Wall Street Journal Confirms: Yes, It's a Wall Street Bailout

Yes, it is a Wall Street bailout -- a bailout for Wall Street, first and foremost. But don't take my word for it. Trust the hometown newspaper, The Wall Street Journal, to provide the scoop. According to one informed estimate, the same Wall Streeters who got us into this mess could make another $100 billion for their help in "cleaning it up."

The role of lobbyists, descending on the $700 billion -- oops, make that $850 billion, including additional earmarks -- bailout bonanza has been much reported on. Sample headline in The Hill newspaper: "With bailout passed, lobbyists look to get in the game." The paper quotes Rich Gold, head of Holland and Knight's government relations and regulatory practice, declaring, "This is going to be a big trend, in all honesty, for the next three to five years." And outside-the-beltway birds of prey, too, are circling overhead, including Rudy Giuliani. The likes of Gold and Giuliani might look forward to making millions. But the real money, denominated in billions, is to be found back on Wall Street.

Let's get right to the Journal: an article by Deborah Solomon and Aaron Luccheti in Tuesday's edition. Here's the lede: "The Treasury Department, seeking to jump-start its $700 billion rescue, is giving financial institutions two days to submit proposals to work as asset managers for the program. Treasury's request for proposals makes clear that it wants large, established firms with significant assets to work for the government's program to buy mortgage-backed securities and other distressed assets." [emphasis added, all bolds to follow are mine]

In other words, the big get bigger. The Journal continues: "To qualify, institutions must already manage at least $100 billion. Firms that want to manage whole loans, such as residential and commercial mortgages, must already oversee at least $25 billion in such loans or prove that they have capacity to handle that much.... Market observers say there are just a handful of firms that could handle such a large portfolio of assets."

So this is not for the little guy. And the big guys will apply. The Journal explains: "Since plans for the bailout plan were announced, a range of firms -- from large investment banks to boutique real-estate companies -- have been angling to grab some of the advisory business. Many are hungry for this work because their sales, financing and other traditional forms of real-estate business have dried up with the credit crisis." Translated, this means that Wall Street firms, having destroyed their own nest, are now looking to Uncle Sam to re-feather it for them.

Some of the big companies mentioned by the Journal include Pimco, Blackrock, Legg Mason, J.P. Morgan Chase, and Morgan Stanley. "There are so many people who need something to do," says John Douglas, former general counsel of the Resolution Trust Corporation (an earlier government bailout outfit, which disposed of $394 billion from 1989 to 1995), who is now a partner at the law firm of Paul Hastings Janofsky & Walker.

The Journal provides a look ahead into the new enterprise, now being sketched out behind closed doors in Washington and New York: "The asset managers will have significant power... the institutions are expected to assist Treasury in determining which assets to buy, when to buy them and whether to sell or hold them."

Mallory Factor, a businessman in Charleston, S.C. with a background in New York finance, estimates that costs, fees, and expenses -- to myriad advisers, lawyers, consultants, rating agencies, as well as money managers -- associated with the bailout could total as much as one percent a year. One percent of $700 billion is $7 billion; if we multiply that over five years, that's $35 billion. "But I think this will go higher than $700 billion, to easily more than a trillion," Factor told me. "And the cleanup process could last a decade." If so, then fees for Wall Streeters could easily hit $100 billion.

But that's not all. As the Journal further explains, "One of Treasury's biggest hurdles will be handling conflicts of interest that are likely to arise. Companies that qualify for Treasury's program are likely to have a financial stake in the very assets they will be charged with buying and selling."

That's known as a conflict of interest, and oftentimes, folks who violate their fiduciary responsibility end up paying a fine, or even going to jail. But not anymore. In this Paulson-ized new world, it is understood that conflicts of interest come with the territory. As the Journal puts it, "Treasury doesn't expect to eliminate all conflicts of interest, but is hoping to minimize them, according to a person familiar with the matter." Got that? The Department of Treasury will do everything it can to "minimize" conflicts of interest.

So now we know. Lobbyists and fixers will make millions, and Wall Streeters, even those with unclean hands, will make billions. We are looking at a bull market in morally hazardous profiteering. It'll be a great time to be a muckraker, too -- but the Wall Streeters, having written the rules that require them only to "minimize" their conflicts of interest, will just shrug off the criticism.

Once again, they will go laughing all the way to the bank. But of course, they've been there before.

Comments

[NicoleAnon]

And Goldman Sachs is bidding on those contracts also - I don't know why it wasn't mentioned in this article. But I'm sure Paulson already knows exactly who he is going to hire - this scam has been planned for a long time. When Paulson and the person he has now put in charge of $700 billion, another GS employee, met with investment bankers on May 2nd they probably talked about which bank would be "managing" the toxic assets for us. The problem is that Paulson had to get it done before the new administration is in place. He has to make sure they get contracts worth billions NOW NOW NOW so that the next President can't change anything. They're probably already sending money to banks although nobody is talking about it because of the election and Paulson knows that.

