A major new report from Bloomberg, drawn from nearly 30,000 pages of Fed documents obtained via FOIA, sheds some new light on why Congress' response to the too-big-to-fail problem in financial markets was legislation that allowed the biggest banks to grow even bigger. According to the report, the Federal Reserve and big banks worked in concert throughout the financial crisis to manipulate investors, regulators, and lawmakers by covering up trillions of dollars in Fed loans and guarantees while simultaneously lying about being healthy. As Bloomberg puts it: "While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger."Read Full Article
The real problem with too-big-to-fail is that in a post-Citizens United world there is virtually no limit to the amount of money these enormous companies can spend on making sure their favorite lawmakers get elected. Too big to fail is primarily a political problem. It's a self-perpetuating cycle whereby huge companies are allowed to grow indefinitely (i.e. not fail organically) because they have the financial muscle to buy-off the lawmakers in a position to protect them from regulation and bail them out when they get into trouble.
Not surprisingly, in this election cycle, companies that have taken money from the 2008 TARP bailout are focusing their political giving on candidates who support the bailout, oppose new financial regulations, and are most likely to be in positions of power in the next session of Congress.Read Full Article