[GPSCC-chat] Matt Taibbi Rides Again

[Gerry Gras]

Good article.  I recommend reading the whole thing.
If you won't, then at least read the last page:
http://www.rollingstone.com/politics/news/secret-and-lies-of-the-bailout-20130104?page=5

I think this is a serious matter.  Basically the
government has not fixed the problems that created
the 2008 crisis, so we can expect another similar
crisis with consequences that might be as bad or worse.

Gerry


Brian Good wrote:
>
> A fine harrumph about the Bailout.   My 1600-word digest of a 7500-word
> article appears below.
>
>
> /The article is in the January 17th, 2013 issue of Rolling Stone./
>
> http://www.rollingstone.com/politics/news/secret-and-lies-of-the-bailout-20130104#ixzz2HQx5HDxw
>
>
>   Secrets 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
>
>
>
> We were told that the bank bailout not only prevented a Depression, but
> the money was all paid back. No harm, no foul? Not so. The bailout was
> one of the biggest and most elaborate falsehoods ever sold to the
> American people. While they said the taxpayers were stepping in
> temporarily to prop up the economy, we were doing the exact opposite:
> committing 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. And all done in the name of creating jobs and helping regular
> people.
>
> The government gave Wall Street not just heaps of money but also the
> right to hide the truth. The most important mechanism of the bailout was
> its lies. Investors stay in an obviously corrupt financial marketplace
> not because they believe the bullshit (they don't) but because the
> government's commitment to sell the idea that 2008's problems have been
> fixed impresses them.
>
> *THEY LIED TO PASS THE BAILOUT*
> The proposal was that Treasury buy $700 billion of troubled mortgages
> from the banks and modify them to help struggling homeowners, but as
> soon as the legislation was passed the Fed and the Treasury abandoned
> the purchase in favor of direct injections of billions in cash into
> companies like Goldman and Citigroup. Larry Summers, Obama's senior
> economic adviser, pitched the bailout in January, 2009 as aid to
> homeowners in foreclosure and a stimulus to bank lending to put people
> back to work. But only $50 billion was earmarked for homeowner relief,
> and of this only $4 billion has been spent—just one percent of the total
> TARP spending.
>
> *THEY LIED ABOUT LENDING*
> Though Summers promised Congress that increased lending by banks would
> be a condition for receiving bailout funds, officials decided they would
> not even ask the banks to /monitor/what they did with the bailout money,
> fearing that banks would reject money that had strings attached. Over
> four years, banks spent about 3.6 billion for mortgage modifications,
> but during this time they mothballed enormous sums at the Federal
> Reserve ($2 billion before the bailout became $843 billion a few months
> after the bailout—and today $1,400 billion). The interest rate is very
> low, but the $3.6 billion a year the banks get returns more in one year
> than the total spent on homeowner relief over 4 years.
>
> Though the bailouts were sold as a means of stimulating economy-boosting
> lending, three months after the bailout TARP recipients' lending had
> slowed at a rate double that of banks that didn't receive TARP funds.
> The biggest bailout recipient, Citigroup, cut lending by 3 percent. The
> government found that among the nine biggest TARP recipients, lending
> "did not, in fact, increase." Instead, taxpayer money subsidized finance
> mergers (Chase-Bear Stearns, Wells Fargo­-Wachovia, Bank of
> America-Merrill Lynch).
>
>
> *THEY LIED ABOUT THE **BANKS' **HEALTH*
>
> Congress had approved $700 billion to buy up toxic mortgages, but $250
> billion of the money was given as direct capital injections for banks,
> half of it to nine of the largest banks. Though Paulson and Co. claimed
> that only "healthy and viable" banks would get the cash, Tim Geithner
> admitted to the inspector general, Neil Barofsky, that the first nine
> bailout recipients were chosen for size, not viability. "These companies
> weren't really healthy and viable," said Barofsky.
>
>
> This episode set the precedent: unhealthy banks were allowed to falsely
> claim health, and the government endorsed their claims. Projecting an
> image of soundness and bolstering market confidence were, to the
> government, more important than truth. So now the financial market had
> two tiers—those who knew how bad things were and those who didn't.
> Then-FDIC chief Sheila Bair expressed astonishment when Citibank got an
> acceptable fitness rating from regulators “when it was on the brink of
> failure", but FDIC gave Citi bailout help.
>
> For years the big banks had been falsely claiming financial health.
> Lehman Brothers, for instance, used funny accounting to book tens of
> billions of loans as revenues each quarter, overstating its cash
> holdings. In 2007 Citi paid $10.7 billion in dividends though it had
