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One-Percent Jokes and Plutocrats in Drag: What I Saw When I Crashed a Wall Street Secret Society February 20, 2014

Posted by rogerhollander in Capitalism, Economic Crisis.
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Roger’s note: You know the phrase “how the other half lives,” well this is a peek at how the 1% live.  These are the heartless billionaires who pilot the capitalist death ship.  I guess it is only natural that in their character (or lack thereof) they would reflect the very heartless inhumanity of the system they own and operate. Enjoy.

By 

Recently, our nation’s financial chieftains have been feeling a little unloved. Venture capitalists are comparing the persecution of the rich to the plight ofJews at Kristallnacht, Wall Street titans are saying that they’re sick of being beaten up, and this week, a billionaire investor, Wilbur Ross, proclaimed that “the 1 percent is being picked on for political reasons.”

Ross’s statement seemed particularly odd, because two years ago, I met Ross at an event that might single-handedly explain why the rest of the country still hates financial tycoons – the annual black-tie induction ceremony of a secret Wall Street fraternity called Kappa Beta Phi.

Adapted
from Kevin Roose’s book Young Money, published today by Grand Central Publishing.

“Good evening, Exalted High Council, former Grand Swipes, Grand Swipes-in-waiting, fellow Wall Street Kappas, Kappas from the Spring Street and Montgomery Street chapters, and worthless neophytes!”

It was January 2012, and Ross, wearing a tuxedo and purple velvet moccasins embroidered with the fraternity’s Greek letters, was standing at the dais of the St. Regis Hotel ballroom, welcoming a crowd of two hundred wealthy and famous Wall Street figures to the Kappa Beta Phi dinner. Ross, the leader (or “Grand Swipe”) of the fraternity, was preparing to invite 21 new members — “neophytes,” as the group called them — to join its exclusive ranks.

Looking up at him from an elegant dinner of rack of lamb and foie gras were many of the most famous investors in the world, including executives from nearly every too-big-to-fail bank, private equity megafirm, and major hedge fund. AIG CEO Bob Benmosche was there, as were Wall Street superlawyer Marty Lipton and Alan “Ace” Greenberg, the former chairman of Bear Stearns. And those were just the returning members. Among the neophytes were hedge fund billionaire and major Obama donor Marc Lasry and Joe Reece, a high-ranking dealmaker at Credit Suisse. [To see the full Kappa Beta Phi member list, click here.] All told, enough wealth and power was concentrated in the St. Regis that night that if you had dropped a bomb on the roof, global finance as we know it might have ceased to exist.

During his introductory remarks, Ross spoke for several minutes about the legend of Kappa Beta Phi – how it had been started in 1929 by “four C+ William and Mary students”; how its crest, depicting a “macho right hand in a proper Savile Row suit and a Turnbull and Asser shirtsleeve,” was superior to that of its namesake Phi Beta Kappa (Ross called Phi Beta Kappa’s ruffled-sleeve logo a “tacit confession of homosexuality”); and how the fraternity’s motto, “Dum vivamus edimus et biberimus,” was Latin for “While we live, we eat and drink.”

On cue, the financiers shouted out in a thundering bellow: “DUM VIVAMUS EDIMUS ET BIBERIMUS.”

Click here to listen: https://soundcloud.com/daily-intelligencer/wilbur-ross/s-iFMBX
The only person not saying the chant along with Ross was me — a journalist who had sneaked into the event, and who was hiding out at a table in the back corner in a rented tuxedo.
Several Kappas at the table next to me, presumably discussing the coming plutocracy.

I’d heard whisperings about the existence of Kappa Beta Phi, whose members included both incredibly successful financiers (New York City’s Mayor Michael Bloomberg, former Goldman Sachs chairman John Whitehead, hedge-fund billionaire Paul Tudor Jones) and incredibly unsuccessful ones (Lehman Brothers CEO Dick Fuld, Bear Stearns CEO Jimmy Cayne, former New Jersey governor and MF Global flameout Jon Corzine). It was a secret fraternity, founded at the beginning of the Great Depression, that functioned as a sort of one-percenter’s Friars Club. Each year, the group’s dinner features comedy skits, musical acts in drag, and off-color jokes, and its group’s privacy mantra is “What happens at the St. Regis stays at the St. Regis.” For eight decades, it worked. No outsider in living memory had witnessed the entire proceedings firsthand.

A Kappa neophyte (left) chats up a vet.

I wanted to break the streak for several reasons. As part of my research for my book,Young Money, I’d been investigating the lives of young Wall Street bankers – the 22-year-olds toiling at the bottom of the financial sector’s food chain. I knew what made those people tick. But in my career as a financial journalist, one question that proved stubbornly elusive was what happened to Wall Streeters as they climbed the ladder to adulthood. Whenever I’d interviewed CEOs and chairmen at big Wall Street firms, they were always too guarded, too on-message and wrapped in media-relations armor to reveal anything interesting about the psychology of the ultra-wealthy. But if I could somehow see these barons in their natural environment, with their defenses down, I might be able to understand the world my young subjects were stepping into.

So when I learned when and where Kappa Beta Phi’s annual dinner was being held, I knew I needed to try to go.

