Reports of deepening bank crisis stir more calls for nationalization
By Tim Wheeler
WASHINGTON — Two reports warning of the enormous cost to taxpayers of insolvent banks were released this week. They fueled stronger calls for bank nationalization as the only solution to the paralysis in the nation’s financial system.
The first, a 250-page report released April 19 by Neal Barofsky, inspector general of the Toxic Assets Relief Program (TARP), revealed that his agency has launched 20 criminal investigations of fraud, insider trading and illegal mortgage modification in the $700 billion program.
The report points out that the total of funds from the U.S. Treasury, Federal Reserve and private investors to buy up the “toxic assets,” much of them based on foreclosed subprime mortgages, will reach $2 trillion.
“The sheer size of the program … is so large and the leverage being provided to the private equity participants so beneficial that the taxpayer risk is many times that of the private parties thereby potentially skewing the economic incentives,” the report states. “In light of the fact that the American taxpayer has been asked to fund this extraordinary effort to stabilize the financial system, it is not unreasonable that the public be told how these funds have been used by TARP recipients.”
The second report came from the International Monetary Fund (IMF), warning that the U.S. financial system is likely to lose $2.7 trillion this year from the global credit crisis.
Even so, Treasury Secretary Timothy Geithner gamely testified April 21 before the TARP Congressional Oversight Committee that he sees light at the end of the tunnel. He reminded the lawmakers that more than half the $700 billion TARP money was spent by the Bush administration even before President Obama took office. “Today,” he testified, “Treasury estimates there is at least $134.6 billion in resources … still available.”
He argued that the “vast majority” of banks have enough capital and that frozen credit markets are showing signs of thawing.
Geithner faced a din from nay-saying economists who point out that resolving the “toxic mortgage” crisis has been thwarted by the ongoing flood of new foreclosures and mass layoffs that swamp all efforts to stabilize the financial system.
Economist Nouriel Roubini wrote in an op ed piece in the Washington Post April 19, “Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume. Of course, the economy will continue to stink but the death spiral we are in would end.”
A New Way Forward, a grassroots coalition that staged rallies and vigils in support of bank nationalization April 11, has continued to grow with 40,000 signing on for protest actions in support of public takeover of banks. Among the scores of organizations listed as supporters of ANWF is the New Haven-based U.S. Peace Council. Al Marder, the group’s veteran chairman, told the World council members joined a march on Wall Street April 4 with thousands demanding peace and a just financial system.
“The global economic crisis has dramatized the interconnection between the struggle for peace and the absolute necessity of intervention to meet the needs of the people in every area of the economy,” Marder said.
“We recognize that the fundamental cause of the economic crisis is the inability of working people to buy back what they produce. The nefarious corruption in the financial system has contributed to the misery millions of people are suffering. We oppose burdening the people with tax bailouts that benefit those who got us into this catastrophe in the first place. There is no other solution than nationalizing the banks and operating them in the people’s interests.”
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