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Obama and Holder Let Gangsters Pay Fine, Continue Business As Usual November 21, 2013

Posted by rogerhollander in Barack Obama, Criminal Justice, Economic Crisis.
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Roger’s note: Black Agenda Report’s Glen Ford is one of the most incisive journalists on the Internet.  Unlike the legions of mind/ethics challenged Obamabots, who for reasons of race or party loyalty are willfully blind to the Obama Administrations Wall Street/Military-Industrial Complex agenda, Black Agenda Report does not hesitate to speak the truth about the first Afro-American Emperor’s mythical new clothes.

 

 

 

 

 

Going on five years into the Obama regime, it is clear that Wall Street is immune from prosecution, no matter the savagery of the economic crime. Attorney General Eric Holder “has ruthlessly maneuvered every case against the oligarchs into his own jurisdictional arena, in order to protect the banksters from aggressive prosecution.” JP Morgan’s Jamie Dimon is a far bigger bandit than Lucky Luciano.

 

 

 

Obama and Holder Let Gangsters Pay Fine, Continue Business As Usual

 

by BAR executive editor Glen Ford

 

The Obama administration has assessed a total of $28 billion in penalties against the Dimon mob, with no discernible effect.”

 

Imagine if Charles “Lucky” Luciano and his “Commission” representing the five reigning New York Mafia families plus the Chicago mob had been immune from law enforcement meddling in their activities, from the establishment of the “Syndicate” in 1931 to the present day. By now, Luciano’s gangster heirs would be the unchallenged rulers of economic and political life in the United States and, by imperial extension, the entire capitalist world.

 

JP Morgan chief executive Jamie Dimon is the man Lucky Luciano dreamed of becoming. A friend and golfing partner of President Obama, Dimon sits at the top of the ruling financial pyramid whose “commissioners” include the heads of Bank of America, CitiGroup, Wells Fargo, Goldman Sachs and Morgan Stanley. Their syndicate owns the cops, prosecutors, judges and major political parties and is, therefore, immune from criminal prosecution: the true “Untouchables,” too big to jail. So big, it will require a revolution to dislodge them from hegemonic power.

 

The latest Obama administration “settlement” of JP Morgan’s ongoing criminal enterprise amounts to a $13 billion fine, a mere speed bump in the unbroken spree of lawlessness that “helped create a financial storm that devastated millions of Americans,” in the words of Associate Attorney General Tony West. Although it is “the largest penalty in history,” Dimon and his fellow banksters are also the richest criminals in history – the most powerful cartel of all time – who can easily afford the levy. The bursting of their housing securities bubble may have wrecked much of the global economy in 2008, but Dimon and his boys made out like pure bandits in the aftermath, consolidating their positions at the center of a dying system. JP Morgan emerged as the biggest U.S. bank in terms of assets, a gleaming tower standing amid the ruins it created. Such is the logic of late stage finance capitalism: catastrophe becomes “creative destruction,” which begets greater economic monopoly, resulting in unchallengeable political supremacy, which makes Dimon too big to jail, whether he’s actually a friend of Obama, or not.

 

Dimon and his fellow banksters can easily afford the levy.”

 

There is no reason whatsoever to believe that the $13 billion fine will have any measurable impact on JP Morgan’s business plan. So far, the Obama administration has assessed a total of $28 billion in penalties against the Dimon mob, with no discernible effect. This time around, however, Obama’s prosecutors have imposed the equivalent of mandatory community service on the corporate malefactor, as an alternative to actual justice. Part of the $4 billion set aside to help struggling homeowners will go towards knocking down abandoned or foreclosed homes in the urban neighborhoods laid waste by JP Morgan and its cohorts in the racially-targeted subprime mortgage frenzy. That’s like compelling the Mafia to do upkeep on the cemeteries where its victims are buried, in lieu of prison terms or execution.

 

Yet, Justice Department mouthpiece Tony West claims the eyesore clearance penalty will “rectify” some of the harm done to “areas hardest hit by the financial crisis.” But, of course, it doesn’t even come close. Whole communities have been wounded beyond repair. Black wealth took its deepest dive in history, with reverberations that will impact future generations. Many thousands of people have died from the social trauma inflicted by Jamie Dimon and his syndicate – and that’s just in the United States. Globally, millions have perished due to the actions for which the settlement is supposed to atone.

 

Back in the Spring, the Huffington Post noted that Attorney General Eric Holder was attempting to retract his famous admission that banks like JP Morgan are too big to jail. Holder’s original statement, in March, was:

 

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large.”

 

Two months later, in May, Holder amended his remarks, to say:

 

“Let me make something real clear right away. I made a statement I guess in a Senate hearing that I think has been misconstrued. I said it was difficult at times to bring cases against large financial institutions because [of] the potential consequences that they would have on the financial system. But let me make it very clear that there is no bank, there’s no institution, there’s no individual who cannot be investigated and prosecuted by the United States Department of Justice…. Let me be very, very, very clear. Banks are not too big to jail. If we find a bank or a financial institution that has done something wrong, if we can prove it beyond a reasonable doubt, those cases will be brought.”

 

Clearly, Holder was lying, second time around. If there were ever a serial financial gangster, it’s Dimon. There are no better candidates for racketeering prosecution on the face of the Earth than the Big Six banks and their executives: the pinnacle of the ruling class.

 

Globally, millions have perished due to the actions for which the settlement is supposed to atone.”

 

However, it is wrong to deride Holder and Obama as merely timid in the face of Wall Street’s awesomely destructive power. Rather, they are instruments of finance capital’s hegemony. Holder has ruthlessly maneuvered every case against the oligarchs into his own jurisdictional arena, in order to protect the banksters from aggressive prosecution by wayward state officials. Holder’s “settlements” are designed to insulate the banks from the rule of law, since, at this stage of systemic decay, the Lords of Capital can no longer function within existing legal constraints. The public sphere must be privatized; the urban centers, like Detroit, must be disenfranchised; the financial cartel must be allowed to absorb an ever greater proportion of the real economy into its derivatives casino; wealth must flow from the bottom to the top, without pause; and a planetary corporate code must be established through “free trade” treaties that supersede the sovereign laws of nations. All of the Obama administration’s marching orders flow from these imperatives.

 

Obama and Holder are guardians of the emerging new order, which does not yet have a legal code – and may well prefer to forgo such niceties, entirely. In the meantime, corporate Democrats and Republicans will give lip service to the law while the Mafia of Money runs the show.

 

And, you can take that to the bank.

 

BAR executive editor Glen Ford can be contacted at Glen.Ford@BlackAgendaReport.com.

 

 

 

Secrets and Lies of the Wall Street Bailout January 9, 2013

Posted by rogerhollander in Economic Crisis.
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Roger’s note: One does not have to have a Ph.D. in Economics to understand the words “lies” and “secrets.”  Matt Taibbi is one of the finest journalists writing today, and he painstakingly outlines the fraud perpetuated on the American people by the Republicrat government in collusion with the Wall Street financial institutions.

 

Published on Tuesday, January 8, 2013 by Rolling Stone

The federal rescue of Wall Street didn’t fix the economy – it created a permanent bailout state based on a Ponzi-like confidence scheme. And the worst may be yet to come

by Matt Taibbi

It has been four long winters since the federal government, in the hulking, shaven-skulled, Alien Nation-esque form of then-Treasury Secretary Hank Paulson, committed $700 billion in taxpayer money to rescue Wall Street from its own chicanery and greed. To listen to the bankers and their allies in Washington tell it, you’d think the bailout was the best thing to hit the American economy since the invention of the assembly line. Not only did it prevent another Great Depression, we’ve been told, but the money has all been paid back, and the government even made a profit. No harm, no foul – right?

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(Illustration by Victor Juhasz)

Wrong.

It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyperconcentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it. The result is one of those deals where one wrong decision early on blossoms into a lush nightmare of unintended consequences. We thought we were just letting a friend crash at the house for a few days; we ended up with a family of hillbillies who moved in forever, sleeping nine to a bed and building a meth lab on the front lawn.

How Wall Street Killed Financial Reform

But the most appalling part is the lying. The public has been lied to so shamelessly and so often in the course of the past four years that the failure to tell the truth to the general populace has become a kind of baked-in, official feature of the financial rescue. Money wasn’t the only thing the government gave Wall Street – it also conferred the right to hide the truth from the rest of us. And it was all done in the name of helping regular people and creating jobs. “It is,” says former bailout Inspector General Neil Barofsky, “the ultimate bait-and-switch.”

The bailout deceptions came early, late and in between. There were lies told in the first moments of their inception, and others still being told four years later. The lies, in fact, were the most important mechanisms of the bailout. The only reason investors haven’t run screaming from an obviously corrupt financial marketplace is because the government has gone to such extraordinary lengths to sell the narrative that the problems of 2008 have been fixed. Investors may not actually believe the lie, but they are impressed by how totally committed the government has been, from the very beginning, to selling it.

