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Amazing to me how people misunderstand this.

Mortgages aren't "moral obligations". They are simply long-term contracts. And as such, they can and should be canceled as needed, with certain penalties that occur when they are canceled.

People have this strange idea that contracts are "an absolute" obligation. They are not. They are conditional and can be canceled as needed.

Consumers should become more educated about their rights and standard business practices.

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• Morality versus Business Sense - Home Mortgages (preobserver.com)

To those foolish enough to blame the homeowner for buying over their heads:

Who has the power in the relationship with the banks?

Who developed the system for people who could not afford homes to obtain a home loan?

Who lied to the prospective homeowner, telling them that if they don't buy "now" the house will be out of their reach if they wait any longer?

Who told the prospective homeowner that after home purchase, it will be valued at $100,000 more than they paid for it in a year, allowing them to refinance?

Why blame the individual who is reaching for the American dream and at the same time being lied to by the real estate agent, as well as the loan officer whom they trusted?

You have to remember the context of the housing bubble. There was a great fear in many that at the rate that homes were rising in value, that they would be priced out of ever owning a home.

The housing bubble was pre-meditated; Investment banks in cahoots with their friends in the WH created the environment for the bubble to occur. The floodgates opened by the repeal of glass-stegall.

The housing bubble was another devised ponzi scheme for the few who created it while the masses hold the bill.

The Obama administration needs to pressure banks to reduce the principal on homes to the value they were at the time the fed lowered the prime rate to 1% in 2002.

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Walk away from your Mortgage

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Instead of Bush and co. giving the bankers $700BILLION, they COULD have Given EVERY homeowner (mortgage or not) about $9400 !

Then instead of the crappy stimulus Obama and the dems came up with, they could have used that $787 BILLION to do the same thing.....
at $10,500 EACH!

You have to wonder how many homeowners would be underwater if they had put $20,000 on their principals.

or how much the economy would be "stimulated" with that $20K being spent, for those that had no mortgages.


Anyone have a university computer that runs economic simulations?

I would enjoy seeing the outcome.

How many lawyers does it take to help Lloyd and his buddies cover their asses?

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How Should Goldman Sachs Cover its Ass This Bonus Season?

• Simon Johnson

  Simon Johnson

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  • How Should Goldman Sachs Cover its Ass This Bonus Season?
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Sources say that Goldman Sachs’s bonuses will be announced on Monday, January 18, and actually paid sometime between February 4 and February 7. In previous years, the bonuses were paid in early January--but the financial year shifted when Goldman became a bank holding company.
For critics of the company and its fellow travelers, the timing could not be better.
Anxiety levels about the financial sector are on the increase, even on Capitol Hill. The tension between high profits in banking and stress in the rest of the economy becomes increasingly a topic of discussion across the nation.
And you are hard pressed to find any government official who has not by now woken up--in private--to the dangerous hubris of big banks. To add insult to injury (and many other insults), the Bank for International Settlements is holding a meeting to discuss excessive risk-taking in the financial sector; according to CNBC Thursday morning, Lloyd Blankfein of Goldman and Jamie Dimon of JPMorgan Chase were invited but did not show up (they really are very busy).
The smart strategy for Goldman in this context would be to pay no bonus for 2009 (in cash, stock or any other form), but this is not possible for three reasons.

(1) Goldman would need to make a credible commitment to employees to “take care of them next year.” But any legally binding commitment would be as good as a cash bonus (who knows, they could even be traded over-the-counter). And any verbal promises would be completely noncredible--among other things, Goldman cannot know for sure how the coming perfect storm will play out: the supertax on bankers in Europe, Sheila Bair’s good idea of tying deposit insurance premiums to the risk in banks’ compensation structures, Hank Paulson’s memoir on February 1, Chris Dodd’s resignation and the collapse of any meaningful Obama financial reform--allowing the Democrats to wake up to how they can run hard against Big Finance in 2010, etc. And besides, how much would you trust your boss at Goldman? The old culture there is gone.

(2) For all their communication blunders in recent months (internally they wince at “God’s work“), the responsible executives think they can hide the size of the bonuses or talk more about how stock and option grants encourage the right kind of behavior or put in some sophisticated clawback language. Some of the best lawyers in the country are working very hard on this question, but it’s all for naught. The headline bonus number will be at least $20 billion and if they try to hide this with sophisticated mumbo-jumbo, that will only bring greater attention and spread the pain over many news cycles as we run through denials, further exposures, more denials, and damning details. When you’re in a hole, stop digging--Goldman is talking with top p.r. consultants; perhaps they should bring in Tiger Woods to advise on this point.

(3) The most important reason is also Goldman’s greatest weakness: Throughout the organization, people really think they are worth the money. But remember these facts and keep track of how many times you hear them repeated: Goldman Sachs essentially failed in September 2008; it was saved by extraordinary and unprecedented government efforts at the end of September and subsequently (particularly through its conversion to a bank holding company, which gave access to the Fed’s discount window); partly this treatment was shaped by the special favor with which Hank Paulson viewed Goldman (documented in nauseating detail in Andrew Ross Sorkin’s Too Big To Fail); and the strategy of allowing Goldman to recapitalize through taking huge risk with an unconditional government guarantee in 2009 only makes sense if they use the proceeds to boost their capital--not if they pay out massive bonuses. In any reasonable economic analysis, the entire bonus pool at Goldman should be paid--with gracious thanks--to the government.

The refrain that will be repeated by Goldman executives is: We need to pay the bonuses in order to keep the best people. But think about this like a stockholder for a moment--where exactly would these people go to work if this year’s bonus is set at zero?
Among the Casino Banks, Goldman is currently the best place to work and, looking forward, that’s where folks will make the most money. Hedge funds are not hiring in large numbers--most of the new financial sector jobs are at the other Too Big To Fail firms, who are now bringing people back (naturally).
Goldman’s management should come to its senses and pay no bonuses of any kind to anyone; no good people would leave. Fortunately, while the executives who run Goldman are smart, they are not that smart. The bonuses they announce on January 18 and pay in early February will become the rallying point for real reform.
[Cross-posted at The Baseline Scenario.]

