Audit of the Federal Reserve Reveals $16 Trillion in Secret Bailouts

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Audit of the Federal Reserve Reveals $16 Trillion in Secret Bailouts

Posted by Paul Krugman on July 21st, 2011

The first ever GAO(Government Accountability Office) audit of the Federal Reserve was carried out in the past few months due to the Ron Paul, Alan Grayson Amendment to the Dodd-Frank bill, which passed last year. Jim DeMint, a Republican Senator, and Bernie Sanders, an independent Senator, led the charge for a Federal Reserve audit in the Senate, but watered down the original language of the house bill(HR1207), so that a complete audit would not be carried out. Ben Bernanke(pictured to the left), Alan Greenspan, and various other bankers vehemently opposed the audit and lied to Congress about the effects an audit would have on markets. Nevertheless, the results of the first audit in the Federal Reserve’s nearly 100 year history were posted on Senator Sander’s webpage earlier this morning:  http://sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3

What was revealed in the audit was startling: $16,000,000,000,000.00 had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest. Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious — the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.

To place $16 trillion into perspective, remember that GDP of the United States is only $14.12 trillion. The entire national debt of the United States government spanning its 200+ year history is “only” $14.5 trillion. The budget that is being debated so heavily in Congress and the Senate is “only” $3.5 trillion. Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world.

In late 2008, the TARP Bailout bill was passed and loans of $800 billion were given to failing banks and companies. That was a blatant lie considering the fact that Goldman Sachs alone received 814 billion dollars. As is turns out, the Federal Reserve donated $2.5 trillion to Citigroup, while Morgan Stanley received $2.04 trillion. The Royal Bank of Scotland and Deutsche Bank, a German bank, split about a trillion and numerous other banks received hefty chunks of the $16 trillion.

“This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.” – Bernie Sanders(I-VT)

When you have conservative Republican stalwarts like Jim DeMint(R-SC) and Ron Paul(R-TX) as well as self identified Democratic socialists like Bernie Sanders all fighting against the Federal Reserve, you know that it is no longer an issue of Right versus Left. When you have every single member of the Republican Party in Congress and progressive Congressmen like Dennis Kucinich sponsoring a bill to audit the Federal Reserve, you realize that the Federal Reserve is an entity onto itself, which has no oversight and no accountability.

Americans should be swelled with anger and outrage at the abysmal state of affairs when an unelected group of bankers can create money out of thin air and give it out to megabanks and supercorporations like Halloween candy. If the Federal Reserve and the bankers who control it believe that they can continue to devalue the savings of Americans and continue to destroy the US economy, they will have to face the realization that their trillion dollar printing presses will eventually plunder the world economy.

The list of institutions that received the most money from the Federal Reserve can be found on page 131 of the GAO Audit and are as follows..

Citigroup: $2.5 trillion ($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)
and many many more including banks in Belgium of all places

View the 266-page GAO audit of the Federal Reserve(July 21st, 2011):http://www.scribd.com/doc/60553686/GAO-Fed-Investigation

Source: http://www.gao.gov/products/GAO-11-696
FULL PDF on GAO server: http://www.gao.gov/new.items/d11696.pdf
Senator Sander’s Article: http://sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3

Chuck Schumer's Amazing Double-Somersault on the Repatriation Holiday

Senator Schumer Supported, then Opposed, and Now Supports, Amnesty for Corporate Tax Dodgers

In 2004, Senator Charles (Chuck) Schumer of New York voted in favor of the so-called American Jobs Creation Act, a bill full of so many tax breaks for special interests that one observercalled it a “bacchanalia of Caligulan proportions.” The bill, which many Democrats and Republicans supported, prompted one business lobbyist to confess to a reporter that the policy process had “risen to a new level of sleaze.” One of the most outrageous breaks in the bill was an amnesty for corporate tax dodgers, a measure called a “repatriation holiday” by its supporters.