They Lied to Pass the Bailout

Today what few remember about the bailouts is that we had to approve them. It wasn’t like Paulson could just go out and unilaterally commit trillions of public dollars to rescue Goldman Sachs and Citigroup from their own stupidity and bad management (although the government ended up doing just that, later on). Much as with a declaration of war, a similarly extreme and expensive commitment of public resources, Paulson needed at least a film of congressional approval. And much like the Iraq War resolution, which was only secured after George W. Bush ludicrously warned that Saddam was planning to send drones to spray poison over New York City, the bailouts were pushed through Congress with a series of threats and promises that ranged from the merely ridiculous to the outright deceptive. At one meeting to discuss the original bailout bill – at 11 a.m. on September 18th, 2008 – Paulson actually told members of Congress that $5.5 trillion in wealth would disappear by 2 p.m. that day unless the government took immediate action, and that the world economy would collapse “within 24 hours.”

To be fair, Paulson started out by trying to tell the truth in his own ham-headed, narcissistic way. His first TARP proposal was a three-page absurdity pulled straight from a Beavis and Butt-Head episode – it was basically Paulson saying, “Can you, like, give me some money?” Sen. Sherrod Brown, a Democrat from Ohio, remembers a call with Paulson and Federal Reserve chairman Ben Bernanke. “We need $700 billion,” they told Brown, “and we need it in three days.” What’s more, the plan stipulated, Paulson could spend the money however he pleased, without review “by any court of law or any administrative agency.”

The White House and leaders of both parties actually agreed to this preposterous document, but it died in the House when 95 Democrats lined up against it. For an all-too-rare moment during the Bush administration, something resembling sanity prevailed in Washington.

So Paulson came up with a more convincing lie. On paper, the Emergency Economic Stabilization Act of 2008 was simple: Treasury would buy $700 billion of troubled mortgages from the banks and then modify them to help struggling homeowners. Section 109 of the act, in fact, specifically empowered the Treasury secretary to “facilitate loan modifications to prevent avoidable foreclosures.” With that promise on the table, wary Democrats finally approved the bailout on October 3rd, 2008. “That provision,” says Barofsky, “is what got the bill passed.”

But within days of passage, the Fed and the Treasury unilaterally decided to abandon the planned purchase of toxic assets in favor of direct injections of billions in cash into companies like Goldman and Citigroup. Overnight, Section 109 was unceremoniously ditched, and what was pitched as a bailout of both banks and homeowners instantly became a bank-only operation – marking the first in a long series of moves in which bailout officials either casually ignored or openly defied their own promises with regard to TARP.

Congress was furious. “We’ve been lied to,” fumed Rep. David Scott, a Democrat from Georgia. Rep. Elijah Cummings, a Democrat from Maryland, raged at transparently douchey TARP administrator (and Goldman banker) Neel Kashkari, calling him a “chump” for the banks. And the anger was bipartisan: Republican senators David Vitter of Louisiana and James Inhofe of Oklahoma were so mad about the unilateral changes and lack of oversight that they sponsored a bill in January 2009 to cancel the remaining $350 billion of TARP.

So what did bailout officials do? They put together a proposal full of even bigger deceptions to get it past Congress a second time. That process began almost exactly four years ago – on January 12th and 15th, 2009 – when Larry Summers, the senior economic adviser to President-elect Barack Obama, sent a pair of letters to Congress. The pudgy, stubby­fingered former World Bank economist, who had been forced out as Harvard president for suggesting that women lack a natural aptitude for math and science, begged legislators to reject Vitter’s bill and leave TARP alone.

In the letters, Summers laid out a five-point plan in which the bailout was pitched as a kind of giant populist program to help ordinary Americans. Obama, Summers vowed, would use the money to stimulate bank lending to put people back to work. He even went so far as to say that banks would be denied funding unless they agreed to “increase lending above baseline levels.” He promised that “tough and transparent conditions” would be imposed on bailout recipients, who would not be allowed to use bailout funds toward “enriching shareholders or executives.” As in the original TARP bill, he pledged that bailout money would be used to aid homeowners in foreclosure. And lastly, he promised that the bailouts would be temporary – with a “plan for exit of government intervention” implemented “as quickly as possible.”

The reassurances worked. Once again, TARP survived in Congress – and once again, the bailouts were greenlighted with the aid of Democrats who fell for the old “it’ll help ordinary people” sales pitch. “I feel like they’ve given me a lot of commitment on the housing front,” explained Sen. Mark Begich, a Democrat from Alaska.

But in the end, almost nothing Summers promised actually materialized. A small slice of TARP was earmarked for foreclosure relief, but the resultant aid programs for homeowners turned out to be riddled with problems, for the perfectly logical reason that none of the bailout’s architects gave a shit about them. They were drawn up practically overnight and rushed out the door for purely political reasons – to trick Congress into handing over tons of instant cash for Wall Street, with no strings attached. “Without those assurances, the level of opposition would have remained the same,” says Rep. Raúl Grijalva, a leading progressive who voted against TARP. The promise of housing aid, in particular, turned out to be a “paper tiger.”

HAMP, the signature program to aid poor homeowners, was announced by President Obama on February 18th, 2009. The move inspired CNBC commentator Rick Santelli to go berserk the next day – the infamous viral rant that essentially birthed the Tea Party. Reacting to the news that Obama was planning to use bailout funds to help poor and (presumably) minority homeowners facing foreclosure, Santelli fumed that the president wanted to “subsidize the losers’ mortgages” when he should “reward people that could carry the water, instead of drink the water.” The tirade against “water drinkers” led to the sort of spontaneous nationwide protests one might have expected months before, when we essentially gave a taxpayer-funded blank check to Gamblers Anonymous addicts, the millionaire and billionaire class.

In fact, the amount of money that eventually got spent on homeowner aid now stands as a kind of grotesque joke compared to the Himalayan mountain range of cash that got moved onto the balance sheets of the big banks more or less instantly in the first months of the bailouts. At the start, $50 billion of TARP funds were earmarked for HAMP. In 2010, the size of the program was cut to $30 billion. As of November of last year, a mere $4 billion total has been spent for loan modifications and other homeowner aid.

In short, the bailout program designed to help those lazy, job-averse, “water-drinking” minority homeowners – the one that gave birth to the Tea Party – turns out to have comprised about one percent of total TARP spending. “It’s amazing,” says Paul Kiel, who monitors bailout spending for ProPublica. “It’s probably one of the biggest failures of the Obama administration.”

The failure of HAMP underscores another damning truth – that the Bush-Obama bailout was as purely bipartisan a program as we’ve had. Imagine Obama retaining Don Rumsfeld as defense secretary and still digging for WMDs in the Iraqi desert four years after his election: That’s what it was like when he left Tim Geithner, one of the chief architects of Bush’s bailout, in command of the no-strings­attached rescue four years after Bush left office.

Yet Obama’s HAMP program, as lame as it turned out to be, still stands out as one of the few pre-bailout promises that was even partially fulfilled. Virtually every other promise Summers made in his letters turned out to be total bullshit. And that includes maybe the most important promise of all – the pledge to use the bailout money to put people back to work.

They Lied About Lending

Once TARP passed, the government quickly began loaning out billions to some 500 banks that it deemed “healthy” and “viable.” A few were cash loans, repayable at five percent within the first five years; other deals came due when a bank stock hit a predetermined price. As long as banks held TARP money, they were barred from paying out big cash bonuses to top executives.

But even before Summers promised Congress that banks would be required to increase lending as a condition for receiving bailout funds, officials had already decided not to even ask the banks to use the money to increase lending. In fact, they’d decided not to even ask banks to monitor what they did with the bailout money. Barofsky, the TARP inspector, asked Treasury to include a requirement forcing recipients to explain what they did with the taxpayer money. He was stunned when TARP administrator Kashkari rejected his proposal, telling him lenders would walk away from the program if they had to deal with too many conditions. “The banks won’t participate,” Kashkari said.

Barofsky, a former high-level drug prosecutor who was one of the only bailout officials who didn’t come from Wall Street, didn’t buy that cash-desperate banks would somehow turn down billions in aid. “It was like they were trembling with fear that the banks wouldn’t take the money,” he says. “I never found that terribly convincing.”

In the end, there was no lending requirement attached to any aspect of the bailout, and there never would be. Banks used their hundreds of billions for almost every purpose under the sun – everything, that is, but lending to the homeowners and small businesses and cities they had destroyed. And one of the most disgusting uses they found for all their billions in free government money was to help them earn even more free government money.

To guarantee their soundness, all major banks are required to keep a certain amount of reserve cash at the Fed. In years past, that money didn’t earn interest, for the logical reason that banks shouldn’t get paid to stay solvent. But in 2006 – arguing that banks were losing profits on cash parked at the Fed – regulators agreed to make small interest payments on the money. The move wasn’t set to go into effect until 2011, but when the crash hit, a section was written into TARP that launched the interest payments in October 2008.

