Moral Decay Swirls Around Banking Bailout: Time for a Criminal Investigation

By Robert Scheer, Truthdig. Posted March 19, 2009

Those who stole billions in 401(k)s of innocent victims were rewarded handsomely, rarely needing to break the laws their lobbyists purchased.

There must be a criminal investigation of the AIG debacle, and it looks as if New York's top lawman is on the case. The collusion to save this toxic company in order to salvage the rogue financiers who conspired to enrich themselves by impoverishing millions is being revealed as the greatest financial scandal in U.S. history. Instead of taking bonuses, the culprits should be taking perp walks. 

I'm not just referring to the swindlers in the Financial Products Subsidiary of AIG who devised and sold those insurance policies on derivatives that brought the world economy to its knees. They do seem deserving of a special place in hell, and presumably the same divine power that according to Scripture labeled usury a high moral crime and threw the money-changers out of the temple will consider that outcome.

However, the enablers are the AIG leaders who, as New York Attorney General Andrew Cuomo revealed Tuesday, signed those bonus contracts a year ago to reward the very people "principally responsible for the firm's meltdown." That's a cool $44 million divided among the top 10 shysters, even though the depth of their chicanery was well known to top management. 

As Cuomo noted in a letter to Rep. Barney Frank: "The contracts shockingly contain a provision that required most individuals' bonuses to be 100% of their 2007 bonuses. Thus, in the spring of last year, AIG chose to lock in bonuses for 2008 at 2007 levels despite obvious signs that 2008 performance would be disastrous in comparison to the year before."

The lame argument that those bonus-baby employees needed to be retained in order to sort out the mess they had created was also shot down by Cuomo, who revealed after his office's initial investigation had pierced AIG's veil of secrecy that "[e]leven of the individuals who received 'retention' bonuses of $1 million or more are no longer working at AIG, including one who received $4.6 million."

But the $165 million in taxpayer funds used to reward them is but a sideshow in a far larger drama of moral decay swirling around the banking bailout. It should not distract from the many billions, not paltry millions, of our dollars being diverted to reward the very folks who brought us such misery. Consider the $12.8 billion of the $170 billion that taxpayers gave AIG in bailout funds that AIG then secretly diverted to Goldman Sachs, a company that evidently has a lock on both the Treasury Department and the Federal Reserve no matter which political party is in power. It was the biggest payoff among those that AIG made to a score of foreign and domestic financial giants.

The bailout is a response to a banking crisis that resulted from the radical deregulation pushed by former Goldman Sachs honcho Robert Rubin when he was President Clinton's treasury secretary. Another Goldman Sachs chairman-turned-treasury-secretary, Henry Paulson, in the Bush administration designed the trillion-dollar bank bailout that will go down as the greatest swindle in U.S. history.

It was because of Paulson that AIG was saved from bankruptcy hours after Goldman rival Lehman Brothers was allowed to go down the drain. Why that reversal of strategy in a top-secret meeting called by then New York Fed Chair Timothy Geithner, a Rubin protégé and now Barack Obama's treasury secretary? Why was Goldman's Lloyd Blankfein the only financial industry CEO in attendance? When that news leaked out, his role was defended as that of a noninvolved concerned citizen with expert knowledge, and whose firm had no direct monetary stake in the outcome.

That was a lie. 

Goldman Sachs was into AIG insurance policies for at least $20 billion, which is why the firm got that $12.8 billion while Paulson was in charge. It took six months for the embarrassing facts to finally come out. The bailout program was administered by Neel Kashkari, a former Goldman Sachs VP; why are we not surprised at that?

Another pretend innocent in all this is AIG's CEO Edward M. Liddy, famed defender of the $440,000 AIG executive retreat in Monarch Beach, Calif., held on the heels of the taxpayer bailout. His actions now are defended as mistakes made by a well-intentioned outsider who decided to work for a dollar a year after Paulson appointed him head of AIG. That is just garbage. 

Liddy was complicit in Goldman Sachs' role in creating this mess. As a director of Goldman Sachs, he was paid $685,770 in 2007 and would have come in for some questioning if the firm had gone down. Liddy even headed its audit committee during the five years before he resigned that seat to take over AIG in September 2008. As for his salary sacrifice, not to worry; in 2005, when he was still CEO of Allstate Insurance, he received $26.7 million in compensation.

