Troubled Asset Relief Program, according to a Wall Street Journal report early this year. [Note: From the strange-but-true department, the name of the bank's chairman and chief executive officer is -- drumroll, please -- Ron Paul.]

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For anyone who thinks that big Wall Street and Big Government aren’t joined at the hip, promoting policies and laws that keep each other fat and happy often at the expense of the American taxpayer, consider the career of Robert Rubin.

Rubin, of course, is largely gone from the public scene after spending 10 disastrous years as a board member and senior executive at Citigroup, the banking giant that epitomizes all that is wrong with American finance, and before that, a largely successful run as Treasury Secretary in the Clinton Administration, which he joined after running another controversial bank, Goldman Sachs. But his legacy looms large, mainly because I believe he was one of the reasons why the financial crisis occurred in the first place.

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Citigroup executive Eric Eve (pictured below) has resigned from ACORN’s phony, allegedly independent panel of inquiry, a move that removes one of the few people on the panel who could even remotely claim to actually be independent.

If you read between the lines, it also seems to mean Citigroup agrees the panel is a sham.

Eve, senior vice president of Global Consumer Group, Community Relations, at Citigroup, quit after the National Legal and Policy Center pressed Citigroup CEO Vikram Pandit to cut ties with ACORN.

In a letter to NLPC president Peter Flaherty, Citigroup announced Eve’s resignation from the panel.

“We too are deeply concerned about the recent media reports regarding ACORN and, because of those reports, have suspended our charitable financial support and program relationships with ACORN, and we are awaiting the results of the independent audit of ACORN activities now underway,” wrote Natalie Abatemarco, Citigroup’s vice president, Global Community Relations.

“On a related topic, please be advised that Eric Eve has resigned his position on the ACORN Advisory Council,” she added.

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President Obama recently reiterated his plan to fix the regulation of Wall Street and said it was time to “put an end to the idea that some firms are too big to fail.”

Amen.

But the president doesn’t need a new law or a new oversight committee, like the one he proposes, to end the concept of too big to fail.  He could, and should, simply make a speech declaring that from this day forward, any company, no matter how big or small, will be allowed to fail. If Bank of America or AIG or Chrysler goes bankrupt, so be it. Obama should unequivocally proclaim, “There will be no more bailouts. Period.”

If given, that kind of speech would surely be the most popular thing Obama’s done since becoming president. Arianna Huffington and other liberals angry that ‘crony’ capitalists are getting corporate welfare would love it. Glenn Beck, Michelle Malkin, and fiscal conservatives who truly opposed President Bush’s $700 billion Troubled Asset Relief Program bailout would love it. Libertarians and independents would be ecstatic to see the end of a system that protects—and even rewards—businesses that make bad decisions. (Only Wall Street firms enjoying the taxpayer safety net would be upset.)

Unfortunately, while Obama hints at ending “too big to fail” policies, his financial reforms actually continue to encourage the reckless financial behavior that helped get us into this mess.

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[Ed Note: This is the first post to run at BigGovernment. It was published two-years ago today. It still seems relevant.]

In 1995, President Bill Clinton stood before the nation and proclaimed, “The era of big government is over.” The following year, the federal budget deficit stood at 1.4% of GDP. Thirteen years later, in 2008, the deficit had doubled, to just over 3% of GDP. This year, the Congressional Budget Office estimates that the federal budget deficit will equal 11.4% of GDP.

As George Will would say, “Well.”

This is the real source of our “summer of discontent.” Yes, millions of Americans spent the month of August holding Tea Parties, attending town halls, organizing, marching and protesting against ObamaCare, i.e. Congressional and Administration proposals to reconstruct the entire health care sector. But to suggest that health care alone is at the root of this backlash is to miss the forest for the trees. To paraphrase Democrat strategist James Carville, “It’s the big government, stupid.”

Since last September when the financial markets stumbled, we’ve seen a Wall Street bailout, government takeovers of AIG, Citigroup, Fannie Mae, Freddie Mac, GM, Chrysler, and numerous banks. The Federal Reserve has opened its discount window to almost all-comers and has taken the unprecedented step of aggressively buying up the federal government’s own debt. Congress rushed through a “stimulus to nowhere,” moved closer to a “cap-and-trade” remake of the energy sector and openly talked about higher taxes and more regulation. (more…)