In theory, there should never be much money in such reserve accounts, because any halfway-competent bank could make far more money lending the cash out than parking it at the Fed, where it earns a measly quarter of a percent. In August 2008, before the bailout began, there were just $2 billion in excess reserves at the Fed. But by that October, the number had ballooned to $267 billion – and by January 2009, it had grown to $843 billion. That means there was suddenly more money sitting uselessly in Fed accounts than Congress had approved for either the TARP bailout or the much-loathed Obama stimulus. Instead of lending their new cash to struggling homeowners and small businesses, as Summers had promised, the banks were literally sitting on it.

Today, excess reserves at the Fed total an astonishing $1.4 trillion.”The money is just doing nothing,” says Nomi Prins, a former Goldman executive who has spent years monitoring the distribution of bailout money.

Nothing, that is, except earning a few crumbs of risk-free interest for the banks. Prins estimates that the annual haul in interest­ on Fed reserves is about $3.6 billion – a relatively tiny subsidy in the scheme of things, but one that, ironically, just about matches the total amount of bailout money spent on aid to homeowners. Put another way, banks are getting paid about as much every year for not lending money as 1 million Americans received for mortgage modifications and other housing aid in the whole of the past four years.

Moreover, instead of using the bailout money as promised – to jump-start the economy – Wall Street used the funds to make the economy more dangerous. From the start, taxpayer money was used to subsidize a string of finance mergers, from the Chase-Bear Stearns deal to the Wells Fargo­Wachovia merger to Bank of America’s acquisition of Merrill Lynch. Aided by bailout funds, being Too Big to Fail was suddenly Too Good to Pass Up.

Other banks found more creative uses for bailout money. In October 2010, Obama signed a new bailout bill creating a program called the Small Business Lending Fund, in which firms with fewer than $10 billion in assets could apply to share in a pool of $4 billion in public money. As it turned out, however, about a third of the 332 companies that took part in the program used at least some of the money to repay their original TARP loans. Small banks that still owed TARP money essentially took out cheaper loans from the government to repay their more expensive TARP loans – a move that conveniently exempted them from the limits on executive bonuses mandated by the bailout. All told, studies show, $2.2 billion of the $4 billion ended up being spent not on small-business loans, but on TARP repayment. “It’s a bit of a shell game,” admitted John Schmidt, chief operating officer of Iowa-based Heartland Financial, which took $81.7 million from the SBLF and used every penny of it to repay TARP.

Using small-business funds to pay down their own debts, parking huge amounts of cash at the Fed in the midst of a stalled economy – it’s all just evidence of what most Americans know instinctively: that the bailouts didn’t result in much new business lending. If anything, the bailouts actually hindered lending, as banks became more like house pets that grow fat and lazy on two guaranteed meals a day than wild animals that have to go out into the jungle and hunt for opportunities in order to eat. The Fed’s own analysis bears this out: In the first three months of the bailout, as taxpayer billions poured in, TARP recipients slowed down lending at a rate more than double that of banks that didn’t receive TARP funds. The biggest drop in lending – 3.1 percent – came from the biggest bailout recipient, Citigroup. A year later, the inspector general for the bailout found that lending among the nine biggest TARP recipients “did not, in fact, increase.” The bailout didn’t flood the banking system with billions in loans for small businesses, as promised. It just flooded the banking system with billions for the banks.

They Lied About the Health of the Banks

The main reason banks didn’t lend out bailout funds is actually pretty simple: Many of them needed the money just to survive. Which leads to another of the bailout’s broken promises – that taxpayer money would only be handed out to “viable” banks.

Soon after TARP passed, Paulson and other officials announced the guidelines for their unilaterally changed bailout plan. Congress had approved $700 billion to buy up toxic mortgages, but $250 billion of the money was now shifted to direct capital injections for banks. (Although Paulson claimed at the time that handing money directly to the banks was a faster way to restore market confidence than lending it to homeowners, he later confessed that he had been contemplating the direct-cash-injection plan even before the vote.) This new let’s-just-fork-over-cash portion of the bailout was called the Capital Purchase Program. Under the CPP, nine of America’s largest banks – including Citi, Wells Fargo, Goldman, Morgan Stanley, Bank of America, State Street and Bank of New York Mellon – received $125 billion, or half of the funds being doled out. Since those nine firms accounted for 75 percent of all assets held in America’s banks – $11 trillion – it made sense they would get the lion’s share of the money. But in announcing the CPP, Paulson and Co. promised that they would only be stuffing cash into “healthy and viable” banks. This, at the core, was the entire justification for the bailout: That the huge infusion of taxpayer cash would not be used to rescue individual banks, but to kick-start the economy as a whole by helping healthy banks start lending again.

This announcement marked the beginning of the legend that certain Wall Street banks only took the bailout money because they were forced to – they didn’t need all those billions, you understand, they just did it for the good of the country. “We did not, at that point, need TARP,” Chase chief Jamie Dimon later claimed, insisting that he only took the money “because we were asked to by the secretary of Treasury.” Goldman chief Lloyd Blankfein similarly claimed that his bank never needed the money, and that he wouldn’t have taken it if he’d known it was “this pregnant with potential for backlash.” A joint statement by Paulson, Bernanke and FDIC chief Sheila Bair praised the nine leading banks as “healthy institutions” that were taking the cash only to “enhance the overall performance of the U.S. economy.”

But right after the bailouts began, soon-to-be Treasury Secretary Tim Geithner admitted to Barofsky, the inspector general, that he and his cohorts had picked the first nine bailout recipients because of their size, without bothering to assess their health and viability. Paulson, meanwhile, later admitted that he had serious concerns about at least one of the nine firms he had publicly pronounced healthy. And in November 2009, Bernanke gave a closed-door interview to the Financial Crisis Inquiry Commission, the body charged with investigating the causes of the economic meltdown, in which he admitted that 12 of the 13 most prominent financial companies in America were on the brink of failure during the time of the initial bailouts.

On the inside, at least, almost everyone connected with the bailout knew that the top banks were in deep trouble. “It became obvious pretty much as soon as I took the job that these companies weren’t really healthy and viable,” says Barofsky, who stepped down as TARP inspector in 2011.

This early episode would prove to be a crucial moment in the history of the bailout. It set the precedent of the government allowing unhealthy banks to not only call themselves healthy, but to get the government to endorse their claims. Projecting an image of soundness was, to the government, more important than disclosing the truth. Officials like Geithner and Paulson seemed to genuinely believe that the market’s fears about corruption in the banking system was a bigger problem than the corruption itself. Time and again, they justified TARP as a move needed to “bolster confidence” in the system – and a key to that effort was keeping the banks’ insolvency a secret. In doing so, they created a bizarre new two-tiered financial market, divided between those who knew the truth about how bad things were and those who did not.

A month or so after the bailout team called the top nine banks “healthy,” it became clear that the biggest recipient, Citigroup, had actually flat-lined on the ER table. Only weeks after Paulson and Co. gave the firm $25 billion in TARP funds, Citi – which was in the midst of posting a quarterly loss of more than $17 billion – came back begging for more. In November 2008, Citi received another $20 billion in cash and more than $300 billion in guarantees.

What’s most amazing about this isn’t that Citi got so much money, but that government-endorsed, fraudulent health ratings magically became part of its bailout. The chief financial regulators – the Fed, the FDIC and the Office of the Comptroller of the Currency – use a ratings system called CAMELS to measure the fitness of institutions. CAMELS stands for Capital, Assets, Management, Earnings, Liquidity and Sensitivity to risk, and it rates firms from one to five, with one being the best and five the crappiest. In the heat of the crisis, just as Citi was receiving the second of what would turn out to be three massive federal bailouts, the bank inexplicably enjoyed a three rating – the financial equivalent of a passing grade. In her book, Bull by the Horns, then-FDIC chief Sheila Bair recounts expressing astonishment to OCC head John Dugan as to why “Citi rated as a CAMELS 3 when it was on the brink of failure.” Dugan essentially answered that “since the government planned on bailing Citi out, the OCC did not plan to change its supervisory rating.” Similarly, the FDIC ended up granting a “systemic risk exception” to Citi, allowing it access to FDIC-bailout help even though the agency knew the bank was on the verge of collapse.

The sweeping impact of these crucial decisions has never been fully appreciated. In the years preceding the bailouts, banks like Citi had been perpetuating a kind of fraud upon the public by pretending to be far healthier than they really were. In some cases, the fraud was outright, as in the case of Lehman Brothers, which was using an arcane accounting trick to book tens of billions of loans as revenues each quarter, making it look like it had more cash than it really did. In other cases, the fraud was more indirect, as in the case of Citi, which in 2007 paid out the third-highest dividend in America – $10.7 billion – despite the fact that it had lost $9.8 billion in the fourth quarter of that year alone. The whole financial sector, in fact, had taken on Ponzi-like characteristics, as many banks were hugely dependent on a continual influx of new money from things like sales of subprime mortgages to cover up massive future liabilities from toxic investments that, sooner or later, were going to come to the surface.

