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Did the Federal Government Commit Extortion?

Judge Napolitano says yes and his argument is sound. The Judge makes his case here:

I recently met with the Chair and CEO of one of the country's top 10 bank holding companies. His bank is worth in excess of $250 billion, has no bad debt, no credit default swaps, no liquidity problems, and no subprime loans. He told me that he and others were forced by Treasury and FDIC threats to take TARP funds, even though he did not want or need them.

The FDIC -- with Treasury backing -- threatened to conduct public audits of his bank unless his board created and issued a class of stock for the Feds to buy. The audit, which he is confident his bank would survive, would cost it millions in employee time, bad press, and consequent lost business.

He pleaded with the Feds to leave his successful bank alone. He begged his board to let him tell the Feds to take a hike. But they gave in. The Feds are now just a tiny shareholder, but want to begin asserting more and more control. This is a classic extortion: Controlling someone's free will by threatening to perform a lawful act. (Blackmail is the threat is to perform an unlawful act in order to control someone else's free will.) There are no exceptions in the statutes prohibiting extortion for government persons

This happened in September 2008, but the demands for more control are more recent. It sounds to me like Paulson, Geithner, Bernanke, and Sheila Blair have all read a biography of Benito Mussolini. I guess they skipped the last chapter.

Judge Napolitano also argued the point on Shepard Smith's show. Here's the video from Johnny Dollar:

This can't continue. The bank the Judge speaks of, or any of the sound banks who were the victims of extortion at the hands of Hank Paulson and the Bush administration and the resulting efforts of to exert control by Tim Geithner and the Obama administration, need to stand up and fight this. There must be a board of directors of a bank somewhere in this country who has the guts to file suit against the federal government. This must be taken to the US Supreme Court so a precedent can be set. Since there is no precedent that specifically rules out this kind of action by the federal government, it is moving full steam ahead.

There's more at stake here than the freedoms of the banking system. If the federal government can extort individual banks and then attempt to gain managing control of those banks, it can do the same thing to any institution or any person.


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Comments (34)

Extortion? No.... (Below threshold)
Adrian Browne:


Extortion? No.

Welfare? Yes.

I'm also not sure you could... (Below threshold)
JLawson:

I'm also not sure you could call it extortion - though forcing the bank to take government money on pain of rectal-probe audits seems pretty darn overbearing to me. "You may not need it, but you're gonna friggin' TAKE it, or Guido and the IRS are gonna break your books" seems excessive.

And really - why shove out billions when the bank didn't want them in the first place?

Control, JLawson. The gover... (Below threshold)

Control, JLawson. The government wants total control. It's that simple.

That simple, perhaps - but ... (Below threshold)
JLawson:

That simple, perhaps - but also stupid.

PERHAPS there's a point to bailing out companies who need it - depending on the company and the prospects for survival.

PERHAPS there's a point to printing up billions upon billions of bucks to keep things going IF THERE'S NO OTHER CHOICE.

In this case, they not only didn't need it - they didn't want it. So we've tossed out more billions we don't have to a company that didn't WANT it in the first place.

So far we've got $800 billion to a stimulus package, $1.2 trillion in deficit spending in the current budget, a further $1 trillion in 'pledges' by the G20 countries (which will mostly fall on us) - so we're looking at a minimum of $3 TRILLION in deficit spending in just the first 3 months of the Obama administration. That's $3,000,000,000,000 - a hell of a lot more zeros than I want to see in a 'debt' column, let me tell you!

More and more I'm getting the feeling that not only doesn't Washington know what they're doing (aside from attempting to grab power they shouldn't even be touching in the first place) they're playing with what they consider to be Monopoly money. The quantities they're spending aren't REAL to them - but they're going to be VERY, PAINFULLY real to us!

Since there is no preced... (Below threshold)
Matt:

Since there is no precedent that specifically rules out this kind of action by the federal government, it is moving full steam ahead.

