In his State of the Union address, President Barack Obama said: "We face a deficit of trust -- deep and corrosive doubts about how Washington works that have been growing for years. To close that credibility gap, we have to take action on both ends of Pennsylvania Avenue -- to end the outsized influence of lobbyists; to do our work openly; to give the people the government they deserve."
The day after the president uttered those words, a senior Democrat offered private policy briefings to lobbyists on the administration's plans.
"In the upcoming elections, voters will face a choice between Republicans who are standing with Wall Street fat cats, bankers and insurance companies -- or Democrats who are working hard to clean up the mess we inherited by putting the people's interest ahead of the special interests," Sen. Robert Menendez, D-N.J., the head of the Democratic Senatorial Campaign Committee, said in a press release Jan. 27.
That weekend Mr. Menendez and 11 other Democratic senators hosted a "winter retreat" at the Ritz Carlton South Beach resort in Miami for 108 prominent lobbyists, who paid up to $30,000 each to attend.
"The retreat's guest list is a marked contrast to Menendez's recent rhetoric, which has echoed the White House denunciation of 'special interests' and 'fat cats,' " noted Ben Smith of the Politico, who broke the story.
In a report issued Feb. 1 which drew remarkably little attention from the news media given its importance, Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, the $700 billion bailout for financial institutions, said TARP has not done what it was supposed to do and could be setting the stage for a worse fiscal meltdown in the future.
"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Mr. Barofsky wrote in his most recent quarterly report to Congress.
Gorged on taxpayer money, the banks that were "too big to fail" have gotten even bigger, Mr. Barofsky said. Implicit and explicit federal guarantees could encourage them to take ever more reckless gambles, he said.
You'll recall that Congress approved TARP on the understanding the funds would be used to buy so-called "toxic assets," the subprime mortgage loans that had gone bad. But no sooner was the ink dry on the legislation than Treasury shifted course, investing the money directly into the banks. Later, TARP funds were used to buy into General Motors and Chrysler.
This bait and switch has been a good deal for banks. Goldman Sachs, teetering on the edge of bankruptcy in September 2008, has done so well since that its chief executive officer, Lloyd Blankfein, reportedly thinks he's entitled to a $100 million bonus.
Then-Treasury Secretary Hank Paulson, who preceded Mr. Blankfein as CEO of Goldman Sachs, justified the switch on the grounds it would make it possible for banks to keep open lines of credit to small business. But, according to a report issued by Treasury in January, the 22 banks which received the most TARP funds cut their small business loan balances by $12.5 billion since last April.
The banks have been restoring their balance sheets because they've been lending the TARP money, which they received for virtually no interest, back to the government "at a phenomenal markup of at least 3 full percentage points," said Henry Blodget of the Business Insider.
This system, in which we taxpayers bear the risk and costs for bankers' investments, works very well for Wall Street, not so well for Main Street. So why has Barack Obama supported it?
OpenSecrets.org provides a clue. Employees of Goldman Sachs were the largest private sector source of contributions to Barack Obama's presidential campaign (second overall to employees of the University of California). Two other bailed out banks -- Citigroup and JP Morgan Chase -- ranked 6th and 7th.
To get off "the same winding mountain road," the zombie banks need to be broken up, and strict limits placed on the amount of debt banks may incur if they've accepted federally insured deposits. But these reforms would not be popular with the banksters whose contributions fill Democratic campaign coffers.
Jack Kelly is a columnist for the Post-Gazette and The (Toledo) Blade ( firstname.lastname@example.org , 412 263-1476).