What Wall Street Hoped to Win
“I got a lot of Ph.D. types and smart people around me who come into the Oval Office and say, ‘Mr. President, here’s what’s on my mind.’ And I listen carefully to their advice. But having gathered the device (sic), I decide, you know, I say, ‘This is what we’re going to do.’ And it’s ‘Yes, sir, Mr. President.’ And then we get after it, implement policy.”
– President George W. Bush, October 3, 2007
Pity poor President Bush. He’s been pushed aside as The Decider. The Decider’s strut and press entourage, along with the coffers of the United States, were to be handed to Henry M. (Hank) Paulson, U.S. Treasury Secretary, who was to have sweeping authority to share newly augmented plunder with his cronies on Wall Street and set up a vast new bailout bureaucracy, all at taxpayer expense.
But, at last, the People’s House may be listening to the people. The House of Representatives voted yesterday to reject the bailout measure 228 to 205.
What a truly Orwellian message this proposal would have sent to our nation’s children and honest, hard working people everywhere: loot and collapse a 200-year old financial system and you’ll be rewarded with a fresh $700 billion of public money to disperse among your cronies who aided and abetted in the collapse.
Mr. Paulson worked as Chairman and CEO of Goldman Sachs until he was sworn in as U.S. Treasury Secretary on July 10, 2006. Exotic instruments created and peddled by Goldman around the globe while Mr. Paulson was Goldman’s Decider have contributed to the collapse. His former firm has also benefited to the tune of tens of billions from taxpayer money already doled out by the Federal Reserve. Other firms like Merrill Lynch and Citigroup/Smith Barney that broke the backs of Fannie Mae and Freddie Mac by selling them billions in explosive derivatives have also seen their prior execs appointed to plum spots in the “rescue” mission.
And expect the bailout proposal to become more corrupted as the days go by. (The proposal reminded me of that cover of BusinessWeek back on May 13, 2002 when the publication posed this question about Wall Street: “How Corrupt Is It?” They answered their own question with a giant picture of a snake encircling the metal pole holding the street sign for Wall Street.) The bailout proposal was so fluid that while I was reading its 106 pages at the web site of CNNMoney on Sunday evening, September 28, 2008, the screen went blank at 7:59 PM. Minutes later, I was reading a different version of the proposal, which had now grown to 110 pages. Fortunately, I had printed out a hard copy of the earlier version and went line by line to see what the Wall Street banksters were up to.
Of particular interest, on page 6, where previously the new Office of Financial Stability would be headed by an Assistant Secretary of the Treasury who would require Senate approval, 13 more words were added at the end of the sentence: “except that an interim Assistant Secretary may serve pending confirmation by the Senate.”
Realistically, all they would need to do is keep sending conflicted candidates for confirmation hearings and many billions could be spent before the Senate vetted and confirmed the candidate. Also changed on pages 14 and 15 was the manner in which The Decider would be policed: previously it said “any action” taken by the Secretary of the Treasury could be reviewed. That was changed to “policies.”
Suspected fraud previously was to be reported to the Inspector General for the Department of the Treasury. That was radically changed to create a brand new position of Special Inspector General for the Troubled Assets Relief Program. (I think we all know that the position would have been filled with another Wall Street crony.)
But the most duplicitous and frightening aspect of the plan, as always, was to found, buried in the back of the document, located there in the hopes everyone would have fallen asleep from the legalese before they made it that far. There’s the innocuous sounding Section 128, which was in both the original and amended versions, and says simply:
“Section 203 of the Financial Services Regulatory Relief Act of 2006 (12 U.S.C. 461 note) is amended by striking ‘October 1, 2011’ and inserting ‘October 1, 2008.’”
What would this effectively do? It was intended to speed up the enactment of this section of the law from 2011 to this week.
And what is the impact of the change in this law? (Take a moment to let this sink in.) This wonderful bipartisan bailout proposal, negotiated into the wee hours of the morning by sleep-deprived members of Congress was designed to come with a furtive Trojan Horse embedded by Wall Street lawyers. Banks already in trouble for lack of capital would get to hold as little as “zero” capital for transactions.
But it does solve one giant mystery. All of Wall Street has been attempting to understand why firms like Goldman Sachs and Morgan Stanley, who have concentrated on mergers, acquisitions, stock and bond underwriting for more a cumulative 212 years, decided in a heartbeat to enter the bean counter world of retail banking and transform into bank holding companies. (That’s like asking General Motors to retool overnight for washing machines.) Now we know. Effective this week, if this bailout proposal would have passed in its current form, these firms would have had a new best friend at the Fed that was going to let them hold zero reserves for transactions. No wonder the stock of both firms sold off yesterday when Congress rejected the plan: Goldman closed down 12 per cent; Morgan down 15 per cent.
The Trojan Horse in the bailout plan also solves the mystery of how loss-riddled, serially corrupt Citigroup, now run by the former head of a hedge fund, was allowed by the FDIC yesterday to buy $400 Billion in deposits from Wachovia, giving this crippled global tyrant 30 per cent of insured bank deposits in America.
For once, we can be proud of at least 228 members of our Congress. Yes, we do need swift, reasoned action to stave off a financial collapse. But a plan that allows one man to have unfettered access to $700 billion of taxpayer money, decide which firms survive, to potentially concentrate power in a few crony hands, while pushing off even a discussion of vital regulation until next year, is not a plan. It’s organized crime thinly disguised as legislation.
PAM MARTENS worked on Wall Street for 21 years; she has no securities position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire. She can be reached at firstname.lastname@example.org