Cash for Trash

For time it seemed that President Obama was poised to really "shake up the system". During his run to the White House many (myself included) anticipated that his administration would have "new New Deal" prize- winning economists like Jeffrey Sachs and Joseph Stiglitz leading an old-fashioned populist revolt against the corporate banksters.

Alas we had forgotten that after he was a community organizer Obama went to Harvard where good rebels go to die-- or come out with a deeper appreciation for Capitalism with a capital C. (the C stands for Collusion, Cronyism or Corruption-- take your pick or just go with all three.)

Eliot Spitzer elaborates in Slate Magazine: "the New York Federal Reserve is the first among equals. Unlike the Washington board of governors or the other regional fed branches, the N.Y. Fed is active virtually every day, changing the critical interest rates that determine the liquidity of the markets and the profitability of banks.

And who sat on the committee of this august financial chamber that appointed Tim Geithner? Why none other than Hank Greenberg, the then not-yet-disgraced chairman of AIG. Joining him were John Whitehead, chairman of Goldman Sachs; Walter Shipley, a former chairman of Chase Manhattan Bank, now JPMorgan Chase; and Pete Peterson, former chairman of Lehman Bros. No doubt these eminent personages have our national interests embedded in their altruistic psyches.

Which explains why when faced with the financial crisis born of the post-Enron virus the reserve board also brought in Dick Fuld, the former chairman of Lehman; Jeff Immelt, the chairman of GE; Gene McGrath, the chairman of Con Edison; Ronay Menschel, the chairwoman of Phipps Houses and the wife of Richard Menschel, a former senior partner at Goldman Sachs. Makes you feel all warm and cuddly, doesn't it, knowing these egalitarian public servants are safeguarding the Treasury as well as our pensions and 401k's.

Among the many shady operations that went on at AIG under Greenberg's chairmanship was the use off shore entities to escape even the lax enforcement of U.S. insurance regulators and the Securities and Exchange Commission (SEC). Offshore tax havens such as Barbados and Bermuda were used to hide insider connections in supposedly "arms-length" deals shield profits from U.S. taxes.

As Naomi Klein, author of the must-read "Shock Doctrine", resignedly bewails: no matter how you slice it "we the people" have been been robbed by our royal princes yet again and we still can't afford the upkeep.

Gutting America

The American public is being challenged to rebel. Make no mistake, this $700 billion "bail-out" package will spell the end of our representative government. Understand-- the world knows that these mortgage assets Paulson proposes to repurchase are overvalued and the U.S. is headed for a major recession. So what is all that "cash for trash" supposed to pay for and where will it come from?-- simple-- China, who the global financiers are helping to buy the United States of America.

The de facto nationalization of the financial heavyweights will anchor the US and global financial market, analysts agreed. "It is good news for Chinese holders of mortgage-backed debt in the two companies," said Dong Yuping, an economist with the institute of finance and banking at the Chinese Academy of Social Sciences. "If the US government hadn't extended a helping hand, their insolvency would have brought serious losses to Chinese holders."

The deal was also done to prevent the government-sponsored companies from being declared insolvent, so it clearly benefits bond holders, said Stephen Green, a senior economist at Standard Chartered Bank in Shanghai.

The two companies account for $5 trillion worth of mortgages in the US - about 40 percent of its national total. Some $1.5 trillion of the debt is held by foreign investors.

"Since the US government intervened, the risks for Chinese holders have become fairly marginal," She Minhua, a Shanghai-based economist, said.

But the government bailout will not improve the US housing market's fundamentals.

Here is what a serious adjustment would entail:
Whenever there is a systemic banking crisis there is a need to recapitalize the banking/financial system to avoid an excessive and destructive credit contraction. But purchasing toxic/illiquid assets of the financial system is not the most effective and efficient way to recapitalize the banking system. Such recapitalization – via the use of public resources – can occur in a number of alternative ways: purchase of bad assets/loans; government injection of preferred shares; government injection of common shares; government purchase of subordinated debt; government issuance of government bonds to be placed on the banks’ balance sheet; government injection of cash; government credit lines extended to the banks; government assumption of government liabilities.

Instead, besides being unable to rebuild our decaying infrastructure or invest in alternative energy, the American taxpayer will be servicing debts held by foreign banks. Faced with corresponding losses most foreign banks are choosing to nationalize while keeping the onus for repayment on the banking industry.

