Bill Isaac Vs. Hank Paulson's Bailout Machine -- How The Former FDIC Chairman ALMOST Stopped TARP

Bill Isaac Vs. Hank Paulson's Bailout Machine -- How The Former FDIC Chairman ALMOST Stopped TARP

The little-known story behind the House's initial rejection of TARP from Bill Isaac's new book Senseless Panic.

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Bill Isaac was Chairman of the FDIC from 1981-1985 during one of the most tumultuous decades in American banking.  He oversaw the banking system during the Latin American debt crisis and the severe recessions of the early 1980's, and tried -- against enormous political pressure -- to head off the looming S&L crisis before it got worse.  As many know, the S&L clean-up cost taxpayers hundreds of billions of dollars, but had Congress taken Isaac's prescient advice earlier in the decade, the ultimate costs would have only been an estimated $2B.

Fast forward to 2008.  On September 18, Paulson and Bernanke had convinced the Congressional leadership that a bank bailout plan had to be passed immediately or else the entire global economy would collapse.  In his new book, Senseless Panic: How Washington Failed America, Isaac writes:

• "Having served as chairman of the Federal Deposit Insurance Corporation (FDIC) during the banking and S&L crises of the 1980's, I was disturbed, even angry, about the events that led up to the bailout plan itself.  I was so upset that I wrote an opinion piece opposing the bailout plan that ran in the Washington Post of Saturday, September 27."

In his op-ed, Isaac pointed out that several of the ostensible reasons for why we had to pass the TARP bill just didn't make sense.  For instance, the claim that TARP had to be passed because there was a run on money market funds was completely specious as the U.S. Treasury had announced their blanket guarantee on September 19.  Similarly, if the proponents of TARP wanted to claim that ordinary depositors were scared of bank failures, then why not be more clear about "the fact that the FDIC fund is backed by the full faith and credit of the government"?  (This is more or less what the FDIC did anyway, when it raised the deposit insurance limit to $250,000.)  Besides, Isaac wrote, "[t]his is how the FDIC handled Washington Mutual. It would be easy to announce this as a temporary program if needed to calm depositors."  As with so many of the government's excuses for TARP, actions that had already been taken disproved the claims for why TARP was necessary.

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Bob Chapman
International Forecaster
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The discontent and seeds of rebellion existed for a long time in Egypt as it has in many other countries. The major powers of the world were content with Mr. Mubarak, especially the US, which gave him $60 billion over 30 years and allowed him to move $70 billion over that period into secret bank accounts in England, Switzerland and Europe, while Egyptians lived on the edge of starvation over that time frame. Both the US and UK never saw a dictator they didn’t like. This was their dictator, as was his predecessor. Mubarak did exactly as he was told including doing everything Israel desired. Mubarak represented stability even though his subjects barely survived. Most of the aid sent by the US was used to keep the military and Secret Police strong to enforce his powerful hold over the people. Thus, the US was happy to have such a “moderate” in power. He helped keep Egypt and Israel in a sea of tranquility in the desert. Mr. Mubarak was a model dictator.

Hunger and tyranny only last for so long and then one way or another they come to an end. You might say that the rebellion in Tunisia against another dictator was the catalyst or forerunner of what happened in Egypt. This was to be where it would all begin. We had seen many such operations over the past 50 years. In both countries the groundwork was all there, poverty, lack of proper food and spiriling food and other costs. All of the change agents were on the scene coordinating the well prepared uprising. The president and his entourage left the country of course accompanied by 1-1/2 tons of gold.

Mubarak in Egypt was better prepared. He had been moving out the wealth of the starving Egyptian people systematically for years having been well schooled by his handlers in London and Washington. This planned uprising was not what the planners had expected, particularly in Egypt. More violence was expected.