The bankers think we're chumps - Bust the Banks!

Urgent Announcement: On April 11 "A New Way Forward" (ANWF) has announced a national protest for "real structural change of Wall Street". For more information and to sign up to participate visit their website at www.anewwayforward.org.

I'm going back to the well once more which is Simon Johnson, former chief economist of the IMF. Here he is being interviewed by Bill Moyer on a show broadcast February 13, 2009. [You can see the video and the transcript on Bill Moyer's website here.]

SIMON JOHNSON: [...] Think of it like this, our taxpayer money is ensuring their bonuses. We're making sure that companies, that banks survive. And eventually, of course, the economy will turn around. Things will get better. The banks will be worth a lot of money. And they will cash out. And we will be paying higher taxes, we and our children, will be paying higher taxes so those people could have those bonuses. That's not fair. It's not acceptable. It's not even good economics.

BILL MOYERS: Are we chumps? 

SIMON JOHNSON: We'll find out. Yes, we may be. Okay. It depends on how we play this politically. It depends on what our political system does. It depends, I think, on the level of reaction. The financial system is playing us for chumps, okay? The bankers think we're chumps. We'll find out. We have leadership that can handle this. We'll find out what they do.

This is the third in what has become a series of articles (part 1, part 2) I've written with regards to Johnson's accusations that we now have a government of the bankers, by the bankers and for the bankers - in other words, an oligarchy.

The bankers think we're chumps. Our response must be to bust the banks! The same way that Teddy Roosevelt busted Rockefeller's Standard Oil back in the early 1900's. Too big to fail is too big to exist. Rather than passing new regulations for financial institutions that pose "systemic risk" to the economy, just chop them down to a manageable size where the FDIC can "intervene" and take over a bank if it is in trouble without taking down the whole system. Sounds like a plan. Let's do it!

Here are the ideas behind the April 11 A New Way Forward (ANWF) national protest action.

NATIONALIZE: Experts agree on the means -- Insolvent banks that are too big to fail must incur a temporary FDIC intervention - no more blank check taxpayer handouts.

REORGANIZE: Current CEOs and board members must be removed and bonuses wiped out. The financial elite must share in the cost of what they have caused.

DECENTRALIZE: Banks must be broken up and sold back to the private market with new antitrust rules in place-- new banks, managed by new people. Any bank that's "too big to fail" means that it's too big for a free market to function.

I urge you to join in making this a powerful national movement. The protest movement eventually got the US out of Vietnam in 1960's. Mounting disapproval of the Iraq War led to the election of Barack Obama and the promise of a withdrawal of US troops from Iraq. Now it is the bankers turn to feel the wrath of the American public. This could be the most significant mass movement of the 21st century.

Please get involved and make a difference. Bust the banks before they bust us!

Related posts

• Has the US become an oligarchy?
• The economic doomsday scenario
• Welcome to the Wall St. jungle
• The US Civil War in reverse - fight the new slavery! 

The economic doomsday scenario

This is a follow-up to my last post titled "Has the US become an oligarchy?". Once again I return to the rich field of the Simon Johnson article in The Atlantic titled "The Quiet Coup". And once again I encourage all of you to read Johnson's article in its entirety. I just managed to do that myself this morning. True I should have done this before posting my earlier article, but I was struck by the immediacy of Johnson's warning that a financial oligarchy is threatening the very core of our society. After posting my article on Reddit, it recieved over 3,000 hits in one day and became one of the most popular articles in the Politics section. I take this as proof that Johnson's allegations regarding the danger of allowing a small group of financial elites to plunder the US economy reverberates strongly in the collective subconscious of America.

The doomsday scenario

Johnson's article ends with this bleak doomsday warning.

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late. 

His views echo my own views which I expressed recently (but before Johnson's article appeared) in an article which I titled "Welcome to the Wall St. jungle".

As bad as you may think that the current financial mess is your wrong. It's worse - far, far worse. Because not only is this a financial mess of biblical proportions, but underlying it all is a level of fraud which is unimaginable. It involves the government and the Wall St. banks. It is a level of corruption that is at first shocking and then nauseating. Welcome to the Wall St. jungle. 

In his article Johnson declares, just as I did, that this is more than just a financial crisis - underlying the financial crisis is a political crisis caused by a "quiet coup" by the Wall St. bankers. While Johnson calls for a breakup of the banks and stripping the financial oligarchy of power he does not explicitly take the next logical step that I take. He does not call for the ruthless and cold-blooded oligarchs to pay their debt to society behind bars as I do.

He does make allusions to imprisonment by repeatedly referring to the Russian's battle against the oligarchs which caused Putin to ultimately imprison Mikhail Khodorkovsky who was the richest man in Russia. Even the very use of the term "oligarchy" brings to mind the Russian situation in the post-Soviet era. Is he, perhaps unconsciously, comparing the current American situation with the fall of the Soviet empire?

Johnson does offer a silver lining, "If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. " There is still a chance that the current economic crisis could have the benefit of crushing the power of the banking elite. But he follows this with a dire warning, "Let us hope it is not then too late." To late for what? Believe me, you don't want to know.

As I see it, America, we have a choice. We can "save the billionaires" or we can save ourselves.

The banker's conspiracy

My conspiratorial mind can't help but notice the perfect timing of the controlled implosion of the economy by the Wall St. bankers - September 2008. After the primaries were over but before the general elections - with a lame duck President and a Congress about to recess. All perfect conditions for Paulson and Bernanke to ram through their big bailout. And just about guaranteeing the election of Barack Obama, the candidate whose biggest campaign contributors included Goldman Sachs, Citigroup, JPMorgan Chase, UBS and Morgan Stanley.

If the banks had collapsed before the primaries then this would have given a chance for a true champion of the people to win. Perhaps the general elections would have been between Dennis Kucinich and Ron Paul. I say this after reading that Putin won elections in Russia "vowing to destroy Russia's oligarchs as a class".

There is a quote that sticks in my mind from an interview with Dennis Kucinich on September 29, 2008.

We had a former head of the FDIC tell a group of congressmen yesterday that the Bush administration has been going around the last few weeks, actually, so tightening up on the practices of banks that they’re forcing them to have bigger reserves, which in a way would, you know, kind of create—help to create the kind of tight money policies that we’re saying we’re trying to alleviate with this bill. So, you know, there needs to be a deeper look at this.

It seems to me there’s a possibility that this crisis has a little bit of manufacture to it. And that really concerns me, because we haven’t had enough time to look at this in an in-depth way, to analyze the impact of it on the economy, to see if it’s going to do anything about a recession that we’re obviously headed into, to see if it’s going to handle the underlying concerns on Wall Street about the speculation and a lack of regulation. The bill doesn’t, by the way, address anything about the speculation, anything about the lack of regulation. The SEC has failed. The Fed has failed. And we’re essentially telling all the same actors, “Go for it. You know, here’s another opportunity,” except this time it’s with taxpayers’ money. 

Kucinich makes the observation that the tight money policies in the weeks leading up to the collapse actually may have helped to precipitate it. He follows this with a comment that this gives the appearance that the crisis was "manufactured". And finally he makes the observation that the bailout bill does nothing to get at the root cause of the "crisis".

The Obama deception?

And now we have Barack Obama as President who just the other day invited all the banker-oligarchs to the White House to reassure them that he is looking out for their interests. Here's how the New York Times described the meeting in an article titled "Bankers Pledge Cooperation With Obama".

In a bit of political stagecraft designed to quiet the public’s anger toward Wall Street, President Obama summoned the heads of some of the nation’s largest financial institutions to the White House on Friday and urged them to accept responsibility for their industry’s excesses.
[...]
Indeed, the gathering was carefully choreographed by the White House, which had asked the banks on Thursday to provide broad, public endorsements of the administration’s financial recovery program, according to bank officials. And so, with the White House in the backdrop, one smiling executive after another offered his support for the president’s efforts in several television interviews coordinated by the administration.

It looks like America will have to wait four more years for a chance to put someone in the Presidency with the courage to take on the mighty banking oligarchy, or as I sometimes refer to them the International Bankers. Because other than a few kabuki moments for the benefit of the American public, it does not appear that Obama will do anything to upset his masters by stealing power from this elite class. And as Johnson so forcefully points out in his article, "recovery will fail unless we break the financial oligarchy that is blocking essential reform."

Related Posts

• Has the US become an oligarchy? 
• Welcome to the Wall St. jungle 
• The International Banker's China Syndrome 

Has the US become an oligarchy?

[The image above is linked to the one from the article "The Quiet Coup" described in this post.]

A new word is creeping into the vocabulary of Americans - oligarchy. Oligarchy used to be synonymous with Latin American countries. But in just the past few days the word has begun to appear in articles discussing the current US economic crisis. First it appeared briefly in the remarkable Matt Taibbi article in Rolling Stone titled "The Big Takeover". Now it has appeared prominently in a new article in The Atlantic by Simon Johnson titled "The Quiet Coup". While the title of the article itself is highly suggestive, the lead-in leaves no doubt as to the author's intentions.

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time. 

The author is not just another "conspiracy loving nutjob" like myself (I've been called worse), he is "a professor at MIT’s Sloan School of Management, [who] was the chief economist at the International Monetary Fund during 2007 and 2008. " I get the feeling he knows what he's talking about.

By the way, I think I've found the man to replace Tim Geithner as Secretary of Treasury. If we could get Simon Johnson in that position and Nassim Nicholas Taleb, the author of "The Black Swan", to replace Summers and Volker as Obama's economic advisor, then I would feel confident that Obama was serious about really fixing the economic problems facing this nation. That would be "change we can believe in" instead of the tired Clinton retreads that Obama has appointed to his "economic team".

In a section of his article titled "Becoming a Banana Republic" Johnson provides some background for how we got here. He is very careful to not lay the blame on one particular party or the other. Instead he makes it clear that both parties facilitated the policy changes that led us into this current economic quagmire.

But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services. 

Next Johnson describes the unique nature of the financial oligarchy that has wrapped its tentacles around the American government and threatens to destroy our democracy and way of life.

Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.

One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup’s executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W. Bush. John Snow, Paulson’s predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets. 

I'm not sure I understand why Johnson chooses to downplay the effects of lobbying and campaign contributions from the finacial industry. I certainly believe that these play a major role in the power that the Wall St. bankers have over Washington. Without these contributions it would be less likely that Goldman Sachs alumni would be able to attain positions of power in the federal government. But Johnson's main point is that Wall St. seduced Main St. They had us all believing that they had all the answers - that as the uber-capitalists, they should be entrusted with the financial keys to the kingdom.

And we fell for it. We stared in awe whenever the prophets of Wall St. spoke. We fell blindly in love with their ideology of "greed is good". We poured money into their coffers through IRAs and 401Ks. We accepted on blind faith there wisdom of the markets. We worshiped at the altar of the Golden Bull of Wall St.

And we willingly became their sacrificial victims. Now it is our children's turn. Another trillion, another generation sacrificed to the greedy gods of Wall St. As the author says in a "primitive political system, power is transmitted through violence, or the threat of violence". It is true that there are no imperial soldiers (yet) marching through the streets, abducting our children and carrying them off to the top of some bloody sacrificial altar.

Oh America, "my country tis of thee, sweet land of liberty", please "let freedom ring" again.

Epilogue 

I was first alerted to this article by Rod Dreher's column "Crunchy Con". He posted an article there titled "The United States of Oligarchy". It's probably safe to say that Rod and I have many areas of disagreement. I gather from the name of his column that he is a conservative commentator, while I definitely tend towards the liberal viewpoint. Yet at this time of crisis, there is a consensus emerging that the old left-right debate is less important than standing up for what is right for our country. I'm sure he would agree.

And just as Rod does, I encourage all of you to read "The Quiet Coup" in its entirety. The preservation of our freedoms depends on an informed public. We all have a responsibility as citizens to not only become informed, but to also act on that information. Please call and email your government representatives and demand that they read this article as well. The American way of life that we love will quickly perish if we allow a new financial oligarchy to rise to power. In the words of Lincoln's Gettysburg Address...

It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us -- that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion -- that we here highly resolve that these dead shall not have died in vain -- that this nation, under God, shall have a new birth of freedom -- and that government of the people, by the people, for the people, shall not perish from the earth.

 Related Posts

• The US Civil War in reverse - fight the new slavery! 
• Has the US become a 3rd World Country?

Goldman Sachs starting to feel the heat

[Updated 3/26/09 - I did some extensive editing to this post. In my haste to post it last night I made a few errors which I've corrected. I've also added some additional material including more links for those with "inquiring minds" that want to know more.]

Ever since "Hank" Paulson, the ex-CEO of Goldman Sachs, got down on his knees to beg Congress for the original $700 million bailout, their has been unwanted attention focused on the role of Goldman Sachs in this justifiably maligned government welfare plan for the Wall St. banks. At every turn it seems that the shadowy figure of GS is lurking. Whether it is ex-GS employees, current GS employees or government officials with strong ties to GS like Tim Geithner.

Due to the secretive nature of the Wall St. financial world in general and of the bailout in particular, there has been much lingering uncertainty about the exact role of GS in this whole process. And that's just the way that GS likes to operate - in the shadows and outside of public scrutiny. In typical GS style, Paulson and Bernanke held secret closed door sessions with members of Congress to frighten and intimidate them into immediately passing the bailout bill. Do you remember the threats of martial law reported by Brad Sherman if the bailout was not passed? According to Senator James Inhofe these threats were issued by none other than "Hank" Paulson himself.

It was these types of bullying tactics that caused Dennis Kucinich to make these remarks in response to questions from Democracy Now's Amy Goodman on September 29, 2008.

I said we’re the Congress of the United States; we’re not the board of Goldman Sachs. Goldman Sachs is struggling to survive. And, you know, their former chief is now the head of the US Treasury. He’s in a position to be able to direct assets in a way that would help enhance his own financial standing. I mean, that’s a clear conflict of interest. And, you know, that’s something that needs to be said. You know, why are we permitting the person who has essentially been in a position where he’s managed assets that—you know, many of which are now in trouble, and he can come back and help clear the books for a lot of his friends? This is wrong. It’s fundamentally wrong. And, you know, it’s one of the things that adds a degree of stench to this.
[...]
When all is said and done and the jeweler’s eye is applied to this bill, this bill is about Wall Street. And unfortunately, you know, Goldman Sachs, with their man now as the Secretary of the Treasury, is going to be able to have some of its policies escape scrutiny. And this is probably a way to keep them afloat, I’m sure. Well, you know, I don’t want anybody to go down or out of business, but it seems to me that when the Secretary of the Treasury has massive holdings in Goldman Sachs and he’s going to be in a position of being able to direct investments and buy out bad investments, I think that we could easily conclude what that would do for his former firm.

Now it seems that the revelation of $13 billion in payments which were secretly funneled through AIG to Goldman Sachs has finally motivated Congress to shine a spotlight on the Wall St. bank's past bailout activities. Perhaps some congresspeople have been reading my blog because they are starting to speaka-my-language when it comes to Goldman Sachs.

I recently posted a video of Rep. Maxine Waters (D-CA) confronting Secretary of Treasury Timothy Geithner on some of these issues. And now Rep. Elijah Cummings (D-MD) has stepped up to the plate with a proposal for an investigation which if handled properly could finally shed some light onto the behind-closed-doors wheelings and dealings that GS has been involved in with respect to the bailout.

