Taibbi: Obama And Geithner Are Acting Like Lehman Executives Before The Crash
Strongly recommend this piece at theHuffington Post by Jeff Connaughton, a former aide to Senator Ted Kaufman. Jeff is one of the smartest guys on the Hill and is particularly strong on issues surrounding Wall Street and the regulatory system. In this piece, he takes apart the oft-stated mantra that what Wall Street firms did during and after the crisis was maybe unethical, but not illegal.
He takes particular aim at Barack Obama, who recently tossed that line out on 60 Minutes in what I thought was one of the real low moments of his presidency. Here’s Jeff’s take:
Speaking in Kansas on December 6, [Obama] said, “Too often, we’ve seen Wall Street firms violating major anti-fraud laws because the penalties are too weak and there’s no price for being a repeat offender.” Just five days later on 60 Minutes, he said, “Some of the least ethical behavior on Wall Street wasn’t illegal.” Which is it? Have there been no prosecutions because Wall Street acted legally (albeit unethically)? Or did Wall Street repeatedly violate major anti-fraud laws (and should thus find itself in the dock)?
The President is confusing “legal” with “difficult to prosecute successfully.”
The notion that what Wall Street firms did was merely unethical and not illegal is not just mistaken but preposterous: most everyone who works in the financial services industry understands that fraud right now is not just pervasive but epidemic, with many of the biggest banks committing entire departments to the routine commission of fraud and perjury – every single one of the major banks, for instance, devotes significant manpower to robosigning affidavits for foreclosures and credit card judgments, acts which are openly and inarguably criminal.
Banks and hedge funds routinely withhold derogatory information about the instruments they sell, they routinely trade on insider information or ahead of their own clients’ orders, and corrupt accounting is so rampant now that industry analysts have begun to figure in estimated levels of fraud in their examinations of the public disclosures of major financial companies.
Beyond that, as Jeff points out, Obama is simply not telling the truth about the supposedly insufficient penalties available to regulators. Employing the famous“mistakes were made” use of the passive tense, Obama copped out in his December 6 speech by saying that “penalties are too weak.” As Jeff points out, what Obama should have said is that “the penalties my own regulators chose to dish out were too weak”:
Moreover, the President is misleading us when he says that Wall Street firms violate anti-fraud law because the penalties are too weak. Repeat financial fraudsters don’t pay relatively paltry — and therefore painless — penalties because of statutory caps on such penalties. Rather, regulatory officials, appointed by Obama, negotiated these comparatively trifling fines. This week, the F.D.I.C. settled a suit against Washington Mutual officials for just $64 million, an amount that will be covered mostly by insurance policies WaMu took out on behalf of executives, who themselves will pay just $400,000. And recently a federal judge rejected the S.E.C.’s latest settlement with Citigroup, an action even the Wall Street Journal called “a rebuke of the cozy relationship between regulators and the regulated that too often leaves justice as an orphan.”
What makes Obama’s statements so dangerous is that they suggest an ongoing strategy of covering up the Wall Street crimewave. There is ample evidence out there that the Obama administration has eased up on prosecutions of Wall Street as part of a conscious strategy to prevent a collapse of confidence in our financial system, with the expected 50-state foreclosure settlement being the landmark effort in the cover-up, intended mainly to bury a generation of fraud. Here’s how Jeff puts it:
In Ron Suskind’s book, Confidence Men, he quotes Treasury Secretary Timothy Geithner as saying, “The confidence in the system is so fragile still… a disclosure of a fraud… could result in a run, just like Lehman.” The Obama Administration is pushinghard for a 50-state settlement with the major banks for their fraudulent foreclosure practices, even though several state attorneys general have rejected this approach because, in their view, it would shield too much wrongdoing. Regrettably, Obama’s top officials and lawyers seem more eager to restore the financial sector to health than establish criminal accountability among the executives who were in charge.
In other words, Geithner and Obama are behaving like Lehman executives before the crash of Lehman, not disclosing the full extent of the internal problem in order to keep investors from fleeing and creditors from calling in their chits. It’s worth noting that this kind of behavior – knowingly hiding the derogatory truth from the outside world in order to prevent a run on the bank – is, itself, fraud!
