Ted Auch

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Separating Fact From Fiction

Goldman Sachs + AIG = Perfect Together

Goldman Sachs paid back the TARP money no doubt and that is exciting, but here are the other 2/3 of the bailout pie they don’t like to talk about.

First the Federal Reserve discount window where they borrowed >$30 Billion at 0.75% interest and turned around and lent it to businesses and governments at 3-4% interest….THAT MY FRIENDS IS CALLED MINTING MONEY!

Also the AIG bailout basically funneled a large amount of liquidity to Goldman and a variety of other large multi-national financial “institutions” (See below). So those smug smiles are indicative of Foxes In The Hen House. The graph below is another reason why Tim Geithner, Hank Paulson, et al are complicit in this fiasco. TOO CONNECTED TO FAIL!

Data rarely lies especially Pie Charts.

aig

BlackWater Meet BlackRock

It appears that the Obama administration is going to hand over the reigns of their Public Private Investment Program (PPIP) to the money manager BlackRock, which is on the surface awfully similar to handing over the security responsibilities in Iraq and Afghanistan to a private contractor. Wait that did happen and boy has it turned out swimmingly (http://www.thenation.com/doc/20060828/scahill; http://www.thenation.com/doc/20070528/scahill) with the outsourcing approved by the Bush administration and lucrative contracts given to companies like Blackwater, Triple Canopy, and KBR (ie Kellogg Brown and Root a subsidiary of Halliburton). If the actions of Blackwater in Baghdad’s Nisour Square in September of 2007 are any indication of what happens when the government privatizes crucial responsibilities we had better get ready to duck! (http://www.nytimes.com/2007/09/21/world/middleeast/21blackwater.html?scp=2&sq=Blackwater%20Nisour&st=cse).

Privatization is increasingly the trend with the federal government and it is exactly the remedy for what ales Grover Nordquist & Co. vis á vis describe in their “Starve the Beast” complex (becker_2001_starve-the-beast-article1; bartlett-2007_starve-the-beast1; http://www.nytimes.com/2003/09/14/magazine/the-tax-cut-con.html?scp=1&sq=Tax%20cut%20con&st=cse), which simply states we should gradually or suddenly reduce all taxes, which would force the Federal Government to shrink. This will be the case if the the debt to GDP ratio in the U.S. continues it’s dramatic upward trajectory from 58% at the start of the Bush administration to a historical high of 70% last year. Yeah I know fiscal conservatives will argue that big government = big deficits and that is the downfall of democracies. Well not according to none other than Dicky Cheney who in meeting with the administration’s economic team in 2002 stated “Reagan proved deficits don’t matter,” WAIT Cheney said that? The Dick Cheney? The same Dick Cheney who Mr. Nordquist presumably idolizes? Yep. Yep. And Yep! Turns out he was talking about short-term impact according to William A. Niskanen then of Reagan’s Council of Economic Advisers and now at the Cato Institute (http://www.washingtonpost.com/ac2/wp-dyn/A26402-2004Jun8). Of course we should have know that it was short-term, why would any neocon think about the long-term health of anything let alone the federal government? If we privatize our tax dollars via Blackrock-like partnerships as Mr. Geithner’s PPIP is suggesting than we de-insentivize the private companies responsibility. Our indebtedness to China will go up while the folks at Blackrock and PIMCO will get off scot free. Classic heads I win Tails You Lose scenario!

national-debt-gdp-l

The reason why this % increases is not so much a function of government spending as many Adam Smith and Milton Friedman economists would have us believe but rather a result of increasingly smaller tax revenues. Again we are not talking about the regressive idea of increasing payroll taxes (ie poor folks suffering disproportionately) but rather the drastic cuts we have seen in income, inheritance, and capital gains taxes all of which lead Warren Buffett to conclude that his secretary hands over a greater % of her income than he does.

Now what does this all have to do with Blackrock? Well Blackrock just happens to be 47% owned by Bank of America and it seems that The Great Timmy Geithner has figured out a way to give Ken Lewis & Co. the $33.9 billion his bank will need to proceed according to Mr. Geithner oh so stressful “Stress Tests” (http://www.nytimes.com/interactive/2009/05/07/business/0507-bank-stress-test.html). He will do this not by directly handing over the capital to BofA but rather letting Blackrock’s oracle Laurence Fink invest it for him seeing as how Geithner and Mr. Fink are quit chummy back to the former’s days as the head of the NY Federal Reserve Bank (http://online.wsj.com/article/SB124269131342732625.html).

It is amazing how many people Timmo is friends with or has done favors for I feel like he is to the financial services industry what George Bush was to the Military Industrial Complex and Religious Right. Anyway you might ask well why doesn’t Geithner just give the money to BofA? Well besides the fact that they have already been given $45 billion and are 6% owned by Joe The Taxpayer (http://www.nytimes.com/2009/01/17/business/17bofa.html?scp=1&sq=Bank%20of%20America%20government%20aid%20total&st=cse) there is a little something called AIG, which really didn’t go well for the Feds.

