Eventually, one way or the other, the truth comes out...
As ongoing Wall Street travesties come to light, both here and abroad (where financial fraud has become this country's most well-known export), just in the past two hours, as we now learn that the U.S. Court of Appeals in Manhattan has demanded that "Federal Reserve Must Disclose Bank Bailout Records," the recent barrage of new stories doesn't fail to amaze.
Yes, as Harry S. Truman called it, "the history we didn't know" regarding the never-ending, kleptocratic effort of Wall Street and our obedient government to privatize (now-make-believe) status quo profits and socialize losses continues, we all need to remember that when we read these latest revelations (see below), one way or another, it is WE--not Wall Street--who pay their bills now coming due.
Then again, if
you walked into a casino with a government-guaranteed, bottomless bankroll you'd probably abandon all caution, as well.
But there is hope; thanks to "rookie" Democrats like Florida Congressman Alan Grayson and Delaware Senator Ted Kaufman (I covered the Senator's latest efforts on Main Street's behalf earlier in the week), not to mention blogs like Naked Capitalism and Zero Hedge, the truth is coming to the fore.
Before I get into it, however, I'm reminded of this gem from Gretchen Morgenson (one which I've quoted many times in the past), recounting the mindset of our current Treasury Secretary in the lead-up to our economic collapse in September 2008. (My personal favorite tome on Treasury Secretary Tim Geithner.)
h/t to Kossack ohmyheck for reminding me of this quote...
"Geithner, Member and Overseer of the Finance Club"
By JO BECKER and GRETCHEN MORGENSON
New York Times
April 27, 2009
...Last June, with a financial hurricane gathering force, Treasury Secretary Henry M. Paulson Jr. convened the nation's economic stewards for a brainstorming session. What emergency powers might the government want at its disposal to confront the crisis? he asked.
--SNIP--
Timothy F. Geithner, who as president of the New York Federal Reserve Bank oversaw many of the nation's most powerful financial institutions, stunned the group with the audacity of his answer. He proposed asking Congress to give the president broad power to guarantee all the debt in the banking system, according to two participants, including Michele Davis, then an assistant Treasury secretary.
The proposal quickly died amid protests that it was politically untenable because it could put taxpayers on the hook for trillions of dollars.
"People thought, `Wow, that's kind of out there,' " said John C. Dugan, the comptroller of the currency, who heard about the idea afterward. Mr. Geithner says, "I don't remember a serious discussion on that proposal then."
But in the 10 months since then, the government has in many ways embraced his blue-sky prescription...
Yes, "out there," indeed...file this under: "truth or consequences."
Now, we move just a little closer (we're not there yet, mind you, just a little closer) to finding out more about the extent of "it"...
Federal Reserve Must Disclose Bank Bailout Records (Update3)
By David Glovin and Bob Van Voris
March 19 (Bloomberg) -- The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever, a federal appeals court said.
The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released.
The Fed had argued that it could withhold the information under an exemption that allows federal agencies to refuse disclosure of "trade secrets and commercial or financial information obtained from a person and privileged or confidential."
--SNIP--
The opinion may not be the final word in the bid for the documents, which was launched by Bloomberg LP, the parent of Bloomberg News, with a November 2008 lawsuit. The Fed may seek a rehearing or appeal to the full appeals court and eventually petition the U.S. Supreme Court.
(NOTE: Diarist has received written authorization from Naked Capitalism Publisher Yves Smith to post her blog's articles, in their entirety.)
SEC, Fed Alerted By Merrill of Lehman Balance Sheet Games in March 2008
Yves Smith
Naked Capitalism
Thursday, March 18, 2010
So which theory is it: stunning bureaucratic incompetence, wishful thinking and denial (a better gloss on theory #1) or a cover up? Or a combination of the above?
No matter which theory or theories you subscribe to, the continuing revelations of how the SEC and perhaps more important, the New York Fed conducted themselves in the months before Lehman's collapse paint an increasingly damning picture.
The Valukas report shows both regulators were monitoring Lehman on a day-to-day basis shortly after Bear's failure. They recognized that it has a massive hole in its balance sheet, yet took an inertial course of action. They pressured a clearly in denial Fuld to raise capital (and Andrew Ross Sorkin's accounts of those efforts make it clear they were likely to fail) and did not take steps towards any other remedy until the firm was on the brink of collapse (the effort to force a private sector bailout as part of a good bank/bad bank resolution).
One of the possible excuses for the failure to do more was that the officialdom did not recognize how badly impaired Lehman was until too late in the game to do much more than flail about. But that argument is undercut by a story in tonight's Financial Times.
Merrill warned both the SEC and the Fed in March 2008 that Lehman was engaging in balance sheet window dressing of a serious enough nature for it to put pressure on Merrill (as in it was making Merrill look worse relative to the obviously impaired Lehman).
