FacebookTwitterGoogle+RedditEmail

Geithner’s Hog Wallow

by MIKE WHITNEY

This time the banks are  zeroing in on Geithner’s cash giveaway bonanza, the “Public Private Investment Partnership” (PPIP). As expected, Bank of America and Citigroup have angled their way to the front of the herd, thrusting their snouts into the public trough and extracting whatever morsels they can find amid a din of gurgling and sucking sounds. Here’s the story from the New York Post:

“As Treasury Secretary Tim Geithner orchestrated a plan to help the nation’s largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post…

But the banks’ purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.

One Wall Street trader told The Post that what’s been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.

Recently, securities rated AAA have changed hands for roughly 30 cents on the dollar, and most of the buyers have been hedge funds acting opportunistically on a bet that prices will rise over time. However, sources said Citi and BofA have trumped those bids.”(“Double Dippers; Citi and B of A buy laundered loans at lower rates”, Mark DeCambre, New York Post)

Thus begins the next taxpayer-subsidized feeding frenzy, featuring all the usual suspects. The race is on to vacuum up as much toxic mortgage paper as possible so it can be dumped on Uncle Sam at a hefty profit. These are the same miscreants the Obama administration is so dead-set on rescuing. Better to let them sink from their own bad bets.

How is it that industry rep Geithner couldn’t see that his latest round of corporate welfare would create incentives for the bank scoundrels to game the system again? Naturally, if the government goes into the business of buying crap-loans from teetering financial institutions, the speculators and snake oil salesmen will follow. And so they have. Citi and B of A are just the first to respond to Geithner’s pigwhistle. Next will be the hedgies and the Private Equity porkers, all nuzzling up to the Treasury’s feedbin.

Geithner’s plan is a disaster from the get-go. It jacks up the price of garbage assets, rewards the misallocation of capital, invites rampant fraud, and prolongs the recession. Worst of all, it transforms the FDIC into a hedge fund putting individual bank deposits at greater risk. Economist Jeffrey Sachs sums up Geithner’s “public-private” boondoggle in his article “Will Geithner and Summers suceed in raiding the FDIC and Fed?”:

“Geithner and Summers have now announced their plan to raid the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve  to subsidize investors to buy toxic assets from the banks at inflated prices. If carried out, the result will be a massive transfer of wealth — of perhaps hundreds of billions of dollars — to bank shareholders from the taxpayers (who will absorb losses at the FDIC and Fed)…

The FDIC is lending money at a low interest rate and on a non-recourse basis even though the FDIC is likely to experience a massive default on its loans to the investment funds….In essence, the FDIC is transferring hundreds of billions of dollars of taxpayer wealth to the banks…The public will not accept overpaying for the toxic assets at taxpayers’ expense. Thus, it is very likely that the Administration will attempt to avoid Congressional oversight of the plan, and to count on confusion and the evident “good news” of soaring stock market prices to justify their actions. ….

Other parts of the plan support subsidized loans from the Treasury and, even more, from the Fed. The Fed is already buying up hundreds of billions of dollars of toxic assets with little if any oversight or offsetting appropriations. Since the Federal Reserve profits and losses eventually show up on the budget, the Fed’s purchases of toxic assets also should fall under the Federal Credit Reform Act and should be explicitly budgeted. (“Will Geithner and Summers suceed in raiding the FDIC and Fed?”, Jeffrey Sachs, Huffington Post)

As Sachs points out, the Fed’s liabilities will eventually be shifted onto the taxpayer. But that hasn’t stopped Bernanke from writing checks on an account that is overdrawn by $11 trillion. Nor has it compelled Geithner to seek congressional authorization before he leverages the FDIC up to its eyeballs. These decisions are all being made by a small coterie of bank loyalists who operate independent of any oversight or government supervision. They do what’s best for their constituents and let the chips fall where they may.

Earlier this week, Geithner asked Congress for additional powers to take over insolvent non-bank financial institutions. The Washington Post:

“The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers 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, according to an administration document.”

Geithner must think he’s a shoe-in for the new “systemic regulator” post because of the exemplary way he handled the AIG bonus scandal.

Of course, in the bizarro world of Washington–where failure typically catapults one to higher office–it’s only logical that Geithner would be elevated to Uber-Regulator, not only controlling the public purse, but using his own peerless grasp of the marketplace to decide which institutions pose a systemic risk and need to be sidelined, and which need stepped-up government support via limitless capital injections.

