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A closer look at our new government overlords

Treasury Secretary Timothy Geithner wants to be able to hire and fire executive-level employees at financial institutions that require "exceptional" assistance from the Federal Government.

As the old saying goes, "he who owns the gold makes the rules." So be it. It might be tempting to simply write off Geithner's remarks as a lesson explaining why a private entity should never take government money, but Geithner's Treasury Department (and by extension, the Obama Administration) is interested in much more than just controlling the goings-on within a few struggling dinosaur banks.

Geithner has already petitioned Congress for the power to "initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy." And these seizures would not have to be triggered by a bankruptcy filing; they could be instigated solely at the discretion of the Treasury Department. Imagine the government having the power to seize control of a financial company simply because it refused to submit to Treasury Department directives.

As Kim Priestap noted a few days ago, this has already happened. Last September, the Treasury Department extorted banks like Wells Fargo into accepting TARP money under the threat that refusing to do so would automatically trigger a time-consuming, expensive and embarrassing comprehensive financial audit. Now that the banks that originally accepted TARP money are beginning to understand the level of control that the government expects to have over their operations, they are lining up to give the money back. Too bad -- the government isn't accepting refunds.

The real irony here is that while the Treasury Department seems to be openly planning a complete take-over of the American financial sector, the real instigators of the current credit crisis -- the executives and their subordinates who cheerfully sold "liar's loans" -- have largely escaped prosecution for the fraud committed in the process of writing those loans:

In the wake of the bursting of the housing bubble, you'd think there'd be a significant number of investigations into criminal wrongdoing and accounting fraud, similar to what occurred after the S&L crisis and bursting of the stock bubble in 2000.

But two years into the crisis the FBI "doesn't have a single major conviction or indictment of anyone," notes William Black, a former senior bank regulator and S&L prosecutor, and currently an Associate Professor of Economics and Law at the University of Missouri - Kansas City.

Black, who was counsel to the Federal Home Loan Bank Board during the S&L crisis of the 1980s and blew the whistle on the "Keating Five" in 1989, reiterated what he told us in November: Though the FBI warned of an "epidemic" of mortgage fraud in 2004, they subsequently made a "strategic alliance" with the Mortgage Bankers Association, which Black calls the "trade association of perps."

[...]

Black estimates there are as many as 500,000 cases of mortgage fraud that need to be investigated. Furthermore, such extensive mortgage fraud led to accounting fraud, which led to securities fraud at any/all publicly traded mortgage lenders. As with the FBI, the SEC was "completely ineffective" in stopping such crimes, much less investigating them now, he says.(emphasis added)

William Black was also interviewed last week by Bill Moyers. Naturally, since this was a Moyers interview, there was plenty of Republican-bashing. But according to Black, Timothy Geithner and other government officials know a lot more about the collapse of the sub-prime mortgage market than they are letting on:

BILL MOYERS: Why are they firing the president of G.M. and not firing the head of all these banks that are involved?

WILLIAM K. BLACK: There are two reasons. One, they're much closer to the bankers. These are people from the banking industry. And they have a lot more sympathy. In fact, they're outright hostile to autoworkers, as you can see. They want to bash all of their contracts. But when they get to banking, they say, 'contracts, sacred.' But the other element of your question is we don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up.

BILL MOYERS: The cover up?

WILLIAM K. BLACK: Sure. The cover up.

BILL MOYERS: That's a serious charge.

WILLIAM K. BLACK: Of course.

BILL MOYERS: Who's covering up?

WILLIAM K. BLACK: Geithner is charging, is covering up. Just like Paulson did before him. Geithner is publicly saying that it's going to take $2 trillion -- a trillion is a thousand billion -- $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion because they have mass[ive] losses, and that they're fine.

These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed, not because...

BILL MOYERS: What do you mean?

WILLIAM K. BLACK: Well, Geithner has, was one of our nation's top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well he's a failed legacy regulator.(emphasis added)

The lead-in to this segment isn't correct, of course. A lot of senior corporate officers in the finance industry, including many once-powerful CEO's, have been terminated. All together at least 20,000 white-collar workers in the financial sector have lost their jobs. Most of that 20,000 (like the majority of AIG retention bonus recipients) were not responsible for the failure of their employers, and they do not deserve to be treated as criminals. Further, at this critical time America cannot afford to be completely drained of its financial talent, which is what would happen if we allowed the kind of mob mentality that followed the AIG bonuses to continue unabated. But right now there ought to be hundreds, if not thousands, of managers and executives from private banks, Fannie Mae, and Freddie Mac facing charges of fraud.

