Obama Did It For the Money May 7, 2013Posted by rogerhollander in Barack Obama, Economic Crisis.
Tags: anti-union, commerce secretary, Economic Crisis, hyatt hotel heiress, Obama, Penny Pritzke, Robert Scheer, roger hollander, sub-prime, subprime, superior bank
add a comment
Roger’s note: Obama strikes again: rewarding another one the architects of the economic disaster that ruined thousands of lives. But she got him elected and the banksters and the corporate blood-sucking congress-owning community will be pleased; and that is what is important to the president.
Published on Tuesday, May 7, 2013 by TruthDig.co
The love fest between Barack Obama and his top fundraiser Penny Pritzker that has led to her being nominated as Commerce secretary would not be so unseemly if they both just confessed that they did it for the money. Her money, not his, financed his rise to the White House from less promising days back in Chicago.
“Without Penny Pritzker, it is unlikely that Barack Obama ever would have been elected to the United States Senate or the presidency,” according to a gushing New York Times report last year that read like the soaring jacket copy of a steamy romance novel. “When she first backed him during his 2004 Senate run, she was No. 152 on the Forbes list of the wealthiest Americans. He was a long-shot candidate who needed her support and imprimatur. Mr. Obama and Ms. Pritzker grew close, sometimes spending weekends with their families at her summer home.”
But don’t sell the lady short; she wasn’t swept along on some kind of celebrity joyride. Pritzker, the billionaire heir to part of the Hyatt Hotels fortune, has long been first off an avaricious capitalist, and if she backed Obama, it wasn’t for his looks. Never one to rest on the laurels of her immense inherited wealth, Pritzker has always wanted more. That’s what drove her to run Superior Bank into the subprime housing swamp that drowned the institution’s homeowners and depositors alike before she emerged richer than before.
Pritzker and her family had acquired the savings and loan with the help of $600 million in tax credits. She became the new bank’s chairwoman and ended up as a director of the holding company that owned it. Under her leadership, Superior specialized in subprime lending, hustling folks with meager means and poor credit into high interest loans that were bundled into the toxic securities that wrecked the U.S. economy.
As federal regulators began to move in on her bank after it had dangerously inflated the value of its toxic assets, Pritzker assured its employees: “Our commitment to subprime has never been stronger.” Two months later, the bank was pronounced insolvent. At the time, the Federal Deposit Insurance Corp.‘s inspector general report concluded, “The failure of Superior Bank was directly attributable to the board of directors and executive management ignoring sound risk diversification principles, as evidenced by excessive concentration in residual assets related to subprime lending. …”
No biggie. In announcing her appointment, Obama joked, “For your birthday present, you get to go through confirmation. It’s going to be great.” It’s the same sort of joke he could have cracked in appointing Citigroup alum Jack Lew to be Treasury secretary.
It is deeply revealing that in the midst of the continuing cycle of misery brought on by the chicanery of the financial community two key Cabinet positions dealing with business practices will likely be occupied by people who specialized in those financial rip-offs.
For Pritzker, as with the confirmation of Lew, the fix is in. The Republicans don’t dare push back too hard on shady business practices that their deregulation legislation endorsed, and Democrats will go along with anything the president wants.
The same restraint will be exhibited in exploring the offshore tax havens that have protected the Pritzker family’s immense wealth. Back in 2008, when she had been rumored for this same Cabinet post, Pritzker was queried about avoiding the sort of taxes most ordinary folks are obligated to pay, and she replied in writing: “I am a beneficiary of some non-U.S. situs trusts which were established about 50 years ago (when I was a child) and are administered by a non-U.S.–based financial institution as trustee. I do not control how those assets are administered.” If the Republicans challenge that canard, the Democrats will smugly remind them of Mitt Romney’s tax havens, as if that excuses tax avoidance within their own ranks.
Certainly the Republicans will not raise questions about the anti-union practices that helped create the Hyatt fortune in the first place and continue to this day. Nor will the Democrats, who embrace unions only at national convention time.
“There is a huge unresolved set of issues in the Democratic Party between people of wealth and people who work,” noted Andy Stern, former president of the Service Employees International Union, which attempts to organize the miserably paid workers that produced Pritzker’s wealth. “Penny is a living example of that issue.”
But it’s payback time, and even normally progressive Democrats like Pritzker’s home state Sen. Dick Durbin are prepared to roll over. Treating the appointment of billionaire Pritzker as a victory for women everywhere, the senator said she’d “broken through the glass ceiling with her extraordinary intelligence and business acumen.”
Right, Pritzker will be a fine role model for those women working at the Asian factories that she’ll be touring as Commerce secretary extolling the virtues of the American business model.
Secrets and Lies of the Wall Street Bailout January 9, 2013Posted by rogerhollander in Economic Crisis.
Tags: bailout, bank of america, citigroup, Economic Crisis, Federal Reserve, financial crisis, Goldman Sachs, hamp, Hank Paulson, Larry Summers, matt taibbi, Morgan Stanley, roger hollander, tarp, the fed, tim geithner, timothy geithner, Wall Street
add a comment
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?
(Illustration by Victor Juhasz)
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.
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.
Bill Clinton’s $80 Million Payday, or Why Politicians Don’t Care That Much About Reelection August 4, 2012Posted by rogerhollander in Democracy, Economic Crisis.
Tags: Barack Obama, Bill Clinton, bribes, commodities futures, corey booker, deregulation, derivitives, Economic Crisis, hillary clinton, matt stoller, presidency, roger hollander
1 comment so far
Tuesday, May 22, 2012
“There was a kind of inflection point during the five-year period between 1997 and 2003 — the late Clinton and/or early Bush administration — when all the rules just went away. You went from a period, a regime, where people did have at least some concern about going to jail, to a point where everything is legal, and derivatives couldn’t be regulated at all and nobody went to jail for anything. And looking back I would say that this period definitely started under Clinton. You absolutely cannot blame this on George W. Bush.” – Charles Ferguson of Inside Job
“I never had any money until I got out of the White House, you know, but I’ve done reasonably well since then.” Bill Clinton
On December 21, 2000, President Bill Clinton signed a bill called the Commodities Futures Modernization Act. This law ensured that derivatives could not be regulated, setting the stage for the financial crisis. Just two months later, on February 5, 2001, Clinton received $125,000 from Morgan Stanley, in the form of a payment for a speech Clinton gave for the company in New York City. A few weeks later, Credit Suisse also hired Clinton for a speech, at a $125,000 speaking fee, also in New York. It turns out, Bill Clinton could make a lot of money, for not very much work.