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Thieves, thieves, tramps and thrives!

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The United States must come to the conclusion that the international monetary financier system is finished.

Unsustainable usury and speculation in every financial transaction, fostering irrational, unreasonable, unconditional, unlimited financial support from the Fed, guaranteed by the faith and produce of the United States, means that the system can not be fixed, regulated, resuscitated, bailed-out, etc. There is simply not enough money that can be created to satisfy the usury, created from fantastical financial products and maneuvers.

All fact-less rhetoric, verbiage, articles, causes, distractions, etc are compounding the destruction to the population's physical economy.

Statecraft demands the termination of the monetary system: put the Fed into bankruptcy protection, recover the bailout trillions, banks that qualify will join the U.S. National Bank under Glass-Steagall standards. Credits and currency will be issued into the population's economy with the executive of creating, improving, and expanding the necessary facilities that enhance our standard of living.

We have never appreciated the accomplishments of this great nation; we are about to lose it all.

Congress must drop the petty passions that foster derision of government and treason; must discover priorities in the order and defense of the nation.

The United States is the Only Cause that will serve humanity; any other cause, issue, agenda, reorientation, etc. is treason.

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The financial disaster and the criminals that created it.

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The Finance Lobby's Free-For-All

It's now been 16 months since the global banking system nearly melted down in September 2008. In the space of just a couple of weeks, Fannie Mae and Freddie Mac were nationalized, Lehman Brothers collapsed, Merrill Lynch was the target of an 11th hour rescue, AIG was bailed out, Wachovia Bank was taken into receivership, the commercial paper market froze, and the $700 billion TARP bill was rejected and then subsequently passed by a panicked Congress. And that was just over the course of two weeks.

Within the financial world, this was far more catastrophic than 9/11 was in the national security world. And yet, while 9/11 provoked a massive reorganization of our intelligence apparatus, two foreign wars, and a sweeping increase in domestic surveillance, the economic meltdown of 2008 has provoked....almost nothing.

Oh, it's provoked some talk. And there are some bills moving slowly through Congress that would reform a few aspects of our financial system. But Republicans are almost unanimously opposed to them and even Democrats are lukewarm. As a result, reforms that were mild to begin with have already been watered down even further, and by the time Congress is finished with them they're likely to be only a shadow of what they ought to be.

Serious regulation of derivatives? Probably not. Increased consumer protection? Maybe, but probably in pretty weak form. Crackdowns on debt and leverage, the dual cornerstones of the crisis? None to speak of. Serious ratings agency reform? No. Smaller banks? A financial transaction tax? An end to gambling within the regulated banking sector? No, no, and no.

Why? The short answer is that the finance industry has the biggest, richest, and most influential lobby in Washington, DC. For a few months they lost that influence, but the Wall Street bailout worked just well enough to remove the sense of crisis we all felt in 2008, and that gave the finance lobby all the room it needed to step in, regain its footing, and make sure Congress wouldn't do anything serious to threaten its profits.

But that's only the short answer. For the longer answer, check out "Capital City

 

," my piece about the finance lobby in the latest issue of Mother Jones. And today my colleague David Corn and I will be on Bill Moyers Journal

 

to talk more about the lobby and how it works. Check your local listings for the air time in your area.

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If Geithner and Summers as well as the refusal to audit the federal reserve does not prove there is no difference between republican and democratic members of congress I do not know what will.

We all seem to like our personal 3 reps in congress but seem to hate everyone else's.

We must start voting out the incumbents every election. At a minimum run someone against them in the primaries in order to remind them of who they work for.. As of now every congressman works for the corporations.

Can any of us say congress is representing the people in any aspect from the military to health care.
(When I read the military is buying rucksacks with their own money because the plastic govt issue does not get the job done (democratic rule and the military did not have the plating on their vehicles necessary to prevent bullets and many IEDs (republican rule)) and I doubt if anyone understands how the health-care bill will affect us. History proves that the majority of laws congress passes costs us more money. Personally I cannot think of any legislation ever passed that saved the regular Joe any money.

We all talk reform and congress only gives us lip service. Must be a great job.

Until we get
donations limited to congressional districts and no money from business or pacs

12 year limits on serving in congress

illegal for spouse to be a lobbyist

10 years after leaving congress before becoming a lobbyi

This would be a good place to startcleaning house and then to the House!

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In the last year alone, of the 535 members of congress:

36 have been accused of spousal abuse

7 have been arrested for fraud

19 have been accused of writing bad checks

117 have directly or indirectly bankrupted at least 2 businesses

3 have done time for assault

71 Cannot get a credit card due to bad credit

14 have been arrested on drug-related charges

8 have been arrested for shoplifting

21currently are defendants in lawsuits,

84 have been arrested for drunk driving

The same group of criminals that crank out
Hundreds of new laws each year
Designed to keep the rest of us in line.

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This month the biggest Wall Street companies reported their quarterly earnings. JP Morgan Chase and Goldman Sachs reported bumper earnings, Citgroup and Bank of America, not so good. But if you leave out write downs on debt, everyone had a great quarter in their capital markets businesses. Billions have been budgeted for year end bonuses.

As could be expected, the issue of Wall Street compensation raised its head again. And this time there is the weight of the federal government behind it. Banks that have taken TARP money will see their executive compensation capped. And the Federal Reserve has suggested that all large banks that fall under its jurisdiction will be reviewed on on going basis to ensure that executive bonuses do not produce risk taking behavior that could put the banking system at risk.