In the light of the uproar that Democrats made over the Enron and WorldCom accounting scandals just a few years ago, this is indeed puzzling. Angelo Mozilo and Franklin Raines ought to be today's Jeffrey Skilling and Ken Lay. Why aren't the Democrats interested in locking them up and throwing away the keys? How foolish of me to ask -- would you do that to your friends?

Lawrence Summers, a top economic adviser to U.S. President Barack Obama, was paid about $5.2 million by hedge fund D.E. Shaw in the past year, financial disclosure forms released by the White House showed on Friday.

Summers, a former U.S. Treasury secretary and Harvard University president, also was paid $2.7 million in speaking fees by a range of organizations and companies, including several troubled Wall Street financial firms, they showed.

The disclosure documents on Summers and other White House officials advising Obama on the global financial crisis covered 2008 and the first few months of this year. Summers became an official adviser on January 20 when Obama took office.

Summers, who was a part-time managing director of D.E. Shaw after stepping down as Harvard president, had speaking fees of $67,500 from JP Morgan, $45,000 from Citigroup, $135,000 from Goldman Sachs and $67,500 from Lehman Brothers, which went bankrupt in the mortgage crisis last year.

And Timothy Geithner shouldn't be let off the hook either. As Chairman of the New York Federal Reserve from November 2003 to January 2009 he was the top government official responsible for oversight of our nation's banking system. Now he says, "We're having a major financial crisis in part because of failures of supervision."

So here's where we are: Treasury wants the power to seize control of financial institutions, but apparently they have little interest in ensuring that banks correctly value their equity or tie their derivatives directly to tangible assets. And the Obama Administration will eagerly persecute scapegoats who happen to be in the wrong place at the wrong time, but has no real interest in prosecuting those responsible for hundreds of billions of dollars worth of credit, accounting, and securities fraud.

I don't know what Obama and Geithner are up to exactly, but I have no doubt about the fact that ultimately it will be no good.


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Comments (31)

"I don't know what... (Below threshold)
Adrian Browne:

"I don't know what Obama and Geithner are up to exactly, but I have no doubt . . ."

That sums it up doesn't it?

My goodness Adrian, you're ... (Below threshold)

My goodness Adrian, you're trolling early today.

No Mike, Adrian is being un... (Below threshold)
epador:

No Mike, Adrian is being unusually truthful. He really doesn't know what the O man is up to. Now he doesn't get your language use either, but that's a given.

Obama wants complete contro... (Below threshold)
sam:

Obama wants complete control over the US financial sector. He is doing it at the behest of his financier George Soros.

All this talk of liquidity crisis and toxic assets is BS. The toxic assets are toxic not because of liquidity issues, but because of the fundamentals of the underlying sub-prime assets. The fundamentals reflect the true value of these assets, close to zero.

The whole Paulson-Geithner plan is based on the assumption that these assets have value, that liquidity crisis is breaking the market, and that pumping trillions of dollars to the banks will boost the values of these assets. The reality is that the market is reflecting the true value of these assets. The mortgage market became overpriced because of subprime credit, the banks bet big-time that the go-go real estate will go on indefinitely.

The real Geithner plan is to basically transfer taxpayer money to insolvent banks, as part of payoff for political patronage. That is why there is so much obfuscation about who is getting how much money, and what they are doing with it.

The only thing certain is that taxpayers will be paying trillions of dollars to make bank shareholders and executives whole.

Adrian, if you need some he... (Below threshold)
Zelsdorf Ragshaft III:

Adrian, if you need some help understanding what Obama is up to, do just a little studying of Alinsky. When you are done with that, read what Marx wrote. That should give you a clue. To the rest of us, we just have to trust the system can withstand the assault and that enough members of congress will resist the leadership on the left side to save the republic.

RE: "I don't know what Obam... (Below threshold)
kevino:

RE: "I don't know what Obama and Geithner are up to exactly, but I have no doubt about the fact that ultimately it will be no good."

It's a Chicago-style shakedown. Does the phrase "Pay to play" ring a bell? When Obama wants to raise money for his re-election, raise money for his community organizing friends, and raise money for any other purpose, he'll pass the hat in the industries where he controls the management. If they don't pay, he'll simply remind them that he has the power to remove them from their jobs anytime he feels like.

The Commander in Chief now becomes Chief Extortionist.

#5,My comment is a q... (Below threshold)
Adrian Browne:

#5,
My comment is a quote.

