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Context of 'May 25-July 22, 1932: Federal Home Loan Bank Act Creates S&L System to Lower the Cost of Home Ownership'

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The federal government revises and expands the Federal Corrupt Practices Act (FCPA—see June 25, 1910), a campaign finance law that lacks any enforcement or verification mechanisms, in the wake of the Teapot Dome corruption scandal. The amended version codifies and revises the expenditure limits and disclosure procedures for US Congressional candidates. It will replace the original FCPA as well as its predecessor, the Tillman Act (see 1907), and will remain the backbone of American campaign finance law until 1971. All campaign spending is strictly regulated, with contributions of $50 and over during a calendar year mandated to be reported. Senatorial candidates can spend no more than three cents for each voter in the last election, to a maximum of $25,000. House candidates may also spend up to three cents per voter in the last election, up to a $5,000 maximum. Offers of patronage and contracts are banned, as is any form of bribery. Corporate contributions of all kinds are banned. However, the power of enforcement is entirely vested within Congress, and thusly is routinely ignored. [Campaign Finance Timeline, 1999; Center for Responsive Politics, 2002 pdf file; Pearson Education, 2004; National Public Radio, 2012] In 1966, President Lyndon B. Johnson will refer to the FCPA as “more loophole than law.” [Connecticut Network, 2006 pdf file; National Public Radio, 2012]

Entity Tags: Tillman Act, Federal Corrupt Practices Act

Timeline Tags: Civil Liberties

The Federal Home Loan Bank Act is introduced in the House of Representatives on May 25, 1932. It passes Congress on July 16 and is signed into law by President Hebert Hoover six days later, on July 22. The act is intended to lower the cost of home ownership. It establishes the Federal Home Loan Bank Board (FHLBB) to charter and supervise federal savings and loan associations (S&Ls). It also creates Federal Home Loan Banks, which lend to building and loan associations, cooperative banks, homestead associations, insurance companies, savings banks, community development financial institutions, and insured depository institutions in order to finance home mortgages. [The American Presidency Project, 7/22/1932]

Entity Tags: US House of Representatives, Federal Home Loan Bank Board, US Congress, Herbert Hoover

Timeline Tags: Global Economic Crises

The Federal Savings and Loan Insurance Corporation (FSLIC) is established. It is administered by the Federal Home Loan Bank Board (FHLBB), which was formed by the Federal Home Loan Bank Act of 1932. The FSLIC is created as part of the National Housing Act of 1934, New Deal legislation passed amid the ongoing Great Depression in order to make housing and home mortgages more affordable. The act, which also establishes the Federal Housing Administration (FHA), is signed into law by President Franklin D. Roosevelt. Upon its creation, the FSLIC is assigned a capital stock of $100 million. All federal savings and loan associations (S&Ls) will be required to apply for insurance through the FSLIC; other building and loan associations whose capital is not impaired are also allowed to apply. The FSLIC is given certain regulatory powers over insured institutions, requiring each institution to accumulate reserves over several years, and assesses an annual insurance premium, calculated at 0.25 percent of the total amount of all accounts of insured shareholders or members, plus any creditor obligations. The FSLIC will routinely suspend insurance premiums whenever its reserve fund is greater or equal to five percent of all insured accounts and creditor obligations of all insured institutions. [Courier News, 7/28/1934]

Entity Tags: Franklin Delano Roosevelt, Federal Housing Administration, Federal Savings and Loan Insurance Corporation, Federal Home Loan Bank Board

Timeline Tags: Global Economic Crises

Congress passes the Public Utilities Holding Act, which bars public utility companies from making federal campaign contributions. Essentially, the act extends the ban on corporate contributions (see 1925) to utility companies, as they are not covered under existing law, and, under the administration of President Franklin Roosevelt, are growing rapidly in power and influence. Roosevelt had been elected to office in 1932 on a platform of “good government,” a longtime staple of Democratic Party platforms. The message played particularly well with voters after the economic policies and political corruption of the administration of President Herbert Hoover, a Republican, were widely blamed for the Great Depression. Republicans, stung by the failures of the Hoover administration, also declare their support for campaign finance reform, and the act passes with little resistance. [Campaign Finance Timeline, 1999]

Entity Tags: Franklin Delano Roosevelt, Democratic Party, Republican Party, US Congress, Herbert Hoover

