Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

April 1, 2009


Dean Baker, AlterNet - Some hedge and equity fund managers could make hundreds of millions or even billions off the Geithner plan. And, under current law, they will pay a lower tax rate on this money than a schoolteacher or firefighter.

One other outcome of the Geithner plan is that the folks who bankrupted their banks and wrecked the economy will be able to continue to earn multi-million dollar salaries. Of course this is necessary, because who else has the skills to run these banks, other than the people who drove them into bankruptcy?

For some reason, every plan developed so far involves using taxpayer dollars to subsidize the bankrupt banks and keep them breathing a little bit longer, while offering opportunities for other Wall Street actors to get hugely wealthy. . .

Hit and Run - Eonomist Arnold Kling digs Matt Taibbi's groovy extended narrative about the causes and fallout of the economic crisis in a recent Rolling Stone. Kling's summation of the lesson:

"I think that Taibbi's basic 'power play' narrative is correct. His view that the government money going to AIG is more of a bailout of Goldman Sachs than of AIG strikes me as on target. However, his implication that it is a one-way takeover of Washington by Wall Street is incorrect, in my view. I think that all along we have had a Washington/Wall Street industrial complex, particularly with regard to housing finance.

"For quite a while, but especially over the last nine months, the best way to predict developments in politics and finance has been to ask: what will do the most to increase the concentration of power? Every headline, from the Geithner regulatory plan to the proposed cap on the charitable deduction, to the resignation of the General Motors CEO, should be viewed in that light."

ABC News - "Our concern right now is that we do not seem to be a priority for the Treasury Department," Elizabeth Warren chairwoman of the Congressional Oversight Panel told a Senate Finance Committee hearing. "We have sent letters. We have requested that there be someone named so that we can get technical information. And so far, we have not been a first priority.

"As I see it, you really have two options here," Warren said. "Either you get Treasury to get some religion on this point -- and put their own standards in place, or Congress is forced to step in. We will do everything we can on your behalf, as your congressional oversight panel, but what we can best do for you now is to identify and pinpoint that this is precisely where the problem starts."

Neil Barofsky, special inspector general for TARP, voiced similar concerns. He noted that his office had recently conducted a survey of all 364 TARP recipients on their use of government funds, something his office had requested Treasury do, only for the department to decline to do it except for Citigroup and Bank of America.

"One thing is clear: Complaints that it was impractical, impossible or a waste of time to require banks to detail how they used TARP funds were unfounded," Barofsky said.

"The survey strongly supports my earlier recommendation to Treasury," he emphasized. "Banks can and should be required to report on their use of taxpayer money to provide maximum transparency and not simply be asked to report on the possible impact of the funds, such as giving only lending activity.". . .

Barofsky also told the committee about concerns his office now has to monitor nearly $3 trillion, which "is just short of what the entire federal government spent in fiscal year 2008. . .

F William Engdahl, 321 Gold - The 'dirty little secret' which Geithner is going to great degrees to obscure from the public is very simple. There are only at most perhaps five US banks which are the source of the toxic poison that is causing such dislocation in the world financial system. What Geithner is desperately trying to protect is that reality. The heart of the present problem and the reason ordinary loan losses as in prior bank crises are not the problem, is a variety of exotic financial derivatives, most especially so-called credit default swaps. . .

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 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. . .

Every hour the Obama Administration . . . 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. . .

Once the five problem banks have been put into isolation by the FDIC and the Treasury, the Administration must introduce legislation to immediately repeal the Larry Summers bank deregulation including restore Glass-Steagall and repeal the Commodity Futures Modernization Act of 2000 that allowed the present criminal abuse of the banking trust. Then serious financial reform can begin to be discussed, starting with steps to 'federalize' the Federal Reserve and take the power of money out of the hands of private bankers such as JP Morgan Chase, Citibank or Goldman Sachs.

NY Times - The bad economy is creating a flotilla of forsaken boats. While there is no national census of abandoned boats, officials in coastal states are worried the problem will only grow worse as unemployment and financial stress continue to rise. Several states are even drafting laws against derelicts and say they are aggressively starting to pursue delinquent owners. "Our waters have become dumping grounds," said Maj. Paul R. Ouellette of the Florida Fish and Wildlife Conservation Commission. "It's got to the point where something has to be done.". . .

Marina and maritime officials around the country say they believe that most of the abandoned vessels cluttering their waters are fully paid for. They are expensive-to-maintain toys that have lost their appeal.

The owners cannot sell them, because the secondhand market is overwhelmed. They cannot afford to spend hundreds of dollars a month mooring and maintaining them. And they do not have the thousands of dollars required to properly dispose of them.


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