"I don't know what Obama and Geithner are up to exactly, but I have no doubt . . ."

The "I" in the comment isn't me -- see how that works? It's a quote.

"I" doesn't know what they're doing but "I" knows "I" doesn't like it.


The mainstream media wouldn... (Below threshold)

The mainstream media wouldn't do it. So we are trying to get your important messages to the American people. This post is a suggested read at, aresay.blogspot.com/

So what do you think, Adria... (Below threshold)
JLawson:

So what do you think, Adrian? Have you got any idea of what Obama's doing - can you articulate it, and do you like and agree with it?

Frankly, I'm not seeing any overarching 'plan' in the main - I see someone who doesn't know what the hell he's doing, but thinks maybe if he's forceful and decisive enough, and evasive enough, people aren't going to notice. I also see in Geithner someone who's got way too much work to do, who seems to be thinking "All I've got to do is get them totally under control, doing ONLY what I say, and my job will be simpler." It never really happens that way, of course...

The refusal to accept TARP money back is just plain stupid. We're running incredible deficits and Obama DOESN'T want money to come back into the treasury? WTF? He'd rather CONTINUE with a state of emergency?

Obama's got an idea of how the whole thing should work. The problem I see is that he hasn't any real clue about what he's doing - he's strictly theory, with no actual experience. When reality departs from theory - you've GOT to go with reality.

9:Why would you want... (Below threshold)
Adrian Browne:

9:
Why would you want MY opinion? Who cares about MY opinion? I'm not any sort of expert on economics. I don't feel the need to make a final pronouncement about something ongoing with all those moving parts and ramifications that I can't even imagine.

All I can do is try to read a variety of sources about it. BTW, the Left-leaning blogs are hardly fans of Geithner and Summers.

It's a Chicago-sty... (Below threshold)
Stan25:
It's a Chicago-style shakedown. Does the phrase "Pay to play" ring a bell? When Obama wants to raise money for his re-election, raise money for his community organizing friends, and raise money for any other purpose, he'll pass the hat in the industries where he controls the management. If they don't pay, he'll simply remind them that he has the power to remove them from their jobs anytime he feels like.

Obama is Jessie Jackson on steroids. He wants to go after the financial institutions, because that way he can gather the so-called reparations that most of the radical black leaders want and think they deserve. The radical black leaders think that the banks are responsible for the slavery that was in our past. Not one iota of this money will not go to any of the people they claim to be helping, it will go directly into the pockets of the so-called leaders in the black community. As for the Chicago style shakedown, Obama just picked up where Al Capone left off.

Thing is, this should scare... (Below threshold)
MunDane:

Thing is, this should scare the hell out of the Democrats, too. There is no way the public will keep them in power at the executive level for long.

And then?

Then the big, bad Republicans will be in charge of things like ACORN, money-laundering community "banks" and have the power to put people in to void union contracts.

No one, it seems, can think beyond the next couple of years for the consequence of their actions. It is like you gave a group of teenagers a AmEx card and dropped them off at a brothel or mall...

Why would I want YOUR opini... (Below threshold)
JLawson:

Why would I want YOUR opinion, Adrian?

This is a place for opinions, isn't it? Folks arguing, folks discussing - trying to make some sort of sense of the randomness we're seeing.

"I don't feel the need to make a final pronouncement about something ongoing with all those moving parts and ramifications that I can't even imagine."

Who's making final pronouncements? All that's going on is a lot of strangers opining on a blog. WE sure as hell don't have all the info, or answers - but we're trying to figure out how everything fits together into a coherent pattern.

Maybe you've got something that we haven't seen - or thought something that might make sense if given more info. If you've got opinions, trot them out! Let's see if they stand the light of day. Who knows, people might even agree with them and think they're worth commenting on - or disagree with them and show you something you hadn't thought of which could change how you see things.

It's not hard to disagree without being disagreeable - all you've got to do is try to respect the person you're disagreeing with.

So what are the left-leaning blogs thinking about it all?

Consider this.If a... (Below threshold)
Rance:

Consider this.

If a large corporation goes Chapter 11, the court has the power to appoint a trustee to distribute the assets to the debtors.
i.e. the court fires the management and hires new management for a dead company.


What Geithner appears to want to do is appoint the trustee for companies in trouble, without having them go bankrupt, in an attempt to keep the company viable.

If one is paranoid about creaping communism, it's the government taking private companies.

If one is not that paranoid, it's the government's appointees running the companies until they are healthy and then releasing them back into the wild.