Timeline Tags: Civil Liberties

Rep. Fernand J. St. Germain (D-RI), with 28 co-sponsors, introduces HR 6267, the “Net Worth Guarantee Act” officially entitled “A bill to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans.” [Library of Congress, 5/19/2008] As introduced, the bill would create a fund for loans to those troubled banks and savings and loans institutions that would have to be put into receivership if their condition deteriorates to a small degree from the bill’s qualifying requirements. The provisions are as follows:
bullet Amendments to the Federal Deposit Insurance Act (which regulates the Federal Deposit Insurance Corporation, FDIC), the National Housing Act (which regulates the Federal Home Loan Bank Board, FHLBB), and the Federal Credit Union Act (the National Credit Union Administration Board, NCUAB) so that the regulated bodies can guarantee the net worth of qualified insured institutions.
bullet Requirements that a qualifying depository institution be one that is threatened with insolvency, as measured by very low net worth and a recent trend of losses; that the institution be one that mainly serves the residential mortgage industry, as measured by the share of its loans or other assets that are held in or collateralized by residential mortgages or real estate; and that it continue in this service under the net worth guarantee, as measured by the share of its new deposits that it devotes to certain types of mortgages.
bullet Rules for determining the initial amount of the guarantee, and for either extending or phasing out the assistance to a given institution. Extensions after two years are to be contingent upon a showing that “certified continued earnings losses are caused by general market conditions and not by the actions of the institution.”
bullet Creation of a Net Worth Guarantee Account in the US Treasury in the amount of $8.5 billion to cover the payment of any guarantees.
bullet A sunset date for new extensions of guarantees.
bullet An oversight process in which the three bank regulating bodies report quarterly to Congress on their activities in granting guarantees, and the comptroller of the currency provides semiannual audits. [Library of Congress, 5/14/2008; Library of Congress, 5/14/2008]
Fate in the House - The Net Worth Guarantee Act passes the House of Representatives on May 20, 1982, with amendments that extend the coverage to qualifying State-chartered commercial banks, and qualifying national banks whether or not they are members of the FDIC; that add investment in residential housing co-operative stock and mortgages on multifamily rental projects to the qualifying activities for sustaining the guarantee; that alter the exit path from the program; that add compliance with community credit provision requirements under the Community Reinvestment Act of 1977; that make the Treasury senior to holders of existing subordinated debt of any guaranteed bank that later winds up in receivership; and that clearly give the sunset date as September 30, 1984. [Library of Congress, 5/14/2008; Library of Congress, 5/14/2008; Library of Congress, 5/14/2008]
Eventual Fate - With substantial amendments that address other banking regulatory issues besides the net worth of depository institutions, the bill finally passes the Senate under several short titles, of which the primary is “Depository Institutions Amendments of 1982,” superseding S.2879 sponsored by Sen. E.J. “Jake” Garn. The bill is enacted with the signature of President Ronald Reagan on October 15, 1982 as the Garn-St. Germain Depository Institutions Act of 1982. [Library of Congress, 5/14/2008]

Entity Tags: Charles Schumer, Steny Hoyer, Fernand J. St. Germain

Timeline Tags: Global Economic Crises

The House Banking Committee approves H.R. 6267, the Net Worth Guarantee Act, by a vote of 25 to 15, with three abstaining. The approval is the first action of Congress to provide direct and specific financial assistance to troubled thrifts, although by a reported estimate in the New York Times, most of the nation’s 4,500 thrift depositories are “losing money” by this time. [New York Times, 5/12/1982, pp. D1, D13] Voting on the bill, which was introduced into the House by Representative and committee chairman Fernand J. St. Germain (D-RI) on May 4 (see May 4-October 15, 1982), is largely partisan: Republican members generally favor an alternative proposal by Rep. Chalmers P. Wylie (R-OH) that differs in qualifying firms at a higher current net worth, and in allowing regulators discretion over this qualification, although debate on the Wylie amendments is short-circuited by a motion to table the amendment made by Rep. Frank Annunzio (D-IL). [New York Times, 5/12/1982, pp. D1, D13] The Wylie provisions form the basis for the bill S.2531 which is introduced into the Senate on May 14, 1982 (see May 14, 1982). [New York Times, 5/12/1982, pp. D1, D13; Library of Congress, 5/19/2008]

Entity Tags: House Banking Committee, Chalmers P. Wylie, Fernand J. St. Germain, Frank Annunzio

Timeline Tags: Global Economic Crises

The Capital Assistance Act of 1982 is introduced by Sen. E.J. (Jake) Garn (R-UT) and three co-sponsors under the title, “A bill to provide flexibility to the Federal Savings and Loan Insurance Corporation and the Federal Deposit Insurance Corporation to deal with financially distressed institutions.” [Library of Congress, 5/20/2008; Library of Congress, 5/20/2008] The bill provides the following:
bullet Amendments to the National Housing Act and the Federal Deposit Insurance Act so that the Federal Savings and Loan Insurance Corporation (FSLIC) and the Federal Deposit Insurance Corporation (FDIC) may buy capital certificates from institutions that they regulate, for the purpose of either increasing or maintaining the capital of those institutions.
bullet Criteria that qualifying institutions must meet to receive this assistance. The criteria differ from those required by the Net Worth Guarantee Act importantly in requiring a prior net worth of three percent of assets, instead of two percent in the House version.
bullet Parameters of the initial capital certificates, and provision for the subsequent modification of those parameters at the discretion of the FSLIC and FDIC.
bullet Restriction of aid to cases in which this course of action is less costly than liquidation of the institution would be. [Library of Congress, 5/20/2008] The most important difference between the Capital Assistance Act (CAA) and the Net Worth Guarantee Act (NWGA) is that the CAA is meant to avoid the need for a Congressional appropriation of funds. Instead of establishing a Treasury account to be drawn on to fund the assistance, as does the NWGA, the CAA would permit the assisting agencies, FSLIC or FDIC, to give the thrifts promissory notes in exchange for the thrifts capital certificates. [New York Times, 5/15/1982] The Capital Assistance Act of 1982 is evidently the bill that Rep. Wylie promised several days previously would be introduced into the Senate, on the occasion of the approval by the House Banking Committee of the Net Worth Guarantee Act without the amendments that Wylie had offered for that bill. The new bill in the Senate has several features of Wylie’s amendments. [New York Times, 5/12/1982] According to Sen. Garn, Treasury Secretary Donald T. Regan also contributed to the new bill.
Eventual Fate - On August 19, while under consideration in the Senate Banking Committe, the key provisions of S.2531 will be incorporated into S.2879 and passed to the floor of the Senate the next day. Bill S.2879 will be passed by the Senate on September 24, and ultimately incorporated into H.R.6267, the Garn-St Germain Depository Institutions Act of 1982. [Library of Congress, 5/20/2008; Library of Congress, 5/20/2008]