There are several memes that get mixed up in any discussion about Wall Street compensation in the media. Add a lot of emotion from a distraught public and it becomes for a tangled mess where the media feeds the furore but there’s no real understanding of the underlying issues. Let’s see if we can parse the issues out.

These are the issues as they are played out in the media
- Issue #1 – The taxpayer bailed out Wall Street. How can they pay themselves these kinds of bonuses.
- Issue #2 – The rest of the country is going through agonizing pain – high unemployment, pay freezes and cuts – how can these people pay themselves what they do?
- Issue #3 – Their companies have been (and some still are) hemorrhaging cash. How can they pay their investment bankers so much?

I don’t think any of these issues merit any attention from lawmakers. #1 could be argued many ways but at the end of the day, if the bank has taken TARP money and hasn’t yet returned it, the federal government as shareholder with special rights, can do as it pleases. Politics dictates that compensation should be curbed and so it will be. #2 amounts to appealing to a cold corporation’s heart – a futile endeavor. #3 is the company’s call. They have a board and shareholders. If they think that they need to pay top dollar to retain talent, then that’s what they need to do.

In my mind there are two fundamental issues that need consideration. One, is related to risk increasing compensation practices. The second is a larger issue of high, untrammeled growth in the capital markets in the last two decades.

On the first issue, everyone agrees that Wall Street’s bonus bonanzas encourage traders and management to pile on the risk, collect their super size bonuses and when things turn south, leave the shareholders to pick up the pieces. And when things go really really bad, like what happened to the markets last year, let the federal government foot the bill.

What is not clear to me is why the shareholders just stand there and let this happen. The expectation that the bank is too big to fail and that the fed will bail you out, doesn’t explain it. If you were a shareholder in Citigroup and held the stock prior to the crash, even though you were bailed out, you probably lost your shirt on Citi.

I am not sure what the answer to this is. It could be that in the normal course of things, shareholders don’t really exert any influence on the board of the company. Election of board members and votes on CEO compensation, need to see a lot more vigor in the shareholder meetings, especially in the US.

Or it could be that shareholders think they’re smart and will be able to get out before the stuff hits the fan – a variant of what the trader or management thinks – except that the employee just loses her job, the shareholder his savings.

It could be that there isn’t enough disclosure. That Wall Street companies, on the pretext of not revealing proprietary information on trades and investments, is actually throwing a cloak on dodgy, heads-I-win-tails-you-lose schemes.

There could be other things going on that only behavioral economics can explain. Thinking that if everyone has been doing risky trades for so long then maybe its not that risky, is both irrational and perfectly natural.

Whatever, the reason behind it, this nexus between risk and compensation needs to be tackled head on. It is going to be a very tough problem. But not addressing it is not the answer.

The other question is also a big one. In the last two decades, the capital markets have grown much faster than the rest of the economy. The chart here shows that the profits in the US Financial sector went from about 15% of total corporate profits in 1998 to over 40% in 2007. When an industry grows at that pace, the competitive intensity is low and margins are high. The use of technology raises productivity further increasing margins. In the capital markets the only significant cost is the cost of people. When there is no or low downward pressure on prices, compensation has no place to go but up.

But is the ‘natural’ size of the industry as a share of GDP what it is today or what it was two decades ago? Can an industry that essentially allocates capital, and doesn’t really make anything, have such a large share of the GDP? Is there something in the laws of the land that make it so? For instance the credit rating industry, many say, is a creation of legislation and would not have existed at least in this twisted model of today, had it not been for an easy regulatory environment. Are there other such areas that would wilt in the face of an openly competitive field or lower entry barriers?

I don’t know the answers to these questions. But I do know that if the world has a problem with Wall Street traders, bankers and CEOs making tens of millions a year, not just in today’s recession, but beyond as well, we will need to look at taming the industry, not capping salaries. If that’s even possible at all.

Goldman Sachs is the global leader of social interference, selfish indulgance and lack of moral conviction and standards. They care not who they harm to earn incomes based on no social or economic benefits to anyone. They manufacture nothing, they produce nothing they contribute nothing to society.

They subscribe to the quote of Meyer Rothschild - the creator of the Central Banking System - who said:

"Let me control the money of a nation and I care not who makes its' laws"

This is from GS666.com

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The politicians are pandering to the ignorant, the ill informed and our naïve youth. I can't sugarcoat this, my friends. One of our greatest rights is debate, and I support to my death our freedom of speech in this great nation. I do not support the stifling of debate. I do not support a freedom to remain ignorant at the expense of others. I do not support practices absent of truth and reason from the "weak and stupid" or from the "strong and brightest" of minds. I do not support this stimulus legislation being portrayed as, a road to recovery. It's a road to disaster, my friends. It's no different than sitting in front of a slot machine and believing, "If I just put in another $2,700 that I don't have, I may get lucky. Let me go borrow $2,700 dollars from my children and my grandchildren so I can keep playing a losing game." The concept similarity with this Washington band of crooks and idiots is stunning and frankly, unforgivable. The chances of this bill working as written or as intended are far less likely to succeed than our slot machine payoff. Let's just recite some recent facts:

1. Stimulus refunds of $300 and $600 per person a year ago was not a success. On the contrary, it was a $150 billion squandering of borrowed money.

2. The $350 billion TARP funds went to corrupt banking institutions in December 2008 and we'll never see those funds working for the people as intended to restructure and write new loans.

3. The $350B remaining from the $700B total TARP allotment hasn't been allocated to fixing our housing problems to date as they, our representatives and appointed leaders, promised the funds would be, as a priority. It will also be given without stipulations.