13:"Who's making fin... (Below threshold)
Adrian Browne:

13:
"Who's making final pronouncements? "

"I don't know what Obama and Geithner are up to exactly, but I have no doubt about the fact that ultimately it will be no good."
~Michael Laprarie


13:Here is Glenn Gre... (Below threshold)
Adrian Browne:

13:
Here is Glenn Greenwald discussing the very same Bill Moyers interview:

http://www.salon.com/opinion/greenwald/2009/04/04/summers/index.html


Angelo Mozilo and Franklin ... (Below threshold)
GarandFan:

Angelo Mozilo and Franklin Raines ought to be today's Jeffrey Skilling and Ken Lay. Why aren't the Democrats interested in locking them up and throwing away the keys?

You nailed that one. BECAUSE MOZILO AND RAINES ARE DEMOCRATS.

Adrian -This is an... (Below threshold)
JLawson:

Adrian -

This is an OPINION Blog. What's written here is not the final say on politics, as you're well aware.

Would you rather snark from the sidelines than hold out your opinions for consideration? I'm trying to take you seriously, but you're not making it easy.

JLawson,Thanks for y... (Below threshold)
Adrian Browne:

JLawson,
Thanks for your interest in my opinion but like I said, on this particular complicated, VAST issue all I can do is try to read a variety of sources -- I don't even have an opinion as to the course of action Obama should take. If you read news sources like the Financial Times or the BBC, Obama's response so far isn't anything unusual or remarkable much less apocalyptic.

The course of action some on the Left would like to see, a complete overhaul of the banking system, isn't politically feasible. Others believe the role of the President is to basically maintain the status quo -- which appears to be the basic strategy of Obama.

Rance:First of all... (Below threshold)
kevino:

Rance:

First of all, when a company declares Chapter 11, the officers of that company make the decision and file the appropriate documents. Then a court determines what's best from that point. The decisions are made by officials - in open court - with oversight (e.g. right of appeal).

Geithner wants the right to appoint a trustee whenever he decides.

One of the common components of modern liberalism is that it consistently tries to undermine accountability. This is another example of liberals wanting power and control without oversight. They want the power to take over a company or put pressure on a company's executive officers without Congressional approval or court action.

And this kind of State control over the private sector isn't Communism, per se. It's Fascism. As a Libertarian I would support liberals more often if they'd stop behaving like Nazis.

"Why would you want MY o... (Below threshold)
Oyster:

"Why would you want MY opinion? Who cares about MY opinion? I'm not any sort of expert on economics. I don't feel the need to make a final pronouncement about something ongoing with all those moving parts and ramifications that I can't even imagine."

So I just interject with catch phrases and quotes I happen to like. And when I'm not doing that, I channel caricatures of humans, like Ashley Todd for example, thinking I'm on the cutting edge of humor and derision.
---------
Oh, and the "I" in the paragraph above isn't me -- see how that works?

Adrian -Thanks for... (Below threshold)
JLawson:

Adrian -

Thanks for your explanation, and for the expansion of what you think on this.

Wasn't that hard, was it? (grin)

kevino,Geithner wa... (Below threshold)
Rance:

kevino,

Geithner wants the right to appoint a trustee whenever he decides, because the best interests of corporate management don't always align with the the best interests of the country.

If it's a choice between liquidating the assets, and preserving the company and the jobs, which side do you come down on? Upper management is going to be unemployed either way.

Do you seriously think he would dare invoke the power except in the case where the entity is already teetering on the brink?


Your boy Bush wanted to tap... (Below threshold)
Dickie Flatts:

Your boy Bush wanted to tap your phone without a warrant and also wanted the right to throw your azz in a brig down in SC and keep you from the courts if he so desired.

... And you call Obama and his crowd, "overlords."

Sheesh.

Save the drama for yer momma. Loser.

The problem as I see it is ... (Below threshold)
RicardoVerde:

The problem as I see it is there are already courts/procedures/protocols in place to handle insolvent firms. There are liquidation bankruptcies and reorganization bankruptcies but in either case there are judges in place that are trained and experienced in handling the matter. Why does the treasury feel it has to insert itself into what is basically a reorganization bankruptcy?

RE: "Geithner wants the rig... (Below threshold)
kevino:

RE: "Geithner wants the right to appoint a trustee whenever he decides, because the best interests of corporate management don't always align with the the best interests of the country."

