US Exposure to EU Bailout: $50 Billion and Counting

By: Jeff Cox
CNBC.com

US taxpayers could be on the hook for $50 billion or more as part of the European debt bailout, which is likely to be a close cousin to the strategy used to rescue the American financial system.

Determining the exact exposure at this point is nearly impossible until governments start stepping up to the window created by the European Union and the International Monetary Fund to stem the crisis in Greece and elsewhere on the continent.

But one rule-of-thumb formula puts potential US exposure at $54 billion should the entire IMF loan fund be tapped.

And that doesn’t count the added exposure created by the Federal Reserve’s decision over the weekend to participate in currency swaps to provide liquidity to jittery European banks. The swaps move resembles the Term Auction Facility the Fed instituted when the worst of the US financial crisis hit in 2007-08.

And the entire bailout package has been nicknamed “Le Tarp” by some for its similarity to the Troubled Asset Relief Program that bailed out US companies with taxpayer-backed loans.

US involvement in the European crisis already has drawn critics from Congress and economists who think the domestic financial issues should be cleared up first.

“Inflation and debt is not the answer to a problem caused by inflation and debt,” said Michael Pento, chief economist at Delta Global Advisors and a critic of both the European plan and the Fed’s approach to US fiscal stability. “It’s a European problem that should have been dealt with by Europeans.”

In Washington, the White House said taxpayers will not be liable for the European bailout.

But the US is a participant in the International Monetary Fund, which has agreed to work with the European Union to help countries that come under debt duress.

The IMF has pledged a one-third share of the 750 billion-euro ($952 billion) rescue package—typical of the fund’s arrangements with central banks in such cases.

That would come to 250 billion euros, though that is only a rough figure and dependent on a variety of circumstances, according to an IMF official who spoke on condition of anonymity because of the uncertainty still involved.

The US would be responsible for 17.09 percent, or $54 billion, of the cost using a quota contribution system the IMF uses in such instances. The US is the leading contributor under the quota setup.

But pinpointing the exact figure is difficult because all loans are not created equal, and will depend on the currencies in which they are issued and the arrangements between the parties.

Also, the basis of the loans won’t be solely on the quota calculation, which accounts for only half the formula. The other half is a pro-rated basis for which the US does not currently have an agreement but is likely to in the future. That pool comes from wealthier countries with “useable resources,” with the typical arrangement for the US being higher than the 17 percent for the quota share.

“How the fund actually raises the resources for the specific loan depend on a number of different criteria, one of which is currency that the country is borrowing in,” the IMF official said. “Those details are somewhat complex.”

The situation regarding the currency swaps is a different story.

The US has virtually unlimited exposure in that situation as it loans dollars to foreign banks in exchange for euros, which it then holds for a period that can range from overnight to three months. The currency is sent to central banks such as the European Central Bank as well as those in Japan, Switzerland and Canada, which in turn then direct the money to banks seeking the safety of the world’s primary reserve currency.

That arrangement, too, has drawn criticism in part because of the danger of default and worries over the rapidly devaluing euro.

Defenders, though, say the swap trades are virtually without risk as the ECB is the entity responsible for backing up the swaps. The ECB is responsible for returning the money to the US along with a slight interest appreciation on the loan.

“These (swaps) operations will be a net positive for fiscal conditions,” said Zach Pandl, economist at Nomura Securities International in New York. “They contain no credit risks whatsoever. The counterparty is the foreign central bank. There’s basically no debt. The European Central Bank is going to pay back the loan.”

The swaps, though, will make the Fed’s balance sheet grow to perhaps $2.5 trillion from its current $2.3 trillion, said Delta’s Pento.

Putting more US money into circulation at a time when the central bank is trying to shrink its balance sheet will only add to inflationary pressures down the road, he said.

“With an over-$2 trillion monetary base, the damage is already there,” Pento said. “You’ve lit fire to a building that is already burned down.”

Pandl said the swaps transactions could total as much as $100 billion, “which is nothing to sneeze at. But compared to the Fed’s balance sheet, it’s still a relatively modest sum.”

Senate Backs One-Time Audit of Fed’s Bailout Role

From the New York Times

The Senate on Tuesday voted unanimously to require a one-time audit of the Federal Reserve’s emergency actions during and after the 2008 financial crisis as part of broad legislation overhauling the nation’s financial regulatory system, The New York Times’s David M. Herszenhorn reports from Washington.

