We MUST STOP Geithner’s $Trillion Payoff of the Gambling Debts of the Five Largest U.S. Banks!

Geithner’s ‘Dirty Little Secret’: The Entire Global Financial System is at Risk

When the Solution to the Financial Crisis becomes the Cause

by F. William Engdahl
Global Research, March 30, 2009

Blogger’s Note: Here below I reproduce a condensed version of Engdahl’s important new article. You can read it in its entirety and original form by clicking here.

What Geithner does not want the public to understand, his ‘dirty little secret’ is that the repeal of Glass-Steagall and the passage of the Commodity Futures Modernization Act in 2000 allowed the creation of a tiny handful of banks that would virtually monopolize key parts of the global ‘off-balance sheet’ or Over-The-Counter derivatives issuance.

Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default.

The five are, in declining order of importance: JPMorgan Chase which holds a staggering $88 trillion in derivatives (€66 trillion!). Morgan Chase is followed by Bank of America with $38 trillion in derivatives, and Citibank with $32 trillion. Number four in the derivatives sweepstakes is Goldman Sachs with a ‘mere’ $30 trillion in derivatives. Number five, the merged Wells Fargo-Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain’s HSBC Bank USA has $3.7 trillion.

The Government bailouts of AIG to over $180 billion to date has primarily gone to pay off AIG’s Credit Default Swap obligations to counterparty gamblers Goldman Sachs, Citibank, JP Morgan Chase, Bank of America, the banks who believe they are ‘too big to fail.’ In effect, these five institutions today believe they are so large that they can dictate the policy of the Federal Government. Some have called it a bankers’ coup d’etat. It definitely is not healthy.

This is Geithner’s and Wall Street’s Dirty Little Secret that they desperately try to hide because it would focus voter attention on real solutions. The Federal Government has long had laws in place to deal with insolvent banks. The FDIC places the bank into receivership, its assets and liabilities are sorted out by independent audit. The irresponsible management is purged, stockholders lose and the purged bank is eventually split into smaller units and when healthy, sold to the public. The power of the five mega banks to blackmail the entire nation would thereby be cut down to size. Ooohh. Uh Huh?

This is what Wall Street and Geithner are frantically trying to prevent. The problem is concentrated in these five large banks. The financial cancer must be isolated and contained by Federal agency in order for the host, the real economy, to return to healthy function.

This is what must be put into bankruptcy receivership, or nationalization. Every hour the Obama Administration delays that, and refuses to demand full independent government audit of the true solvency or insolvency of these five or so banks, inevitably costs to the US and to the world economy will snowball as derivatives losses explode.

Blogger’s Note: Only two weeks ago, William Greider writing in The Nation also addressed Geithner’s relaunching of “the massive bailout of banking and finance” but, “Knowing how unpopular this is with the people at large, Geithner followed with his ‘sweeping’ plans to re-regulate the bankers and financiers.” Greider regarded those “sweeping plans” as smoke and mirrors and concluded his article with this challenge to We The People:

“Our first political challenge is to disturb business as usual in Washington and prevent Congress from taking hasty action to adopt Wall Street's ‘reform’ agenda. Congress is rattled by the exploding popular anger and listening nervously. The people need to speak louder--loud enough for the president to hear [emphasis mine].”

Oddly though, I’ve found only one national organization that has been protesting Geithner’s giveaway of our children’s and grandchildren’s hope of prosperity. Bail Out the People – Not the Banks was it. According to some e-mails I’ve received, it seems there were some demonstrations in Phoenix (outside the AIG Building) and in Tucson (outside a Morgan Chase Bank) corresponding to the nationally organized April 3^rd March on Wall Street.

Blogger's PS: Thanks to the still ongoing discussion of my latest OpEdNews column on this subjet, I've learned of a second national organization demanding nationalization of the big banks who caused the present economic crisis. In fact A New Way Forward had organized a national demonstation that took place only two days ago (funny it wasn't reported in the MSM)! Please sign their pledge.

YES WE CAN!: Scientists Report Evidence of Explosive Residues in Dust Samples from the 9/11 World Trade Center Catastrophe.

World Trade Center photos taken about 4 and 8 seconds after initiation of the collapse of the south tower. (N.B. These photos are used here for educational purposes only. The copyright holder is Steve Kahn).

Physicists: Note that ejecta has been thrown laterally about 0.8 building widths, i.e. ~50 meters, in the first 4 seconds. How could that have happened powered solely to gravity, given that 4 seconds of free fall would displace the upper block only 78 meters downward?