What we have here is a rare glimpse into the workings of the billionaires' club, that elite gang of perfectly legal loan sharks who, in only the most egregious cases, will be judged as criminals -- Bernard Madoff, former chairman of NASDAQ, comes to mind. These other amoral sharks, who confiscated billions from shareholders and the 401(k) accounts of innocent victims, were rewarded handsomely, rarely needing to break the laws their lobbyists had purchased. 

Robert Scheer is Editor in Chief of Truthdig and author of a new book, The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America.

http://www.alternet.org/workplace/132298/moral_decay_swirls_around_banking_bailout%3A_time_for_a_criminal_investigation/

More wallstreet bailout news:

13 firms receiving bailouts owe back taxes --Rep. John Lewis: Two companies owe over $100 million apiece 19 Mar 2009 At least 13 firms receiving billions of dollars in bailout money owe a total of more than $220 million in unpaid federal taxes, a key lawmaker said Thursday. Rep. John Lewis, chairman of a House subcommittee overseeing the federal bailout, said two firms owe more than $100 million apiece. "This is shameful. It is a disgrace," said Lewis, a Georgia Democrat. "We are going to get to the bottom of what is going on here." [No, you won't. DemocRATs are too afraid to mention, let alone, blame - Bush's deregulation and giveaway of the National Treasury. Due to Obama's cowardice on that front (and electronic 'voting' machines), the GOP may sweep the 2010 and 2012 elections. By next year, the corporate-run media will have the entire collapsed economy pinned to Barack Obama and the Democrats. Witness the vitriol directed at Sen. Chris Dodd of Connecticut - as if *he* was/is the architect of the Bush Depression and feed the critters in the AIG swamp! --LRP]

Auto parts suppliers to get $5 billion in taxpayer aid 19 Mar 2009 The Treasury Department, trying to stabilize the battered [because they refuse to make fuel-efficient vehicles] auto industry, said Thursday it will provide up to $5 billion in financing to troubled auto parts suppliers who are linked to Detroit's carmakers. The funds would be made available from the government's Troubled Assets Relief Program, or TARP, said members of the Obama administration's auto task force.

House approves bill to tax AIG bonuses at 90% 19 Mar 2009 Responding to the anger about bonuses paid to AIG traders, the House approved a bill Thursday that would impose a punitive 90% tax on bonuses paid by American International Group Inc. and other financial companies that receive federal help. The vote was 328-93. The bill would apply to bonuses of people making more than $250,000 a year, and would apply only to payments from companies getting more than $5 billion from the federal government.

The Real AIG Scandal: It's not the bonuses. It's that AIG's counterparties are getting paid back in full.

By Eliot Spitzer
Posted Tuesday, March 17, 2009, at 10:41 AM ET

Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG's counterparties are justified with an appeal to the sanctity of contract. If AIG's contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse.

But wait a moment, aren't we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won't be laid off. Why can't Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, and aren't they sitting on more than $100 billion in cash? Haven't we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn't they have accepted a discount, and couldn't they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?

The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.

So here are several questions that should be answered, in public, under oath, to clear the air:

What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?

Was it already known who the counterparties were and what the exposure was for each of the counterparties?

What did Goldman, and all the other counterparties, know about AIG's financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn't they bear a percentage of the risk of failure of their own counterparty?

What is the deeper relationship between Goldman and AIG? Didn't they almost merge a few years ago but did not because Goldman couldn't get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG's business model was not to pay on insurance it had issued.

Why weren't the counterparties immediately and fully disclosed?

Failure to answer these questions will feed the populist rage that is metastasizing very quickly. And it will raise basic questions about the competence of those who are supposedly guiding this economic policy.

Eliot Spitzer is the former governor of the state of New York. (And politically assassinated because he dared to get in the way of the very bankers that are looting our nations treasury.)

http://www.slate.com/id/2213942/

Geithner "Out Of The Loop," Resignation Talk Begins

Henry Blodget

Mar. 17, 2009, 2:25 PM

 

A week ago, we lost patience with Tim Geithner and called for him to be fired. He won't be fired, of course--throwing him under the bus only a month or so into his tenure would embarrass the Obama administration--but we have now heard the first public discussion of a possible resignation.

 

Why might Tim Geithner resign?

• He still has no coherent plan to fix the banking system
• He has convinced no one that he's the right man to lead us out of this.
• He helped design the past administration's failed bailouts
• He was the architect of the original AIG bailout
• He tacitly helped cover up the AIG "counterparty" bailout beneficiaries for 6 months
• He approved the latest round of AIG bonuses last week (according to AIG)
  

At the very least, Geithner needs to answer for his role in the original AIG bailout, which has been a disaster, as well as the counterparty cover-up. 