Today, Clinton is worth something on the order of $80 million (probably much more, but we don’t really know), and these speeches have become a lucrative and consistent revenue stream for his family. Clinton spends his time offering policy advice, writing books, stumping for political candidates, and running a global foundation. He’s now a vegan. He makes money from books. But the speaking fee money stream keeps coming in, year after year, in larger and larger amounts.
Most activists and political operatives are under a delusion about American politics, which goes as follows. Politicians will do *anything* to get reelected, and they will pander, beg, borrow, lie, cheat and steal, just to stay in office. It’s all about their job.
This is 100% wrong. The dirty secret of American politics is that, for most politicians, getting elected is just not that important. What matters is post-election employment. It’s all about staying in the elite political class, which means being respected in a dense network of corporate-funded think tanks, high-powered law firms, banks, defense contractors, prestigious universities, and corporations. If you run a campaign based on populist themes, that’s a threat to your post-election employment prospects. This is why rising Democratic star and Newark Mayor Corey Booker reacted so strongly against criticism of private equity – he’s looking out for a potential client after his political career is over, or perhaps, during interludes between offices. Running as a vague populist is manageable, as long as you’re lying to voters. If you actually go after powerful interests while in office, then you better win, because if you don’t, you’ll have basically nowhere to go. And if you lose, but you were a team player, then you’ll have plenty of money and opportunity. The most lucrative scenario is to win and be a team player, which is what Bill and Hillary Clinton did. The Clinton’s are the best at the political game – it’s not a coincidence that deregulation accelerated in the late 1990s, as Clinton and his whole team began thinking about their post-Presidential prospects.
Corruption used to be more overt. Lyndon Johnson made money while in office, by illicitly garnering lucrative FCC licenses. It was the first neoliberal President, Jimmy Carter, who began the post-career payoff trend in the Democratic Party. In 1978, Archer Daniels Midland CEO Dwayne Andreas convinced Carter to back ethanol subsidies. After Carter lost to Reagan, he faced financial problems, as his peanut warehouse had been mismanaged and was going bankrupt. AMD stepped in, overpaying for the property. But Carter wasn’t nearly as skilled as Clinton, because he didn’t stay in the club.
Over the course of the next ten years after his Presidency, Clinton brought in roughly $8-10 million a year in speaking fees. In 2004, Clinton got $250,000 from Citigroup and $150,000 from Deutsche Bank. Goldman paid him $300,000 for two speeches, one in Paris. As the bubble peaked, in 2006, Clinton got $150,000 paydays each from Citigroup (twice), Lehman Brothers, the Mortgage Bankers Association, and the National Association of Realtors. In 2007, it was Goldman again, twice, Lehman, Citigroup, and Merrill Lynch. He didn’t just reap speaking fee cash from the financial services sector – corporate titans like Oracle and outsourcing specialist Cisco paid up, as did many Israel-focused groups, Middle Eastern interests, and universities. Does this explain the finance-friendly, oil-friendly and Israel First-friendly policies pursued by the State Department under Hillary Clinton? Who knows? But if you could legally deliver millions in cash to the husband of a high-level political official, it wouldn’t hurt your policy goals.
Speaking fee money isn’t just money, it is easy money. In one appearance, for one hour, Clinton can make $125,000 to $500,000. At an hourly rate, that’s between $250 million to $1 billion annually. It isn’t the case that Clinton is a billionaire, but it is the case that Clinton can, whenever he wants, make money as quickly and as easily as a billionaire. He is awash in cash, and cash is useful. Cash finances his lifestyle. Cash helped backstop his wife’s Presidential campaign when it was on the ropes.
And these speaking fees aren’t the only money Clinton got, it’s just the easiest cash to find because of disclosure laws. Apparently, Clinton’s firm apparently had a paid $100k+ a month consulting relationship with MF Global, and Clinton and Tony Blair have teamed up to help hedge funds raise money. His daughter worked for a giant hedge fund and political ally (Avenue Capital). And Clinton has unusual relationships with billionaires and Dubai-based investors.
Bill and Hillary Clinton are the best at what they do, but they aren’t the only ones who do it. In fact, this is what politics is increasingly about, not elections, but staying in the club. Erskine Bowles, former White House Chief of Staff, lost two Senate elections. But he’s on the board of Facebook and Morgan Stanley, as well as authoring the highly influential Simpson-Bowles plan to gut Social Security and Medicare. Tom Daschle, who lost a Senate race in 2004, is a millionaire who in large part crafted Obama’s health care plan. Former Senator Judd Gregg is now at Goldman Sachs. Current Chicago Mayor Rahm Emanuel made $12 million in between his stint at the Clinton White House which ended in 2000 and his election to Congress in 2002. Former Congressman Harold Ford, now at Morgan Stanley, is routinely on TV making political claims. Larry Summers is on the board of the high-flying start-up Square. Meanwhile, Russ Feingold, a Senator who did go after Wall Street, is a professor in the Midwest. Eliot Spitzer is a struggling TV host and writer.
In other words, Barack Obama and his franchise are emulating the Clinton’s, and are speaking not to voters, but to potential post-election patrons. That’s what their policy goals are organized around. So when you hear someone talking about how politicians just want to be reelected, roll your eyes. When you hear an argument about the best message or policy framework to use for reelection, stop listening. That’s not what politicians really care about. Elections in many ways are just like regular season games in basketball – they are worth winning, but it’s not worth risking an injury. The reason Obama won’t prosecute bankers, or run anything but a very mild sort of populism, is because he’s not really talking to voters. He just wants to be slightly more appealing than Romney. He’s really talking to the people who made Bill and Hillary Clinton a very wealthy couple, his future prospective clients. We don’t call it bribery, but that’s what it is. Bill Clinton made a lot of money when he signed the bill deregulating derivatives and repealed Glass-Steagall. The payout just came later, in the form of speaking fees from elite banks and their allies.
