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The science of household affairs, or
of domestic management.
Social science dealing with the production,
distribution and consumption of goods and
services and the theory and
management of economic systems.
It is
the duty of those who have been enlisted in the
organization of society to give every individual the opportunity of
acquiring the necessary talent or
skill and the means of utilizing such a
talent so that that individual may
exercise their inherent talent in
the pursuit of a livelihood.
"Wherever politics intrudes upon economic
life, political success is readily attained by saying what people like to hear
rather than what is demonstrably true.
Instead of safeguarding truth and
honesty, the State then tends to become a major source of insincerity and
mendacity." – Hans F. Sennholz
"Karl Marx, whose
economic analyses are strikingly
prescient and relevant today, demonstrated how the credit economy is one way
that central banking systems
attempt to stretch out and soften the boundary where the
private accumulation of profit from
production runs up against the waning
purchasing
power of the consuming public. In a nation whose governing parties and
increasingly wealthy corporate elite can't restrain themselves from devastating
and costly imperialist wars
overseas while at the same time impoverishing ever-growing numbers of the
struggling and poor at home, there isn't going to be any good economic news for
most people." - Eric Brill 01/08
savings and loans debacle
The savings and
loan debacle began the regression of the
American republic into a "plutonomy" - a society in which the largest
economic gains flow
to an ever smaller portion of the population creating a decadent
social order that poorly rewards human
labor.
After the
stockmarket crash of 1929, Congress passed a series of laws designed to
restrict the ability of Wall Street
to manipulate markets through the banking industry.
1933
Glass-Steagall Act
Congress passes the
Glass-Steagall Act
separating commercial banking
activity, which accepted deposits and issued loans, from
investment banking activity, which
underwrote stocks and corporate
bonds.
This is the governing economic principle for more than half a
century.
late 1970's
Paul Adolph Volker attempts to reign in
the money supply, and
inflation, by raising
interest rates to
stratospheric heights.
Most savings and loans fixed rate assets rate of
return are considerably below the prevailing rate of Federal Reserve
funds.
Savings and loans are paying, assume 12%, for loan capital but
their return on previous released capital is only 6%.
This policy
basically obliterated the Savings and Loan industry.
December 12, 1980
Federal Reserve chairman Paul Adolph
Volker BB /CFR/TC raises the prime loan rate to
21.5%.
Deregulation legislation is
proposed to address the low rate of return forged by an investment portfolio
full of long-term, low fixed-rate assets.
Savings and loans are
given additional investment opportunities and adjustable rate mortgages are
allowed.
Wall
Street now sees the savings and loan industry as a "cash cow" to be "levered" accordingly.
"I was working in the Carter
White House in
1979-80.
Unbeknownst to the president, Federal Reserve Chairman Paul
Volcker, another Rockefeller
protégé, suddenly raised interest rates
to fight the inflation the
bankers had caused by the OPEC
oil price deals, and plunged the nation into recession.
It was
through the "Reagan Revolution" that the
regulatory controls over the banking industry were lifted, mainly in allowing
the banks to use their fractional reserve privileges in making mortgage loans.
Volcker's recession shattered American manufacturing and hastened the
flight of jobs abroad.
Under the "Reagan Doctrine,"
the US military
embarked on an unprecedented mission of world conquest by attacking one small
nation at a time, starting with
Nicaragua.
Global capitalism was
also on the march, with the US armed forces its own private police force."
- Richard C. Cook
1982
Gain-St Germain Depository
Institutions Act deregulation legislation expands acceptable savings and
loans investments by permitting savings and loans to make short-term consumer
loans, issue credit cards, and make commercial real estate loans.
This became the preferred method of stoking commerce after dumping
water on the entire economy by increasing the prime loan rate to 21.5% on
December 12, 1980.
Financial engineers claimed that
broader investment opportunities would allow savings and loans to better
diversify their portfolios enabling them to increase their short-term earnings
and financial stabilty.
Beginning from a situation where liabilities
exceed assets, financial managers cannot overcome shortages by pursuing a
conservative investment course.
