It’s time for the American people to demand accountability from Wall Street firms that abused the trust of both their clients and the capital markets and from those regulators responsible for overseeing their conduct. The unprecedented bailouts of U.S. financial institutions and their reckless conduct will have a sweeping impact on the U.S. economy and on American taxpayers for years to come. These bailouts that have involved literally trillions of dollars worth of exposure and risk assumption by U.S. taxpayers have to be paid for at some point in time. Unfortunately, the only source of repayment will ultimately lie with the U.S. taxpayer. It is indeed sad that hardworking Americans will be called upon to pay for Wall Street’s excesses and abuses while many of the culprits remain in ivory towers living off their ill-gotten gains.
During recent months, the press has been filled with accounts of the excesses of Wall Street firms during the first part of the decade. These excesses exposed the firms, their clients and the economy to unprecedented risks and were accompanied by an almost of total lack of regulation and oversight by federal authorities. As a result, Wall Street firms pocketed hundreds of billions of dollars in profits when economic conditions were good. However, as the economic cycle turned, these firms’ excessive risks were realized and have resulted in a significant devastation of the financial markets. The Wall Street firms’ reckless actions have placed many well-established firms and their clients in significant jeopardy.
As a result of the abovedescribed abuses, government bailouts have reached staggering levels. Prior to September 17, 2008, the U.S. government has committed more than $900 billion to financial rescues and special loans during 2008. These commitments are as follows:
- $29 billion to facilitate JP Morgan’s buyout of Bear Stearns;
- $85 to facilitate the government’s nationalization of AIG;
- more than $80 billion to facilitate loans by JP Morgan to finance Lehman Brothers’ trades;
- $200 billion to consummate the government’s takeover of Fannie Mae and Freddie Mac plus exposure to trillions of dollars of loans;
- more than $200 billion to provide loans to banks through the Fed’s term auction facility;
- $300 billion to finance failing mortgages.
Unfortunately, all of these actions have proven to be inadequate. Therefore, in the last two days, the government has announced additional commitments and undertakings. These additional undertakings include providing up to $50 billion to insure money market mutual funds and initiating perhaps the most sweeping bailout in the history of mankind. Specifically, the U.S. government is now proposing the establishment of an institution modeled on the Resolution Trust Corp. which was employed during the saving and loan crisis, to purchase vast amounts of so called “distressed assets held by ailing financial institutions. This bailout would have to be paid for with money borrowed by the U.S. government and would expose taxpayers to a mountain of debt.
These massive commitments, collectively, place incredible stress on the United States’ government, the economy and, ultimately, individual taxpayers. The probable impact of these commitments is described by Laurence J. Kotlikoff, a professor of economics at Boston University, in a recent Forbes article entitled, “Is the U.S. Going Broke?” Professor Kotlikoff argues that the bailouts will have far reaching implications for all Americans. His conclusion is “the earthquake will come via a collapse in the market for U.S. governments bonds as domestic and foreign investors realize that the only way Uncle Sam can meet the future spending obligations is to print massive quantities of money. The result will be sky-high inflation and interest rates and, most surely, a prolonged reduction in output and employment. This could happen today. It could happen tomorrow. But it will happen here just as it has happened in every other country that tried to spend far beyond its ability to pay.”
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and individual investors with investment problems. For further information, please contact us.