Ironically, Clinton has come to express regret about deregulating derivatives. He has not given the money back.
The Big Banks’ Big Secret in Canada May 1, 2012Posted by rogerhollander in Canada, Economic Crisis.
Tags: bailout, bank CEOs, Bank of Canada, Bank of Montreal, banksters, Canada, canadian banks, cibc, cmhc, david macdonald, Economic Crisis, roger hollander, royal bank, scotiabank, td bank
add a comment
The CCPA today released my report: “The Big Banks Big Secret” which provides the first public estimates of the emergency funds taken by Canadian banks. The report bases its estimates on publicly available data from CMHC, the Office of the Superintendent of Financial Institutions, US Federal Reserve, the Bank of Canada, as well as quarterly reports from the banks themselves.
The conventional narrative about the performance Canada’s big banks during the financial crisis goes as follows: while American banks bet heavily on sub-prime real estate and had extensive shadow bank holdings, Canadian banks did not.
However, the details of exactly how much each Canadian bank received, when they received it, and what they put up as collateral, has remained locked away at CMHC and the Bank of Canada. Not even Access to Information requests have been able to free this information.
In this study I estimate that, at their neediest, Canada’s banks had received $114 billion in support, a figure equal to 7% of the size of Canada’s economy in 2009.
This is equivalent to $3,400 for every man woman and child in Canada.
It is almost 10 times more than the auto bailout for which Canadians put up $14 billion and for which the loan portion has been repaid.
During the financial crisis, Canadian banks accessed three separate programs from both the Canadian and U.S. governments. Canadian banks received $33 billion dollars (converted to $CDN) through the U.S. Federal Reserve programs. At the same time, they also accessed $41 billion at the peak of the crisis through a nearly identical Bank of Canada loan program. Finally, they received $69 billion selling mortgages to CMHC for cash. These peaks occurred at different times.
Canada’s Big 5 banks drew on government support programs for an extended period from October 2008 through June 2010. In other words, Canadian banks continued to rely on government supports for one and a half years, well after the financial crisis had subsided.
The largest recipients of aid were Scotiabank, Royal bank and TD Bank. They received an estimated $25-26 billion at their peak. CIBC received somewhat less money: an estimated $21 billion at peak. BMO received an estimated $17 billion. Most of these peaks, except for TD occurred in the early months of 2009. TD peaked much later in September 2009. (See charts below)
The banks are very different sizes in terms of market capitalization. Royal is the biggest and BMO is about a third the size or Royal. So I’ve also adjusted the figures for the size of the banks.
On the relative side, three of Canada’s biggest banks, Scotiabank, Bank of Montreal and CIBC, received estimated peak support that at some point was equal or greater than the value of the company itself. That is to say that at some point during the financial crisis, it would have cost less money for the Canadian and U.S. governments to have bought every single share in these companies rather than providing them with support.
CIBC in particular received estimated aid worth at peak 1.5 times the value of the company, it spent the better part of the first three months of 2009 underwater.
The federal government claims it was offering the banks ‘liquidity support’ but it looks an awful lot like a bailout to me. Whatever you call it, government aid for the country’s biggest banks was far more substantial than the official line would suggest.
It is worth noting: Over the entire aid period, Canada’s banks remained profitable, reporting $27 billion in total profits between them and the CEOs of each of the big banks were among the highest paid Canadian CEOs. Between 2008 and 2009, each bank CEO even received an average raise in total compensation of 19%.
In the U.S., they called these sorts of programs: bailouts, in Canada we call them backstops. In the US, they have released the full details of the support, in Canada those details remain secret. It is time for the government to come clean with the actual figures of how much support each bank received, when they received it and what they put up as collateral.
Obama Sells Out Homeowners Again: Mortgage Settlement a Sad Joke February 23, 2012Posted by rogerhollander in Barack Obama, Economic Crisis, Housing/Homelessness.
Tags: ally financial, bailout, bank of america, Citibank, Economic Crisis, foreclosures, harp, home owners, jpmorgan chase, mortgage settlement, mortgages, Obama, roger hollander, subprime, tarp, ted rall, Wells Fargo
add a comment
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.
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.
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.
Obama to Use Pension Funds of Ordinary Americans to Pay for Bank Mortgage “Settlement” January 23, 2012Posted by rogerhollander in Barack Obama, Economic Crisis.
Tags: Economic Crisis, fifth amendment, kamala harris, mortgages, mortgange settlement, Obama, pension funds, roger hollander, sub-prime, tom miller, yves smith
add a comment
Obama’s latest housing market chicanery should come as no surprise. As we discuss below, he will use the State of the Union address to announce a mortgage “settlement” by Federal regulators, and at least some state attorneys general. It’s yet another gambit designed to generate a campaign talking point while making the underlying problem worse.
The president seems to labor under the misapprehension that crimes by members of the elite must be swept under the rug because prosecuting them would destabilize the system. What he misses is that we are well past the point where coverups will work, and they may even blow up before the November elections. If nothing else, his settlement pact has a non-trivial Constitutional problem which the Republicans, if they are smart, will use to undermine the deal and discredit the Administration.
To add insult to injury, Obama is apparently going to present his belated Christmas present to the banking industry as a boon to ordinary citizens. He refused to appoint a real middle class advocate, Elizabeth Warren, to the Consumer Financial Protection Bureau, but he’s not above stealing her talking points.
We and other commentators have discussed how the mortgage settlement negotiations nominally led by Iowa attorney general Tom Miller had descended into farce. Almost nothing the Miller camp said was believable. They were presented as “attorney general” discussions when the Administration was pulling the strings. They’ve described a deal as weeks away for over a year. They kept claiming that they had undertaken investigations when not a single subpoena was issued by the AGs still involved in the negotiations. They’ve argued from the get go that a pact will be good for homeowners when the deal reached by under-resourced Nevada attorney general Catherine Cortez Masto with a single servicer, Saxon, resulted in a payout that is 10 to 20 times what the Administration is calling a victory. And that assumes that the banks will live up to their side of the deal when past settlements of servicing abuses have shown that they don’t.