Gain-St Germain deregulation
legislation provided the means for increased risk taking while ignoring the
need for future capital investments.
Gain-St Germain deregulation
legislation lowered savings and loans capital requirements and revised
accounting rules to artificially boost reported fractional reserve
equity.
With artificially boosted fractional reserve equity savings and
loans began to look for new lending and investment opportunities promising
higher rates of returns.
Once the interstate lending rules had been
suspended the preferred method became raising rates paid on certificates of
deposits - CDs - to garner more deposits and to make new investments promising
still higher returns.
In the past depositors had no reason to send funds
to savings and loans halfway across America but rapidly advancing computer
technology - the overnight transfer - changed that by making possible a
nationwide market in deposits while the higher rates made it worth the
trouble.
Federal deposit insurance (FDIC) put insolvent savings and
loans in a position to abuse the new market as federally insured depositors
were largely unconcerned about the health of the institutions in which they
placed their money.
Undercapitalized savings and loans assured
themselves a continuous inflow of funds by simply offering to pay slightly
higher interest rates
than their competitors.
Healthy savings and loans were asked to pay
increasing deposit insurance premiums to protect depositors in failed
institutions and consequently gained little or no cost advantage from the fact
that they were well capitalized.
Funds flow from stronger banks and
savings and loans to the weakest banks.
"People think the Federal
Reserve central bank is US government institution.
It is not a
government institution.
It is
a private credit monopoly of those who prey upon the people of the US for the
benefit of themselves and their foreign customers; foreign and domestic
speculators and swindlers; and rich and predatory money lenders.
A
dark crew of financial pirates are those who send money into States to buy
votes to control our legislation; and there are those who maintain
an international
propaganda for the purpose of deceiving us and of wheedling us into the
granting of new concessions which will permit them to cover up their past
misdeeds and set again in motion
their gigantic train of
crime.
Twelve private credit
monopolies were deceitfully foisted upon this country
by bankers who came
here from Europe and who repaid us for our
hospitality by undermining our American institutions." -
Louis T. McFadden House Banking
Committee Congressional Record, pg 1295 & 1296, June 10,
1932
1986
The movement to use the Federal Reserve Board to kill
Glass-Steagall begins.
Federal Reserve Board reinterprets
existing law to allow commercial
banks to derive a minuscule 5% of their revenues from
investment banking activities.
1989
Alan Greenspan bumps
investment banking activities up to
10%.
1996
Through creeping
incrementalism Alan
Greenspan kills Glass-Steagall when he ups the limit
investment banking activities to
25%.
July 1999
Larry Summers is appointed Treasury
Secretary when Robert Rubin leaves
to become Vice Chairman of Citigroup.
Larry Summers
is the man directly responsible for the financial institution meltdown.
As William Jefferson
Clinton's Treasury Secretary from July 1999 - January 2001 Larry Summers shaped
and pushed the financial deregulation that unleashed the present
crisis.
"Glass-Steagall is no longer appropriate to the
economy in which we live."
William Jefferson Clinton
"Scores of banks failed in the Great Depression as
a result of unsound banking practices. Their failure deepened the crisis.
Glass-Steagall was intended to protect our financial system by insulating
commercial banking from risk. It was one of several stabilizers designed to
keep a similar tragedy from recurring. Now Congress is about to repeal that
economic stabilizer without putting any comparable safeguard in its place." -
Paul Wellstone
"If we got a return to positive growth - an economy
growing at 1% would be an economy with rising unemployment. I don't think we
can hold out the prospect we'll stabilize at the current level." -
Larry Summers
4/9/09
November 12, 1999
Gramm-Leach-Bliley Act officially repeals the Glass-Steagall Act of
1933.
The merger of commercial
and investment banking once again allows investment bankers to use FDIC
insured personal commercial deposits to purchase "financial instruments" from
hedge funds.
2000
Larry Summers backs the
Commodity Futures
Modernization Act.
Larry
Summers directly profits from the deregulation he vigorously supports
advising DE Shaw and Taconic Capital Advisors in
hedging strategies.
