See other Editorial Articles
Title: Secret and Lies of the Bailout 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
Source:
[None]
URL Source: http://www.rollingstone.com/politic ... d-lies-of-the-bailout-20130104
Published: Jan 6, 2013
Author: matt Tabbi
Post Date: 2013-01-06 09:42:02 by tom007
Keywords: None
Views: 116
Comments: 3
Secret and Lies of the Bailout 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 Comment 162 By Matt Taibbi January 4, 2013 4:25 PM ET national affairs secrets of the bailout taibbi Illustration by Victor Juhasz 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? 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." Read more: http://www.rollingstone.com/politics/news/secret-and-lies-of-the-bailout-20130104#ixzz2HCrf5Gnp Follow us: @rollingstone on Twitter | RollingStone on Facebook continue at http://www.rollingstone.com/politics/news/secret-and-lies-of-the-bailout-20130104
Post Comment Private Reply Ignore Thread
Top • Page Up • Full Thread • Page Down • Bottom/Latest
#1. To: All (#0)
Ping - Wall Street Why aren't these people in prison? O yeh, they own the justice in the US. Silly me. keevan morgan • a day ago this article is 99.9% spot on and i can so state from a bit of a unique perspective from the work i do. my father, a lawyer, started a community bank. when he died, i served on its board a while at a very young age in the 70s. the bank was sold soon after i also became a lawyer, where i began doing debtor insolvency work, mainly for small businesses. later, i became a director of a bank myself for a decade, representing quite a number of community banks while still helping small companies in financial trouble. in bankruptcy reorganization court, one soon learned that the bigger the bank, the more slack it got cut--and big companies, too. bankruptcy court was the original home not only of "too big to fail" but also "being big means you have more rights." one thing this article missed is that the gm bankruptcy was also a fraud. no, not exactly for the usual reason given of cheating the bondholders with liens as against the unions, although that was surely the result, but because it was a typical bankruptcy scam used for at least 150 years. they set up a "new" gm. the new gm bought the assets of the old gm. then the new gm merely hired back all the workers with their union contracts, and hey-what's wrong with that, the new company can enter any new contracts it wants, right? well, no. the scam is that owners have been selling just the assets of their companies not the companies themselves in bankruptcy court forever. but what they do is get themselves hired on to the new company at hugely inflated salaries. the bankruptcy courts for just as long have said, "no you won't. you can get hired by the new company at some regular rate. that so-called salary is really part of the purchase price. this sale isn't getting approved if you don't throw it into the sales pot." the same traditional corrupt deal was made with the unions. but, let's get back to banking. in the 90s i was reading a line-item on the monthly financial statement. it was a profit of some thousands of dollars. i didn't understand the label on the line-item. it didn't get discussed at the meeting. the next meeting, the same line item and a new profit. maybe a mumble word about it; it didn't seem that significant. next meeting, same line item a fairly significant loss. "what's this" we asked the president, our truly fearless leader who in any matter of actual discretion we respected and it was his call. the answer, "derivatives." next meeting, "what exactly is derivatives?" he was asked. the answer came. our board then unanimously and spontaneously voted, "no more f-ng derivatives. we are bankers, not gamblers." i had learned from my father and mother, and the other directors had evidently learned from their parents, that you tell your wrong-headed leaders, "no" even if in general you respect them, in fulfillment of your own duties. you want your leaders to be creative, but only within proper business conduct. end of problem. the leaders and directors of big banks either were not taught or never learned their lessons. they think banking is the options or stock market trading floor (to the extent there are still trading floors as opposed to computer programs fighting each other). these people are deserving of scorching criticism, and maybe jail time. i also headed the community re-investment act committee at the bank. i ran it with a mind not to do the crazy stuff many others did in the name of "helping." i never saw how a bank made insolvent by crazy loan practices would help anybody. but, we found non-crazy ways to help. i no longer directed a bank after about 1999. when the 2008 crash came, my community bank clients, one of which had not long before been praised by regulators for its strong cash position, and which was a leader in (non-predatory) minority lending, and whose chairman is one of the most sincere persons ever to walk the earth in trying to re-build depressed or semi-depressed areas, went down the tubes. one small business person after another flooded my office; few of them had 5 cents to get out of 10 trillion in debt. whereas when i was a director we often gave loans even to former bankrupts if their present