These morons simply write, sign and implement legislation and have no fear of voter reprisals. With no real objective evidence, they cannot present truthfully what this bill will even accomplish or the specific number of jobs it will resurrect. If I would have gone to my employer with a proposal structured under vague and speculative reasoning, I would have had to pack a box from my desk and be escorted to the door. Just the thought of this unbelievable Washington charade makes my skin crawl.

Many are turning a blind eye to corruption, greed and blatant lies/deceptions from our legislators. We're all being duped by these clowns in new suits and ties who work three days a week, if that.

For heaven's sake America, lets all contribute a bit more critical thinking when selecting our representation. Now, we'll have "congressional oversight" with this stimulus bill. In Washington? By these fumblers?

Well, hold on for your life and the life of your family my fellow Americans because "everything goes, when everything is gone!" So the next time you pull the lever at the voting both or the slot machine, don't pull it thinking your playing with someone else's money and don't think you're going to win.

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Republicans created TARP. They, along with the tacit approval or apathy of libertarians and Austrians who should be fighting these subsidies every day instead of self-righteously condescending to sufferers, love flushing money down the toilet, whether it be a big-government hand-out to incompetent, inefficient corporations, or by defecating down the military rat-hole by giving generous contracts to KBR, Boeing, Lockheed Martin, and Blackwater while ignoring the needs of our brave fighting men and women and demonizing the working poor when they receive much-needed assistance essential to securing their human rights.

Body armor for troops and essential services for their families? Republicans say "No!". But when it comes to subsidizing bloated contractors, Republicans say it best:

"God bless our military contractors!"
-Representative Duncan Hunter (R)

Read more at: http://www.huffingtonpost.com/2009/10/20/wall-street-bonuses-vs-no_n_324281.html

BIRTH OF A NEW SYSTEM: STAGES OF REMOVING CORRUPT 0LD SYSTEM

Natural progression of stages from 0LD to NEW:

Stage 1: Disillusionment: Realize PROBLEMS are so Severe Reform seems Impossible! Some Chance of Reform exists!

Stage 2: Erosion: Characterized by a chipping away at 0LD SYSTEM with Facts, Complaints, Evaluation of Inequities­+Imbalance­s. ANGER is expressed. Some Chance of Reform still exists but growing uncertainty!

Stage 3: Detachment: All interest and commitment to saving 0LD System is LOST as discussions shut down! Disenchantment with 0LD System increases while intensified conflict decreases as FOCUS moves to defining the NEW SYSTEM! “Dream of a NEW Future” without 0LD Problems!

Stage 4: Dismantling: Building Knowledge and Courage to replace 0LD System with New System brings Enormous Relief of past Disillusionment. Some anxiety, initial confusion, and fear exists but resolves as New System becomes clearer.

Stage 5: Mourning: Removes ghosts of 0ld System as process moves to NEW Concrete Goals and Objectives. Anger at 0ld System is released and removed.

Stage 6: BIRTH of Fully Defined New System: Concentration on Choices, Clear Vision of things to come, Excitement, Evaluation of Alternatives and Risks, and Near Final Definition of Structure of the New System! Detailed Plan of action is developed.

Stage 7: Implementation and Hard Work: Renewed vitality, Pursuit of Goals, Finalize Policy Issues+Management Issues+Laws and Legal Definitions. Goals are Reached and Aspirations Achieved+R­ealization of New Balance of Power. New Confidence rises in final stage as Hard Work Follows.

Read more at: http://www.huffingtonpost.com/2009/10/20/wall-street-bonuses-vs-no_n_324281.html

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If you read between the lines of my previous two posts, you will easily detect a person who believes that the only way to prevent abuse is the rule of law.

In finance, we need to re-enact old laws (Glass Steagal, etc) and outlaw again behavior that was illegal up to 2000. We need to pass new laws to deal with the modern reality of world financial markets.

All of our laws should be aimed at protecting the common good. The common good is not being served by a financial industry that is, right now, totally out of control and being run by what are really sociopaths.

Our financial systems work. They are, however, delicate and full of nuance. We lack restraints with teeth to keep the systems upon which we all depend from being abused by a few.

When I say a few, let's be very clear about this. We now know that the catastrophe in CDS was caused by less than 20 people. If you gather all top executives of all major financial institutions in the U.S., you would have less than 10,000 people. There are a little over 300 million people in the U.S.

Whose interests should be served?

We need tough laws and even tougher enforcement.

Lastly, it is widely known that the favorite expression at Bear Sterns was "F...k you!" yelled as loudly as possible even to customers.

People playing with big amounts of OPM cannot be trusted.

Read more at: http://www.huffingtonpost.com/2009/10/20/wall-street-bonuses-vs-no_n_324281.html

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Americans, more than almost any other people, are historically pretty tolerant of the rich and the privileged. We hold no rancor or jealousy for their wealth, even when it is gained merely by inheritance and not through labor.

But Americans are now viewing the looting of the Middle Class by the people who occupy the top one percent of the American pyramid. People who number but a few hundred thousand, at most, who have gotten a strangle hold on most of the prosperity and income growth of the nation for the past ten years.

Americans will celebrate those who create and profit from their creations, but they have less and less tolerance for having their own families and small businesses looted by banks and financial institutions that are manipulating the government with their highly-paid lobbyists (many of whom are former elected officials.)

Destroy the American Middle Class at your own risk.

Read more at: http://www.huffingtonpost.com/2009/10/20/wall-street-bonuses-vs-no_n_324281.html

We the people have to do two things:

-- disengage from corporate America, no more Walmart, no Chinese goods, no big banks, no Wall Street 401k investments. Buy things from your neighbors, trade, barter, reuse, re-purpose anything that can be made to work again. Find the community banks and credit unions and start moving your business there. Buy local food, no imports.

-- vote out all incumbents in all offices from the local to state to national level. They have ceased to work for the taxpayer, they are owned and operated by business interests. Getting elected has become an industry that has perverted the process of running for office.

