Trickle Up Poverty (15 page)

Mike Whitney, a virulent, unrepentant leftist whose work appears on a number of blogs, actually got something right when he wrote, “Lehman was a planned demolition (most likely) concocted by ex-Goldman Sachs CEO [and then Secretary of the Treasury] Henry Paulson, who wanted to create a financial 9/11 to scare Congress into complying with his demands for $700 billion in emergency funding (TARP) for underwater U.S. banking behemoths.”19

Even without the TARP legislation, there were strategies in place, including the Fed’s guaranteeing the “commercial paper” Lehman was trying to sell to raise cash, which could have saved the distressed company. But Paulson and Fed Chairman Ben Bernanke chose not to use them. By doing this, Bernanke (he’s a former Goldman Sachs associate also) “blackmail[ed] congress” to achieve his and Paulson’s goal of pushing through the TARP legislation and using the money to save AIG, Bear Stearns, and Goldman Sachs, all of which would now likely be dead without Federal Reserve and U.S. Treasury intervention.20

Within a week of the passage of TARP legislation, the Fed created “a special lending facility to buy commercial paper,” 21 precisely the strategy that was already available and could have been used to save Lehman, and without putting Americans $700 billion further in debt. The U.S. Court of Appeals in Manhattan has ruled that the Fed must release the names of the institutions that received TARP money after the Lehman collapse and the amounts of money they received, something those involved have strenuously resisted because it might reveal the extent of the criminal collusion involved in their actions.22

Lehman’s bankruptcy announcement had the effect of causing a run on other financial institutions by investors wanting to withdraw their money, creating the panic that enabled Paulson and Bernanke to get TARP pushed through Congress, committing U.S. taxpayers to bail out an entire industry of too-big-to-fail financial behemoths through a legislative initiative that, like so many others since late 2008, was unnecessary and unwise. In fact, as many commentators have pointed out, the passage of TARP was simply not needed to “save” the financial industry.

All that would have been required was a federal guarantee of the commercial paper financial companies needed to sell in order to stop the run on their funds and quiet investors’ fears. Congress eventually capitulated and passed TARP legislation, after rejecting it once, and Paulson and Bernanke had fortified their financial fiefdoms against further assault by grabbing a stranglehold on three quarters of a trillion taxpayer dollars. Talk about the ultimate spreading the wealth around scheme.

What happened to the money is typical of what happens in cases where federal bureaucrats get their hands on money that confers power. It went right into the hands of the institutions that contributed campaign money. Connecticut Democratic Senator Chris Dodd, Chairman of the Committee on Banking, Housing, and Urban Affairs, received nearly $900,000 in campaign contributions from financial institutions receiving TARP bailout money. President Obama did even better, garnering more than $4 million in contributions for his war chest from the same group.23

We can only imagine what the retiring Dodd received from the Mohe-gan Indian tribe in his state which was awarded an astonishing $54 million in federal stimulus dollars. While techically a low-interest loan from the Department of Agriculture which must be repaid, it’s not as if the Mohegan tribe is cash-starved. Far from it. After all, they own the Mohegan Sun casino—which scored more than $1.3 billion in gross revenues in 2009. Talk about hitting the jackpot. Those funds were supposed to help rural communities with fewer than 20,000 people struggling to “obtain other credit at reasonable rates and terms and are unable to finance the proposed project from their own resources.”24

Tell me how the owners of a cash-rich casino fit the bill? This is nothing but an abuse of power and taxpayer money by Chris Dodd.

That said, much of the rest of the TARP money was used to purchase newly issued stock in banks, thus replenishing their capital and, presumably, encouraging them to resume lending at normal rates. The problem is that banks haven’t ramped up lending. Neil M. Barofsky, appointed by President Bush as the Special Inspector General for the Troubled Assets Relief Program, attests to this. SIGTARP, as the position is known, released its report on the uses of TARP funds in October, 2009.

The report revealed that “Treasury and the TARP program lost credibility when lending at those institutions [the nine banks that were the recipients of the initial $300 billion in TARP funds] did not in fact increase and when subsequent events—the further assistance needed by Citigroup and Bank of America being the most significant examples—demonstrated that at least some of those institutions were not in fact healthy.”25 The fact that this strongly worded conclusion was drawn by a government agency emphasizes just how crooked, ineffective, and unnecessary the TARP legislation was.