Larry Summers circle of friends include
the hedge fund managers Nancy Zimmerman, Laurence D. Fink, Kenneth D. Brody,
Frank P. Brosens, H. Rodgin Cohen, Orin S. Kramer, Ralph L. Schlosstein and
Eric M. Mindich.
Larry Summers
later has Harvard purchase interest
rate default swaps while president of Harvard that ended up costing Harvard
over $1 billion.
"The SEC's best estimate is
that there are now approximately 8,800 hedge funds, with approximately $1.2
trillion of assets. If this estimate is accurate, it implies a remarkable
growth in hedge fund assets of
almost 3,000% in the last 16 years. We are also seeing
hedge funds becoming more active in
such varied activities as the market for corporate control, private lending,
and the trading of crude petroleum. Hedge fund account for about 30% of all
US equity trading volume. Investment
strategies or operations of hedge
fund include their use of
derivatives trading,
leverage, and short selling. The
number of enforcement cases against
hedge fund advisers has grown
from just four in 2001 to more than 90 since then. These cases involve
hedge fund managers who have
misappropriated funds assets; engaged in insider trading; misrepresented
portfolio performance; falsified their experience and credentials; and lied
about past returns." - Securities and Exchange Commission Chairman Christopher
Cox, July 25, 2006
Short-sellers attempt to profit from an expected
decline due to volatility, fungible asset valuation, in the price of
a fungible financial
instrument.
The short-seller takes on loan fungible financial
instruments - bonds, securities, stock, futures contracts,
securitized loans and collateralized
debt obligations.
The short-seller then hopes to be able to purchase
identical fungible security instruments to repay the loan at a lower price than
originally purchased shortly before the loan comes due.
Profit comes
when the fungible financial
instrument declines in value.
"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 US 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." - Matt
Taibbi
securitizing loans
"What we have found over the years in the
marketplace is that derivatives have been an
extraordinarily useful vehicle to transfer risk from those who shouldn't be
taking it to those who are willing to and are capable of doing so." -
Alan Greenspan 2003
"Clearly,
derivatives are a
centerpiece of the crisis, and Alan
Greenspan was the leading proponent of the
deregulation of
derivatives." - Frank Partnoy 10/08/08
"The
derivatives market is
$531 trillion, up from $106 trillion in 2002 and a relative pittance just two
decades ago. Alan
Greenspan banked on the good will
of Wall Street to self-regulate." - Peter S. Goodman
10/08/09
Investment banks are able
to "balance" and prove adequate reserves by "securitizing" loans which allows
investment banks to
move those loans
off their balance sheets.
There are two ways to securitize a loan:
sell the securitized loan as a corporate bond (originally made popular
by Michael Robert
Milken* as junk bonds);
or "synthetic" securitization: use of
derivatives to get rid
of the default risk (with credit default swaps) and lock in the interest rate
due on the loan (with interest-rate swaps).
Once a
investment bank
securitizes a loan that
loan is moved off
the balance sheet.
Once a loan has been
moved off the balance sheet the
capitalization ratio improves and the
investment banks can
make even more loans.
Investment banks forged
trillions of dollars of credit without maintaining adequate capital reserves
(leveraged up to 33 to 1 - 3.3 times higher than the traditional fractional
reserve of 10 to 1) by providing mortgages, student loans and credit
card loans to millions of loan applicants who had no documentation, no
income, no collateral and a bad credit history for enormous short term profits!
Investment
banks did this without tying up any of their capital reserves while
con-vincing the purchasers of the securitized commercial paper (toxic debt)
that there was no risk of default! (thank you
Maurice Greenberg!)
"More than 100 securities cases involving losses of
$400 billion were filed against financial firms last year, according to
Cornerstone Research." - Vikas Bajaj 01/19/08
"Let's hope we
are all wealthy and retired by the
time this house of cards falls." - Standard & Poor analyst 'texting' about
collateralized debt
obligations December 2008 A
quarterly report
issued by the Bank of International
Settlements states the total outstanding notional amount of
over-the-counter (OTC)
derivatives in the world is $683 trillion while the gross market value for
those same instruments was $22 trillion.
