Armageddon (24 page)

But the reality—and the result—were quite different. The loans never got made. Of the $3.7 trillion in cash the Federal Reserve Board gave to the banks under Obama, almost $3 trillion of it is still sitting right where it's always been—in the bank vaults, particularly in the Fed's vault where it is helpfully storing the money for the banks. There, it earns a quarter of 1% interest each year, a windfall of about $10 billion that goes to the big banks every year, courtesy of the Fed.

Former Federal Reserve chairman Alan Greenspan said that as of 2012 he could discern “very little impact on the economy” from all that cash flooding Wall Street. Welfare for Wall Street.
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Economists,
including Dhaval Joshi of BCA Research, agree that the rewards of QE have done little to help the real economy. He wrote, “QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it.”
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And the president of the Federal Reserve Bank of Dallas, Richard Fisher, who sits on the Federal Reserve Board, admitted that that cheap money has made rich people richer, but has not done quite as much for working Americans.
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Why didn't the banks lend out the money they got from the Fed? Part of the reason is that they couldn't find credit-worthy borrowers who wanted and needed the money. Ever since the recession got started, Obama has followed the doctrines of British economist John Maynard Keynes and pumped money into the economy in the hopes of stimulating demand. But you can't push a string.

Major companies and small businesses alike had so little confidence in the future of the US economy that they didn't want to spend the money they had piled up over the years. After many months of accumulating cash, America's businesses have $1.7 trillion of cash on hand. So why borrow more? Even at rock-bottom interest rates, they would rather stick the cash under the mattress than invest it in the economy. That's how much confidence they have in Obama's economic wisdom.

The other reason the banks won't lend is that Obama's bank regulations made it very, very dangerous to make loans to businesses, especially those that are left as possible borrowers after the big corporations have said “no more.” Even as his administration was shoveling money into the upper echelons of Wall Street, it was enacting bureaucratic regulations that made it virtually impossible for the banks to use the funds to create jobs. Under Obama, bank regulation, aimed largely at midsize and small community banks, has become tight and strict. Even though these institutions were not responsible for the crash of 2007 and 2008, they are bearing the brunt of the regulatory retaliation.

Between 2009 and 2015, Obama has closed 500 community banks, with a collective $75 billion in assets. Counting these closures along with other bank failures, the total number of banks in the United States has dropped to the lowest level since the Great Depression. We are shedding hundreds of banks per year and now are down to 6,270 commercial banks and savings institutions.
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This policy of closing community banks makes it almost impossible for local banks to take advantage of the quantitative easing funds to lend to local business. Banks are scared to death of making loans that could be seen as risky by nit-picking federal regulators. Each audit kindles a morbid fear of being closed down, wiping out the salaries, bonuses, stockholdings, and in some cases, even the pensions of their executives. Who would lend money in that kind of regulatory environment? And what incentive was there to lend out the money? The Fed was, after all, paying banks interest not to lend it out, but to keep it in its vaults.

As Trump put it: “Under Dodd-Frank, the regulators are running the banks. The bankers are petrified of the regulators. And the problem is that the banks aren't loaning money to people who will create jobs.”
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And the regulatory excesses were totally unnecessary. It wasn't the small community banks that had caused the 2007–2008 crash. They didn't buy subprime mortgages. They didn't need TARP federal bailout funds. They lent to their own communities and were largely solvent. But Obama came down on them like a ton of bricks. Why would he do that? To help the big banks. Obama wants to get rid of the thousands of small banks throughout the country. By forcing small banks out of business, he increases the market share of the giant banks. And they give a lot of money to Democratic candidates.

Between 2006 and 2014, Wall Street gave $348 million to Democratic candidates and committees. They gave comparable amounts to Republicans. Both parties are part of the Capitol gang that fixes things for Wall Street and screws the average American.

Besides, helping big banks gobble up small ones is part of Obama's economic philosophy. Myriad small banks would be hard
to control; their whims would make a mockery of the central planning that underscores Obama's socialist worldview. But concentrate power in a handful of banks, a few big unions, and big government regulators, and you can control the economy. Just like they do it in Europe. No more of this messy and wasteful free enterprise.

So while Obama was hell on wheels on the small banks, he coddled the big ones, giving them $3.7 trillion in QE money. The money was given to these big banks largely in exchange for worthless mortgage-backed securities that were lying fallow in their vaults. These securities were backed by mortgages on bankrupt properties that had long since stopped making payments and that could not be sold on any open market. But the Fed was a willing purchaser. Not only didn't the Fed get any real consideration for this avalanche of money, but it actually paid interest to the banks in return for storing the money it had paid them. The big banks were supposed to lend out the money to help the economy, but they held onto the money. They didn't lend it out. They kept it in the vault. They didn't earn it. They don't lend it. They don't do anything for it. And the $10 billion interest the Fed pays these banks just rolls in year after year.

If the big banks don't share their largesse with job-creating American businesses, they are very generous with their employees, their stockholders, and, most of all, with their executives, driving up the incomes of the richest 1% beyond all comprehension. While they don't lend out the money the Fed gave them to businesses, they do use it to buy stocks and push up the Dow Jones to new heights. They buy their own company stock and give it to employees as a stock option bonus. They pay lavish salaries to top executives and a lot to everyone else.

In 2014, the average income of a Wall Street employee was over half a million a year—$355,900 in base income and $172,860 more in bonuses. This income level is more than 10 times higher than the median family income in the United States. Total Wall Street bonuses in 2014 came to $29 billion.