TARP also provided Barack Obama with fuel for a further assault on capitalism in the form of his opposition to high levels of executive compensation, especially for TARP fund recipients, but for other financial industry executives as well. “This is America,” the president declared at the White House. “We don’t disparage wealth. We don’t begrudge anybody for achieving success. And we believe success should be rewarded. But what gets people upset—and rightfully so—are executives being rewarded for failure, especially when those rewards are subsidized by U.S. taxpayers.”26

The problem is that this isn’t really “America” anymore.

Barack Obama does begrudge anybody who achieves success.

He supports forced bailouts of financial institutions, then declares $500,000 annual limits on compensation of executives who take bailout money. He also places restrictions on such expenditures as “golden parachutes” and “luxury spending” on extras like corporate jets and office remodeling, decisions that should be the responsibility of Boards of Directors and shareholders. The Wall Street Journal called the president’s actions and pronouncements “the most aggressive assault on executive pay by federal officials.”27

Interestingly, no one bothered to tell Goldman Sachs about Obama’s restrictions on executive pay. The company’s Chairman and CEO, Lloyd Blankfein, received nearly $10 million in compensation in 2009, including “a $600,000 annual salary, $9 million in restricted stock awards and about $262,000 in other compensation.”28 Compensation for other financial industry executives was equally lucrative. JPMorgan Chase CEO Jamie Dimon received $15.5 million, and American International Group head Robert Benmosche will receive $7 million in salary alone in 2010. AIG is the giant insurance company that has received more than $182 billion in

TARP funds.

The website OMBWatch.org provides this assessment:

The Special Inspector General for TARP … estimates that taxpayers will lose almost $30 billion on [the government’s investment] in AIG, in large part because of bad choices the government made when bailing out the company. Instead of forcing AIG creditors to take a loss, Treasury insisted that they be paid in full.29

The reason for the government’s paying full value for AIG’s troubled assets has everything to do with Goldman Sachs alums Paulson and Geithner bailing out their buddies, at taxpayer expense. Both the government and the financial institutions are fending for themselves, very likely in collusion against American taxpayers.

What you may not know is that Goldman Sachs is the former home of many of the Obama administration’s top financial advisors, including Neel Kashkari, who headed the TARP bailout; Mark Patterson, Chief of Staff for Treasury Secretary Timothy Geithner; Gary Gensler, a top executive at the Commodity Futures Trading Commission; Goldman Sachs lobbyist Michael Paese, placed as a top aide to Massachusetts Democratic Congressman Barney Frank, chair of the House Financial Services Committee;30 and Adam Storch, a Goldman Sachs Vice President, Chief Operating Officer of SEC Enforcement.31

Are you beginning to get the picture? It’s a recurring theme, the association of Goldman Sachs with the financial meltdown and ongoing corruption in the financial industry.

In April, 2010, Congress opened hearings into SEC allegations that Goldman Sachs had created, in league with hedge fund trader John Paulson, a financial instrument based on mortgage-backed securities that was designed to fail and that, like Paulson, Goldman Sachs actually helped insure its failure by having their own traders sell it short while not advising their investors that there was a virtual guarantee that the instrument would fail. This caused Goldman Sachs clients to lose significant amounts of money as a result of their having followed the advice of their investment counselors at the financial giant, advice the counselors themselves were betting against.

Am I the only one who has a problem with Congress holding their sham hearings on Goldman Sachs? It’s a classic case of the fox guarding the henhouse. Why do I say that? Aren’t the members of Congress to be trusted? Let me put it to you this way: One of the key players in the hearing, Senate Banking Committee Chairman Democrat Chris Dodd, is up to his ears in financial misdeeds himself. Dodd profited through being a preferred customer of Angelo Mozillo’s now discredited Countrywide Financial, receiving low-interest loans that saved him tens of thousands of dollars in interest charges.