In bailing out the giant insurer we found out in March that much of the money went towards foreign banks like Société Générale and Deutsche Bank ($12 billion each), Goldman Sachs ($12.9 billion), Merrill Lynch ($6.8 billion), and the aforementioned BofA ($5.2 billion). This incident demonstrated the incestuous nature of the financial services industry, the power of Goldman Sachs, and that these companies operate with incredible degrees of hubris and impunity two characteristics not so coincidentally used to describe Blackwater (http://www.nytimes.com/2009/03/16/business/16rescue.html?dbk). We’ll see if the general public catches on to the hypocrisy of going in on an investment in toxic assets with a company almost half owned by BofA.

This type of blurring of the lines that should clearly separate the public and private sectors can be traced back to the repeal of the Glass-Steagall (1933) Act via Phil Gramm and Jim Leach’s Gramm-Leach Bliley Act of 1999. More importantly and much earlier the taxpayer was made the prime guarantor of all Savings & Loan (S&L) deposits, while allowing S&Ls to lend more aggresively (ie predatory lending) via the Garn-St. Germain Depository Institutions Act of 1982. These crucial laws had broad bi-partisan support. However, I would imagine if they were given to the public to vote on without the DC double-think and -speak we would have laughed them away outright.

As for Blackwater they were a result of a President and VP who were in bed with the Military Industrial Complex (On Steroids!) and the Oil Companies and why shouldn’t they be they stood to profit greatly upon returning to the private sector where much of their blind-holdings are undoubtedly in the $1.16 trillion industry.

Blackrock will likewise benefit greatly from only putting up 7cents for every dollar of investment, while we will invest 7cents and the FDIC will loan the remaining 85 as non-recourse loans to the banks, meaning if they aren’t happy with the way things are going they can just walk away. Wouldn’t it be nice if we could do that with student loans? This company has $1.3 trillion in assets or 9% of US GDP in 2008. You would think with all these assets and a 47% stake BofA could fund their own damn bailout? Unfortunately if you had such a crazy notion you would be dead wrong.

SO as I think we now know what Rahm Emanuel meant when he said “Never let a serious crisis go to waste!”. It essentially means, in DC parlance, that when a crisis comes down the shoot it is time to convince folks that preemptive war is good, torture is necessary, action without thought is patriotic, and…….. giving money to those that least deserve it is necessary to avoid Armageddon. Oh yeah what about privatization of our military and our tax dollars? Well you’ll thank us later! I think not and I think we have an administration now that is dangerously close to being changed rather than being the agent of change! Bush had his Blackwater scandal and I think if Obama ain’t careful he’ll have an equally if not greater hubbaloo with Blackrock.

Top 6 Signs the Banks “Own the Place”

1. The banks, hedge funds, and equity firms invested in Chrysler nearly got 65 cents on the dollar for their stakes in the car company, when the same government that bailed them and their collegues out was only offering 15-22 cents ouf our money. They backed away from this claim only after President Obama called them nasty names (http://www.nytimes.com/2009/04/23/business/23chrysler.html?scp=1&sq=Treasury%20Said%20to%20Raise%20Offer%20to%20Chrysler%20Lenders&st=cse).

2. They lobbied as hard as they could to successfully remove the mortgage cram down provision from the most recent credit bill. This provision would have given judges the power to make them settle with the defaulting home owner, allowing both creditor and debtor some relief. However, as Senator Durbin these folks “…are still the most powerful lobby on Capitol Hill. And they frankly own the place.” (http://www.pbs.org/moyers/journal/05082009/watch.html)

3. Public Private Investment Program (PPIP) addressing “Toxic Assets”, which would allow banks, hedge funds, and equities to invest 7 cents on the dollar, matched by 7 cents from the taxpayer, with the remaining 85 cents coming from non-recourse loans via the FDIC. Okay these loans essentially mean that if the investments, which start off as toxic get even more toxic…Well the investors could walk away from the loan with No Recourse. Not bad!

4. Lessening by a Democrat dominated congress the Mark To Market accounting rules put in place by these same financial titans. This would allow them to put an essentially arbitrary price on their “Toxic Assets”, because to paraphrase Tim Geithner the Lapdog (http://www.nytimes.com/2009/04/27/business/27geithner.html?scp=5&sq=Gretchen%20Morgenson%20Geithner&st=cse) what we have is a confidence problem AND NOT a liquidity problem.

5. A Shadow Money Stock amounting to $9-9.5 trillion, while the actual stock is around $6 trillion. This fictional money is  what the financial services industry creates to finance a boom (http://demandside.podbean.com/; http://zerohedge.blogspot.com/2009/05/chasing-shadow-of-money.html).

6. Getting 0.25% interest from the Federal Reserve, taking in money from US the taxpayer at 2% and lending out at 5-6.5%. (http://www.commondreams.org/headline/2009/05/20-3) You do the math you won’t like the results.