In a letter full of statements seemingly taken directly from the pages of Future News Today (FNT) El Distinguido Señor Cummings has requested that the Special Investigator General in charge of the TARP, Neil Barofsky, begin an investigation into the AIG payments of TARP funds to its counterparties. And of course we all now know that the "counterparty" that received the biggest payment was my old nemesis Goldman Sachs.

Here is the full contents of Cummings' letter as produced in an article in TPM Muckraker titled "Cummings Wants IG to Investigate Counterparty Payments". (The highlights are mine.)

Keep AIG accountable for every taxpayer dollar
Join a request for an investigation into AIG's counterparty payments

Dear Colleague:

American International Group, Inc. (AIG) has received roughly $180 billion in taxpayer funds since September 2008. Yet it has continued to pay hundreds of millions in bonuses to the same AIG employees that drove the company into insolvency.

As we continue to address the issue of the bonuses, we cannot lose sight of another potential abuse of taxpayer funds - the counterparty payments.

Under intense pressure, AIG finally released a list of transaction counterparties on March 15. These releases showed that the investment banks around the world received billions in taxpayer dollars without apparently being required to take a discount; further, there is little evidence that a concerted strategy guided the payments.

The American people were told that they had to bail out the financial sector because of the great systemic risk from an AIG collapse, and $180 billion later, the people find themselves "involuntary investors."

Further, Goldman Sachs claimed in September that they had no material exposure to AIG; however, after AIG released the counterparty information on March 15, we found out that Goldman Sachs received almost $13 billion in counterparty payments.

The Special Inspector General for the Troubled Assets Relief Program was created to ensure that transparency and accountability stay firmly rooted in the government's efforts to revive and sustain the American economy. This letter proposes that the Special Inspector General examine the nature of the counterparty payments - including the recipients, the process by which they were made whole, and the justification, if any, for that level of payment.

Investment in AIG may be necessary, but it deserves the utmost scrutiny and attention. For more information or to co-sign the letter requesting an investigation into the counterparty payments from AIG (text can be found below), please contact xxxxx at xxxxx, by 3:00 pm, Tuesday, March 24. 

Anyone that has been reading my blog regularly can just imagine how happy and excited I am about this new development. I wonder if any of Rep. Cummings' staff have been visiting my blog to gather information since this is exactly what I have requested in my article titled "SIGTARP is the new sheriff in town". Of course it could just be that Mein Güten Herr Cummings was taking the counsel of Elliot Spitzer (I always want to call him Mark Spitzer for some reason - hmmm). But then Elliot didn't come up with the idea of having the TARP SIG investigate this - that was my idea! Anyway Spitzer should be brought in as an adviser to suggest strategy and questions to be asked of witnesses. There are internet rumors that ex-Gov Spitzer was taken down by powerful Wall St. interests that didn't want him poking around in their backroom deals. Perhaps this could be Spitzer's revenge. And despite what you may have learned in Sunday school, revenge is sweet. I have a feeling that Spitzer would be willing to do this work pro bono publico - literally "for the public good".

When I wrote my first article on Goldman Sachs titled "Goldman Sachs: Wall St. Gangstas", I had no idea what I was getting into. Now I can no longer deny, as I used to, that I have an obsession with all things GS. I'll keep an eye on this story and post articles on my blog of anything that I hear. If any of you happen to hear of any developments please post a comment on any of my articles and I'll follow up on it.

Thanks,
Frank Hope

P.S. I want to give a special shout out to POGO,  the Project On Government Oversight. They have been doing a magnificent job of keeping these and other important issues in the public spotlight. It was an article on their site titled "Keeping an Eye on the (Goldman Sachs) Prize" which directed me to the TPM Muckraker article.

... and I'd like to thank the Academy for ...

Related posts

• Maxine Waters confronts Geithner on Goldman Sachs
• SIGTARP is the new sheriff in town 
• Did Goldman Sachs precipitate the fall of AIG? - More Wall St. Jungle
• Welcome to the Wall St. jungle  
• AIG and Fed run massive money laundering scheme 
• Time for a new financial system 
• The Goldman Sachs "secret handshake" 
• The Tom and Baracky Show 
• The International Banker's China Syndrome
• Goldman Sachs über alles 
• From Neocons to Neocrooks
• Goldman Sachs: Wall St. Gangstas

Geithner's dollar gaffe

"Oops! My bad." That was Tim Geithner's response after causing the dollar to tumble 1.3% due to his remarks at a Council of Foreign Relations event.

In response to China's calls for a new international reserve currency to replace the U.S. dollar Geithner said, "We’re actually quite open to that suggestion – you should see it as rather evolutionary rather building on the current architecture rather than moving us to global monetary union".

Moments later he was prodded by the event moderator to revise his statement, "I’d like to ask one final question, in effect on behalf of the market. Let me ask the question this way. Do you see any change over the foreseeable future in the basic role of the dollar as the world’s key reserve currency?"

After the reminder that he was speaking in a public forum Geithner responded this way, "I think the dollar remains the world’s dominant reserve currency." Not exactly a total rebuttal of his previous statement but enough to calm the world markets.

Geithner must have forgotten that he was not speaking in some private forum like the Group of Thirty (G30) and spilled the beans on the plans of the International Bankers to replace the dollar as the world's reserve currency. Remember that Geithner and People’s Bank of China Governor Zhou Xiaochuan both are members of the G30 which is a private organization founded by David Rockefeller. It's highly likely that this is a topic that has been thoroughly discussed in those private meetings and an agreement has been reached.

It must be confusing for Geithner to try to remember to pretend that the US central bank and the Chinese central bank are at odds with each other whenever he is speaking in public, while secretly cooperating with them behind closed doors. He probably felt so at ease in the CFR forum (another Rockefeller organization) that he temporarily let down his guard. I'm sure he will get a stern lecturing from fellow G30 members Volker and Summers to "get it together man!"

You really can't blame Tim. He's not accustomed to the public spotlight. He was thrust into his role as Treasury Secretary by the banking elite. They didn't seem to take into account that Tim is essentially a technocrat that thrived in the secret world of  the Federal Reserve. They knew that another Wall St. executive like "Hank" Paulson would have a tough time being confirmed. And they were afaid to install Larry Summers because of his infamous free flowing mouth. Perhaps they thought his youthful appearance would win over the American public.

As it has turned out Geithner has been a disaster. There have already been calls for his resignation after just two months. Obama has had to repeatedly defend him and recently joked on 60 minutes that even if Geithner offered his resignation he would say "Sorry buddy you've still got the job". Geithner must be bumming.

Related posts

• The US Civil War in reverse - fight the new slavery! 
• Maxine Waters confronts Geithner on Goldman Sachs 

Maxine Waters confronts Geithner on Goldman Sachs

It's been a while since I've posted a video on my blog. This is a great one! Congresswoman Maxine Water is in rare form grilling Geithner on the Goldman Sachs role in the bailout. Has she been reading my blog? I couldn't have done it better myself. It's great to get Tim Geithner on the record.



What I don't understand is how Treasury Secretary Geithner could deny that GS CEO Lloyd Blankfein was present during discussions regarding the demise of Lehman Brothers and the propping up of AIG which are the events that led Paulson and Bernanke to come rushing in a panic to Congress for the original $700 billion in bailout money. As we now know that was just a downpayment from the taxpayers to the Wall St. bankers to keep their gigantic Ponzi scheme running a little while longer.

Representative Waters even got in a good lick on Geithner's chief of staff Mark Patterson who is an ex-lobbyist for Goldman Sachs. As I said its good to get this information on the Congressional Record. Perhaps Dennis Kucinich can pick it up from here and dig deeper into the topic of Goldman Sachs' abuses of the government bailout.

What we really need is a special prosecutor to handle this issue. I can absolutely sympathize with the congresswoman's concern over the amount of time she has to ask questions. I've been watching a number of congressional hearings lately and I have noticed how these officials will burn up time by offering up longwinded answers to simple questions. They know that once a congressperson's 5 minutes are up then it's the next representatives turn. By sucking up the time in this way they avoid having to answer any substantial questions. I saw Bernanke do this recently. Most congresspeople are too polite to interrupt an answer, but not Maxine! Some times you just have to play a little rough and dirty.

Next up I'd like to see Maxine Waters grilling ex-Treas-Sec "Hank" Paulson on some of these same topics. It's a shame that other members of Congress don't have the integrity to follow up on this line of questions regarding the role of Goldman Sachs in the bailout. Still, at least it's good to know that there are some members of Congress looking out for the interests of the American People.

Good work Ms. Waters! We thank you. And please, keep it up!

Related Posts

• Welcome to the Wall St. jungle - This contains information about the AIG money that was passed on to GS, and the meeting that GS CEO Blankfein attended to arrange the AIG bailout.
• SIGTARP is the new sheriff in town - This is about the Special Inspector General which is part of the TARP plan and could lead an investigation on Goldman Sachs. The problem is that Neil Barofsky who was appointed to this post by Bush has shown no inclination to do so.
• The Goldman Sachs "secret handshake" - This gets into detail about Mark Patterson, the ex-lobbyist for GS that is now Geithner's chief of staff. It also covers some of the other GS connections in government and at the Federal Reserve.  

The US Civil War in reverse - fight the new slavery!

The current financial crisis is like the US Civil War in reverse. While the Civil War was fought to abolish slavery the current crisis is a fight to re-establish slavery. At the risk of seeming pompous here is a quote from an article I posted in October 2008 titled "The International Banker's China Syndrome", soon after the original Paulson bailout.

My belief is that this financial "crisis" that we are in was deliberately planned. This is part of a plan to transfer economic power from the United States to China. The people behind the plan are the International Bankers. They have been setting up this scenario for at least 20 years if not longer. One of the main conspirators is Alan Greenspan who knowingly created this bubble. The transfer of power to China will occur by giving it more power in the IMF. China will also be included in an expanded G-7. The current "crisis" will be used as the excuse or the cover for this transfer. The International Bankers who are behind this plan have already profited enormously from this scheme. They are willing to sacrifice the economies of the World in order to carry their plan through to the end. The motivation is to weaken the global power of the US which is seen as too independent for their purposes. China is the prototype of the neo-Fascist government which they seek to impose upon the world.
[...]
While I can't offer any definitive proof that there is a conspiracy by the International Bankers to shift economic power from the US to China, I can offer some anecdotal evidence. As for motive, I believe that the Chinese neo-Fascist model that it has adopted since 1978 is considerably more profitable for the International Bankers than US style capitalism. This essentially is a new form of slavery. One of the problems with a system like slavery is that it is impossible for others to compete against it. So in a free trade world without barriers, the one who adopts slavery first is the winner. In this case China with its almost unlimited supply of cheap labor and its autocratic style of government is the clear winner.

The conclusion is that "free" trade is actually slavery in disguise and we should all be opposed to it. The solution is to protect local industries through trade barriers.

Wow. That's a lot of pontificating. Did I really write that? OK, well check it out dog, [my best Randy Jackson impression] I made two predictions in that verbose statement.

• The transfer of power to China will occur by giving it more power in the IMF. 
• China will also be included in an expanded G-7.  

The first of those is about to happen at the G-20 meeting in London which begins next week on April 2. Don't believe me? Here's an article from the Australian press titled, "Bigger role at IMF for China". The title pretty much says it all, but here is an excerpt anyway.

Gordon Brown has boosted Kevin Rudd's hopes that China will be given a greater role in the global financial system by hinting that some European nations have privately agreed to surrender some of their voting rights in the International Monetary Fund.

The British Prime Minister, host of next week's G20 summit in London, made clear during a briefing at 10 Downing Street yesterday that progress had been made behind the scenes to clear the way for a greater role for China.

Mr Rudd has backed the claims of China, which has only 3.7 per cent of the voting rights in the IMF compared with Europe's 32 per cent, despite Beijing's rapid rise in recent years to be one of the world's most important economic powers.
[...]
As with most international summits, many of the London meeting's results have already been decided or will be thrashed out before the leaders gather on Thursday week.

At the summit, the IMF will be restructured and given a major increase in emergency funding, and there will be a crackdown on tax havens.

The article makes clear that next week's summit is a formality. The agenda has already been hashed out by government representatives, this is just a rubber stamp process and a photo op. The United States by the way has 16.77% of the voting rights at the IMF according to that organizations own website. I wonder if that will also be adjusted. I love the use of the word "surrender" in the above article. It conveys an image of a war that has been lost - and so it has. The victor is not just China, but also the International Bankers who have been planning this strategy for decades and are now reaping the benefits.

I'm pleased to see that I'm not the only one these days who sees a nefarious plot behind the current financial "crisis". Jim Jubak, who is a financial journalist that I have come to admire, has expressed a similar sentiment to mine in an article titled "Fluke? Credit crisis was a heist". Once again the title says it all but here's an excerpt.

The folks in power in Washington and on Wall Street want to pretend that the current global financial crisis -- you know, the one that reduced household net worth in the United States by $11.2 trillion in 2008, according to the Federal Reserve -- was an accident caused by some unfortunate confluence of greed and asleep-at-the-switch regulators.

What we're now living through, though, is the result of a conscious, planned looting of the world economy. Its roots stretch back decades. And it wouldn't have been possible without the contrivances of the bought-and-paid-for folks who sit in Congress. 

Isn't that what I said? I said it was "deliberately planned... transfer of economic power"; Jubak says it was "conscious, planned looting of the world economy". So we agree that this "crisis" was no "accident". That's why I tend to put quotes around the word crisis. In my mind you can't call it a crisis if it was planned.

Jubak and I disagree on a few key points. He thinks "the plan blew up on the looters", I think that the plan all along was to blow up the world economy. You can't apply shock treatment until the victim is in shock. There had to be a shock to the system to allow the International Bankers to propose an overhaul of the world economy. Conspiracy theory? Yes, but then take a look around you at what's happening. Does it make sense that the all world's largest banks just suddenly failed and hurtled the world economy into near depression? Do you really think they're that stupid?

The other big point that Jubak and I disagree on is the purpose behind the looting. Jim thinks it's just greed con amuck, I think it is to transfer power to China and reshape the global economy. Another conspiracy theory? Yes, but what is the test of a good theory? The way to test a theory is to make predictions based on that theory. If the predictions come true then the theory is validated.

We can already see one concrete prediction that is coming true. China's role in the IMF is about to be enhanced thus giving it more economic power. This power will ultimately come at the expense of the United States. For many years the IMF was a tool that the US used to empower its multinational companies as they forced other countries to accept conditions on loans. Now China will have the increased ability to use the IMF to enforce its economic agenda on the world.

If you read my full article which I quoted above you'll see that it ends with a list of the members of the G30. I highlighted that group because the Governor of the People's Bank of China, Zhou Xiaochuan, had become a member in 2005. It's very interesting that out of that group of 28 people, three have become key members of Obama's economic team.

• Timothy Geitner is the new Treasury Secretary.
  
• Lawrence Summers is the chairman of the National Economic Council. 
• Paul Volcker is the chair of the newly formed Economic Recovery Advisory Board.
  