Getting in was shockingly easy — a brisk walk past the sign-in desk, and I was inside cocktail hour. Immediately, I saw faces I recognized from the papers. I picked up an event program and saw that there were other boldface names on the Kappa Beta Phi membership roll — among them, then-Citigroup CEO Vikram Pandit, BlackRock CEO Larry Fink, Home Depot billionaire Ken Langone, Morgan Stanley bigwig Greg Fleming, and JPMorgan Chase vice chairman Jimmy Lee. Any way you count, this was one of the most powerful groups of business executives in the world. (Since I was a good 20 years younger than any other attendee, I suspect that anyone taking note of my presence assumed I was a waiter.)

I hadn’t counted on getting in to the Kappa Beta Phi dinner, and now that I had gotten past security, I wasn’t sure quite what to do. I wanted to avoid rousing suspicion, and I knew that talking to people would get me outed in short order. So I did the next best thing — slouched against a far wall of the room, and pretended to tap out emails on my phone.

The 2012 Kappa Beta Phi neophyte class.

After cocktail hour, the new inductees – all of whom were required to dress in leotards and gold-sequined skirts, with costume wigs – began their variety-show acts. Among the night’s lowlights:

• Paul Queally, a private-equity executive with Welsh, Carson, Anderson, & Stowe, told off-color jokes to Ted Virtue, another private-equity bigwig with MidOcean Partners. The jokes ranged from unfunny and sexist (Q: “What’s the biggest difference between Hillary Clinton and a catfish?” A: “One has whiskers and stinks, and the other is a fish”) to unfunny and homophobic (Q: “What’s the biggest difference between Barney Frank and a Fenway Frank?” A: “Barney Frank comes in different-size buns”).

Click here to listen: https://soundcloud.com/daily-intelligencer/queally-jokes/s-qxUq6

• Bill Mulrow, a top executive at the Blackstone Group (who was later appointed chairman of the New York State Housing Finance Agency), and Emil Henry, a hedge fund manager with Tiger Infrastructure Partners and former assistant secretary of the Treasury, performed a bizarre two-man comedy skit. Mulrow was dressed in raggedy, tie-dye clothes to play the part of a liberal radical, and Henry was playing the part of a wealthy baron. They exchanged lines as if staging a debate between the 99 percent and the 1 percent. (“Bill, look at you! You’re pathetic, you liberal! You need a bath!” Henry shouted. “My God, you callow, insensitive Republican! Don’t you know what we need to do? We need to create jobs,” Mulrow shot back.)

• David MooreMarc Lasry, and Keith Meister — respectively, a holding company CEO, a billionaire hedge-fund manager, and an activist investor — sang a few seconds of a finance-themed parody of “YMCA” before getting the hook.

• Warren Stephens, an investment banking CEO, took the stage in a Confederate flag hat and sang a song about the financial crisis, set to the tune of “Dixie.” (“In Wall Street land we’ll take our stand, said Morgan and Goldman. But first we better get some loans, so quick, get to the Fed, man.”)

Click here to listen: https://soundcloud.com/daily-intelligencer/dixie
A few more acts followed, during which the veteran Kappas continued to gorge themselves on racks of lamb, throw petits fours at the stage, and laugh uproariously. Michael Novogratz, a former Army helicopter pilot with a shaved head and a stocky build whose firm, Fortress Investment Group, had made him a billionaire, was sitting next to me, drinking liberally and annotating each performance with jokes and insults.

“Can you fuckin’ believe Lasry up there?” Novogratz asked me. I nodded. He added, “He just gave me a ride in his jet a month ago.”

The neophytes – who had changed from their drag outfits into Mormon missionary costumes — broke into their musical finale: a parody version of “I Believe,” the hit ballad from The Book of Mormon, with customized lyrics like “I believe that God has a plan for all of us. I believe my plan involves a seven-figure bonus.” Amused, I pulled out my phone, and began recording the proceedings on video. Wrong move.

The grand finale, a parody of “I Believe” from The Book of Mormon
Click here to listen: https://soundcloud.com/daily-intelligencer/i-believe/s-GmzF7
“Who the hell are you?” Novogratz demanded.

I felt my pulse spike. I was tempted to make a run for it, but – due to the ethics code of the New York Times, my then-employer – I had no choice but to out myself.

“I’m a reporter,” I said.

Novogratz stood up from the table.

“You’re not allowed to be here,” he said.

I, too, stood, and tried to excuse myself, but he grabbed my arm and wouldn’t let go.

“Give me that or I’ll fucking break it!” Novogratz yelled, grabbing for my phone, which was filled with damning evidence. His eyes were bloodshot, and his neck veins were bulging. The song onstage was now over, and a number of prominent Kappas had rushed over to our table. Before the situation could escalate dangerously, a bond investor and former Grand Swipe named Alexandra Lebenthal stepped in between us. Wilbur Ross quickly followed, and the two of them led me out into the lobby, past a throng of Wall Street tycoons, some of whom seemed to be hyperventilating.

Once we made it to the lobby, Ross and Lebenthal reassured me that what I’d just seen wasn’t really a group of wealthy and powerful financiers making homophobic jokes, making light of the financial crisis, and bragging about their business conquests at Main Street’s expense. No, it was just a group of friends who came together to roast each other in a benign and self-deprecating manner. Nothing to see here.

But the extent of their worry wasn’t made clear until Ross offered himself up as a source for future stories in exchange for my cooperation.

“I’ll pick up the phone anytime, get you any help you need,” he said.