A second “repatriation holiday” was proposed as “economic stimulus” in 2009, but Senator Schumer, like most Senators, voted against it because of data summarized by the Congressional Research Service showing that the 2004 measure did not create jobs. In fact, the research showed that the benefits went to enrich shareholders rather than to job creation.

Now Senator Schumer has switched positions again and is supporting a second repatriation holiday.

How the Repatriation Holiday Would Help Corporations

In theory, U.S. corporations pay U.S. income taxes on their profits no matter where they are generated. But they are allowed to “defer” (not pay) U.S. taxes on their offshore profits until they bring those profits back to the U.S. (until they “repatriate” the profits), which may never happen. (A separate provision ensures that these profits are not double-taxed if taxes are paid to the foreign government.)

A tax holiday for repatriated profits would allow them to bring these profits to the U.S. and pay no taxes, or pay a very low rate. (The 2004 measure taxed offshore profits repatriated during the holiday at a nominal rate of just 5.25 percent instead of the normal 35 percent corporate income tax rate.)

Another Repatriation Holiday Will Cost the U.S. $79 Billion in Tax Revenue

According to the non-partisan Joint Committee on Taxation, a repeat of the 2004 repatriation holiday would raise some revenue during the first few years, but then reduce revenue by a larger amount over the rest of the decade, resulting in a net loss of about $79 billion over ten years.

The analysis also shows that a repatriation holiday that is slightly less generous to corporations (one taxing repatriated offshore profits at 10.5 percent) would cost about $42 billion over ten years. 

Another Repatriation Holiday Will Cost the U.S. Jobs

One factor causing the $79 billion revenue loss is the way U.S. corporations will respond when Congress shows itself willing to enact a repatriation holiday more than once. Corporations will likely shift even more profits offshore in the long-run, because corporate leaders will think they can simply wait for Congress to enact the next repatriation holiday allowing them to bring those profits back to the U.S. tax-free or almost tax-free. This means more investment will be made overseas rather than here in the U.S.

Incredibly, the coalition of companies promoting the holiday argue that it will create jobs, even though the non-partisan Congressional Research Servicefound that the 2004 measure failed to create jobs and that the benefits went instead to corporate shareholders.

The Repatriation Holiday Is an Amnesty for Corporate Tax Dodgers

Corporations would not just shift real investments (real operations and jobs) overseas. They would also respond by increasing the amount of profits they shift to offshore tax havens through sham transactions that exist only on paper. In fact, the proposal would give the greatest benefits to the worst corporate actors, those who shift profits offshore to avoid U.S. taxes.

A U.S. company that is doing real business in another country typically will reinvest those offshore profits in factories, oil wells or other assets, making it difficult to bring those profits back to the U.S. But a company that is engaging in profit-shifting (disguising U.S. profits as “foreign” profits through transactions that exist only on paper) has likely merely shifted profits to a tax haven subsidiary that consists of little more than a post office box. It’s much easier to repatriate these offshore profits than the offshore profits from real business activities. 

Also, a U.S. corporation that is doing business in a typical foreign country is already paying some tax to the foreign government, which means they can already repatriate those profits to the U.S. without paying the full 35 percent U.S. corporate income tax rate. But a U.S. corporation that has shifted its profits to a tax haven is typically paying no taxes to the tax haven government, which means they would pay the full 35 percent U.S. rate if they repatriated those profits under current law. U.S. corporations shifting their profits to tax havens therefore stand to gain the most from a repatriation holiday.

Corporate Leaders Are Divided on the Repatriation Holiday

Some corporate leaders have banded together in an extremely well-funded campaign to promote a second repatriation holiday. But other corporate leaders have decided to lobby instead for an even bigger tax giveaway. A repatriation holiday is essentially a temporary tax exemption for corporations’ offshore profits. Some corporate leaders think they can obtain a permanent tax exemption for offshore profits — a territorial tax system, in other words — and they think that enactment of a repatriation holiday would distract from that goal.