Again, the test of a theory is in its ability to make accurate predictions. It's clear to me that the actions of Zhou Xiaochuan are coordinated with those of Tim Geithner. While they may pretend to be at odds, as in when Geithner seemed to threaten China with the label of "currency manipulator", they are actually engaging in a coordinated action. They had 3 years together as members of the G30 to come up with their plans. And don't try to look for any notes from the meetings because the G30 is a highly secretive organization which does not provide the public with insight into its private discussions.

The reason that the International Bankers appointed Geithner to be Obama's Treasury Secretary was not because of his great public speaking abilities - he has none. Or his ability to sell the new economic plan to the American public - he's a lousy salesman. The reason he was appointed is because he is an insider. He is someone who has proved he can be trusted to follow orders and not go off on his own. But just in case Geithner gets any wild ideas the International Bankers have insisted on placing in the position of Geithner's chief of staff another one of their own to keep an eye on him. I'm referring here to the controversial appointment of the Goldman Sachs ex-lobbyist Mark Patterson.

It's left to Obama himself to be the chief salesman and head cheerleader for the economic plan. Even Bernanke has been drafted to help in the cheerleading as seen in his 60 minutes performance. That's how bad Geithner is at handling the public spotlight. Again, he wasn't chosen for his sales ability. He was chosen for his proven allegiance to the International Bankers. He has been working for their cause as President of the New York Fed for years. He never challenged them or spilled the beans on their dubious investment schemes. He participated in planning the Paulson bailout, particularly with regards to the shady dealings involving AIG. He's part of the clan. His hands are dirty. If they go down, he knows that he'll go down with them. In a word, Geithner has been "initiated".

OK. That brings us to what I believe to be the definitive article on the current economic "crisis". A masterpiece of journalism by Matt Taibbi published in Rolling Stone magazine titled "The Big Takeover".  In this case the subtitle says it all, "The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution". Now that's what I'm talking about! But what is exactly is the nature and purpose of this revolution?

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

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 federal 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. 

Read this article! Study it. Memorize it. What Taibbi is saying is that the International Bankers have already created an oligarchy in the United States. Power no longer resides with the people, it resides in the hands of a powerful few. The Paulson bailout was the final coup de grâce. The transfer of their enormous debt onto the taxpayers has turned the American citizens into slaves at the mercy of the International Bankers.

This is why I call this the Civil War in reverse. Obama has been compared to Lincoln, but if he continues along his current path he will become the anti-Lincoln. The latest Geithner bailout is like the anti-emancipation proclamation. Our children and our grandchildren are being sold down the river to a life of slavery. They will be forced to payoff the enormous, inconceivable debt that these bailouts entail. Oh pity the poor children. Will they curse their parents for placing this yoke upon their shoulders?

I just wish that Matt would read my article on the transfer of power to China and realize the true purpose behind this Machiavellian power grab. I would love to see his take on this issue. We must continue to speak out while we still can. Those of us who are older and have little to lose should do all that we can to defend our children from these monsters.

I fear that the public has misplaced its trust into the hands of Obama. So far he has shown no sign of fighting the new oligarchs. Indeed he has done everything to facilitate their plans. His charm, as displayed in a recent 60 minutes interview, has disarmed the public. He has thrown a few bones to the desperate public in the form of increased unemployment benefits and government help in refinancing. But the big money, and we're talking trillions of dollars, is landing in the laps of the new oligarchy. Is this bread and circus all over again? I'm afraid so.

Are these events inevitable? Is there nothing we can do save our children from becoming 21st century slaves? Nothing is inevitable.  This is still a democracy and the people still have the power to affect change. Take a look at Russia. Putin was able to throw out the oligarchs and regain control of the wealth of the nation. He threw the oligarchs in prison. The same thing has to happen here. The danger of course is that Putin will become a dictator. Perhaps in the United States there is less danger of that given our history and traditions. But sadly, Obama does not appear to be the American equivalent of Putin. In fact he has fought in favor of the bailouts. So at this moment it is up to the American people to apply sufficient pressure on the government to act in the interest of the citizens instead of the oligarchy.

So what's next? Let me make a few more predictions based on the latest news and my "conspiracy theory" regarding a transfer of power to China.

Prediction 1 - China will be invited to join the G-8
This is a prediction that I made earlier. In fact the CFR (Council on Foreign Relations) is already calling for this to happen.

"No country will benefit economically from the financial crisis over the coming year, but a few states -- most notably China -- will achieve a stronger relative global position.
[...]
The Obama administration could lead efforts to bring China into the G-8 (the group of highly industrialized states) and expand China's shareholding position in the International Monetary Fund. China, in turn, could lead an effort to enlarge the capital base of the IMF."

This article is now only available by subscription, but you can hear a podcast of the entire article here. But don't tell the CFR webmasters or they might block it :)


Prediction 2 - The dollar will be replaced as the global exchange currency by IMF SDRs
This is a no-brainer because China has openly announced their backing of this position. In fact it was announced personally by Zhou Xiaochuan. Remember him? He is China's Chinese central banker and Geithner's buddy on the G-30. I'm betting that this is one of the topics that had been discussed in previous G-30 meetings. Why doesn't someone ask Paul Krugman since he sat in on those meetings as a member of the G-30? Of course don't expect to get a straight answer. Or for that matter why doesn't Congress ask Geithner about this since he is supposed to be working for the American people now? Again, I wouldn't expect a straight answer because Geithner isn't really working for the American people, he's working for the International Bankers.

Prediction 3 - Massive privatization of US government assets
I talked about this in my article on the transfer of power to China. This is a natural consequence of the economic "crisis". As slaves we don't get to own our country's assets anymore. Instead they will be sold off to foreign governments and we will have to pay rent to use them. Kind of like a tribute to our new masters.

Prediction 4 - Goldman Sachs will bail out of the TARP program
Again this is a no brainer because GS has already announced this. Of course they shouldn't be allowed to get away with this given the amount of money that was funneled to them through AIG, but don't expect Obama to challenge them on this. As masters of the financial universe and head honchos among the new oligarchy, I fully expect them to get away with it.

Prediction 5 - Taiwan will be returned to China
This is a huge issue for China. This may take a while to play out, but China is not going to give up on this one. China may even make some military threats to make this happen. This will be a huge power shift in the far east with tremendous ramifications for US military strategy in that part of the world.

Prediction 6 - Double digit inflation in the US
This is another no brainer. Perhaps this will be timed to happen towards the end of Obama's term in office to weaken his chances for re-election. That's the way it played out for Jimmy Carter. But if Obama is a good boy and follows orders, who knows? This could be delayed indefinitely. As a consequence of inflation many are expecting the price of gold to skyrocket. This would seem logical, but it appears that the price of gold is being manipulated. I expect the price of gold to be maintained below $1000. This is because of the psychological significance of the $1000 threshold and its impact on the markets.

Prediction 7 - More free trade, WTO given more power
When people talk about a New World Order and global government, they should be looking at the WTO. The WTO has the power to enforce economic policy on "sovereign" nations. It routinely resolves "trade disputes" and forces countries to comply. The saddest day in US history was the day China became a member of the WTO. This was negotiated by Robert Zoellick. Watch out for him! He is currently head of the World Bank. He is a sino-phile that has been clamoring to get China more power in the IMF. The only way to stop China is to stop the "free trade" movement. The US must protect itself economically. Despite what you are hearing in the press, "protectionism" is not a dirty word.

Prediction 8 - More "regulatory" power goes to the Fed
This is already being talked about. I read some paper by Geithner a while ago asking for this. The Fed will become more powerful. Under the guise of increasing "regulation" it will be handed even more power over the US economy. This despite the fact that they didn't use the regulatory power they already had to keep the Wall St. banks from creating the huge derivatives mess. In fact they encouraged it.

Prediction 9 - China will strengthen its currency - under its own terms
China will revalue its currency to make it stronger. This will come at a time of China's choosing when it determines that the world economy has bottomed out. This will effect China's ability to export, but will allow China to buy up cheap foreign assets. China is waiting for all the "toxic" assets to be removed from the books before swooping in and buying the good assets.

Prediction 10 - Social unrest in China
The people of China will not get a totally free ride. They will pay the price in terms of lost employment. China's economy will go into a recession just like the rest of the world, if it hasn't already. Don't believe the official economic numbers. People losing their jobs will result in social unrest, but China will not hesitate to use brutal force to stop the rioting - just as it did at Tiananmen Square protests in 1989.


---

I hope my predictions are wrong. This is effectively the agenda that I see for the future. If people are aware of this agenda, then they will be better prepared to head it off. I offer these predictions with the hope that people will realize the agenda of the International Bankers and fight to stop it.

Remember - nothing is inevitable. America is the "land of the free and the home of the brave". There is a Civil War going on for the future of America. You won't read about it in the MSM, but it is happening all the same. It's time to fight for our children and for the country we love.

Say no to the bailouts! Nationalize the banks and prosecute the guilty bankers! [Now where's my pitchfork?]

P.S.
Bonus prediction - the next big "crisis" will be the fall of JP Morgan Chase
The "Morgan mafia" started the derivatives business and is the biggest player by far. It holds something like $90 trillion in derivatives which is about half of the total amount held by US banks.  This is according to the Office of the Comptroller of the Currency which is a branch of the US Treasury Dept. For comparison the US GDP in 2008 was about $14 trillion and the world GDP for the same year was around $78 trillion.

SIGTARP is the new sheriff in town

I've been clamoring for a special prosecutor to investigate the corrupt role of Goldman Sachs in the bailout plan. It turns out there is already someone on the job. His name is Neil Barofsky and he is the "special inspector general" overseeing the Troubled Asset Relief Program otherwise known as the Paulson bailout plan. He heads up an office called SIGTARP that was specially created to oversee the TARP plan and reports directly to Congress. So how come you never heard of Barofsky or his organization? Good question.

Barofsky was appointed by Bush in December 2008 - talk about a lameduck appointee! Here is what the Washington Post had to say about Barofsky at the time of his appointment.

Barofsky is not an expert on either the bailout or being an inspector general. Nonetheless, he seems to relish the opportunity to follow the dollars wherever they might lead. As an assistant U.S. attorney in Manhattan, he has eight years of experience investigating corporate fraud and narcotics trafficking, and he helped put two Refco executives in jail after the trading firm collapsed in 2005.

So Barofksy who has no relevant experience or qualifications is put in place to oversee a $700 billion program. But he does have lots of enthusiasm and in eight years he was able to jail two executives in a fraud case. Maybe eight years from now he can claim to have jailed two more executives.

Well what kind of powers does this "special inspector general" have anyway?

The special IG is the sole executive branch officer with the power to oversee the potential conflicts of interest and miscalculations in the program. Armed with a $50 million budget and dual-reporting responsibility to Congress and the president, the special IG has the independence to audit and investigate every transaction and subpoena every record associated with the rapidly changing program.

A $50 million budget sounds like a lot until you realize that this is much less than the $170 million that AIG is paying out in bonuses to the guys that created the derivatives mess over there. Heck, BankAmerica's CEO Pandit is spending $10 million just to redecorate his office. Maybe if Barofsky does a good job he can land a job at Goldman Sachs when he is done.

But the post does come with substantial powers which in the right hands could be used to go after the likes of Goldman Sachs which has abused the TARP bailout money to enrich itself. So why doesn't Obama appoint someone to the position with the experience to really go after the abusers? According to the Washington Post there is nothing preventing him from doing just that.

Under the Inspector General Act, IGs are presidential appointees who are subject to Senate confirmation but serve at the pleasure of the president. As a result, they are sometimes selected more for their political loyalty than their expertise. As the Project on Government Oversight argues, many inspectors general feel enormous political pressure to support the administration that appointed them.
[...]
The post does not appear to be on the Obama transitions replacement list.

The Post clearly states that these are political appointees chosen for their loyalty to their parties, but inexplicably Obama has no plan to put someone in this position with the real motivation to go after people in the Bush administration who may have misused the TARP for their own personal interests. I'm thinking specifically of "Hank" Paulson here. This goes right along with the theme of appointing Tim Geithner as Treasury Secretary despite his strong ties to Goldman Sachs, Paulson and the bailout in general. Who's looking out for the American people?

The Wall Street Journal goes into more details on the powers of the TARP SIG.

Neil Barofsky, the man overseeing the $700 billion bailout, is armed with broad authority, including the right to carry a handgun and the power to subpoena. As special inspector general for the Troubled Asset Relief Program, he is charged with tracking the bailout funds. 

So cool, he gets to carry a gun and can issue subpoenas - sounds like we have a new sheriff in town. But while New York Attorney General Andrew Cuomo has been busy issuing subpoenas to AIG in order to force them to reveal the details of their "retention" bonus payouts, it seems that Barofsky has been busy sitting on his hands.

But Barofsky hasn't spent all his time in useless paper shuffling. In recent testimony before Congress Barofsky states that he has sent out "surveys" to the TARP recipients requesting information on just how they have spent those funds. You can just imagine the response at the Wall St. banks - the panic as they nervously fill out the dreaded questionnaires. "Oh no! Not a survey! Please! Send me a subpoena, anything but that!"

Well Barofsky did make one headline this past week as reported by TPM Muckraker.

Neil Barofsky, the special inspector general for the bailout, told Congress this morning that he'll probe the AIG bonuses -- including what role the Treasury Department played.

In words that may send a chill up Tim Geithner's spine with their invocation of Watergate, Barofsky, asked specifically by Republicans about the Treasury Secretary's role, said his probe would seek to find out "who knew what, when and why," in regard to the bonuses.

Certainly Barofsky knew when he made this statement that it would evoke memories of Watergate implying that there was some corruption in the Obama administration. Now I'm the last person that is going to defend Tim Geithner from attack, but isn't it suspicious that this question was asked by Republicans? And what about the role of the previous Treas-Sec, Henry Paulson? My guess is that Barofsky, who appears to be nothing but a partisan hack, is not going to go anywhere near any wrong doing by the Bush administration.

Obama made a serious political mistake by not dismissing Barofsky as soon as he took office. Now if he tries to take him out Republicans will scream that he is trying to protect Geithner.

At least Dennis Kucinich seems to be trying to keep Barofsky honest. Dennis brought Barofsky up before a subcommittee that he chairs and asked him about the influence of lobbyists over the TARP funds.

Neil Barofsky, the rescue package watchdog, said he will report his findings on "what impact, if any, that lobbyists or other outside influences have had" on the Treasury Department's spending of the money.
[...]
Barofsky's message for recipients: "If you try and steal from this program, we will find you. We will investigate you. We will put you in jail."

Rep. Dennis Kucinich, D-Ohio, the panel's chairman, said after the hearing he's glad Barofsky is looking at the possibility of lobbyist influence over the spending.

"The problem with TARP from the beginning is that it puts the government in the position of picking winners and losers," Kucinich said. "Certainly, the possibility of outside influence, namely lobbyists, is always present. This is Washington, D.C., not Disneyland."

I'm not particularly impressed by Barofsky's tough talk given his not so impressive record so far. Kucinich is right on the mark with his comment that government is "picking winners and losers". Lehman Brothers - loser. Goldman Sachs - winner. And GS doesn't hardly need to pay for lobbyists since Geithner put one of GS's lobbyist on the government payroll as his chief of staff. That would be Mark Patterson. And of course there is the GS lackey Kashkari who Paulson put in charge of the TARP program and is still running it.