position merited it, the second chance loan in america became as extinct as a dodo. thus, a primary function of the banking system ended--because of the regulators. the regulators went into every bank in america, especially smaller ones and said: "start making loans to help the economy, but don't make any more of those stupid loans." that made banks give no loans, and certainly not to any person with a single black mark on the record no matter how otherwise worthy. i took up defending mortgage foreclosures. on the whole, it was mostly the bailed-out banks pressing the issue, and although they were really debtors (to the government) too, they are all high and mighty in court. no heart, no compromise, and more important, stupid, speaking of stupidity. the big banks' new business plan is "our customer is our enemy." yep, that's going to work in the long-run. the foreclosure court system is a joke. the lawyers for the bailed out banks are not really acting as lawyers. i call them "servers" as in waiters and waitresses. they do not perform the major function of a lawyer, which is to give advice. rather, they are order takers. "yes, giant bank, i will file the papers and walk it through. i understand it is not my job to tell you if you are wise or foolish or talk about risks. i will do as you say and you will send me tip money for doing as you say." the real power in negotiation is with clerks at the big banks' offices, who when i talk to them i can see in my mind sit like telephone sales reps for like a house gutter cleaning business in windowless offices behind big sheets of paper with check-boxes on them. the poor, formerly reliable homeowner with a problem, being the enemy and all, either has all the check-boxes filled in and a .000000000001% chance of fulfilling the HAMP program requirements, or the bank is sorry, but please move to the nearest, well, street gutter. but don't misunderstand. sticking up for the homeowners in a pinch does NOT mean lenders have no rights. they have people working for them and shareholders and too many bad loans means they go out of business hurting a lot of little people, too. but what if we let these giant charlatans fail and either didn't give out any money at all, or gave the $1.7 in bailout money to smaller banks in trouble, but not that much trouble, spread all across the nation with orders to lend it. the courts here in chicago dutifully do whatever the banks want, even though they are located in one of the bluest counties in one of the bluest state and home to the bluest president, ever. what this article demonstrates is that a lot of that blue arrogance on how much they want to help the little guy is really also a lie. which brings me to the .1% o the article i think is wrong. why the whomping on the tea party? is it necessary as some form or genuflection to whomp on the tea partiers as racist just to appear balanced? i am not a tea partier, but i am part tea partier--the part that saw this bailout stuff is all a big scam to help entrench the oligarchy more and kill community banks and businesses. shouldn't we be praising instead of condemning those folks who actually ARE fighting the battle for other little folks, including minorities, as opposed to helping giant banks? i see one commentator complains america has become a corporation. nope, that's not exactly right. bigness is always a problem--in government or business--because it creates favoritism. but big businesses succeed, fail, change, and are created all the time. no, the danger is not the big corporations. for instance, you simply can't get oil out of the ground in some far-away part of the world, pipelined to a big tanker, hauled across the sea, refined at a giant factory, and the final product, gasoline, put into your car, without a big organization. that's a necessary evil if it is even evil. rather, it is giant banks that are the problem. money is the blood of capitalism. if only a few control the blood supply, they control everything. 10 banks now make 90% of the home mortgages. how did THAT happen? mortgages should be made by local bankers knowing local conditions to local people with the lender and borrower knowing and trusting each other. now, if you are turned down at one of the 10, where are you going to go, since they are comparing notes such as credit reports and if you get on the bad list, good luck. it's the control of the money that counts, people. all these little political arguments such as the last presidential election are all a diversion from the main issue before america, which is why have the leaders of both parties made everyone beggars to a few bankers. being a beggar to one of a few bankers is not the same thing as being a customer to a real, and solvent, bank. america indeed has been fundamentally transformed in the past 5 years. only, not in the way any politician told you. this article tells the real story, for which the author is to be thanked. to bad HE didn't run for president. keevan d. morgan, esq., chicago 81 • Reply • Share › 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.
"Satan / Cheney in "08" 
#2. To: All (#0)
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.
"Satan / Cheney in "08"
#3. To: All (#2)
"Satan / Cheney in "08"
Top • Page Up • Full Thread • Page Down • Bottom/Latest