The Big Takeover

Matt Taibbi reports in the Rolling Stone, in his article entitled, "The Big Takeover" that "the global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution."Mr. Taibbi writes: "It's over — we're officially, royally fucked. No empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country's heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire."

The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history — some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That's $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG's 2008 losses).

So it's time to admit it: We're fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we're still in denial — we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream. When Geithner announced the new $30 billion bailout, the party line was that poor AIG was just a victim of a lot of shitty luck — bad year for business, you know, what with the financial crisis and all. Edward Liddy, the company's CEO, actually compared it to catching a cold: "The marketplace is a pretty crummy place to be right now," he said. "When the world catches pneumonia, we get it too." In a pathetic attempt at name-dropping, he even whined that AIG was being "consumed by the same issues that are driving house prices down and 401K statements down and Warren Buffet's investment portfolio down."

Liddy made AIG sound like an orphan begging in a soup line, hungry and sick from being left out in someone else's financial weather. He conveniently forgot to mention that AIG had spent more than a decade systematically scheming to evade U.S. and international regulators, or that one of the causes of its "pneumonia" was making colossal, world-sinking $500 billion bets with money it didn't have, in a toxic and completely unregulated derivatives market.

Nor did anyone mention that when AIG finally got up from its seat at the Wall Street casino, broke and busted in the afterdawn light, it owed money all over town — and that a huge chunk of your taxpayer dollars in this particular bailout scam will be going to pay off the other high rollers at its table. Or that this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires.People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

Rachel Maddow Show: Matt Taibbi on Why Financial Institutions Should Be Broken Up

Wall Street Crooks

The corporate executives laid the foundation for the government's 80% ownership in AIG as well as the banking sector. The AIG corporate executives along with the other financial titans came to the government groveling on their knees begging for a government handout.

The corporate enterprises set their executive compensation, which included generous bonuses for bankrupting the industry. They ran the companies and the financial sector into the ground. Damn, Wall Street should have been able to run their capitalistic empire without training wheels and adult supervision. But, I guess that was a wrong assumption. Since, the Wall Street investment bankers, and other assorted financial institutions are 100% to blame for their jacked-up business models and their over leveraged toxic derivatives/swaps. Of course, the Bush Administration should have regulated their industry, but that doesn't absolve the blame of the companies like Bears, AIG, Merill Lynch, Goldman Sachs, Citibank, Bank of America, Enron, Worldcom and other assorted nefarious players for their dirty deeds done in the dark off the balance sheets.

This pinstriped crew is just as corrupt as Bernie Madoff. And they should go to jail too.

During my childhood, I (like most kids) played the game Monopoly. As a child, it seemed strange that the first major stop on the corner of the game-board was a "jail."

Along with a more punitive space the police man pointing backwards in the “go to jail” space. As if that weren't enough the Community Chest and Chance cards both had cards, drawn at random, with not only a "get out of jail free” card, but also a "go to jail, go directly to jail, do not pass go, do not collect $200" card. As a child those cards and the presence of jail on the game board that bought and sold property, utilities, and railroads didn't make sense. Now, in light of the Wall Street meltdown I understand. These crooks just need to go to jail.

--by Ron Edwards

Eliot Spitzer Weighs in on AIG

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.

--by Eliot Spitzer the former governor of the state of New York. (source: Slate)

From GM to AIG

There's an old saying: 'As General Motors goes, so goes America.' This week the share price of General Motors nosedived. In the closing hour of trading on the New York Stock Exchange on Thursday, the iconic US automaker fell by 30% cutting its share price to a level not seen since 1950.

There's now a real danger that one of the biggest companies in America could go bankrupt.. . .

And the pain of the top echelon of AIG was also eased somewhat in September when they repaired to the St Regis resort in southern California to digest the implications of the $85bn government bailout of their firm. It cost $440,000 with $23,000 spent on 'spa' treatments. 

The trouble in which General Motors finds itself and the grotesque greed of the filthy rich who pushed Wall Street over the edge are, in an odd way, connected.

On Wall Street, the deregulation of banks in the final years of the Clinton Administration allowed for nimble investment banks like Lehman Brothers to create un-dreamt of wealth through a dizzying complex web of financial engineering. Risk was a concept that could be squared away using algorithms. Money was not linked to selling things. It was seemingly created out of thin air. 

Somewhere along the line, income distribution became seriously skewed. The rich became incredibly rich. The moderately well paid union jobs at Ford and GM came to be considered a problem and were blamed for making their companies uncompetitive.

In this election year, both US presidential candidates continually tell their audiences their country is at a turning point. Indeed it is. Debt to pay for cars, college tuition and yes, those houses- became a temporary solution to a society and economy enormously out of balance.

The US Treasury has signed an $800bn bailout bill for the financial sector. It has given a $25bn bailout to the 'Big Four' US automakers. Its national debt is headed for over $10 trillion.

The unfortunate irony for either presidential winner who arrives in the White House in January is: He may find the country too broke to fix.

From "Shortt Take: General Motors" by Robert Shortt.