Bank-like investment strategies
- such as the use of leverage and
financing long-term investments with short-term debt - became common outside
the safety net provided by deposit insurance and strong regulation.
As a
result nonbank institutions became vulnerable to runs.
If markets lost confidence
their sources of funds could dry up.
Complexity reduces
transparency.
"Neither regulators nor market participants can easily
assess the true financial condition of firms that hold or trade these newer
instruments.
Since large parts of
derivatives markets are
unregulated, there is a global web of financial claims and counterclaims
that is essentially invisible to financial supervisors and market participants
alike.
Key characteristics that produced this systemic vulnerability
include: the use of complex financial instruments, whose value is often linked
by complex formulae to the value of other instruments or financial variables,
and for which no active trading markets exist;
extensive use of leverage, or borrowed
funds, which permits institutions to take larger market positions with a
given capital base, increasing potential profits (but also losses); and
the practice of
moving risky financial speculation off the books, into nominally
independent accounting entities, so that the results do not appear in the
financial accounts of the parent financial institution." - Mark
Jickling
predatory lending
"Tight residential real estate markets and low
mortgage rates fueled a five-year property boom as the number of US households
paying more than half their incomes for housing jumped from 13.8 million in
2001 to 17.9 million in 2007." - Brian Louis
"Predatory lenders deserve a lot of
blame for foreclosures and bankruptcies.
How odd to think that the hopes of everyone owning a piece of property is now
as utopian as the collectivist
dreams of communism." - Doug Doepke
"Between 1999 and 2004, more than half the states,
both red (North Carolina, 1999; South Carolina, 2004) and blue (California,
2001; New York, 2003), passed anti-predatory-lending laws. Georgia touched off
a firestorm in 2002 when it sought to hold Wall Street bundlers and holders of
mortgage-backed
securities responsible for mortgages that were fraudulently conceived.
Beginning in 2004 Michigan and forty-nine other states battled the US
Comptroller of the Currency and the banking industry (and The Wall Street
Journal's editorial page) for the right to examine the books of Wachovia's
mortgage unit, a fight the Supreme
Court decided in Wachovia's favor in 2007 - about a year before it
cratered." - Dean Starkman
1863 National Bank Act
establishes
the Office of the Comptroller of the Currency as part of the United States
Department of the Treasury and a system of nationally chartered banks.
The Office of the Comptroller of
the Currency examined the books of national banks to make sure they were
balanced.
"Several years ago, state attorneys general and others
involved in consumer protection began to notice a marked increase in a range of
predatory lending practices by mortgage lenders.
In 2003 the OCC
invoked a clause from the 1863 National Bank Act to issue formal opinions
preempting all state predatory lending laws, thereby rendering them
inoperative.
The OCC also promulgated new rules that prevented
states from enforcing any of their own consumer protection laws against
national banks.
The US government's actions were so egregious and
so unprecedented that all 50 state attorneys general, and all 50 state banking
superintendents, actively fought the new rules.
But the unanimous
opposition of the 50 states did not deter, or even slow,
George Walker Bush in his goal of
protecting the banks.
In fact, when my office opened an investigation of possible
discrimination in mortgage lending by a number of
banks, the OCC filed a
federal lawsuit to stop the investigation." - Elliot Spitzer,
Washington Post, February 13,
2008
On the afternoon of February
13 federal agents of the Office of the Comptroller of the Currency staked out
Elliot Spitzer's hotel in Washington. Elliot Spitizer's dalliance with a
prostitute became headline news on March 10.
Corporate news never
questioned the actions of the Office of the Comptroller of the
Currency.
