Saturday, April 3, 2010

The Greatest Swindle Ever Sold

How the Financial Bailout Scams Taxpayers, Subsidizes Wall Street, and Props Up Our Broken Financial System

On October 3rd, as the spreading economic meltdown threatened to topple financial behemoths like American International Group (AIG) and Bank of America and plunged global markets into freefall, the U.S. government responded with the largest bailout in American history. The Emergency Economic Stabilization Act of 2008, better known as the Troubled Asset Relief Program (TARP), authorized the use of $700 billion to stabilize the nation's failing financial systems and restore the flow of credit in the economy.

The legislation's guidelines for crafting the rescue plan were clear: the TARP should protect home values and consumer savings, help citizens keep their homes, and create jobs. Above all, with the government poised to invest hundreds of billions of taxpayer dollars in various financial institutions, the legislation urged the bailout's architects to maximize returns to the American people.

That $700 billion bailout has since grown into a more than $12 trillion commitment by the U.S. government and the Federal Reserve. About $1.1 trillion of that is taxpayer money—the TARP money and an additional $400 billion rescue of mortgage companies Fannie Mae and Freddie Mac. The TARP now includes 12 separate programs, and recipients range from megabanks like Citigroup and JPMorgan Chase to automakers Chrysler and General Motors.

Seven months in, the bailout's impact is unclear. The Treasury Department has used the recent "stress test" results it applied to 19 of the nation's largest banks to suggest that the worst might be over; yet the International Monetary Fund as well as economists like New York University professor and economist Nouriel Roubini and New York Times columnist Paul Krugman predict greater losses in U.S. markets, rising unemployment, and generally tougher economic times ahead.

What cannot be disputed, however, is the financial bailout's biggest loser: the American taxpayer. The U.S. government, led by the Treasury Department, has done little, if anything, to maximize returns on its trillion-dollar, taxpayer-funded investment. So far, the bailout has favored rescued financial institutions by subsidizing their losses to the tune of $356 billion, shying away from much-needed management changes and—with the exception of the automakers—letting companies take taxpayer money without a coherent plan for how they might return to viability.

The bailout's perks have been no less favorable for private investors who are now picking over the economy's still-smoking rubble at the taxpayers' expense. The newer bailout programs rolled out by Treasury Secretary Timothy Geithner give private equity firms, hedge funds, and other private investors significant leverage to buy "toxic" or distressed assets, while leaving taxpayers stuck with the lion's share of the risk and potential losses.

Given the lack of transparency and accountability, don't expect taxpayers to be able to object too much. After all, remarkably little is known about how TARP recipients have used the government aid received. Nonetheless, recent government reports, Congressional testimony, and commentaries offer those patient enough to pore over hundreds of pages of material glimpses of just how Wall Street friendly the bailout actually is. Here, then, based on the most definitive data and analyses available, are six of the most blatant and alarming ways taxpayers have been scammed by the government's $1.1-trillion, publicly-funded bailout.

1. By overpaying for its TARP investments, the Treasury Department provided bailout recipients with generous subsidies at the taxpayer's expense.

When the Treasury Department ditched its initial plan to buy up "toxic" assets and instead invest directly in financial institutions, then-Treasury Secretary Henry Paulson, Jr. assured Americans that they'd get a fair deal. "This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything," he said in October 2008.

Yet the Congressional Oversight Panel (COP), a five-person group tasked with ensuring that the Treasury Department acts in the public's best interest, concluded in its monthly report for February that the department had significantly overpaid by tens of billions of dollars for its investments. For the 10 largest TARP investments made in 2008, totaling $184.2 billion, Treasury received on average only $66 worth of assets for every $100 invested. Based on that shortfall, the panel calculated that Treasury had received only $176 billion in assets for its $254 billion investment, leaving a $78 billion hole in taxpayer pockets.