If we do not rise up and walk away, we will be diminished serfs in a modern version of feudalism.

Our children will not be proud of us.
Our freedom is at stake here, a freedom that the wealthy elites have not wanted bestowed on us for hundreds of years. If there is a chance to squash this grand experiment called the United States of America and the freedom that the middle class and lower class have enjoyed during its brief existence, I fear that they will make that move.

Read more at: http://www.huffingtonpost.com/robert-l-borosage/where-will-the-jobs-come_b_328022.html

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Ok so here's another one.

I am NOT against people making money. I am all for it!!!!

I just want to know that the deck is not unfairly, stacked against me! I have worked all my life and am comfortable with my life. I would like to have more time and cash to travel but hey, I'm alright.

What does piss me off are the fat cats and money people on wall street that don't really work and get obscene bonuses!
Goldman Sachs
JP Morgan
AIG
Please wall street needs to be burnt down and main street needs to get angry. I can't figure out why more people have not become aware of this and gotten really loud! Why?

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Goldman Sachs will announce its giant bonuses today. The SEIU has been researching the bank and this summary of its service to humanity:

GOLDMAN SACHS

Federal taxpayer bailout funds received: $63.6 billion
Profits for the years 1998-2008: $46.8 billion
Profits for the first half of 2009: $5.2 billion
2007 Goldman CEO Lloyd Blankfein pay: $70.3 million
2008 bonus pool: $4.8 billion
First half 2009 bonus and compensation pool: $11.4 billion
Bonuses (top 5 execs) last 10 years: $543.4 million
Effective tax rate in 2008: 0.6%
Offshore subsidiaries in tax havens: 29
Lobbying fees in first 9 months after bailout: $1.8 million.
Campaign contributions in 2008 federal elections: $7.1 million

Role in subprime crisis:

• Goldman Sachs had a hand in the worst of the subprime lending excesses, providing financing to three of the five largest subprime lenders: #3 New Century Financial Corp., #4 First Franklin, and #5 Long Beach Mortgage Co. This financing provided the companies with the capital they needed to originate subprime mortgages. Together, these firms issued more than $200 billion in subprime loans from 2005-2007.
• Goldman Sachs played a major role in underwriting and selling the exotic financial instruments like credit default obligations or CDOs that fueled the subprime machine through mortgage backed securities. Just before the housing bust, Goldman was ranked third by Bloomberg in the underwriting and sale of CDOs, earning $239 million. The CDO market was further fueled by other exotic financial instruments called credit default swaps, a form of insurance against possible mortgage defaults. Here again Goldman was a major player, getting bailed out on its bad bets when the government saved AIG from tanking.

• When the housing bubble burst, Goldman was hit with a series of lawsuits, including one by New York state regulators; after being subject to another investigation in Massachusetts for misrepresenting the quality of their mortgage backed securities, Goldman eventually agreed to pay a $60 million settlement.

Profiteering off the bailout and gambling with taxpayers’ money:

• Goldman Sachs put taxpayers on the hook for up to $63.6 billion in bailout funds and programs plus an unknown amount from the Federal Reserve’s $8 trillion in emergency programs. While Goldman has since repaid its $10 billion in TARP money, allowing it to avoid government oversight on executive compensation, it doesn’t have to repay the $12.9 billion received through the AIG bailout, which is even larger than the $10 billion it repaid.

• In order to access these billions of taxpayer bailout money, in September 2008, Goldman Sachs sought and received approval to become a bank holding company. As a bank holding company, Goldman should be subject to much stricter regulations and oversight. However, Goldman sought and obtained a Federal Reserve waiver from Market Risk rules required of commercial banks.

• Instead of using the bailout funds to shore up its capital base or expand lending, Goldman has issued its highest dividends to shareholders since 2003, shopped for acquisitions internationally, lavished bonuses on the same financial personnel who contributed to the crisis, and increased the amount of capital it’s put at risk. According to the company’s CFO, Goldman’s “model really never changed.” In fact, 78% of the company’s most recently reported revenues came from high-risk trading and investments, and potential trading losses on any given day were at an all time high of $245 million, up (75%) from the $139 million held at risk before becoming a holding company. In response, ten legislators sent a letter to the Federal Reserve accusing Goldman of “officially gambling with government money,” and requesting justification for their exemption. Two and a half weeks later, the Fed authorized Goldman to morph into a Financial Holding Company, which basically allows it to continue these high risk practices at taxpayer expense.

• Goldman literally gambled with California taxpayer money, advising its investor clients to take advantage of the state government’s financial crisis by betting against state bonds that Goldman itself had helped sell, pocketing millions in fees. The giant investment firm did not inform the office of California Treasurer Bill Lockyer that it was proposing a way for investment clients to profit from California’s deepening financial misery. In Sacramento, officials said they were concerned that Goldman’s strategy could raise the interest rate the state would have to pay to borrow money, thus harming taxpayers.

• Goldman’s bailout money has gone little to help struggling homeowners. Goldman’s loan servicing operation, Litton Loan Servicing LP, has started trial mortgage modifications for only 3% of its 103,871 borrowers who are eligible for the Obama Administration’s Making Home Affordable Program (and are at least 60 days past due).

• Moreover, Goldman is back in the mortgage securitization business, repackaging the mortgages that have been stuck on their books since the housing bubble burst and now selling them as a new product. Known as “re-remics”, they simply pull out the worst of the bonds to boost the credit rating to make the sale, kind of like what brought on the financial crisis in the first place.

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• "Suck on Our Yachts": Goldman Sachs Issues Non-Apology for Destroying the World Economy (bravenewfilms.org)

Pissed off and pitchforked

Geithner Aides Reaped Millions Working for Banks, Hedge Funds


By Robert Schmidt

Oct. 14 (Bloomberg) -- Some of Treasury Secretary Timothy Geithner’s closest aides, none of whom faced Senate confirmation, earned millions of dollars a year working for Goldman Sachs Group Inc., Citigroup Inc. and other Wall Street firms, according to financial disclosure forms.