In September, Geithner and Hank Paulson engineered an AIG bailout in which Paulson's firm (and one of Geithner's patrons on the New York Fed) secretly received $13 billion of taxpayer money that no taxpayer was told about. Now that taxpayers have found out about it, they are justifiably pissed. 

In any event, Republicans have been emboldened by Geithner's stumbles, and they're getting closer to calling for his head:

Huffington Post: Sen. Richard Shelby, ranking Republican on the Banking Committee, charged that Geithner had known about the AIG bonus payments before they were made and failed to stop them...

Shelby said that Geithner "either knew or should have known what was going on. We need to know, what are the details of this? When were the bonuses signed up? Who's getting it?"

The Alabama senator stopped short of calling for Geithner's resignation, saying "he's under fire from all sides now."

"I don't know if he should resign over this," Shelby said. "He works for the president of the United States. But I can tell you, this is just another example of where he seems to be out of the loop. Treasury should have let the American people know about this."

House Republicans Planning To Try To Force Treasury To Recoup AIG Bonuses

Seventy-Three New Millionaires at AIG, as the Company Fails

NY Atty. Gen.: 73 AIG Executives Got $1 Million Bonuses or More 17 Mar 2009 Seventy-three employees of troubled American International Group received more than $1 million in bonuses under contracts that guranteed them 100 percent of their 2007 pay in 2008 regardless of performance, New York State Attorney General Andrew Cuomo said. The relevation comes a day after Cuomo subpeonaed AIG for information regarding $165 million paid to executives and other workers in the company's troubled financial products division, chiefly responsible for bringing the insurance giant to the brink of collapse last year. The firm has required $170 billion in government injections bailout. [The PentaPost is wh*ring for the Reichwing propagandists, once again -- calling billions in bailouts 'injections.' How stupid do they think we are? I mean, that's like calling prisoners at Guantanamo 'detainees' and torture 'abuse.' --LRP]

AIG Threatened with Subpoenas Over Bonuses --NY Attorney General Cuomo Wants Names and Numbers by 4pm Monday 16 Mar 2009 The hot seat is getting even hotter for AIG Chairman and CEO Edward Liddy. ...The New York Attorney General has set a deadline of 4pm Monday for Liddy to release the names and job descriptions of those receiving bonuses stating that if the information is not received this afternoon that he will seek a subpoena to force compliance.

Obama's Outrage: President Wants Treasury to Block to AIG Bonuses --Obama: 'It's Hard to Understand How Derivative Traders at AIG Warranted Any Bonuses' 16 Mar 2009 President Obama publicly fumed today over plans by the bailed-out insurance giant AIG to reward it executives with $165 million worth of bonuses and asked his treasury secretary to "pursue every single legal avenue" to block them. "This is a corporation that finds itself in financial distress due to recklessness and greed," the president said.

Chorus of outrage over millions in AIG bonuses 15 Mar 2009 Leaders of the White House economic team and the Senate's top Republican [hypocritical scumbags and architects of deregulation, who purposefully caused the whole system to topple] bellowed about bonuses at a bailed-out insurance giant and pledged to prevent such payments in the future. From one Sunday talk show to the next, they tore into the contracts that American International Group asserted had to be honored, to the tune of about $165 million and payable to executives by Sunday, even as the company has benefited from more than $170 billion in a federal rescue. AIG has agreed to Obama administration [conciliators] requests to restrain future payments.

AIG ships billions in bailout abroad --Administration 'couldn't stop' AIG from doling out $165 million in bonuses to some of its top corporate officials – even as the company was receiving a massive infusion of taxpayer funds. 15 Mar 2009 Billions of American taxpayer dollars used to bailout insurance giant AIG are flowing to some of the largest foreign banks in the world, according to new documents released by beleaguered company Sunday. In all, AIG disclosed payments of $105.3 billion between September and December 2008. Some of the biggest recipients were European banks. Societe Generale, based in France, was the top foreign recipient at $11.9 billion, Deutsche Bank of Germany got $11.8 billion and Barclays, based in England, was paid $8.5 billion.

Ron Paul: Culprits Of Financial Collapse Should Be Arrested

Not treated as saviors and given more power to “fix” the problem that they created

Paul Joseph Watson
Prison Planet.com
Thursday, March 12, 2009

Congressman Ron Paul says that the people responsible for the economic crisis should not be hailed as saviors and given more power to fix the problem that they created, but arrested and criminally prosecuted.

