bank run blog

Sources have confirmed reports that the economy has been hijacked by an aggressive and particularly audacious band of pirates, operating in uncharted waters near the East Coast of the United States.

Unlike their relatively primitive Somali counterparts, the US bandits typically reside in comfortable “sleeper cells” in places like Westchester, New York and Potomac, Maryland, preparing for their missions through frequent “board meetings” and “conference calls.”

Another distinguishing characteristic of the US pirates is the sheer enormity of the ransoms they demand.

An unconfirmed report claims that friendly skipper Barack Obama has been taken hostage, but remains unaware of it at this time.

Glenn Greenwald : Larry Summers, Tim Geithner and Wall Street’s ownership of government

CBS News : Summers Banked Fees From TARP Recipients

CBS News : White House Economist: Bonus Tax Could Have Chilling Effect

In a story that will not come as a surprise to those who have followed the bailout fiascos closely, the New York Times is reporting Regulator Says Bailout Fund Overpaid Banks :

“A regulator overseeing the government’s $700 billion bailout testified Thursday that the Treasury Department paid $254 billion for $176 billion of assets — a shortfall of $76 billion.

‘Treasury paid substantially more for the assets it purchased under the TARP than their then-current market value,’ said Elizabeth Warren, chairwoman of the Congressional Oversight Panel examining the Troubled Asset Relief Program, or TARP. She cited a valuation study as evidence of the overpayment.”

Warren has spoken out on numerous occasions about Henry Paulson’s secrecy, calling it, perhaps ironically, his “lack of transparency”. The Associated Press reports :

“Referring to overpayment on assets, Warren said Treasury has failed to specify its goals and methods in helping more than 300 institutions.

‘There may be good policy reasons for overpaying, but without a clearly delineated reason we can’t know that,’ Warren said.

Senate Banking chairman Christopher Dodd, D-Conn., said the overpayment was sure to ‘raise eyebrows.’

‘I can understand some gap,’ he said. ‘No one is expecting perfection between the price you pay and what you think you’re getting. But that’s a pretty large disparity.’”

New York Times : Regulator Says Bailout Fund Overpaid Banks

Associated Press : Watchdog: Treasury overpaid for bank stocks

One of the most surreal aspects of the financial collapse as it has played out in the United States is the apparent lack of consequences for senior executives, influential investors, and top policy makers who have been exposed as either embarrassingly incompetent or shamefully corrupt. Members of the Wall Street excessive bonus club and sneering, confidently incorrect media commentators were not among the more than 65,000 US layoffs announced yesterday. This morning, the Associated Press reports :

“At banks that are receiving federal bailout money nearly nine out of every 10 of the most senior executives from 2006 are still on the job, according to an Associated Press analysis of regulatory and company documents.

The AP’s review reveals one of the ironies of the bank bailout: The same executives who were at the controls as the banking system nearly collapsed are the ones the government is counting on to help save it.

Even top executives whose banks made such risky loans they imperiled the economy have been largely spared any threat to their jobs, as Washington pumped billions in taxpayer money into the companies. Less fortunate are more than 100,000 bank employees laid off during a two-year stretch when industry unemployment nearly tripled, bank stocks plummeted and credit dried up.”

But wait, there’s more, as the Obama administration quietly begins to prepare the public for the next huge installment in the big bank boondoggle. The AP reported last night :

“The Obama administration faces a highly skeptical Congress and an angry public if the foundering condition of the nation’s banks requires yet another massive infusion of taxpayer money.

The new president’s economic team, lawmakers say, must first prove that $350 billion already at its disposal can help unlock credit and slow the rate of foreclosures — and do it with more transparency and oversight.”

Senior economic advisor Lawrence Summers and newly-minted Treasury Secretary Timothy Geithner know that the public will be opposed, led by the charismatic Richard Shelby and a few digital pitchfork mobs. So get ready for another round of the craven fearmongering that accompanied the Fannie/Freddie bazooka shot and the first rollout of the TARP. From the AP article :

“Mark Zandi, chief economist at Moody’s Economy.com., said the $350 billion would not be enough to finance both foreclosure mitigation and a financial stability plan. He predicted the Obama administration could seek another $700 billion.

