By Bill Wilson — Earlier Monday, Nov. 28, White House Press Secretary Jay Carney assured the American people that the U.S. was nowhere near bailing out European banks that had bet poorly on the sovereign debts of Greece, Portugal, Italy, and other bankrupt nations.
“We do not in any way believe that additional resources are required from the United States and from taxpayers,” Carney said.
Of course, just a few hours later, Barack Obama appeared from a meeting with European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso assuring the world just the opposite.
“The United States stands ready to do our part to help them resolve this issue,” Obama said, adding, “If Europe is contracting… it’s much more difficult for us to create jobs here at home. We’ve got a stake in their success.”
Specifics were not given, but he may have been referring to recent proposals to expand International Monetary Fund (IMF) to bail out Europe. Last November, according to the bank’s website, the IMF executive board requested that the IMF’s resources be doubled to $750 billion from its current $375 billion level.
And, on Dec. 16, the IMF’s board of governors dutifully adopted the proposal, sending it back to member states, that Japan, the UK, Korea, and others have already approved.
The U.S. already has a $64 billion stake in the IMF, plus a $100 billion line of credit. The new proposal to double member quotas would raise the U.S. stake by another $64 billion that would replace a portion of the credit line, and would require congressional authorization.
Having 16.76 percent of the vote in a body that requires 85 percent approval to act, the U.S. wields an effective veto at the IMF. That means Treasury Secretary Timothy Geithner has already voted at the IMF to double U.S. taxpayers’ exposure to risky foreign debts.
So, with all due respect to Carney, the Obama Administration has already approved additional resources from U.S. taxpayers that, if adopted by Congress, will be used to bail out Europe. A recent Congressional Research Service (CRS) report published in September showed the IMF had already dispensed €78.5 billion to the creditors of Greece, Portugal, and Ireland, or about $112 billion for refinance bailout loans. The U.S. stake in that bailout already totals at least $20 billion.
Yet, the IMF apparently has not made any official requests to the White House or Congress to increase its quotas, according to congressional sources — yet. When it does, legislation will likely be introduced shortly thereafter.
But Obama should not expect a warm reception for the bailout, particularly from the House of Representatives. House Republicans in 2010 won a majority in part by running on a clear pledge to “prevent Washington from forcing responsible taxpayers to subsidize irresponsible behavior by ending bailouts permanently”.
To fulfill that pledge, the House should consider legislation by Rep. Cathy McMorris Rodgers that would rescind whatever remains of the nation’s $108 billion credit line to the IMF.
But that alone is not the only avenue the federal government might pursue to bail out European financial institutions that hold the debts of troubled Portugal, Ireland, Italy, Greece, and Spain (PIIGS).
Influential writers like the UK Telegraph’s Ambrose Evans- Pritchard are openly questioning whether or not the Federal Reserve will intervene to make major bond purchases of European debt. While the European Central Bank is expressly forbidden by the Lisbon Treaty from purchasing sovereign debt, the Fed has no such restrictions.
If House Republicans want to keep their pledge and “end bailouts permanently,” they will need to amend McMorris-Rodgers’ legislation or introduce separate measures to include a prohibition from the Fed purchasing European debt. Because such a decision may be imminent, if it is not already happening.
Recall it took federal courts enforcing Freedom of Information Act requests and a congressionally authorized audit of the Fed to reveal trillions of dollars of emergency loans that were given to foreign banks overseas. Not to mention $442.7 billion that was simply printed out of thin air to buy back shoddy mortgage-backed securities from overseas institutions that were heavily invested in U.S. housing.
With the ongoing chaos across the pond, if the Fed were already bailing out Europe, we likely would not even know about it. Therefore, it is incumbent on Congress to once again audit Federal Reserve activities that have taken place to prop up Europe since the crisis began in Dec. 2009.
It is not the job of American taxpayers or any U.S. institution to bail out any foreign bank. Enough is enough.
Bill Wilson is the President of Americans for Limited Government.
Editor’s Note: Corrected to reflect accurate measure of U.S. quotas in the IMF.