Did you know that 149 US banks have failed so far in 2010?
Today is “FDIC Friday,” the day of the week when the Federal Deposit Insurance Corporation, aka FDIC, announces the latest US financial institutions that have been shuttered. In 2009, in comparison, 140 banks failed.
We won’t know until about 5pm Eastern time how many additional banks will close today. While you wait for the FDIC to release that information, you may want to read over a letter that Vermont’s junior Senator, Bernie Sanders, sent earlier this week to Ben Bernanke of the Federal Reserve.
That letter will be of great interest to anyone concerned about what America’s current political and economic leadership is doing (or not doing) to preserve small community banks hurt by the Great Recession.
When a US community bank finds itself in trouble due to imprudent loans, we’re told that it is better to allow the bank to close down, since propping it up with government aid would only postpone the inevitable.
Call it “tough love.”
But as Senator Sanders’ letter shows, while US community banks have to endure “tough love,” foreign financial institutions are receiving much more gentle treatment from the US Federal Reserve.
In the letter, Senator Sanders points out how “hedge funds and investment firms located in the Cayman Islands and other tax haven countries [have received] assistance from the Fed.”
The letter continues:
“In the [Fed’s gigantic Term Asset-Backed Securities Loan Facility, or TALF for short] program alone, it appears that the Fed provided loans to over 100 separate hedge funds, offshore funds, and other investment funds that are located in the Cayman Islands and other notorious tax haven countries…It has been estimated that each year corporations and wealthy individuals avoid approximately $100 billion in U.S. taxes through the use of abusive and illegal tax shelters.”
(One minor quibble with the above paragraph – the Cayman Islands and other tax havens are not strictly speaking independent countries. Many tax havens are in fact “overseas territories,” or colonies, of Britain’s Queen Elizabeth II.)
Senator Sanders then asks three questions:
“How much money did the Fed lend to each of these firms and how much did each of them profit or lose as a result?
“Why would the Fed lend to material investors located in the Cayman Islands?”
“In how many other instances did the Fed lend emergency money to individuals or entities located in the Cayman Islands or other tax haven countries?”
Attached to the letter, you will find a three page list of Cayman Island entities that Senator Sanders claims received Fed assistance through TALF. These entities have exotic-sounding names like “Aladdin,” “Galaxite,” “Royal Palm” and “Obsidian.”
I could be mistaken, but they don’t exactly sound like firms interested in investing in the retooling of shuttered US factories, or in buying up troubled US community banks and restoring them to health, so they can assist local entrepreneurs to create jobs.
Indeed, given the fact that they are located in the Cayman Islands, they may not even represent American investors.
Towards the end of his letter, the Senator asks Bernanke to explain why the Fed is lavishing financial assistance on foreign companies and banks, when private companies in Vermont cannot get loans on reasonable terms.
If he writes a follow-up letter, the Senator might ask Ben Bernanke to calculate how many US community banks could have been saved over the last couple of years, if that financial assistance had instead been used to shore up their troubled balance sheets.
If “tough love” is good for US community banks, it ought to be good for the Fed, too – so please keep coming up with difficult questions for Bernanke, Senator Sanders