The amendment, proposed by Senator Bernard Sanders, independent of Vermont, above, would require the Government Accountability Office to scrutinize some $2 trillion in emergency lending that the Fed provided to the nation’s biggest banks. The vote was 96 to 0.

“At a time when the Federal Reserve has provided the largest taxpayer bailout in the history of the world, the largest financial institutions in this country, trillion-dollar institutions,” Mr. Sanders said in a floor speech, “the Sanders amendment makes it clear that the Fed can no longer operate in the kind of secrecy that it has operated in forever.”

He added, “For the first time the American people will know exactly who received over $2 trillion in zero or virtually zero-interest loans from the Fed, and they will know the exact terms of those financial arrangements.”

Mr. Sanders, a professed socialist, has long demanded greater transparency at the central bank, and his original plan could have subjected the Fed to continuing audits of some routine operations. But he agreed to scale back the proposal in the face of opposition by the White House, the Fed, the Treasury and some Senate colleagues.

The critics said that more aggressive audits would impede the Fed’s independence and potentially interfere with its ability to set monetary policy. Mr. Sanders and other proponents of fuller audits of the Fed rejected those assertions and said they were providing adequate safeguards to protect the central bank’s integrity.

While the Senate provision would require an audit of the Fed’s emergency operations beginning on Dec. 1, 2007, the House approved an even tougher audit requirement in its version of the financial regulatory legislation.

Senator David Vitter, Republican of Louisiana, put forward an amendment that would have mirrored the tougher House language, but it was rejected. The vote was 37 to 62.

Before the vote, Mr. Vitter appealed for support, saying the proposal by Mr. Sanders did not go far enough. “I urge all of my colleagues, Democrats and Republicans, to support both amendments to have full openness and accountability and transparency with all the protections that are included against politicizing individual Fed decisions,” he said.

The House bill, which was approved in December, included a proposal sponsored by one of the most conservative lawmakers, Representative Ron Paul, Republican of Texas, and one of the most liberal, Representative Alan Grayson, Democrat of Florida.

The Paul-Grayson proposal would allow audits by the Government Accountability Office of every item on the Fed’s balance sheet, including all credit facilities and all securities purchase programs, but would allow an exemption for unreleased transcripts and minutes of closed-door meetings. It also would establish a 180-day time lag before details of the Fed’s market actions could be released.

It also included specific language stating that it was not intended to interfere with monetary policy or to involve Congress in decisions regarding monetary policy.

Mr. Paul had said that the audits would serve as a counterbalance to a broad expansion of the Fed’s regulatory authority in the financial system and, like Mr. Sanders, he had long demanded greater transparency. But in recent days, Mr. Paul has reacted angrily to the compromise proposal accepted by Mr. Sanders.

“While it is better than no audit at all, it guts the spirit of a truly meaningful audit of the most crucial transactions of the Fed,” Mr. Paul wrote on his Web site. “In fact, rather than still calling the Sanders Amendment an audit, maybe it should instead be called more of a disclosure at this point.”

“The new language of the Sanders amendment requires a one-time disclosure from the Fed,” Mr. Paul continued. “Basically, their sins of the past would be revealed and Americans would know more about who got bailed out by the Fed and under what terms. This would be good, but it’s not nearly enough.”

Thieves Steal Mojave Desert Memorial Cross in Nighttime Heist

FOXNews.com

The 7-foot-tall metal cross that has stood in California’s Mojave Desert for 75 years and withstood a hard-fought battle in the Supreme Court was ripped down and stolen Sunday night, according to state officials.

“This is an outrage, akin to desecrating people’s graves,” said Kelly Shackelford, president of the Liberty Institute, which represents the caretakers of the Mojave Desert War Memorial. “It’s a disgraceful attack on the selfless sacrifice of our veterans. We will not rest until this memorial is re-installed.”

The National Park Service says someone cut the metal bolts holding the metal-pipe cross to the top of Sunrise Rock and made off with it Sunday night or before dawn on Monday.

Veterans groups are outraged at the theft of the memorial symbol that was erected in 1934 by the Veterans of Foreign Wars to honor World War I dead.

“To think anyone can rationalize the desecration of a war memorial is sickening, and for them to believe they won’t be apprehended is very naïve,” said VFW National Commander Thomas J. Tradewell Sr. in a written statement.

