Secret and Lies of the Bailout

[Jan Klimkowski]

Yup - Taibbi is a splendid chronicler of this coup d'etat.

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."

The global economy was in a mess, but this was Goldman Sachs/financial elite special pleading. The Junkie Big Bankers were given unlimited Too Big To Fail supplies of Heroin, all funded by existing and future taxpayers. The retired got screwed. The workers got screwed. The unborn had their material standard of living hugely diminished.

We are now left with a giant Ponzi scheme which can never pay out. It's simply a question of when the global economy colllapses.

I made a BBC film in 2001 called The Great Dot.Con about how Wall Street and the City of London were profiteering from pumping stocks that their analysts knew were, in their own words, "sacks of shit".

The same insider trading and profiteering applies here.

This is institutionalized corruption.

The big Wall Street banks need to be dismantled and their managers put in prison for the rest of their lives.

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.