It's interesting that Eliot Spitzer, the disgraced ex-Governor of New York, has broken his public silence to speak up about the Goldman Sachs abuse of the TARP program. In articles in Slate here and here and in interviews here and here, Spitzer has repeatedly made the point that the brouhaha over the AIG bonuses is really a diversion and that the real emphasis should be on the money that the government paid to AIG but was diverted to GS. I could not agree more. Finally someone is shining a light on the abuses of Goldman Sachs. Maybe Obama should appoint Spitzer to replace Barofsky as the special inspector general for the TARP program. Spitzer already has a reputation as "the sheriff of Wall Street", and it looks like he's ready for a fight.

According to Spitzer, here are the questions that "should be answered, in public, under oath, to clear the air".

What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?

Was it already known who the counterparties were and what the exposure was for each of the counterparties?

What did Goldman, and all the other counterparties, know about AIG's financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn't they bear a percentage of the risk of failure of their own counterparty?

What is the deeper relationship between Goldman and AIG? Didn't they almost merge a few years ago but did not because Goldman couldn't get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG's business model was not to pay on insurance it had issued.

Why weren't the counterparties immediately and fully disclosed? 

OK Mr. Special Inspector General Barofsky, what are you waiting for? Have you sent out the subpoena's to Bernanke, Geithner, Paulson, and Blankfein yet? ... How about now? ... Now?

By the way, SIGTARP has a hotline number which they have posted on their website.

"If you are aware of fraud, waste, abuse, mismanagement or misrepresentations affiliated with the Troubled Asset Relief Program, please contact the SIGTARP Hotline!"

(877) SIG-2009

I suggest calling and reporting "Hank" Paulson and Ben Shalom Bernanke for fraud, waste, abuse, mismanagement and misrepresentation affiliated with TARP. You can give them a link to my website if they want more details.

Related Posts

• Welcome to the Wall St. jungle
• AIG and Fed run massive money laundering scheme 

The Phantoms of the Stock Market

This post is about "phantom" shares - also known as "naked" short selling. What do naked short selling and CDSs, credit default swaps, have in common? Answer: DTCC. OK now you're thinking, what the heck is DTCC and why should I care? Well because it has a lot to do with the failures of both Bear Stearns and Lehman Brothers. And everyone agrees that those were the two critical events that precipitated the current financial crisis. And all this will lead into a discussion of the role of hedge funds in short selling.

So what qualifications do I have to talk about this stuff? Absolutely none. But I'll try to explain what I have found in the last few days of research on the internet. It's my belief that with an internet connection, Google, a strong obsession and a little bit of intelligence, anyone of us can become an "expert" on almost any topic one chooses. There are no secrets on the internet. Google knows all, you just have to ask the right questions.

My journey began innocently enough. I was looking to followup on a recent post about the incestuous relationship between AIG and Goldman Sachs. There was an article written by a New York Times reporter in September 2008 that was perhaps the best piece of journalism written on this subject. Somehow this reporter, Gretchen Morgenson, was able to piece together the story back then about the billions of dollars of CDSs that tied Goldman Sachs and AIG together in a dance of doom, even though much of this information was secret at the time. She should receive a Pulitzer for this article. GS representatives were so taken aback by this particular story that they took it upon themselves to publicly refute the facts presented by Ms. Morgenson. The problem is that the facts don't lie. But that didn't keep a GS spokesman from denying the truth and in the process mislead the American public as well as its own investors.

Lucas van Praag, a Goldman spokesman, on Sunday said the Times article was wrong to suggest that Goldman had reason to be concerned about AIG's problems.

"Although we have said many times on the record that our exposure to AIG was, and is, not material, the reporter chose to pursue a story line which suggests, by innuendo, that is not the case," he said in an e-mailed statement.

"For the avoidance of doubt, our exposure to AIG is offset by collateral and hedges and is not material to Goldman Sachs in any way," he continued. "The conclusions about our interests that readers of the New York Times article are invited to reach are seriously misleading."

I'll give GS credit for one thing - they are consistent. They keep repeating this same lie over and over again. As if by repeating it enough, that will somehow make it true.

So I was hoping that Ms. Morgenson would have some new insights given the recent revelations in this case. I was disappointed to see that her most recent articles were not up to the caliber that I expected from her. It almost made me wonder if they were being written by the same person. Perhaps powerful forces at Goldman Sachs had convinced her to tone down her writing.

But I read on, hoping that she had uncovered some golden nugget that the rest of the MSM had missed. What I found was this excerpt in an article titled, "At A.I.G., Good Luck Following the Money".

The government installed Edward M. Liddy as chief executive of A.I.G. when the company was bailed out. A former chief executive of Allstate, Mr. Liddy was also a director at Goldman Sachs before he joined A.I.G.

And in January, the Fed appointed three trustees to oversee the insurer. Their job is to maximize the company’s ability to repay amounts owed to the government and to ensure that A.I.G. is managed “in a manner that will not disrupt financial market conditions,” according to the Fed.

The trustees are Jill M. Considine, former chairman of the Depository Trust Company and a former director of the Federal Reserve Bank of New York; Chester B. Feldberg, a former New York Fed official who was chairman of Barclays Americas from 2000 to 2008; and Douglas L. Foshee, chief executive of the El Paso Corporation and chairman of the Houston branch of the Federal Reserve Bank of Dallas.

The trustees have already rankled a big A.I.G. shareholder. The American Federation of State, County and Municipal Employees pension plan, which owns 18,000 shares of A.I.G. common stock, had put forward a shareholder proposal on executive pay that it hoped would be put to a vote at the company’s annual meeting in May.

The proposal asked the company to adopt a policy requiring senior executives at A.I.G. to retain a significant percentage of the shares they received as compensation until two years after they left the company. Such a policy would help reward performance based on long-term value creation for shareholders, the pension plan said.

The article was nowhere near the masterpiece I was looking for, beginning with the title - "At A.I.G., Good Luck Following the Money". And the part describing Mr. Liddy's appointment to CEO of AIG only hinted at the fact that Liddy was sitting on the board of Goldman Sachs at the time he was appointed to takeover the CEO position at AIG. In fact he had to resign his GS board position in order to take the AIG position. This is very disturbing when you consider that Hank Paulson who hand picked him for the AIG position was the ex-CEO of Goldman Sachs, and as we now know AIG was used to secretly funnel government bailout funds to GS.

But the thing that caught my attention, because I hadn't seen it anywhere else, was the part about the three trustees. This might or might not be important, but it wasn't being reported anywhere else. And there was a hint that the trustees weren't doing a very good job at protecting the public's interest. Why would they oppose a shareholder proposal to force executives to hold on to shares for two years? This would create an incentive for the those in charge at AIG to take a longer term perspective. And wasn't the short term profit motive one of the main motivators that got the financial industry into the current dire situation?

I decided to look into the three AIG trustees and see what connections they might have with Goldman Sachs. I started with Jill M. Considine. I searched and searched, but couldn't find a connection with GS. So finally I looked up the Depository Trust Company. This company seemed to be involved in the most boring job on Wall Street. They basically are a back office that handles the stock trades for the stock exchanges. In today's computer driven world this should be a simple enough task. But surprisingly this is where things got interesting.

The Depository Trust Company, or DTC, is part of the DTCC, or Depository Trust & Clearing Corporation. What was interesting is a controversy involving DTCC with regards to naked short selling.

DTCC has been sued with regard to its alleged participation in naked short selling.
[...]
While there is no dispute that illegal naked shorting happens, there is a fight as to the extent to which DTCC is responsible. Some blame DTCC as the keeper of the system where it happens, and charge that DTCC turns a blind eye to the problem. DTCC has consistently noted that it has no authority over trading activities (which short selling is) and suggests that naked shorting is simply not widespread enough to be a major concern.

Well I'd heard of naked short selling, but I didn't understand how it worked. Usually short selling involves "borrowing" some stock shares, selling them, and then buying them back at a lower price at which time they are returned to their original owner. The idea is that the person who shorts the stocks is able to pocket the difference between the price they sell them at and the price they buy them back at. In this way an investor can make money when the price of a stock goes down. Of course if the stock happens to go up, the investor will lose money because they will have to pay the higher price when they buy back the stock. So basically this functions as a bet that the price of the stock will go down. OK. Got that?

"Naked" short selling I found out is the same thing, except the investor doesn't bother to "borrow" the stock that he is about to sell. Some people have compared this to counterfeiting. How can you sell shares that you don't own and you haven't even borrowed? Something doesn't sound right here.

As it turned out Bloomberg had just done a story titled, "Naked Short Sales Hint Fraud in Bringing Down Lehman".

The biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts.

As Lehman Brothers Holdings Inc. struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of Sept. 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30.

The SEC has linked such so-called fails-to-deliver to naked short selling, a strategy that can be used to manipulate markets. A fail-to-deliver is a trade that doesn’t settle within three days.

“We had another word for this in Brooklyn,” said Harvey Pitt, a former SEC chairman. “The word was ‘fraud.’”

The article goes on to describe how naked short selling was used to cause the precipitous fall of Lehman Brothers. Granted that Lehman was on shaky ground anyway. But that doesn't explain how it could be worth billions one day and practically nothing a few days later. The inescapable conclusion is that Lehman was attacked and taken down by an organized effort of a small group of people that stood to profit from its fall.

The same thing had happened to Bear Stearns back in March. Lehman was targeted in September. But when Goldman Sachs was threatened by this same tactic of naked short selling, suddenly the SEC stepped in and temporarily banned the practice.

Now before you go feeling too sorry for Bear Stearns and Lehman, you should know that these big Wall Street firms were the ones that were enabling naked short selling in the first place. They took the orders and executed them. If one of their big hedge fund customers put in an order to short a stock and assured them that they had "borrowed" the necessary stocks to back up the transaction, then the Wall Street firms would put the order through and profit from the fees. They never required proof from their big customers that they actually had access to the stocks in question. And in many cases they didn't, but that didn't stop them from illegally putting in their sell orders.

This effectively flooded the market with sell orders and drove down the price of the stock. It's a simple matter of supply and demand - if there are more sell orders than buy orders then the price will go down. And this is exactly what happened in the cases of Bear Stearns and Lehman Brothers.

But big brothers Goldman Sachs and Morgan Stanley were saved by the SEC. Lucky them! I don't suppose that it hurt in the case of GS that ex-CEO Hank Paulson was the Treasury Secretary at the time. It's always good to have friends in high places.

I started this post by talking about DTCC. Remember they were the ones getting sued over a naked short selling issue. DTCC is able to detect and track naked short selling because they are the ones keeping the records of all stock transactions. And yet even when their records showed that massive fraud involving millions of "phantom" shares per day was taking place, they stood by and did nothing to try to stop it.

Why are they called "phantom" shares? Because they don't really exist. They are conjured up by the naked short sellers with the sole objective of driving down the stock price of their target victim. This is often accompanied by manufactured rumors that the company is about to fail which fuels the panic.

Think of it this way, the seller has to hand over the stock to the buyer. In the case of naked shorts, the seller doesn't have the stock to begin with. So he hands over an IOU instead. That IOU is supposed to be replaced by the real stock within three days. This is called settling the trade. If this doesn't happen then the trade has "failed to deliver". DTCC is the organization that handles the transfer of stock ownership. They keep track of stocks that have "failed to deliver". So they have full knowledge of how much naked short selling is going on, and who is doing it. You would think that when DTCC detects millions of shares a day in a particular stock that are failing to deliver, that they would sound the alert and report the guilty party to the authorities.

But in typical Wall St. fashion DTCC keeps this information secret from the public. And nobody, not even the SEC seems to have direct access to this information. Apparently DTCC is unregulated. The finance industry seems to like to use the word "opaque" to describe this lack of "transparency", but I prefer to just call it secretive. And here's the kicker. DTCC is a private corporation and the owners of DTCC are none other than the big Wall St. firms. As it turns out Wall Street is just one big incestuous cesspool.

At the beginning of this article I promised that there would be a tie in with CDSs, credit default swaps, as well. Once again it has to do with DTCC. Not only do they handle stock transactions, but they also handle CDS transactions. So they are the only ones who really know the size of the CDS market. Here's another article from Bloomberg titled, "DTCC May Raise Credit-Default Swap Disclosure Amid Criticism".

The Depository Trust and Clearing Corp., which operates a central registry for the $55 trillion credit- default swap market, may agree to disclose more data to counter criticism the derivatives amplified the financial crisis.

New York-based DTCC has discussed with banks, brokers and others that own the company ``whether or not there's any broader access to information we might provide,'' spokesman Stuart Goldstein said in an interview yesterday, declining to elaborate on what data may be published.

The DTCC earlier this month began releasing some information on trades in the registry to clear ``misconceptions'' about credit-default swaps following the bankruptcy of Lehman Brothers Holdings Inc., among the market's largest dealers.

So you can see who's running the show. It's like letting the lunatics run the insane asylum. And the regulators who are supposed to be protecting the public's interest seem to think that its their job to protect the interests of the Wall St. firms instead. And its all so secret. Sure because if people ever figure out exactly how this system works and how it benefits the insiders at the expense of the rest of us, then we'd all be really pissed off. We already have a taste of this with the huge bonuses that the Wall St. fatcats get. This has been going on for years and its only now because of the bailout that people are catching on to the amount of money that these parasites are paying themselves for sucking our blood.

I hope that made sense. I've tried to be as accurate as I can with a topic that I have absolutely no previous knowledge of. I end with a few videos that helped me make sense of this financial viper's nest. This is followed by some additional references on the topic of naked short selling.

Phantom Shares


Hedge Funds and the Global Economic Meltdown


The last video mentions some of the hedge fund operators that are suspected of having used naked short selling to cause the collapse of Bear Stearns and Lehman Brothers. They are Steve Cohen of SAC Capital, Jim Chanos of Kynikos Associates, and Dan Loeb of Third Point.

For more information on naked short selling visit the Deep Capture website which is dedicated to this topic. The article titled "The Naked Short Selling That Toppled Wall Street" gives an excellent detailed description of the collapse of Lehman Brothers. It covers much of the same information as the Bloomberg article but in even more detail, and yet it's easier to understand. In addition the Deep Capture website alleges that CNBC host David Faber spread false rumors generated by the hedge fund operators that fueled the panic selling which ended in the collapse of Bear Stearns.

Did Goldman Sachs precipitate the fall of AIG? - More Wall St. Jungle

This is a short followup to my last post, Welcome to the Wall St. jungle. I expect to write more followup posts given the timeliness of the topic of the secret money funneled to Goldman Sachs through AIG. Usually I embellish my posts with a tastefully chosen image that represents in some way the theme of the article. On some of these short followup posts I am forgoing that tradition in order to speed up my editing process. I apologize to my readers who have come to expect these images and enjoy pondering their meaning as much as I do.

-----------

I began wondering to what extent Goldman Sachs was not just a curious bystander during the fall of AIG, but instead an active participant that precipitated the fall through its actions. And now I've found an article that says that Goldman actively pushed AIG over the edge of the cliff.