> lost $9.8 billion in one quarter of that year alone. The Ponzi-flavored
> financial sector depended on continual flows of new money from things
> like subprime mortgage sales to cover up toxic investments that, sooner
> or later, would explode. Instead of clearing the air, the government
> doubled down on such fraud, awarding healthy ratings to failing banks
> and even twisting its numerical audits and assessments to fit the
> cooked-up narrative, using lies as a form of monetary aid as the economy
> becomes a vast confidence game based not on real accounting and real
> numbers, but on /belief/.
>
> *THEY LIED ABOUT BONUSES*
>
> TARP's restrictions on executive bonuses had loopholes, and Fannie Mae
> and Freddie Mac gave more than $200 million in bonuses­ between 2008 and
> 2010, even though they (a) lost $100 billion in 2008 alone, and (b)
> required nearly $400 billion in federal assistance during the bailout
> period. AIG paid $1 million each to 73 employees of AIG Financial
> Products. The top five executives at each of the 18 biggest bailout
> recipients received a total of $142 million in stocks and options which
> then, due to government support of the banks, soared to $457 million, an
> average of $4 million per executive.
>
>
> *THEY LIED ABOUT THE BAILOUT BEING TEMPORARY*
>
> Tens of billions in deferred tax assets constitute an off-the-books
> bailout for companies like AIG, GM and Citigroup as they keep future tax
> bills down. "That's never going to appear on any report," says Barofsky.
> The losses from the same toxic deals that cratered the economy can be
> written off for years to come, depriving the government of tax revenues
> that might have helped homeowners and small businesses who were screwed
> over by the banks in the first place.
>
>
> Even worse, only in late 2011 did news of a “secret bailout” of $7.7
> trillion in loans become public, and this was only after Congress forced
> an extraordinary one-time audit of the Federal Reserve, and /Bloomberg
> Markets /went to court to win the right to publish the data. By late
> 2008, Goldman Sachs had snarfed up $34 billion in federal loans that
> were not disclosed to shareholders or taxpayers. Stephen Friedman, a
> Goldman director who was also chairman of the New York Fed, bought $4
> million of Goldman stock in 2008 and 2009 – years before the Federal
> lifeline was made public. Citigroup CEO Vikram Pandit bought nearly $7
> million in Citi stock just as his firm was secretly taking out $99.5
> billion in Fed loans. Jamie Dimon bought $11 million in Chase stock at a
> time when his firm was receiving as much as $60 billion in secret Fed
> loans and more than a year before it was disclosed to shareholders in
> March 2010. In late 2011, the SEC sent letters to five megabanks asking
> why they hadn't fully disclosed their secret borrowing. All five
> essentially replied that their massive borrowing from the Fed was not
> "material," or that its piecemeal disclosure was adequate. By failing to
> act, federal regulators­ have tacitly approved the nondisclosure. The
> government has decided that the markets can't handle the truth.
>
> Willingness to call dying banks healthy, sham tests, failure to enforce
> bonus rules, indifference to public disclosure, not to mention the lack
> of criminal investigations into pre-bailout fraud—these comprise the
> largest and most valuable bailout of all. The government promises the
> banks: 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. Geithner's program
> of “capital support” was an Implicit Guarantee that the banks would not
> be allowed to fail. Its cash value shows in the interest rates. Just
> before the crisis began, Big Finance ($100 billion or more in assets)
> paid about 0.29 percent less to borrow money than smaller firms did.
> Once the bailouts were in full swing, the spread was 0.78 percent and it
> remains at 0.5 percent today—an annual subsidy of $34 billion a year to
> the nation's 18 biggest banks.
>
>
> While more than 300 smaller firms are still struggling to repay their
> bailout debts, the megabanks have allpaid back their TARP loans, and
> have grown even bigger and more unmanageable, concentrating and
> endangering the economy more than ever. With their combined 14,420
> subsidiaries, the six largest banks would need 70,000 examiners to get
> the same attention normally given to a community bank. They're beyond
> regulation even while free or nearly-free money has inspired the
> megabanks to take on riskier and more speculative investments. 2011 saw
> banks increase their investments in junk-rated companies by 74 percent,
> systematically easing standards in search of more high-yield lending
> business. The bailouts have brought us right back where we started,
> bringing 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. The bailout
> makes lying on behalf of our biggest and most corrupt banks the official
> policy of the United States government. 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.
>
> ###
>
>
>
>
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