When a company under stress makes fraudulent statements about its financial condition, it is a sign of desperation, and possibly imminent collapse. The fact that Merrill, with a little digging, could see that Lehman's assertions about its financial health were bogus says other firms were likely to figure it out sooner rather than later. That in turn meant that the Lehman was extremely vulnerable to a run. Bear was brought down in a mere ten days. Having just been through the Bear implosion, the warning should have put the authorities in emergency preparedness overdrive. Instead, they went into "Mission Accomplished" mode.
This Financial Times story provides yet more confirmation that Geithner is not fit to serve as a regulator and should resign as Treasury Secretary. But it may take Congress forcing a release of the Lehman-related e-mails and other correspondence by the New York Fed to bring about that outcome.
From the Financial Times...
From the Financial Times, on Thursday:
Former Merrill Lynch officials said they contacted regulators about the way Lehman measured its liquidity position for competitive reasons. The Merrill officials said they were coming under pressure from their trading partners and investors, who feared that Merrill was less liquid then Lehman...
In the account given by the Merrill officials, the SEC, the lead regulator, and the New York Federal Reserve were given warnings about Lehman's balance sheet calculations as far back as March 2008.
Former and current Fed officials say even in the competitive world of Wall Street, it is unusual for rival bankers to relay such concerns to the Fed.
The former Merrill officials said they contacted the regulators after Lehman released an estimate of its liquidity position in the first quarter of 2008. Lehman touted its results to its counterparties and its investors as proof that it was sounder than some of its rivals, including Merrill, these people said...
"We started getting calls from our counterparties and investors in our debt. Since we didn't believe the Lehman numbers and thought their calculations were aggressive, we called the regulators," says one former Merrill banker, now at another big bank...
Merrill officials said their calculations led them to believe that Lehman included what is known as regulatory capital in its calculation of excess liquidity. Executives at other banks say that is improper...
Mr Valukas said in his report that the banks interacting with Lehman may have suspected Lehman was incorrectly calculating its liquidity. In September 2008, days before it collapsed, Lehman maintained that it had about $50bn in readily accessible funds, though at the end it had nothing like that amount.
And, today, courtesy of Zero Hedge, we have Congressman Alan Grayson getting down to the people's unfinished business with AIG...we're now closing in on $200 billion, in TARP funds, alone...and that doesn't even account for the 20+/- other goverment bailout programs for Wall Street...
Alan Grayson Sends Angry Letter To AIG Credit Facility Trust, Demands All AIG Emails Be Made Public
Submitted by Tyler Durden on 03/19/2010 08:01 -0500
Zero Hedge
It had been a little quiet without Alan Grayson these past few months. Too quiet. The Florida Democrat is now back with a bang after sending a letter to the representatives of the AIG Credit Facility Trust demanding that all AIG emails over the past decade be made public, as well as all company models and internal accounting documents. Yet it is the flourish of the narrative, which reminds one of Dan Loeb in his iconoclastic prime that is the centerpiece of the most recent, and every other letter. Where else can you find pearls like: "It is beyond outrageous that this company, which taxpayers capitalized after Wall Street used it as a slush fund, hides nearly all relevant facts from its owners, the public." We are most enthused by Grayson (and others) finally picking up on a key theme - if you want something analyzed independently and objectively, just open it up to the broader public, and screw all corrupt internal commissions. Crowdsourcing is the only way to get anything done these days. Also, the crowd wonders, is it too late to replace the top two posts in the current administration with Grayson-Kaufman (in alphabetical order)?
Grayson's Letter (it's public domain, so I'm printing the whole thing)...
March 18, 2010
AIG Credit Facility Trust
Trustee Peter A. Langerman
Trustee Chester B. Feldberg
Trustee Jill M. Considine
Arnold & Porter LLP
399 Park Avenue
New York, NY 10022
Dear Mr. Langerman, Mr. Feldberg and Ms. Considine,
I write to request that you turn over to this office, and the public, e-mails backed up on AIG's servers, including internal accounting documents and financial models developed by the company in the last decade. The public owns AIG. We bought it, for an initial down payment of $182 billion. You are the representatives of the public, through your positions as the three trustees of the AIG Credit Facility Trust.
The public is unhappy with the purchase. In March, 2009, a poll found that 82% of the public wanted bonuses to AIG employees returned. This didn't happen. We do not know who is responsible for the company's collapse, or whether they are working now at other banks or for the Federal government. We do not know if they got bonuses, if they were committing fraud, whether there were kickbacks from counterparties, or if there was any significant restraining role played by the regulatory community. We cannot separate the bad decision-makers from innocent employees, because we simply do not know what went on. You can address this problem, by releasing to us and on the internet, with reasonable discretion, all or sustainably all of the emails and documents that describe the web of relationships and practices behind AIG's failed business.