Entity Tags: Capital Assistance Act of 1982, Donald Regan, E. J. (“Jake”) Garn, Federal Deposit Insurance Corporation, Chalmers P. Wylie, Federal Savings and Loan Insurance Corporation, National Housing Act of 1933, Federal Deposit Insurance Act, Fernand J. St. Germain

Timeline Tags: Global Economic Crises

The United States Federal Reserve has lent Wall Street’s largest investment bank billions of dollars, as the credit crisis threatens to spiral into a full-blown banking crisis. In developments currently rocking the world’s financial markets, the Fed and rival Wall Street bank, JP Morgan Chase, are funneling emergency loans to Bear Stearns, whose exposure to battered credit markets has led to a crisis of confidence in its ability to continue trading. In accelerating numbers, clients and trading partners are pulling business from Bear Stearns, after rumors of its solvency began circulating. During a last-minute conference call with investors, management at the investment bank warned that its emergency lending facility with the Federal Reserve has failed to staunch the bleeding. “We have been subject to a significant amount of rumor and innuendo in the past week,” says Bear Stearns chief executive Alan Schwartz. “We attempted to provide some facts but, in the market environment, the rumors intensified and a lot of people wanted to act to protect themselves first from the possibility that the rumors were true, and wait till later for the facts.” Bear Stearns appears most fragile of Wall Street’s major investment banks, since the July 2007 collapse of two internal hedge funds, providing initial clues about the scale of the unfolding credit crisis. Shares across the banking sector plunge as analysts fear that the Fed’s willingness to intervene suggests that Bear’s future is pivotal to the banking system, and that its failure precipitates losses that may cascade through its trading partners. Bear Stearns stocks are in freefall, closing down 47 percent. Pierre Ellis at New York’s Decision Economics said, “Clearly the Fed is addressing what they feel is a systemic risk very aggressively.” [Belfast Telegraph, 3/15/2008]

Entity Tags: US Federal Reserve, Alan Schwartz, Bear Stearns, JP Morgan Chase, Pierre Ellis

Timeline Tags: Global Economic Crises

Troubled insurance giant AIG makes a record quarterly loss of $24.47 billion. The loss is caused by writedowns on assets linked to subprime mortgages and capital losses. This is the worst loss it has ever made, coming hard on the heels of losses in the previous three quarters (see October-December 2007, January-March 2008, and April-June 2008). Over the four quarters, the combined loss totals $42.5 billion. The company will be in such bad shape that the government has to take it over by the end of the quarter (see September 16, 2008). The loss will be announced on November 10 (see November 10, 2008). [Reuters, 4/17/2009]

Entity Tags: AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

Lehman Brothers, the fourth largest investment bank in the US, files for liquidation after huge losses in the mortgage market, a crippling loss of investor confidence, and its inability to find a buyer. Lehman’s collapse began as the mortgage market crisis unfolded in summer 2007, when its stock began a steady fall from a peak of $82 a share. Fears were based on the fact that the firm was a major player in the market for subprime and prime mortgages, and that as the smallest of the major Wall Street firms, it faced a larger risk that large losses could be fatal. As its crisis deepened in 2007 and early 2008, the investment bank defied expectations more than once, as it had many times before, such as in 1998, when it teetered after a worldwide currency crisis, only to strongly rebound. Lehman managed to avoid the fate of fellow investment bank Bear Stearns, which was bought by JP Morgan Chase at a bargain basement price under the threat of bankruptcy in March 2008 (see March 15, 2008). By summer, however, Lehman’s roller-coaster ride began to have more downs than ups. A series of write-offs accompanied new offerings to seek capital to bolster its finances. [New York Times, 9/16/2008]

Entity Tags: Bear Stearns, Lehman Brothers

Timeline Tags: Global Economic Crises

The share price in the insurance giant AIG collapses to $4.76 amid fears over the company’s credit rating, which is subsequently cut by Standard & Poor’s and Moody’s. This means that the company needs additional capital, and it is given permission by New York State to access $20 billion in its subsidiaries. In addition, Goldman Sachs and JPMorgan Chase work to prepare a potential $75 billion lifeline. [Bloomberg, 9/16/2008; Bloomberg, 3/5/2009] However, this is not enough, and the US government will be forced to seize control of AIG the next day (see September 16, 2008).