The advisers include Gene Sperling, who last year took in $887,727 from Goldman Sachs and $158,000 for speeches mostly to financial companies, including the firm run by accused Ponzi scheme mastermind R. Allen Stanford. Another top aide, Lee Sachs, reported more than $3 million in salary and partnership income from Mariner Investment Group, a New York hedge fund.

As part of Geithner’s kitchen cabinet, Sperling and Sachs wield influence behind the scenes at the Treasury Department, where they help oversee the $700 billion banking rescue and craft executive pay rules and the revamp of financial regulations. Yet they haven’t faced the public scrutiny given to Senate-confirmed appointees, nor are they compelled to testify in Congress to defend or explain the Treasury’s policies.

“These people are incredibly smart, they’re incredibly talented and they bring knowledge,” said Bill Brown, a visiting professor at Duke University School of Law and former managing director at Morgan Stanley. “The risk is they will further exacerbate the problem of our regulators identifying with Wall Street.”

While it isn’t unusual for Treasury officials to come from the financial industry, President Barack Obama has been critical of Wall Street, blaming its high-risk, high-pay culture for helping cause the financial-market meltdown.

‘Reckless Behavior’

Speaking to financial executives last month, Obama said: “We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses.”

At the same time, the president has promised to change Washington by keeping lobbyists for special interests at a distance and by making decisions in the open.

Sperling and Sachs are each paid $162,900 at the Treasury. Along with four others, they hold the title of counselor to Geithner. Sachs, 46, withdrew earlier this year from consideration to be the Treasury’s top domestic finance official, a job that would have required Senate confirmation.

Geithner’s predecessor, Henry Paulson, brought on a coterie of non-confirmed advisers from Goldman Sachs at the end of his term. Paulson, who had been the firm’s chief executive officer, defended the arrangement as necessary to quickly bring in top talent when the financial system was on the verge of collapse.

Awaiting Confirmation

The title of counselor had been generally reserved for those awaiting confirmation. Some of Geithner’s aides now work in that capacity, including Lael Brainard, who has been nominated to be undersecretary for international affairs, and Jeffrey Goldstein, the nominee to be undersecretary for domestic finance.

“The use of counselors provides an opportunity to bring valuable expertise into the department to serve in a close capacity with the secretary,” said Rob Nichols, a former Treasury official under Secretaries Paul O’Neill and John Snow, neither of whom relied extensively on unconfirmed aides. “It’s important that they complement, but don’t supplant, the Senate confirmed appointments.”

The use of unconfirmed counselors can cut both ways. It allows Geithner to bring in staff quickly by avoiding the arduous confirmation process. On the other hand, the aides don’t get as tough a vetting by the White House or Congress and remain less accountable than Senate-confirmed officials.

Understanding Markets

Treasury spokesman Andrew Williams said the department needs people with a deep understanding of markets and the financial system, especially as it works to fend off the worst recession in half a century.

“The secretary thought that the best way to utilize their talents was to allow these individuals to provide advice to the secretary on policy issues through appointments as counselor,” Williams said.

All of Geithner’s counselors are subject to federal ethics rules, including a pledge to avoid contact with their former firms for at least a year, Williams added.

Most officials at the Treasury who have been approved by Congress come from academic, legal or non-Wall Street backgrounds. For example, Geithner’s deputy, Neal Wolin, was president and chief operating officer for property and casualty operations at insurer Hartford Financial Services Group Inc. in Hartford, Connecticut. Michael Barr, the assistant secretary for financial institutions, was a professor at the University of Michigan Law School.

Merrill Lynch Executive

An exception is Herb Allison, who runs the office that administers the financial rescue. He had been chief executive officer of mortgage finance company Fannie Mae and retirement- services firm TIAA-CREF, and before that was a longtime executive at Merrill Lynch & Co. in New York.

Along with Sperling and Sachs, Geithner’s inner circle also includes counselor Lewis Alexander, the former chief economist at Citigroup; Chief of Staff Mark Patterson, who was a lobbyist at Goldman Sachs, and Matthew Kabaker, a deputy assistant secretary who worked at private equity firm Blackstone Group LP. Patterson’s and Kabaker’s jobs did not require confirmation.

One counselor who doesn’t have a finance background is Jake Siewert, a press secretary for President Bill Clinton who came to the Treasury after working as a vice president at New York- based Alcoa Inc., the largest U.S. aluminum producer.

Alexander, who left Citigroup in March to join the Treasury, was paid $2.4 million in 2008 and the first few months of 2009, according to his financial-disclosure form. He advises Geithner on economic trends and does research on financial markets.

Toxic Assets

Kabaker, who works on domestic finance policy and helped craft the Treasury plan to spur banks to sell their toxic assets, earned $5.8 million working on private equity deals at Blackstone in 2008 and 2009 before joining the Treasury at the end of January, his disclosure form shows. Much of the compensation was in stock that Kabaker, who worked at Blackstone for 10 years, was awarded when it went public in 2007.

On his disclosure, Sachs estimated that he would receive $3.4 million in income from Mariner. The precise figure was not given because the books hadn’t closed on a number of partnerships when he joined the department in January. As of Feb. 23, when he signed the document, Sachs said he was also owed a 2008 bonus where the value was “not ascertainable.”

Sachs’s former firm also had agreed to repurchase his shares in Mariner Partners Inc., an investment fund. Sachs estimated his income from the fund at $1 million to $5 million. Sachs, who declined to comment, also specializes in domestic finance.

Work on Education

In Sperling’s primary job, he was paid $116,653 by the Council on Foreign Relations for work related to education in developing countries.

