Will Detroit’s Pensioners Lose out to Big Banks?

Seal_of_Detroit,_Michigan_svg

Respectfully Submitted by Lawrence E. Rafferty (rafflaw)-Guest Blogger

On July 18th, 2013, the City of Detroit made news because the state appointed emergency manager officially filed for a Chapter 9 bankruptcy. “Detroit filed the largest municipal bankruptcy in U.S. history on Thursday, setting the stage for a costly court battle with creditors and opening a new chapter in the long struggle to revive the city that was the cradle of the American auto industry.

The bankruptcy, if approved by a federal judge, would force Detroit’s thousands of creditors into negotiations with the city’s Emergency Manager Kevyn Orr to resolve an estimated $18.5 billion in debt that has crippled Michigan’s largest city.” Tribune

There is no dispute that the City of Detroit has been mismanaged for years, but now that the Emergency Manager has filed the bankruptcy, just who will lose the most in the bankruptcy process?  

You may recall that in March of this year I wrote an article describing the Joint FDIC-Bank of England plan to grab depositor’s funds in order to  bail out banks here in this country, in a similar move to the deposit grab in Cyprus.  In that case, the individual bank customer would potentially lose their life savings in order to balance the books of the ill managed banks.  Here in this Detroit debacle, the bankruptcy court is being used to fleece Detroit pensioners of their earned and state constitutionally guaranteed benefits in order to pay off creditor banks.

We need to look at a short history of who Detroit borrowed from and what kind of lending instruments, like interest rate swaps that were used to procure the necessary funds to keep the city alive.

Interest rate swaps – the exchange of interest rate payments between counterparties – are sold by Wall Street banks as a form of insurance, something municipal governments “should” do to protect their loans from an unanticipated increase in rates. Unlike ordinary insurance, however, swaps are actually just bets; and if the municipality loses the bet, it can owe the house, and owe big. The swap casino is almost entirely unregulated, and it is a rigged game that the house virtually always wins. Interest rate swaps are based on the LIBOR rate, which has now been proven to be manipulated by the rate-setting banks;…”  Nation of Change

These Interest Rate Swaps were sold to the City of Detroit by Bank of America and UBS AG and they have proven to be costly to the City of Detroit and in the end, costly to the workers whose pensions may be at risk.  These banks are given super priority in the bankruptcy court pursuant to Dodd-Frank and the 2005 Banruptcy Act.

“Under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured. In a major derivatives fiasco, derivative claimants could well grab all the collateral, leaving other claimants, public and private, holding the bag.”  Web of Debt 

Why would these risky derivative products and the banks that sell them get super priority from Congress?  One possible answer is to follow the money and see who donated to the legislators involved in allowing this super priority to be included.  Another answer is the response that Banksters always use. ” We are too big to fail and if we go down the whole financial system goes down with us. ”