"One is struck by the similarities with the Savings and Loan
scandal which was allowed to continue through the 1980s, long after it became
apparent that deliberate
bankruptcy was being used by unscrupulous profiteers to amass illegal fortunes
at what was ultimately public expense. The long drawn-out
housing bubble of the current
George Walker Bush decade, and
particularly the derivative
bubble that was floated upon it, allowed the Bush administration to help
offset the trillion-dollar-plus cost of its
Iraq misadventure." - Peter
Dale Scott
MERS"The
development of "electronic" mortgages managed by MERS went hand in hand with
the "securitization" of mortgage loans chopping them into pieces and selling
them off to investors. In the heyday of
mortgage
securitizations, before investors got wise to their risks, lenders would
slice up loans, bundle them into "financial products" called "collateralized
debt obligations" (CDOs),
ostensibly insure them against default by wrapping them in
derivatives called
"credit default swaps," and sell them to pension funds, municipal funds,
foreign investment funds, and so forth. There were many secured parties, and
the pieces kept changing hands; but MERS supposedly kept track of all these
changes electronically. MERS would register and record mortgage loans in its
name, and it would bring foreclosure actions in its name. MERS not only
facilitated the rapid turnover of mortgages and
mortgage-backed securities, but
it has served as a sort of "corporate shield" that protects investors from
claims by borrowers concerning predatory lending practices." - Ellen Brown
"MERS has reduced
transparency in the mortgage market in two ways. First, consumers and their
counsel can no longer turn to the public recording systems to learn the
identity of the holder of their note. Today, county recording systems are
increasingly full of one meaningless name, MERS, repeated over and over again.
But more importantly, all across the country, MERS now brings foreclosure
proceedings in its own name even though it is not the financial party in
interest. This is problematic because MERS is not prepared for or equipped to
provide responses to consumers' discovery requests with respect to predatory
lending claims and defenses. In effect, the securitization conduit attempts to
use a faceless and seemingly innocent proxy with no knowledge of predatory
origination or servicing behavior to do the dirty work of seizing the
consumer's home. . . . So imposing is this opaque corporate wall, that in a
"vast" number of foreclosures, MERS actually succeeds in foreclosing without
producing the original note "the legal sine qua non of foreclosure" much less
documentation that could support predatory lending defenses." - Timothy
McCandless
"MERS as straw man lacks standing to foreclose, but so does
original lender, although it was a signatory to the deal. The lender lacks
standing because title had to pass to the secured parties for the arrangement
to legally qualify as a "security." The lender has been paid in full and has no
further legal interest in the claim. Only the securities holders have skin in
the game; but they have no standing to foreclose, because they were not
signatories to the original agreement. They cannot satisfy the basic
requirement of contract law that a plaintiff suing on a written contract must
produce a signed contract proving he is
entitled to relief." - Ellen
Brown
"Madison Avenue helped drive the expansion of Americans use of
credit cards. There was a lot of money to be made by collecting fees for debt
creation and debt
service, and the largest banks wanted in on the action. The 1980s was the
age of a paradigm shift
in American politics. The US transformed itself into a country where the profit
motive supplanted the public good. The rich were taking it all for themselves
and letting the good times roll and everyone who wasn't rich wanted to be or
act as if they were rich. Advertisers suggested people could purchase the
10-day Caribbean cruise or expensive diamond ring that was once restricted to
those with higher income levels creating the illusion that debt was equal to
wealth." - Paul C. Wright
"In times past,
bankruptcy would have
wiped out the bad debts. The problem with
debt write-offs is that bad
savings go by the boards too. But today, the very wealthy hold most of the
savings, so the government doesn't want to have them take a loss. It would
rather wipe out pensioners, consumers, workers, industrial
companies and foreign investors. So
debts will be kept on the
books and the economy will slowly be strangled by
debt deflation." - Michael
Hudson 06/08
investment bank meltdown
"The injunction of Jesus to love others as
ourselves is an endorsement of self-interest." - Brian Griffiths,
Goldman Sachs public
relations man
"We see TARP as an insurance policy. No matter how
bad it gets, we're going to be one of the remaining banks."- John C. Hope III,
Whitney National Bank chairman 1977 AL Williams establishes its base by mass-marketing the
concept of "Buy Term and Invest the Difference." With "BTID" the incorporation
illustrated how its middle-income client base could purchase sufficient
protection with term life insurance and systematically save and invest in
separate investment vehicles, such as mutual fund Individual Retirement
Accounts.