Now, instead of using the bailouts as a clear-the-air moment, the government decided to double down on such fraud, awarding healthy ratings to these failing banks and even twisting its numerical audits and assessments to fit the cooked-up narrative. A major component of the original TARP bailout was a promise to ensure “full and accurate accounting” by conducting regular­ “stress tests” of the bailout recipients. When Geithner announced his stress-test plan in February 2009, a reporter instantly blasted him with an obvious and damning question: Doesn’t the fact that you have to conduct these tests prove that bank regulators, who should already know plenty about banks’ solvency, actually have no idea who is solvent and who isn’t?

The government did wind up conducting regular stress tests of all the major bailout recipients, but the methodology proved to be such an obvious joke that it was even lampooned on Saturday Night Live. (In the skit, Geithner abandons a planned numerical score system because it would unfairly penalize bankers who were “not good at banking.”) In 2009, just after the first round of tests was released, it came out that the Fed had allowed banks to literally rejigger the numbers to make their bottom lines look better. When the Fed found Bank of America had a $50 billion capital hole, for instance, the bank persuaded examiners to cut that number by more than $15 billion because of what it said were “errors made by examiners in the analysis.” Citigroup got its number slashed from $35 billion to $5.5 billion when the bank pleaded with the Fed to give it credit for “pending transactions.”

Such meaningless parodies of oversight continue to this day. Earlier this year, Regions Financial Corp. – a company that had failed to pay back $3.5 billion in TARP loans – passed its stress test. A subsequent analysis by Bloomberg View found that Regions was effectively $525 million in the red. Nonetheless, the bank’s CEO proclaimed that the stress test “demonstrates the strength of our company.” Shortly after the test was concluded, the bank issued $900 million in stock and said it planned on using the cash to pay back some of the money it had borrowed under TARP.

This episode underscores a key feature of the bailout: the government’s decision to use lies as a form of monetary aid. State hands over taxpayer money to functionally insolvent bank; state gives regulatory thumbs up to said bank; bank uses that thumbs up to sell stock; bank pays cash back to state. What’s critical here is not that investors actually buy the Fed’s bullshit accounting – all they have to do is believe the government will backstop Regions either way, healthy or not. “Clearly, the Fed wanted it to attract new investors,” observed Bloomberg, “and those who put fresh capital into Regions this week believe the government won’t let it die.”

Through behavior like this, the government has turned the entire financial system into a kind of vast confidence game – a Ponzi-like scam in which the value of just about everything in the system is inflated because of the widespread belief that the government will step in to prevent losses. Clearly, a government that’s already in debt over its eyes for the next million years does not have enough capital on hand to rescue every Citigroup or Regions Bank in the land should they all go bust tomorrow. But the market is behaving as if Daddy will step in to once again pay the rent the next time any or all of these kids sets the couch on fire and skips out on his security deposit. Just like an actual Ponzi scheme, it works only as long as they don’t have to make good on all the promises they’ve made. They’re building an economy based not on real accounting and real numbers, but on belief. And while the signs of growth and recovery in this new faith-based economy may be fake, one aspect of the bailout has been consistently concrete: the broken promises over executive pay.

They Lied About Bonuses

hat executive bonuses on Wall Street were a political hot potato for the bailout’s architects was obvious from the start. That’s why Summers, in saving the bailout from the ire of Congress, vowed to “limit executive compensation” and devote public money to prevent another financial crisis. And it’s true, TARP did bar recipients from a whole range of exorbitant pay practices, which is one reason the biggest banks, like Goldman Sachs, worked so quickly to repay their TARP loans.

But there were all sorts of ways around the restrictions. Banks could apply to the Fed and other regulators for waivers, which were often approved (one senior FDIC official tells me he recommended denying “golden parachute” payments to Citigroup officials, only to see them approved by superiors). They could get bailouts through programs other than TARP that did not place limits on bonuses. Or they could simply pay bonuses not prohibited under TARP. In one of the worst episodes, the notorious lenders Fannie Mae and Freddie Mac paid out more than $200 million in bonuses­ between 2008 and 2010, even though the firms (a) lost more than $100 billion in 2008 alone, and (b) required nearly $400 billion in federal assistance during the bailout period.

Even worse was the incredible episode in which bailout recipient AIG paid more than $1 million each to 73 employees of AIG Financial Products, the tiny unit widely blamed for having destroyed the insurance giant (and perhaps even triggered the whole crisis) with its reckless issuance of nearly half a trillion dollars in toxic credit-default swaps. The “retention bonuses,” paid after the bailout, went to 11 employees who no longer worked for AIG.

But all of these “exceptions” to the bonus restrictions are far less infuriating, it turns out, than the rule itself. TARP did indeed bar big cash-bonus payouts by firms that still owed money to the government. But those firms were allowed to issue extra compensation to executives in the form of long-term restricted stock. An independent research firm asked to analyze the stock options for The New York Times found that the top five executives at each of the 18 biggest bailout recipients received a total of $142 million in stocks and options. That’s plenty of money all by itself – but thanks in large part to the government’s overt display of support for those firms, the value of those options has soared to $457 million, an average of $4 million per executive.

In other words, we didn’t just allow banks theoretically barred from paying bonuses to pay bonuses. We actually allowed them to pay bigger bonuses than they otherwise could have. Instead of forcing the firms to reward top executives in cash, we allowed them to pay in depressed stock, the value of which we then inflated due to the government’s implicit endorsement of those firms.

All of which leads us to the last and most important deception of the bailouts:

They Lied About the Bailout Being Temporary

The bailout ended up being much bigger than anyone expected, expanded far beyond TARP to include more obscure (and in some cases far larger) programs with names like TALF, TAF, PPIP and TLGP. What’s more, some parts of the bailout were designed to extend far into the future. Companies like AIG, GM and Citigroup, for instance, were given tens of billions of deferred tax assets – allowing them to carry losses from 2008 forward to offset future profits and keep future tax bills down. Official estimates of the bailout’s costs do not include such ongoing giveaways. “This is stuff that’s never going to appear on any report,” says Barofsky.

Citigroup, all by itself, boasts more than $50 billion in deferred tax credits – which is how the firm managed to pay less in taxes in 2011 (it actually received a $144 million credit) than it paid in compensation that year to its since-ousted dingbat CEO, Vikram Pandit (who pocketed $14.9 million). The bailout, in short, enabled the very banks and financial institutions that cratered the global economy to write off the losses from their toxic deals for years to come – further depriving the government of much-needed tax revenues it could have used to help homeowners and small businesses who were screwed over by the banks in the first place.

Even worse, the $700 billion in TARP loans ended up being dwarfed by more than $7.7 trillion in secret emergency lending that the Fed awarded to Wall Street – loans that were only disclosed to the public after Congress forced an extraordinary one-time audit of the Federal Reserve. The extent of this “secret bailout” didn’t come out until November 2011, when Bloomberg Markets, which went to court to win the right to publish the data, detailed how the country’s biggest firms secretly received trillions in near-free money throughout the crisis.

Goldman Sachs, which had made such a big show of being reluctant about accepting $10 billion in TARP money, was quick to cash in on the secret loans being offered by the Fed. By the end of 2008, Goldman had snarfed up $34 billion in federal loans – and it was paying an interest rate of as low as just 0.01 percent for the huge cash infusion. Yet that funding was never disclosed to shareholders or taxpayers, a fact Goldman confirms. “We did not disclose the amount of our participation in the two programs you identify,” says Goldman spokesman Michael Duvally.

Goldman CEO Blankfein later dismissed the importance of the loans, telling the Financial Crisis Inquiry Commission that the bank wasn’t “relying on those mechanisms.” But in his book, Bailout, Barofsky says that Paulson told him that he believed Morgan Stanley was “just days” from collapse before government intervention, while Bernanke later admitted that Goldman would have been the next to fall.

Meanwhile, at the same moment that leading banks were taking trillions in secret loans from the Fed, top officials at those firms were buying up stock in their companies, privy to insider info that was not available to the public at large. Stephen Friedman, a Goldman director who was also chairman of the New York Fed, bought more than $4 million of Goldman stock over a five-week period in December 2008 and January 2009 – years before the extent of the firm’s lifeline from the Fed was made public. Citigroup CEO Vikram Pandit bought nearly $7 million in Citi stock in November 2008, just as his firm was secretly taking out $99.5 billion in Fed loans. Jamie Dimon bought more than $11 million in Chase stock in early 2009, at a time when his firm was receiving as much as $60 billion in secret Fed loans. When asked by Rolling Stone, Chase could not point to any disclosure of the bank’s borrowing from the Fed until more than a year later, when Dimon wrote about it in a letter to shareholders in March 2010.

The stock purchases by America’s top bankers raise serious questions of insider trading. Two former high-ranking financial regulators tell Rolling Stone that the secret loans were likely subject to a 1989 guideline, issued by the Securities and Exchange Commission in the heat of the savings and loan crisis, which said that financial institutions should disclose the “nature, amounts and effects” of any government aid. At the end of 2011, in fact, the SEC sent letters to Citigroup, Chase, Goldman Sachs, Bank of America and Wells Fargo asking them why they hadn’t fully disclosed their secret borrowing. All five megabanks essentially replied, to varying degrees of absurdity, that their massive borrowing from the Fed was not “material,” or that the piecemeal disclosure they had engaged in was adequate. Never mind that the law says investors have to be informed right away if CEOs like Dimon and Pandit decide to give themselves a $10,000 raise. According to the banks, it’s none of your business if those same CEOs are making use of a secret $50 billion charge card from the Fed.