I understand there might not be a "precedent" that prohibits this kind of action on part of the government, but there is a Constitution!! I don't recall the Constitution authorizing this kind of power to the federal government. I understand the current government and judiciary don't seem to give a fig about the constitution, but we must constantly remind them that many of us still do.

That's $3,000,000,000,00... (Below threshold)

That's $3,000,000,000,000 - a hell of a lot more zeros than I want to see in a 'debt' column, let me tell you!

JLawson

That doesn't include the off book spending at the Federal Reserve which, by my estimate, is north of three trillion.

I've been trying to explain... (Below threshold)
Mark S.:

I've been trying to explain this to a coworker... who continues to state that "nobody was forced to take the money"... I've pointed out a few articles (including the WSJ about bank CEO's being "pressured" to take money).. and he still says 'they still didn't have to take it'.

Then I try to explain to him that there's some provision that says that they can't 'pay off' the debt (money owed) for 3 years (it was in the same WSJ article), even if they want to give it back immediately {which a bunch were screaming they wanted to do, and thanks to the "Pay Scale" rule.. they'll automatically be forced under govt. control that second disaster.

His comment.. "It's FOX (which he'll throw at me if I throw this one at him), you can't believe them.".. his bias is so bad, he can't see his own bias.

What other programs started... (Below threshold)
JC Hammer:

What other programs started under President Bush that we, the people, don't know about? So Obama is continuing them? Then Obama isn't a socialist, commie, etc is he? Lets face it people, every damn elected official is a crook, and the ones they appoint, are also crooks. And most people here comment on how Obama is making our country into a socialist country. Sounds different now, doesn't it?

It doesn't matter which party you believe in, can you believe they are not working for the people, but for the top 1% of the wealthy? What's a person to do?

"That doesn't include th... (Below threshold)
JLawson:

"That doesn't include the off book spending at the Federal Reserve which, by my estimate, is north of three trillion."

Oh, thanks a heap for THAT, HughS. I was wondering what to get for lunch, and just lost my appetite.

JC -"What's a pers... (Below threshold)
JLawson:

JC -

"What's a person to do?"

Um, that's a toughie. Let's see...

Try to examine all the facts from a non-partisan viewpoint? Total all the numbers, and figure out who's doing what? Actually THINK about the numbers presented instead of waving them off as meaningless? Examining what a person DOES, compared to what they SAY they're going to do, and seeing both what the difference is and what practical difference it makes? Try to figure out whether the money hosing out like (water) from an elephant's (trunk) is going into the places it'll actually do GOOD instead of into feel-good and payback programs? Judge objective reality versus politically motivated fantasies?

Oh, here's a real oldie but goodie - "QUESTION AUTHORITY!" (The trick is to figure out when authority is RIGHT, not just blindly adhere to it or reject it simply because it's 'authority'.)

Guess that'll do for right now... try those on for size and see how they fit ya.

I've been trying to expl... (Below threshold)
_Mike_:

I've been trying to explain this to a coworker... who continues to state that "nobody was forced to take the money"

He/she's only correct if they don't consider coercion to be force (e.g. "Real nice place you got there.. be a shame if something happened to it").

Why would an audit be perce... (Below threshold)
hyperbolist:

Why would an audit be perceived as "threatening"? Considering the moral and professioanl failings of the titans of finance these past few years, wouldn't it be a good thing to examine every large financial institution's books with magnifying glasses to ensure that this sort of shit doesn't happen again?

If I were an American taxpayer, I'd want every single bank to be audited as thoroughly as possible. More oversight could have prevented AIG-FP (for example) from being so cavalier with CDSs.

"If the federal government ... (Below threshold)
Clint:

"If the federal government can extort individual banks and then attempt to gain managing control of those banks, it can do the same thing to any institution or any person."

You mean like the auto industry? Or the health care industry?

Oh, surely not!

Why would an audit... (Below threshold)
Eric:
Why would an audit be perceived as "threatening"?

I guess you've never been audited by the IRS.

ever hear the phrase: "Inn... (Below threshold)
Mark S.:

ever hear the phrase: "Innocent until proven guilty", hyper? Neither has the IRS...

