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Middle of the night bailout for Bank of America; TARP investigation of BoA and Citigroup/Jesse Jackson event requested

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By Michelle Malkin  •  January 16, 2009 01:52 AM

Are you beyond numb? Bush the pre-socializer says farewell with a $20 billion, secret middle-of-the-night bailout for Bank of America and an additional government backstop of $118 billion for its assets — all on top of cutting a deal with Barack Obama to give away the second $350 billion of the Crap Sandwich/TARP Big Business bailout.

McClatchy has the late-night scoop, which came in as I was about to hit the sack after midnight. I was so bleary-eyed, I thought it was a joke at first. It’s not.

Legacy:

With a new round of turmoil gripping the financial markets, the Bush administration late Thursday night rushed $20 billion in emergency funding for Bank of America.

Just months ago, Bank of America, based in Charlotte, N.C., appeared to emerge as the nation’s top bank after it stepped in on Sept. 15 to purchase investment bank Merrill Lynch. After Merrill’s fourth-quarter results proved worse than expected, however, the acquisition was in peril and investors have fled Bank of America in droves.

Bank of America’s stock lost 40 percent of its value during the past 10 days — shares closed on Thursday in single digits for the first time in 18 years — and the taxpayer money will be used to ameliorate the losses from its acquisition of Merrill Lynch. Chief Executive Ken Lewis called it “deal of a lifetime” when it was announced.

People familiar with the unfolding events, requesting anonymity to speak freely, said Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, with the knowledge of President-elect Barack Obama’s transition team, pressured the bank to stick to its purchase of Merrill Lynch.

In addition to the $20 billion Bank of America will receive from October’s bailout fund, the Federal Reserve and Treasury Department also will provide a backstop of $118 billion for its assets, which include mostly securities whose collateral are commercial or residential real-estate loans. Most of these assets were assumed by Bank of America in its acquisition of Merrill Lynch.

Hey! Let’s put the Citigroup bailout overseer and serial tax-dodger Tim Geithner in charge! He’ll make it all better. Right, Sens. Hatch and Graham?

The funds rushed to Bank of America come from bailout money that had been promised, but not yet given, to other institutions by the Bush administration. It will fall to the Obama administration to direct new funds to these banks, which saw their promised capital injections usurped by the Bank of America crisis.

Bank of America expects to shed as many as 35,000 jobs nationwide as the banking sector crisis deepens. One top-level executive, who’d been handed a pink slip Thursday, told McClatchy that morale is at rock bottom.

“It’s terrible,” said the executive, who asked that his name not be used because details of his departure were still being worked out. “Everyone is worried, from the lowest employee to the highest.”

Bank of America and Merrill Lynch already had received $25 billion in Wall Street bailout money last year, and the new round of aid is sure to anger the public and lawmakers in Congress. They’re angry that the money injected into the banks came without strings attached and that there are few measures to gauge whether the banks are actually lending the money as was intended.

Despite the fact that the Bush administration gave almost $350 billion to banks and other financial institutions, the financial sector continues to be rocked by uncertainty. Citigroup, another of the nation’s largest banks, said this week it expects to shrink by a third as it lops off parts of its business and resizes itself for a much weaker economy. It was rescued by the federal government in November.

Federal regulators have only just begun:

The F.D.I.C. announced separately that it would soon propose to extend its guarantee on supporting new consumer lending to 10 years, from 3 years.

“The U.S. government will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks,” regulators said.

With losses mounting in the financial industry, other banks may eventually feel compelled to turn to the government for assistance, and the program could to used for other big banks. Taxpayers could end up guaranteeing hundreds of billions of dollars of banks’ toxic assets.

“The financial services sector still needs more equity,” said Frederick Cannon, the managing director at Keefe, Bruyette & Woods. “TARP was announced in mid-September and most of the initial decisions were based on the state of the economy then. The economy has gotten a heck of a lot worse.”

Government officials said that they did not have new money to allocate for this assistance, so they used funds that was already allocated from the $350 billion bailout fund for other banks or for future stabilization programs. The officials said that even though Citigroup’s stock had tumbled since November, that bank’s stock price might not be the best indicator of whether the program was working.

We are so, so screwed.

Where’s that epitaph? Oh, yeah. There it is:

“I’ve abandoned free-market principles to save the free-market system.”

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Meantime, how’s some of the money these banks have soaked up being spent? The National Legal Policy Center wants to know. They’re demanding that the TARP inspector general investigate the squandering of tax dollars on Jesse Jackson’s latest shakedown scheme:

Today the National Legal and Policy Center (NLPC) asked Neil M. Barofsky, the Special Inspector General for the Troubled Asset Relief Program (TARP), for a formal review of the sponsorship by Bank of America and Citigroup of the Rainbow/PUSH Wall Street Conference currently taking place in New York City. The January 13-16 event is one of two of Jesse Jackson’s annual fundraisers.

According to official conference materials, Citigroup is a “Gold Sponsor,” a designation costing $50,000. Bank of America is identified as a “Silver Sponsor,” a designation costing $30,000.

Both Citigroup and Bank of America are major recipients of TARP funds.

Taxpayers are now Citigroup’s largest shareholder after infusions of $45billion. Bank of America has already received $25 billion. According totoday’s Wall Street Journal, it is seeking billions more in order to make possible its acquisition of Merrill Lynch.

NLPC’s Complaint reads, in part:

“When the TARP was presented to Congress, Secretary Henry Paulson and others argued that the situation was dire, and that the failure of major financial institutions posed a systemic risk to our economy. The stated goal was to unfreeze credit so that banks can make loans to businesses and individuals. It was never contemplated that banks use their capital to make donations to organizations founded by a controversial figure like Jesse Jackson.

It should be noted that shareholders have made objections to corporate donations to Rainbow/PUSH and the so-called Citizenship Education Fund (CEF) even before the onset of the financial crisis. CEF is a 501(c)(3) organization founded by Jesse Jackson that co-sponsors the Wall Street Conference. In recognition of these objections, the New York Stock Exchange itself ended its financial sponsorship of the event in 2005.

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Reminder: BoA is also the Bank of Illegal Aliens in America.

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