The 75-year-old monument was the target of a legal challenge from the ACLU, which charged the cross is a religious symbol that shouldn’t be allowed on public land. The U.S. Supreme Court last month refused to order that it be torn down, as the land had already been sold to private owners.

The Associated Press contributed to this report.

Vets Blast Kagan Nomination

by Michelle Oddis

Veterans took aim Monday at Supreme Court nominee Elena Kagan, saying her opposition to Pentagon recruiters on college campuses showed her antipathy to the military.

“I just see this and I just shake my head and think it’s par for the course,” said retired Marine Lt. Col. Orson Swindle. “Barack Obama is doing everything he can to put a stick in the eye of traditional American values and the American people.”

“Her history of dislike for the American military is shameful and this is not a good move by Barack Obama and I hope the Senate will reject it,” said Swindle, a decorated Vietnam War prisoner of war and Sen. John McCain’s cellmate in Hanoi.

As dean of Harvard Law School, Kagan banned ROTC recruiters from using the school’s Office of Career Services, saying the Pentagon’s “Don’t Ask, Don’t Tell” policy of restricting open gays from serving in the military “is profoundly wrong — both unwise and unjust.”

Kagan challenged the Solomon Amendment, a federal law that allows the secretary of Defense the right to deny federal funds to colleges that prevent military recruiters or the ROTC on campus.

Kagan and 40 other Harvard Law School professors signed an amicus brief saying the Solomon Amendment was unconstitutional. The Supreme Court disagreed with the professors, ruling 8-0 to uphold the law.

Pete Hegseth an Iraq war veteran and executive director of Vets For Freedom told HUMAN EVENTS that he believes that Kagan views the military as not fitting in with the “elite culture” at Harvard.

Kagan comes from a perspective that “having the military at the law school would be below them,” Hegseth said.

If Kagan is confirmed she will replace retiring Justice John Paul Stevens, currently the only military veteran on the court. Retired Army Lt. Col. Allen West, a Republican running for Congress in Florida’s 22nd District, told HUMAN EVENTS that he doesn’t think it matters to the Obama Administration that they are replacing the only veteran.

“When you look at Congress right now, less than 10% are veterans. I don’t know if this Administration really cares,” West said. “I think this is a critical juncture. If you look at all the veterans that are running for Congress, I think people are waking up to see that in these kind of times, we do need people at our federal level, in the executive branch, legislative branch, and maybe even judicial branch to have some understanding of what we are going through right now. When you look at the fact that we are giving illegal enemy combatants constitutional rights, I think that’s one of the things that should be argued before the Supreme Court.”

Hegseth said Kagan’s confirmation hearings should look at her views regarding the military.

“They need to examine much further her motivations,” said Hegseth. “I think like anyone else nominated she is deserving of a fair hearing, I just think that whomever has the opportunity to question her has a responsibility to not back down at all in getting to the bottom of her particular perspectives on this.”

Miss Oddis is Assistant Managing Editor at HUMAN EVENTS. Before working with Human Events she was a researcher for syndicated columnist and author Robert Novak. Ms. Oddis has appeared on FOX News Hannity and Colmes, and The O’Reilly Factor. She has a bachelor’s degree in English from Eastern Connecticut State University. E-mail her at moddis@eaglepub.com.

Astoturfing Lies/From The Left

by Andrew Moylan

You’ve no doubt heard liberal Members of Congress and other interest groups calling the Tea Party movement “Astroturf,” a play on the term grassroots.

Or the liberal pro-net neutrality group Free Press, which has an entire section on its site devoted to “outing” so-called Astroturf operations. This page includes a handy-dandy widget with a graphic of large corporations pulling the strings of Congress. Pretty clever, really.

They claim that the whole movement is the invention of a bunch of Beltway insiders backed by piles of corporate cash. For them, it simply does not compute that ordinary Americans could be fed up with trillions of dollars in debt, tax hikes, and runaway regulation. It MUST be the orchestrations of rich puppet-masters in DC, right? Instead of spending hours debunking those claims, I’ll point to a post I made on the National Taxpayers Union’s old blog after the massive 9/12 March on Washington. Several hundred thousand people from all across the country, none of whom were paid, will do a better job of dismissing these silly claims than I could here. Instead, let’s focus on liberal activists employing exactly the kind of shady strategies that they accuse us of using.