This is exactly the mindset that led Lehman to the abuses of the ”Repo 105″ accounting trick, in which loans were disguised as revenues in order to prevent the outside world from knowing the dire state of the bank’s balance sheet.
Now Obama and Geithner are engaged in the same sort of activity, only they’re trying to prevent a run not on an individual bank, but the entire American financial services sector. Geithner seems really to believe that if fraud were aggressively policed, and the world made aware of the incredible extent of the illegality in our markets, that international confidence in the American financial sector would plummet and our economy would suffer – and suffer, incidentally, on Barack Obama’s watch.
Better, apparently, the Band-Aid the problem now, and let the real mess happen later on, on someone else’s watch, or at least in a second term, when there’s no need to worry about re-election.
Of course, this is exactly the wrong way to go about things. If Geithner and Obama really wanted to convince the world that America’s markets weren’t broken, they would effectively police fraud, and by extension prove to everybody that at the very least, our regulatory system is not broken.
But by taking a dive on fraud, and orchestrating mass cover-ups like the coming foreclosure settlement fiasco, what they’re doing instead is signaling to the world that not only are our financial markets corrupt, but our government is broken as well.
The problem with companies like Lehman and Enron is that their executives always think they can paper over illegalities by committing more crimes, when in fact all they’re usually doing is snowballing the problem so completely out of control that there’s no longer any chance of fixing things, thereby killing the only chance for survival they ever had.
This is exactly what Obama and Geithner are doing now. By continually lying about the extent of the country’s corruption problems, they’re adding fraud to fraud and raising such a great bonfire of lies that they probably won’t ever be able to fix the underlying mess.
If they looked at the world like public servants, and not like corporate executives, they’d understand that the only way out is to come clean. That they don’t look at things that way should tell people quite a lot.
DURBAN, South Africa—Two weeks of meetings that often descended into meteorological minutiae culminated Friday evening in a last-ditch effort to salvage a global climate deal, pitting the U.S. against emerging powers China and India over whether to hold each other accountable for greenhouse-gas emissions.
Late into Friday in this humid port city, delegates from the world’s major economies met in closed conference rooms to pore over drafts of potential agreements. The outcome is critical for developing countries, particularly in Africa, where agrarian economies are particularly vulnerable to climate change and governments lack the funds to help people adapt.
In the corridors of the convention center, dozens of young activists from Greenpeace and other environmental organizations waved signs imploring delegates not to “kill Africa” and repeated chants demanding “climate justice now.”
“A lot of people are freaked out, they are petrified at what’s happening—and what’s not happening—here,” said Adam Greenberg, a 23-year-old recent graduate of Global College of Long Island University.
A pledge to work toward a deal binding them to limit emissions after 2020 was in doubt even after two major emerging countries, Brazil and South Africa, agreed to support a pact.
The European Union, long a champion of a legally binding international accord, was lobbying the U.S., India and China to accept such an arrangement. Under its road map, developed countries that have ratified the Kyoto Protocol would agree to extend the emissions cuts it dictates beyond their scheduled expiration at the end of next year. In the meantime, the U.S., China and India, major economies that aren’t subject to the Kyoto Protocol, would negotiate a binding emissions-reduction pact by 2015 that could begin after 2020.
China and India have said binding emission cuts would curb development that is lifting millions out of poverty, and punish them unfairly for the emissions industrial nations have produced over decades.
To raise or not to raise the debt ceiling; that is the question: Whether ’tis nobler to suffer the slump and arrows of default today or in some distant future. Oh, bards of Washington, give us your answer.
This Shakespearean financial dilemma hangs in the balance between now and a somewhat theoretical Aug, 2, but I can tell you what an unbiased investment manager thinks: Don’t mess with the debt ceiling. Raise it unencumbered if necessary. I say unbiased because my credentials have become very public over the past several months. Pimco owns very few Treasury securities, and its clients would theoretically benefit if yields rose on an under-owned asset class that was technically in default. But default would still be a huge negative for the U.S. and global financial markets, introducing fear and unnecessary volatility into the economy and global trade. The market situation might resemble what happened after Lehman Brothers collapsed in 2008.