I have a family member who ... (Below threshold)
bobdog:

I have a family member who works in management at Wells Fargo, and I can confirm that they were forced to take TARP money.

Napolitano is right. It was unlawful to threaten a costly, protracted audit. The audit itself was not the point of the threat. It was the excessive cost of the audit that was used as a threat. There is no difference between that and the protection rackets run by the mob. Either go along with us or bad things will happen to you, in this case, running up millions in expenses. It's not blackmail, but it *IS* extortion.

And if reply here that you don't agree with me, we can hunt you down using your IP address. And who knows? You just might hear from the IRS about something called a "compliance audit". By next Tuesday morning. You can produce ALL of your receipts, can't you?

Don't mess with us.

JLawson, how can not consid... (Below threshold)
Wayne:

JLawson, how can not consider threats of unfavorable government action to gain control as not extortion? The banks were threatened with unfavorable government action unless they accepted money for a very minor ownership. Then they use the minor share to pass additional government regulations that force the majority stockholder to bow to their wishes. Yep, nothing fishy there.
There may be no precedent at this high of level but there is precedent at lower level. If a mayor was caught forcing a bar owner to sell a portion of business to him by threatening him with having the police come in and checking ID's often, having the fire marshal visiting him every week, etc. The mayor would be thrown in jail. Checking ID's and fire safety are legal acts but doing so as a threat is not. In addition, if you can't see that it is simply wrong for them to do so, then there not much help for you.

"Most states define extortion as the gaining of property or money by almost any kind of force, or threat of 1) violence, 2) property damage, 3) harm to reputation, or 4) unfavorable government action. While usually viewed as a form of theft/larceny, extortion differs from robbery in that the threat in question does not pose an imminent physical danger to the victim."

http://criminal.findlaw.com/crimes/a-z/extortion.html

HyperbolistThere is ... (Below threshold)
Wayne:

Hyperbolist
There is a difference between auditing banks for a valid reason and using it as a threat. If anything wouldn't you want to audit the banks that take your money more than the ones who didn't?

I'm saying this as clearly ... (Below threshold)
hyperbolist:

I'm saying this as clearly as I can: every financial institution in the United States should be audited to ensure that their holdings are legitimate and secure.

The public's negative disposition towards the IRS ought to have no bearing. That you people--who, as taxpayers, are now on the hook for the financial industry's failings--are so quick to rush to the defence of banks shows a willingness to prioritize the interests of banksters ahead of your own. That's seriously masochistic.

By the way, Wayne: would th... (Below threshold)
hyperbolist:

By the way, Wayne: would the current financial crisis inflicted on the entire world by bankers not be a "valid reason" to hold the entire financial industry in such low regard as to justify an industry-wide audit? I think it would.

Hyperbolist said: "... woul... (Below threshold)
pa:

Hyperbolist said: "... would the current financial crisis inflicted on the entire world by bankers not be a "valid reason" to hold the entire financial industry in such low regard as to justify an industry-wide audit? I think it would."

Let's just try out a little change in wording: "... would the current financial crisis inflicted on the entire world by GOVERNMENT not be a "valid reason" to hold the entire GOVERNMENT in such low regard as to justify an GOVERNMENT-wide audit? I think it would."

I won't go into long detail here, as readers at this site must surely know all the examples already. Fannie Mac and Freddie Mae: the root of the problem, created by government insistence that loans be given to people who were unable to repay them. (Anybody holding Barney Frank to account yet?) AIG bailouts, entirely unnecessary and a poor option compared to the better solution of loan guarantees (see Powerline's post from yesterday: http://tinyurl.com/d9m2g3). Auto company bailouts, entirely unnecessary and a poor option compared to the better solution of court-administered Chapter 11 bankruptcy. Unprecedented massive spending by Congress in stimulus funds (following the failed example set by Japan, whose economy consequently suffered a lost decade), not to mention a massive budget with unprecedented amounts in earmarks. And government is threatening still further damage to the economy by policies that will produce crippling costs for energy.