Persuading Congress that additional money is needed ‘may be easier than we’re anticipating if we continue to lose 500,000 jobs per month and see major institutions on the brink of failure,’ Zandi said.”

Associated Press : No pink slips for bailed-out bank execs

Associated Press : New bank bailout studied; lawmakers balk

The House Oversight and Government Reform Committee held a hearing recently where the former executives of the quasi-private mortgage companies Freddie Mac and Fannie Mae were questioned about what the companies knew about the risky nature of the loans that they were guaranteeing and what, if any, steps were taken to prevent the crisis of widespread foreclosures that currently confronts American homeowners.

Leland Brendsel and Richard Syron, former executives at Freddie Mac, and Daniel Mudd and Franklin Raines, former executives of Fannie Mae, appeared before a committee armed with more than 400,000 internal documents that had been subpoenaed and animated by anger as many of the committee member’s constituents have been forced into foreclosure having agreed to the questionably designed loan products that were bought by or guaranteed by the companies.

The documents, which included internal memoranda and e-mails, are replete with evidence that the companies were well informed of the disastrous ramifications of loan products that required no down payment and no documentation of the borrower’s ability to pay and loans where the borrower paid back only interest leaving the principal to never be reduced. The documents also reveal that the companies were aware that the loan products were targeted “disproportionately” at minority communities, and were commonly perceived to represent “predatory lending” practices.

In one of the subpoenaed e-mails that was received by Syron of Freddie Mac, the writer warns that the No Income/No Asset loan product being sold in the early part of this decade “appears to target borrowers who would have trouble qualifying for a mortgage if their financial position were adequately disclosed.” The writer reports that 8 to 13 percent of such loans went into delinquency in the first year of the contract. The memo goes on to warn that these loans appear also to be “disproportionately targeted towards Hispanics.” The writer proposed that Freddie Mac discontinue to guarantee such loans, even though it would result annual losses of between 10 and 50 million dollars.

In his testimony, Syron argued that “Freddie needed to participate in order to carry out its public mission of promoting affordability” in the nation’s housing market.

The chairman of the committee, Rep Henry Waxman (D-CA) said that Fannie and Freddie’s “own risk managers raised warning after warning about the dangers of investing heavily in the subprime and alternative mortgage market. But these warnings were ignored. The company executive’s irresponsible decisions are now costing the taxpayers billions of dollars.”

cross posted at

redstateupdate.net

The private mercenary organization Blackwater has come under scrutiny for misrepresenting the size of its company in order to acquire federal contracts set aside for small businesses. The falsifications came to light in an audit performed by the Office of the Inspector General for the Small Business Administration that also found that Blackwater benefited from assessments made by the SBA that favored broad definitions of what it means to be an employee of Blackwater. Blackwater eventually received more than 130 SBA contracts worth over $100 million. Blackwater has received over $1.2 billion worth of government contracts since 2000.

The Inspector’s audit found that Blackwater gave conflicting information in its proposals and applications for federal loans and applied for contracts under the business names of companies that it owned in the effort to disguise the fact that the contracts would in reality be awarded to Blackwater.

The auditors also found that the Small Business Association accepted Back-water’s interpretation of which of its employees were “private contractors” allowing the company to assert that ithas far fewer employees than are actually paid by Blackwater. The auditors found, for example, that Blackwater said in its SBA applications that the number of employees of an affiliate, Presidential Airlines, was just over 700 and Blackwater reported to Dunn and Bradstreet that the company had more than 1500 employees. Presidential went on to receive a $107 million dollar SBA contract. The SBA’s policy is to not offer contracts to companies with over 1000 employees.

The falsifications, misrepresentations and favorable SBA rulings were uncovered by Congressional investigators who reported that Blackwater used its special designations of employees as “private contractors” to evade paying “millions in federal tax payments.” Chairman of the House Committee on Oversight and Government Reform, Henry Waxman (D-CA), concluded that the designation of employees as contractors also enabled the Blackwater to secure the SBA contracts unfairly.

The Inspector General said that the findings indicated that Blackwater might have used the same fakery to secure additional contracts from other federal agencies.

cross posted at

redstateupdate.net