But it gets worse. Other recipients of favored treatment from Mozillo included Democratic Senator Kent Conrad of North Dakota, former Clinton Secretary of Health and Human Services Donna Shalala, and Obama advisor James Johnson, who resigned from Obama’s campaign after his involvement with Mozillo was made public.32 Add the nonexistent Congressional “oversight” responsibilities with regard to Fannie Mae and Freddie Mac, and you have the makings of a multi-pronged scandal that involves, not only corrupt financial institutions and hedge fund traders on Wall Street, but rampant corruption among those in Congress charged with protecting the public’s interest. In fact, when he had a chance to make sure Fannie and Freddie were appropriately regulated in 2006, Dodd cast a “no” vote as the legislation failed.

President Obama campaigned hard for the financial reform bill. His underhanded tactics included having Michigan Democratic Senator Carl Levin order the release of internal Goldman Sachs e-mails that documented the fact that the company had sold short securities they advised their own clients to buy. Goldman, for its part, refused to release financial information that showed the profits it made from shorting the housing market while emphasizing the losses it sustained in that same market.

The financial regulation reform legislation whose passage the Goldman Sachs fraud hearings were designed to assure in fact does very little to “regulate” the financial industry—especially given the fact that the current oversight bodies have proven woefully inadequate to do the job. The fact of the matter is that neither the Congress nor their partners in crime, the financial players, can be trusted to act in the public interest.

Why? Once again, you must follow the money trail.

According to a report by the Associated Press, during the last 20 years the barons on Wall Street have enriched the coffers of federal politicians to the tune of $2.3 billion.33 Don’t think for one minute that those deep pockets aren’t having an enormous sway over what gets passed in Washington. Money talks. Any bill that Congress passes into law will likely do next to nothing to muzzle those who would devour the little guy’s savings for their personal gain.

The bill further consolidates the rapidly expanding power of the central government, authorizing it to interfere broadly with the financial markets. As Treasury Secretary Timothy Geithner, speaking about financial institutions in an MSNBC interview, put it, if financial firms do get into trouble, “we get to put them out of their misery, unwind them, you know, organize the elegant funeral for them.”34

Let me put it to you this way.

Geithner and his confederates are judge and jury.

First, they decide who gets closed down. Then they’ll close them down.

Tell me that’s not a formula for abuse by government hacks.

The legislation gives regulators the power to break up banks and other financial entities that they deem have grown too big for their own good, but those regulators are still paid by the banks. Talk about letting the fox stay in the henhouse! Not much incentive for the regulators to do the job they’re supposed to. The legislation empowers the consumer protection agency, also under the control of the Federal Reserve Board, to set rules that are intended to curb unfair consumer loan and credit card practices.

What’s more, the legislation contains a provision that requires banks, hedge funds, and other institutions to go through clearinghouses in an effort to make many trades more transparent. The problem is, though, that the legislation includes “loopholes and gaps that weaken their impact,” because many types of traders are exempt from this monitoring, including some hedge fund traders, those trading in the foreign exchange markets, and many financial institutions trading derivatives to reduce their risk.35

In addition, the same regulators who allowed the 2008 financial crisis to happen are in charge of the same institutions that caused it. You might want to read that again. Instead of being hauled up on charges for allowing the meltdown in 2008 that destroyed the retirement savings of the middle class, these regulators get to keep their job of not doing their job. And the new law “does little to prevent big banks from getting bigger, meaning taxpayers might have to intervene again.”36

To add insult to injury, the bill does nothing to regulate Fannie Mae and Freddie Mac. We, the taxpayers, are still on the hook for hundreds of billions of dollars—which may become trillions in the future—the result of continuing mismanagement by the people running these quasi-governmental financial sinkholes. As the Wall Street Journal has noted, it virtually “guarantees bailouts as far as the eye can see.”37

There is also the possibility that the bill will drive an entire segment of the financial industry into unregulated territory. One of the things the bill does is prohibit banks from being in both the business of trading securities and the business of loaning money. This might force banks to sell off their trading businesses to other financial institutions, or to spin them off into separate businesses. In either case, that could mean that those businesses do not fall under the control of the regulatory agencies created by the financial regulation bill. They’re precisely the components of the banking industry that the bill seeks to regulate, and they’re precisely the components that will slip from regulators’ oversight with passage of the bill.