Still Doing God's Work on Wall Street

Jail, anyone? Perhaps that's too harsh,
and at any rate premature, but is anyone ever going to be held
accountable for the behind-the-scenes sweetheart deals that passed tens
of billions of taxpayer dollars through the AIG shell game to the very
banks that caused the financial meltdown? Or for the many other acts of
double-dealing that left one out of three American homeowners owing
much more than their houses were worth while the folks who swindled
them were rewarded with hundreds of billions in public money?

Undoubtedly not, since the same folks who
are most culpable wrote the laws that made this, and the other scams at
the heart of the banking collapse, perfectly legal. And guess what?
They're back at work in the government, writing the new laws that will,
they claim, prevent us from being had once again. As a telling example
of that process at work, check the official response of the Department
of Treasury to the devastating report by the special inspector general
for the Troubled Asset Relief Program (TARP), Neil M. Barofsky, titled
"Factors Affecting Efforts to Limit Payments to AIG Counterparties."
The main factor was that Timothy Geithner followed the lead of Goldman
Sachs CEO Lloyd "I'm Doing God's Work" Blankfein in crowding the
lifeboats with bankers.

Geithner, now treasury secretary, was
previously the president of the Federal Reserve Bank of New York
(FRBNY), where he negotiated the deal to pay Goldman Sachs and the
other top banks in full to cover their bad bets on securitized
mortgages. Barofsky's report concluded that Geithner's scheme
represented a "backdoor bailout" for the financial hustlers at the
center of the market fiasco. Noting that Geithner denies that was his
intention, the report states, "Irrespective of their stated intent,
however, there is no question that the effect of FRBNY's decisions-indeed, the very design
of the federal assistance to AIG-was that tens of billions of dollars
of Government money was funneled inexorably and directly to AIG's

Not surprisingly, the Treasury Department
that Geithner now heads defended his actions in not forcing "haircuts"
on the full dollar-for-dollar payoff by AIG to the banks while he was
at the New York Fed: "The government could not unilaterally impose
haircuts on creditors, and it would not have been appropriate for the
government to pressure counterparties to accept haircuts by threatening
to retaliate in some way through its regulatory power."

Nonsense, argues Eliot Spitzer, who as New
York attorney general was way ahead of the curve in challenging Wall
Street arrogance. Writing in Slate on Monday, Spitzer points out:
"Pressuring Goldman and the other counterparties to offer concessions
would have forced them to absorb the consequences of making suspect
deals with an insurance company that was essentially a Ponzi scheme."

The Ponzi scheme was based on the collateralized debt obligations
(CDOs) in which the bankers traded and which AIG had insured with the
credit default swaps (CDSs) that they sold but failed to back with
adequate funding. Now Geithner's Treasury concedes that AIG "should
never have been allowed to escape tough, consolidated supervision." But
none of AIG's scams were regulated, nor were any of the others at the
center of the larger financial debacle, because of laws pushed through
Congress by Geithner's boss, Lawrence Summers, when they both were in
the Clinton administration. Specifically, they prevented regulation of
those opaque CDOs and CDSs that would come to derail the world's

As the inspector general's report stated:
"In 2000, the [Clinton administration-backed] Commodity Futures
Modernization Act (CFMA) ... barred the regulation of credit default
swaps and other derivatives." Why did the financial geniuses of the
Clinton administration seek to prevent that obviously needed
regulation? Because the Clintonistas believed the Wall Street guys knew
what they were doing and that what was good for them was good for us
lesser folk. As Summers, who is the top economic adviser in the Obama
White House, put it in congressional testimony back then: "The parties
to these kinds of contracts are largely sophisticated financial
institutions that would appear to be eminently capable of protecting
themselves from fraud and counterparty insolvencies."

Sounds nonsensical today: The inspector
general's report notes that AIG, because of the deregulatory law that
Summers and Geithner pushed through, was "able to sell swaps on $72
billion worth of CDOs to counterparties without holding reserves that a
regulated insurance company would be required to maintain." But why,
then, is Summers once again running the show with Geithner when both
have made careers of exhibiting total contempt for the public interest?
Because there is no accountability for the high rollers of finance, no
matter who happens to be president.

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