The implications here go far beyond the question of whether Dimon and Co. committed insider trading by buying and selling stock while they had access to material nonpublic information about the bailouts. The broader and more pressing concern is the clear implication that by failing to act, federal regulators­ have tacitly approved the nondisclosure. Instead of trusting the markets to do the right thing when provided with accurate information, the government has instead channeled Jack Nicholson – and decided that the public just can’t handle the truth.

All of this – the willingness to call dying banks healthy, the sham stress tests, the failure to enforce bonus rules, the seeming indifference to public disclosure, not to mention the shocking­ lack of criminal investigations into fraud committed by bailout recipients before the crash – comprised the largest and most valuable bailout of all. Brick by brick, statement by reassuring statement, bailout officials have spent years building the government’s great Implicit Guarantee to the biggest companies on Wall Street: We will be there for you, always, no matter how much you screw up. We will lie for you and let you get away with just about anything. We will make this ongoing bailout a pervasive and permanent part of the financial system. And most important of all, we will publicly commit to this policy, being so obvious about it that the markets will be able to put an exact price tag on the value of our preferential treatment.

The first independent study that attempted to put a numerical value on the Implicit Guarantee popped up about a year after the crash, in September 2009, when Dean Baker and Travis McArthur of the Center for Economic and Policy Research published a paper called “The Value of the ‘Too Big to Fail’ Big Bank Subsidy.” Baker and McArthur found that prior to the last quarter of 2007, just before the start of the crisis, financial firms with $100 billion or more in assets were paying on average about 0.29 percent less to borrow money than smaller firms.

By the second quarter of 2009, however, once the bailouts were in full swing, that spread had widened to 0.78 percent. The conclusion was simple: Lenders were about a half a point more willing to lend to a bank with implied government backing – even a proven-stupid bank – than they were to lend to companies who “must borrow based on their own credit worthiness.” The economists estimated that the lending gap amounted to an annual subsidy of $34 billion a year to the nation’s 18 biggest banks.

Today the borrowing advantage of a big bank remains almost exactly what it was three years ago – about 50 basis points, or half a percent. “These megabanks still receive subsidies in the sense that they can borrow on the capital markets at a discount rate of 50 or 70 points because of the implicit view that these banks are Too Big to Fail,” says Sen. Brown.

Why does the market believe that? Because the officials who administered the bailouts made that point explicitly, over and over again. When Geithner announced the implementation of the stress tests in 2009, for instance, he declared that banks who didn’t have enough money to pass the test could get it from the government. “We’re going to help this process by providing a new program of capital support for those institutions that need it,” Geithner said. The message, says Barofsky, was clear: “If the banks cannot raise capital, we will do it for them.” It was an Implicit Guarantee that the banks would not be allowed to fail – a point that Geithner and other officials repeatedly stressed over the years. “The markets took all those little comments by Geithner as a clue that the government is looking out for them,” says Baker. That psychological signaling, he concludes, is responsible for the crucial half-point borrowing spread.

The inherent advantage of bigger banks – the permanent, ongoing bailout they are still receiving from the government – has led to a host of gruesome consequences. All the big banks have paid back their TARP loans, while more than 300 smaller firms are still struggling to repay their bailout debts. Even worse, the big banks, instead of breaking down into manageable parts and becoming more efficient, have grown even bigger and more unmanageable, making the economy far more concentrated and dangerous than it was before. America’s six largest banks – Bank of America, JP Morgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley – now have a combined 14,420 subsidiaries, making them so big as to be effectively beyond regulation. A recent study by the Kansas City Fed found that it would take 70,000 examiners to inspect such trillion-dollar banks with the same level of attention normally given to a community bank. “The complexity is so overwhelming that no regulator can follow it well enough to regulate the way we need to,” says Sen. Brown, who is drafting a bill to break up the megabanks.

Worst of all, the Implicit Guarantee has led to a dangerous shift in banking behavior. With an apparently endless stream of free or almost-free money available to banks – coupled with a well-founded feeling among bankers that the government will back them up if anything goes wrong – banks have made a dramatic move into riskier and more speculative investments, including everything from high-risk corporate bonds to mortgage­backed securities to payday loans, the sleaziest and most disreputable end of the financial system. In 2011, banks increased their investments in junk-rated companies by 74 percent, and began systematically easing their lending standards in search of more high-yield customers to lend to.

This is a virtual repeat of the financial crisis, in which a wave of greed caused bankers to recklessly chase yield everywhere, to the point where lowering lending standards became the norm. Now the government, with its Implicit Guarantee, is causing exactly the same behavior – meaning the bailouts have brought us right back to where we started. “Government intervention,” says Klaus Schaeck, an expert on bailouts who has served as a World Bank consultant, “has definitely resulted in increased risk.”

And while the economy still mostly sucks overall, there’s never been a better time to be a Too Big to Fail bank. Wells Fargo reported a third-quarter profit of nearly $5 billion last year, while JP Morgan Chase pocketed $5.3 billion – roughly double what both banks earned in the third quarter of 2006, at the height of the mortgage bubble. As the driver of their success, both banks cite strong performance in – you guessed it – the mortgage market.

So what exactly did the bailout accomplish? It built a banking system that discriminates against community banks, makes Too Big to Fail banks even Too Bigger to Failier, increases risk, discourages sound business lending and punishes savings by making it even easier and more profitable to chase high-yield investments than to compete for small depositors. The bailout has also made lying on behalf of our biggest and most corrupt banks the official policy of the United States government. And if any one of those banks fails, it will cause another financial crisis, meaning we’re essentially wedded to that policy for the rest of eternity – or at least until the markets call our bluff, which could happen any minute now.

Other than that, the bailout was a smashing success.

© 2012 Rolling Stone
matt-taibbi

As Rolling Stone’s chief political reporter, Matt Taibbi’s predecessors include the likes of journalistic giants Hunter S. Thompson and P.J. O’Rourke. Taibbi’s 2004 campaign journal Spanking the Donkey cemented his status as an incisive, irreverent, zero-bullshit reporter. His books include Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History, The Great Derangement: A Terrifying True Story of War, Politics, and Religion, Smells Like Dead Elephants: Dispatches from a Rotting Empire.

Obama Sells Out Homeowners Again: Mortgage Settlement a Sad Joke February 23, 2012

Posted by rogerhollander in Barack Obama, Economic Crisis, Housing/Homelessness.
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Published on Thursday, February 23, 2012 by Common Dreams

by  Ted Rall

Joe Nocera, the columnist currently challenging Tom Friedman for the title of Hackiest Militant Centrist Hack–it’s a tough job that just about everyone on The New York Times op-ed page has to do–loves the robo-signing settlement announced last week between the Obama Administration, 49 states and the five biggest mortgage banks. “Two cheers!” shouts Nocera.

Too busy to follow the news? Read Nocera. If he likes something, it’s probably stupid, evil, or both.

(Photo: CNN)

As penance for their sins–securitizing fraudulent mortgages, using forged deeds to foreclose on millions of Americans and oh, yeah, borking the entire world economy–Ally Financial, Bank of America, Citibank, JPMorgan Chase and Wells Fargo have agreed to fork over $5 billion in cash. Under the terms of the new agreement they’re supposed to reduce the principal of loans to homeowners who are “underwater” on their mortgages–i.e. they owe more than their house is worth–by $17 billion.

Some homeowners will qualify for $3 billion in interest refinancing, something the banks have resisted since the ongoing depression began in late 2008.

What about those who got kicked out of their homes illegally? They split a pool of $1.5 billion. Sounds impressive. It’s not. Mark Zuckerberg is worth $45 billion.

“That probably nets out to less than $2,000 a person,” notes The Times. “There’s no doubt that the banks are happy with this deal. You would be, too, if your bill for lying to courts and end-running the law came to less than $2,000 per loan file.”

Readers will recall that I paid more than that for a speeding ticket. 68 in a 55. This is the latest sellout by a corrupt system that would rather line the pockets of felonious bankers than put them where they belong: prison.

Remember TARP, the initial bailout? Democrats and Republicans, George W. Bush and Barack Obama agreed to dole out $700 billion in public–plus $7.7 trillion funneled secretly through the Fed–to the big banks so they could “increase their lending in order to loosen credit markets,” in the words of Senator Olympia Snowe, a Maine Republican.

Never happened.

Three years after TARP “tight home loan credit is affecting everything from home sales to household finances,” USA Today reported. “Many borrowers are struggling to qualify for loans to buy homes…Those who can get loans need higher credit scores and bigger down payments than they would have in recent years. They face more demands to prove their incomes, verify assets, show steady employment and explain things such as new credit cards and small bank account deposits. Even then, they may not qualify for the lowest interest rates.”

