By Pam Martens and Russ Martens: February 24, 2018
On Thursday, the President of the Federal Reserve Bank of New York, William C. Dudley, held a press conference to effectively tell Puerto Ricans to suck it up as they attempt to recover from an epic humanitarian crisis caused by Hurricane Maria, which devastated infrastructure and wiped out electricity to the entire Island in September.
When it comes to corrupt Wall Street banks that are in the process of failing, the Federal Reserve can always find trillions of dollars to funnel into the banks’ coffers at almost zero interest rates to prop them back up. It does that through its power to electronically create money out of thin air. Take, for example, the $16 trillion it secretly lavished on Wall Street banks and their foreign counterparts during the financial crash of 2007 to 2010.
For deviant banks and their shareholders, the Federal Reserve has a big heart, great sympathy and big purse strings. When it comes to the human suffering of Americans, it consistently turns its back.
Consider how Dudley’s predecessor at the New York Fed, Tim Geithner, handled the housing crisis created by Wall Street banks. According to Neil Barofsky, the Special Inspector General of the Troubled Asset Relief Program, in his book Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street, this is what happened: the Fed created HAMP, ostensibly a program to provide housing relief to humans but it was secretly a delay mechanism to help the banks. Barofsky wrote in his book:
“For a good chunk of our allotted meeting time, Elizabeth Warren grilled Geithner about HAMP, barraging him with questions about how the program was going to start helping home owners. In defense of the program, Geithner finally blurted out, ‘We estimate that they can handle ten million foreclosures, over time,’ referring to the banks. ‘This program will help foam the runway for them.’
“A lightbulb went on for me. Elizabeth had been challenging Geithner on how the program was going to help home owners, and he had responded by citing how it would help the banks. Geithner apparently looked at HAMP as an aid to the banks, keeping the full flush of foreclosures from hitting the financial system all at the same time. Though they could handle up to ‘10 million foreclosures’ over time, any more than that, or if the foreclosures were too concentrated, and the losses that the banks might suffer on their first and second mortgages could push them into insolvency, requiring yet another round of TARP bailouts. So HAMP would ‘foam the runway’ by stretching out the foreclosures, giving the banks more time to absorb losses while the other parts of the bailouts juiced bank profits that could then fill the capital holes created by housing losses.”
Dudley was speaking about Puerto Rico on Thursday because it is part of the Federal Reserve’s Second District covered by the New York Fed. That includes New York State, the 12 northern counties of New Jersey, Fairfield County in Connecticut, the U.S. Virgin Islands and Puerto Rico. Dudley offered this:
“Puerto Rico now must not only complete the recovery from the hurricane, but also do what is necessary to get on a sustainable economic and fiscal path. Given the Island’s high debt, unfunded pension obligations, declining population, and now the hurricane, the outlook may seem grim…”
But instead of the cold hard cash the corrupt banks got funneled to them to bail them out, Dudley promised devastated Puerto Ricans only advice:
“The New York Fed will continue to help in the best ways we can—by providing independent research and analysis, and by leveraging our convening authority to bring together stakeholders to share expertise, explore opportunities, and provide information to those who need it most.”
It’s tough for Dudley to feel the pain of Americans who lost their homes through fraudulent foreclosures by the banks he oversees or families rendered homeless in Puerto Rico from an epic hurricane. According to statistics in the 2016 annual report from the Federal Reserve (see Table 13), Dudley’s annual salary at that time was $469,500. And, as we previously reported in 2012, Dudley’s wife, Ann Darby, was set to receive $190,000 per year until 2021 in deferred compensation from JPMorgan Chase, a bank regulated by Dudley whose CEO, Jamie Dimon, was simultaneously sitting on the Board of Directors of the New York Fed.
The day before Dudley held his press conference on Puerto Rico this past week, Kate Aronoff was explaining to readers at The Intercept how Citigroup, another serially charged Wall Street bank overseen by the New York Fed, had profited by burying Puerto Rico under debt and would now be overseeing the privatization of its public electric utility. Aronoff wrote:
“The bank has profited elsewhere on the island, as well. Citi was among the underwriters of eight capital appreciation bonds, or CABs, and the lead underwriter on five of those. The principal on all eight CABs totaled $2.7 billion, though interest on them — charged at a whopping rate of 718 percent — came to $22.8 billion. The bank was also the second-largest underwriter in Puerto Rico of so-called scoop and toss financing deals, which — while allowing bond issuers to push payments off into the future — also means heaping additional fees and interest onto preexisting principal and interest payments. From 2000 to 2016, the bank collected $302 million in fees off underwriting $11.3 billion in scoop and toss arrangements, the second largest of any collection off these type of deals.”
The Fed’s generosity to Citigroup, which has been serially charged by regulators for abusing the public and became a felony bank in 2015, stands in stark contrast to the crumbs of advice offered to Puerto Rico. During the financial crisis which Citigroup played a major role in creating, the U.S. Treasury provided $45 billion in capital to Citigroup; the government guaranteed over $300 billion of Citigroup’s assets; the Federal Deposit Insurance Corporation (FDIC) guaranteed $5.75 billion of its senior unsecured debt and $26 billion of its commercial paper and interbank deposits; and the Federal Reserve secretly sluiced $2.5 trillion in almost zero-interest, cumulative loans to Citigroup from the end of 2007 through at least mid 2010.
According to a poll released late last year, a majority of Americans believe this is the lowest point in our nation’s history. But will this be enough to create the political revolution that Senator Bernie Sanders had hoped for in 2016.