“Yeah, the people in this group could be very helpful,” Lebenthal chimed in. “If you could just keep their privacy in mind.”

I wasn’t going to be bribed off my story, but I understood their panic.  Here, after all, was a group that included many of the executives whose firms had collectively wrecked the global economy in 2008 and 2009. And they were laughing off the entire disaster in private, as if it were a long-forgotten lark. (Or worse, sing about it — one of the last skits of the night was a self-congratulatory parody of ABBA’s “Dancing Queen,” called “Bailout King.”) These were activities that amounted to a gigantic middle finger to Main Street and that, if made public, could end careers and damage very public reputations.

After several more minutes spent trying to do damage control, Ross and Lebenthal escorted me out of the St. Regis.

As I walked through the streets of midtown in my ill-fitting tuxedo, I thought about the implications of what I’d just seen.

The first and most obvious conclusion was that the upper ranks of finance are composed of people who have completely divorced themselves from reality. No self-aware and socially conscious Wall Street executive would have agreed to be part of a group whose tacit mission is to make light of the financial sector’s foibles. Not when those foibles had resulted in real harm to millions of people in the form of foreclosures, wrecked 401(k)s, and a devastating unemployment crisis.

The second thing I realized was that Kappa Beta Phi was, in large part, a fear-based organization. Here were executives who had strong ideas about politics, society, and the work of their colleagues, but who would never have the courage to voice those opinions in a public setting. Their cowardice had reduced them to sniping at their perceived enemies in the form of satirical songs and sketches, among only those people who had been handpicked to share their view of the world. And the idea of a reporter making those views public had caused them to throw a mass temper tantrum.

The last thought I had, and the saddest, was that many of these self-righteous Kappa Beta Phi members had surely been first-year bankers once. And in the 20, 30, or 40 years since, something fundamental about them had changed. Their pursuit of money and power had removed them from the larger world to the sad extent that, now, in the primes of their careers, the only people with whom they could be truly themselves were a handful of other prominent financiers.

Perhaps, I realized, this social isolation is why despite extraordinary evidence to the contrary, one-percenters like Ross keep saying how badly persecuted they are. When you’re a member of the fraternity of money, it can be hard to see past the foie gras to the real world.

Copyright 2014 by Kevin Roose. Reprinted by permission of Grand Central Publishing. All rights reserved.

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

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

 

 

 

 

 

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

 

 

 

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

 

by BAR executive editor Glen Ford

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

And, you can take that to the bank.

 

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

 

 

 

Larry Summers: Goldman Sacked September 17, 2013

Posted by rogerhollander in Barack Obama, Economic Crisis.
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GregPalast.com

Larry Summers:  Goldman Sacked

By Greg Palast for Vice Magazine
Monday, 16 September 2013

Joseph Stiglitz couldn’t believe his ears.  Here they were in the White House, with President Bill Clinton asking the chiefs of the US Treasury for guidance on the life and death of America’s economy, when the Deputy Secretary of the Treasury Larry Summers turns to his boss, Secretary Robert Rubin, and says, “What would Goldman think of that?”

Huh?

Then, at another meeting, Summers said it again:  What would Goldman think?

A shocked Stiglitz, then Chairman of the President’s Council of Economic Advisors, told me he’d turned to Summers, and asked if Summers thought it appropriate to decide US economic policy based on “what Goldman thought.”  As opposed to say, the facts, or say, the needs of the American public, you know, all that stuff that we heard in Cabinet meetings on The West Wing.

Summers looked at Stiglitz like Stiglitz was some kind of naive fool who’d read too many civics books.

R.I.P. Larry Summers
On Sunday afternoon, facing a revolt by his own party’s senators, Obama dumped Larry as likely replacement for Ben Bernanke as Chairman of the Federal Reserve Board.
Until news came that Summers’ torch had been snuffed, I was going to write another column about Larry, the Typhoid Mary of Economics.  (My first, in The Guardian, 15 years ago, warned that “Summers is, in fact, a colony of aliens sent to Earth to turn humans into a cheap source of protein.”)

But the fact that Obama even tried to shove Summers down the planet’s throat tells us more about Obama than Summers—and whom Obama works for.  Hint:  You aren’t one of them.

All these Cabinet discussions back in the 1990s requiring the blessing of Goldman Sachs revolved around the Rubin-Summers idea of ending regulation of the US banking system.  To free the US economy, Summers argued, all you’d have to do is allow commercial banks to bet government-guaranteed savings on new “derivatives products,” let banks sell high-risk sub-prime mortgage securities and cut their reserves against losses.

What could possibly go wrong?
Stiglitz, who would go on to win the Nobel Prize in Economics, tried to tell them exactly what would go wrong.  But when he tried, he was replaced and exiled.
Summers did more than ask Rubin to channel the spirit of Goldman: Summers secretly called and met with Goldman’s new CEO at the time, Jon Corzine, to plan out the planet’s financial deregulation. I’m not guessing:  I have the confidential memo to Summers reminding him to call Corzine.

[For the complete story of that memo and a copy of it, read The Confidential Memo at the Heart of the Global Financial Crisis.]

Summers, as Treasury official, can call any banker he damn well pleases.  But not secretly.  And absolutely not to scheme over details of policies that could make a bank billions.  And Goldman did make billions on those plans.