Paul told the Alex Jones Show that the only way the private Federal Reserve could be brought under control would come as a result of a mass uprising, noting that there is a lot more awareness in Washington about the Fed’s contribution to the economic crisis.

The Congressman has two bills before Congress, one to abolish the Fed altogether and another to audit the organization.

“Today they’re protected, they’re in total secrecy and they’re protected by the law - if 1207 is passed we have an audit and they have to answer the questions and I figure, if we ever get that far and get the exposure and get the transparency that we need then people will wake up and realize, why do we have them at all,” said Paul.

The Congressman’s bill to audit the Fed is similar to another bill introduced by Bernie Sanders in the Senate which is aimed at getting the Fed to answer specific questions about where $2 trillion in bailout funds has gone, a subject that Bloomberg News sued the Fed simply to try and discover. Staggering scenes unfolded last week at a Senate budget Committee meeting when Bernanke arrogantly refused to state where any of the bailout money had gone despite repeated questioning by Sanders.

Asked if the people who caused the economic collapse should be trusted as saviors or criminally charged, Paul responded, “We should have minimal government, but even in a minimalist government your government is supposed to deal with theft and physical harm and fraud, and that’s what’s going on and that’s what they ignore or protect….it’s horrible what they’re doing….and they should be prosecuting these people, these people should be in prison.”

The Texas Congressman also discussed Obama’s monetary policy, noting that every time a new government initiative was announced to supposedly rescue the economy, the stock markets sink.

“In spite of how a lot of people think the markets don’t know what’s going on, the markets are pretty smart, so the fact that they’re not responding, in spite of all this stuff the government is doing, every time the government comes up with a new program, the markets go down even more,” said Paul, noting that free market advocates were right in warning that the problems will only begin to be resolved once liquidation is allowed to occur.

Asked how bad the economic picture would get, Paul responded, “I think it’s going to be very prolonged, I don’t see any rebound, markets may come back up and that sort of thing but to rebound I would expect it to last every bit as long as happened in the 30’s,” adding that the last depression did not really end until after a world war.

“I think it’s going to be a long long time but now we live in greater danger because people are far more demanding, they believe they have a right to their neighbors property and that’s why there’s liable to be violence….ultimately they’re going to destroy the dollar,” said the Congressman, adding that the only quick solution to the crisis was to follow constitutional principles.

Listen to the interview with Ron Paul below.

Research related articles:

1. Ron Paul Scolds Bernanke For Skipping Congressional Financial Hearings
2. Ron Paul: Printing Money Only Prolongs The Pain
3. Ron Paul Grills Bernanke: “You Can’t Reinflate The Bubble”
4. Ron Paul: Fear Based Bailouts Constitute Economic Terrorism
5. Ron Paul on The Alex Jones Show: “A Global Financial Order”
6. Ron Paul: Government Spending Driving Us Into Depression
7. Paul: Wars planned to save US empire
8. Ron Paul: Bailout Will Destroy Dollar, World Economy
9. Ron Paul: Greenspan, Bernanke Should Be Criminally Charged
10. CNBC Anchors Mortified That Ron Paul Was Allowed Air Time
11. Ron Paul Slams “Born-again Budget Conservatives”
12. Ron Paul: Obama Foreign Policy Identical To Bush

American Czarism

By David Sirota

January 25, 2009 "SFC" - -January 18, 2009" -- History's great American parables teach that if anything unified our founders, it was a deep antipathy to dictatorship. As bourgeois revolutionaries from Boston to Philadelphia courageously split with the British crown in 1776, they created three equal branches of government to prevent, in the words of James Madison, "a tyrannical concentration of all the powers" in a president's hands.

For two centuries since, civics books, Hollywood biopics and party convention speeches have constructed a mythology insisting that this democratic commitment to checks and balances makes our country a beacon of freedom - the "shining city on a hill" overlooking a despotic world below. We are told that democracy's tumult - its messy debates, legislative sausage-making and electoral friction - is the best way to guarantee that public policy represents public will, therefore making us a strong and durable nation.

If that is true, then every patriot should be concerned about the intensifying efforts to supplant democracy with something far more authoritarian. Call it American czarism.

That term should be as impossibly oxymoronic as crash landings and deafening silence, considering our Constitution's desire to create a "government of laws and not of men," as John Adams said. But politics is filled with paradoxes from Reagan Democrats to Obama Republicans, and czars - i.e., policymakers granted extralegal, cross-agency powers - have become increasingly prevalent in our government over the past century.