Financial experts aren’t surprised. TARP was a no-strings-attached deal devoid of any requirement that banks increase lending. You can hardly blame the bankers for taking advantage. They used the cash–money that might have been used to help distressed homeowners–to grow income on their overnight “float” and issue record raises to their CEOs.

Next came Obama’s “Home Affordable Modification Program” farce. Another toothless “voluntary” program, HAMP asked banks to do the same things they’ve just agreed to under the robo-signing settlement: allow homeowners who are struggling to refinance and possibly reduce their principals to reflect the collapse of housing prices in most markets.

Voluntary = worthless.

CNN reported on January 24th: “The HAMP program, which was designed to lower troubled borrowers’ mortgage rates to no more than 31% of their monthly income, ran into problems almost immediately. Many lenders lost documents, and many borrowers didn’t qualify. Three years later, it has helped a scant 910,000 homeowners–a far cry from the promised 4 million.”

Or the 15 million who needed help.

As usual, state-controlled media is too kind. Banks didn’t “lose” documents. They threw them away.

One hopes they recycled.

I wrote about my experience with HAMP: Chase Home Mortgage repeatedly asked for, received, confirmed receiving, then requested the same documents. They elevated the runaround to an art. My favorite part was how Chase wouldn’t respond to queries for a month, then request the bank statement for that month. They did this over and over. The final result: losing half my income “did not represent income loss.”

It’s simple math: in 67 percent of cases, banks make more money through foreclosure than working to keep families in their homes.

This time is different, claims the White House. “No more lost paperwork, no more excuses, no more runaround,” HUD secretary Shaun Donovan said February 9th. The new standards will “force the banks to clean up their acts.”

Don’t bet on it. The Administration promises “a robust enforcement mechanism”–i.e. an independent monitor. Such an agency, which would supervise the handling of million of distressed homeowners, won’t be able to handle the workload according to mortgage experts. Anyway, it’s not like there isn’t already a law. Law Professor Alan White of Valparaiso University notes: “Much of this [agreement] is restating obligations loan servicers already have.”

Finally, there’s the issue of fairness. “Underwater” is a scary, headline-grabbing word. But it doesn’t tell the whole story.

Tens of millions of homeowners have seen the value of their homes plummet since the housing crash. (The average home price fell from $270,000 in 2006 to $165,000 in 2011.) Those who are underwater tended not to have had much equity in their homes in the first place, having put down low downpayments. Why single them out for special assistance? Shouldn’t people who owned their homes free and clear and those who had significant equity at the beginning of crisis get as much help as those who lost less in the first place? What about renters? Why should people who were well-off enough to afford to buy a home get a payoff ahead of poor renters?

The biggest fairness issue of all, of course, is one of simple justice. If you steal someone’s house, you should go to jail. If your crimes are company policy, that company should be nationalized or forced out of business.

Your victim should get his or her house back, plus interest and penalties.

You shouldn’t pay less than a speeding ticket for stealing a house.

© 2012 Ted Rall

 

Ted Rall

Ted Rall is the author of the new books “Silk Road to Ruin: Is Central Asia the New Middle East?,” and “The Anti-American Manifesto” . His website is tedrall.com.

 

 

Wild Old Women: 1. Bank of America: Less Than Zero. January 8, 2012

Posted by rogerhollander in Democracy, Economic Crisis, Occupy Wall Street Movement, Women.
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by Abby Zimet

An earlier action at another Bank of America in San Francisco

Confirming the truth of the New York banner proclaiming, “The Zuccotti virus has spread,” a gleeful group of older women in San Francisco managed to close down a Bank of America when they stormed it with their walkers and wheelchairs for a well-deserved “run on the bank.” The women, aged 69 to 82, were protesting the bank’s fees, foreclosures and other untold unconscionable practices.

 

Attacks on NY AG Standing Up for Main Street Show Wall Street’s Control Over August 26, 2011

Posted by rogerhollander in Criminal Justice, Economic Crisis.
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Attacks on New York’s attorney general Eric Schneiderman
expose the destructive thinking of our financial and political elites.

August 25, 2011  |
The following article first appeared at Working In
These Times
, the labor blog of In These
Times
magazine. For more news and analysis like this, sign
up to receive In These Times
weekly updates.

“Corporations are people, my friend,” Mitt Romney recently declared.

That was pretty clumsy coming from a mega-millionaire Republican candidate,
as he was backing the 2010 U.S. Supreme Court decision Citizens United
opposed by no less than 80 percent of the public because of the enormous
political power it confers
upon the rich.

But how about the notion that “Wall Street is our Main Street,” which was voiced
by Federal Reserve official Kathryn Wylde? Her assertion was especially
startling because her explicit duty is “to represent
the public” in determining how to handle the massive wrongdoing of major banks
in ramming through home foreclosures.

However, Wylde was merely being honest about the aims of federal policy. The
idea that “Wall Street is Main Street” and its protection was the uppermost goal
in the mind of top Treasury Department officials. The plight of working families
on the verge of losing their homes—well, that was somehow a much, much lower
priority.

The major banks—Bank of America, Citigroup, JPMorgan Chase and Wells
Fargo—are facing legal pressure from the attorneys general of all 50 states over
their practices, including “robo-signing.

With the ownership of mortgages spread among thousands of investors due to
securities designed to minimize the risk, it becomes hopelessly complex to prove
ownership of a home when a bank wants to foreclose, as Chris Hayes of The
Nation
explained on MSNBC Wednesday night.

But no sweat! Presto—the banks came up with reams of bogus documents and then
hired employees whose job was to sign affidavits saying that yes, indeed, Bank
of America owned the home in question. Untold thousands of families were thus
illegally evicted.

These unlawful practices brought together the 50 attorneys general who
demanded—no, not time in jail for bank CEOs—$20 billion in fines that would be
devoted to mortgage modifications. In exchange, the bankers would get total
immunity from prosecution.

When New York Attorney General Eric Schneiderman—who this week was dismissed
from the executive committee of the 50-state AG investigation—balked at
accepting the deal, Wylde, the public’s watchdog, told
him,

It is of concern to the industry that instead of trying to facilitate
resolving these issues, you seem to be throwing a wrench into it. Wall Street is
our Main Street — love ’em or hate ’em. They are important and we have to make
sure we are doing everything we can to support them unless they are doing
something indefensible.

Wylde’s concern for the banks—already the recipients of taxpayers’ generous
2008 TARP bailout package—has been matched throughout the past two and a half
years of Obama administration programs designed to help homeowners.

The programs were supposed to help desperate
working families faced with rising
interest rates and falling home values to stay in their homes.

Recent reports and articles on foreclosures should assure Wylde that the
bankers have been treated with kid gloves from day one of the mortgage-relief
programs. First, the Obama Administration apparently ruled out the idea of
prosecuting bank officials for their multiple offenses, as Mary Bottari of
Bankster USA points
out:

Perverse incentives on Wall Street allowed top executives to make more money
on flawed loans than boring old 30-year mortgages.

Even though there is widespread agreement that Wall Street’s endless appetite
for high-interest, high-fees loans to fuel the mortgage securitization machine
had a causal role in supercharging the housing bubble, not one mortgage servicer
provider or big bank CEO has been put in jail. This compares to over 1,000
successful prosecutions of top officers during the Savings and Loan crisis of
the late 1980s.

The almost uniform judgment of government officials outside Treasury
Secretary Timothy Geithner is that the homeowner assistance programs have been a
disaster. Former Senator Ted Kaufman of Delaware said: “We have a $700 billion
program that basically helped all the banks but really hasn’t done a whole lot
for people who in the process of losing their homes.”

Elizabeth Warren, the consumer advocate who inspires fear and loathing among
Republicans, “grilled” Geithner at a June hearing in Washington D.C. for shaping
the programs around the needs of banks and other financial institutions rather
than homeowners, the New York Times reported:

“Forgive me, Mr. Secretary, but you say we designed the program from the
beginning, in effect you’re saying, not to save everyone,” she said. “You
designed it around servicers who, I wrote it down when you said it, ‘servicers
have done a terrible job.’

“We only have three months left, with hundreds
of thousands of families facing foreclosure,” she continued. “Is it time to
rethink whether or not a mortgage foreclosure prevention program that is based
on a group of servicers whom you describe as having done a terrible job, is a
program that perhaps should be redesigned?”

Particularly tragic is that these programs were proposed at a moment when the
public was ready
for truly innovative action to help families on the verge of losing their
homes.

With the antiforeclosure programs failing so badly, the nation is in no
condition to cope with a housing picture that is, if anything, worsening,
according to economist Jack Rasmus.

Foreclosures now approach 10 million, with some sources predicting 13-14
million before the current housing cycle bottoms. That’s about one-fourth of all
mortgages in the U.S. The numbers for homes in negative equity are even greater at around 16 million.