Not all investors subsidized the struggling banks so heavily while investing in them. The COP report notes that private investors received much closer to fair market value in investments made at the time of the early TARP transactions. When, for instance, Berkshire Hathaway invested $5 billion in Goldman Sachs in September, the Omaha-based company received securities worth $110 for each $100 invested. And when Mitsubishi invested in Morgan Stanley that same month, it received securities worth $91 for every $100 invested.

As of May 15th, according to the Ethisphere TARP Index, which tracks the government's bailout investments, its various investments had depreciated in value by almost $147.7 billion. In other words, TARP's losses come out to almost $1,300 per American taxpaying household.

2. As the government has no real oversight over bailout funds, taxpayers remain in the dark about how their money has been used and if it has made any difference.

While the Treasury Department can make TARP recipients report on just how they spend their government bailout funds, it has chosen not to do so. As a result, it's unclear whether institutions receiving such funds are using that money to increase lending—which would, in turn, boost the economy—or merely to fill in holes in their balance sheets.

Neil M. Barofsky, the special inspector general for TARP, summed the situation up this way in his office's April quarterly report to Congress: "The American people have a right to know how their tax dollars are being used, particularly as billions of dollars are going to institutions for which banking is certainly not part of the institution's core business and may be little more than a way to gain access to the low-cost capital provided under TARP."

This lack of transparency makes the bailout process highly susceptible to fraud and corruption. Barofsky's report stated that 20 separate criminal investigations were already underway involving corporate fraud, insider trading, and public corruption. He also told the Financial Times that his office was investigating whether banks manipulated their books to secure bailout funds. "I hope we don't find a single bank that's cooked its books to try to get money, but I don't think that's going to be the case."

Economist Dean Baker, co-director of the Center for Economic and Policy Research in Washington, suggested to TomDispatch in an interview that the opaque and complicated nature of the bailout may not be entirely unintentional, given the difficulties it raises for anyone wanting to follow the trail of taxpayer dollars from the government to the banks. "[Government officials] see this all as a Three Card Monte, moving everything around really quickly so the public won't understand that this really is an elaborate way to subsidize the banks," Baker says, adding that the public "won't realize we gave money away to some of the richest people."

3. The bailout's newer programs heavily favor the private sector, giving investors an opportunity to earn lucrative profits and leaving taxpayers with most of the risk.

Under Treasury Secretary Geithner, the Treasury Department has greatly expanded the financial bailout to troubling new programs like the Public-Private Investment Program (PPIP) and the Term Asset-Backed-Securities Loan Facility (TALF). The PPIP, for example, encourages private investors to buy "toxic" or risky assets on the books of struggling banks. Doing so, we're told, will get banks lending again because the burdensome assets won't weigh them down. Unfortunately, the incentives the Treasury Department is offering to get private investors to participate are so generous that the government—and, by extension, American taxpayers—are left with all the downside.

Joseph Stiglitz, the Nobel-prize winning economist, described the PPIP program in a New York Times op-ed this way:

"Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year's time. The average 'value' of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is 'worth.' Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!
Assume that one of the public-private partnerships the Treasury has promised to create is willing to pay $150 for the asset. That's 50 percent more than its true value, and the bank is more than happy to sell. So the private partner puts up $12, and the government supplies the rest—$12 in 'equity' plus $126 in the form of a guaranteed loan.
If, in a year's time, it turns out that the true value of the asset is zero, the private partner loses the $12, and the government loses $138. If the true value is $200, the government and the private partner split the $74 that's left over after paying back the $126 loan. In that rosy scenario, the private partner more than triples his $12 investment. But the taxpayer, having risked $138, gains a mere $37.
Worse still, the PPIP can be easily manipulated for private gain. As economist Jeffrey Sachs has described it, a bank with worthless toxic assets on its books could actually set up its own public-private fund to bid on those assets. Since no true bidder would pay for a worthless asset, the bank's public-private fund would win the bid, essentially using government money for the purchase. All the public-private fund would then have to do is quietly declare bankruptcy and disappear, leaving the bank to make off with the government money it received. With the PPIP deals set to begin in the coming months, time will tell whether private investors actually take advantage of the program's flaws in this fashion.

