We are being robbed big-time, but you can't say we haven't been warned. Not after the release Tuesday of a scathing report by the Treasury Department's special inspector general, who charged that the aptly named Troubled Asset Relief Fund bailout program is rife with mismanagement and potential for fraud. The IG's office already has opened 20 criminal fraud investigations into the $700 billion program, which is now well on its way to a $3 trillion obligation, and the IG predicts many more are coming.
Special Inspector General Neil M. Barofsky charged that the TARP program from its inception was designed to trust the Wall Street recipients of the bailout funds to act responsibly on their own, without accountability to the government that gave them the money.
He pointed to the example of AIG, which has acted as a conduit of funds to the banks it had insured without being required to tell the government what it is doing: "Failure to impose this requirement with respect to the injection of yet another $30 billion into AIG would not only be a failure of oversight, but could call into question the credibility of the government's efforts."
AIG is just one example in a bailout that has left the financial conglomerates unsupervised as they spend taxpayer money in what the report termed a government program of "unprecedented scope, scale and complexity," putting the public and the Treasury Department in the dark as to how the money is being used by the very tycoons who got us into this mess. "The American people have a right to know how their tax dollars are being used," Barofsky wrote in the report, which sharply criticized the government for failing to hold financial institutions accountable.
For all of its criticism of the original program, designed by the Bush administration, the report was equally severe in denouncing the Obama administration's plan to partner with hedge funds and other private capital groups to buy up the "toxic" holdings of the banks. Charging that the plan carries "significant fraud risks," the inspector general's report pointed out that almost all of the risk in this new trillion-dollar plan is being borne by the taxpayers. The so-called private investors would be able to put up money they borrowed from the Fed through "nonrecourse" loans, meaning if the toxic assets purchased prove too toxic and the scheme failed, the private investors could just walk away without repaying the Fed for those loans.
The reason those loans may prove even more toxic than expected and the price paid by this government-underwritten partnership far too high is that the government is purchasing the most suspect of the banks' mortgage packages. In addition, the plan is to accept at face value the evaluation of those packages by the very same credit-rating firms whose absurdly wrong estimates of the dollar worth of these securities helped create the problem that now haunts the world's economy. "Arguably, the wholesale failure of the credit rating agencies to rate adequately such securities is at the heart of the securitization market collapse, if not the primary cause of the current credit crisis," the report found.
As with the entire banking bailout, the new plan of Obama's treasury secretary, Timothy Geithner, is likely to enrich the very folks who impoverished the rest of us, as the report notes: "The significant government-financed leverage presents a great incentive for collusion between the buyer and seller of the asset, or the buyer and other buyers, whereby, once again, the taxpayer takes a significant loss while others profit."
At the heart of this potentially massive fraud was the original decision of Henry Paulson, President Bush's treasury secretary and a former Goldman Sachs chairman, to not require the recipients of the bailout, such as his old firm, to account for how the money was spent. Unfortunately, President Obama's administration continued that practice.
The only difference is that the amount of public money being put at risk is now far greater, and the hedge funds, which are totally unregulated, have been brought in as the central players. One of the largest of those hedge funds, D.E. Shaw, carried Obama's top economic adviser, Lawrence Summers, on its payroll to the tune of $5.2 million last year. He may have reason to trust these secretive enterprises that operate beyond the law, but the public does not.
Robert Scheer is editor in chief of Truthdig and author of The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America.
See them burrow.
See them bustle.
See them hustle.
See the fearful cling to anything that provides another moment to breathe.
See the broken get pissed off and go on a rampage, causing others to bleed.
See a system so out of whack it feeds on life.
See a nation of individuals come to realize individual strife.
See them struggle through the day and toil through the night.
See life unravel.
See judges bang their gavels in civil court.
See SUV’s and Mercedes with the super sport package.
See people live decades carrying mental luggage and spiritual baggage.
See stress levels soar.
See the pimps.
See the whores.
See college bound kids freak out over SAT and ACT scores.
See delusion.
See confusion.
See distortion.
See contortion of principles and ethics as greed is pursued.
See a nation caught in the grip of the debt and corruption blues.
See ingrates, and arrogant fakes proclaiming greatness while they function crookedly.
See the man or woman in the mirror, see that for every I there is a me, and for every us, there is a we.
See the forest beyond the trees.
We can be better, oh yes we can weather this storm.
But like anything that is dead it requires we be reborn.
America must rise from the dust of its glorious and not so glorious past.
What emerges must be strong, honest, unified, invigorated, empathetic, ready for the world...and built to last.