Example:  Goldman and clients pocketed $4 billion on the collapse of “synthetic collateralized debt obligations”—flim-flam feathers sold to suckers and dimwits i.e. the bankers at RBS.  (See Did Fabrice Tourre Really Create The Global Financial Crisis?)

Goldman also cashed in big on the implosion of Greece’s debt via secret derivatives trades permitted by Summers’ decriminalization of such cross-border financial gaming.

The collapse of the euro-zone and the US mortgage market caused by Bankers Gone Wild was made possible only by Treasury Secretary Summers lobbying for the Commodities Futures Modernization Act which banned regulators from controlling the 100,000% increase in derivatives assets, especially super-risky “naked” credit-default swaps.

The CMFA was the financial equivalent of a fire department banning smoke alarms.

Summers took over the Treasury’s reins from Rubin who’d left to become director of a strange new financial behemoth:  The combine of Citibank with and an investment bank, Travelers. The new bank beast went bankrupt and required $50 billion in bail-out funds.  (Goldman did not require any bail-out funds–but took $10 billion anyway.)

Other banks-turned-casinos followed Citi into insolvency.  Most got bail-outs … and got Larry Summers–or, at least, Larry’s lips for “consulting” or for gold-plated speaking gigs.

Derivatives trader D.E. Shaw paid Summers $5 million for a couple of years of “part-time” work.  This added to payments from Citigroup, Goldman and other finance houses, raising the net worth of this once penurious professor to more than $31 million.

Foreclosure fills the Golden Sacks
When Summers left Treasury in 2000, The New York Times reports that a grateful Rubin got Summers the post of President of Harvard University—from which Summers was fired. He gambled away over half a billion dollars of the university’s endowment on those crazy derivatives he’d legalized.  (Given Summers’ almost pathological inability to understand finance, it was most odd that, while President of the university, he suggested that humans with vaginas aren’t very good with numbers.)

In 2009, Summers, Daddy of the Deregulation Disaster, returned to the Cabinet in triumph. Barack Obama crowned him “Economics Tsar,” allowing Summers to run the Treasury without having to be questioned by Congress in a formal confirmation hearing.

As Economics Tsar in Obama’s first term, did Summers redeem himself?

Not a chance.

In 2008, both Democrat Hillary Clinton and Republican John McCain called for using the $300 billion remaining in the “bail-out’ fund for a foreclosure-blocking program identical to the one Franklin Roosevelt had used to pull the US out of the Great Depression.  But Tsar Larry would have none of it, although banks had been given $400 billion from the same fund.

Indeed, on the advice of Summers and his wee assistant, Treasury Secretary Tim Geithner, Obama spent only $7 billon of the $300 billion available to save US homeowners.

What would Goldman think? 
As noted, Goldman and clients pocketed billions as a result of Obama’s abandonment of 3.9 million families whose homes were repossessed during his first term.  While American homeowners were drowning, Tsar Summers torpedoed their lifeboat:  a plan to prevent foreclosures by forcing banks to write-off the overcharges in predatory sub-prime mortgages.  Notably, Summers’ action (and Obama’s inaction) saved Citibank billions.

Loan Shark Larry
The deregulation disaster machinery is not done with mangling Americans.  While not-for-profit credit unions, lenders of last resort for working people and the poor in the US, have been under legal and political attack, a new kind of banking operation has bubbled out of the minds of the grifters looking for a way to make loan-sharking legit.

One new outfit, for example, called “Lending Club,” has figured out a way to collect fees for arranging loans charging as much as 29%.  Lending Club claims it cannot and should not be regulated by the Federal Reserve or other banking police.  The recent addition to its Board of Directors:  Larry Summers.

If you want to know why Obama would choose such a grifter and gamer to head the Fed, you have to ask, Who picked Obama?  Ten years ago, Barry Obama was a nothing, a State Senator from the South Side of Chicago.

But then, he got lucky.  A local bank, Superior, was shut down by regulators for mortgage shenanigans ripping off Black folk.  The bank’s Chairwoman, Penny Pritzker was so angry at regulators, she decided to eliminate them:  and that required a new President.

The billionaires connected Obama to Jamie Dimon of J.P. Morgan, but most importantly to Robert Rubin, former Treasury Secretary, but most important, former CEO of Goldman Sachs and mentor of Larry Summers.  Without Rubin’s blessing and overwhelming fundraising power, Obama would still be arguing over zoning on Halsted Street.

Rubin picked Obama and Obama picks whom Rubin picks for him.

Because, in the end, Obama knows he must choose a Fed chief based on the answer to one question:  What would Goldman think?

Special thanks to expert Lori Wallach of Public Citizen without whom our investigation could not have begun.

For the complete story of the investigation of Larry Summers, the “End Game” memo and the finance crisis, see Palast’s highly acclaimed book Vultures’ Picnic.
Get a
signed hardbound copy and support our work with a tax-deductible contribution of $50. 

Also visit the Palast Investigative Fund’s store or simply make a tax-deductible contribution to keep our work alive!

Greg Palast is also the author of the New York Times bestsellers, Billionaires & Ballot BanditsThe Best Democracy Money Can Buy and Armed Madhouse.

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

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

 

Published on Tuesday, January 8, 2013 by Rolling Stone

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

by Matt Taibbi

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

20130104-national-affairs-306x-1357314071

(Illustration by Victor Juhasz)

Wrong.