Entity Tags: AIG (American International Group, Inc.), Goldman Sachs, JP Morgan Chase

Timeline Tags: Global Economic Crises

AIG logo.AIG logo. [Source: American International Group (AIG)]In an historic move, the federal government bails out insurance corporation AIG with an $85 billion loan, giving control of the firm to the US government. After resisting AIG’s overtures for an emergency loan or other intervention to prevent the insurer from falling into bankruptcy, the government decided AIG, like the now-defunct investment bank, Bear Stearns, was “too big to fail” (see March 15, 2008). The US government will lend up to $85 billion to AIG. In return, the government gets a 79.9 percent equity stake in warrants, called equity participation notes. The two-year loan will carry a LIBOR interest rate plus 8.5 percentage points. LIBOR, the London InterBank Offered Rate, is a common short-term lending benchmark. The bailout comes less than a week after the government allowed a large investment bank, Lehman Brothers Holdings Inc., to fold (see September 14, 2008). As part of the loan agreement, Treasury Secretary Henry Paulson insists that AIG’s chief executive, Robert Willumstad, steps aside. Willumstad will be succeeded by Edward Liddy, the former head of insurer Allstate Corp (see September 18, 2008). [Wall Street Journal, 9/16/2008] Shares in AIG drop to $3.75 on the news. [Bloomberg, 3/5/2009]

Entity Tags: Henry Paulson, AIG (American International Group, Inc.), Edward Liddy, Robert Willumstad, US Federal Reserve

Timeline Tags: Global Economic Crises

The insurance corporation AIG, which was recently bailed out by the US government (see September 16, 2008), makes $18.7 billion in payments to other world banks. The payments are related to credit default swaps, and are made in the three weeks after the bailout to institutions such as Goldman Sachs and Société Générale. [Bloomberg, 3/5/2009]

Entity Tags: Société Générale, Goldman Sachs, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

September 18, 2008: AIG Boss Replaced Again

Edward Liddy is approved by the board of insurance giant AIG as its chief executive officer. Liddy replaces former boss Robert Willumstad, who had only been in the job for a few months (see June 15, 2008). [Bloomberg, 3/5/2009; Reuters, 4/17/2009] Liddy tells employees he intends to repay a two-year Federal Reserve loan that recently bailed the company out (see September 16, 2008) sooner than scheduled. [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.), Edward Liddy, Robert Willumstad

Timeline Tags: Global Economic Crises

Edward Liddy, the recently installed chief executive officer of troubled insurer AIG, says the company soon plans to repay the bailout loan it received from the US Federal Reserve (see September 16, 2008). To do this, it intends to sell life insurance operations in the United States, Europe, Latin America, South Asia, and Japan. Liddy says AIG has been contacted by “numerous” potential bidders, adding, “The values that we will receive from the assets we intend to dispose will be more than enough to repay the Fed facility.” [Bloomberg, 3/5/2009; Reuters, 4/17/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

October 8, 2008: Size of AIG Bailout Increased

The troubled insurer AIG, which was recently bailed out by the US government (see September 16, 2008), is given more money. In the additional bailout, the government enables AIG to borrow an extra $37.8 billion, on top of the originally provided $85 billion. This addition is provided after customers pull out of AIG’s securities-lending program. [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

October 10, 2008: AIG Criticized over Spending

The insurance giant AIG, which was recently bailed out by the US government (see September 16, 2008), is criticized over post-bailout spending, on news it spent $200,000 on hotel rooms and $23,000 on spa services after it got the government loan. In addition, AIG says that, as of two days previously, it had borrowed $70.3 billion from the government. [Reuters, 4/17/2009]

Entity Tags: AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

New York Attorney General Andrew Cuomo says he is investigating what he calls “unwarranted and outrageous” spending by insurance giant AIG, which was recently bailed out by the US government (see September 16, 2008). Cuomo says he is seeking a full accounting of bonuses, stock options, and other perks. He wants AIG to either recover or rescind the payments. [Reuters, 4/17/2009]

Entity Tags: Andrew Cuomo, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

Edward Liddy, chief executive officer of the recently bailed-out insurance corporation AIG (see September 16, 2008), says that the $122.8 billion already offered by the government “may not be enough” to stabilize the company. The size of the bailout and favorability of the terms will be increased the next month (see November 10, 2008). [Bloomberg, 3/5/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

The troubled insurance giant AIG seeks a modification of a bailout it received from the US government in September (see September 16, 2008), according to reports. An additional loan following the initial bailout has already been made (see October 8, 2008). However, AIG now wants to alter the terms of the bailout, extending the duration and lowering the interest rate. Shares in the company close at $2.11. [Bloomberg, 3/5/2009] AIG will obtain the modification within a few days (see November 10, 2008).