Congressional Republicans and GOP presidential candidates almost unanimously dispute this conclusion. House Speaker John Boehner sums up the Republican position best, saying that “it is true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without . . . taking dramatic steps to reduce spending.”
Responsibility in this case, however, is not an either/or proposition. An actual default — or even the threat of one — might set off a chain reaction that would raise Treasury bond yields by 25 basis points (a quarter of a percentage point) or more, pushing up the cost of debt throughout American financial markets. Moody’s, the bond rating agency, just Wednesday put America’s AAA credit rating on review for potential downgrade, roiling equity and bond markets alike in the aftermath. If an extra 25 basis points becomes the new benchmark, federal interest expenses might increase by $30 billion to $40 billion annually over the ensuing years as $1.5 trillion of new debt is issued each fiscal year, complicating efforts to narrow budget deficits.
Bond investors are a conservative lot. They earn only 1.6 percent on the average Treasury maturity these days, but they expect certainty on when, and whether, they will be repaid. Countries that keep them guessing or that are expected to default are punished severely, as reflected in 20 percent bond yields in Greece or even 5 to 6 percent in AA-rated Italy. Like it or not, James Carville, global investment managers have global choices these days, and a solvent Germany or Canada is just a wire transfer away for trillions of potential investment dollars looking for a safer haven.
There is an additional concern. The U.S. dollar is the global reserve currency, producing daily liquidity for trillions of dollars of transactions between trading nations. The greenback earned that status from decades of balance-sheet conservatism and strong economic growth. Now, as the ratio of federal debt to gross domestic product creeps closer to 100 percent — symbolic of AA, not AAA, status — and our growth rate remains mired at a 2 percent annualized rate, countries that have reserve surpluses (China and a host of petroleum exporters) are rethinking their currency preferences. A ratings downgrade or an actual default could reduce the willingness of these countries to do business in dollars, jeopardizing trade receivables and overnight letters of credit in the process. Recent defaulting sovereigns such as Argentina and Russia prove that commerce is difficult to restart once a seller is unsure of being paid in a currency that represents a store of value and is considered “money-good.” If our government doesn’t give a damn about the greenback dollar and its solvency, why should we expect others to protect its status as a reserve currency — a privilege that, by the way, lowers our interest expenses by an estimated $30 billion annually?
The answer to our modern-day Hamlet’s question then, is that there should be no question at all. The debt ceiling must be raised and not be held hostage by budget negotiations. Don’t mess with the debt ceiling, Washington. Bond and currency vigilantes will make you pay.
The writer is founder and co-chief investment officer of the investment management firm Pimco.
Moody’s Investors Service said Wednesday it has put the U.S. government’s top-notch credit rating on review for a possible downgrade because of the risk that Washington will not raise the federal debt ceiling in time to avoid a default.The firm added that even a brief failure of the government to pay its bills would mean that the United States’s Aaa rating “would likely no longer be appropriate.”
July 13 (Bloomberg) — U.S. Representative Barney Frank, a Massachusetts Democrat, talks about negotiations between lawmakers to raise the U.S. debt ceiling. Frank also discusses Federal Reserve Chairman Ben S. Bernanke’s testimony today before Congress. He speaks with Michael McKee on Bloomberg Television’s “Fast Forward.” (Source: Bloomberg)
Budget, debt ceiling glossaryA cheat sheet for understanding the debateThe announcement comes after Standard & Poor’s, another of the major credit rating agencies, has said that it would dramatically downgrade the U.S. government’s credit rating if payments were missed.
The U.S. has long been able to borrow money cheaply because global investors believe the government can be counted on to repay its debts. If credit rating agencies downgrade the U.S. and investors lose their faith in the creditworthiness of the government, the cost of borrowing money — in other words, the interest rate — could rise.The Treasury Department has said that on Aug. 2, it will run out of legal tools to meet the government’s financial obligations in the absence of an agreement to raise the $14.3 trillion legal limit on how much debt the government can maintain.The Moody’s review is prompted by “the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes,” an announcement from the firm said Wednesday. “Moody’s considers the probability of a default on interest payments to be low but no longer to be de minimis.”