After the Great Flood of 1927, for instance, President Calvin Coolidge named Herbert Hoover the federal government czar overseeing relief efforts, and Hoover subsequently appointed "dictators" (he actually used that term) to help coordinate the response.

During the power consolidations of the New Deal in the 1930s, a Time magazine story headlined "Dictator or Democrat" reported on the "suspicions of those throughout the nation who have an uneasy feeling that [President Franklin] Roosevelt, under cover of the emergency, is trying 'to slip something over' on democracy." In the 1940s and 1950s, parks commissioner Robert Moses - famously known as "the power broker" - amassed so much personal authority that he was able to almost single-handedly redesign New York City. And lately, presidents have given us poverty, energy, drug, health and even Iraq war czars.

Until now, this slow lurch toward czarism has primarily reflected the ancient, almost innate human desire for power and paternalistic leadership. The current president reminded us that executives see all-powerful "deciders" when they look in the mirror. And Americans - sans kings to rally around - have been elevating commanders in chief to superhero status well before Barack Obama's Marvel comic-book debut and George Bush's flight-suited "Top Gun" impression in 2003.

In recent years, this culture of "presidentialism," as Vanderbilt Professor Dana Nelson calls it, has justified the Patriot Act, warrantless wiretaps and a radical theory of the "unitary executive" that aims to provide a jurisprudential rationale for total White House supremacy over all government. But only in the past three months has American czarism metastasized from a troubling slow-growth tumor to a potentially deadly cancer.

In October, Congress relinquished its most basic oversight powers and gave Treasury Secretary Henry Paulson sole authority to dole out billions of bailout dollars to Wall Street. At the same time, it did nothing when Federal Reserve chairman Ben Bernanke used fiats to commit "$5 trillion worth of new money, loan guarantees and loosened lending requirements," according to Politico - all while he refused to tell the public who is receiving the largesse.

And the Washington Post has reported that lawmakers may appoint a "car czar" who "would essentially control the purse strings" of an auto industry bailout and "could force Detroit's Big Three automakers into bankruptcy" if he or she didn't like their behavior.

Put bluntly, the unprecedented usurpation of spending power by the executive branch and the Federal Reserve is systematically undermining our democracy's most sacrosanct principle - the one that is supposed to ensure "the legislative department alone has access to the pockets of the people," as Madison said. And this new czarism is so strident because it reflects both executive power lust and the 21st century economy.

Today, keystrokes and mouse-clicks instantly whisk trillions of dollars across the planet, and many of those keystrokes and mouse-clicks are uninhibited by the grindingly slow processes of democracy.

Saudi princes don't have to publish announcements in a federal register before moving cash from sovereign wealth funds into foreign investments. China's rulers aren't obligated to obtain legislative approval when buying or dumping U.S. Treasury bills; and transnational corporations will not wait for public hearings before shuttering offices, eliminating jobs and cutting off credit.

Our nation is integrally connected to this fast-moving globalized economy, and American czarism effectively posits that in order to compete, we must anoint strongmen as saviors, prioritize speed instead of sobriety and emulate dictatorship instead of democracy.

Indeed, the Economist magazine's prediction that the "economic crisis may increase the attractiveness of the Chinese model of authoritarian capitalism" is coming true right here at home, as we seem ever more intent on replicating - rather than resisting - that model.

This, as much as personal hubris, explains why Paulson and Bernanke sought unprecedented latitude in spending trillions - they want to be able to move as fast as their autocratic counterparts in other countries, and believe congressional oversight will slow them down.

It explains why UC Berkeley economist Laura Tyson says we need an auto czar who will "take a number of approaches to this problem that are already known, that have been discussed endlessly, and force it through" - because to economists, a czar quickly "forcing it through" is more important than any consideration for democratic deliberation.

And it explains why when Obama aides this week demanded complete control over the second half of the Wall Street bailout funds, House Financial Services Committee chairman Rep. Barney Frank, D- Mass., shirked his oversight duties and said he's "willing to accept their word" that they will spend the money responsibly. In czarism, that's what legislators do: "accept the word" of the czar.

In sum, it explains why the age-old struggle between capitalism and democracy is once again defining our politics - and why capitalism is now winning.

That triumph may be terrific for the czars and great for their industry suitors, but as the founders would likely agree, it is a pyrrhic victory for America.

David Sirota is an author and syndicated columnist.

http://www.informationclearinghouse.info/article21838.htm