And who the Hell appointed Geithner to that job? By what authority does he get to make that decision? Corporations, like individuals, must play within the boundaries set by the Law. If they play by the rules, they have the right to exist. Geithner, who has demonstrated no ability to read the tax code, little ability at regulation, little ability in planning the recovery, or even in hiring staff (he's overworked because he has a lot of staff positions left unfilled) is low on my list of people I'd want to make those decisions. By even if he was competent, how do you recommend allowing one person or the Executive office the power to decide that the State can throw out the management of a company because it's in the country's best interest?

Corporate managers ultimately answer to their stock holders - the owners. If the State is going to inject it's will into that contract, you'll guarantee a flight of capital away from companies. Also, this applies to non-public companies, so this lets the State take company control away from owners.

Pretty much National Socialism.


RE: "If it's a choice between liquidating the assets, and preserving the company and the jobs, which side do you come down on? Upper management is going to be unemployed either way."

If a company is losing money and it's assets are liquidated, the company isn't going to survive and all jobs are lost. Period. You have stated an incorrect view of bankruptcy.


RE: "Do you seriously think he would dare invoke the power except in the case where the entity is already teetering on the brink?"

Yes. Why not? What's the down side? Unlike not paying his taxes, for example, he wouldn't even be breaking the law this time.

And even better question: "Why not threaten to invoke the power to gain power, influence, and money?"

Bottom line:
1. No authority to do this under the Constitution. It is, in fact, very anti-democratic and authoritarian.
2. It puts too much power into the hands of a few with no useful safeguards or oversight.
3. It is power that can be abused - terribly.
4. It is recommended by a tax-cheat who hasn't demonstrated a reasonable ability to do the job he was selected to do.

RicardoVerde,You a... (Below threshold)
Rance:

RicardoVerde,

You ask "Why does the treasury feel it has to insert itself into what is basically a reorganization bankruptcy?"

The question is, if one of these huge entities goes Chapter 11, will there be anything left to reemerge on the back side, or will it simply cease to exist? If ceases to exist, what will be the impact on the rest of the economy?

Do we want to wait until things have gone so far downhill that the company cannot be rescued, or should steps be taken before things get that far. Think of it as performing radical/experimental surgery vs. harvesting the organs from the corpse.

"Think of it as performi... (Below threshold)
JLawson:

"Think of it as performing radical/experimental surgery vs. harvesting the organs from the corpse."

If that's the case, you hope the surgeon knows what he's doing. For some reason, I'm not feeling terribly confident that's the case.

Oyster is sooooo clever. </... (Below threshold)
max:

Oyster is sooooo clever.

Using the surgical metaphor... (Below threshold)
RicardoVerde:

Using the surgical metaphor, reorganization bankruptcy would be closer to removal of gangrene so the remaining organism can live.

As others have noted above, there is no need for the administration to invent policy on something that has a complete infrastructure in place. They are inventing executive powers not granted them in the constitution.

RE: "The question is, if on... (Below threshold)
kevino:

RE: "The question is, if one of these huge entities goes Chapter 11, will there be anything left to reemerge on the back side, or will it simply cease to exist?"

You really need to look at what Chapter 11 is all about, because the issue of what emerges is a big part of what the process is about.


RE: "If ceases to exist, what will be the impact on the rest of the economy?"

Not your call. Not Geithner's call. Not anything the pinheads in Washington can understand or handle honestly. Not in the Constitution.

Even more important is the impact this kind of State control over the economy has. If the President gets this kind of power over large businesses and the economy, what will be the impact on the rest of the economy and the Republic? Answer: terrible.


RE: "Think of it as performing radical/experimental surgery vs. harvesting the organs from the corpse."

No, it's more like given someone the right to commit first degree murder and letting that person sell the organs for profit. That opens the door for Dr. Kevorkian to walk into you house one night and say, "Hmmm. Nice liver you've got there. Shame if something bad were to happen to it. How much are you willing to pay for me to go and visit the neighbor's house?" And then, should he decide to kill you anyway, he gets to give your body parts to whomever he likes or sell them to the highest bidder.


What you are proposing is that the State gets to decide what companies live, what companies die, how the living companies are run, and who runs them. Stockholders, the people who own the business, don't get to make those decisions anymore. The State gets to make these decisions because it is in the People's best interest. That is, by definition, State control of the economy. That's a huge expansion of Federal power. You counter argument is that it has a limited scope - at present. The problem is that the concept (i.e. State control is good if it's for the good of the People) is not limited at all.

And the probability that the power will be abused is 100%

Folks, read and understand the Iron Law of Oligarchy. Then look at the theory and history of Fascism. Those who do not learn from history, are just plain stupid.




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