The administration has finally woken up to the fact that the housing mess is almost certain to get worse before it gets better, and Obama must therefore be armed with better propaganda. The Miller-led talks have become a bit of an embarrassment and needed to be put out of their misery. So Team Obama and Federal banking regulators have agreed on terms and as we discussed last Friday, are upping the pressure on state attorneys general to fall into line. As reported by Shahien Nasiripour of the Financial Times:
Banks and government negotiators have cleared a big hurdle in efforts to resolve allegations of widespread mortgage-related misdeeds, agreeing on terms for a settlement that are being circulated to the 50 US states for approval, state officials and a bank representative say.
The proposed pact would potentially reduce mortgage balances and monthly payments by more than $25bn for distressed US homeowners…
State prosecutors have already received a set of documents detailing new mortgage servicing standards that the banks and the government negotiators have agreed to. The states were also being sent documents detailing other main components of the deal, such as the liability release for the banks, the so-called “menu” of options describing the various forms of aid to be given to borrowers, as well as the precise language of the so-called “most favoured nation” clause, which spells out how participating states in the deal would be eligible to receive more advantageous terms should a holdout state strike a more favourable deal on its own with the five targeted banks.
The story did not outline terms, but previous leaks have indicated that the bulk of the supposed settlement would come not in actual monies paid by the banks (the cash portion has been rumored at under $5 billion) but in credits given for mortgage modifications for principal modifications. There are numerous reasons why that stinks. The biggest is that servicers will be able to count modifying first mortgages that were securitized toward the total. Since one of the cardinal rules of finance is to use other people’s money rather than your own, this provision virtually guarantees that investor-owned mortgages will be the ones to be restructured. Why is this a bad idea? The banks are NOT required to write down the second mortgages that they have on their books. This reverses the contractual hierarchy that junior lien-holders take losses before senior lenders. So this deal amounts to a transfer from pension funds and other fixed income investors to the banks, at the Administration’s instigation.
Another reason the modification provision is poorly structured is that the banks are given a dollar target to hit. That means they will focus on modifying the biggest mortgages. So help will go to a comparatively small number of grossly overhoused borrowers, no doubt reinforcing the “profligate borrower” meme.
But those criticisms assume two other things: that the program is actually implemented. The experience with past consent decrees in the mortgage space is that the servicers get a legal get out of jail free card, a release, and do not hold up their end of the deal. Similarly, we’ve seen bank executives swear in front of Congress in late 2010 that they had stopped robosigning, which turned out to be a brazen lie. So here, odds favor that servicers will pretty much do nothing except perhaps be given credit for mortgage modifications they would have made anyhow.
There are two clever features of the deal, but neither look intended to benefit ordinary citizens. One is that the deal throws some funding at chronically cash stressed mortgage counselors. They are thus certain to voice approval of the pact. The other is (per the FT story) the deal’s “most favored nations clause” is designed to reduce the bargaining leverage of any AGs that go their own way. It means that any servicer will have the incentive to fight hard against giving any state a better deal because it will automagically trigger improved terms across the states that signed on to the Federal deal. But this may have interesting perverse effects, since banks that refuse to settle with breakaway AGs will ultimately have damages awarded by a court. That means longer and most costly fights by the states, but in most cases, ultimately bigger awards (frankly, the fact set is so bad that all the state AGs need to do is focus on fairly conservative legal theories to have good odds of scoring big wins).
Dave Dayen seemed to think that the AG rebellion was likely to stay firm, given how few of the Democrats were going to Chicago on Monday for an arm-twisting meeting with HUD head Shaun Donovan and an unnamed emissary from the Department of Justice. I would not be so certain. With states so budget starved, I don’t see how anyone can justify sending a live body to Chicago when a phone briefing would work just as well. More important, the most favored nation clause is nasty, and may nudge some fence-sitters over the line.
And I have also been told that Donovan was on the Hill late last week pressuring Congressmen to support the deal. Since this is a regulatory measure that does not require Congressional approval, this move is meant to deprive dissenting state AGs from any support in local media from sympathetic Congressmen. For instance, 31 California representatives wrote the Justice Department, the Federal Reserve and the Office of the Comptroller of the Currency calling on them to “investigate possible violations of law or regulations by financial institutions in their handling of delinquent mortgages, mortgage modifications and foreclosures.” Clearly they could be expected to support California attorney general Kamala Harris’ withdrawal of the deal. Donovon is trying to get them and like minded solons speaking from the Obama script.
But the Administration’s scheme may not be playing out according to script. Senator Sherrod Brown sent a letter last week to associate attorney general Thomas Perelli, Donovan, the CFPB’s Richard Cordray and Tom Miller criticizing the settlement pact. It could have been written by Naked Capitalism readers. Key section:
Now while Republicans may relish the specter of Democrats infighting, the fact is no one is going to want to be seen to be undermining the leader of the party in an election year. So that will put a damper on how aggressive the opponents will be. And media outlets have been amplifying Obama’s efforts to take credit for gravity. For instance, the Administration is touting the fall in foreclosures as an indicator of success when their policies have ranged from do nothing to disasters like HAMP. The fall in foreclosures is actually a sign of failure, as banks are attenuating the process more and more, in some cases due to their inability to come up with necessary documentation, in others out of a desire to wring even more fees out of investors (when a borrower can’t pay, the bank’s fees come first out of the eventual sale of the house).
Either a Gingrich nomination or Romney getting too dented during Republican primary fights increase the odds of what heretofore seemed impossible: an Obama win in November. So if the Republicans were smart, they’d take advantage of a serious weakness in this deal: that it violates the 5th Amendment takings clause. I am told by Bill Frey of Greenwich Financial that a servicer safe harbor provision in HAMP, which was supposed to shield servicers from investor lawsuits over mortgage modifications, was passed by both the House and Senate but was removed in reconciliation because that provision would have run afoul of the 5th Amendment. This settlement is intended to have servicers engage in even more aggressive mortgage modifications and would thus seem to have precisely the same Constitutional problem.