It added that an actual default, or failure by the federal government to pay its bills, “would fundamentally alter Moody’s assessment of the timeliness of future payments.”
In early June, Moody’s had said it would likely review the federal government’s credit rating in mid-July if there were no “meaningful progress” in negotiations over raising the debt limit. That review is now happening.
Moody’s also has placed on review several companies that enjoy implicit backing of the federal government, most notably the mortgage finance giants Fannie Mae and Freddie Mac.
A senior Treasury Department official pointed to the Moody’s announcement as evidence that Congress needs to act to raise the debt ceiling.
“Moody’s assessment is a timely reminder of the need for Congress to move quickly to avoid defaulting on the country’s obligations and agree upon a substantial deficit reduction package,” said Jeffrey A. Goldstein, the Treasury undersecretary for domestic finance, in a statement.
Catherine Austin Fitts, host of the Solari Report, responds to fears of economic collapse and describes some of the forces at work that continue to undermine the middle class, such as inflation, GAT, and the WTO. The Solari Report is a weekly live interactive briefing with commentary and guest experts that go behind the headlines to reveal what’s really happening in the global financial system…
To date, 8 Presidential candidates, 4 Governors, 12 U.S. Senators, 35 Congressmen, and over 120,000 citizen activists have signed the Cut, Cap, Balance Pledge to not even consider raising the debt ceiling unless Congress first passes significant spending cuts, a spending cap, and a strong balanced budget amendment.
With last evening’s debt ceiling talks between President Obama and congressional leaders ending in disarray, it is time for us to TURN UP THE HEAT!
That’s why this Thursday, July 14th at noon locally Americans across the country are joining the fight to save America by dropping off the Cut, Cap, Balance Pledge at their elected officials’ district offices and asking them to sign the pledge.
If so, please go to www.CutCapBalancePledge.com/OfficeBlitz to find the address of the district office closest to you for your U.S. Representative, download the Cut, Cap, Balance Pledge, and drop off the pledge at noon on Thursday, July 14th (or another time that is more convenient for you).Then forward this email to five friends and ask them to join you in this critical office blitz to save America!
Two major trends are reversing, and trust in centralized institutions is eroding.
I tend to be years early on identifying trends, but three that will make a difference going forward are what I call “The Three Ds”: Delegitimization, Definancialization and Deglobalization.
Broadly speaking, the global economy and thus globalization and its sibling, financialization, depend on the legitimacy of centralized institutions. These include nation-state governments, international organizations such as the IMF, central banks, the mainstream global media, and various Central State agencies tasked with reporting data accurately, for example the Securities and Exchange Commission (SEC) in the U.S. and equivalent agencies in other trading blocs.
By far the grandest experiments in legitimization of the past 20 years are the European Union (EU) and its common currency, the euro, and China’s one-party rule combining a command economy with a quasi-free enterprise model, i.e. “Capitalism with Chinese characteristics.”
The vortex of insolvency gripping Europe is rapidly chewing through what remains of the legitimacy of the euro and the EU institutions tasked with overseeing the financial sector. As the legitimacy of these agencies erodes, the rot spreads to the political institutions which have placed their legitimacy in the hands of bureaucrats and central bankers.
Wall Street, BP, Bio-Ethanol and the Death of Millions
My late grandfather, a man of sturdy Norwegian-American farm stock, who later became a newspaper editor and political activist during the First World War, used to say, ‘A man can get used to pretty much anything with time, except dying…and even that with some practice.’ Well, as fate has it, it seems we, the vast majority of the human race, are about to test that adage in regard to the availability of our daily bread itself.
Food is one of those funny things it’s hard to live without. We all tend to take it for granted that our local supermarket will continue to offer whatever we wish, in abundance, at affordable prices or nearly so. Yet living without adequate food is the growing prospect facing hundreds of millions, if not billions, of us over the coming years.