Originally I thought the PIPP program would work and my complaint was that the plan was not conceived from the start with small investor participation in mind. But with Barofsky's revelations, it's clear that the "control fraud" (William Black's very fine phrase), habits of the large players in any PIPP program would insure massive gaming of this plan. If retail investors and/or pension funds participated in the plan, they would come out losers, I'm convinced.
I think Obama has to bite the bullet, disassemble and reassemble a few of the largest bad banks, and park the toxic assets on the national balance sheet in the interim.
The simple reality is that the banks are an untouchable fifth estate--too big to fail and playing the rest of us for patsies, biding their time. But the entire industry is at overcapacity, and unless it is restructured and lending is resumed, the economy is going to deteriorate further.
Call it nationalization, or whatever, that is no longer the problem. The problem is that the financial engineering between Geithner and Bernanke is going to fail, and unless Obama steps in and changes course, he is going to have a failed term on his hands.
It seems like his administration was one long give away to corporations at the expense of every American below a certain tax bracket. This bailout had perfect timing and, quite frankly, rendered the election rather moot. It didn't matter who the next President would be, they would HAVE TO give large sums of money to the rich people because they were "too big to fail."
Look now, it turns out that Bush's folks wrote all kinds of loopholes into TARP which turned it into a blank check. Bush's constituency likes free money. It also turns out that some of the bailed out companies are now paying back the money (some crisis-- I want to see the books).
With allegations of insider trading it doesn't take a far leap to imagine four CEOs getting together with Cheney or Bush and deciding to tank the whole thing (imagine what their profit margins will be this year- - lots of profit with no money down). It's always more fun to gamble with the house's money. We need a Vinny the PitBoss to dangle these hucksters out a window.
Obama has a choice. He doesn't have to give any additional money to the thieves. He could break up the big banks and or temporarily nationalize them. He has chosen not to do so. Why are so many so called progressives making excuses for Obama as he robs working people to give money to the oligarchs.
At this point in time it is obvious that the U.S. Government is going to continue rewarding those trillion dollar swindlers that caused this worldwide financial meltdown with trillions more dollars of our tax money instead of throwing these swindlers in jail.
It is also obvious that our useless, corrupt legal systems and regulatory systems will not do anything to bring these swindlers to justice.
What the American people need now is a comprehensive SWINDLERS LIST containing the names, addresses and country clubs of all the investment/banking CEO's, executive boards, hedge, swap, derivatives and securitization scammers who stole those trillions of dollars.
So all you bloggers out there start investigating where those swindlers are in your areas and put that information on the blogosphere so we can compile a complete list because there were thousands of people involved in this corruption.
After the list is completed we the people will organize across the land demonstrations and pickets against these swindlers since they are now very wealthy and living off the savings and retirement funds they stole from hardworking Americans.
And our theme song will be, "Making a list and checking it twice to find out who has been naughty or nice.???!!!"
Thieves, liars and cheats are always going to be that, albeit in an expensive suit.
The above is being massively overplayed and distorted.
I wonder what Candidate Obama would say about it... especially when he campaigned heavily on Transparency and Accountability.
"I voted for Obama and all I got was this lousy bailout."
Great heist, only problem, the fraudster still has to pay it back plus interest and whatever else is required.
Did Eliot Ness ever arrest a bank robber who was making periodic payments of principal and interest on the loot? I don't think so. Keystone Cops? Could be.
That is what the scam is all about, here's the how to guide for dummies:
1. Bad Bank A creates a shell corporation, call it Bad Shell B
2. Bad Bank A funds in some money and/or have american tax payers (dumb investors) "INVEST???" in the mutual fund with Bad Shell B to buy toxic assets.
3. Bad Bank A sells an asset that is worth $0.00, put prices it at $100M.
4. Bad Shell B takes a loan from the treasury and any mutual fund money from dumb investors and buys the worthless asset for $100M.
5. Bad Bank A gets the money, writes off the asset and has $100M where it should have zero.
6. Bad Shell B is stuck with the bad asset and will soon after fold, since the loan is NON-RECOURSE there is nobody to go after and the tax payer gets stuck with the bill.
Obama and Geithner aren't dumb they know that the banks are going to do this. And yet they are looking the other way... In fact they are looking at ways to create SPVs to fund that then gives the money to the banks. That way the SPV is limited by the executive comp, but the banks aren't.
I don't think Candidate Obama would approve of what President Obama is doing.
"I voted for Obama and all I got was this lousy bailout"
TARP is recourse - double backstopped.