 






The Open Chemical Physics Journal
Volume 2

ISSN: 1874-4125

Active Thermitic Material Discovered in Dust from the 9/11 World Trade Center Catastrophe

pp.7-31 (25)

Authors: Niels H. Harrit, Jeffrey Farrer, Steven E. Jones, Kevin R. Ryan, Frank M. Legge, Daniel Farnsworth, Gregg Roberts, James R. Gourley, Bradley R. Larsen

doi: 10.2174/1874412500902010007

NO WE CAN’T: National Institute of Standards and Technology (NIST)

On April 12, 2007, a 32-page request for corrections was submitted to NIST asserting that NIST's Final Report on the Twin Towers violates information quality standards and harms the interests of the petitioners -- scientists Steven Jones and Kevin Ryan, architect Richard Gage, engineer Frank Legge, 9/11 family members Bob Mcllvane and Bill Doyle, and the group Scholars for 9/11 Truth and Justice.

Below, I reproduce a single paragraph from NIST’s September 27, 2007, letter of response to these petitioners, interspersed by my reaction to what they are saying there:

“Your letter also makes three requests for changes to Section 6.14.4 under the objectivity standard to include: (1) supporting data with transparent documentation and identification of error sources, with regards to the potential energy released during the downward movement of the upper stories, the absorptive capacity of the intact structure below the collapse zone, and the increase in falling mass below the collapse zone; (2) to revise the section if NIST finds the absorptive capacity of the intact structure below the collapse zone was greater than the energy of the falling stories; and (3) to include the results of tests for explosive residue. With regard to the first request, NIST has stated that it did not analyze the collapse of the towers. NIST’s analysis was carried to the point of collapse initiation. The text of section 6.14.4 is based upon the analysis of photographic and video evidence of the collapses from several vantage points.”

So that’s it? I watch the videos; ergo the reality behind what I see is whatever I think it is?

“With respect to the second request for change, it was most critical for NIST to explain why the collapse initiated. Once the collapse initiated, it is clear from the available evidence that the building was unable to resist the falling mass of the upper stories of the towers.”

It “is clear”? Yes, it is clear the towers fell down... But the whole point of request (2) was to answer the question: Could the collapses have taken place in the absence of explosives to weaken or destroy the steel columns below “the point of collapse initiation”? NIST HAS CLEARLY DUCKED THIS QUESTION! However, they do continue...

“Finally, NIST has stated that it found no corroborating evidence to suggest that explosives were used to bring down the buildings.”

So how hard did they search?

“NIST did not conduct tests for explosive residue...”

Huh? Of course, they wouldn’t find any “corroborating evidence” if they didn’t look. So why didn’t they?

“...as noted above, such tests would not necessarily have been conclusive.”

Well, any undergraduate college student giving this as an excuse for not bothering to do his assigned physics or engineering lab experiment would have been given a no-recourse F!

At the very least, NIST has convicted itself of incompetence here. But being that NIST was the lead government agency that was paid $30 million to answer the lingering questions surrounding the 9/11 attacks, I think they’ve also convicted themselves of criminal malfeasance and nonfeasance.

B.T.Y. Anyone who thinks that the need for explosives to bring down the WTC towers had long ago been debunked by experts might want to read my debunking of one of the more credentialed "debunkers".

Any reader inspired to get deeper in to the history of the scientific investigations leading to the conclusion that explosives were involved in the WTC collapses would be well advised to start here.

And anyone with frank doubts that the WTC towers could have been rigged with explosives without detection, should check out this highly plausible scenario.

And finally, some of you are bound to have your doubts that any pre-planted explosives could possibly have been synchronized with the arrival of a pair jetliners piloted by a couple Arabs who could barely fly a Piper Cub. But the bigger question is how the alleged hijackings of the four jetliners on the morning of 9/11 – and their choreographed guidance to three of their selected targets – could have been so well synchronized at all. To answer that question, I developed a comprehensive hypothesis capable of accounting for the entire aviation part of the 9/11 equation. To download my work, go here and select the first pdf and the two highly-animated PowerPoints – if you can play them – otherwise select all three pdf’s (the latter two being inferior un-animated versions of the PowerPoints).

Taxpayers, Grab Your Pitchforks and Stand with Dean Baker!

A Trillion Dollars for the Banks: How About a Second Opinion?