The argument for the super-priority of derivative claims is that nonpayment on these bets represents a “systemic risk” to the financial scheme. Derivative bets are cross-collateralized and are so inextricably entwined in a $600-plus trillion house of cards that the whole financial scheme could go down if the betting scheme were to collapse. Instead of banning or regulating this very risky casino, Congress has been persuaded by the masterminds of Wall Street that it needs to be preserved at all costs.”  Nation of Change
Could this disaster in Michigan be repeated in cities across the country?  The  answer is a disturbing yes.   “Detroit’s bankruptcy poses no systemic risk to Wall Street and global financial markets. Fine. But it does pose a systemic risk to Main Street, local governments, and the contractual rights of pensioners. Credit rating agency Moody’s stated in a recent report that if Detroit manages to cut its pension obligations, other struggling cities could follow suit. The Detroit bankruptcy is establishing a template for wiping out government pensions everywhere. Chicago or New York could be next.” Nation of Change
Wall Street makes risky loans and sells risky interest rate swaps to those same borrowers and then throws its hands in the air when those very same borrowers fall prey to a falling market and bad bets on the interest rate swaps.  When will we as a society actually make those who create and sell these risky loans pay for their bad products?  Since Congress has been paid to agree with Wall Street, there is no incentive for Wall Street to actually end their risky bets.  Dodd-Frank may have outlawed bank bail-outs, with an ever-increasing range of exceptions.  However, that legislation has actually allowed for bail-outs when it also granted the banks super priority in bankruptcy court actions.
What can Main Street and cities and states do to protect themselves from a banking system that is rigged in favor of Wall Street?  One possible measure that has been proposed in the article of the Nation of Change article cited above, is for states to follow the lead of the State of North Dakota and establish its own state bank.
“Interestingly, Lansing Mayor Virg Bernero, Snyder’s Democratic opponent in the last gubernatorial race, proposed a solution that could have avoided either robbing the pensioners or scaring off the bondholders: a state-owned bank. If the state or the city had its own bank, it would not need to borrow from Wall Street, worry about interest rate swaps, or be beholden to the bond vigilantes. It could borrow from its own bank, which would leverage the local government’s capital into credit, back that credit with the deposits created by the government’s own revenues, and return the interest to the government as a dividend, following the ground-breaking model of the state-owned Bank of North Dakota.” Nation of Change
While a State owned bank cannot prevent individual cities and towns from being mismanaged, it can make financing those towns and cities projects a cheaper and safer investment.  It can also prevent Wall Street from profiting from their own risky investment products.   The Detroit Emergency Manager was willing to agree on the banks getting 75 cents on the dollar from the big banks that aided this financial mess.  Will he be as willing to only reduce pensions by 25% to the workers who did not mismanage the city or sell the city risky financial products?  Does the Michigan Constitution’s guarantee that pensions can’t be reduced going to survive this attack through the bankruptcy court process?
Are the teachers pensions in Illinois and other states next on the chopping block?  What’s your guess?

73 thoughts on “Will Detroit’s Pensioners Lose out to Big Banks?”

  1. davidm2575 1, August 13, 2013 at 12:06 pm

    rafflaw wrote: “You are making up facts again.”

    I never make up facts.

    *****

    That’s right. One can’t make up facts. Facts are facts. The truth is the truth. You just pull stuff out of your nether regions.

  2. david,
    You are making up facts again. Unions do not force corporations to pay them anything. The middle class was enlarged and strengthened by unions who used workers collective bargaining strength to improve the working conditions and pay and benefits for themselves and improve the economy as a whole. Now people like you want to take away the right of workers to collectively bargain because the poor corporations just can’t make a buck paying those obscene salaries. People in China will work for less than people here in the United States because workers rights and lives are important to families throughout our country to allow them to make a better life. Do you support taking good jobs here in the States and farming them out to China? If we give tax incentives out of taxpayers pockets, shouldn’t those incentives go to improve the job situation here in the United States and not China? You do realize that the government gives tax incentivizes companies to move jobs out of this country, don’t you? And how does that help our economy? I know it helps corporations and owners make more money, but it harms our economy. Finally, according to you Government caused Detroit to go bankrupt? The facts don’t support that wild claim.

    1. rafflaw wrote: “You are making up facts again.”

      I never make up facts.

      rafflaw wrote: “Unions do not force corporations to pay them anything. The middle class was enlarged and strengthened by unions who used workers collective bargaining strength to improve the working conditions and pay and benefits for themselves and improve the economy as a whole.”

      Until this year, Michigan was not a right to work state. Their laws forced workers to join unions and pay dues to the unions. When the government forces workers to join a collective bargaining organization and to fund them, it amounts to creating an environment where workers are able to pressure corporations to concede to certain demands. Maybe you don’t see the workforce going on strike as a form of force, but I do, especially when the laws make every employee join it. In the short term, it might look great when they achieve pay wage increases and promises of great pensions for retirement. But there is a problem. The corporations must borrow money to make the demands happen, so if the business model the workers have come up with doesn’t work, in the end the business fails.

      The facts bear this out. Since 1980, the right to work states have seen a 71% increase in employment whereas Michigan lagged behind at only 14%. These are some of the FACTS that caused Michigan to change their laws to become a right to work State. Effective this year, workers are no longer forced to join unions.

      Your perspective seems to me to be like letting the children run the family. If I put up for vote to my children what we spend money on, how much work they will do, what their allowance or wages will be, and all manner of other things, the household would begin to look like Detroit. So I don’t give them that decision. Instead, I listen to what they want and need, and do my best to see that they get it so they are happy. Sometimes they whine about what they want, but I have to put my foot down and say, “sorry, we just can’t afford to do that right now.”

      rafflaw wrote: “Now people like you want to take away the right of workers to collectively bargain because the poor corporations just can’t make a buck paying those obscene salaries.”