Sperling’s disclosure shows he supplemented his salary through a variety of consulting jobs, board seats, speaking fees and fellowships, to bring his total income to more than $2.2 million in the 13 months ending in January.

He was paid $480,051 as a director of the Philadelphia Stock Exchange and $250,000 for providing quarterly economic briefings to two hedge fund firms, Brevan Howard Asset Management LLP and Sterling Stamos Capital Management.

Sperling spoke at a Washington event hosted by the Houston- based Stanford Group Co. in November 2008, three months before its chairman was sued by the Securities and Exchange Commission for allegedly bilking investors of $7 billion. He also spoke at a Washington event in October 2007 that was sponsored by Citigroup, which has received $45 billion in government assistance.

Paid Speeches

Sperling, 50, was paid for his speeches through the Harry Walker Agency, which books speakers. His disclosure form does not list how much he was paid for each speech.

Sperling also drew a $137,500 salary from Bloomberg News for writing a monthly column and appearing on television, according to his disclosure.

Goldman Sachs paid Sperling the $887,727 for advice on its charitable giving. That made the bank his highest-paying employer. Even Geithner’s chief of staff Patterson, who was a full-time lobbyist at the firm, did not make as much as Sperling did on a part-time basis. Patterson reported earning $637,492 from Goldman Sachs last year.

“My sole work for Goldman Sachs was as lead consultant on the creation, design, and initial implementation of ‘10,000 Women,’ their $100 million philanthropic effort to give business and leadership education to poor women around the world,” Sperling said.

His total income of $2.2 million was unusually high, Sperling added.

The Wall Street ties are troubling to some advocates for investors. “Where is the transparency this administration promised?” asked Lynn Turner, a former chief accountant at the SEC. “You just wonder, who is representing middle Americans?”

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I just read in a news articles that AIG's executives slated for another round of mind-numbing bonuses were pointing to laws as reasons why the bonuses could not be interfered with by legislators or regulators. OK - suppose one agrees with them. I find such executives' as well as many other executives' throughout the financial industry respect for law admirable. I find their selective respect for law despicable--and it has also proven to be demonstrably hazardous to the health of the country.

Inevitably legislators and regulators will back off because they do not want to be seen as trifling with laws. What's puzzling to me however is why these legislators and regulators recognizing that such bonuses are outrageous and also corrosive of the financial and social system do not utilize other relevant laws which would be effective in controlling heedless and in many cases criminal executive behavior.

Executives in the financial sector who were oblivious to laws in amassing their fortunes now try to rely on laws to protect these fortunes and also to increase them. There are laws against fraud, unfair trade practices, and other germane matters. As the executives loudly now call for respect for the law, the legislators and regulators play along with them--while both groups concertedly look away from other laws. Thus the charade of the equitable application of the law goes on.


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What exactly is the function of the financial sector in our society? Simply this: Its sole function is supplying capital efficiently to aid the real economy. The financial sector is a tool to help those that make real tools, not an end in itself. But five fatal flaws in the financial sector's current structure have created a monster that drains the real economy, promotes fraud and corruption, threatens democracy, and causes recurrent, intensifying crises.

1. The financial sector harms the real economy.

Even when not in crisis, the financial sector harms the real economy. First, it is vastly too large. The finance sector is an intermediary -- essentially a "middleman". Like all middlemen, it should be as small as possible, while still being capable of accomplishing its mission. Otherwise it is inherently parasitical. Unfortunately, it is now vastly larger than necessary, dwarfing the real economy it is supposed to serve. Forty years ago, our real economy grew better with a financial sector that received one-twentieth as large a percentage of total profits (2%) than does the current financial sector (40%). The minimum measure of how much damage the bloated, grossly over-compensated finance sector causes to the real economy is this massive increase in the share of total national income wasted through the finance sector's parasitism.

Second, the finance sector is worse than parasitic. In the title of his recent book, The Predator Statehttp://books.simonandschuster.com/Predator-State/James-Galbraith/9781416566830, James Galbraith aptly names the problem. The financial sector functions as the sharp canines that the predator state uses to rend the nation. In addition to siphoning off capital for its own benefit, the finance sector misallocates the remaining capital in ways that harm the real economy in order to reward already-rich financial elites harming the nation. The facts are alarming:

• Corporate stock repurchases and grants of stock to officers have exceeded new capital raised by the U.S. capital markets this decade. That means that the capital markets decapitalize the real economy. Too often, they do so in order to enrich corrupt corporate insiders through accounting fraud or backdated stock options.

• The U.S. real economy suffers from critical shortages of employees with strong mathematical, engineering, and scientific backgrounds. Graduates in these three fields all too frequently choose careers in finance rather than the real economy because the financial sector provides far greater executive compensation. Individuals with these quantitative backgrounds work overwhelmingly in devising the kinds of financial models that were important contributors to the financial crisis. We take people that could be conducting the research & development work essential to the success of our real economy (including its success in becoming sustainable) and put them instead in financial sector activities where, because of that sector's perverse incentives, they further damage both the financial sector and the real economy. Michael Moore makes this point in his latest film, Capitalism: A Love Story.

• The financial sector's fixation on accounting earnings leads it to pressure U.S manufacturing and service firms to export jobs abroad, to deny capital to firms that are unionized, and to encourage firms to use foreign tax havens to evade paying U.S. taxes.