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

How Wall Street Killed Financial Reform

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

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

They Lied to Pass the Bailout

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

They Lied About Lending

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

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

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

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

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

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

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

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

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

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

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

They Lied About the Health of the Banks

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

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

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

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

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

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

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

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

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

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

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

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

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

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

They Lied About Bonuses

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

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

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

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

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

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

They Lied About the Bailout Being Temporary

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Other than that, the bailout was a smashing success.

© 2012 Rolling Stone
matt-taibbi

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

Why Barack Obama is the More Effective Evil March 26, 2012

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Roger’s note: Newt Gingrich scares me.  Mitt Romney scares me.  Rick Santorum really scares me.  I find myself, despite my incredible disdain for Obama, worrying that he will not be re-elected.  And this scares me even more!

Wed, 03/21/2012 – 11:06 — Glen Ford

www.blackagendareport.com

l

Glen Ford at the Left Forum

No matter how much evil Barack Obama actually accomplishes during his presidency, people that call themselves leftists insist on dubbing him the Lesser Evil. Not only is Obama not given proper credit for out-evil-ing George Bush, domestically and internationally, but the First Black President is awarded positive grades for his intentions versus the presumed intentions of Republicans. As the author says, this “is psycho-babble, not analysis. No real Left would engage in it.”

 

BAR executive editor Glen Ford made the following presentation at the Left Forum, Pace University, New York City, March 17. On the panel were Gloria Mattera, Margaret Kimberley (BAR), Suren Moodliar, John Nichols, and Victor Wallis. The discussion was titled, The 2012 Elections: Lesser Evil or Left Alternative?

He has put both Wall Street and U.S. imperial power on new and more aggressive tracks – just as he hired himself out to do.”

Power to the people!

Let me say from the very beginning that we at Black Agenda Report do not think that Barack Obama is the Lesser Evil. He is the more Effective Evil.

He has been more effective in Evil-Doing than Bush in terms of protecting the citadels of corporate power, and advancing the imperial agenda. He has put both Wall Street and U.S. imperial power on new and more aggressive tracks – just as he hired himself out to do.

That was always Wall Street’s expectation of Obama, and his promise to them. That’s why they gave him far more money in 2008 than they gave John McCain. They were buying Obama futures on the electoral political market – and they made out like bandits.

They invested in Obama to protect them from harm, as a hedge against the risk of systemic disaster caused by their own predations. And, it was a good bet, a good deal. It paid out in the tens of trillions of dollars.

If you believe that what Wall Street does is Evil, then Obama’s service to Wall Street is Evil, and there is nothing lesser about it.

They had vetted Obama, thoroughly, before he even set foot in the U.S. Senate in 2004.

He protected their interests, there, helping shield corporations from class action suits, and voting against caps on credit card Interest. He was their guy back then – and some of us were saying so, back then.

He was the bankers’ guy in the Democratic presidential primary race. Among the last three standing in 2008, it was Obama who opposed any moratorium on home foreclosures. John Edwards supported a mandatory moratorium and Hillary Clinton said she wanted a voluntary halt to foreclosures. But Barack Obama opposed any moratorium. Let it run its course, said candidate Obama. And, true to his word, he has let the foreclosures run their catastrophic course.

Only a few months later, when the crunch came and Finance Capital was in meltdown, who rescued Wall Street? Not George Bush. Bush tried, but he was spent, discredited, ineffective. NotJohn McCain. He was in a coma, coming unglued, totally ineffective.

Bush’s bailout failed on a Monday. By Friday, Obama had convinced enough Democrats in opposition to roll over – and the bailout passed, setting the stage for a new dispensation between the American State and Wall Street, in which a permanent pipeline of tens of trillions of dollars would flow directly into Wall Street accounts, via the Federal Reserve.

And Obama had not even been elected yet.

True to his word, he has let the foreclosures run their catastrophic course.”

Obama put Social Security and Medicaid and all Entitlements on the table, in mid-January. The Republicans had suffered resounding defeat. Nobody was pressuring Obama from the Right.

When the Right was on its ass, Obama stood up and spoke in their stead. There was no Evil Devil forcing him to put Entitlements on the chopping block. It was HIM. He was the Evil One – and it was not a Lesser Evil. It was a very Effective Evil, because the current Age of Austerity began on that day, in January, 2009.

And Obama had not even been sworn in as president, yet.

Who is the Effective Evil? I haven’t even gotten into his actual term as president, much less his expansion of the theaters of war, his unique assaults on International Law, and his massacre of Due Process of Law in the United States. But I want to pause right here, because piling up facts on Obama’s Most Effective Evils doesn’t seem to do any good if the prevailing conversation isn’t really about facts – but about intentions.

The prevailing assumption on the Left is that Obama has good intentions. He intends to the Right Thing – or, at least, he intends to do better than the Republicans intend to do. It’s all supposed to be about intentions. Let’s be clear: There is absolutely no factual basis to believe he intends to do anything other than the same thing he has already done, whether Democrats control Congress or not, which is to serve Wall Street’s most fundamental interests.

But, the whole idea of debating Obama’s intentions is ridiculous. It’s psycho-babble, not analysis. No real Left would engage in it.