In a sense it’s a genuine paradox. Our planet has everything we need to produce nutritious natural food to feed the entire world population many times over. This is the case, despite the ravages of industrialized agriculture over the past half century or more.
Then, how can it be that our world faces, according to some predictions, the prospect of a decade or more of famine on a global scale? The answer lies in the forces and interest groups that have decided to artificially create a scarcity of nutritious food. The problem has several important dimensions.
Eliminating Emergency Reserves
The ability to manipulate the price of essential foods worldwide at will — almost irrespective of today’s physical supply and demand for grains — is quite recent. It is also scarcely understood.
Up until the grain crisis of the mid-1970s there was no single “world price” for grain, the benchmark for the price of all foods and food products.
From the time of the earliest traces left by Sumerian civilization some two thousand years before Christ, in the region between the Tigris and Euphrates rivers in today’s Iraq, almost every culture had the practice of storing a reserve stock of a grain harvest – right up to the most recent times. Wars, droughts and famines were the reason. When properly stored, grain can be safely stored over a period of about seven years, enabling reserve stocks in case of an emergency.
After the Second World War, Washington created a General Agreement on Tariffs and Trade (GATT) to serve as a wedge to push free trade among major industrial nations, especially the European Community. During initial negotiations, agriculture was deliberately kept off the table at the insistence of the Europeans, especially the French, who regarded political defense of Europe’s Common Agriculture Policy (CAP) and European agriculture protections as non-negotiable.
Beginning in the 1980s with the political crusades of Margaret Thatcher and Ronald Reagan, the extremist free market views of Chicago’s Milton Friedman became increasingly accepted by leading European power circles. Step-by-step the resistance to the Washington agriculture free trade agenda dissolved.
After more than seven years of intense horse-trading, lobbying and pressure, the European Union finally agreed in 1993 to the GATT Uruguay Round, requiring a major reduction of national agriculture protection. Central to the Uruguay Round deal was agreement on one major change: national grain reserves as a government responsibility were to be ended.
Under the new 1993 GATT agreement, formalized with the creation of a World Trade Organization to police the agreements with enforceable sanctions against violators, ‘free trade’ in agriculture products was for the first time an agreed priority of the world’s major trading nations, a fateful decision to put it mildly.
Henceforth, grain reserves were to be managed by the ‘free market,’ by private companies, greatest among them the US Grain Cartel giants, the behemoths of American agribusiness. The grain companies argued that they would be able to fill any emergency gaps more efficiently and save governments the cost. That ill-advised decision would open the floodgates to unprecedented grain market shenanigans and manipulations.
ADM (Archer Daniels Midland), Continental Grain, Bunge and the primus inter pares, Cargill—the largest privately-held grain and agribusiness trading company in the world—emerged the great winners of the WTO process.
The outcome of the GATT agriculture talks was very much to the liking of the people at Cargill. That was no surprise to insiders. Former Cargill executive Dan Amstutz played the key role in drafting the agriculture trade section of the GATT Uruguay Round.1 In 1985 D. Gale Johnson of the University of Chicago, a colleague of Milton Friedman, co-authored a seminal report for David Rockefeller’s Trilateral Commission that was the blueprint for what they called “market-oriented” agricultural reform. It provided the framework for the US position in the coming GATT Uruguay Round negotiations. The Rockefeller group and its think tanks were the architects of ‘agricultural reform,’ as with so much in our post-1945 world.
We didn’t stand up for truth, we didn’t stand up for the Constitution, we didn’t stand up for the rule of law. And now the day of reckoning is upon us. Please, prepare.
a SGTbull07 micro-doc.
We didn’t stand up for truth, we didn’t stand up for the Constitution, we didn’t stand up for the rule of law. And now the day of reckoning is upon us. Please, prepare.
Please consider protecting yourself & your loved ones with Physical Silver and/or Gold.
~Stockpiling supplies is another answer…food, water, medical, arms~be prepared for the “march”~
is one of the smartest guys on the Hill and is particularly strong on issues surrounding Wall Street and the regulatory system. In this piece, he takes apart the oft-stated mantra that what Wall Street firms did during and after the crisis was maybe unethical, but not illegal.