      Yes, that is right, but more importantly, the business will fail because the business can’t exist long when their expenses exceed their income.

      rafflaw wrote: “People in China will work for less than people here in the United States because workers rights and lives are important to families throughout our country to allow them to make a better life.”

      It does not look like your model of industry has worked very well for Detroit. I do not call that a better life. Crime is rampant. If you think this is a better life, maybe you should move there. I’m sure that since you are not racist, the fact that Detroit is more than 82% Black will not bother you a bit. You can buy a home there pretty cheap these days.

      China is looking much better these days. Workers that earn $2 an hour there have a better life than your workers in Detroit where the United Auto Workers created a salary and benefits package that amounted to $70 per hour. No wonder the union pressured the federal government to bailout the auto industry.

      rafflaw wrote: ” Do you support taking good jobs here in the States and farming them out to China?”

      Of course I do. It is good common sense. If farming out to China makes for a better business model, then I support the liberty for businesses to do it. I like shopping at Walmart and getting incredible prices for goods that would cost five times as much if they were produced here. God bless Sam Walmart for the business model he invented. Millions of Americans have greatly benefited from this. Our standard of living has gone up because of it.

      Of course, I think an even better business model is to get rid of the minimum wage and open up the borders to the mexicans who are living in cardboard huts and would love to come over here and work for the $2 an hour that the Chinese are now doing. It would improve their lives and ours. It would also bring back the “Made In America” that the unions and liberal politicians have forced into oblivion.

      rafflaw wrote: ” If we give tax incentives out of taxpayers pockets, shouldn’t those incentives go to improve the job situation here in the United States and not China?”

      No, not necessarily. It seems to me that you are trying to make 2 + 2 = 100. Business doesn’t work like this, and the math is very simple. You make a product or service and you sell it to others who are willing to pay for it. If your price gets too high, people stop buying it and you are out of business. By farming jobs overseas where there is no minimum wage, you can find workers willing to produce the product for much less. Then you ship the product back here so Americans can buy the product for much less money. In the end, the Americans are getting the good end of the deal. Now if you got rid of minimum wage and other government regulations that hurt a business model from being able to compete with what other countries are offering for employment, then sure, we would favor tax incentives that would benefit employment here rather than overseas. The problem is that the employment field is no longer equal because of the government regulations.

      At one time in my business, I wanted to allow my employees to just clock out whenever they wanted for whatever reason. Maybe they needed to make a personal phone call, or they wanted to take a smoke break. Rather than be domineering and saying, “absolutely no phone calls or texts while you are at work,” I wanted to be nice and say, “just clock out and then clock back in.” Problem is that there is this federal law out there called the “Fair Labor Standards Act” that says I must pay my employees for any breaks that are less than 20 minutes. What??? Yeah, that’s right. When my employee wants to smoke a cigarette or chat on the phone with a best friend, I’m suppose to pay them the same amount as when they are helping a customer. But, the law is “fair to the employer” too in that it also makes it where I can disallow them from taking any such breaks. So I either have to create a policy in my business where they are not allowed any breaks, or I allow only specific breaks at a specific time. In my opinion, this stupid federal law hurts the productivity of my workers and my company, but it is the law, so I have to comply. The government constantly interferes with free enterprise and business owners being able to do what is best for their workers and business. This is what has led to Detroit, and other cities and States will follow soon. Just watch California. They are in big doo-doo too.

      rafflaw wrote: “Finally, according to you Government caused Detroit to go bankrupt? The facts don’t support that wild claim.”

      It is your interpretation of facts, and your philosophy of economics, that does not support my claim. Look over your post and you will see philosophy rather than facts. In my world, 2 + 2 = 4, but in your world 2 + 2 = 100 because government or worker unions say so. By the way, I am not saying that government solely is responsible, but management on various levels of the public and private sector were involved and are responsible. And I caution that this is my assumption because I am not privy to all the details of their management. If you know something that would reveal how this was not the case, I am open to hearing it.

      My biggest puzzlement is how you see the banks to be blamed. I could understand it better if the bank’s interest rates were too high, or you allege something they did was nefarious in some particular way, but your reason is that they were willing to take a risk and give loans. It is there money, so why is that a bad thing?