So, that group I mentioned, Free Press? The ones that have a page on their site to expose “Astroturfing?” Last week, they were outed as being the true authors behind a letter supposedly written by Congressman Jay Inslee (D-WA). The letter is being passed around to various Congressional offices to solicit support for FCC Chairman Julius Genachowski’s radical effort to thumb his nose at the limits of his regulatory authority, which I blogged about here recently. But the properties of the electronic file itself show that the real author of the letter was not Mr. Inslee or a member of his staff, but none other than Free Press Policy Director Ben Scott!

Now, it should be noted that this practice isn’t exactly rare in Congress. Members routinely have lobbyists write talking points, letters, and even legislation. Some of it is relatively harmless, in that those lobbyists have special knowledge about the issue and lend their expertise to Congressional offices. Some of it, however, is not so harmless. Occasionally, there are news reports about special interest groups carving out exceptions for themselves through this kind of process.

To paraphrase President Obama, let me be clear: I’m not accusing Free Press of shady back-door dealing. They’re an interest group pursuing net neutrality, a policy that I happen to think is a terrible idea. For his part, Jay Inslee is just a fellow traveler who happened to get caught red-handed outsourcing the writing of a letter to his colleagues. I’m simply pointing out that Free Press is engaged in exactly the kind of coordination and manipulation that they and others (wrongly) accuse conservative groups like the National Taxpayers Union and FreedomWorks of all the time.

It makes you wonder, what else has Free Press written? So, Free Press, what say you? What other seemingly spontaneous pro-net neutrality efforts have you coordinated? How many other letters or bills have you written behind closed doors without getting caught?

Student Gets Detention for Possessing Piece of Candy

By Katie Landan

A Texas 3rd grader had to serve a one-week detention after a teacher found a single Jolly Rancher candy in her possession.

Ten-year-old Leighann Adair came home in tears, terrified to tell her parents she’d been slapped with a week’s worth of detention for possessing a contraband substance:

The forbidden fruit: a piece of Jolly Rancher candy.

A teacher at Brazos Elementary School in Wallis, Texas, took the unopened piece of candy away from the third-grader two weeks ago after a friend handed it to her.

Both Leighann and her friend were ordered to serve detention during lunch and recess, and they had to write an essay about what they did and why it was wrong.

“She came home crying,” said her mother, Amber Brazda, explaining that Leighann “has never been in trouble before.” “It’s an extreme punishment for something so small,” said Leighann’s stepfather Michael Brazda.

“What are they going to do, have candy sniffing dogs next?” her mother said.

But school officials are standing by the punishment. They say they have to be strict in order to enforce their no-gum, no-candy policy. Candy and gum, they say, can cause a mess.

Jack Ellis , superintendent for the Brazos Independent School District, says it’s also a matter of following state guidelines to limit the amount of junk food in schools. “Whether or not I agree with the guidelines, we have to follow the rules,” Ellis told KHOU-TV in Houston.

A piece of Jolly Ranchers candy has 23 calories and provides 2 percent of the daily value of carbohydrates. But there’s nothing in the rules that compels a school to punish a student for possessing junk food, says Texas Department of Agriculture spokesman Bryan Black.

The department sent a letter to the school reminding staff that state policy doesn’t outline such punishments. “Our policy does not prohibit from sharing a Jolly Rancher with a friend,” Black told FOXNews.com.

“If a parent wants to pack candy, it’s their decision, not against school policy. A parent needs to decide what a student eats.”

Though the state has dietary rules for schools — mandating, for example, that food be baked, not fried — disciplinary action is a local decision, Black told FOXNews.com. And Leighann’s parents say the local decision routinely goes too far. “The school has a history of harsh punishments,” Michael Brazda told FoxNews.com. “It’s about time someone called them out on it.”

He said students at the school are required to wear a belt, and a few months ago Leighann’s brother was given in-house suspension for failing to wear one – even though the father said he called the school secretary to explain that their new puppy chewed up the boy’s only belt that morning.

He said his son had to “sit in a room all day and stare at a wall.”

Leighann’s family and members of the community plan to attend the next school board meeting to contest the school’s stringent candy policy.

Though the family is trying to change the district’s patterns, the parents say they plan to take their children out of the school district at the end of the year.

“I will put her in a private school if I have to,” Amber Brazda said.