"Treasury Department officials plan private meetings with Investment Banking executives on May 2nd, in an apparent attempt to counter Congressional Democrats seeking steps to handle the housing crisis.

Six meetings with investors, loan servicers and bankers are planned on Friday, and one of them is to be held at the NewYork City offices of JPMorgan Chase , the report said.

Neel Kashkari, a senior adviser to Treasury Secretary Paulson, and Phillip Swagel, assistant secretary for economic policy will lead the Treasury"s Friday efforts, The Journal said."

[PublicAdvocate]

Thanks to "fiscal conservatives" and "small government" Republicans, tax giveaways to the wealthy have accelerated. Greed is infinite and left unchecked will continue to mushroom out of control. Neither Democrats nor Republicans have shame in offshoring of jobs, allowing corporate tax havens, obscene corporate salaries, and funding the ongoing Iraq Holocaust, as well as billions in giveaways to Israel, Egypt, Georgia and whom else? Our nation is broke and will become increasingly impoverished. We can expect that as debt rises:
Our standard of living will decline
inflation will increase more rapidly
The dollar will continue to weaken
Taxes on the poor and middle class will increase
Social Security and other programs will be cut or reduced or postponed
Infrastructure will not be rebuilt

What can you do?

Don't keep funding the problem. Take any investments out of Wall Street or be consigned to lose more and more as reality sets in. Wall Street executives are protected by existing law and will get a free pass to keep their earnings and bonuses.
Park your money in an FDIC insured CD to protect yourself from more stress and further loss of savings and retirement.
Here's a list from the http://WSJ.com
http://bankcd.com/
Those who move last, lose the most. Since there is no reliable sign that our economy has bottomed out, and is falling yet again despite the "panacea" bailout, it probably has a good way to go. We may be in for a very rocky ride.

[avraamjack]

.
Another 100 billion will not make a material difference.
.
Still, if you wanted to restore credit, creating new banks would have been much cleaner than repairing moribund banks.
.
.7 trillion could have created 20 banks that would have immediately make copious credit available.
.

[zjr909]

These Wall Streeters are as unreal as they are vile - and that's saying a lot. They're working hand in hand with the government as hard as they can to bankrupt the middle class - yet they expect to continue raking in billions of taxpayer dollars for years to come. Where on earth do they think all this money's going to come from? Or do they know something those of us tasked with footing the bill don't know? Like, perhaps, in the near future, our money will be taken from us at the point of a gun instead of with the flourish of a fountain pen? Or like, perhaps, sweatshops will re-emerge as the manufacturing hub? Or like, perhaps, our children will be sold to the highest bidder? Just what are they up to - because you know perfectly well that, while we're busy cheering on our chosen candidate du jour, they're busy planning their next dozen or so moves. You simply couldn't make something like this up; only in the demented minds of the super rich could this kind of craziness become the stuff of reality. And heaven help the rest of us as they keep trying to re-shape the world to fit their insane obsession to control every last atom on the planet.

[AdamKoeppe]

Adam Koeppe's Fantasy Business World:

I like comic books. No...I love comics! From the old EC "Tales From the Crypt" and "Mad Magazine" to Spiderman, Batman and Joss Whedon's sensational run on "Buffy th Vampire Slayer".

In the world of Imaginationland, I open up my business. I sell comics, posters and remains of cremated Anakin Skywalker. I stage events bringing authors like Alan Moore, Frank Miller and Bruce Campbell to my store. I pay for their transportation, for their hotels. I buy them food. I kiss their butt in usual fanboy fashion.

10 people show up. Oops. Guess that sucks. Didn't realize people wouldn't turn out in a town of 2000 people, 50 miles from Minneapolis, to see these authors.

I can't pay these guys except buy getting a loan and putting my shop as collateral. Bear in mind I also have $200 statues of the Submariner, the Six Million Dollar Man, and Howard the Duck for sale and I can't figure out why I can't move them.

I also have to pay the anti-social, potentially drug-addled employees just so they can afford comic books. I also take home comics I want to read and don't pay for them. I'm the owner, dammit! I should get to read the 10 comics Wolverine is in!

My sales stink. Bought too many Archie Comics. Overestimated the "Archie demographic".

I guess I need a bailout. A "rescue plan", if you will.

Help me Henry Wan Kenobi, you're my only hope!

[ld]

Damn, James! You're going to turn into a populist if you're not careful.

[GregJL]

Not bloody likely