The Treasury Department's TALF program offers equally enticing possibilities for potential bailout profiteers, providing investors with a chance to double, triple, or even quadruple their investments. And like the PPIP, if the deal goes bad, taxpayers absorb most of the losses. "It beats any financing that the private sector could ever come up with," a Wall Street trader commented in a recent Fortune magazine story. "I almost want to say it is irresponsible."

4. The government has no coherent plan for returning failing financial institutions to profitability and maximizing returns on taxpayers' investments.

Compare the treatment of the auto industry and the financial sector, and a troubling double standard emerges: As a condition for taking bailout aid, the government required Chrysler and General Motors to present detailed plans on how the companies would return to profitability. Yet the Treasury Department attached minimal conditions to the billions injected into the largest bailed-out financial institutions. Moreover, neither Geithner nor Lawrence Summers, one of President Barack Obama's top economic advisors, nor the president himself has articulated any substantive plan or vision for how the bailout will help these institutions recover and, hopefully, maximize taxpayers' investment returns.

The Congressional Oversight Panel highlighted the absence of such a comprehensive plan in its January report. Three months into the bailout, the Treasury Department "has not yet explained its strategy," the report stated. "Treasury has identified its goals and announced its programs, but it has not yet explained how the programs chosen constitute a coherent plan to achieve those goals."

Today, the department's endgame for the bailout still remains vague. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, wrote in the Financial Times in May that the government's response to the financial meltdown has been "ad hoc, resulting in inequitable outcomes among firms, creditors, and investors." Rather than perpetually prop up banks with endless taxpayer funds, Hoenig suggests that the government should allow banks to fail. Only then, he believes, can crippled financial institutions and systems be fixed. "Because we still have far to go in this crisis, there remains time to define a clear process for resolving large institutional failure. Without one, the consequences will involve a series of short-term events and far more uncertainty for the global economy in the long run."

The healthier and more profitable bailout recipients are once financial markets rebound, the more taxpayers will earn on their investments. Without a plan, however, banks may limp back to viability while taxpayers lose their investments or even absorb further losses.

5. The bailout's focus on Wall Street mega-banks ignores smaller banks serving millions of American taxpayers that face an equally uncertain future.

The government may not have a long-term strategy for its trillion-dollar bailout, but its guiding principle, however misguided, is clear: What's good for Wall Street will be best for the rest of the country.

On the day the mega-bank stress tests were officially released, another set of stress-test results came out to much less fanfare. In its quarterly report on the health of individual banks and the banking industry as a whole, Institutional Risk Analytics (IRA), a respected financial services organization, found that the stress levels among more than 7,500 FDIC-reporting banks nationwide had risen dramatically. For 1,575 of the banks, net incomes had turned negative due to decreased lending and less risk-taking.

The conclusion IRA drew was telling: "Our overall observation is that U.S. policy makers may very well have been distracted by focusing on 19 large stress test banks designed to save Wall Street and the world's central bank bondholders, this while a trend is emerging of a going concern viability crash taking shape under the radar." The report concluded with a question: "Has the time come to shift the policy focus away from the things that we love, namely big zombie banks, to tackle things that are truly hurting us?"

6. The bailout encourages the very behaviors that created the economic crisis in the first place instead of overhauling our broken financial system and helping the individuals most affected by the crisis.

As Joseph Stiglitz explained in the New York Times, one major cause of the economic crisis was bank overleveraging. "[U]sing relatively little capital of their own," he wrote, "[banks] borrowed heavily to buy extremely risky real estate assets. In the process, they used overly complex instruments like collateralized debt obligations." Financial institutions engaged in overleveraging in pursuit of the lucrative profits such deals promised—even if those profits came with staggering levels of risk.

Sound familiar? It should, because in the PPIP and TALF bailout programs the Treasury Department has essentially replicated the very overleveraged, risky, complex system that got us into this mess in the first place: in other words, the government hopes to repair our financial system by using the flawed practices that caused this crisis.