Monday 06 April 2009

by: Dean Baker, t r u t h o u t | Perspective

Treasury Secretary Timothy Geithner wants to have the government lend up to a trillion dollars to hedge funds, private equity, funds and the banks themselves to clear their books of toxic assets. The plan implies a substantial subsidy to the banks. It is likely to result in the disposal of these assets at far above market value, with the government picking up the losses.

As much as we all want to help out the Wall Street bankers in their hour of need, taxpayers may reasonably ask whether this is the best use of our money. After all, the $1 trillion that is being set aside for this latest TARP variation is equal to 300 million SCHIP kid years. Congress has had heated debates over sums that were a small fraction of this size. To give another useful measuring stick, the Geithner plan could fund 1 million of the Woodstock museums that were the main prop of Senator McCain's presidential campaign.

The core problem is that many of our big banks are bankrupt. If they had to acknowledge the losses that they have incurred on their housing related loans (and increasing their loans in commercial real estate) Citigroup, Bank of America, and many other large banks would be insolvent. Thus far, they have avoided reality by keeping these loans on their books at inflated prices.

The Geithner plan is an effort to rescue the banks by using government funding to prop up the price of these bad loans to levels that will allow the banks to stay solvent. It is not clear that the plan is big enough to accomplish this goal, but that is the basic intention. If it doesn't work, then presumably Geithner will come out with another TARP permutation that involves giving the banks even more money.

There is an alternative. Rather than using government money to keep them alive, we could force the banks to go through a type of managed bankruptcy process like the one that is currently being proposed for General Motors and Chrysler.

Geithner has supposedly ruled out the bankruptcy option because when he, along with Henry Paulson and Ben Bernanke, tried letting Lehman Brothers go under last fall, it didn't turn out very well. Of course, it is not necessary to go the route of an uncontrolled bankruptcy that Geithner and Co. pursued with Lehman.

The government could set up an arranged bankruptcy under which creditors have accepted conditions in advance. While this may not be easy to negotiate, the government does have enormous bargaining power in pursuing such a deal. The creditors (other than insured deposits, which will be paid in full) of these banks may end up with nothing if the government just let the banks sink.

The prospect of even an arranged bankruptcy of a major bank will undoubtedly shake up markets, but many safeguards have been put in place since the Lehman collapse. If the stock market goes down for a few weeks or months, who cares? Running the economy to serve the stock market is a sure recipe for disaster; if President Obama fixes the economy, the stock market will do just fine in the long run.

Anyhow, the Geithner crew insists that there are no alternatives to his plan; we have to just keep giving hundreds of billions of dollars to the banks. Perhaps Geithner is right. But before we throw such huge sums away, further enriching the bankers who wrecked the economy, maybe we should get a second opinion.

Suppose that Congress appropriated a modest chunk of money to have independent economists put together teams to construct alternative plans. Why not give M.I.T. professor Simon Johnson, a former chief economist of the IMF, $5 million to hire a crew to outline his preferred path? Congress could give Joe Stiglitz, a Nobel Prize winner and one-time chief economist to President Clinton, who is also a harsh critic of the Geithner plan, a similar sum to put together his own team.

These economists could develop their best plans and put them out for public consumption. Geithner's crew can then tell us why their plans are unworkable and we must instead hand over the money to banks.

Given how much money Geithner wants to spend - putting it in the hands of the folks that brought on this economic crisis - it would seem appropriate to first examine all the alternatives. After all, we could find out what our options are in this case for the price of just a few A.I.G. executive bonuses. That has to be a good deal in anyone's book.

Dean Baker is the Co-director of the Center for Economic and Policy Research. CEPR's Jobs Byte is published each month upon release of the Bureau of Labor Statistics' employment report.

The Folks Who Brought You this Financial Meltdown Are Still at the Helm

Robert Rubin - Alan Greenspan - Larry Summers

In his column of 29 March, Paul Krugman recalls the Time Magazine cover from 10 years ago that glorified Robert Rubin, Alan Greenspan, and Larry Summers as the “Committee to Save the World” who had “prevented a global financial meltdown—(thus) far.” Time credited them with leading the global financial system through a crisis, which in Krugman’s words “seemed terrifying at the time, although it was a small blip compared with what we’re going through now.”

In his OpEdNews column of 27 March “History Lesson: And These Are the People We Expect to Fix Things Now?” Dave Lindorff recalls the event that opened the way for today’s financial meltdown. It was the repeal back in 1999 of the Glass-Steagall Act, which had been enacted expressly to prevent the very kinds of malpractice by banks and insurance companies that brought on the Great Depression. Much of Lindorff’s material was drawn from a 5 November 1999 article in the New York Times by Stephen Labaton, from which I’ve selected three quotes below.