As I urged last week, please call your state attorney general and tell them you think taking from your pension to enrich banks for abusing homeowners is a lousy idea and they should therefore refuse to sign on to the settlement. You can find their phone numbers here. Please call today if you haven’t already. Thanks!
Everything You Need to Know About Wall Street, in One Brief Tale January 14, 2012Posted by rogerhollander in Economic Crisis.
Tags: ambac, bear sterns, Economic Crisis, fraud, Goldman Sachs, hotel jerome, Jeffrey Verschleiser, matt taibbi, mortgage securities, roger hollander, sub-prime, subprime mortgages, teri buhl, toxic mortgages, Wall Street
1 comment so far
If there was ever a news story that crystallized the moral dementia of modern Wall Street in one little vignette, this is it.
Newspapers in Colorado today are reporting that the elegant Hotel Jerome in Aspen, Colorado, will be closed to the public from today through Monday at noon.
The Hotel Jerome in Aspen. (Walter Bibikow/AWL Images)
Why? Because a local squire has apparently decided to rent out all 94 rooms of the hotel for three-plus days for his daughter’s Bat Mitzvah.
The hotel’s general manager, Tony DiLucia, would say only that the party was being thrown by a “nice family,” but newspapers are now reporting that the Daddy of the lucky little gal is one Jeffrey Verschleiser, currently an executive with Goldman, Sachs.
At first, I couldn’t remember how I knew that name. But then I looked it up and saw an explosive Atlantic magazine story, published last year, called, “E-mails Suggest Bear Stearns Cheated Clients Out Of Millions.” And then I remembered that piece, and it hit me: Jeffrey Verschleiser is one of the biggest assholes in the entire world!
The story begins at Bear Stearns, where Verschleiser used to work, up until the company exploded, in large part because of him personally.
Back in the day, you see, Verschleiser headed Bear’s mortgage-backed securities operations. Toward the end of his tenure, his particular specialty began with what at the time was the usual industry-wide practice, putting together gigantic packages of crappy subprime mortgages and dumping them on unsuspecting clients.
But Verschleiser reportedly went beyond that. According to a lawsuit later filed by a bond insurer called Ambac, Verschleiser also masterminded a kind of double-dipping scheme. What he would do is sell a bunch of toxic mortgages into a trust, which like all mortgage trusts had provisions written into their pooling and servicing agreements (PSAs) that required the original lenders to buy the loans back if they went into default.
So Verschleiser would sell bad mortgages back to the banks at a discount, but instead of passing the money back to the trust, he and other Bear execs allegedly pocketed the funds.
From the Atlantic story by reporter Teri Buhl:
The traders were essentially double-dipping — getting paid twice on the deal. How was this possible? Once the security was sold, they didn’t have a legal claim to get cash back from the bad loans — that claim belonged to bond investors — but they did so anyway and kept the money. Thus, Bear was cheating the investors they promised to have sold a safe product out of their cash. According to former Bear Stearns and EMC traders and analysts who spoke with The Atlantic, Nierenberg and Verschleiser were the decision-makers for the double dipping scheme.
Imagine giving someone a hundred bucks to buy a bushel of apples, but making a deal with him that he has to buy back any apples that turn out to have worms in them. That’s what happened here: Bear sold the wormy apples back to the farmer, but instead of taking the money from those sales and passing it on to you, they simply kept the money, according to the suit.
How wormy were those apples? In one infamous email cited in the suit, a Bear exec colorfully described the content of the bonds they were selling:
Bear deal manager Nicolas Smith wrote an e-mail on August 11th, 2006 to Keith Lind, a Managing Director on the trading desk, referring to a particular bond, SACO 2006-8, as “SACK OF SHIT [2006-]8″ and said, “I hope your [sic] making a lot of money off this trade.”
So did Verschleiser himself know the mortgages were bad? Not only did he know it, he went so far as to tell his colleagues in writing that it was a waste of money to even bother performing due diligence on the bad bonds:
Jeffrey Verschleiser even said in an e-mail that he knew this was an issue. He wrote to his peer Mike Nierenberg in March 2006, “[we] are wasting way too much money on Bad Due Diligence.” Yet a year later nothing had changed. In March 2007, Verschleiser wrote to Nierenberg again about the same due diligence firm, “[w]e are just burning money hiring them.”
One of the ways that banks like Bear managed to convince investors to buy these bonds was by wrapping them in bond insurance through companies like Ambac, commonly known as “monoline” insurers. Investors who knew the bonds were insured were less worried about default.
Verschleiser, seeing that Bear had gotten firms like Ambac to insure its “sack of shit” bonds, saw here a new opportunity to make money. He first induced the monolines to insure the worthless bonds, then bet against the insurers! (Is it any wonder this guy ended up hired by Goldman, Sachs?) From the Atlantic story again:
Then in November 2007, Verschleiser wrote to his risk committee that he knew insurers for mortgage securities were going to have big financial problems. He suggested they multiply by ten times the short bet he’d just made against stocks like Ambac. These e-mails show Verschleiser’s trading desk bragging to firm leadership that he made $55 million off shorting insurers’ stock in just three weeks.
So in essence, Verschleiser was triple-dipping. First he was selling worthless “sacks of shit” to investors, representing them as good investments. Then, he kept the money from the return sales of the wormy apples. And then, on top of that, he made money by betting against the insurers he was sticking with these toxic assets.
We all know what happened from there. Bear, Stearns went under, thanks in large part to insane schemes like Verschleiser’s, and all of us were forced to pick up at least part of the tab as the Fed spent billions subsidizing Bear’s emergency takeover by JP Morgan Chase. In subsequent litigation, Chase has steadfastly refused to buy back the bad mortgages dumped on investors by the likes of Verschleiser, and has even fought tooth and nail to prevent the information in the Ambac suit from being made public.
Ambac went into Chapter 11 bankruptcy in 2010 for a variety of reasons, some of which had nothing to do with its losses in deals like these. But certainly Ambac and other monoline insurers like MBIA suffered for having insured worthless mortgage bonds sold onto the market by the Verschleisers of the world. Ambac in its suit asserted that it paid out over $641 million in claims related to the bonds from the Bear deals.