 LeonBNJ
It’s all about the
money. Much of our finacial services industry and their leaders are based in NY
City and adjacent areas, providing directly and indirectly 500,000 jobs.many of
them among the best paying and paying a living wage. That also means huge
precentages of tax revenues to NY City and State as well as huge amounts of
campaign contibutions/bribes to politicans of both parties. That means you don’t
want to chase them out with even sound and reasoned criminal proscution or civil
actions to Texas or other rich and corporate friendly states.
Don’t forget
that the NYS AG is an elected position, so they too are looking for campaign
contributions thus comprimising their proscution policies. Look at what happened
to Elliot Spitzer who went after the NY Stock Exchange and AIG where somehow it
come up that he was seeing prostitutes – probably by those interests having
private investigators looking for any dirt they could throw on him to get
revenge for his active going after their abuses.

A New Wall Street Investigation: Is the Hammer Finally Coming May 20, 2011

Posted by rogerhollander in Criminal Justice, Economic Crisis.
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POSTED: May 18, 11:16 AM ET |
By Matt Taibbi, Rolling Stone

<!– –>
<!–
–>

Eric Schneiderman speaks to supporters on election night
at the Sheraton New York November 2, 2010 in New York City.
Michael Nagle/Getty Images

<!–Mail–>
Got a chance to meet Josh Rosner (co-author, with Times
reporter Gretchen Morgenson, of the new book Reckless Endangerment)
last night during an appearance on Eliot Spitzer’s In the Arena. We were brought in to talk about
the new investigation of the banks that apparently is being launched by New York
State Attorney General Eric Schneiderman, which looks like it might be the first
for-real attempt at a prosecution of the systemic corruption that led to the
financial crisis.

Schneiderman’s probe, news of which came out yesterday in
this piece by Morgenson, reportedly targets the banks’ mortgage securitization process
during the bubble years. Morgenson reported that Schneiderman is focused on at
least three companies: Morgan Stanley, Bank of America, and old friend Goldman,
Sachs.

This investigation has the potential to be a Mother of All Nightmares
situation for the banks for a couple of reasons. For one thing, the decision to
go after the securitization process is a total prosecutorial bullseye. This is
the ugly heart of the wide-scale fraud scheme of the bubble era. Again, the
business model during this time was a giant bait-and-switch scam. Sleazy lenders
like Countrywide and New Century first created huge masses of bad loans,
committing every conceivable kind of fraud to get people into loans (from
doctoring income statements with white-out to phonying FICO scores to
engineering fake appraisals). They then moved the bad loans quickly to the big
banks, which pooled them and chopped them up (this is the “securitization”
process), sprinkled hocus-pocus math on them, and them sold them to suckers
around the world as AAA-rated securities.

The questions Schneiderman will seek to answer are these: did the banks
securitize loans they knew were fraudulent, throwing the rotten mortgages into
the stew before serving them to customers? Did they also commit insurance fraud
by duping the bond insurers (known as “monoline” insurers) into thinking the
mortgages were not as risky as they really were? And did they participate in the
fraud scheme on a more basic level by lending huge amounts of money to the
Countrywides of the world, knowing that they in turn would immediately use that
money to create the bad loans? In other words, did the banks finance
the fraud in addition to brokering it?

The reason this is such a potentially deadly investigation for the banks is
that they seemed to be so close to getting away scot free. There is another
investigation into the banks’ mortgage abuses by the states’ Attorneys General,
led by Iowa AG Tom Miller, that was rumored to be headed toward a settlement,
despite the fact that nothing like a complete investigation has been done. The
expectation for some time has been that the banks would eventually have to pay a
significant, but eminently survivable, settlement for abuses during the bubble
era. Although the Miller probe was focused on practices like robo-signing and
other such documentation abuses, it could theoretically have covered
securitization as well.

But if the AGs were to sign off on a friendly global settlement for mortgage
abuses prematurely, it would be like a DA offering a millionaire murderer a
2-year plea bargain before the cops even had a chance to interview all the
eyewitnesses. It would be a blatantly political arrangement. Such a desire to
get some kind of deal done and sweep the mortgage mess under the rug once and
for all seems almost universal among high-ranking politicians, and particularly
in the Obama administration, which has acted throughout like it wants more than
anything to simply get all of this over with and put in the past.

Schneiderman’s investigation throws a monkey wrench into all of this. The
banks cannot enter into a settlement with 49 states. They need all 50 at the
table. But if Schneiderman breaks ranks and goes off on an end-run investigation
that plunges right into the rotten core of the fraud era, then the whole pipe
dream of an easy settlement vanishes in an instant. This is particularly true
since Schneiderman is the most important AG, being from the state of New York,
where most of the crime was probably committed.

The amount of money investors lost in this fraud scheme is probably gigantic.
The ill-gotten money the banks made off that same fraud is probably similarly
huge. And the damage to society, in the form of mass foreclosures and other
losses, is incalculable. If the banks end up being found liable for all of these
offenses, they could face truly crippling fines and penalties. This goes far
beyond the question of whether one bank like Goldman defrauded a client or two
or lied to investigators. This probe could be asking whether the banks’ entire
revenue model during the crisis years was based on fraud.

Everything I’ve heard so far indicates that Schneiderman’s
investigation is not a publicity stunt and is an in-earnest attempt to get to
the bottom of things. Which is cool. As Terrell Owens would say, Getcha Popcorn
Ready
!

Obama Sides With Banks Accused of Racism April 8, 2009

Posted by rogerhollander in Barack Obama, Criminal Justice, Economic Crisis, Racism.
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The administration defends lenders that allegedly bilked

minority customers. What gives?

by Stephanie Mencimer

A number of big national banks stand accused of systematically bilking black and Latino borrowers. And the administration of our first black president is siding with the banks.

At the end of April, the Obama administration will go before the US Supreme Court to argue that those banks-including bailout recipients Bank of America, Citi, Wells Fargo, and JPMorgan Chase-should be allowed to duck a state investigation into their lending practices. If that sounds like the politics of the past, it is. The Obama administration has opted to maintain the stance of the Bush administration-one opposed by the NAACP and other major civil rights groups. And it won’t be some Bush holdover making the arguments in Cuomo v. The Clearing House Association (an industry group whose membership includes the world’s largest banks). Instead, the banks will be defended by the office of Obama’s new solicitor general, former Harvard Law School dean Elena Kagan, whom some conservatives have branded a “radical leftist” because of her record opposing military recruitment on college campuses.

The case got its start in 2005, when then-New York attorney general Eliot Spitzer discovered that many banks operating in his state were issuing a disproportionate number of high-interest loans to African Americans and Hispanics. Invoking state anti-discrimination laws, Spitzer wrote to those banks, politely asking for more information about their lending practices. He didn’t even issue a subpoena. Rather than respond to the request, the banks sued Spitzer. They argued that they were legally entitled to blow him off because federal banking law preempted the state investigation-that is, only the feds could make such a request, not some lowly state AG.

To make their case, the banks sought help from the Bush administration, through the Office of the Comptroller of the Currency. The OCC is a little-known federal bank regulator that over the past decade has become increasingly active in helping those banks and their subsidiaries squash state efforts to rein in abusive predatory lending practices. The OCC joined the banks in the case as a plaintiff, asserting that a Civil War-era banking law made the OCC the only sheriff in town. When it came to big national banks like Bank of America and Wells Fargo, only the OCC, it argued, could force the banks to comply with state consumer protection laws like those banning racial discrimination in lending.

With the OCC’s backing, the banks prevailed in the trial court and the US Court of Appeals for the 2nd Circuit. New York’s current attorney general, Andrew Cuomo, has appealed the case to the Supreme Court, which will hear oral arguments in late April. Kagan’s office will be representing the OCC. The administration’s position in Clearing House stands in sharp relief to other parts of the US government, where financial system regulators have recently come out in opposition to shielding banks from state consumer protection laws and enforcement.

In March, on the same day Kagan was confirmed as solicitor general, Federal Deposit Insurance Corporation chair Sheila Bair, a Bush appointee, told the Senate banking committee that “it is time to examine curtailing federal preemption of state consumer protection laws…it has now become clear that abrogating sound state laws, particularly regarding consumer protection, created an opportunity for regulatory arbitrage that frankly resulted in a race-to-the-bottom mentality.”

Yet in their briefs in Clearing House, lawyers for the OCC and Obama’s solicitor general say that the OCC has used its authority appropriately and has done a terrific job of protecting consumers from abusive bank practices. It’s a dubious claim at best. Until 2008, the OCC had never taken a public consumer protection action against a major bank. In fact, the OCC’s light touch with national banks prompted many state-chartered banks to switch their charters just so they could evade stricter state regulation.

In an amicus brief in Clearing House, lawyers for consumer advocates cite the example of Capital One, a company whose deceptive and unfair credit card practices were investigated for several years by the West Virginia attorney general. Three years into the investigation, the bank changed its status from a state-charted bank to an OCC-chartered bank. Less than two weeks later, Capital One asked a federal court to halt the attorney general’s investigation, arguing that the OCC was now the only entity that could initiate such a probe. The judge who heard the suit recognized that the bank was simply trying to evade the attorney general. Nonetheless, he believed the law required him to stop the state investigation.