AL Williams is initially established as a privately held
general agency, at first selling term life insurance policies underwritten by
Financial Assurance.
1980 A.L. Williams enters
into a contract with Boston-based Massachusetts Indemnity and Life Insurance
incorporation (MILICO), a larger underwriter of life insurance, whose parent is
PennCorp Financial Services, Santa Monica.
1980s Salomon Brothers is
acquired by the commodity trading firm Phibro.
Salomon is noted for its
innovation in the bond market,
selling the first mortgage-backed
security, a hitherto obscure species of financial instrument forged by
Ginnie Mae.
Salomon begins purchasing home mortgages from thrifts
throughout the US and packaged them into
mortgage-backed
securities, which it sells to local and international
investors.
1981
First American National Corporation is established as a holding incorporation
for First American Life Insurance (later renamed AL Williams Life Insurance)
and First American National Securities (later renamed PFS Investments).
Shearson is acquired by American
Express and operated as a subsidiary.
1982
First American National Corporation, renamed The AL Williams Corporation,
underwrites a public stock offering.
1983 The AL
Williams Corporation is listed on the NASDAQ exchange under ALWC.
American Can and PennCorp Financial Services merge.
1984 Shearson merges
with Lehman
Brothers Kuhn Loeb -
now Shearson Lehman.
1986 Sanford Weill, scion
David-Weill family purchases Commercial Credit from Control Data for $7
million.
Lazard Freres - the biggest investment bank in France - is
owned by Lazard and
David-Weill families - old Genoese banking scions.
1987 86-year-old American Can announces a name change to
Primerica Corporation.
Primerica Corporation completes a
hostile takeover of Smith
Barney.
Sanford Weill acquires Gulf Insurance.
1988 Commercial Credit acquires Primerica Corporation for
$1.54 billion.
Shearson Lehman acquires EF Hutton to be Shearson Lehman
Hutton.
1989 Sanford Weill acquires retail
brokerage outlets
Drexel
Burnham Lambert.
Eight Charged in $50-Million Car Loan Fraud
1991 Primerica Corporation changes the name of AL Williams to
Primerica Financial Services.
US taxpayers, already billed over $500
billion dollars for the S&L looting, are charged another $70 billion to
bail out the FDIC.
US taxpayers then footed the bill for a secret 2
1/2-year rescue of Citibank, which was close to collapse after the Latin
American debt crunch hit home.
The Saving of Citibank
John S. Reed, chairman and CEO
of Citicorp, engineered a radical change in a major operating group, built a
lucrative new business from scratch, and played a high-visibility role in the
pivotal issue of Third World debt.
Citicorp Faces the World: An Interview with John
Reed
(The Washington Post article above implies that the problem was
domestic when clearly the problem revloved around Third World
debt.)
1993 Primerica acquires Travelers
Insurance and adopts the name Travelers.
Sanford Weill purchases
Shearson Lehman Hutton from American Express for $1.2 billion.
Shearson
Lehman Hutton acquires Colorado-based lender, Aurora Loan Services, an Alt-A
lender.
1994
Sanford Weill spins Lehman
Brothers out of American Express. The
CEO is
Richard Severin Fuld Jr.
1995 Travelers becomes The Travelers Group.
1996 The Travelers Group purchases the property and casualty
business of Atena.
1997
Timeline of the Asian financial crisis
1998 Citicorp and Travelers merge
and form the behemoth Citigroup.
Travelers
aquires Salomon and merges it with Smith Barney creating Salomon Smith
Barney.
Citibank schemed with firm to hide its woes: Ex-Dewey
partner
2000 Shearson Lehman Hutton
purchases West Coast subprime mortgage lender BNC Mortgage LLC.
BNC
Mortgage LLC quickly becomes a force in the subprime market.