"All UK banks with less than 65 percent of loans funded by deposits have now been nationalized or sold," Alex Potter, banks analyst at Collins Stewart, said.

While the public takeover puts even more risky assets on to the government's books only seven months after the nationalization of Northern Rock bank, Darling said the risk would be borne by the banking industry through a compensation scheme.

But while sensible countries look to shield their taxpayers what Paulson and Congress are proposing amounts to wholesale theft. For once I can say kudos to the NYTimes for exposing the rats:

"Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it.

"Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages.

"At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees.

"Nobody wants to be left out of Treasury's proposal to buy up bad assets of financial institutions."

Mr. Paulson can choose to buy from any financial institution that does business in the United States, or from pension funds, with wide discretion over what he will buy and how much he will pay. Under most circumstances, banks owned by foreign governments are not eligible for the money, but under some conditions, the secretary can choose to bail out foreign central banks.

Under the bill, the Treasury is to buy the securities at prices he deems appropriate. Mr. Paulson may set prices through auctions but is not required to do so.

Rarely if ever has one man had such broad authority to spend government money as he sees fit, with no rules requiring him to seek out the lowest possible price for assets being purchased.

That any legally elected Congress would sit still for such a blatant power-grab supports my suspicion that the vote-rigging that was exposed by the Bush coup of 2000 is an open bipartisan affair. The culture war with its steady nurturing of the nation's historical tendencies towards ethnic bigotry and religious zealotry and exacerbated by a phony red state/blue state divide has been the corporate smoke-screen for the slow, tactical destruction of our democracy.

Remember how this all started. It was the Dodd/Shelby bail-out plan that first allowed borrowers to not only receive rates the market wouldn't approve them for, but it would even artificially reduce their loan amounts. It also bought billions of bad loans that banks wanted to offload.

Those following the progress of the Dodd-Shelby mortgage rescue plan in the Senate might want to check out two solid pieces of enterprising reporting on the bill this weekend.

First, the Examiner's Tim Carney reports that the bailout section of the Dodd-Shelby bill is, in the words a lobbyist, "exactly what Bank of America and Countrywide wanted."

Is there a connection between Bank of America and Sen. Christopher J. Dodd (D-Conn.)? There is. Carney: "Bank of America's political action committee (PAC) has donated $20,000 to Dodd since he became chairman of the banking panel 17 months ago. From January 2007 to March 2008, Bank of America employees have donated at least $50,400 to Dodd's campaigns, according to the Center for Responsive Politics."

National Review's the Corner follows up, citing an internal Bank of America document:

"National Review Online has obtained an internal Bank of America "discussion document" (PDF here) on the subject of the FHA Housing Stabilization and Homeownership Retention Act of 2008, a.k.a. the Dodd-Shelby mortgage-lender bailout bill .... This discussion document (dated March 11, 2008) would appear to support the contention that BofA essentially wrote the bailout section of the bill."

Then there are these murky questions surrounding Chris Dodd and congressional corruption:

Lobbyists for the Texas Indian tribe that shelled out $4.2 million three years ago in a failed bid to get Congress to reopen a closed casino told the tribe that U.S. Sen. Christopher J. Dodd had been "greased" to get his help, its longtime consultant confirmed last week.

Dodd denies there was any quid pro quo yet two Democrats, Brian Lunde and George Burger paid $10,000 to a lobbyist linked to the senator, Lottie Shackelford, to secure the senator's support for the single-sentence rider that would have unshuttered the casino closed by Texas authorities.

Also, Federal Election Commission records show that Shackelford, now vice chairwoman of the Democratic National Committee, contributed $1,000 to Dodd in June 2002, four months before the passage of the notorious Help America Vote Act which allowed for non-certifiable electronic voting machines to be used in US elections.

Dodd, in his statement at the Indian Affairs Committee hearing, acknowledged that Shackelford "did approach my office during the waning hours of negotiations over the HAVA legislation to inquire whether recognition proposals for the Tigua tribe could be included in the bill."

The FEC records also show that Dodd collected $10,000 in contributions in 2002 and 2003 from four individuals and a political action committee associated with the big lobbying firm that employed Abramoff, Greenberg Traurig.

We know the enemy. He resides not in the wilds of Alaska or West Virginia, but in the off-shore banks, the corporate boardrooms and now plainly, the halls of Congress.