Then there are the institutions deemed "too big to fail." These financial giants—among them AIG, Citigroup, and Bank of America—have been kept afloat by billions of dollars in bottomless bailout aid. Yet reinforcing the notion that any institution is "too big to fail" is dangerous to the economy. When a company like AIG grows so large that it becomes "too big to fail," the risk it carries is systemic, meaning failure could drag down the entire economy. The government should force "too big to fail" institutions to slim down to a safer, more modest size; instead, the Treasury Department continues to subsidize these financial giants, reinforcing their place in our economy.

Of even greater concern is the message the bailout sends to banks and lenders—namely, that the risky investments that crippled the economy are fair game in the future. After all, if banks fail and teeter at the edge of collapse, the government promises to be there with a taxpayer-funded, potentially profitable safety net.

The handling of the bailout makes at least one thing clear, however: It's not your health that the government is focused on, it's theirs—the very banks and lenders whose convoluted financial systems provided the underpinnings for staggering salaries and bonuses while bringing our economy to the brink of another Great Depression.

Sunday, March 28, 2010

In DODD WE TRUST...Daily Show....


In Dodd We Trust Episode #15038 Chris Dodd introduces financial reform legislation, and Jon assumes the same rights as a corporation. (10:39) Tags: Chris Dodd, Bob Corker, economy, reform, Wall Street, business, bailouts, Lehman Brothers, accountability, Camera Three, Supreme Court, photos, Jude Law, intro

Michael Lewis Episode #15037 Michael Lewis talks about a one-eyed man with Asperger's syndrome who made money by betting against the subprime mortgage market. (06:35) Tags: Michael Lewis, interviews, books, Wall Street, economy, money, stocks

Rage Within the Machine - Progressivism Episode #15025 A bearded Samantha Bee reports with her gun phone from an alternate universe free from progressivism. (05:50) Tags: Samantha Bee, on location, Glenn Beck, conservative, government, taxes, facial hair, guns, CPAC, voting, men/women

The New York Crimes - David Paterson & Charles Rangel Episode #15030 David Paterson is accused of abusing his office, and Charles Rangel fails to pay taxes on his rental income. (06:28) Tags: New York, David Paterson, intro, Eliot Spitzer, Nancy Pelosi, scandals, adultery, drugs, corruption, taxes, impressions, ethics, photos, real estate, vacations, potty humor

Jim Cramer Extended Interview Pt. 2 Episode #14036 Jon presents Jim Cramer with some old footage from his shady hedge fund days in this exclusive, uncensored video. (08:24) Tags: Jim Cramer, interviews, CNBC, media, stocks, economy, accountability, ethics, money, exclusives

Magical History Tour Episode #12111 President Bush explains why there may be a reason why people don't understand this war. (4:40) Tags: Iraq War, classic moments, war on terror, Vietnam, George W. Bush

Don't Mess With Textbooks Episode #15039 Since no one knows who Oscar Romero is, the Texas school board decides not to include him in the curriculum. (04:49) Tags: Texas, school, education, reform, history, conservative


Taxation Without Representation..

it’s time to call a spade a spade. Forgive me James Carville, but, it’s not the economy, stupid. It’s the stupidity, stupid!!

You hopeless Americans! It is you who are the problem! You, by virtue of your incorrigibility, are not worthy of being anything but slaves!

Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion—when you see that in order to produce, you need to obtain permission from men who produce nothing—when you see that money is flowing to those who deal, not in goods, but in favors—when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you—when you see corruption being rewarded and honesty becoming a self-sacrifice—you may know that your society is doomed.