September
11, 2001 Salomon Smith Barney is by far the largest tenant in 7 World
Trade Center, occupying 1,202,900 sq ft (111,750 m2) (64% of the building)
which included floors 28–45.
Shearson Lehman Hutton occupies three
floors of World Trade Center where one employee dies.
2002 Citigroup spins off Travelers Property and
Casualty.
2003 Shearson Lehman Hutton makes $18.2
billion in loans and ranked third in lending.
2004 Shearson Lehman Hutton makes over $40 billion.
Shearson Lehman Hutton has morphed into a real estate hedge fund
disguised as an investment bank.
2005
Goldman Sachs receives
approximately $1.6 billion in taxpayer subsidies (mostly through Liberty Bonds)
from New York City and state taxpayers to finance a new headquarters near the
World Financial Center in Lower Manhattan.
2006
Aurora and BNC are lending almost $50 billion per month.
Goldman Sachs changes its corporate
structure into a bank holding incorporation.
Employees earn an average
of $622,000 on a profit of $9.4 billion.
Much of the commercial paper
wealth is made on takeovers and leveraged
buyouts.
Goldman Sachs employees:
George Herbert Walker Bush (Lehman);
Robert
Zoellick (World Bank
BB
CFR
TC);
Henry Paulson (US Treasury
Secretary);
Robert
Rubin* (US Treasury Secretary, Chairman Citigroup);
John Thain (Merrill Lynch, Chairman
NYSE);
Henry H. Fowler, (US Treasury Secretary);
Edward Lampert (hedge
fund manager);
Michael Cohrs (Global Banking at Deutsche Bank);
Mark
Carney (Bank of Canada);
Robert Steel (CEO of Wachovia);
Ed Liddy (CEO of
AIG);
Neel Kashkari;
Gary
Gensler (Commodity Futures
Trading Commission)
Stephen Friedman (Chairman
Intelligence Oversight Board, Memorial Sloan-Kettering Cancer
Center, The Aspen Institute,
CFR,
Brookings Institution,
Federal Reserve Bank of New York.
Goldman Sachs Proof that God hates its Customers
How Goldman Sachs Helped Greece to Mask its True
Debt
Goldman Sachs Shorted Greek Debt After It Arranged Those Shady
Swaps
Barack Obama
received $981,000 for his campaign from Goldman.
2007 4th quarter Citigroup posts a $10 billion loss, 21,200
Citigroup employees are laid off.
Citigroup's single largest
shareholder becomes Abu Dhabi Investment Authority, the investment arm of Abu
Dhabi government, with a $7.5 billion injection of capital in late 2007 in
exchange for a 4.9% stake which pays a $1.7 billion a year dividend.
The second largest Citigroup shareholder, with a 3.6% stake, is now
Kingdom Holding incorporation owned by Prince Al-Waleed bin Talal of
Saudi Arabia.
$6.88
billion of prefered stock is sold to an investment fund controlled by the
government of Singapore.
March
through September 2008
Five largest investment bankers on Wall Street go
bankrupt.
March 2008 Lehman assets of $680
billion are supported by $22.5 billion of firm capital. From an equity
position, its risky commercial real estate holdings are three times greater
than capital. In such a highly leveraged structure, a 3 to 5% decline in real
estate values wipes out all capital.
Federal Reserve sells
Bear Stearns to
JP Morgan Chase for
ten dollars per share, a price far below the previous 52-week high of $133.20
per share.
June 2008
Merrill Lynch seizes $850
million worth of the underlying collateral from
Bear Stearns but only
recoups $100 million in auction.
Merrill Lynch is sold
to Bank of America for
0.8595 shares of Bank of
America common stock for each Merrill Lynch common share, or about $50
billion or $29 per share.
The market valuation of
Merrill Lynch was about
$100 billion one year earlier.
During the final quarter of 2008 Merrill
Lynch loses $15.3 billion.
August 2008
Morgan Stanley is
contracted by the Treasury Department to advise the government on potential
rescue strategies for Fannie
Mae and Freddie Mac.