Entity Tags: AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

The terms of the bailout given to troubled insurance giant AIG are modified, following calls from the insurer (see October 22, 2008 and November 7, 2008). The conditions of the government bailout were set in September (see September 16, 2008), but the interest rate is now lowered and the term is extended from two years to three. In addition, the rescue package grows to $150 billion, including a $60 billion loan, a $40 billion capital investment, and about $50 billion to buy mortgage-linked assets owned by AIG or guaranteed by it through credit default swaps. AIG also announces a record loss (see July-September 2008). [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

On the same day AIG announces the biggest loss ever in corporate history (see October-November 2008), the bailout of the troubled insurer is again increased and its terms eased. First, the US Treasury and Federal Reserve announce a plan to spend up to $30 billion more on preferred shares. However, the Treasury says the dividend on preferred stock, previously 10 percent, might fall. In addition, the bailout’s terms and conditions are altered to give the insurer a billion-dollar-a-year break on interest and dividend payments. [Bloomberg, 3/5/2009; Reuters, 4/17/2009] The size of the bailout, initially $85 billion, has now more than doubled, and the terms have been eased repeatedly (see September 16, 2008, October 8, 2008, and November 10, 2008).

Entity Tags: US Federal Reserve, AIG (American International Group, Inc.), US Department of the Treasury

Timeline Tags: Global Economic Crises

Having received over $170 billion in taxpayer bailout funds in the last five months, troubled insurance giant American International Group (AIG) pays executives nearly $200 million in bonuses. The largest are bonus payouts that cover AIG Financial Products executives who sold risky credit default swap contracts that caused huge losses for the insurer (see September 16, 2008). Despite a request by US Treasury Secretary Timothy Geithner for the insurance conglomerate to curtail future bonus pay—and AIG’s agreement to do so—the global insurer cuts bonus checks on Sunday, March 15, 2009, in order to meet a bonus payment agreement deadline. The Treasury Department has publicly acknowledged that the government does not have the legal authority to block current bonus payments, although AIG stated in early March that it suffered its largest corporate loss in history, when it reported fourth quarter 2008 losses of $61.7 billion.
Treasury Tried to Prevent Payments - An anonymous Obama administration official says that on March 11 Geithner called AIG Chairman Edward Liddy demanding that the CEO renegotiate the insurer’s present bonus structure. In a letter, Liddy informed Geithner that outside lawyers had advised AIG that the company could face lawsuits, should they not make the contractually obligated payments. “AIG’s hands are tied,” Liddy wrote, although acknowledging that, with the company’s fiduciary situation, he found it “distasteful and difficult” to approve and pay the bonuses. He wrote that the early 2008 bonus payments agreement was entered into prior to the company being forced last fall to obtain the first taxpayer bailout because of the company’s severe financial distress.
Some Monies Already Paid Out - A white paper generated by AIG asserted that the firm had already distributed $55 million in “retention pay” to nearly 400 AIG Financial Products employees. According to the white paper, the global entity “will labor to reduce 2009 bonus payment amounts,” trimming payouts by at least 30 percent this year. [Associated Press, 3/15/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.), Timothy Geithner, US Department of the Treasury

Timeline Tags: Global Economic Crises

US President Barack Obama attacks the payment of over $200 million in bonuses to top AIG employees (see March 15, 2009). As the company is being propped up by the government using public money (see September 16, 2008, October 8, 2008, and November 10, 2008), Obama calls the bonuses an “inappropriate use of taxpayer funds.” [Reuters, 4/17/2009]

Entity Tags: Barack Obama, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

The US House of Representatives passes a bill imposing a 90 percent tax on bonuses paid to AIG executives. The bonuses were set to be paid in December 2008 and earlier in the month, but there has been a public outcry against them, as the company had to be bailed out by the taxpayer six months ago (see September 16, 2008 and March 15, 2009). [Reuters, 4/17/2009] However, President Obama soon challenges the bill’s legality, saying: “I think that as a general proposition, you don’t wanna be passing laws that are just targeting a handful of individuals. You wanna pass laws that have some broad applicability. And as a general proposition, I think you certainly don’t wanna use the tax code to punish people.” The Democratic leadership in the Senate then says that it will wait and see what happens, instead of immediately acting on the bill forwarded by the House of Representatives. This effectively shelves the bill, although several of the executives give their bonuses back anyway (see March 24, 2009). [Politics Daily, 3/24/2009]

Entity Tags: Barack Obama, US Congress, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

Fifteen of the top 20 beneficiaries of bonuses at troubled insurer AIG have given the payments back, says New York Attorney General Andrew Cuomo. The bonuses were to be paid out at the end of 2008 and earlier this month, but there was a public outcry over them as the taxpayer had spent about $180 bailing the company out (see September 16, 2008, March 15, 2009, March 18, 2009, and March 19, 2009). [Reuters, 4/17/2009]