Congress Grills Former AIG Chiefs — Lawmakers Ask Whether Executives Glossed Over Warnings About Risks Insurer Faced
By Liam Pleven and Susanne Craig
8 October 2008
The Wall Street Journal

[...]
AIG documents released by the House committee show that as market conditions deteriorated, Goldman pushed AIG to provide it with more collateral to offset its exposure on the derivative contracts. Minutes from one February meeting cited “Goldman’s acknowledged desire to obtain as much cash as possible from their collateral calls.”

It isn’t clear exactly how much collateral AIG has handed over to Goldman, before or after the downgrades on AIG’s credit ratings that helped trigger the government loan last month.

A Goldman spokesman said Tuesday that the firm not only has “no material exposure” to AIG, but also that the firm’s exposure is “insignificant.” Goldman over the past year has had disputes with AIG on the value of some of the positions at issue, and of the collateral AIG posted. To the extent there were disagreements, Goldman said, it demanded and received extra collateral in cash and cash equivalents. Any material exposure that wasn’t covered by collateral was hedged, the spokesman said.
[...]

Goldman was demanding cash payments at a time when the markets were down - kind of like a margin call. This put added pressure on AIG and sped its demise. The downward spiraling series of events led to AIG's credit rating being cut which only made the company more vulnerable. One has to wonder if Goldman Sachs was also placing short bets on AIG - betting that the company would fail and hoping to profit from it - while at the same time straining the finances of AIG to increases the chances that the short bet would pay off.

You can't really blame me for wondering about these things, given the news that has been coming out recently about the secret dealings of Goldman Sachs. For months now I have been highlighting the abuses of GS in my blog. It gives me great pleasure to see many mainstream journalists jump on the bandwagon. That's why I call my blog FNT - Future News Today. Thanks to all of you for reading and commenting on my articles.

Welcome to the Wall St. jungle

As bad as you may think that the current financial mess is your wrong. It's worse - far, far worse. Because not only is this a financial mess of biblical proportions, but underlying it all is a level of fraud which is unimaginable. It involves the government and the Wall St. banks. It is a level of corruption that is at first shocking and then nauseating. Welcome to the Wall St. jungle.

The case for indicting the executive leadership of Goldman Sachs becomes clearer by the minute, but will Congress act? Here is the case as it is emerging in the past few months. Clearly the GS insiders were acting to defraud the American public with an elaborate shell game. And then there is AIG. And then there is the role of the Federal Reserve. It's a lot of material to cover but I will do my best to make sense of it all. After that it is up to you to follow the links and do some investigating of your own. This is big. This is very big. This makes Madoff's Ponzi scheme look like child's play.

Part 1: AIG - Arrogant, Incompetent and Greedy

I begin with an article from way back in September 2008. This seems like a long time ago now. This was the beginning of the bailout when Bernanke and Paulson were holding a loaded economic gun to the head of the American people and demanding a ransom from the Congress. Even then it was clear that there was something very fishy going on.

Link #1
The Reckoning: Behind Insurer’s Crisis, Blind Eye to a Web of Risk
NY Times - September 27, 2008

Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said.

Days later, federal officials, who had let Lehman die and initially balked at tossing a lifeline to A.I.G., ended up bailing out the insurer for $85 billion.

Their message was simple: Lehman was expendable. But if A.I.G. unspooled, so could some of the mightiest enterprises in the world.

A Goldman spokesman said in an interview that the firm was never imperiled by A.I.G.’s troubles and that Mr. Blankfein [CEO of GS] participated in the Fed discussions to safeguard the entire financial system, not his firm’s own interests.

Yet an exploration of A.I.G.’s demise and its relationships with firms like Goldman offers important insights into the mystifying, virally connected — and astonishingly fragile — financial world that began to implode in recent weeks.

"Fragile" I think is a nice way of saying that the Wall St. banks were engaged in running something like a Ponzi scheme or a casino without the funds to payout the winners or maybe a pyramid scheme. Who knows exactly, but the whole thing was over leveraged to an extreme and just waiting to topple at the slightest ill economic wind - the exact opposite of the robust economy that we have taken for granted in the United States for decades. But at the same time mega-profitable for the Wall St. insiders playing the game. So will these crooks have to go to jail for their ill-gotten gains? Yes I'm talking about a criminal conspiracy that makes the Mafia look like an amateur operation.

More from Link #1
Shift your focus now from Goldman Sachs to AIG and its now infamous A.I.G. Financial Products unit.

In the case of A.I.G., the virus exploded from a freewheeling little 377-person unit in London, and flourished in a climate of opulent pay, lax oversight and blind faith in financial risk models. It nearly decimated one of the world’s most admired companies, a seemingly sturdy insurer with a trillion-dollar balance sheet, 116,000 employees and operations in 130 countries.

“It is beyond shocking that this small operation could blow up the holding company,” said Robert Arvanitis, chief executive of Risk Finance Advisors in Westport, Conn. “They found a quick way to make a fast buck on derivatives based on A.I.G.’s solid credit rating and strong balance sheet. But it all got out of control.”

The man who ran that group was Joseph Cassano. I like to call him "Casino Cassano". Somehow he hasn't gotten much attention up to now. If there is any justice, he should be sharing a prison cell with Madoff in the near future. But in some ways he's small potatoes. To me the big fish are the GS executives including Hank Paulson. Is he too big to jail? And what about Bernanke? Will the law ever catch up with him?

Bernanke claims to be "outraged" that AIG got away with this dirty scheme, but where was the Fed when all this was happening? They knew about CDSs and CDOs. They knew the dangers involved and the players. Heck, the Chairman of the New York Fed is Stephen Friedman who also sits on the Goldman board. Didn't he know what was going on at AIG? According to the NYT article Goldman "was A.I.G.’s largest trading partner". And yet Bernanke is directing all his anger at AIG. He should be cursing GS as well.

More from Link #1
Here is where AIG gets into the CDS, credit default swap, business.

Ten years ago, a “watershed” moment changed the profile of the derivatives that Mr. Cassano traded, according to a transcript of comments he made at an industry event last year. Derivatives specialists from J. P. Morgan, a leading bank that had many dealings with Mr. Cassano’s unit, came calling with a novel idea.

Morgan proposed the following: A.I.G. should try writing insurance on packages of debt known as “collateralized debt obligations.” C.D.O.’s. were pools of loans sliced into tranches and sold to investors based on the credit quality of the underlying securities.
[...]
Because the underlying debt securities — mostly corporate issues and a smattering of mortgage securities — carried blue-chip ratings, A.I.G. Financial Products was happy to book income in exchange for providing insurance. After all, Mr. Cassano and his colleagues apparently assumed, they would never have to pay any claims.
[...]
These insurance products were known as “credit default swaps,” or C.D.S.’s in Wall Street argot, and the London unit used them to turn itself into a cash register.

CDSs were the mechanism for turning junk into gold. Despite what the NYT article says, the problem came when CDSs were used to insure high risk investments like sub-prime mortgages. By providing insurance from AIG in the form of CDSs, the junk quality CDOs became transformed into gold because the investment was "guaranteed".

And what about "Casino Cassano" and the rest of the members of the A.I.G. Financial Products unit. How did they fare in this business? Here's more from link #1.

Profit margins on the business were enormous. In 2002, operating income was 44 percent of revenue; in 2005, it reached 83 percent.

Mr. Cassano and his colleagues minted tidy fortunes during these high-cotton years. Since 2001, compensation at the small unit ranged from $423 million to $616 million each year, according to corporate filings. That meant that on average each person in the unit made more than $1 million a year.

In fact, compensation expenses took a large percentage of the unit’s revenue. In lean years it was 33 percent; in fatter ones 46 percent. Over all, A.I.G. Financial Products paid its employees $3.56 billion during the last seven years.

Sounds like easy money. What did they do to earn this money? It doesn't sound like this was a competitive business at all. In fact the business was created when JP Morgan approached them with the idea. So they can't even take credit for coming up with the business model. So I wonder, what exactly were these people doing to "earn" this money. It seems like AIG could have hired business school graduates to do this work and pay them a minimal amount. Sure you would need a few higher paid lawyers to look over the contracts, but nothing on the order of a million dollars a year.

BTW, what do you call a fake insurance scheme that collects money with no intention of ever paying out a cent? With no collateral to back up any claims? Normally I would just call it a fraud or a scam, but when the sums go into the trillions there has to be a better name. And what about the counter-parties in all this? Surely they knew that there was nothing backing up this "insurance". But they were more than happy to turn a blind eye because it allowed them to make huge profits as well. They all figured they had a good thing going, and nobody was going to rock the boat.

Now the article turns its attention to the clients that the AIGFP unit had. And here we see reappear the nefarious form of Goldman Sachs.
[Spooky music plays in the background]

The London unit’s reach was also vast. While clients and counterparties remain closely guarded secrets in the derivatives trade, Mr. Cassano talked publicly about how proud he was of his customer list.

At the 2007 conference he noted that his company worked with a “global swath” of top-notch entities that included “banks and investment banks, pension funds, endowments, foundations, insurance companies, hedge funds, money managers, high-net-worth individuals, municipalities and sovereigns and supranationals.”
[...]
Goldman Sachs was a member of A.I.G.’s derivatives club, according to people familiar with the operation. It was a customer of A.I.G.’s credit insurance and also acted as an intermediary for trades between A.I.G. and its other clients.

Goldman Sachs was not just a client, but also an "intermediary for trades". But notice how the whole thing was wrapped in "secrecy". But Goldman Sachs was privy to this secret world. And who do you think was CEO of GS around this time - none other than Hank Paulson. So again, when Bernanke says he's angry at AIG - shouldn't he be even more angry at Paulson?

Few knew of Goldman’s exposure to A.I.G. When the insurer’s flameout became public, David A. Viniar, Goldman’s chief financial officer, assured analysts on Sept. 16 that his firm’s exposure was “immaterial,” a view that the company reiterated in an interview.

Later that same day, the government announced its two-year, $85 billion loan to A.I.G... The plan saved the insurer’s trading partners but decimated its shareholders.

Is the NYT calling GS's CFO a liar? And then of course there is Paulson who also knew, but it was all so "secret". It reminds me of a bunch of kids playing at spies, if only the consequences weren't so dire for the rest of us.

And what is this? "The plan saved the insurer's trading partners." But at the time nobody knew who the "trading partners" were because it was all secret. And the Fed kept insisting that it couldn't reveal the names because it might cause a lack of confidence in the system and cause a panic. But what was the Fed really hiding? And even though GS's CFO got up in front of analysts and lied big time, nobody could prove it at the time because of all the secrecy. But now that this has all been exposed, shouldn't the SEC be looking into these statements? And were all these derivative trades being kept secret from the SEC all along? If you ask me GS has some big questions to answer.

And remember that this article was written back in September 2008. A lot more information has come out in just the past few days. Now we know that GS has received at least $13 billion worth of funds that have been secretly funneled through AIG. This is on top of the $10 billions worth of TARP money that GS received directly from the government. And who knows how much has been secretly funneled to them through other financial institutions.

And then there was the slight of hand that transformed GS into a "regulated bank holding company". I've yet to read an explanation of the exact purpose of that, but I suspect that it involves more shenanigans on the part of the Fed. I expect GS to transform itself back into a Wall St. investment bank when it best suits the corporation's needs. I'm sure all of this means that the government isn't collecting nearly as much in taxes from GS as it should. These companies routinely engage in schemes to keep profits out of the hands of the taxman. They even have lobbyists on Capitol Hill who's fulltime job is pushing through tax loopholes that benefit them to the detriment of the ordinary taxpayer.

And what about the regulators, why didn't they catch this scheme?

Because it was not an insurance company, A.I.G. Financial Products did not have to report to state insurance regulators. But for the last four years, the London-based unit’s operations, whose trades were routed through Banque A.I.G., a French institution, were reviewed routinely by an American regulator, the Office of Thrift Supervision.

A handful of the agency’s officials were always on the scene at an A.I.G. Financial Products branch office in Connecticut, but it is unclear whether they raised any red flags. Their reports are not made public and a spokeswoman would not provide details.

Excuse me for my cynicism, but it seems to me that AIG purposefully structured the AIGFP so that it would fall under the jurisdiction of the Office of Thrift Supervision. If you want to get an idea of how incompetent this "regulatory" body was see this article. Ironically the OTS was formed "after the industry imploded in a late 1980s scandal -- and the quality of supervision was found to be wanting -- Congress terminated the board and replaced it with a new agency, the OTS." And once again there is the secrecy because the OTS "reports are not made public".

Link #2
Was AIG watchdog not up to the job?
MSN Money - 11/10/2008

As the economy purred through the 1990s, few outsiders paid attention to OTS regulatory work. But within the financial-services industry, the agency stood as the preferred supervisor.

In 1999, Congress passed legislation allowing banks, insurance companies and securities firms to compete with each other. The new law allowed for a range of possible regulators, from the Federal Reserve to the Securities and Exchange Commission, depending on the mix of financial services a company chose to offer. Holding companies that owned one or more thrifts had the possibility of being regulated by the OTS.

"There was a stampede by commercial and financial firms to get a thrift charter," said Bart Dzivi, a former counsel to the Senate Banking Committee and now a financial-institutions lawyer in Northern California, "so that OTS could be their consolidated supervisor."

For OTS to be the "preferred" regulator says a lot about how effective it was perceived to be as a regulator. The Fed and Congress can't just pretend to be ignorant of the fact that corporations were structuring themselves in a way to purposefully avoid regulation. There job is to catch this type of activity and put a stop to it. It seems to me that they turned a blind eye, but what's really disturbing to me is the way that Bernanke and members of Congress feign shock at the lack of regulation of derivatives - as if they didn't know what was going on. I'm quite sure that just as Markopolos was trying to blow the whistle on Madoff, there were others trying to blow the whistle on the derivatives industry. But no one wanted to listen because there were some big and powerful interests that they didn't want to upset. AIG after all was a trillion dollar company and money like that pays for a lot of campaign contributions, not to mention lobbyists.

There is lots more in link #2 regarding the OTS and I encourage you to read the whole 3 page article, but back to link #1. The fall of AIGFP begins in 2007.

So began A.I.G.’s downward spiral as it, its clients, its trading partners and other companies were swept into the drowning pool set in motion by the housing downturn.

Mortgage foreclosures set off questions about the quality of debts across the entire credit spectrum. When the value of other debts sagged, calls for collateral on the securities issued by the credit default swaps sideswiped A.I.G. Financial Products and its legendary, sprawling parent.

Yet throughout much of 2007, the unit maintained that its risk assessments were reliable and its portfolios conservative. Last fall, however, the methods that A.I.G. used to value its derivatives portfolio began to come under fire from trading partners.

The article doesn't mention this at this point, but remember from earlier in the article that one of AIG's prime partners was in fact Goldman Sachs. So it appears that GS and AIG started to fight about how the assets were being valued and who owed who what. Because CDSs and CDOs were such shadowy instruments invoked in secrecy, you can imagine that they couldn't just settle this in public court. There must have been some nasty closed door meetings that took place with billions of dollars at stake. Gone were the happy times when everyone was making money hand over fist. Now it was every man for himself as the panic set in, but GS had an ace in the hole in the form of Treas-Sec Paulson.