I have no doubt that Newt Gingrich and Republicans in general have worse intentions for the future of my people – of Black people – than Michelle Obama’s husband does. But, that doesn’t matter. Black people are not going to roll over for whatever nightmarish Apocalypse the sick mind of Newt Gingrich would like to bring about. But, they have already rolled over for Obama’s economic Apocalypse in Black America. There was been very little resistance. Which is just another way of saying that Obama has successfully blunted any retribution by organized African America against the corporate powers that have devastated and destabilized Black America in ways that have little precedence in modern times.

When the Right was on its ass, Obama stood up and spoke in their stead.”

Obama has protected these Wall Streeters from what should be the most righteous wrath of Black folks. To take a riff from Shakespeare’s Othello, “Obama has done Wall Street a great service, and they know it.” He has proven to be fantastically effective at serving the Supremely Evil. Don’t you dare call him the Lesser.

He is the More Effective Evil because Black Folks – historically, the most progressive cohort in the United States – and Liberals, and even lots of folks that call themselves Marxists, let him get away murder! Yet, people still insist on calling him a Lesser Evil, while he drives a stake through Due Process of Law.

I have not spoken much about the second half of Obama’s first term in office. That is the period when the Left generally becomes disgusted with what they call his excessive “compromises” and “cave-ins” to Republicans. But that is a profoundly wrong reading of reality. Obama was simply continuing down his own Road to Austerity – the one he, himself, had initiated before even taking office. The only person caving in and compromising to the Republicans, was the Obama that many of YOU made up in your heads.

The real Obama was the initiator of this Austerity nightmare – a nightmare scripted on Wall Street, which provided the core of Obama’s policy team from the very beginning. That’s why Obama’s so-called Financial Reform was so diligent in making sure that Derivatives were virtually untouched.

The real Obama retained Bush’s Secretary of War, because he was determined to re-package the imperial enterprise and expand the scope and theaters of war.

He would dress up the war machine head-to-foot in a Chador of Humanitarianism, and march deep and deeper into Africa.

He would make merciless and totally unprovoked war against Libya – and then tell Congress there had been no war at all, and it was none of their business, anyway.

And he got away with it.

Now, that is the Most Effective Evil war mongering imaginable. Don’t you dare call him a Lesser Evil. Obama is Awesomely Evil.

The real Obama was the initiator of this Austerity nightmare.”

Obama has advanced the corporatization of the public schools beyond Bush’s wildest dreams, methodically constructing a national, parallel system of charter schools that, in practice, undermine and subvert the traditional public schools. In some places, they have replaced, or soon will replace, the public schools. The hedge funds and billionaires are ecstatic! The teachers unions then endorse their undertaker, foolishly believing he is the Lesser Evil.

So, what does the Left do in this election? The Left should do what it is supposed to do here in the Belly of the Beast at all times: disarm the Beast. This is their singular duty – not to advise the Beast, but to disarm it. At this time on the world historical clock, that means ripping the farcical “humanitarian” veil from the face of U.S. wars – and that face is Obama’s face.

No genuine anti-war activist can endorse the war-maker, Obama. If you want to resist actual imperial wars, you must fight Obama. Period. Anything else is to endorse or acquiesce in his wars.

You can attend the United National Anti-War Coalition conference in Stamford, Connecticut, next weekend, where you can meet with an array of organizations to begin a calendar of activities that will stretch past Election Day. You can join with UNAC in working to stop Obama from doing a repeat of Libya in Syria and Iran. If you can’t bring yourself to do that, then I have no advice for you, because the alternative is acquiescence to Obama’s cynical duplicities.

If the Green Party or any other party firmly opposes Obama’s humanitarian, Orwellian farce, then support them. If they don’t, then don’t lift a finger for them.

If you are going to fight for anything, you’ve got to fight for the right to fight. That means fighting for the rule of law. So, if you don’t plan to go underground or into exile anytime soon, you must fight the president who claims the right to imprison or kill any person, of any nationality, any place on Earth, for reasons known only to him. The man who excelled George Bush by shepherding preventive detention through Congress – Barack Obama, the More Effective Evil.

Fight him this election year. Fight him every year that he’s here.

Power to the People!

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

Profiting Off Nixon’s Vietnam “Treason” March 4, 2012

Posted by rogerhollander in History, Vietnam, War.
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Roger’s note: it has been my opinion that in our time things really began to go “off the track” with the Nixon presidency and not with the Bush era, as many argue (of course, in a broader sense the car jumped the rail in 1492).  The Nixons and the Bushes and the Obamas and the military-industrial complex behind them sacrifice lives by the hundreds of thousands, and we honor them as presidents and patriots.  The cynicism behind it all is almost beyond comprehension, not to mention surreal.

 

Robert Parry, www.opednews.com, March 3, 2012

This article cross-posted from Consortium News

President Richard Nixon addresses the nation about his bombing of Cambodia, April 30,

As I pored over documents from what the archivists at Lyndon  Johnson’s presidential library call their “X-File” — chronicling Richard Nixon’s apparent sabotage of Vietnam peace talks in 1968 — I was  surprised by one fact in particular, how Johnson’s White House got wind  of what Johnson later labeled Nixon’s “treason.”

According to the records, Eugene Rostow, Johnson’s Under Secretary of State for Political Affairs, got a tip in late October 1968 from a Wall Street source who said that one of Nixon’s closest financial backers  was describing Nixon’s plan to “block” a peace settlement of the Vietnam War. The backer was sharing this information with his banking  colleagues to help them place their bets on stocks and bonds.

