‘Wall Street banks are scapegoats in Washington’s game’

‘Wall Street banks are scapegoats in Washington’s game’
The US government is targeting Bank of America, JP Morgan and other Wall Street banks as if they somehow created the housing bubble crash – but this isn’t true, economist Jeffrey A. Tucker tells RT.

On Tuesday, it was reported that JPMorgan had struck a $13 billion settlement with US authorities over shady investment practices. In August, the US Justice Department accused Bank of America, the second-largest US bank, of civil fraud in failing to disclose risks and misleading investors in its sale of $850 million in mortgage bonds in 2008.

Jeffrey Tucker says that while the banks shouldn’t have been bailed out five years ago, they shouldn’t be “looted” today.

RT:So the government agency is demanding $200 billion from the banks – is that fair?

Jeffrey A. Tucker: No that’s preposterous. It’s not the banks who are responsible for the housing boom. It was the government that’s actually looting the banks right now. This is an attempt to find scapegoats and for the government to extract money from wherever they can find it and to avoid responsibility.

RT:The mortgage crisis is believed to have triggered the recession and resulted in a massive bailout package worth half a trillion dollars. Aren't banks getting off a bit too lightly?

JT: Housing had been overinflated through probably half a century as a direct result of Washington’s policies. Every US president was like “housing, housing, housing – the greatest thing ever.” Every federal agency was trying to boost housing ownership. There was a mania that [went] back decades. And then a decade prior to the housing bust, it just had gotten out of control because of federal policies. The banking industry was just sort of riding the wave. And when it looked like things were turning the other direction, guess what, they tried to offload the worst stuff they had. And that’s what they did. That’s called a market in operation. They were looking for willing buyers at the prevailing price and they found them, mostly with a big surprise, at government-backed agencies. Big deal! That’s the way enterprise works. 

A bank owned for sale sign is posted in front of a foreclosed home in Antioch, California. (AFP Photo / Justin Sullivan)

RT:But the banks still were bailed out, and now they are flourishing. Shouldn’t they owe something back?

JT: So the Federal Reserve creates trillion of dollars to bail out the entire banking industry, which is how they see their job – keep this whole sector inflated and alive, whereas they should have gone bankrupt and pay for the mistakes they had made. And now here we are, five years later, and the government wants its money back in the form of this kind of looting operation as a way of saying: “Look, you bankers, you are responsible for everything that went wrong” – which is not true.

RT:Can they afford it, these banks? Will they be able to pay this debt?

JT: Well, there’s a lot of money slushing around the financial system. You could say you can afford it, but it’s not the standard a free country should use. Can you afford to be looted? Yeah, probably. But it’s generally not a good idea. I don’t think they should have been bailed out, nor should they be looted today. I’m against these both policies. In other words, this is piling error on error. And notice that all federal policies today – and Federal Reserve policy – are designed to recreate this housing bubble. We are going to look at the same situation again three, four or five years from now.

RT:So no lessons have been learned from that story five years ago? 

JT: They are attempting to recreate the whole thing. The US government seems to be incapable of learning from its errors at all. It’s dedicated to repeating them over and over again, as long as the government gets to wet its beak. Coming and going, they’re glad to inflate bubbles and burst them and extract whatever money they can along the way. This is directed all the way through. I find it outrageous that Bank of America, JP Morgan and the rest of them are being targeted as if they somehow caused the boom-and-bust situation. That is not true. They are players in a game created by Washington.