Entity Tags: Andrew Cuomo, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

The insurer AIG, bailed out by the US government the previous year (see September 16, 2008), is in talks with the US Federal Reserve over extra credit, according to the Financial Times. The negotiations concern a $5 billion credit line that could be used to facilitate the sale of the company’s aircraft leasing business. [Reuters, 4/17/2009]

Entity Tags: US Federal Reserve, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

The Congressional Oversight Panel, charged with monitoring the $700 billion TARP, says that as long as banks keep large amounts of toxic assets on their books, regulators should conduct stress tests on them. Noting that the worst-case unemployment rate used in recent bank stress tests will soon be surpassed, panel chair and Harvard law professor Elizabeth Warren tells Congress’s Joint Economic Committee, “We have not actually broken through the worst-case scenario, but the numbers are bad and they’re heading in the wrong direction.” The Congressional Oversight Panel, which includes a former senator and a current member of the House of Representatives, also advocates replicate periodic tests as long as banks hold “appreciable amounts” of illiquid mortgage securities. Warren says the “US unemployment rate average for 2009, now at 8.5 percent, will soon exceed the 8.9 percent as the worst-case scenario used in regulators’ capital evaluations of the 19 largest US bank holding companies.” Unemployment climbed to 9.4 percent in May; many analysts expect the rate to increase. “The worst-case scenario number for 2009 is in fact not the worst case. We’re going to see worse numbers,” Warren affirms. Ordered for the top 19 US bank holding companies by the US Treasury Department, the panel’s monthly report says the stress tests used a risk-modeling approach that, in its totality, was “reasonable and conservative.” However, the panel also says that an external party would find it impossible to imitate the loss projections forming the core of the tests. Warren adds that to ensure they are valued properly, the oversight panel will also review transactions in which banks repurchase stock warrants from the Treasury. Valuation of warrants, intended to provide taxpayers a potential for gains from government capital injections, will be a key focus of the panel’s July report. While the panel’s report acknowledges that the stress tests had a positive effect on market confidence, it cautions against assigning too much value to them. “They do not model bank holding company performance under ‘worst case’ scenarios and, as a result, they do not project the capital necessary to prevent banks from being stressed to near the breaking point,” the panel says. Warren notes her oversight board was rebuffed although it “pressed really hard on the Fed” for more stress test details. She adds that the Treasury under Secretary Timothy Geithner has been more open. She also tells lawmakers that giving the panel subpoena power would make it easier to acquire documents and testimony from officials at Treasury and the Federal Reserve. [Reuters, 6/9/2009]

Entity Tags: Timothy Geithner, US Department of the Treasury, Elizabeth Warren, US Federal Reserve

Timeline Tags: Global Economic Crises

Federal Deposit Insurance Corporation (FDIC) regulators take over real estate lender Colonial BancGroup Inc. in the biggest US bank failure this year. Regulators also close four banks in Arizona, Nevada and Pennsylvania. This increases to 77 the number of federally insured banks that have failed in 2009. The FDIC is appointed receiver of Colonial BancGroup, based in Montgomery, Alabama; Community Bank of Arizona, based in Phoenix; Union Bank, based in Gilbert, Arizona; Community Bank of Nevada, based in Las Vegas; and Dwelling House Savings and Loan Association, located in Pittsburgh. The FDIC approves the sale of Colonial’s $20 billion in deposits and about $22 billion of its assets to BB&T Corp., which is based in Winston-Salem, North Carolina. According to the FDIC, the failed bank’s 346 branches in Alabama, Florida, Georgia, Nevada, and Texas will reopen at normal times starting on Saturday as BB&T offices. A temporary government bank is established by the FDIC for Community Bank of Nevada to give depositors approximately 30 days to open accounts at other financial institutions. As of June 30, Community Bank of Nevada had assets of $1.52 billion and deposits of $1.38 billion; Community Bank of Arizona had assets of $158.5 million and deposits of $143.8 million; Union Bank had assets of $124 million and deposits of $112 million as of June 12. MidFirst Bank, based in Oklahoma City, agrees to assume all the deposits and $125.5 million of the assets of Community Bank of Arizona, as well as about $24 million of the deposits and $11 million of the assets of Union Bank, with the FDIC retaining what’s left for eventual sale. Dwelling House had $13.4 million in assets and $13.8 million in deposits as of March 31. PNC Bank, part of Pittsburgh-based PNC Financial Services Group Inc., agrees to assume all of Dwelling House’s deposits and about $3 million of its assets; the FDIC will hold the rest for eventual sale. The FDIC expects Colonial BancGroup’s failure to cost it an estimated $2.8 billion and that of Community Bank of Nevada, $781.5 million; Union Bank, $61 million; Community Bank of Arizona, $25.5 million; and Dwelling House, $6.8 million. The 77 bank failures nationwide this year compare with 25 last year and three in 2007. As the economy spiraled downward, bank failures increased seismically, siphoning billions out of the FDIC which, at $13 billion as of the first quarter, is at its lowest level since 1993. While losses on home mortgages may be leveling, commercial real estate loan delinquencies remain a potential trouble spot, say FDIC officials. The FDIC’s list of problem institutions soared to 305 in first quarter 2009—the highest since the savings and loan crisis in 1994—increasing from 252 in fourth quarter 2008. Regulators anticipate US bank failures will cost the FDIC about $70 billion through 2013. The shutdown in May of Florida thrift BankUnited is expected to cost the federal insurer $4.9 billion, the second-largest hit since the financial crisis commenced. So far, the costliest is the seizure of big California lender IndyMac Bank in 2008, where it is estimated that the FDIC lost $10.7 billion. In September 2008, the largest US bank failure was the failure of Seattle-based Washington Mutual Inc. (WAMU), with about $307 billion in assets. In a deal brokered by the FDIC, JP Morgan Chase and Co. purchased WAMU for $1.9 billion. [fdic.gov, 8/2009; ABC News, 8/14/2009]

