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Legacy of Lies: The Great Economic Cover-Up
| Thu Apr. 9, 2009 1:17 PM PDT
Remember back in February, when Bill Clinton urged Obama to be more “upbeat” about the economy? Clinton actually implied that the new president could be making the financial crisis worse by being honest about how bad it was, thereby rattling public confidence—and with it, the market. You’d have thought the primary campaign would be enough to convince Obama that nothing good could come from Clinton homme. But the president has clearly taken a page from Clinton’s playbook. He now largely avoids statements that might frighten the horses in favor of cheerful declarations that we are at “a turning point in our pursuit of global economic recovery,” while at the same time promoting the latest bank bailout plan, which he says will get us there.
There are plenty of reasons why its wrong to try to buoy up a sinking economy on a raft of positive rhetoric—among them, the fact that it obscures what actually happened in the past, and clouds our judgment about what should be done to “fix” it. In the current issue of Newsweek, Daniel Gross comments on the Orwellian linguistic feat by which the government seeks to rebrand the piles of worthless crap created by our financial system.
Remember those toxic assets? The poorly performing mortgages and collateralized debt obligations festering on the books of banks that made truly execrable lending decisions? In the latest federal bank-rescue plan, they’ve been transformed into “legacy loans” and “legacy securities”--safe for professional investors to purchase, provided, of course, they get lots of cheap government credit. It’s as if some thoughtful person had amassed, through decades of careful husbandry, a valuable collection that’s now being left as a blessing for posterity.
According to this morning’s New York Times, the administration is now taking things a step further by promoting a plan that would let us ordinary folks buy what are being called “bailout bonds”—shares in mutual fund-type bundles of lousy mortgage securities. These are supposed to eventually become profitable, thereby allowing us to share in the wealth. But of course, they could also go the other way. As the Times notes: “If, as some analysts suspect, the banks’ assets are worth even less than believed, the funds’ investors could suffer significant losses.” In other words, having been screwed once by Wall Street, we’re now being asked to bend over for a twofer—which some people just might do, if they believe the rhetoric that happy days are about to be here again.
Another point of view came from William K. Black, who was the chief federal regulator during the S&L crisis, in a long interview with Bill Moyers on Friday. Black calls Bernie Madoff a “piker” in comparison with the Wall Street giants that committed mass fraud, and are now nonetheless raking in government funds. When Moyers asks Black “why the bankers who created this mess are still calling the shots” instead of being fired like the auto executives, Black mentions the close relationships between Washington and Wall Street, which applies to Tim Geithner and Larry Summers as much as to Henry Paulson. Then he talks about what he doesn’t hesitate to call a “cover-up”:
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WILLIAM K. BLACK: But the other element of your question is, we don’t want to change the bankers, because if we do, if we put honest people in, who didn’t cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up.
BILL MOYERS: The cover up?
BLACK: Sure. The cover up.
MOYERS: That’s a serious charge.
BLACK: Of course.
MOYERS: Who’s covering up?
BLACK: Geithner is charging, is covering up. Just like Paulson did before him. Geithner is publicly saying that it’s going to take $2 trillion—a trillion is a thousand billion—$2 trillion taxpayer dollars to deal with this problem. But they’re allowing all the banks to report that they’re not only solvent, but fully capitalized. Both statements can’t be true. It can’t be that they need $2 trillion, because they have masses losses, and that they’re fine.
Black insists that “the entire strategy is to keep people from getting the facts…about how bad the condition of the banks is.” So instead of closing bad banks, as regulators did after the S&L crisis, the government is simultaneously pumping money into them and covering up their losses, while avoiding any hard-nosed investigation into their past conduct—all based on the idea that “we have to lie to the people to create confidence.”
MOYERS: Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?
BLACK: Absolutely.
MOYERS: You are.
BLACK: Absolutely, because they are scared to death. All right? They’re scared to death of a collapse. They’re afraid that if they admit the truth, that many of the large banks are insolvent. They think Americans are a bunch of cowards, and that we’ll run screaming to the exits. And we won’t rely on deposit insurance. And, by the way, you can rely on deposit insurance. And it’s foolishness. All right? Now, it may be worse than that. You can impute more cynical motives. But I think they are sincerely just panicked about, “We just can’t let the big banks fail.” That’s wrong.…
MOYERS: So, you’re saying that people in power, political power, and financial power, act in concert when their own behinds are in the ringer, right?
BLACK: That’s right. And it’s particularly a crisis that brings this out, because then the class of the banker says, “You’ve got to keep the information away from the public or everything will collapse. If they understand how bad it is, they’ll run for the exits.”