Government bears as much or more responsibility for creating the foundation and the environment that lead to these problems. Their "solutions" have made things vastly worse than need be and cost American taxpayers trillions, largely because their solutions are designed not to correct an economic problem, but to seize greater power and control over business and the people. I am a lot more upset over government's role in this whole episode than I am over the bankers. Government, and the politicians and bureaucrats who run it, should be thoroughly examined and held to account.

I understand if you want a ... (Below threshold)
Wayne:

I understand if you want a industry-wide audit. I think it will do little but waste time and money to make people feel good. Should we monitor? Yes. We do and should. Should we reevaluate our monitoring procedure? Yes and on a regular bases.

Now how does that excuse the government to use extortion to gain power is beyond me. Much of the government required subprime mortgages and other government regulations are what cause this problem. The governments screw things up so you want to give them more power (illegally or not) even over banks and companies who are sound and making profits?

As I said from the beginning we should not be on the hook for the few bad banks and companies from the beginning and these bad government regulations many which are still in effect should have been banish a long time ago. In the end I trust private industry and the capitalist system to correct itself much more than I do our screw-up government that can't even balance their own budget.

Wayne -"JLawson, h... (Below threshold)
JLawson:

Wayne -

"JLawson, how can not consider threats of unfavorable government action to gain control as not extortion?"

Taking a strictly legalist view - if it's the government doing it, it's not extortion. That doesn't mean it's right or ethical - but it's not illegal.

(Please note I'm not condoning it, either.)

Hyper -

There's audits, and there's audits. What would be the reaction of your company if they suddenly had to provide the Canada Revenue Agency with complete justification for the last three years' tax returns, including all source documentation used for any exemptions taken? Please include ALL invoices for EVERY expense, down to boxes of paper clips in the offices and tollway and parking receipts for people who had their travel reimbursed.

And then, when THAT was finished, they decided they needed to look at an additional two years' worth?

And when THAT was done, a review of other returns (say, of one of your vendors) showed a possible irregularity SIX years ago, requiring EVERYTHING from that year to be copied (paper copies only, please) and then forwarded to the office auditing THEM to serve as a secondary resource to ensure compliance?

How much would all that cost your company? For a small business, it'd be worrisome and annoying. For a multi-billion dollar company, you're looking at a hell of a lot of paperwork and hassle. And there are always going to be errors. How much would the CRA levy in fines and punishments for missing or incomplete paperwork?

Wayne:"In the e... (Below threshold)
JLawson:

Wayne:

"In the end I trust private industry and the capitalist system to correct itself much more than I do our screw-up government that can't even balance their own budget."

Fully agree - there is no incentive for the government to balance their budget because there's no punishment for not doing so.

You or I blow a budget, we're out of luck until there's money available again. The government? Hell, the taxpayer's good for it! Run up the charges!

$6 trillion and counting. It just keeps getting better, doesn't it?

What would be the reacti... (Below threshold)
hyperbolist:

What would be the reaction of your company if they suddenly had to provide the Canada Revenue Agency with complete justification for the last three years' tax returns, including all source documentation used for any exemptions taken?

We pay external auditors to meticulously comb through our books every year. We are required to do this by law. Nobody here thinks that's unreasonable--not my friend the CFO, who is himself a diagnostic accountant by trade, nor any of the group managers. For six weeks each year we give four chartered accountants their own offices, full access to all of our financials, and as much coffee as they want. This creates the impossibility of Enron- or AIG-esque accounting fraud and gives shareholders much greater confidence. As for whether it's too expensive, I don't think so: we're hiring during a recession, and I got a large bonus, so it would seem that it's a reasonable cost of doing business the right way--carefully, with sustainable profits.

In the end I trust private industry and the capitalist system to correct itself much more than I do our screw-up government that can't even balance their own budget.

Yeah, well, most people don't.

I got a large bon... (Below threshold)
maggie:
I got a large bonus

Is this bonus retentive, or for performance?
You should be outraged, eviscerate yourself,
and give it to the government, they deserve
it much more than you.
Is this a double standard or what?