In other words, these investment bankers were colluding over how to  make money with their inside knowledge of Nixon’s scheme to extend the  Vietnam War. Such an image of these “masters of the universe” sitting  around a table plotting financial strategies while a half million  American soldiers were sitting in a war zone was a picture that even the harshest critics of Wall Street might find hard to envision.

Yet, that tip — about Nixon’s Wall Street friends discussing his  apparent tip on the likely course of the Vietnam War — was the first  clear indication that Johnson’s White House had that the sudden  resistance from South Vietnamese President Nguyen van Thieu to Paris  peace talks may have involved a collaboration with Nixon, the Republican candidate for president who feared progress toward peace could cost him the election.

On Oct. 29, Eugene Rostow passed on the information to his brother,  Walt W. Rostow, Johnson’s national security adviser. Eugene Rostow also wrote a memoabout the tip, reporting that he had learned the news from a source in  New York who had gotten it from “a member of the banking community” who  was “very close to Nixon.”

Eugene Rostow’s source said the conversation occurred among a group  of Wall Street bankers who attended a working lunch to assess likely  market trends and to decide where to invest. Nixon’s associate, who is  never identified in the White House documents, told his fellow bankers  that Nixon was obstructing the peace talks. Eugene  Rostow wrote…

“The conversation was in the context of a professional discussion  about the future of the financial markets in the near term. The speaker said he thought the prospects for a bombing  halt or a cease-fire were dim, because Nixon was playing the problem as  he did the Fortas affair — to block. …”They would incite Saigon to be difficult, and Hanoi to wait. Part of his strategy was an expectation that an offensive would break out soon, that we would have to spend a great deal more (and incur more  casualties) — a fact which would adversely affect the stock market and  the bond market. NVN [North Vietnamese] offensive action was a definite  element in their thinking about the future.”

(The reference to Fortas apparently was to the successful  Republican-led filibuster in the Senate to block Johnson’s 1968  nomination of Associate Justice Abe Fortas to replace Earl Warren as  Chief Justice on the U.S. Supreme Court.)

In other words, Nixon’s friends on Wall Street were placing their  financial bets based on the inside dope that Johnson’s peace initiative  was doomed to fail. (In another document, Walt Rostow identified his brother’s source, who disclosed this  strategy session, as Alexander Sachs, who was then on the board of  Lehman Brothers.)

A separate memo  from Eugene Rostow said the unidentified speaker at the lunch had added  that Nixon “was trying to frustrate the President, by inciting Saigon to step up its demands, and by letting Hanoi know that when he [Nixon]  took office ‘he could accept anything and blame it on his predecessor.’”

So, according to the speaker, Nixon was trying to convince both the  South and North Vietnamese that they would get a better deal if they  stalled Johnson’s peace initiative.

In a later memo providing a chronology of the affair, Walt Rostow  said he got the news about the Wall Street lunch from his brother  shortly before attending a morning meeting at which President Johnson  was informed by U.S. Ambassador to South Vietnam Ellsworth Bunker about  “Thieu’s sudden intransigence.”

Walt Rostow said “the diplomatic information previously received plus the information from New York took on new and serious significance,”  leading to an FBI investigation ordered by Johnson that uncovered the  framework of Nixon’s blocking operation. [To read that Rostow memo,  click here, here and here.]

The Rostow memos are contained in a file with scores of secret and  top secret documents tracing Nixon’s Vietnam peace-talk gambit as  Johnson tried frantically to stop Nixon’s blocking operation and still  reach a peace agreement in the waning days of his presidency.

After Nixon narrowly prevailed in the 1968 election and as Johnson  was leaving the White House without a peace agreement in hand, the  outgoing President instructed Walt Rostow to take the file with him.  Rostow kept the documents in what he called “The ‘X’ Envelope,” although the archivists at the LBJ Library in Austin, Texas, have dubbed it the  “X-File” after the once popular TV series.

Rostow’s “‘X’ Envelope” was not opened until 1994, which began a  process of declassifying the contents, some of which remain secret to  this day.

After Johnson’s peace initiative failed, the Vietnam War dragged on  another four years, leading to the deaths of an additional 20,763 U.S.  soldiers, with 111,230 wounded. An estimated one million more Vietnamese also died.

[For a much detailed examination of what Johnson called this "sordid story," see Consortiumnews.com's "LBJ's "X' File on Nixon's "Treason.'"]

 Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book, Secrecy & Privilege: Rise of the Bush Dynasty from Watergate to Iraq, can be ordered at more…)

Everything You Need to Know About Wall Street, in One Brief Tale January 14, 2012

Posted by rogerhollander in Economic Crisis.
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Published on Saturday, January 14, 2012 by Rolling Stone
Matt Taibbi

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.

Buffy Sainte-Marie: No No Keshagesh November 23, 2011

Posted by rogerhollander in Art, Literature and Culture, Economic Crisis, Environment, First Nations, War.
Tags: , , , , , , , , , ,
1 comment so far
Published on Wednesday, November 23, 2011 by CommonDreams.org

No No Keshagesh

Keshagesh means Greedy Guts. It’s what you call a little puppy who eats his own and then wants everybody else’s.

*  *  *  *  *

I never saw so many business suits Never knew a dollar sign could look so cute Never knew a junkie with a money jones Who’s buying Park Place? Who’s buying Boardwalk?