Entity Tags: Federal Deposit Insurance Corporation, Colonial BancGroup, Inc., IndyMac Bank, JP Morgan Chase, Washington Mutual Inc.

Timeline Tags: Global Economic Crises

The New York Times calls today’s ruling in the Citizens United case (see January 21, 2010) “disastrous,” saying that “the Supreme Court has thrust politics back to the robber-baron era of the 19th century.” The Court has used the excuse of the First Amendment (see January 21, 2010) to “pave… the way for corporations to use their vast treasuries to overwhelm elections and intimidate elected officials into doing their bidding.” The Times recommends that Congress should “act immediately to limit the damage of this radical decision, which strikes at the heart of democracy.” In essence, the Times writes, lobbyists for corporate, labor, and special interests now have the power to sway elections in the directions they prefer. And the ruling gives those same interests the power to intimidate and even coerce candidates. “If a member of Congress tries to stand up to a wealthy special interest,” the Times writes, “its lobbyists can credibly threaten: We’ll spend whatever it takes to defeat you.” The Times notes that since the inception of the nation, its founders have “warned about the dangers of corporate influence. The Constitution they wrote mentions many things and assigns them rights and protections—the people, militias, the press, religions. But it does not mention corporations.” Corporate money has been banned from elections since 1907 (see 1907), and that ban has been in place, in one form or another (see June 25, 1910, 1925, 1935, 1940, June 25, 1943, June 23, 1947, March 11, 1957, February 7, 1972, 1974, May 11, 1976, January 30, 1976, January 8, 1980, March 27, 1990, March 27, 2002, and December 10, 2003), until today. The Times accuses the Court of “overreach[ing],” using “a case involving a narrower, technical question involving the broadcast of a movie that attacked Hillary Clinton during the 2008 campaign (see January 10-16, 2008). The Court elevated that case to a forum for striking down the entire ban on corporate spending and then rushed the process of hearing the case at breakneck speed. It gave lawyers a month to prepare briefs on an issue of enormous complexity (see June 29, 2009), and it scheduled arguments during its vacation” (see September 9, 2009). The Times says the ruling is “deeply wrong on the law,” particularly in declaring corporations as equivalent to people, with the same First Amendment rights. “It is an odd claim since companies are creations of the state that exist to make money. They are given special privileges, including different tax rates, to do just that. It was a fundamental misreading of the Constitution to say that these artificial legal constructs have the same right to spend money on politics as ordinary Americans have to speak out in support of a candidate.” And the Times derides the statement in the Court’s majority opinion that says independent corporate expenditures “do not give rise to corruption or the appearance of corruption,” citing Senator John McCain (R-AZ)‘s characterization of the Court’s reasoning as being plagued by “extreme naivete.” The Citizens United case is, the Times writes, “likely to be viewed as a shameful bookend to Bush v. Gore (see 9:54 p.m. December 12, 2000). With one 5-to-4 decision, the Court’s conservative majority stopped valid votes from being counted to ensure the election of a conservative president. Now a similar conservative majority has distorted the political system to ensure that Republican candidates will be at an enormous advantage in future elections.” The only two ways to rectify the situation, the Times concludes, are to overturn the ruling via Congressional legislation and have a future Court—with a different makeup—overturn the decision itself. [New York Times, 1/21/2010]

Entity Tags: John McCain, Hillary Clinton, US Congress, New York Times, US Supreme Court