He's up in Canada, Maggie.<... (Below threshold)
JLawson:

He's up in Canada, Maggie.

They do things differently there.

JLawson, Yes. I kn... (Below threshold)
maggie:

JLawson,

Yes. I know from where he posts.
Ignorance or deliberate ignoring of history
is no excuse.
Nor is having a double standard.

No double standard, maggie.... (Below threshold)
hyperbolist:

No double standard, maggie. I generated income for the company that employs me, and they compensated me with money. I then paid a large portion of this bonus to the government. Capitalism in a functioning, transparent meritocracy.

As to how you have come to the conclusion that I'm somehow using a "double standard", you could enlighten me, or you could go on tossing the pejorative around baselessly. I sincerely do not care either way.

Hyperbolist, You are... (Below threshold)
maggie:

Hyperbolist,
You are a real piece of work.
You rant and froth at the mouth about bonuses,
and turn right round bragging about yours.
What is good for the goose is not
good for the gander.
As to you not caring, I don't think anyone
here cares whether you do or not.
Have a quarter.

The actions of the Fed actu... (Below threshold)

The actions of the Fed actually sound like a combination of two things -- extortion, forcing the banks to take their money (and subsequently submit to their control) "or else," and greenmail, using ownership of a small percentage of shares to interfere with the governance of a corporation.

Of course the greenmailers deliberately acted as pests so the company would be forced to buy their shares back at a handsome profit; "blackmail" for "greenbacks", hence "greenmail". But the government isn't going to be bought out. Instead, they will find ways to increase their ownership -- and control -- of banks. If the government ever has complete control over the flow of money within the private sector, then they will pretty much own the economy.

I know we all sound like John Birch conspiracy kooks, but when the writing on the wall is this clear ...

Jlawson"if it's the ... (Below threshold)
Wayne:

Jlawson
"if it's the government doing it, it's not extortion."
This probably won't come out right. I understand it is very hard to prove legally government illegal extortion but it does happen and legal extortion is still wrong. Just because you are a government entity doesn't mean you can't commit crimes just that the law gives you much more leeway. Remember Nixon who said something along the line of "I couldn't have committed a crime. I'm the President."?

Anyway I don't want to dwell on the legality part. I am more concern with people who accept the government taking actions which are wrong because it is the government that is doing it. I understand there are things that need to be done that are not pure as the driven snow but there are things that clearly cross the line. When that happens the public should show outrage. Tolerating Government abuse is the surest and quickest way to destroy a society.

Any who doubts that extorti... (Below threshold)
Brian Richard Allen:

Any who doubts that extortion is casually employed by the vast criminal enterprises gathered beneath the "Democratic" party's banner and/or that are marching to its drummer, is either of that manifestation of evil or should not delay his presenting himself to the nearest psychiatric facility, for immediate and indefinite incarceration.

Instances of "Democratic" party stand-over and shake-down are as common as are ticks on clocks.

Other glaring and typical examples occurred within the past few days in broad daylight and not even the so called "right wing" commentators took issue when, in their illegal, unlawful and un-Constitutional stand over and shake-down of AIG employees, the loathsome and fearsome attorneys general of New York and Connecticut, cheered on by RICO-racketeering career congressional "Democrats," employed the Saul Alinskyist ACORN agitator, Obama's, fascistic Brown Shirts.

Not even Fox News's self-styled "libertarian," Glenn Beck, who manages to seem somewhat sane during at least ten minutes of some of his hours and who at least put Connecticut's consigliere on the hook for the acting outside of the law, called a spade, "a spade," and called what that RICO racketeering rat had been up to by its time honored proper name: stand over and shake down.

Brian Richard Allen
Los Angeles CalifO'ZEROcated 90028 -- and the Far Abroad

All of this is proof positi... (Below threshold)
Dave:

All of this is proof positive of how messed up things can become when the government gets involved. There is no two ways about it. none at all.




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