The story ends with Mr. "Casino Cassano" departing AIG as it goes down in flames. But he'll always be remembered for this famous quote, “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.” A real beauty, eh? That's why AIG is sometimes referred to as Arrogant, Incompetent and Greedy.

Part 2: The Goldman Sachs cover of secrecy finally comes off

You can see from the NYT article that even back in September 2008 there were already aspersions being cast in the direction of Goldman Sachs. But because of the secretive nature of the derivatives business, there was no reliable public data on the amount of money that was involved in the relationship between Goldman Sachs and AIG. Well that just changed. AIG under pressure from Congress just released some information that begins to document the extent of its entanglement with other financial institutions including GS.

But before the full can of beans was spilled, people were already starting to get an inkling of what was going on. For one thing Hank Greenberg, the ex-CEO of AIG who was forced out in a scandal has been running off at the mouth about Goldman Sachs. It's easy to see why after reading the NYT article. GS partly precipitated the fall of AIG. If GS had sat cooly by waiting for the real estate market to rebound, then perhaps AIG could have survived. But by demanding payment from AIG at a time when its assets were shrinking, it put AIG in a precarious position. And its no accident that GS has escaped this crisis relatively unscathed while others like Lehman Brothers and AIG have collapsed.

The next article is from early March. Even though it was written before the full information regarding AIG "counterparties" was revealed, it is the best article on the topic that I have found.

Link #3
How Paulson Used AIG To Throw Goldman A Big Old Bone
Daily Kos - Mar 07, 2009

It's in the WSJ today and branching out from there -- several of the counterparties receiving par payouts for their toxic CDOs now owned by the taxpayers have been identified. The first name on the list is Goldman Sachs. [...] This is big news because the vice chairman of the Fed, Donald Kohn, would not identify any of these companies when he appeared before the Senate Banking Committee on Thursday.

The author, who goes by the pseudonym of boloboffin, then breaks down the story for us. He takes us on a trip down Maiden Lane.

Let's go back a bit to when Bear Stearns went under. The Federal Reserve worked together with JPMorgan Chase to get JPMorgan a great deal. The Fed created a limited liability company in Delaware, named after the street the New York Fed bank is on, Maiden Lane. Maiden Lane, LLC, received $29 billion in loans from the Fed, and $1 billion in loans from JPMorgan. Maiden Lane used that money to buy up the toxic assets at the heart of Bear Stearns' woes. JPMorgan Chase then purchased Bear Stearns, free of the toxic assets with $30 billion sitting there all nice and tidy. And then JPMorgan bought Bear Stearns at $10 a share (although, remember, Hank Paulson wanted them to sell at $2).

That was how it all started with Bear Stearns back in March 2008. That was the first time the Fed used its "emergency powers" that hadn't been used since the Great Depression. Now when they do stuff like this the MSM doesn't even bother to call them "emergency powers" anymore. It's all just more of the same - y-a-a-awn, ho-hum.

OK. Now we get back to the fateful day of September 16. These are the same events that the previous NYT article talked about, but now we have more details.

On September 16, 2008, the Federal Reserve provided AIG with a huge line of revolving credit. They created a facility with the quirky name Revolving Credit Facility. They put $85 billion inside this facility and opened up a window for AIG. This was the plan -- AIG draws on the credit as they have need to satisfy their obligations. Over time good assets get freed up and/or toxic assets become good boys and girls again. By selling these assets, AIG could then pay back the Revolving Credit Facility. And it had two years to do so, and then, poof! The Revolving Credit Facility is no more and AIG has learned a very important lesson.

And just to make extra sure that the government wouldn't lose any money in the deal, AIG had to place 79.9% of preferred convertible stock into a trust payable to the Treasury. The important thing here to know about preferred convertible stock is that if the Treasury decides to, it can convert this preferred stock into common stock, which means the Treasury really does own a massive controlling interest in AIG at that point.

Effectively AIG was nationalized in September 2008. Except it was a covert nationalization or maybe a zombification. As we now know AIG became a shell through which the Fed could secretly funnel funds to other financial institutions without revealing the recipients even to Congress which was appropriating the funds. This was the beginning of the shell game - now you see it, now you don't. Which shell is the bailout money under? Hurry, hurry, hurry...

But by November, Hank Paulson had gotten his $700 billion in the Troubled Asset Relief Program and the wheeling and dealing had begun. Bernanke was spitting nails already about the whole situation, so the two of them got together and start thinking about restructuring the entire AIG bailout.

They came up with this. First, Bernanke capped the first facility from September, the Revolving Credit Facility, at $60 billion. He also lowered the interest rate AIG paid on this money and stretched out the loan term to five years. But AIG had to post all proceeds from asset sales into this facility and pay off the $60 billion.

Paulson agreed to give AIG $40 billion in TARP funds in exchange for $40 billion in Senior Preferred Stock in AIG. Fancy!

Then the Fed created two more Maiden Lane corporations, Maiden Lane II and Maiden Lane III. Paulson funded both of these institutions with TARP funds and then both started dealing with AIG's major problems, their own toxic assets and the CDSs on other counterparties' toxic assets.

Maiden Lane II got $20 billion in TARP funds from the Treasury. It went to the AIG subsidiaries that had been borrowing from the Secured Borrowing Facility created in October by the Fed. In exchange, the subsidiaries forked over the toxic assets they held. They were worth $40 billion at par (what AIG paid for them in the first place) but AIG only got $20 billion for them. They took the hit themselves, writing off the rest, and then paid back the Secured Borrowing Facility what they had borrowed.

And, poof! The Secured Borrowing Facility was terminated.

See what I mean? Now you see it, now you don't. It all looks like an elaborate money laundering scheme. In fact it is. All run by Paulson's little weasel Neil Kashkari. Remember him? After all the complaints about him from Congress, he's still on the job. You would have thought that Geithner would have canned him by now. But remember that Geithner was in on this whole scheme. In fact he would have been a prime player as the President of the New York Fed. About that change Obama promised... don't hold your breath.

And it doesn't end there.

But it's Maiden Lane III that is the real piece of work. Keep your eye on the ball...

Maiden Lane III has been funded with $25 billion of the TARP funds (under the same terms as Maiden Lane II), and AIG was told to kick in $5 billion as well. Maiden Lane III has gone to to the counterparties that purchased the credit default swaps from AIG and given them an offer they couldn't refuse - all of their money back.

Here's how it worked. There was around $62 billion of toxic assets (at this point) being held by these counterparties. They gave them to Maiden Lane III for the grand total of $25 billion. Sounds bad, right? Sounds like they took a bad loss for buying such crazy assets in the first place, right?

AIG paid them everything else.

That's right. In exchange for terminating the CDSs they held on AIG, these counterparties received every single cent they ever paid for these crappy assets. They got par. Now it may very well be that these counterparties have more CDOs that weren't backed up by AIG's credit default swaps, and could still be in a world of hurt. But how nice was it that Maiden Lane comes along with TARP funds and brokers them a par payment on these crappy derivatives!

Remember that Goldman Sachs was one of AIG's prime partners. As a counterparty to AIG they ended up getting back there full investment. Pretty s-w-e-e-et deal for GS. Not so great for AIG stockholders that got stuck with virtually nothing. I'm betting that GS wasn't heavily invested in AIG stock. I urge you to read the full article because its loaded with lots more details.

Finally for those who are gluttons for punishment, like me, I have one final article.

Link #4
The Fed's Risky Backdoor Bailouts
Business Week - December 17, 2008

The subtitle of this article is "As part of its effort to prop up the markets, the Fed is giving billions to banks—and putting taxpayers at risk". This doesn't sound like a story with a happy ending. :-(

Sorry for getting this article out of chronological order with the others, but I found the others more interesting. This is a long post and I don't know how many people will actually read down this far. Having said that, here's what was known back in December about funds being secretly channeled through AIG to GS and others.

In one of its latest transactions, the Fed in November channeled $20 billion—more than the size of the proposed auto bailout—to a group of U.S. and European banks, including Société (SCGLY), Deutsche Bank (DB), and Goldman Sachs (GS), according to people familiar with the deals. The only evidence that the vast sum had changed hands was an entry on the Fed's most recent balance sheet called "Maiden Lane III" and a series of cryptic regulatory documents.

A side note about the auto industry... while the Congress was hotly debating whether to give a few billion to save one of the crown jewels of the American economy which is the auto industry, the Fed was throwing money at the financial industry which in my mind is largely composed of a bunch of parasites. Sadly, the American people's attention are so totally diverted by the MSM that the parasites are winning the battle. While I'm aware that there are serious problems with the auto industry, I still believe that the key to America's future is to rebuild the manufacturing base. Cheap labor should not be an issue in a highly automated manufacturing environment. By exporting our manufacturing technology, multi-national corporations have put the future of America at risk. Please America, don't let the auto industry be the next victim of outsourcing. This trend must be reversed before it is too late.

Back to link #4. This article basically covers much of the same ground as the previous one. But I think the historical perspective is useful. It gives a strong indication of the secrecy that surrounded these transactions. It also questions the need for that degree of secrecy. Was that secrecy in place to keep the markets from panicking or was it just to cover up a sleazy money laundering operation? I vote for the sleazy money laundering operation.

The article also questions the wisdom of this strategy and points out how risky this could be if the investments don't work out. Well that kind of brings us around full circle to the first article about the AIGFP unit. Didn't "Casino Cassano" guarantee that his operation was a sure thing? And didn't these toxic assets end up sinking the Titanic-sized AIG? Who's to say that the same thing couldn't happen to the Fed. Read on...

By making loans to financial institutions that can't get credit elsewhere, the Fed is the only part of the government that has the power to pump capital quickly into the financial system to stave off crisis. Historically such moves have been rare, and they've been made behind a curtain of secrecy on the thinking that public disclosure could spark a market panic. "We keep these transactions private because the Fed, as a lender of last resort, seeks to provide liquidity and not stigmatize those who seek it," says Calvin Mitchell, a spokesman for the New York branch of the Fed, which set up the Maiden Lane III transaction.

The banks likely welcomed the fresh capital from Maiden Lane III. But in recent months the Fed has pushed the boundaries of its authority by taking larger and more opaque risks on its books. The central bank currently has $2.2 trillion in outstanding loans, up from $900 billion in September. It's also using new and untested weapons. Until this year the Fed mainly loaned to banks. Now it's buying securities, some tied to poisonous mortgages. If those bets don't pay off, the Fed will eat the loss.

That last line bears repeating. "If those bets don't pay off, the Fed will eat the loss." Notice the word "bets". Not investments - "bets". Is the Fed now turning itself into a casino? What will happen if the "bets don't pay off". Sad to say, we may just see the day when we find out the answer to that hypothetical question. It reminds me of Nassim Nicholas Taleb's book "The Black Swan". We've already seen the stock market fall to its lowest point in over 10 years. And this is after the bailout that was supposed to save us from catastrophe.

Are the elite purposely trying to crash the system and create a crisis? Was 911 planned? "Casino Cassano" is the financial equivalent of one of the 911 hijackers. It's not that the elite directly told him to crash the system, it's just that they didn't do anything to stop him. And yes, they should have known in both cases about the events leading up to the crisis, the severity of the crisis, and how to stop it. That the elite allowed these two catastrophes to take place is unconscionable. For my prediction on what the elite have planned for us next read my article "The International Banker's China Syndrome".

That's all for now. Have a good day. "Don't worry, be happy". And first and foremost, have "confidence" in the system.

Related Posts

• Goldman Sachs über alles
• The Tom and Baracky Show
• The International Banker's China Syndrome
• From Neocons to Neocrooks
• Bailout will be followed by Sellout
• Goldman Sachs: Wall St. Gangstas
• The Goldman Sachs "secret handshake"
• AIG and Fed run massive money laundering scheme
• Time for a new financial system
  

AIG and Fed run massive money laundering scheme

OK. This just made me sick to my stomach. You know all those billions of dollars that the government has been throwing at AIG. Well AIG has been turning around and handing it off to other financial institutions - by the billions!

• $13 billion went to Goldman Sachs
• $12 billion went to Soc Gen
• $12 billion went to Deutsche Bank
• $9 billion went to Barclays
• $7 billion went to Merrill Lynch
• $5 billion went to Bank of America
• etc. for a total of $93 billion
  

Now if the government wanted to give this money to these other banks, then why didn't it just hand it to them directly. Well because the government, as in the Fed, didn't want the American public to know where the money was going. Oh, that's right I keep forgetting that the Fed is a private institution, so technically it's not the government but I'm sure the Dept. of Treasury also knew where the money was going - at least they better have!

But regardless, the Fed was using AIG to launder government money! Much of the money went to foreign banks! No wonder the Fed tried to keep it secret. I just wonder what forced them to reveal this information publicly and how much more they are hiding.

Just recently Goldman Sachs said they wanted to pay back the money from the TARP so they could get out from under any government restrictions on their operations. Now we find out that in addition to the billions that they received directly from the TARP, they also received an extra $13 billion of laundered money from AIG. And no doubt they have no intention of paying that money back. Do you see why this makes me ill just to think about it. This is a massive criminal fraud that is being perpetrated on the American public! Fed Chairman Bernanke should be fired for this!

I would say that I'm not surprised, if it weren't for the huge sums involved. In fact I'm shocked. Will this be the straw that finally breaks the camel's back and results in the American people demanding that all the TARP funds be returned and that all of these corporate crooks go to jail? How is Geithner going to respond to this when as the former head of the New York Fed he is one of the perpetrators of this crime?

This is corruption at a scale that was unimaginable to me. I feel so naive. And remember that Treasury Secretary Paulson is the former CEO of Goldman Sachs. I was so right when I wrote those articles months ago calling him a Wall St. gangsta. I had no idea how right I was. How much other corruption like this is going on that we still don't know about. This demands an investigation on a massive scale. But as I have said before don't expect Congress to come to the rescue. They are just as much a part of this scandal as the Fed and the Wall St. banksters.

And don't forget that Obama's biggest campaign contributor was Goldman Sachs employees. Still I can't see that the American people are going to remain silent while this is going on. Congress will have to do something. They will have to put on a show of going after the guilty while covering their own butts. This could get interesting. The finger pointing will begin in earnest. Everyone pointing the finger at everyone else while covering their butts.

I've said from the beginning that this whole bailout was just a way of preserving Wall Street's gigantic Ponzi scheme. This was before the Madoff scandal broke. Back then when I talked about a Ponzi scheme, most people were unfamiliar with the term. Well now that you know what it is, think about how this bubble was created and how it burst. That is exactly what a Ponzi scheme looks like. A huge increase in assets followed by a sudden collapse. Why? Because the assets never existed in the first place except on paper. Because the whole thing was a fraud; a confidence game.

Now don't you wish you had called your congresspeople and demanded that they vote against the bailout like I suggested? The only ones benefiting from the bailout are the billionaire bankers. The rest of us are getting screwed by layoffs and foreclosures. It's time to stop saving the billionaires and lock them up instead.

P.S. I know the cartoon image depicted at the top of the article is off topic since it relates to Defense department spending. Still I think it is appropriate because of the finger pointing and the hand in the cookie jar. The general discourse about the financial crisis does not commonly include terms like corruption, bribes, kickbacks but I think it should. Some people are getting fat and rich while the taxpayer is being stuck with the bill. Just think of Bernanke on 60 Minutes pointing the finger at AIG while he was trying to keep his money laundering activities secret.