Last year, I asked former AIG CEO Ed Liddy to give me the names of the people who destroyed AIG and cost taxpayers tens of billions of dollars. He refused. I asked the Government Accountability Office (GAO) to look into the matter. The GAO wrote that it didn't have the authority to do an audit. I requested that the Special Inspector General of TARP look into the problem. I was told that the problem is too complicated.
The ball is in your court. As experienced fraud investigators Bill Black, Eliot Spitzer, and Frank Portnoy wrote in December, 2009:
Once the documents are available for everyone to inspect, a thousand journalistic flowers can bloom, as reporters, victims and angry citizens have a chance to piece together the story. In past cases of financial fraud -- from the complex swaps that Bankers Trust sold to Procter & Gamble in the early 1990s to the I.P.O. kickback schemes of the late 1990s to the fall of Enron -- e-mail messages and internal documents became the central exhibits in our collective understanding of what happened, and why.
On Wall Street, winners can win, but losers must lose. This did not happen with AIG. AIG itself, AIG employees, and AIG counterparties were bailed out. It is beyond outrageous that this company, which taxpayers capitalized after Wall Street used it as a slush fund, hides nearly all relevant facts from its owners, the public. Should this information be released, it is likely that the value of AIG's remaining businesses will be unchanged. In any event, the public and public markets will benefit dramatically from transparency, because reliable information is the cornerstone of effective markets.
I ask that you exercise prudent judgment as stewards of the public interest, and direct the release of all or substantially all emails and financial records into the public domain.
Sincerely,
Alan Grayson
Member of Congress
And, last but not least...a "little" follow-up on my comments at the beginning of this diary concerning financial fraud now being our country's most well-known export.
Was this what all of those economists were talking about when they said we were looking towards the export markets to dig our own country's economy out of the hole we're in now? From Bloomberg on Wednesday...
Deutsche Bank, JPMorgan, UBS Are Charged With Fraud (Update1)
By Elisa Martinuzzi and Sonia Sirletti
March 17 (Bloomberg) -- Deutsche Bank AG, JPMorgan Chase & Co., UBS AG and Hypo Real Estate Holding AG's Depfa Bank Plc unit were charged with fraud linked to the sale of derivatives to the City of Milan.
Judge Simone Luerti scheduled the trial of the four firms, 11 bankers and two former city officials for May 6, Prosecutor Alfredo Robledo said after a hearing in Milan today. The banks allegedly misled the city over swaps that adjusted interest payments on 1.7 billion euros ($2.3 billion) of bonds sold in 2005.
Prosecutors across Italy are investigating banks as local and national government agencies face potential losses of 2.5 billion euros on derivatives, lawyers say. The Milan probe may also affect cases as far away as the U.S., where securities firms have faced charges for price-fixing and bid-rigging in the sale of derivatives to municipalities, though not for fraud, according to former regulator Christopher "Kit" Taylor.
"This case could have repercussions over here if the trial showed deliberate intent," said Taylor, a former executive director of the Municipal Securities Rulemaking Board, the national regulator of the municipal-bond market. "What happened in Europe was the continuation of a pattern in the U.S..."
Or, was it this U.S. "export" story?
European media outlets have been running rampant, for weeks, with coverage of the rather massive political disputes concerning whether or not the European Union will bailout Athens. The stories relating to European public sentiment on the matter have swung back and forth like a pendulum, with recent calls from many in Germany, not the least of whom being Prime Minister Angela Merkel, to simply refer the matter to the Washington D.C.-based International Monetary Fund (IMF).
This story's conclusion is still, even now, very much up in the air. (So, quoting the latest political Euro-rant on the matter would only confuse us, since it's definitely a political hot potato.) The bottom line is this, however: the possibility that the IMF may just end up being the primary entity bailing out the Greek government is more real than ever, even as I write this.
This just goes to show us that the mere fact that this is even "on the table"--still--is really little more than just another obfuscated reminder that when it comes to Wall Street's misdeeds (whether it's in the New York, Milan or Athens), for the banksters it's just onto another deal while Main Street pays for their insatiable greed.
In this instance, if the IMF does end up paying the bill for Greece--estimated by many at anywhere from $50 to $100 billion after everything's said and done--that means U.S. taxpayers may cover up to $15 to $20 billion of that, since that's our prorata share of the IMF tab, across-the-board. (See the Wiki page on the IMF, linked above.)
Come to think of it, that's almost exactly what we just had to fight tooth and nail for in terms of the most recent jobs bill that passed on The Hill this week!
Yes, these travesties of injustice are getting light years beyond the pale, IMHO.
But, finally, we're learning more about "the history we didn't know." And it ain't pretty, folks! Yes, this country needs a million more Yves Smiths, Alan Graysons and Ted Kaufmans. NOW!
Raise your voice!