Astonished!!! exec tricks? on AIG spending $440,000 on luxury retreat days after government bailout......6 Days after getting 85 Billion Taxpayer Dollars

The tab included $23,380 worth of spa treatments for AIG employees at the coastal St. Regis resort south of Los Angeles even as the company tapped into an $85 billion loan from the government it needed to stave off bankruptcy.
Invoices obtained by Waxman's committee showed that AIG spent $139,375.30 on rooms, $147,301.71 for "banquets,'' and $1,488 at the resort's Vogue Salon, which offers manicures, pedicures and hairstyling. The group spent $6,939.09 on golf, $2,949 for gratuities, $5,016.32 at the StoneHill Tavern and $3,064.71 for in-room dining and the lobby lounge.
The group booked the resort's 3,100-square-foot presidential suite for $1,600 a night for five nights, a discount from the standard rate of $3,200 a night, a hotel document released by the committee showed. It also paid $1,075 in "no-show fees.''
"Have you heard of anything more outrageous?''
The taxpayer is burdened by another $250 billion rescue of mortgage giants Fannie Mae and Freddie Mac. On Sept. 7, Secretary of the Treasury Henry Paulson led federal efforts to seize control of these government sponsored entities that own or back half of the nation's mortgages The champagne bottle corks were popping as Treasury Secretary Henry Paulson announced his trillion-dollar bailout for the banks, buying up their toxic mortgages
$524.6 Billion Tax payer bailout of financial institutions payed from 1986-1996, ridiculous.
Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims.
That half of you Americans are considering voting for a ticket whose VP candidate supports creationism, in this 2008, who opposes abortions even in the case of rape or incest, and who has literally boasted of her foreign experience primarily because Russia shares a border with her state, simply boggles the mind. Yes, let’s forget Reason, forget common sense, forget science, forget critical thought which without progression, technology, modern civilization, wouldn’t exist, and let’s vote for a creationist! And a female one to boot! Your cant is beyond frightening. If Hockey Mom’s values are that precious to your hearts, or if it’s her gender that blows your whistle that much, why do you even bother, for example, going to the doctor when your kid is sick? Just go to church or a feminist group meeting instead! You stupid seventy million plus neurologically diseased Baptist Americans! Even God Himself would struggle to make you see! Didn’t Jesus profess that truth is better than untruth? How is it that you care so little about wisdom, about truth, about humaneness, about the most meaningful values there can be in this life? Is it because you are simply awaiting, as your Holy Bible describes, the next one? Do us agnostics a favor and take the trip already!

“We the People” have been supplanted by “We the Lawyers.” We the People can’t read and understand our own Constitution. We have to have it explained to us by the professionals. Moreover, if the Court enjoys oracular status, it can’t really be criticized, because it can do no wrong. We may dislike its results, but future rulings will have to be derived from them as precedents, rather than from the text and logic of the Constitution. And notice that the “conservative” justices appointed by Republican presidents have by and large upheld not the original Constitution, but the most liberal interpretations of the Court itself — notably on the subject of abortion, which I’ll return to in a minute.
To sum up this little constitutional history. The history of the Constitution is the story of its inversion. The original understanding of the Constitution has been reversed. The Constitution creates a presumption against any power not plainly delegated to the federal government and a corresponding presumption in favor of the rights and powers of the states and the people. But we now have a sloppy presumption in favor of federal power. Most people assume the federal government can do anything it isn’t plainly forbidden to do.
What it comes to is that we don’t really have an operative Constitution anymore. The federal government defines its own powers day by day. It’s limited not by the list of its powers in the Constitution, but by whatever it can get away with politically. Just as the president can now send troops abroad to fight without a declaration of war, Congress can pass a national health care program without a constitutional delegation of power. The only restraint left is political opposition.
Congress roasts Lehman CEO as financial crisis probe begins
By Julie Hirschfeld Davis Associated Press
Article Last Updated: 10/07/2008 12:01:48 AM CDT
WASHINGTON — The now-bankrupt investment bank Lehman Brothers arranged millions in bonuses for fired executives even as it pleaded for a federal lifeline, lawmakers learned Monday, The panel unearthed internal documents showing that on Sept. 11, Lehman planned to approve "special payments" worth $18.2 million for two executives who were terminated involuntarily, and another $5 million for one who was leaving on his own.