Related Posts

• Goldman Sachs über alles
• The Tom and Baracky Show
• The International Banker's China Syndrome
• From Neocons to Neocrooks
• Bailout will be followed by Sellout
• Goldman Sachs: Wall St. Gangstas
• The Goldman Sachs "secret handshake"
  

Time for a new financial system

I have a real simple answer to the problem of the AIG bonuses that were handed out recently. Apparently the total is something like half a billion. The CEO says his hands are tied because there are contracts that have to be honored. Any bonus program that I'm familiar with is dependent on the company making a profit. Any bonus program that doesn't have this clause in it is simply embezzling funds. Embezzling is a crime. End of story.

Instead of a bonus these executives should get an arrest warrant. They won't need those extra millions in prison. I read one story that said the bonuses were supposed to be for retention, but that some of them were being payed to people who have been laid off. Hmmm.

Any good corporate lawyer should be able to find the loopholes in those bonus contracts and cancel them. There are always loopholes. And if their employees don't like it, they can go to court to try and get their bonuses. Yeah, the CEO should be fired. The government should appoint their own CEO to keep on eye on these crooks. After all the government is the main stockholder of AIG at this point.

These are the same scam artist that kept going on junkets after receiving bailout funds. Any company that is in financial difficulties immediately cuts all discretionary spending and at the top of the list is travel. AIG was broke to the tune of billions of dollars so what were they thinking? They need to be smacked down and they need to be smacked down hard because they obviously haven't learned their lesson. Most of them should get laid off and the rest should have their salaries cut in half. And if they don't like it, they can leave. Where in the financial industry do they think they are going to go in the current economy? They should just be happy to have a job. There's no need for retention bonuses.

The problem is that the financial industry has been overpaid for so long that they think they are entitled. No way. Why should they make outrageously more money than other professions? Plus I'm convinced that many of the things they do are handled now by computers. So that they are obsolete and only pretending to be relevant.

Look at the NYSE. Is there really a need for all those traders on the stock floor? The NASDAQ in contrast is totally automated. The NYSE and all those traders are anachronisms. It's time to rid ourselves of these antiquated structures - especially when they are so damn expensive to maintain. But of course the financial status quo wants to maintain its life of privilege.

That's one of the sub-themes of this financial crisis as far as I'm concerned. If the system is opened up for competition, then you would see startups like in the high-tech industry that would transform the financial system. And we would end up with a more efficient and fair system that wouldn't eat up huge amounts of the GDP in non-productive activity.

At the top of the financial food chain of course is the Federal Reserve. It's time to take a hard look at the Fed, what it does, what is mission is. And see if there are ways it could be overhauled to serve the interest of the American people. And possibly as some have suggested, it should be abolished.

If that's the case then there has to be a new system put in place. It should be high-tech. It should be streamlined and efficient. It should be open to competition. Why are there companies like Goldman Sachs and Morgan Stanley that operate at huge profit margins? Where is their competition? What are the barriers to entry that prevent new firms from going into these hugely profitable businesses? Isn't that what free markets are all about?

The fact that these firms operate in a monopolistic fashion, without competition leads me to believe that they are wielding "unfair advantages". Could it be that "friendly" politicians have passed laws that create barriers that prevent competition? It all stinks of corruption and bribes. There need to be investigations, but we cannot count on Congress to hold them. Perhaps some independent state's attorney can lead the way. Or maybe the FBI can launch a sting operation.

As we have seen with the current financial crisis which has spread world-wide and is already being called a depression by many, the stakes are too high to let the game continue to be played by the same good old boy rules. It's not enough to bailout the system. It needs to be fundamentally overhauled and cleaned up.

-----------------

Update: March 16, 2009

Ooops, my bad. The current CEO of AIG was appointed by the government. But in this case "the government" means hand-picked by ex-Treas Sec Hank Paulson. Oooooh, that explains a lot. Another Goldman Sachs lackey. And who does AIG end up handing most of the loot to? Why Goldman Sachs, what a coincidence. Please excuse the sarcasm but this has gotten way out of hand.

OMG! I was looking for a link to document that Paulson picked Liddy to be the AIG CEO. What I found out is shocking to the point of being horrifying. Liddy was sitting on the Board of Goldman Sachs when Paulson picked him to become the new AIG CEO! Wooah... I think I'm going to be sick. Here it is as clear as a bell in a press release on GS's own webpage.

"[Goldman Sachs] today announced that Edward M. Liddy resigned as a member of its Board of Directors in light of his new role as Chairman and Chief Executive Officer of American International Group, Inc. His resignation was effective September 23, 2008. Mr. Liddy had been a director of Goldman Sachs since June 2003. "

I hope that all those people that are so enraged right now at AIG will channel some of that negative energy in the direction of Goldman Sachs. Because from where I'm sitting GS looks like it is at the center of this massive con scheme.

I'll know that Congress is serious about getting to the bottom of this when it hauls in Hank Paulson in front of a committee and swears him in and starts asking him the tough questions. Until then it's just kabuki time with lots of fake outrage to satisfy the folks back home.

The Democrats and the Republicans are like a pro wrestling tag team. The Democrats divert the public's attention while the Republicans pick their pockets. The liberals offer softball solutions rather than the radical ones that are really needed, while the conservatives take a more blatantly pro-business approach. The end result is what big business wants, big business gets. And the big losers are the American public aka the taxpayers.

Bernanke's infomercial on 60 Minutes

I'm live blogging Bernanke's appearance on 60 Minutes. See the video here.

First impression is that this interview is like a bad infomercial. I wonder if the questions were submitted to Bermonkey in advance. (Ans: Yes) I wonder how much editing was done to this "live" interview. (Ans: A lot) There was even an awkward edit where the 60 Minute commentator does a "voice over" while Bermonkey is talking. Is B-monkey incapable of giving a coherent, understandable answer to a simple question? (Ans: Yes)

The Fed chairman never does an interview, but here he is. The guy does not inspire confidence. He has a shaky voice, like he is very nervous.

Bernanke's old neighborhood. He's just a regular guy. Really. We should feel sorry for the guy I suppose. He really is pathetic. They are sitting down on a bench in mainstreet. My guess is that they had to have a huge number of police on hand to protect the guy, but they are off camera. (Ans: Good guess)

Bernanke pretends that he gives a sh*t about the "little people". Is anybody buying this? (Ans: No)

Oh-oh, here comes the fairy tale about how the "watchdog" Fed fell asleep at the wheel.

Interviewer: "Does the Fed bear responibility?" (Ans: Hell yes!)
B-monkey: "We could have done a better job."

B-monkey wants more regulations, but he didn't use the regulations that he had available. Look at Madoff as a blatant example of how the regulators are in bed with the financial industry. But that's nothing compared to the Fed's relationship with the big Wall St. banks.

B-monkey says "don't worry, be happy".

"Green shoots"? Is that like Spring on its way? (Ans: I don't have a clue)

B-monkey has "confidence". Wall St. not so much.

Finishes with an "American people" bla-bla-bla comment. They don't call them International Bankers for nothing. They don't give a hoot about the "American people", they only care about the Elite that they represent. If unemployment was 9% and the S&P 500 was still near its peak, then there would be no "financial crisis" from the point of view of the Fed. It's only because the billionaires are feeling the effects that there is an official "crisis". This is all about "saving the billionaires".

The bailouts are all for the benefit of the billionaires not the ordinary working people. We are the ones that will get stuck paying off those loans. This is a transfer of wealth from the average citizen to the billionaires. The crisis will be used as a pretext to strip Americans of their rights, just like 9-11 was.

BTW, at the first commercial break there was a news update about the AIG bonuses - how appropriate. This was right after Bernanke had finished his comments about how "angry" he was about the AIG bailout. Somehow the term "too big to fail" never crept into the conversation.

How did they get so big? Because people in the Fed approved of this and even encouraged it. I remember not that long ago (10 years?) when there were a series of articles about how it was necessary for the big American banks to merge so they could compete with big banks overseas. That didn't work out so well. We're supposed to have government organizations like the FDIC that can step in and shut down banks in an orderly way without creating a panic. But that doesn't work when the banks are "too big to fail".

When you're tbtf it turns out that there is an implicit guarantee that the taxpayers are on the hook to provide you with extra funds. Of course we sort of knew that Fannie Mae and Freddie Mac were these sort of quasi-private quasi-governmental organizations that had the implicit backing of the federal government. But who knew that Citigroup would fall into the same category? Never mind an "insurer" like AIG?

The biggest lie of the night by B-monkey was the oft repeated story about how AIG was able to get away with its risky behavior because somehow they were doing some activities that weren't regulated. The Fed is supposed to be in the loop as to what is going on at that level of activity. It's not like we're talking about a few million dollars in activity that fell between the cracks. AIG was at the heart of the derivatives business to the tune of trillions of dollars. Is B-monkey trying to tell us that he and his fellow Fed members are so out of touch with the financial system that they couldn't see what was happening and the consequences once there was a downturn in the economy? (Ans: No f-ing way)

Riki-Tiki-Tavi Mongoose is gone
music and lyrics by Donovan

Better get into what you gotta get into
Better get into it now, no slacking please
United Nations ain't really united
And the organisations ain't really organised

Riki tiki tavi mongoose is gone
Riki tiki tavi mongoose is gone
Won't be coming around for to kill your snakes no more my love
Riki tiki tavi mongoose is gone

(Every)body who read the Jungle Book knows that Riki tiki tavi's a mongoose who kills snakes
(Well) when I was a young man I was led to believe there were organisations to kill my snakes for me
ie the church, ie the government, ie the school
(but when I got a little older) I learned I had to kill them myself

(I said) Riki tiki tavi mongoose is gone
Riki tiki tavi mongoose is gone
Won't be coming around for to kill your snakes no more my love
Riki tiki tavi mongoose is gone

(16 bars instrumental)

People walk around they don't know what they're doing
They bin lost so long they don't know what they've been looking for
Well, I know what I'm a looking for but I just can't find it
I guess I gotta look inside of myself some more

oh oh oh inside of myself some more
oh oh oh inside of myself some more

In other words you've been lied to. In other words the government isn't looking out for you so you better look out for yourself. In other words there is a hidden agenda, there is a conspiracy. Riki tiki tavi mongoose is gone.

China is the new IMF: US faces austerity plan

My headline says it all. This is the fact that is overlooked by all the MSM articles regarding China's warning about US economic policy. The power shift from the US to China that I have described in previous articles is in full swing. The catalysts are the global financial crisis and the US bailout of Wall Street initiated by the unscrupulous traitors "Hank" Paulson and Ben Shalom Bernanke.

China is the new IMF

What do I mean by that? Well it's pretty simple if you think about it. The IMF is bankrupt. It's running out of money. Rumors are that it's had to resort to selling it's gold. None of the usual supporter nations are in a position to lend it more money. China has refused to offer the IMF funding. Why should it? That money is then controlled by US and European interests.

Now when countries are in trouble they come to China. China has replaced the IMF as the source of emergency loans to troubled economies. China has been able to dictate terms on long term deals for oil in countries like Venezuela, Brazil and Russia. Yes, even Russia.

And though no one in the US government or press wants to admit it, China is also dictating terms to the US. The Fannie Mae and Freddie Mac bailouts were done principally to protect China's investments in those two US institutions. And it is the US taxpayer that is stuck with the bill. That bill will be paid in terms of higher taxes and inflation caused by a devalued dollar.

Austerity plan

An austerity plan is the kind of conditions that the IMF habitually places on third world countries in exchange for its economic support. Part of this consists of privatization of state held assets. The US dominated multinational companies then sweep in and acquire strategic resources at bargain prices. What follows is widespread economic hardship for the common person, while a small local oligarchy that cooperates with the foreign multinationals reap the benefits.

This is also known as shock therapy. This the standard prescription recommended by the Chicago school of economics headed by the now deceased Milton Friedman (may he rot in hell). Its also referred to by the euphemistically as neoliberalism. It's neither new nor is it liberal. It is just good old fashioned colonialism dressed up in free market rhetoric.

Meet the new boss, same as the old boss

And now it seems it's China's turn to take a crack at playing the part of the global bully. But first it must push out of its way the current reigning economic bully which is the US. But here's where it gets interesting. Who's behind the economic might of China? Well its the same multinationals that have been backing the US in the latter half of the 20th century. Only now they have found a new home in China.

How do you think China rose so quickly into such a dominant economic force in the last twenty or so years? I'll tell you. There has been an enormous transfer of capital from the US to China. I'm not talking about the imbalance of trade. I'm talking about the capital that was needed to create the factories that abound in China. To create all that infrastructure required a tremendous amount of external capital. China did not have oil reserves like Saudi Arabia to bring in all those dollars. But it did possess an almost unlimited supply of another natural resource - cheap labor. Cheap in this case is a gross understatement.

China's labor force from a historic perspective most closely resembles slave labor. But this isn't your great-grandfather's slave labor. This is a new kind of captive work force. It's neither peasant, nor slave, nor indentured servant. It's closer to the working masses that the original industrial revolution exploited in its factories in England. And the irony is that these were the same masses that inspired Karl Marx to publish the Communist Manifesto in 1848.

China which is totally controlled by the "communist" party has now recreated the oppressive working conditions of the very masses that communism was supposed to liberate. In fact the Chinese Communist Party is nothing more than a gang of thugs. They are a criminal network which has acquired complete control over the most populous nation in the world. No wonder that the Dalai Lama describes life in modern day Tibet as "hell on earth".

The rulers of China have recently stated unequivocally that there will be no democracy in Red China. That's funny because as I recall the whole justification for allowing China to participate in the global capitalist society was to liberalize the government and its institutions. Seems that didn't work out so well.

The whole treatise of the sino-philes was that given access to western markets and an increased standard of living, the Chinese would naturally evolve towards a more open and liberal society. Wrong! But I can't help thinking in my conspiratorial brain that this comes as no real surprise to the International Elite that hatched this plan and sold it to the rest of us. Sorry Jim Rogers, but its time to admit that this was a bad idea from the start.

Why was China allowed to join the WTO in 2001 despite its human rights record, never mind the fact that its economy was anything but a free market? It was clearly not up to western standards yet it was allowed to join while Russia was kept out. The reason, dear friends, is that China is a dream come true for the neo-Fascist Capitalist Elite. It's a place where fortunes are made every day. So what if you have to bribe a few communist officials? At the wages they are paying, the profit margins are enormous. And the brutally repressive nature of the government means that the workers won't be complaining if they know what's good for them.

Kabuki time

So now its kabuki time for the Elite. Who knew that China would turn around and threaten the United States? Who knew? Who? Well I guess the very people that planned this and have benefited the most from this betrayal of the American people. That would be the Elite also known as the International Bankers.

Ever notice how many US banks own major interests in Chinese financial institutions? The most recent one I stumbled on was the Bank of New York (BoNY) which is buying a 49% stake in the Chinese brokerage firm Western Securities Co. This just happened in February 2009 according to the article I have linked to. The article doesn't say how much money BoNY is investing, but I do know that BoNY received $3 billion in bailout money from the TARP. So is the US taxpayer now funding US banks to go out and invest in China?