And when the income goes to hedge fund managers, they pay only the capital gains tax rate rather than the ordinary income tax the rest of us have to pay. Usually, you can get capital gains treatment on that portion of your income that is a return on an investment. The idea is that you already paid taxes on the money you invested so you get a lower tax rate on the profits the investment returns to you. The larger economic purpose of separate capital gains taxation is to encourage investment through lower tax rates. Wages and salaries are not capital gains—except for hedge fund managers.

They get a special tax break—called “carried interest”—even though they are not risking their own money but are simply managing money for others, yet they get to treat their income as a capital gain. But even though they are like all other wage earners, they only pay a 20% capital gains tax, not the almost 40% they would pay if their checks were treated as ordinary income. The carried interest loophole is a $13 billion annual subsidy to hedge fund managers.

Donald Trump will end it. He said “the hedge fund guys are getting away with murder.” Pledging to end the carried interest loophole, Trump said “the hedge fund guys won't like me as much as they like me right now—I know 'em all, but they'll pay more.”
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As the playing field has been tilted sharply in favor of big banks and their employees and against small banks, the top six banks—JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley—have assets equal to 67% of the total assets of all US banks combined. Six banks out of 6,000 (one-tenth of 1%) have two-thirds of the bank assets. Over the past five years, these six biggest banks have grown by 37% in their assets while the total assets of the other banks have risen by only 8% over the same time period. These top six banks now have almost $10 trillion in assets.

Obama famously denounces “trickle down” economics when the rich get tax cuts that they fail to pass on down the line. Yet, there is no form of trickle down as blatant as the fiscal policy of the Fed under Barack Obama's management. But as president, Obama
exploits resentment against the massive Wall Street wealth in order to keep the loyalty of his Democratic, blue-collar legions. His rhetoric soaks the rich while they flood him with campaign contributions and he drenches them in cash in return. With such income inequality created by the Fed giving the richest banks extra money year after year, any Republican attempt to win back alienated voters has got to start with a full frontal attack on Wall Street.

But the attack must do more than simply give middle-income voters a chance to vent their anger at Wall Street. We must make clear that the massive money paid out by Obama to Wall Street was money that was supposedly for job creation in middle America. But it never reached us. Obama gave it to the richest people in America instead. The Fed swore that making Wall Street richer was just an unintended consequence of a policy designed to create jobs. Baloney. It was the Federal Reserve Board governors and staff feathering the nests of the banks from which they came and to which they planned to return once their government careers ended.

Obama's policies have concentrated wealth and growth at the upper end of the banking spectrum. These banks are not about to lend much money to Joe's Corner Grocery or the local manufacturing plant. They do business on Wall Street and prosper, not by lending to create jobs, but by the free interest they get from the Federal Reserve Board.

Is there a connection between the huge donations Wall Street gives to Hillary and the Democrats and the Fed's largesse? You bet there is.

Hillary Clinton is uniquely a beneficiary of Wall Street and its corrupt money. Since they left the White House in 2001, the Clintons have raked in more than $100 million from Wall Street in personal speaking fees (income to them), donations to the Clinton Foundation (which they control), and campaign contributions.

In fact, a few months after Hillary left the State Department, she gave two speeches to Goldman-Sachs for a quarter of a million
dollars each. This cool half a million was not paid out in campaign contributions that go only to political purposes nor to the Clinton Foundation, but went directly into Hillary's and Bill's personal bank account. Cash income for Hillary and Bill. Her record makes her the poster girl for Wall Street and running against Wall Street is the key to defeating her.

According to a May 2106
New York Times
report, between them, Bill and Hillary Clinton have made “at least $30 million over the last 16 months, mainly from giving paid speeches to corporations, banks and other organizations, according to financial disclosure forms filed with federal elections officials.”
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Remember that it was Bill Clinton who opened the door to the massive giveaway to Wall Street by signing a bill to repeal the Glass–Steagall Act in 1999 and by approving legislation to bar federal regulation of derivatives (highly risky Wall Street bets with big returns if you win).

Wall Street's current rampage started with the repeal of the Glass–Steagall Act that had reined in its investment opportunities for 65 years. Reinstating the Glass–Steagall Act, over Wall Street's and Hillary's strenuous objections, must be the centerpiece of the Republican campaign to win back alienated voters who resent the rich getting richer while their incomes stagnate. We must make Glass–Steagall not merely an issue, but a rallying cry. Reinstating it is the only way to stop Wall Street from the excesses that leave the taxpayer holding the bag.

Glass–Steagall was passed during the Great Depression as bank failures gripped the nation. Millions stood on line only to have their bank's window shut in their face as they tried to take out their savings deposits. (Dick recalls that his own mother, as a 15-year-old girl, was sent by her illiterate Hungarian mother to run to their bank to take out their money as the market crashed. She came away empty handed—a story that has a sacrosanct place in family lore.)

The banks, which usually keep only a fraction of the money deposited in their vaults on hand while they lend out the rest, could not
honor the demands when everybody tried to pull out their money at once. Banks coast to coast closed down and millions lost everything. On taking office in 1933, FDR declared a bank holiday to stop the panic and gradually reopened the banks, one by one, as they were certified to be financial solvent.

For a longer-term solution, New Deal liberals called for federal deposit insurance so that ordinary Americans would not face the loss of all they had during depressions and bank panics. But Virginia's crusty, conservative senator Carter Glass, chairman of the Senate Finance Committee, stood in the way. Glass, who was FDR's original choice for Treasury Secretary, said he was only going to let deposit insurance out of his committee if legislation accompanied it to control how banks invested their money. Glass's point was that he was not prepared to give depositors a taxpayer guarantee if the banks could use the federally guaranteed money to gamble on the stock market. He insisted on rigid controls over banks barring them from investing in securities and other risky assets. And so the Glass–Steagall Act passed as a companion measure to federal deposit insurance.