Fed’s ‘Backdoor Bailout’ Benefits Wall Street, not Main Street

NH Taxpayers and Businesses Hit Hard
by Penny Wise
Democrats in Congress have been more than happy to faithfully vote for President Obama’s massive bailouts and federal spending spree, which has mostly enriched bankers, financiers and shareholders, but not helped small businesses and Main Street America. This is especially true in New Hampshire, where taxpayers are on the hook for far more than their fair share of the spending, and businesses are still looking for credit to create new jobs.
Healthy New Hampshire banks have received close to $41 million from the federal Capital Purchase Program (CPP) to support the economy in the state. Based on New Hampshire’s size and the $204 billion spent  on the CPP portion of the Troubled Asset Relief Program (TARP), New Hampshire’s share should have been almost $983 million. That’s a difference of $942 million that taxpayers in New Hampshire are covering to support economic recovery in other states.
This all gets worse, as a report from the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) details the handling of the bailout of insurance company AIG. The report states:
* Questions have been raised as to whether the Federal Reserve intentionally structured the AIG counterparty payments to benefit AIG’s counterparties — in other words, that the AIG assistance was in effect a “backdoor bailout” of AIG’s counterparties. 
* Then-Federal Reserve Bank of New York (FRBNY) President Timothy Geithner and FRBNY’s general counsel deny that this was a relevant consideration for the AIG transactions. Irrespective of their stated intent, however, there is no question that the effect of FRBNY’s decisions — indeed, the very design of the federal assistance to AIG — was that tens of billions of dollars of government money was funneled inexorably and directly to AIG’s counterparties.
* FRBNY’s decision to treat all counterparties equally (which FRBNY officials described as a “core value” of their organization), for example, gave each of the major counterparties (including the foreign banks) effective veto power over the possibility of a concession from any other party. This approach left FRBNY with few options, even after one of the counterparties indicated a willingness to negotiate concessions.
Simply put, FRBNY refused to negotiate with financial institutions willing to take less than full value on credit default swaps with AIG and instead paid all institutions 100 cents on the dollar, costing taxpayers “tens of billions.”
Republican Congressman Darrell Issa detailed the extent of the give-away by stating, “Behind closed doors and with no approval from Congress, the FRBNY added an additional $13 billion of debt on the backs of taxpayers to give a backdoor bailout to AIG’s creditors, including Goldman Sachs, Merrill Lynch, Société Générale and Deutsche Bank. The lack of transparency and accountability in this transaction is disturbing enough. However, there is evidence that this $13 billion expenditure was entirely unnecessary. All of this begs the question why the FRBNY would not drive a better bargain for the American taxpayer.”
Even more amazing is that the Treasury Department recently held a forum on small business financing. In prepared remarks for the forum, Secretary Geithner said  the purpose of the forum was “to make sure we are doing everything possible to get credit flowing to small businesses that are seeking to expand and create more jobs.”
The problem for businesses in New Hampshire is that nearly $1 billion of credit that could be used in the state went to banks in other states ($942 million) – all on the heels of egregious taxpayer sell-outs like the “backdoor bailout” for AIG’s clients.
The Treasury Department took tax dollars from Granite Staters and gave it to reckless Wall Street financiers. In less than a year, that took a firm like Goldman Sachs from the endangered species list to paying out billions in bonuses. So while TARP and “backdoor bailouts” may be credited with boosting the stock market and making shareholders richer, small businesses continue to twist in the wind. Hard-working New Hampshire residents are stuck with the bill — and far too many remain unemployed.

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