With all of this, though, Verschleiser landed happily on his feet. He reportedly heads Goldman’s mortgage division now. And after cutting a mile-wide swath of losses through the American economy, helping destroy two venerable firms in Bear and Ambac, bilking the taxpayer for untold millions more (he is also named in a lawsuit filed by the Federal Housing Finance Agency for allegedly speeding bad loans onto securitization before they defaulted), Verschleiser is now living the contented life of a proud family man, renting out a 94-room hotel for three days for his daughter’s Bat Mitzvah.
It’s certainly heartening that Verschleiser is spending this money on his daughter instead of, say, hiring a busload of Jamaican hookers to spend the weekend lounging with him in a hot tub full of Beluga caviar. People ought to give their children the best, I guess. But there’s this, too: at a time when one in four Americans has zero or negative net worth, renting a 94-room hotel for three days for a tweenager party might already be pushing the edge of the good taste/tact envelope. Even for the most honest millionaire in Aspen, it would seem a little gauche.
But for this burglarizing dickhead to do it? It’s breathtaking. I hope he at least invited his bankrupted investors to the pool party.
p.s. Since this blog was posted, I’ve received a number of letters all asking the same question — how could it be possible that what Verschleiser did is not illegal? How is he not in jail?
The answer is that if the allegations in the Ambac suit are true, it certainly would seem to be illegal. Most notably, the pocketing of putback money almost has to be a form of theft or embezzlement.
The rest of Bear/Verschleiser’s scheme, however, is also illegal, but in a more complicated way. If you read the complaint in the Ambac suit, what you see is a sort of extreme blueprint for how mortgage securitization worked in general during that period.
There is a veritable sea of fraudulent and corrupt practices one may gaze upon here, if the SEC were looking for something to target — everything from withholding material facts from customers and ratings agencies, to threatening ratings agencies with lost business if they didn’t overrate bonds, to lying in offering documents, to the manipulation of accounting procedures (this went on after the loans had moved onto Chase’s books), etc. — but the most flagrant violation in the suit involves the issue of due diligence, and here we do know a lot about Verschleiser’s role.
It seems that when Bear did do due diligence in these deals, it very frequently overrode the firms they’d hired to do that due diligence, and put the loans in the deals anyway. In the third quarter of 2006, Bear overrode its due diligence firm an incredible 65% of the time, putting loans into their securitizations despite an outside firm finding red flags in the notes.
Even worse, Bear went out of its way to hide the evidence that it was knowingly ignoring due diligence. This is from the complaint:
Bear Stearns ignored the proposals made by the heads of its due diligence department in May 2005 to track the override decisions, and instead took the opposite tack, adopting an internal policy that directed its due diligence managers to delete the communications with its due diligence firms leading to its final loan purchase decisions, thereby eliminating the audit trail.
This is fraud because in its agreements with investors, Bear promised to conduct “due diligence,” it promised to conduct “quality control” testing of the loan pools, it promised to “repurchase” defective loans, and it also promised to implement “seller monitoring,” i.e. to prevent the securitization of loans from bad suppliers.
But it not only didn’t do these things, it engaged the opposite behavior and knowingly covered up its fraud by deleting its communications.
Verschleiser was personally named in the evidence offered in the Ambac suit. In a letter to Ambac, Bear’s RMBS Investor Relations managing director Cheryl Glory wrote that “Jeff will… provide you with the due diligence results of all three deals once complete.”
But this is the same Jeff who we now have in writing saying this about those promised due diligence results: “We are wasting way too much money on Bad Due Diligence,” and “We’re just burning money hiring them.”
It doesn’t take a genius to deduce that Bear was not upholding its contractual obligations by delivering what it itself considered “bad due diligence” to Ambac. At the very least, this is actionable.
Verschleiser undermined due diligence in other ways. One good one was to demand that his due diligence people operate at speeds that made genuine due diligence impossible.
At one point during these deals, Verschleiser reamed out his immediate subordinate, co-head of mortgage finance Baron Silverstein, over the “problem” of the due diligence department taking too much time to do its work. Silverstein responded by issuing the following tirade to John Mongelluzzo, Bear’s VP for Due Diligence, demanding that he not get in the way of Bear’s insane goal of funding 500 mortgages a day:
I refuse to receive more emails from [Verchleiser] (or anyone else) questioning why we’re not funding loans every day. I’m holding each of you responsible for making sure we fund at least 500 each and every day… I was not happy when I saw the funding numbers and I knew NY would NOT BE HAPPY… I expect to see 500+ every day. I will do whatever is necessary to make sure you’re successful in meeting this objective.
Whenever any right-wing loon, or Bloombergite, tries to tell you the mortgage crisis was caused by the government forcing the poor banks to lend to broke black people, please direct them to this passage. The banks not only wanted to give out these loans, they wanted to give them out at the speed of light. They wanted to crank them out so fast that their own auditors literally couldn’t read the writing on the loan applications. This was greed, not policy. Anybody who says anything else is high on something.
Anyway, given that much of Verschleiser’s questionable behavior is in writing, his case sure seems court-ready. But for whatever reason, he has not been indicted.
One can almost understand a regulator not wanting to take on the whole circular securitization scheme — Bear lends money to corrupt mortgage firm, mortgage firm makes bad loans, Bear packages bad loans and sells to investors, then takes the proceeds and creates more bad loans — because it is so complex and difficult to prove.
But in this case there are simple issues of fraud and theft that could be taken on without having to prosecute broader crimes related to securitization. But prosecutors, apparently, just blew those off. In the current environment, regulators even miss the layups.
a few “pre-revolutionary” thoughts I had November 21, 2011Posted by rogerhollander in Economic Crisis, India, Occupy Wall Street Movement, Revolution.
Tags: #occupy movement, Afghanistan War, Arundhati Roy, drone missiles, Economic Crisis, economic inequality, India poverty, Iraq war, occupy wall street, ows, revolution, roger hollander, U.S. imperialism
add a comment
Tuesday morning, the police cleared Zuccotti Park, but today the people are back. The police should know that this protest is not a battle for territory. We’re not fighting for the right to occupy a park here or there. We are fighting for justice. Justice, not just for the people of the US, but for everybody.
