See who’s dining at King Fed’s table

December 17th, 2008 at 10:44am Annette LaCross

Published Dec. 8:

Musical chairs was so much easier when I was a kid: When the music stops, sit down. If all the chairs are taken, you’re out.

But there’s an updated version playing out on Capitol Hill as the Treasury Department decides which companies get to tap into the $700 billion bailout package. And it’s getting out of hand.

In the early days of this new game, the losers would slink off to file for bankruptcy and the winners got a fat payout from the federal government.

But the players have since become far more sophisticated, and the rules have changed somewhat. Companies without chairs have a chance to convince Treasury that they should have one. And if that doesn’t work, the company will build its own.

Such is the case with GMAC, the financing unit of General Motors Corp., which is becoming a bank holding company so it can get its hands on some of that $700 billion. Otherwise, it doesn’t qualify.

GMAC, which is 51 percent owned by Chrysler parent Cerberus Capital Management, says the change will increase its stability so it can keep providing automotive and mortgage financing. In fact, it has several reasons, most of which seem to revolve around the fact that it needs money.

It’s a little less clear why taxpayers should start footing its bills. Not to mention why a car and mortgage lender gets to suddenly declare itself a completely different kind of company.

In the simplest terms, a bank holding company is one that owns two or more banks. Well, it had been until the government started giving away so much money.

But once American Express and Goldman Sachs — a credit card company and investment bank, respectively — got the nod to become holding companies, the floodgates were opened.

These days, I could probably qualify as a bank holding company if I did my homework.

And that makes me nervous.

Billions of dollars are being spread around to companies and industries of every stripe. Who’s keeping track of all the rules? Who’s making sure the money is being used correctly? Who makes sure these companies repay the public?

Since March, when the Federal Reserve announced a rescue package to provide up to $200 billion in loans to banks and investment houses and loaned $29 billion to JPMorgan Chase & Co. to buy collapsed investment bank Bear Stearns, the rescue money has continued to pile up.

When IndyMac failed in July, it cost the Federal Deposit Insurance Corp. billions to compensate deposit holders. That’s the same month President Bush signed a housing bill that included $300 billion in new loan authority to back cheaper mortgages for troubled homeowners.

In September, the feds:

Took over Fannie Mae and Freddie Mac, pledging up to $200 billion to back the mortgage giants’ assets.

Injected $85 billion to shore up failing insurance giant American International Group. That number has since been modified a few times — increased each time, of course. At last count, taxpayers were into AIG for $150 billion.

Guaranteed money-market fund losses up to $50 billion; boosted to $620 billion the amount available to the Federal Reserve through currency swaps.

Tripled the amount available for short-term loans to financial institutions.

And that’s before the $700 billion bailout package took effect in October.

Now for the really troubling news: The Government Accountability Office said last week that the Treasury Department has no mechanisms to ensure that banks comply with the rules around the $700 bailout package.

The GAO is one of three watchdogs assigned by Congress to monitor the Troubled Asset Relief program. A congressional oversight panel is scheduled to issue its report Dec. 10, and an inspector general’s position created to oversee the program hasn’t yet been filled.

Then of course there’s Neel Kashkari, head of the Treasury Department’s Office of Financial Stability, who said the agency is developing its own compliance program.

I wonder how many chairs those guys get.

Entry Filed under: Uncategorized