Prediction: If Geithner is granted these special powers by the braindead Congress, the country will undergo the greatest period of bank consolidation in its 230 year history. This is a blatant power grab by a shifty character who has risen to his present pay-grade by nosing his way up the political stepladder.  Congress had better get its act together and put an end to this nonsense or the nation will continue its fast-paced metamorphosis into a feudal oligarchy run by the Bank Mafia and Wall Street racketeers. The first step, is to give Geithner, Summers and any other of the Rubin-clones a full-body bacon-rub followed by a few brisk dunks in the shark tank.  Then, hose down Treasury and bring in a whole new team.

Nobel Prize winning economist Joseph Stiglitz summed up Geithner’s “public-private” fiasco like this:

“Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”

MIKE WHITNEY lives in Washington state. He can be reached at fergiewhitney@msn.com

 

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

February 23, 2017
Dave Brotherton
Trump, Moral Panics and Resistance
Jonathan Cook
One State: Trump Has Reminded Palestinians What It Was Always About
Bill Quigley
Ten Examples of Direct Resistance to Stop Government Raids
Linn Washington Jr.
Bigot Boy Business: Trump Exposes His Ignorance and Intolerance, Again
John W. Whitehead
The Illusion of Freedom: the Police State Is Alive and Well
Ralph Nader
Restricting People’s Use of Their Courts
David Macaray
Women As Labor Union Organizers
Kathy Kelly
Friendship in Defiance of War
Doug Weir
Why Did the US Use Depleted Uranium Weapons in Syria?
Steve Horn
Former GOP Congressional Staffer Follows Revolving Door, Now Latest Keystone XL Lobbyist
Binoy Kampmark
From Rights to Repentance: Norma McCorvey and Roe v Wade
Thomas Knapp
The Target of the “Border Adjustment Tax” is You
Chris Zinda
Open Letter to Neoliberal Environmentalists
February 22, 2017
Mike Whitney
Liberals Beware: Lie Down With Dogs, Get Up With Fleas
John Grant
On Killers and Bullshitters*
Peter Linebaugh
Catherine Despard, Abolitionist
Patrick Cockburn
The Bitter Battle for Mosul
Ted Rall
Sue the Bastards? It’s Harder Than You Think
Yoav Litvin
The Emergence of the Just Jew
Kim Scipes
Strategic Thinking and Organizing Resistance
Norman Pollack
Mar-a-Lago, Ideological Refuge: Berchtesgaden, II
Fred Donner
Nixon and the Chennault Affair: From Vietnam to Watergate
Carl Kandutsch
Podesta vs. Trump
Ike Nahem
To the Memory of Malcolm X: Fifty Years After His Assassination
Jesse Jackson
Trump’s Tough Talk Won’t Fix Chicago
Paul Donnelly
Betsy DeVos and the War on Public Education
Ebony Slaughter-Johnson
The End of an Alliance for Police Reform
Richard Lawless
Wall Street Demanded the Nuclear Option and the Congress Delivered
Liaquat Ali Khan
Yes, Real Donald Trump is a Muslim!
Ryan LaMothe
“Fire” and Free Speech
CounterPunch News Service
Bloody Buffalo Billboards
February 21, 2017
Sharmini Peries - Michael Hudson
Finance as Warfare: the IMF Lent to Greece Knowing It Could Never Pay Back Debt
CJ Hopkins
Goose-stepping Our Way Toward Pink Revolution
John Wight
Firestarter: the Unwelcome Return of Tony Blair
Roger Harris
Lenin Wins: Pink Tide Surges in Ecuador…For Now
Shepherd Bliss
Japanese American Internment Remembered, as Trump Rounds Up Immigrants
Boris Kagarlitsky
Trump and the Contradictions of Capitalism
Robert Fisk
The Perils of Trump Addiction
Deepak Tripathi
Theresa May: Walking the Kingdom Down a Dark Alley
Sarah Anderson
To Save Main Street, Tax Wall Street
Howard Lisnoff
Those Who Plan and Enjoy Murder
Franklin Lamb
The Life and Death Struggle of the Children of Syria
Binoy Kampmark
A Tale of Two Realities: Trump and Israel
Kim C. Domenico
Body and Soul: Becoming Men & Women in a Post-Gender Age
Mel Gurtov
Trump, Europe, and Chaos
FacebookTwitterGoogle+RedditEmail