September 21, 2008 Federal Reserve allows
Morgan Stanley to
change its status from investment bank to bank holding incorporation in order
to survive.
November 23, 2008
Fed and Treasury announce a rescue package for
Citigroup to provide
insurance against large losses on bundled securities and
derivatives of
approximately $306 billion backed by residential and commercial real estate.
Citigroup agrees to
absorb the first $29 billion in losses on the bundled securities and
derivatives; the
government will then cover 90% of losses that exceed that figure.
Citigroup spends $1.77 million
on lobbying fees in the fourth quarter.
"Citigroup, like many others,
had sought to insure itself against losses with a variety of transactions,
including the purchase of insurance, only to learn that the losses were
overwhelming those who had promised to pay. Insurance on the assets was issued
both by the bond insurers and by others that wrote what were known as
credit
default swaps, which amounted to insurance but were not regulated in the
same way. Those who wrote large amounts of such insurance are now in trouble,
either negotiating to pay claims for less than promised or, in the case of the
American International Group, still in
business only because of a government bailout. The
American International Group officials
responsible for writing the swaps told investors they would never suffer any
losses." - Floyd Norris, November 24, 2008
"Sovereign wealth funds
operated by China, Singapore, Abu
Dhabi, and other countries have taken large equity stakes in Citigroup,
Merrill Lynch,
Morgan Stanley, and
other firms, including leading European financial institutions." - Mark
Jickling
"The Wall Street banks - which are the recipients
of the bailout money - are also the brokers and underwriters of the US public
debt. We are dealing with an absurd circular relationship: To finance the
bailout, Washington must borrow from the banks, which are the recipients of the
bailout." - Michel Chossudovsky
"With the
Long-Term Capital
Management bailout as a precedent, creditors came to believe that their
loans to unsound financial institutions would be made good by
the Fed - as long as the collapse
of those institutions would threaten the
global credit system. Bolstered by this sense of security, bad loans
mushroomed. The major creditors of the fund included
Bear Stearns,
Merrill Lynch and Lehman
Brothers, all of which went on to lend and invest recklessly. The ad hoc aspect
of the bailout forged a
precedent for what has come to be called "regulation by deal" - now the
government's modus operandi." - Tyler Cowen, December 26, 2008
"When the "credit crunch" began and Washington
began the rush to solve the problem with taxpayer cash, no accounting of this
derivative nightmare was ever brought to bear. In all the deliberations and
press releases there was not
a single mention of the fact that the primary cause of the bank collapse was
due to these
'time
bombs'." - Andrew Hughes 1/27/09
April 2, 2009 Financial Accounting Standards Board relaxes the
"mark-to-market" rule.
Financial institutions are
given the go ahead to value their derivative assets (toxic debt) in a
"mark-to-model" manner.
Financial institutions are given the go ahead
to use creative accounting methods to value their toxic debt at 'projected
market value'.
"The announcement April 2, 2009 by the Financial
Accounting Standards Board (FASB) weakening "mark-to-market" accounting rules
allowing banks to value their toxic debt at inflated prices. This is a green
light to continue the same methods of fraud and double bookkeeping that
triggered the breakdown of the financial system in the first place." - Tom
Eley
"US taxpayers may be on the hook for as much as $23.7 trillion to
bolster the economy and bail out financial companies." - Neil Barofsky, special
inspector general for the Troubled
Asset Relief Program (TARP) Treasury Department, July, 2009
November 25, 2008 to July 8, 2009
Financial institutions issue $274 billion in debt under the
Temporary Liquidity Guarantee
Program.
General Motors Financial
Services auto and home lender which recieved $13.5 billion from US
taxpayers in exchange for corporate debt in the form of
junk bonds becomes a bank to qualify for the
Temporary Liquidity Guarantee
Program.
To insure $10 million of General Motors Acceptance
Corporation junk bonds annually with
a five-year
credit default swap contract it costs $895,000.
To insure the
entire $13.5 billion in General Motors Acceptance Corporation junk bonds
annually will cost over $1.2 billion annually.
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