Then-Treasury Secretary Larry Summers (who is presently Director of President Obama’s Economic Council and a chief architect of the current multi-trillion-dollar bailout/giveaway to A.I.G. and the giant banks):

''Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century. This historic legislation will better enable American companies to compete in the new economy.''

Senator Byron Dorgan, Democrat of North Dakota:

''I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010. I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.''

Then-Senator Paul Wellstone, Democrat of Minnesota:

''Scores of banks failed in the Great Depression as a result of unsound banking practices, and their failure only deepened the crisis. Glass-Steagall was intended to protect our financial system by insulating commercial banking from other forms of risk. It was one of several stabilizers designed to keep a similar tragedy from recurring. Now Congress is about to repeal that economic stabilizer without putting any comparable safeguard in its place.''

The bill repealing Glass-Steagal1 was approved in the Senate by a vote of 90 to 8 and in the House by 362 to 57 and was signed into law by President Bill Clinton.

So now in 20:20 hindsight, who should President Obama choose to lead us out of this mess? Well, Paul Wellstone was killed in an airplane crash in 2002 (which many folks believe to have been suspitious). Thank God, Byron Dorgan was spared though. But, go figure ...Obama picked Summers! And also Geithner, who in 1999 was a protégé of Robert Rubin, another of the Time Magazine cover guys billed as the “Committee to Save the World.”

So the very same characters that got us into this mess have been tasked with getting us out of it ...and their idea seems to be to pump trillions of un-audited taxpayer dollars into the banking system that they personally set up to fail in the first place.

How many trillions? Well, in his 27 March OEN column “Obama’s Latest No Banker Left Behind Scheme,” Stephen Lendman does some totaling:

“So hyped by advance fanfare, Timothy Geithner unveiled his Public-Private Investment Program (PPIP) on March 23, the latest in a growing alphabet soup of handouts topping $12.5 trillion and counting - so much in so many forms, in "gov-speak" language, with so many changing and moving parts, it's hard for experts to keep up let alone the public, except to sense something is very wrong. They're being fleeced by a finance Ponzi scheme, sheer flimflam...”

Lendman’s article is almost encyclopedic at 7 pages, but one small paragraph near the end knocked my socks off! It was this mention of the sinister core of the financial crisis, the Credit Default Swaps (CDS), gleaned from an important cautionary article by Martin D. Weiss:

“...the money spent or committed by the government so far is also too much for another, relatively less-known reason: Hidden in an obscure corner of the derivatives market is a unique credit default swap that virtually no one is talking about — contracts on the default of United States Treasury bonds. Quietly and without fanfare, a small but growing number of investors are not only thinking the unthinkable, they're actually spending money on it, bidding up the premiums on Treasury bond credit default swaps to 14 times their 2007 level. This is an early warning of the next big shoe to drop in the debt crisis — serious potential damage to the credit, credibility, and borrowing power of the United States Treasury.”

The mainstream media repeatedly touts U.S. Treasuries as "ultra secure" investments. This makes me wonder... Are the "masters of the universe" and their media arm setting up to con Americans into transferring what little is left of their retirement savings into “ultra safe” Treasuries ...where they will be exposed the crash of the dollar? In such an event, the already ultra-rich bankers and hedge-fund managers would be positioned to make still another killing by cashing the CDS they’ve written against working America’s last stash. This day could well come if and when foreign governments sense the dollar is doomed and begin dumping their U.S. Treasury holdings.

But Paul Krugman in his column of April 2^nd (thankfully not April 1^st!) argues that the Chinese simply own too many T-bills ($2 trillion worth) to even think of selling them, knowing that this would create a panic causing the whole world to sell off their T-bills, instantly driving their values into the abyss (while kicking U.S. interest rates into the stratosphere). So I sure hope he’s right about “China’s Dollar Trap.”

Are Obama’s Tax Increases Excessively Large?

Recently, blogging on Campaign for America’s Future, Bernie Horn laid out “an avalanche of misleading and mistaken “facts” about President Obama’s budget.”

In particular, he quoted Republican Senator from New Hampshire, Judd Gregg, as saying

“He is proposing the largest tax increase in history, much of it aimed at taxing small business people…and a massive new national sales tax on your electric bill…”

Hello-o! Take a look at the graph above.