These old men they make their dirty deals Go in the back room and see what they can steal Talk about your beautiful for spacious skies It’s about uranium. It’s about the water rights

Got Mother Nature on a luncheon plate They carve her up and call it real estate Want all the resources and all of the land They make a war over it; they blow things up for it

The reservation out at Poverty Row The cookin’s cookin and the lights are low Somebody tryin to save our Mother Earth I’m gonna Help em to Save it and Sing it and Pray it singin

No No Keshagesh you can’t do that no more.

Ol Columbus he was lookin good When he got lost in our neighborhood Garden of Eden right before his eyes Now it’s all spyware Now it’s all income tax

Ol Brother Midas lookin hungry today What he can’t buy he’ll get some other way Send in the troopers if the Natives resist Same old story, boys; that’s how ya do it , boys

Look at these people Lord they’re on a roll Got to have it all; gotta have complete control Want all the resources and all of the land They break the law over it; blow things up for it

While all our champions are off in the war Their final rippoff here at home is on Mister Greed I think your time has come I’m gonna Sing it and Say it and Live it and Pray it singin

No No Keshagesh you can’t do that no more.

TO VIEW THE VIDEO:

http://www.youtube.com/watch?v=4vGoAI5bb1g&ob=av3n

Buffy Sainte-Marie

Buffy Sainte-Marie is a Canadian Cree singer-songwriter, musician, composer, visual artist, educator, pacifist, and social activist. By age 24, Buffy Sainte-Marie had appeared all over Europe, Canada, Australia and Asia, receiving honors, medals and awards, which continue to this day. Her song Until It’s Time for You to Go was recorded by Elvis and Barbra and Cher, and her 1964 Universal Soldier became the anthem of the peace movement, despite the fact it was pretty much banned on US radio. For her very first album she was voted Billboard’s Best New Artist. Buffy won an Academy Award Oscar and a Golden Globe Award for the song Up Where We Belong.

Breaking: this morning in New York City November 15, 2011

Posted by rogerhollander in Economic Crisis, Occupy Wall Street Movement.
Tags: , , , , , , , , , ,
1 comment so far
 

http://org2.democracyinaction.org/dia/track.jsp?v=2&c=GMCKLXGl9aqkD3ySxJ61ySJlhNpdTAd5Last night, I watched lower Manhattan turn into a
militarized lockdown. The park known as Liberty Square was apparently cleared by
force, though I arrived 20 minutes after the police barricades encircled a
two-block radius, kicked out all media and prevented all foot traffic on public
sidewalks surrounding the park.

This was expected. The emergency text message
went out at 1:00 AM and read, “URGENT: Hundreds of police mobilizing around
Zuccotti.
Eviction in progress!” prompting a mass mobilization of
people like me, part-time protesters who signed up to converge on the park for
the looming police raid on the physical heart of the Occupy movement.

The police were prepared for this flood of
bodies. Many subway stops were shut down, as was the Brooklyn Bridge.

My go bag had been packed for weeks, waiting for just this moment. I laced up my
boots, and spent an agonizing 20 minutes on the subway from Brooklyn.

Upon arrival in lower Manhattan, I struggled for
about two hours to get to a position where I could see into the park, to no
avail. From a block away, I saw massive piles of what used to be supplies dumped
into waiting trucks. People’s major concerns were two-fold: first, the health
and safety of the occupiers locked in the camp; and second, the 5,000 books of
the Occupy Wall Street library. What a picture it would be (maybe it
exists) of police in riot gear gathering boxes of donated books and loading them
into garbage trucks. A perfect metaphor for what appears to be the intention of
last night’s raid: destroying the body of knowledge that had been collected by a
movement just two months old, which was built by collective effort, literally
from the ground up.

After four hours of wandering in groups and alone on
the dark, empty streets of lower Manhattan, Foley Square, a park rich with the
history of labor struggles in New York City, became the rallying point. After a
short discussion with the handful of police on hand, Foley Square was determined
to be a safe zone – for the time being.

Here I sit, watching the pulse of the Occupy Wall
Street movement strengthen. Stories of arrests are being exchanged over a
breakfast of apples and muffins. A sleepless crowd is beginning to be reinforced
by New Yorkers from around the city as the morning news streams images of a camp
turned back into a barren, soulless corporate park known as Zuccotti. But the
drums are back. The spirit and the idea of the Occupy movement has only been
strengthened. Today is the end of the beginning, and what has been built
cannot be disbanded. Now, we stand at the beginning of the next phase, looking
into the eyes of the people who created a new consciousness and a new
politics.

Today is November 15, 2011, a beautiful day tainted
only by the physical harm of those who left their blood and sweat on the cement
of Liberty Park.

Please support Truthout as we cover this
revolutionary history in the making. We’re skating on the edge and we need you
there with us. Can you make a donation so we can continue this vital
coverage?

 

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‘Occupy Antarctica’ Protester Carries On Despite -50 Degree Temperatures November 7, 2011

Posted by rogerhollander in Economic Crisis, Occupy Wall Street Movement.
Tags: , , , , , , , , , , , , , , , , , , , , , , , ,
4 comments

Mark Donahue, http://www.thedailyrash.com/occupy-antarctica-protester-carries-on-despite-50-degree-temperatures

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.

 

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