Over the years, the OCC has tried to prevent state consumer protection actions against all sorts of shady practices. For instance, the OCC has intervened to prevent states from cracking down on telemarketing fraud and misbehavior by car dealerships, an unlicensed trade school, an air-conditioning company, and a mall that issued gift cards-all because each of these entities had a financing relationship with OCC-chartered banks. The OCC’s track record in enforcing anti-discrimination laws like those at the heart of the Clearing House case is equally dismal. In their amicus brief, consumer lawyers note that the OCC has brought only four formal enforcement actions under the Equal Credit Opportunity Act since 1987. And during the Bush administration, it didn’t refer a single discriminatory mortgage lending case to the Justice Department. Yet in her brief, Kagan argues that the OCC “vigorously enforces fair lending laws against national banks.”

Kagan’s brief appears as if it were largely written during the last administration, which it no doubt was. It touts the supposedly great work done by the OCC’s Customer Assistance Group, which Kagan and the OCC say has facilitated the recovery of tens of millions of dollars by injured consumers. Back in 2005, I filed a Freedom of Information Act Request with the OCC for information about how many people in this group actually investigated and resolved consumer complaints. The answer I eventually got many, many months later? Three, in an agency that fields more than 70,000 complaints a year from bank customers. In years past, the group has recouped less than $8 million annually for consumers-a drop in the bucket compared to the billions banks collect via abusive credit card practices or overdraft fees.

By comparison, the state attorneys general the OCC has tried to neutralize have successfully gone after many lending institutions for sleazy practices and recouped sums that dwarf anything the OCC has recovered. During the past decade, attorneys general in various states banded together and settled cases against Household and Ameriquest Mortgage Company, once some of the nation’s biggest subprime lenders. The AGs recouped more than $800 million for consumers, but they were often prevented from bringing similar cases against big banks because of OCC interventions. And in Clearing House, the Obama administration is now defending the OCC’s turf-conscious obstructionism.

The administration’s brief in Clearing House was due only six days after Kagan was confirmed. Reversing course in a case this far along would have been both legally and administratively problematic for her and the administration. But consumer advocates have seen a few hints between the lines of her brief that the administration intends to change its regulatory policy at the OCC. It is hard to imagine that Obama would really want to usurp the states and remake the OCC as the nation’s preeminent financial consumer protection agency. That would make the federal banking regulator ultimately responsible for policing thousands of unscrupulous car dealers, air-conditioning installers, trade schools, or even mall gift-card programs, simply because they had financing relationships with national banks. Not only does the OCC not have the resources to do all that; it has enough on its plate right now just keeping the banks afloat. As Daniel Mosteller, litigation counsel to the Center for Responsible Lending, observes, “Is the OCC really going to start investigating malls?”

The Real AIG Scandal March 18, 2009

Posted by rogerhollander in Economic Crisis.
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future-aig-exec

The Real AIG ScandalIt’s not the bonuses. It’s that AIG’s counterparties are getting paid back in full.

American International Group Inc. Click image to expand.AIG’s Manhattan, N.Y., office

Everybody is rushing to condemn AIG’s bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG’s counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman’s collapse, they feared a systemic failure could be triggered by AIG’s inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG’s trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG’s counterparties are justified with an appeal to the sanctity of contract. If AIG’s contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse.

But wait a moment, aren’t we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won’t be laid off. Why can’t Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn’t we already give Goldman a $25 billion capital infusion, and aren’t they sitting on more than $100 billion in cash? Haven’t we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn’t they have accepted a discount, and couldn’t they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?

The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.

So here are several questions that should be answered, in public, under oath, to clear the air:

What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?

Was it already known who the counterparties were and what the exposure was for each of the counterparties?

What did Goldman, and all the other counterparties, know about AIG’s financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn’t they bear a percentage of the risk of failure of their own counterparty?

What is the deeper relationship between Goldman and AIG? Didn’t they almost merge a few years ago but did not because Goldman couldn’t get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG’s business model was not to pay on insurance it had issued.

Why weren’t the counterparties immediately and fully disclosed?

Failure to answer these questions will feed the populist rage that is metastasizing very quickly. And it will raise basic questions about the competence of those who are supposedly guiding this economic policy.

Those Hit Hardest Get No Bailout March 18, 2009

Posted by rogerhollander in Economic Crisis.
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by Amy Goodman

Taxpayers’ bailout money for AIG bonuses has rightfully provoked a massive backlash against AIG, Wall Street, President Barack Obama and his economic advisers, Treasury Secretary Timothy Geithner and Larry Summers. The U.S. public now owns 80 percent of AIG. The outrage is bipartisan: Iowa Republican Sen. Charles Grassley even suggested that AIG executives “resign or go commit suicide.” New York State Attorney General Andrew Cuomo just released details on the bonuses, exposing AIG’s ridiculous claim that they are “retention bonuses” aimed at keeping key employees, since 11 of those who received bonuses of $1 million or more are no longer employed by AIG.

These AIG millionaires may need to return their unearned millions (Congress may pass a tax law aimed just at them, taxing their bonuses at 100 percent). But will the outrage help those who have been hardest hit by the economic meltdown? Will the hundreds of millions of dollars in various stimulus packages and bailouts find its way to regular people who are trying to get by, or will it go only to corporations deemed “too big to fail,” leaving behind millions of people who are, apparently, small enough to fail?

The Center for Social Inclusion has just issued a report on the economic meltdown and how best to solve the problem. It links race to the lack of opportunity and to the prevalence of the notorious subprime mortgages that triggered the economic crisis.

CSI Executive Director Maya Wiley told me, “We have to stimulate equality in order to stimulate the economy.” Access to education, transportation, housing and a clean environment give people a firm footing to respond to crisis and to succeed. Noting that “shovel-ready” stimulus jobs in construction will disproportionately favor those who are already in that industry, predominantly white males, Wiley is pushing for “community benefits agreements for construction jobs [that] ensure when the government has construction contracts, low-income people, people of color, women, are going to have their fair share of those jobs.” Since people of color are more likely to live far from available jobs and are less likely to have cars, Wiley says, “we must ensure that the way transportation dollars get spent go to transit … to connect people who need jobs to the places where there are jobs.”

The group United for a Fair Economy also highlights the racial wealth divide, noting that “24 percent of blacks and 21 percent of Latinos are in poverty, versus 8 percent of whites. In the corporate world, we are seeing the highest executive pay and the biggest bailouts in history. CEO pay is 344 times that of the average worker.”

Prevailing wisdom posits that freeing up credit will save the economy, thus these huge banks need hundreds of billions of dollars in taxpayer bailouts. But the crisis was initially caused by defaults on subprime mortgages. One option at the outset would have been to support the distressed homeowners, helping them avoid foreclosure. Wiley points out that “35 percent of subprime mortgage holders were actually eligible for prime-rate loans. … Most of those were people of color … communities of color did not have fair access to credit.”

The banks and the mortgage lenders pushed bad loans on poor and minority borrowers. The NAACP has just filed lawsuits against Wells Fargo and HSBC, alleging “systematic, institutionalized racism in subprime home mortgage lending.”

The banks bundled the bad loans into securities and sold them, then created derivatives based on these securities that are impossible to understand, let alone value. AIG insured the investment banks against potential losses from these complex derivatives. The U.S. Treasury bailed out the banks along with AIG. AIG then paid out tens of billions of its bailout money to the very large banks that already received billions in bailout funds: Bank of America and Goldman Sachs. Yet, despite the hundreds of billions being siphoned off by these megabanks, we are told that the credit market is still frozen. Many European banks also received funds this way, including Swiss bank UBS, which offers secret bank accounts that allow the richest Americans to avoid taxes. In effect, beleaguered U.S. taxpayers are bailing out wealthy U.S. tax dodgers.

Obama has surrounded himself with financial advisers who are too cozy with Wall Street, like Summers and Geithner. It’s time to direct the stimulus to the people who need it, to those whose tax dollars are funding it.    

Denis Moynihan contributed research to this column.

Double Dipping March 18, 2009

Posted by rogerhollander in Economic Crisis.
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Posted March 18, 2009 by Cats r Flyfishn

www.pennsylvaniaforchange.wordpress.com

The nation is outraged at the insane bonuses given to AIG executives.  Yes, this is robbing the taxpayer.  There’s another part to this story.  It seems that the AIG failure is providing a second round of taxpayer money to the banks that caused this financial crisis.  According to an article in Slate, after they already received a payoff last year and now they want more.

…we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman’s collapse, they feared a systemic failure could be triggered by AIG’s inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG’s trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

The bonuses are a way to distract the public while the real theft of our treasury is taking place, again.  Ah, laizze-faire economics as brought to you by Congress and the former Republican President, George W. Bush.

Read the complete Slate article here

Never trust your money with Republicans.  They will line their pockets first, tell you that they lost your money, then ask for more and then blame you for the losses.

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