12. Wells Fargo bought Wachovia for $15 billion, but managed to squeeze a $74 billion tax shelter through the IRS for the purchase. Net profit, $59 billion dollars, pretty nice for one day's work.
13. Citigroup had been lobbying for the repeal of the Glass-Steagall Act since the 1980s. They finally got their wish, and it helped destroy the bank.
For an excerpt from the introduction of 'Bailout Nation', see the next page.
The modern era of finance is now defined by the bailout. "Systemic risk" has become the buzzword du jour. History teaches us that these bouts of intervention to save the system occur far more regularly than an honest definition of that phrase would require. Indeed, systemic risk has become the rallying cry of those who patrol the corridors of Washington D.C., hats in hand, looking for a handout. As we too often learn after the fact, what is described as systemic risk is more often than not an issue of political connections and politics. Perhaps a more accurate phrase is economic expediency.
The past generation has seen increasing dependence on government intervention into the affairs of finance. Industrial companies, banks, markets, and now financial firms have all gone to the honey pot. This is no longer a question of philosophical purity, but rather a regular occurrence of politically connected corporations -- and their well-greased politicians -- throwing off the responsibility for their failures onto the public. Any sort of guiding philosophy or ideology regarding free markets, competition, success and failure seems to have simply faded away as inconvenient. No worries, the taxpayer will cover it.
Some people -- most notably, current Federal Reserve chairman Ben Bernanke and former chairman Alan Greenspan -- seem to feel that it is the responsibility of governmental entities such as the Federal Reserve or Congress to intervene only when the entire system is at risk. The events of the past year have made it clear that this is a terribly expensive approach. Perhaps what the government should be doing is acting to prevent systemic risk before it threatens to destabilize the world's economy, rather than merely cleaning up and bailing out afterwards. An ounce of regulatory prevention may save trillions in clean up cures.
The United States finds itself in the midst of an unprecedented cleanup of toxic financial waste. As of this writing, the response to the credit crunch, housing collapse, and recession by various and sundry government agencies had rung up over $14 trillion in taxpayer liabilities, including bailouts for Fannie Mae and Freddie Mac, GM and Chrysler, AIG (three times) Bank of America (two times) and Citigroup (three times). It has forced capital injections into other major banks, and government-engineered mergers involving once vaunted firms Bear Stearns, Goldman Sachs, Morgan Stanley, Merrill Lynch, and Washington Mutual. It has led to the FDIC receivership, nationalization and sale of Washington Mutual, now in the hands of JP Morgan, and Wachovia, flipped over the course of a weekend to Wells Fargo.
Yes, that's $14 trillion (plus) -- about equal to the gross domestic product (GDP) of the United States in 2007. And as 2008 came to a close, even more industries caught the scent of easy money: automakers, homebuilders, insurers, and even state and local governments were clamoring for a piece of the Fed's bailout pie.