What you have achieved since September 17th, when the Occupy movement began in the United States, is to introduce a new imagination, a new political language into the heart of empire. You have reintroduced the right to dream into a system that tried to turn everybody into zombies, mesmerized into equating mindless consumerism with happiness and fulfillment.
As a writer, let me tell you, this is an immense achievement. And I cannot thank you enough.
Ever since the Great Depression, the manufacture of weapons and the export of war have been key ways in which the United States has stimulated its economy. Just recently, under President Obama, the US made a $60 billion arms deal with Saudi Arabia – moderate Muslims, right? It hopes to sell thousands of bunker busters to the UAE. It has sold $5 billion-worth of military aircraft to my country, India, which has more poor people than all the poorest countries of Africa put together. All these wars, from the bombing of Hiroshima and Nagasaki to Vietnam, Korea, Latin America, have claimed millions of lives — all of them fought to secure the “American way of life”.
Today, we know that the “American way of life” — the model that the rest of the world is meant to aspire towards — has resulted in 400 people owning the wealth of half of the population of the United States. It has meant thousands of people being turned out of their homes and their jobs while the US government bailed out banks and corporations — American International Group (AIG) alone was given $182 billion.
The Indian government worships US economic policy. As a result of 20 years of the free market economy, today, 100 of India’s richest people own assets worth one-quarter of the country’s GDP while more than 80% of the people live on less than 50 cents a day. Two hundred and fifty thousand farmers, driven into a spiral of debt death, have committed suicide. We call this progress, and now think of ourselves as a superpower. Like you, we are well-qualified. We have nuclear bombs and obscene inequality.
The good news is that people have had enough and are not going to take it any more. The Occupy movement has joined thousands of other resistance movements all over the world in which the poorest of people are standing up and stopping the richest corporations in their tracks. Few of us dreamed that we would see you, the people of the United States on our side, trying to do this in the heart of Empire. I don’t know how to communicate the enormity of what this means.
They, the one percent, say that we don’t have demands” perhaps they don’t know, that our anger alone would be enough to destroy them. But here are some things — a few “pre-revolutionary” thoughts I had — for us to think about together:
We want to put a lid on this system that manufactures inequality. We want to put a cap on the unfettered accumulation of wealth and property by individuals as well as corporations. As “cap-ists” and “lid-ites”, we demand:
One, an end to cross-ownership in businesses. For example, weapons manufacturers cannot own TV stations; mining corporations cannot run newspapers; business houses cannot fund universities; drug companies cannot control public health funds.
Two, natural resources and essential infrastructure — water supply, electricity, health, and education — cannot be privatized.
Three, everybody must have the right to shelter, education and healthcare
Four, the children of the rich cannot inherit their parents’ wealth.
This struggle has re-awakened our imagination. Somewhere along the way, capitalism reduced the idea of justice to mean just “human rights”, and the idea of dreaming of equality became blasphemous. We are not fighting to just tinker with reforming a system that needs to be replaced.
As a cap-ist and a lid-ite, I salute your struggle.
Salaam and Zindabad.
Tags: Amundsen-Scott, antarctic, antarctica, Chapel Hill, corporate greed, David and Goliath, Department of Energy, Economic Crisis, glaciology, Humor, kanye west, Mark Donahue, Occupy Antarctica, occupy wall street, Office of Science, parody, protest, satire, Spoof, steinar skramstad, The Daily Rash, thomas jefferson, UNC, University of North Carolina at Chapel Hill, Wall Street
AMUNDSEN-SCOTT, ANTARCTICA – In the tradition of some of the most ardent revolutionaries throughout history, 32 year-old Steinar Skramstad isn’t allowing inconvenient circumstances to hinder his steadfast determination to lead the charge for change in Antarctica. Protesting by himself in mind numbing -50 degree temperatures outside his parents’ home, Steinar Skramstad’s lonely revolt against corporate predators is a stoic demonstration of a modern day David standing tall and defiant in the face of a Goliath called Wall Street. A lionhearted rebel’s valiant crusade to make his world a better and brighter place. With wind gusts up to seventy miles per hour, Steinar is routinely knocked off his feet and sent sliding across the icy tundra until he is able to stand again. Forced to venture indoors every three to four minutes to avoid hypothermia, Mr. Skramstad returns to the brutal and merciless outdoors after his hallucinations dissipate to resume his demonstration against greed.
Over a static filled short wave radio interview, Steinar Skramstad’s mom told the Daily Rash that she is proud of her son’s ‘Occupy Antarctica’ protest to make the world a better place.
“Is what my son is doing any different than the actions of revolutionaries like George Washington, Thomas Jefferson, Gandhi or Kanye West? Steinar’s father and I are so proud of his willingness to stand outside in a frigid, barren wasteland of ice and rock and protest until Wall Street pariahs hear his cries for change. And to be honest, I don’t know of any other revolutionaries who’ve had their eyes freeze shut so tight that you need a fork to pry them open. Do you?”
Steinar’s father, Skjoldulv Skramstad, is a glaciologist who studies snow for the Department of Energy’s “Office of Science.” The elder Skramstad received his PhD in Snow at the University of North Carolina in Chapel Hill. Skjoldulv’s wife Betty, an artist who makes ice sculptures, stole his heart in college when she took a pile of snow he was studying in class and shaped it into a remarkable likeness of downtown Chapel Hill. Betty Skramstad said the passion she and her husband have for snow and ice rubbed off on Steinar.
“At a very young age Steinar was mesmerized by ice. We had to put a lock on the freezer to keep him away from the ice trays. When he was five we bought him his first snow cone and he got so excited that he began jumping up and down and peeing in his pants. To this day he has an insatiable urge to urinate when it snows.”
Like his father before him, Steinar Skramstad earned a PhD in Snow at UNC. His dreams of working along side his dad were shattered when Congress slashed funding for the Office of Science. Burdened with an $85,000 student loan and few employment prospects, Steinar was forced to move back home with his parents after school ended. Last week, after his mom read him a newspaper clipping about Occupy Wall Street protesters demanding their student loans be forgiven, Steinar recognized a fury growing within him to begin demonstrating against corporate greed.