“King” Henry Paulson, our Treasury Secretary, is a former CEO of Goldman Sachs. That means he comes directly from the very crowd that created the current financial mess, the ever-greedy investment banks led by the elite, who now together demand, daily, from Congress, pushed on by Dubya, a speedy, yes speedy, blank check for perhaps over a trillion US Dollars which they will spend without real oversight! And yet, despite all of this, you stupid Americans are seriously thinking of voting for that guy who has his whole political life basically taken his orders from that same elite!
If you cannot wake up from your own madness, you deserve every ounce of terrible, unrepresentative government you get! And in ten years, when the US’ status resembles that of Argentina, no offense to Argentina, a third world nation marked by hyperinflation, an absent middle class, a tiny ruling elite, and a 99% population below or at the poverty line, perhaps, just perhaps, then, you will begin to critique your own stupidity, to think for yourselves, to shed the shackles of your slavery, and to concentrate more on the meaningful values of wisdom and truth related to your own lives, instead of trash-distractions like Paris Hilton, Britney Spears, and Mrs. lipstick.
These Democratic Party powerbrokers have certainly been privy to the inner workings of the financial feeding frenzy that has unfolded on Wall Street over the last two decades and are as complicit as any Republican in enabling the same firms now being bailed out with taxpayer dollars. It could also be argued that their liberal rhetoric is a key component of the selling job now needed to contain a popular revolt against the unbridled greed that has brought the U.S. financial system to the brink of collapse.
Indeed, their campaign coffers are overflowing with Wall St. dollars. Frank’s top contributors in the current election cycle include Brown Brothers Harriman & Life, Manulife Financial, the American Bankers Association and the American Society of Appraisers, according to the Center for Responsive Politics. Back in 2003, Frank opposed the Bush administration plan to increase regulation of Fannie and Freddie. At the time, Frank argued, 'These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''
As recently as July 11th, Dodd concurred. "This is not a time to be panicking about [Fannie May and Freddie Mac], Dodd argued in a press conference. “These are viable, strong institutions.” Dodd’s main contributors from 2003-2008 included Citigroup, SAC Capital Partners, United Technologies and the American International Group (the now infamous AIG).
Schumer’s top five campaign contributors from 2001 to 2006 were Goldman Sachs, JP Morgan Chase & Co, Merrill Lynch, Bear Stearns and Citigroup. Earlier this year, he went on record supporting a federal bailout for mortgage lenders modeled on the federal government’s savings and loan bailout of the early 1990s—which offloaded the debts incurred by insolvent S & Ls onto the backs of taxpayers while the investors (among them Neil Bush, son of George H. W.) who recklessly created the savings and loan crisis walked away with their profits.
These same congressional foxes have once again been guarding the chicken coop, with a predictable outcome. Much like addicted gamblers on a winning streak in a Vegas casino, they ignored the crippling losses that inevitably follow as long as the good times rolled. Now they must reconcile the excesses of their Wall Street patrons with as little retribution as possible.
"What you heard last evening is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly,” Dodd told ABC’s “Good Morning America” the morning after the closed-door meeting—as if Democrats and Republicans have been involved in an intractable war in recent decades. In reality, the two parties have been equal partners in enforcing punishing neoliberal policies on the world working class. And after three decades of neoliberal rule, U.S. workers are no strangers to federal intervention.
Federally orchestrated bailouts, always justified by the slogan “They’re too big to fail” over the last 30 years have typically signaled a steep drop deeper down the economic ladder for those who actually work for their income. Congress has played an active role in forcing down working-class living standards since the Carter administration intervened to rescue Chrysler from bankruptcy in 1979. At the time, Congress refused to give Chrysler its $1.2 billion loan guarantee unless workers gave concessions totaling $462 million. This included a wage freeze and giving up seventeen vacation days_____________________________________________________________Click here to grab coupons and discounts. Many stores, many deals.