    2. rafflaw wrote: “You are making up facts again.”

      I never make up facts.

      rafflaw wrote: “Unions do not force corporations to pay them anything. The middle class was enlarged and strengthened by unions who used workers collective bargaining strength to improve the working conditions and pay and benefits for themselves and improve the economy as a whole.”

      Until this year, Michigan was not a right to work state. Their laws forced workers to join unions and pay dues to the unions. When the government forces workers to join a collective bargaining organization and to fund them, it amounts to creating an environment where workers are able to pressure corporations to concede to certain demands. Maybe you don’t see the workforce going on strike as a form of force, but I do, especially when the laws make every employee join it. In the short term, it might look great when they achieve pay wage increases and promises of great pensions for retirement. But there is a problem. The corporations must borrow money to make the demands happen, so if the business model the workers have come up with doesn’t work, in the end the business fails.

      The facts bear this out. Since 1980, the right to work states have seen a 71% increase in employment whereas Michigan lagged behind at only 14%. These are some of the FACTS that caused Michigan to change their laws to become a right to work State. Effective this year, workers are no longer forced to join unions.

      Your perspective seems to me to be like letting the children run the family. If I put up for vote to my children what we spend money on, how much work they will do, what their allowance or wages will be, and all manner of other things, the household would begin to look like Detroit. So I don’t give them that decision. Instead, I listen to what they want and need, and do my best to see that they get it so they are happy. Sometimes they whine about what they want, but I have to put my foot down and say, “sorry, we just can’t afford to do that right now.”

      rafflaw wrote: “Now people like you want to take away the right of workers to collectively bargain because the poor corporations just can’t make a buck paying those obscene salaries.”

      Yes, that is right, but more importantly, the business will fail because the business can’t exist long when their expenses exceed their income.

      rafflaw wrote: “People in China will work for less than people here in the United States because workers rights and lives are important to families throughout our country to allow them to make a better life.”

      It does not look like your model of industry has worked very well for Detroit. I do not call that a better life. Crime is rampant. If you think this is a better life, maybe you should move there. I’m sure that since you are not racist, the fact that Detroit is more than 82% Black will not bother you a bit. You can buy a home there pretty cheap these days.

      China is looking much better these days. Workers that earn $2 an hour there have a better life than your workers in Detroit where the United Auto Workers created a salary and benefits package that amounted to $70 per hour. No wonder the union pressured the federal government to bailout the auto industry.

      rafflaw wrote: ” Do you support taking good jobs here in the States and farming them out to China?”

      Of course I do. It is good common sense. If farming out to China makes for a better business model, then I support the liberty for businesses to do it. I like shopping at Walmart and getting incredible prices for goods that would cost five times as much if they were produced here. God bless Sam Walmart for the business model he invented. Millions of Americans have greatly benefited from this. Our standard of living has gone up because of it.

      Of course, I think an even better business model is to get rid of the minimum wage and open up the borders to the mexicans who are living in cardboard huts and would love to come over here and work for the $2 an hour that the Chinese are now doing. It would improve their lives and ours. It would also bring back the “Made In America” that the unions and liberal politicians have forced into oblivion.

      rafflaw wrote: ” If we give tax incentives out of taxpayers pockets, shouldn’t those incentives go to improve the job situation here in the United States and not China?”

      No, not necessarily. It seems to me that you are trying to make 2 + 2 = 100. Business doesn’t work like this, and the math is very simple. You make a product or service and you sell it to others who are willing to pay for it. If your price gets too high, people stop buying it and you are out of business. By farming jobs overseas where there is no minimum wage, you can find workers willing to produce the product for much less. Then you ship the product back here so Americans can buy the product for much less money. In the end, the Americans are getting the good end of the deal. Now if you got rid of minimum wage and other government regulations that hurt a business model from being able to compete with what other countries are offering for employment, then sure, we would favor tax incentives that would benefit employment here rather than overseas. The problem is that the employment field is no longer equal because of the government regulations.