It's funny how this is never brought up as the US banks whither and die. Or is it that they have already transfered their good assets to the safety of China while holding on to their toxic assets in their US subsidiaries. Is that what they mean by the "good bank"-"bad bank" solution? The bad bank in the US gets to hold on to all the toxic assets and gets bailed out by the US taxpayer while the good bank in China gets to hold on to all the cash and profitable assets.

And how is China possibly capable of threatening the US with crashing its currency when most of China's assets are in US dollars. If the dollar fails, then the biggest loser is China. If the US economy fails and the US consumer can't buy foreign made goods, then the biggest loser is China. It seems to me that we have China over a barrel and not the other way around. But this is not the story that the Elite want to present to the US public in their kabuki style drama. They want the US public to believe that the US is being forced to surrender to China.

But China is no threat to the US. The US could easily destroy China many times over. The Chinese don't even have a blue water navy - that means a navy that is capable of projecting power in international waters. There navy is a coastal navy confined to their local territorial waters. They don't have a single aircraft carrier. Economic threats need to be backed up by military threats to have any credibility. The US has 90 military bases in Japan and I don't know how many in South Korea, and then there's Taiwan which the US backs militarily. If China wants to rumble then bring it on!

But of course the Elite do not hold allegiance to any flag. They have only allegiance to themselves and their money and power. They want us to believe that China has missile capability on a par with the US by destroying a satellite. They want us to believe that China has a credible navy by sending them on a pirate hunting mission off the coast of Somalia. They want us to believe that the Chinese economy is on a par with the US when really it is a third world nation just barely keeping its neck above water economically.

Why? Because they want us to be afraid. And by instilling fear in the American people they can manipulate us and convince us to give up our rights and freedoms. Because those rights and freedoms which our forefathers fought for are the only thing keeping them from establishing total control over the planets resources. They seek nothing less than absolute power.

I know, I know. There I go spouting off conspiracy theories again. Sorry, but this current financial crisis makes no sense to me unless I call into question the prevailing wisdom spouted by the MSM and do some independent thinking. All the explanations offered by the MSM make no sense at all. The timing of the bubble bursting, just at the end of the Bush administration, was just a little bit too convenient - don't you think? Couldn't they have managed to keep Bear Stearns and Lehman Brothers on life support for just a few months longer until a new administration was in place? But that wouldn't have had quite the same shock effect as the current crisis. N'est-ce pas?

P.S. Perhaps in another post I'll get into how the WTO is fast becoming the global government that so many conspiracists have warned about. Forget about the UN, it's the WTO that has the power to enforce detrimental policies on the nations of the world. And it is the ordinary citizens that pay the price by losing their jobs or watching their standard of living slowly erode. The New World Order (NWO) begins with the World Trade Organization (WTO).

P.P.S. The same Bank of New York that I mention above has been "hired by the government to monitor all banks that pocketed public cash - including itself." Clearly BoNY is one to look out for. I'll have to do more research on this one, but it looks like this may be another corporation like Goldman Sachs that is a key to understanding how the Elite have engineered this crisis and profit from it. BTW, the full name of BoNY is Bank of New York Mellon but I just love the BoNY acronym.

Related Posts

• Bailout will turn China into economic superpower
• The International Banker's China Syndrome
• Israeli missiles target US Aircraft Carriers
• Ancient wisdom; Tibet, China, and the earthquake
• Has the US become a 3rd World Country?
• Bailout will be followed by Sellout

The Madoff Connection

Above is a picture of Harry Markopolos testifying before a House committee investigating the Madoff scam. But before I get to his story, I first want to talk about another Madoff related story.

The Israeli bank connection

With all the members of the Jewish community that have been involved in the Madoff scandal, it is not surprising that there should be an Israeli connection. There have been rumors circulating around the internet that some of the money "lost" by Madoff has been transferred to Israel. Well here's what I have been able to verify. I thought it was significant enough that I should post it because I haven't seen this specific information anywhere else.

The trail started with a short financial piece titled, "Israeli Bank Ends Hedge Fund Joint-Venture"

One of Israel’s largest banks is ending its joint-venture with a hedge fund that lost millions in the Bernard Madoff scandal.

Bank Leumi has taken full control of Leumi Alternative Investment, which it set up with Spring Mountain Capital in July 2007, Globes reports. Spring Mountain, founded by former Merill Lynch executive John Steffens, lost about US$40 million, which it had invested in three Madoff feeder funds run by J. Ezra Merkin, the former GMAC Financial chairman.

Merkin also served as a consultant to LSAI, and his Gabriel Capital Management Corp. is a major Bank Leumi investor. Steffens ran LSAI, in which Leumi originally had a 75% stake. LSAI managed alternative investments for Leumi’s private clients.

Sounds innocent enough; another Madoff victim; another hedge fund that was a feeder for Madoff's fund. What's interesting in this article is that J. (Jacob) Ezra Merkin was a major investor in Bank Leumi, a major Israeli bank.

Merkin you may recall was a recruiter for Madoff among the New York Jewish elite. He was president of the Fifth Avenue Synagogue, on the wealthy Upper East Side of Manhattan. Collectively members of the synagogue are said to have lost about $2 billion, and Jacob (or should we call him Ezra?) was Madoff's bagman at that location.

Now I don't think you should feel too sorry for this class of victims. These were very rich people who thought they were getting into a very exclusive investment. They were getting returns of 10% per year. They probably thought that Bernie had some sort of sophisticated insider trading scheme going on that took advantage of the rest of us poor suckers. So I figure they got what they deserved.

Hedge funds are by definition shady organizations that don't reveal the details of their investments and keep their funds in offshore accounts. Personally I think they should be illegal, but oh what fun when the rich get caught up in a scam run by one of their own. The people that invested directly in hedge funds should not be compensated by the government for their losses. These are not like FDIC insured bank accounts. These are investments that are expected to show high rates of return, but also are known to have an associated higher risk.

So alright Merkin is associated with Bank Leumi and he also is associated with Madoff. But the association with Bank Leumi is more than just through a hedge fund. Merkin heads the Gabriel Capital Group, a $5 billion money-management firm which in 2006 purchased a controlling interest in Israel's Bank Leumi for about half a billion dollars.

In a festive ceremony held at Prime Minister Ariel Sharon's office Wednesday, representatives of the Cerberus-Gabriel hedge fund group presented the PM with a NIS 2.474 billion (about USD 500 million) check in exchange for 9.99 percent of Bank Leumi's controlling shares.

The investors have reserved the option to purchase another 10.01 percent of the shares held by the State within a year-and-a-half, and to reach a total holding of 20 percent of the bank's shares.
[...]
Ezra Merkin, who represented Cerberus-Gabriel at the event, said his company's investment is an indication of the trust foreign investors have in the local economy. Merkin stated that his firm intends to continue investing in Israel.

So does that represent a half billion dollars of funds laundered and transfered to an Israeli bank from the Madoff scam? It sure looks that way to me but what do I know? And anyway money is fungible. How do you prove that the money that ended up in an Israeli bank started out life as part of the Madoff scam?

The Russian mob connection

In case that's not enough to wet your appetite, I do have a few more interesting tidbits involving the Russian mob and Madoff. It seems that the term "Russian mob" is often used to refer to Jewish Russians involved in organized crime. In this case because of Madoff's extensive connections to the Jewish community it seems likely that this is the case.

The first article is with regards to Sonja Kohn, the founder of Bank Medici.

Mrs. Kohn has dropped out of sight, leaving the firm she founded, Bank Medici, in the hands of Austrian regulators, who took it over last week.

Embarrassment from investing heavily with Mr. Madoff could explain wanting to disappear from public view. But another theory widely repeated by those who know Mrs. Kohn is that she may be afraid of some particularly displeased investors: Russian oligarchs whose money made up a chunk of the $2.1 billion that Bank Medici invested with Mr. Madoff.

“With Russian oligarchs as clients,” said a Viennese banker who knew Mrs. Kohn and her husband socially, “she might have reason to be afraid.”

Leave it to the New York Times to describe mobsters as "oligarchs". The insinuation is clearly there. Why else should she be "afraid" of these particular "investors"?

Here's a related exchange that took place during the House of Representatives hearings on the Madoff scandal which featured the heroic whistle blower Harry Markopolos.

ACKERMAN: I'm talking about, when you talk about the Russian mob and organized crime, these are people who invested through European investors or European feeder funds?

MARKOPOLOS: Correct. And I didn't fear of them, and I didn't think they were going to come after me, I want to make this perfectly clear to all those Russian mobsters and Latin American drug cartels out there. . .

ACKERMAN: You're talking directly to them.

MARKOPOLOS: I was acting on your behalf trying to stop him from zeroing out your accounts. I'm the good guy here. Just like to make that clear.

"European feeder funds" sounds like a perfect description of Kohn's Bank Medici. Still there might be a closer connection to some of those Russian mobsters. And it happens to be in New York City where congressman Gary Ackerman is from. I'm referring to the Bank of New York or BoNY. In 1998 British authorities uncovered a huge money laundering operation that involved as much as $15 billion which was operated by the Russian mob.

The brains behind the operation was Semyon Yukovich Mogilevich who was considered to be the top mobster in Russian organized crime. Mogilevich is currently behind bars in Russia for tax evasion. He was arrested in 2008. And, oh by the way, he is Jewish and has spent time in Israel where he enjoys citizenship. Like so many of the Russian mob, he is originally from Ukraine.

But why do I bring all this up? Well the Bank of New York happens to be connected to Bernie Madoff as well. Even though Madoff told investigators he had nothing left, it turned out he had a personal account at BoNY with $301.4 million. He also had an account at JP Morgan Chase with about $233.5 million. That's over $500 million. Not bad for a guy who lost everything. Of course that money has now been handed over to the courts and presumably will be used to pay off Madoff's victims - after the lawyers take their cut.

So the BoNY thing is probably just a coincidence. But after it came up in my Google searches as I was investigating the possible connections between Madoff and the Russian mob, I just couldn't help but put it in this article. Mogilevich is certainly an interesting character - kind of like a modern day Meyer Lansky.

Some have compared Madoff to Lansky, but at least Madoff wasn't in the business of offing people. But then why was Markopolos so fearful for his life?

Markopolos, a former securities industry executive and fraud investigator, said the SEC's failure to bust Madoff left him fearful of retaliation.

Madoff was "one of the most powerful men on Wall Street, and in a position to easily end our careers or worse," Markopolos testified.

Israel Lobby excercises veto over Charles Freeman appointment

The following is the full text of the statement by Charles Freeman after he withdrew from consideration for a top intelligence post in the Obama administration. (The emphasis is mine.)

To all who supported me or gave me words of encouragement during the controversy of the past two weeks, you have my gratitude and respect.

You will by now have seen the statement by Director of National Intelligence Dennis Blair reporting that I have withdrawn my previous acceptance of his invitation to chair the National Intelligence Council.

I have concluded that the barrage of libelous distortions of my record would not cease upon my entry into office. The effort to smear me and to destroy my credibility would instead continue. I do not believe the National Intelligence Council could function effectively while its chair was under constant attack by unscrupulous people with a passionate attachment to the views of a political faction in a foreign country. I agreed to chair the NIC to strengthen it and protect it against politicization, not to introduce it to efforts by a special interest group to assert control over it through a protracted political campaign.

As those who know me are well aware, I have greatly enjoyed life since retiring from government. Nothing was further from my mind than a return to public service. When Admiral Blair asked me to chair the NIC I responded that I understood he was "asking me to give my freedom of speech, my leisure, the greater part of my income, subject myself to the mental colonoscopy of a polygraph, and resume a daily commute to a job with long working hours and a daily ration of political abuse." I added that I wondered "whether there wasn't some sort of downside to this offer." I was mindful that no one is indispensable; I am not an exception. It took weeks of reflection for me to conclude that, given the unprecedentedly challenging circumstances in which our country now finds itself abroad and at home, I had no choice but accept the call to return to public service. I thereupon resigned from all positions that I had held and all activities in which I was engaged. I now look forward to returning to private life, freed of all previous obligations.

I am not so immodest as to believe that this controversy was about me rather than issues of public policy. These issues had little to do with the NIC and were not at the heart of what I hoped to contribute to the quality of analysis available to President Obama and his administration. Still, I am saddened by what the controversy and the manner in which the public vitriol of those who devoted themselves to sustaining it have revealed about the state of our civil society. It is apparent that we Americans cannot any longer conduct a serious public discussion or exercise independent judgment about matters of great importance to our country as well as to our allies and friends.

The libels on me and their easily traceable email trails show conclusively that there is a powerful lobby determined to prevent any view other than its own from being aired, still less to factor in American understanding of trends and events in the Middle East. The tactics of the Israel Lobby plumb the depths of dishonor and indecency and include character assassination, selective misquotation, the willful distortion of the record, the fabrication of falsehoods, and an utter disregard for the truth. The aim of this Lobby is control of the policy process through the exercise of a veto over the appointment of people who dispute the wisdom of its views, the substitution of political correctness for analysis, and the exclusion of any and all options for decision by Americans and our government other than those that it favors.

There is a special irony in having been accused of improper regard for the opinions of foreign governments and societies by a group so clearly intent on enforcing adherence to the policies of a foreign government – in this case, the government of Israel. I believe that the inability of the American public to discuss, or the government to consider, any option for US policies in the Middle East opposed by the ruling faction in Israeli politics has allowed that faction to adopt and sustain policies that ultimately threaten the existence of the state of Israel. It is not permitted for anyone in the United States to say so. This is not just a tragedy for Israelis and their neighbors in the Middle East; it is doing widening damage to the national security of the United States.

The outrageous agitation that followed the leak of my pending appointment will be seen by many to raise serious questions about whether the Obama administration will be able to make its own decisions about the Middle East and related issues. I regret that my willingness to serve the new administration has ended by casting doubt on its ability to consider, let alone decide what policies might best serve the interests of the United States rather than those of a Lobby intent on enforcing the will and interests of a foreign government.

In the court of public opinion, unlike a court of law, one is guilty until proven innocent. The speeches from which quotations have been lifted from their context are available for anyone interested in the truth to read. The injustice of the accusations made against me has been obvious to those with open minds. Those who have sought to impugn my character are uninterested in any rebuttal that I or anyone else might make.

Still, for the record: I have never sought to be paid or accepted payment from any foreign government, including Saudi Arabia or China, for any service, nor have I ever spoken on behalf of a foreign government, its interests, or its policies. I have never lobbied any branch of our government for any cause, foreign or domestic. I am my own man, no one else's, and with my return to private life, I will once again – to my pleasure – serve no master other than myself. I will continue to speak out as I choose on issues of concern to me and other Americans.

I retain my respect and confidence in President Obama and DNI Blair. Our country now faces terrible challenges abroad as well as at home. Like all patriotic Americans, I continue to pray that our president can successfully lead us in surmounting them.

*** end of statement by Charles Freeman ***

For more information see the following excellent articles by Stephen Walt, one of the authors of the book "The Israel Lobby and U.S. Foreign Policy".

• "Have they not a shred of decency?"
• On Chas Freeman's withdrawal