• It misallocates capital by creating recurrent financial bubbles. Instead of flowing to the places where it will be most useful to the real economy, capital gets directed to the investments that create the greatest fraudulent accounting gains. The financial sector is particularly prone to providing exceptional amounts of funds to what I call accounting "control frauds". Control frauds are seemingly-legitimate entities used by the people that control them as a fraud "weapons." In the financial sector, accounting frauds are the weapons of choice. Accounting control frauds are so attractive to lenders and investors because they produce record, guaranteed short-term accounting "profits." They optimize by growing rapidly like other Ponzi schemes, making loans to borrowers unlikely to be able to repay them (once the bubble bursts), and engaging in extreme leverage. Unless there is effective regulation and prosecution, this misallocation creates an epidemic of accounting control fraud that hyper-inflates financial bubbles. The FBI began warning of an "epidemic" of mortgage fraud in its congressional testimony in September 2004. It also reports that 80% of mortgage fraud losses come when lender personnel are involved in the fraud. (The other 20% of the fraud would have been impossible had these fraudulent lenders not suborned their underwriting systems and their internal and external controls in order to maximize their growth of bad loans.)

• Because the financial sector cares almost exclusively about high accounting yields and "profits", it misallocates capital away from firms and entrepreneurs that could best improve the real economy (e.g., by reducing short-term profits through funding the expensive research & development that can produce innovative goods and superior sustainability) and could best reduce poverty and inequality (e.g., through microcredit finance that would put the "Payday lenders" and predatory mortgage lenders out of business).

• It misallocates capital by securing enormous governmental subsidies for financial firms, particularly those that have the greatest political power and would otherwise fail due to incompetence and fraud.

2. The financial sector produces recurrent, intensifying economic crises here and abroad.

The current crisis is only the latest in a long list of economic crises caused by the financial sector. When it is not regulated and policed effectively, the financial sector produces and hyper-inflates bubbles that cause severe economic crises. The current crisis, absent massive, global governmental bailouts, would have caused the catastrophic failure of the global economy. The financial sector has become far more unstable since this crisis began and its members used their lobbying power to convince Congress to gimmick the accounting rules to hide their massive losses. Secretary Geithner has exacerbated the problem by declaring that the largest financial institutions are exempt from receivership regardless of their insolvency. These factors greatly increase the likelihood that these systemically dangerous institutions (SDIs) will cause a global financial crisis.

3. The financial sector's predation is so extraordinary that it now drives the upper one percent of our nation's income distribution and has driven much of the increase in our grotesque income inequality.

4. The financial sector's predation and its leading role in committing and aiding and abetting accounting control fraud combine to:

• Corrupt financial elites and professionals, and

• Spur a rise in Social Darwinism in an attempt to justify the elites' power and wealth. Accounting control frauds suborn accountants, attorneys, and appraisers and create what is known as a "Gresham's dynamic" -- a system in which bad money drives out good. When this dynamic occurs, honest professionals are pushed out and cheaters are allowed to prosper. Executive compensation has become so massive, so divorced from performance, and so perverse that it, too, creates a Gresham's dynamic that encourages widespread accounting fraud by both financial firms and firms in the real economy.

As financial sector elites became obscenely wealthy through predation and fraud, their psychological incentives to embrace unhealthy, anti-democratic Social Darwinism surged. While they were, by any objective measure, the worst elements of the public, their sycophants in the media and the recipients of their political and charitable contributions worshiped them as heroic. Finance CEOs adopted and spread the myth that they were smarter, harder working, and more innovative than the rest of us. They repeated the story of how they rose to the top entirely through their own brilliance and willingness to embrace risk. All of their employees weren't simply above average, they told us, but exceptional. They hated collectivism and adored Ayn Rand.

5. The CEOs of the largest financial firms are so powerful that they pose a critical risk to the financial sector, the real economy, and our democracy.

The CEOs can directly, through the firm, and by "bundling" contributions of its officers and employees, easily make enormous political contributions and use their PR firms and lobbyists to manipulate the media and public officials. The ability of the financial sector to block meaningful reform after bringing the world to the brink of a second great depression proves how exceptional its powers are to corrupt nearly every critical sector of American public and economic life. The five largest U.S. banks control roughly half of all bank assets. They use their political and financial power to provide themselves with competitive advantages that allow them to dominate smaller banks.

This excessive power was a major contributor to the ongoing crisis. Effective financial and securities regulation was anathema to the CEOs' ideology (and the greatest danger to their frauds, wealth, and power) and they successfully set out to destroy it. That produced what criminologists refer to as a "criminogenic environment" (an atmosphere that breeds criminal activity) that prompted the epidemic of accounting control fraud that hyper-inflated the housing bubble.

The financial industry's power and progressive corruption combined to produce the perfect white-collar crimes. They successfully lobbied politicians, for example, to legalize the obscenity of "dead peasants' insurance" (in which an employer secretly takes out insurance on an employee and receives a windfall in the event of that person's untimely death) that Michael Moore exposes in chilling detail. State legislatures changed the law to allow a pure tax scam to subsidize large corporations at the expense of their taxpayers.

Caution: Never Forget the Need to Fix the Real Economy

Economic reform efforts are focused almost entirely on fixing finance because the finance sector is so badly broken that it produces recurrent, intensifying crises. The latest crisis brought us to the point of global catastrophe, so the focus on finance is obviously rational. But the focus on finance carries a grave risk. Remember, the sole purpose of finance is to aid the real economy. Our ultimate focus needs to be on the real economy, which creates goods and services, our jobs, and our incomes. The real economy came off the rails at least three decades ago for the great majority of Americans.

We need to commit to fixing the real economy by guaranteeing that everyone willing to work can work and making the real economy sustainable rather than recurrently causing global environmental crises. We must not spend virtually all of our reform efforts on the finance sector and assume that if we solve its defects we will have solved the other fundamental reasons why the real economy has remained so dysfunctional for decades. We need to be work simultaneously to fix finance and the real economy.

Roosevelt Institute Braintruster William K. Black is an Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist and was a senior financial regulator. He is the author of The Best Way to Rob a Bank is to Own One.

*Originally published on the Roosevelt Institute's blog, New Deal 2.0.


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