Promoting this scenario, of course, serves the interests of these same bankers, since it insists that the only way to prevent complete catastrophe is to keep bailing out the big financial institutions, regardless of their credibility and regardless of the cost.
Black believes that the only antidote for this self-serving myth lies in Congress having the wherewithal to launch a real investigation and reveal the facts to the American people—and then base future policymaking on these facts, instead of on a legacy of lies.
Comments
Legacy of Lies: The Great Economic Cover up
Submitted by Anonymous (not verified) on Fri Apr. 10, 2009 3:01 PM PDT.
Amen. Grandmother always said "Sunshine is the best disinfectant".
Geithner, Summer and the rest still think they're the 'smartest guys in the room', which is why they are not being transparent enough; they come from the Republican led era that honestly believes most taxpayers are naive folks who wouldn't understand the grand world of economic finance (the same way "we" didn't "understand Iraq") their hubris and fear will either cause an epiphany or be the death of them. Bottom line, Wall Street, Feds, Congress, Banks, Insurance hedge funds, et. al.,.... read our lips "It's. Not. YOUR. Money". It's OUR money. Never forget that small little detail.
They'd better hope we don't understand...
Submitted by Godless Heathen on Fri Apr. 10, 2009 4:19 PM PDT.
They'd better hope we don't understand the grand world of economic finance. If people better understood the alphabet soup that lined the pockets of the financial elite, the streets of New York would look a lot more like the streets of Athens or Paris.
It isn't OUR money
Submitted by Herschel Krustovski (not verified) on Sat Apr. 11, 2009 5:41 AM PDT.
it is the banksters' money. They stole it fair and square. Think I'm wrong? Just try to get the money back. What meaning of kleptocracy do you fail to learn?
Read Gibbons' Decline and Fall of Roman Empire
I hope they can't find any suckers
Submitted by greenknight on Fri Apr. 10, 2009 11:43 PM PDT.
I feel very sorry for anybody who's dumb enough to to buy the "legacy" worthless paper. Let's hope there aren't enough suckers to make the plan fly, so they have to give up on papering over the problem and actually clean it up.
Break up the big banks!
Why Feel Sorry?
Submitted by Let's play numbers (not verified) on Sat Apr. 11, 2009 12:37 PM PDT.
Let's play a quick numbers game. $500B in Mortgages have been bundled into a "legacy" to be offered for, oh, let's say $100B. I only have to put up $7B and the Fed will front me the rest with no collateral (like a NINA but for Welfare Emporers, not just Queens and Kings). Now, so long as more than 20% of that legacy stays solvent, I will be able to clear my obligation to the Fed and anything over that is profit in my pocket. This number could be anywhere between $0 and $400B (ok, that's impossible, but a 60% could be possible and would mean a cool $200B in my pocket). Even at the piss-poor rate of 25% (which would mean 75% of the mortgages are not being collected on and are otherwise irrecoverable) I would have a clean $25B in my pocket.
Go ahead and feel sorry for the hypothetical me for being a sucker and I'll keep feeling sorry for the real me for not having a few extra billion laying around to make money off of.
It is no surprise Clinton
Submitted by Anonymous (not verified) on Sat Apr. 11, 2009 4:55 AM PDT.
It is no surprise Clinton suggests spinning things upward and onward. He is on to something. The entire system is so gravely interdependent on momentum and hype that our (first world) entire way of life would vanish if stone hard facts were all we relied on. Modern economics are like air pressure and we have had (and are still going to have) a major deflation of the system. Only strong leadership and enforceable and clear regulations can stop the huge air leaks.
What has really done the first world in is the two faced or concealed side to the economy. The large scale reliance on outside the box schemes including hedge funds (gambling), Ponzi schemes (theft), tax havens (theft), reliance on illegal immigration and sweatshop labor (indentured servitude/slavery), and overseas manufacturing with no ecological controls (Earth ending madness).
Restructuring is wildly in order and it is very true that no crisis should be wasted. This is a mother of a crisis we all need step up and make great use of this right now.
Sucker, meet sucker bet
Submitted by BureauCat on Sat Apr. 11, 2009 1:46 PM PDT.
The richest 1% of America has identified who the dumbest 25% is -- the 25% who are not millionaires but who vote Republican, thereby impoverishing themselves.
Take advantage of their market research, and market Bailout Bonds to the poor Republicans (the ones who don't have financial advisors). Don't feel sorry for them; they haven't wised up in 30 years, and they're doing their best to drag the rest of the country down.
Start chain-mails that say that the patriotic thing to do is to buy Bailout Bonds. Advertise the Bailout Bonds on Fox News. Write letters to the editor complaining about illegal aliens being allowed to buy Bailout Bonds, 'cuz it just ain't right for them to profit off of America that way. You get the idea.
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