The Republican chairman of the House Ways and Means Committee, Dave Camp, agrees with the corporate leaders who prefer a territorial system (the bigger tax giveaway) to a repatriation holiday. But he has not ruled anything out.

Photo via Pro Publica Creative Commons Attribution License 2.0

Categories:

 

• Offshore Tax Abuses,
 
• Tax Avoidance, Tax Evasion, and Tax Enforcement,
 
• Tax Giveaways for Corporations

US Senate rejects bill aimed at five majors' tax deductions

May 18, 2011

Nick Snow

OGJ Washington Editor
 
WASHINGTON, DC, May 18 -- The US Senate refused to invoke cloture and effectively killed S. 940, Robert Menendez’s (D-NJ) bill that would have denied the five largest US oil companies use of the foreign tax credit’s dual capacity provision, the US manufacturers’ tax deduction, the intangible drilling cost deduction, the percentage depletion allowance, and the tertiary injectant expense deduction.

The Senate voted 48 to 52 on May 17 to move the bill forward. The measure also would have eliminated suspension of royalties from deepwater production on the US Outer Continental Shelf and deep natural gas production, and would have dedicated any revenue the measure produced, once it was enacted, to reducing the federal deficit.
Senate Majority Leader Harry M. Reid (D-Nev.) said the defeat reflected Republicans’ priorities. 

“They would rather cut college scholarships, slash cancer research, and end Medicare than take away taxpayer-funded giveaways to oil companies that are raking in billions of dollars in profits,” 

he declared following the vote. 

“That tells you everything you need to know.” 

But three Senate Democrats—Alaska’s Mark Begich, Louisiana’s Mary L. Landrieu, and Nebraska’s Ben Nelson—broke ranks and voted against the bill. “I didn’t support the Democratic proposal this evening, and I won’t be supporting the Republican proposal tomorrow because this isn’t about partisan politics for me. It’s about Alaska and our nation’s long-term energy security,” Begich said following the measure’s defeat.

Minority Leader Mitch McConnell (R-Ky.) said legislation that passed the US House last week and is scheduled to come to a vote in the Senate on May 18 is a better alternative. “If President Obama and his party are really serious about lowering [gasoline] prices, making us less dependent on foreign oil, and creating the thousands of jobs that American exploration is proven to produce, they would embrace our plan and stop pretending to care about a crisis they have done so much to create and, their latest public relations efforts notwithstanding, continue to ignore,” he said.

‘Focused on excuses’
 
“This administration has consistently pushed policies that actually make the pain at the pump worse,” said Sen. John A. Barrasso (R-Wyo.), a member of the Energy and Natural Resources Committee. “Instead of supporting ‘all of the above’ energy production across our country, they’ve been more focused on excuses about why we shouldn’t use American energy.”

Oil and gas trade associations welcomed the Menendez bill’s defeat. “With this vote, we hope Congress will now turn to more constructive policymaking on energy,” said American Petroleum Institute Executive Vice-Pres. Marty Durbin. “Our nation needs to prepare for its energy future with policies that encourage more development of domestic oil and gas resources that we know our nation will need in the decades ahead.”

Durbin said raising taxes on an industry that already contributes more than $86 million/day in federal taxes and production fees would take the nation in the wrong direction and result in fewer jobs, diminished energy security, and less revenue for the government. “Instead, we hope the Senate will move forward tomorrow with S. 953 to move the debate forward on domestic energy production,” Durbin said.

Other business groups also cheered S. 940’s rejection. “Raising taxes on oil companies would end up ultimately hitting consumers’ wallets, and the Senate was right to reject this bill,” said Bruce Josten, executive vice-president for government affairs at the US Chamber of Commerce. “Levying punitive new taxes and fees on America’s oil and gas industry would increase US dependence on foreign oil, increase costs to consumers, jeopardize US jobs, and erode economic competitiveness.

“Instead of targeting specific industries to offset or pay for its inability to affect sound fiscal policy, Congress should be focusing on solutions that will lead to a more secure energy future,” he maintained. “This includes increasing domestic energy production.”