Commentary | Economic Growth

Senator says financial crisis remains “very, very serious”

Less than one year after Congress moved swiftly and with minimal public vetting to approve a $700 billion bailout of the country’s most troubled banks, U.S. Senator Bernie Sanders (I. Vt.) says the country has become too complacent about the massive bailout and should demand more information.

Sanders spoke at The Federal Reserve’s Expanded Role: Is Greater Transparency Needed?, a July 15 forum sponsored by EPI’s Bailout Analysis Project. “If there is anything this (banking crisis) has taught us, it’s that we’ve got to make the financial system more transparent,” he said, noting that since the Federal Reserve has still not disclosed exactly how it spent the taxpayer bailout, major questions remain about the actual health of the nation’s financial system.

Sanders has introduced legislation that would require the Federal Reserve to publish the names of every financial institution that received assistance as well as the values of any outstanding loans, while imposing strict limits on executive compensation on those banks that still have loans outstanding.

“It seems a bit incongruous that we put trillions of dollars at risk and we do not know who has received that money,” said Sanders. Not only has the Fed not disclosed the names of institutions benefitting from its loans and other programs, he stressed, but it has not indicated whether banks that have returned Troubled Asset Relief Program (TARP) money to the Treasury immediately received similar help from the Fed.

The Treasury has posted details of all transactions on its Web site while the Fed has kept many names secret. Sanders’ call for more information touches on many of the same issues being addressed by EPI’s Bailout Analysis Project, which is examining the impact of the $700 billion bailout of banks that were deemed “too big to fail.” In June the project sponsored the forum Community Banks in the Bailout, during which a number of small community banks complained that they were being penalized for the mistakes of Wall Street. While the big banks were propped up, more than 50 independent banks have failed so far this year, and the FDIC recently warned that as many as 500 could fail as a result of the crisis.

Although the Treasury Department has made more rescue funds available to small and mid-sized banks, they continue to complain that the largest banks are benefitting disproportionately from federal programs. Another recent EPI analysis noted that while Goldman Sachs reported a strong second quarter profit earlier this month, the federal government played a big part in its profit, not through direct bailout money but by guaranteeing bonds and offering overnight lending rates close to 0%.

Similarly, Politico notes that there’s been virtually no public outcry to the latest round of bonuses issued by bailout recipient American International Group (AIG), which totaled $235 million, far more than the $165 million in bonuses it issued in March. “The issue has died,” said Politico.

That return to complacency is premature, said Sanders, who stressed that despite improved stock prices in recent months, the country is still in the midst of a “very, very serious financial crisis” with very serious ramifications including widespread home foreclosures.

“It was caused by a relatively small number of people on Wall Street who could not control their greed,” he said.

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