Timeline Tags: Civil Liberties

Republican presidential frontrunner Mitt Romney (R-MA) tells MSNBC reporter Chuck Todd that wealthy donors should be able to give unlimited amounts directly to candidates in lieu of donating to “independent” organizations such as super PACs (see March 26, 2010, June 23, 2011, and November 23, 2011). The US history of campaign finance law (see 1883, 1896, December 5, 1905, 1907, June 25, 1910, 1925, 1935, 1940, February 7, 1972, 1974, May 11, 1976, January 30, 1976, January 8, 1980, March 27, 1990, March 27, 2002, and December 10, 2003), including the 2010 Citizens United decision (see January 21, 2010), has always put stringent limitations on what donors can contribute directly to candidates. Asked if he thinks the Citizens United decision was a poor one, Romney responds: “Well, I think the Supreme Court decision was following their interpretation of the campaign finance laws that were written by Congress. My own view is now we tried a lot of efforts to try and restrict what can be given to campaigns, we’d be a lot wiser to say you can give what you’d like to a campaign. They must report it immediately and the creation of these independent expenditure committees that have to be separate from the candidate, that’s just a bad idea.” Ian Millhiser, a senior legal analyst for the liberal news Web site Think Progress, responds: “It’s not entirely clear from this interview that Romney understands what happened in Citizens United. That decision emphatically did not follow any ‘interpretation of campaign finance laws that were written by Congress.’ Rather, Citizens United threw out a 63-year-old federal ban on corporate money in politics.… [I]t was not a case of judges following the law. More importantly, however, Romney’s proposal to allow wealthy donors to give candidates whatever they’d ‘like to a campaign’ is simply an invitation to corruption (see October 17, 2011). Under Romney’s proposed rule, there is nothing preventing a single billionaire from bankrolling a candidate’s entire campaign—and then expecting that candidate to do whatever the wealthy donor wants once the candidate is elected to office. Romney’s unlimited donations proposal would be a bonanza for Romney himself and the army of Wall Street bankers and billionaire donors who support him, but it is very difficult to distinguish it from legalized bribery.” Millhiser notes that Romney had a different view on the subject in 1994, saying then that when you allow special interest groups to buy and sell candidates, “that kind of relationship has an influence on the way that [those candidates are] going to vote.” [Think Progress, 12/21/2011]

Entity Tags: Willard Mitt Romney, Charles David (“Chuck”) Todd, Ian Millhiser

Timeline Tags: Civil Liberties, 2012 Elections

The Republican National Committee (RNC) files a court brief calling the federal ban on direct corporate donations to candidates unconstitutional, and demanding it be overturned. Such direct donations are one of the few restrictions remaining on wealthy candidates wishing to influence elections after the 2010 Citizens United decision (see January 21, 2010). The brief is in essence an appeal of a 2011 decision refusing to allow such direct donations (see May 26, 2011 and After). The RNC case echoes a request from Senator Mike Lee (R-UT) that he be allowed to form and direct his own super PAC (see November 23, 2011), and recent remarks by Republican presidential frontrunner Mitt Romney (R-MA) calling for donors to be allowed to contribute unlimited amounts to candidates (see December 21, 2011). The RNC brief claims: “Most corporations are not large entities waiting to flood the political system with contributions to curry influence. Most corporations are small businesses. As the Court noted in Citizens United, ‘more than 75 percent of corporations whose income is taxed under federal law have less than $1 million in receipts per year,’ while ‘96 percent of the 3 million businesses that belong to the US Chamber of Commerce have fewer than 100 employees.’ While the concept of corporate contributions evokes images of organizations like Exxon or Halliburton, with large numbers of shareholders and large corporate treasuries, the reality is that most corporations in the United States are small businesses more akin to a neighborhood store. Yet § 441b does not distinguish between these different types of entities; under § 441b, a corporation is a corporation. As such, it is over-inclusive.” Think Progress legal analyst Ian Millhiser says the RNC is attempting to refocus the discussion about corporate contributions onto “mom and pop stores” and away from large, wealthy corporations willing to donate millions to candidates’ campaigns. If the court finds in favor of the RNC, Millhiser writes: “it will effectively destroy any limits on the amount of money wealthy individuals or corporation[s] can give to candidates. In most states, all that is necessary to form a new corporation is to file the right paperwork in the appropriate government office. Moreover, nothing prevents one corporation from owning another corporation. For this reason, a Wall Street tycoon who wanted to give as much as a billion dollars to fund a campaign could do so simply by creating a series of shell corporations that exist for the sole purpose of evading the ban on massive dollar donations to candidates” (see October 30, 2011). [United States of America v. Danielcytk and Biagi, 1/10/2012 pdf file; Think Progress, 1/11/2012] The RNC made a similar attempt in 2010, in the aftermath of Citizens United; the Supreme Court refused to hear an appeal of its rejection. [New York Times, 5/3/2010; Tom Goldstein, 5/14/2012] Over 100 years of US jurisprudence and legislation has consistently barred corporations from making such unlimited donations (see 1883, 1896, December 5, 1905, 1907, June 25, 1910, 1925, 1935, 1940, March 11, 1957, February 7, 1972, 1974, May 11, 1976, January 30, 1976, January 8, 1980, March 27, 1990, March 27, 2002, and December 10, 2003). Shortly after the Citizens United ruling, RNC lawyer James Bopp Jr. confirmed that this case, like the Citizens United case and others (see Mid-2004 and After), was part of a long-term strategy to completely dismantle campaign finance law (see January 25, 2010).

Entity Tags: Republican National Committee, Halliburton, Inc., ExxonMobil, Ian Millhiser, Michael Shumway (“Mike”) Lee, Willard Mitt Romney, US Supreme Court, US Chamber of Commerce, James Bopp, Jr

Timeline Tags: Civil Liberties, 2012 Elections

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