“There are very few part-time job opportunities here in Antarctica,” Steinar’s mother told the Daily Rash. “Even though Steinar helps around the house by taking out the trash and feeding the goldfish, his father and I wish he could contribute more to his $600 school loan payment that we’ve been saddled with. If his courageous and selfless protests against greed and corruption inadvertently led to the elimination of his student loans, it would be a tiny pat on the back for a magnanimous young man’s heroic efforts to battle the soulless and corrupt cretins of Wall Street.”
Roger’s note: something tells me the Daily Rash is known for putting out satiric news.
Chris Hedges Arrested in Front of Goldman Sachs November 4, 2011Posted by rogerhollander in Economic Crisis, Occupy Wall Street Movement.
Tags: bailouts, chris hedges, commodity futures, cornel west, Economic Crisis, executive bonuses, foeclosures, Goldman Sachs, occupy wall street, roger hollander, tarp, zuccotti park
1 comment so far
Posted on Nov 3, 2011
|David Shankbone (CC-BY)|
Chris Hedges made this statement in New York City’s Zuccotti Park on Thursday morning during the People’s Hearing on Goldman Sachs, which he chaired with Dr. Cornel West. The activist and Truthdig columnist then joined a march of several hundred protesters to the nearby corporate headquarters of Goldman Sachs, where he was arrested with 16 others.
Goldman Sachs, which received more subsidies and bailout-related funds than any other investment bank because the Federal Reserve permitted it to become a bank holding company under its “emergency situation,” has used billions in taxpayer money to enrich itself and reward its top executives. It handed its senior employees a staggering $18 billion in 2009, $16 billion in 2010 and $10 billion in 2011 in mega-bonuses. This massive transfer of wealth upwards by the Bush and Obama administrations, now estimated at $13 trillion to $14 trillion, went into the pockets of those who carried out fraud and criminal activity rather than the victims who lost their jobs, their savings and often their homes.
Goldman Sachs’ commodities index is the most heavily traded in the world. Goldman Sachs hoards rice, wheat, corn, sugar and livestock and jacks up commodity prices around the globe so that poor families can no longer afford basic staples and literally starve. Goldman Sachs is able to carry out its malfeasance at home and in global markets because it has former officials filtered throughout the government and lavishly funds compliant politicians—including Barack Obama, who received $1 million from employees at Goldman Sachs in 2008 when he ran for president. These politicians, in return, permit Goldman Sachs to ignore security laws that under a functioning judiciary system would see the firm indicted for felony fraud. Or, as in the case of Bill Clinton, these politicians pass laws such as the 2000 Commodity Futures Modernization Act that effectively removed all oversight and outside control over the speculation in commodities, one of the major reasons food prices have soared. In 2008 and again in 2010 prices for crops such as rice, wheat and corn doubled and even tripled, making life precarious for hundreds of millions of people. And it was all done so a few corporate oligarchs, the 1 percent, could make personal fortunes in the tens and hundreds of millions of dollars. Despite a damning 650-page Senate subcommittee investigation report, no individual at Goldman Sachs has been indicted, although the report accuses Goldman of defrauding its clients.
When the government in the fall 2008 provided the firm with billions of dollars in the form of cheap loans, FDIC debt guarantees, TARP, AIG make-wholes, and a late-night label-shift from investment bank to bank holding company, giving the firm access to excessive Federal Reserve aid, access [the corporation] still has, it enabled and abetted Goldman’s criminal behavior. Goldman Sachs unloaded billions in worthless securities to its clients, decimating 401(k)s, pension and mutual funds. The firm misled investors about the true nature of these worthless securities, insisted the securities they were pushing on their clients were sound, and hid the material fact that, simultaneously, they were betting against these same securities—$2 billion against just one of their deals. The firm then had the gall to extort from its victims—us—to make good on its bets when the global economy it helped trash lost $40 trillion in worldwide wealth and huge insurance firms were unable to cover their bad debts.
The Securities Act of 1933, established in the wake of the massive fraud that pervaded the securities market before the 1929 Crash, was written to ensure that “any securities transactions are not based on fraudulent information or practices.” The act “prohibits deceit, misrepresentation, and other fraud in the sale of securities.” The subcommittee report indicates that Goldman Sachs clearly broke security laws.
As part of the political theater that has come to replace the legislative and judicial process, the Securities and Exchange Commission agreed to a $550 million settlement whereby Goldman Sachs admitted it showed “incomplete” information in marketing materials and that it was a “mistake” to not disclose the nature of its portfolio selection committee. This fine was a payoff to the SEC by Goldman Sachs of about four days’ worth of revenue, and in return they avoided going to court. CEO Lloyd Blankfein apparently not only lied to clients, but to the subcommittee itself on April 27, 2010, when he told lawmakers: “We didn’t have a massive short against the housing market, and we certainly did not bet against our clients.” Yet, they did.
And yet nothing has been done. No Goldman Sachs officials have gone to trial. This is because there is no way within the corporate state to vote against the interests of Goldman Sachs. There is no way through the formal mechanisms of power to restore the rule of law. There is no way to protect the ordinary citizen and the poor around the globe from the predatory activity of financial institutions such as Goldman Sachs. Since our courts refuse to put on trial the senior executives at Goldman Sachs, including Blankfein, who carried out these crimes and lied to cover them up, we will. Speculators like those in Goldman Sachs—who in the 17th century when speculation was a crime would have been hanged—must be prevented by law from again destroying our economy, preying on ordinary citizens, hoarding food so the poor starve and running our political process. We are paying for these crimes—not those who orchestrated perhaps the most massive fraud in human history. Our teachers, police, firefighters and public employees are losing their jobs so speculators like Blankfein can make an estimated $250,000 a day. Working men and women are losing their homes and going into personal bankruptcy because they cannot pay their medical bills. Our unemployed, far closer to 20 percent than the official 9 percent, are in deep distress all so a criminal class, a few blocks from where I speak, can wallow in luxury with mansions and yachts and swollen bank accounts.
What we are asking for today is simple—it is a return to the rule of law. And since the formal mechanisms of power refuse to restore the rule of law, then we, the 99 percent, will have to see that justice is done.