      At one time in my business, I wanted to allow my employees to just clock out whenever they wanted for whatever reason. Maybe they needed to make a personal phone call, or they wanted to take a smoke break. Rather than be domineering and saying, “absolutely no phone calls or texts while you are at work,” I wanted to be nice and say, “just clock out and then clock back in.” Problem is that there is this federal law out there called the “Fair Labor Standards Act” that says I must pay my employees for any breaks that are less than 20 minutes. What??? Yeah, that’s right. When my employee wants to smoke a cigarette or chat on the phone with a best friend, I’m suppose to pay them the same amount as when they are helping a customer. But, the law is “fair to the employer” too in that it also makes it where I can disallow them from taking any such breaks. So I either have to create a policy in my business where they are not allowed any breaks, or I allow only specific breaks at a specific time. In my opinion, this stupid federal law hurts the productivity of my workers and my company, but it is the law, so I have to comply. The government constantly interferes with free enterprise and business owners being able to do what is best for their workers and business. This is what has led to Detroit, and other cities and States will follow soon. Just watch California. They are in big doo-doo too.

      rafflaw wrote: “Finally, according to you Government caused Detroit to go bankrupt? The facts don’t support that wild claim.”

      It is your interpretation of facts, and your philosophy of economics, that does not support my claim. Look over your post and you will see philosophy rather than facts. In my world, 2 + 2 = 4, but in your world 2 + 2 = 100 because government or worker unions say so. By the way, I am not saying that government solely is responsible, but management on various levels of the public and private sector were involved and are responsible. And I caution that this is my assumption because I am not privy to all the details of their management. If you know something that would reveal how this was not the case, I am open to hearing it.

      My biggest puzzlement is how you see the banks to be blamed. I could understand it better if the bank’s interest rates were too high, or you allege something they did was nefarious in some particular way, but your reason is that they were willing to take a risk and give loans. It is their money, so why is that a bad thing?

  3. Mdavid,
    When governments give incentives to corporations to move jobs out of he country, that is a problem. Look at how many good manufacturing jobs vanished overseas and you may understand. Your example is unrelated to the issues at hand. This bankruptcy and the state takeover of Detroit is an obvious attempt to kill unions.

    1. rafflaw wrote: “When governments give incentives to corporations to move jobs out of he country, that is a problem. Look at how many good manufacturing jobs vanished overseas and you may understand.”

      The way governments give incentives to move away is by creating laws of unions to force corporations to pay workers more than they are worth, and by raising taxes higher, and by creating a minimum wage. When a business can farm work out to China where people are willing to work for less than the minimum wage, and the shipping costs to get it here is not as high as the high labor wages are here, what do you expect them to do?

      I cannot understand the disconnect in your mind. If you are making something, and someone in your hometown wants to charge you $20 to make it, but you can get it for $5 from someone in China, shipping included, what are you going to do? Now you want government to force that person to pay the $20? Now he has to raise his price when he sells it, and guess what? Nobody can afford to buy it, so the company goes bankrupt. From my perspective, this is pretty much how government caused Detroit to go bankrupt.

  4. The US is a third-world country claiming to be financially sophisticated, but can’t do basic sums.

    Plutocracy is a concept children should learn at school, but everyone is successfully conditioned to be more interested in what Pink is doing today or the starting games of the NFL.

  5. Bron,
    Collectivism did not kill Detroit. Greed killed. Greed of the various administrations, greed of corporations that shipped jobs overseas, bankers selling risky and dangerous products that put all parties at risk, except for the banks, and political greed as evidenced by the State taking over and trying to bust unions and hurt workers, notwithstanding what the state Constitution says. Unbridled capitalism in the form of allowing corporations to ship jobs out of the city, state and country in order for corporate owners to reap more profits.

    1. rafflaw wrote: “Unbridled capitalism in the form of allowing corporations to ship jobs out of the city, state and country in order for corporate owners to reap more profits.”

      Seriously? You think that if a person wants to move his business to some place that would make his business more profitable, that government should force him not to do it? Don’t you realize that if this happened, there would be no profits and his business would fail? Is there no place for liberty in your mind at all? I’m amazed and cannot understand this kind of thinking. If anybody can explain it, please do.

      What if someone had a job in Detroit, and he was offered a job in New York earning a lot more money. Do you think the government should force him to stay in Detroit and not allow him to take the job in New York? What is the difference between this and the corporation being forced to stay?

  6. David M:

    the leaders know exactly what they are doing, the rest believe the BS those leaders spout about the brotherhood of man and all for one and one for all.
    Even though it always ends up like Detroit unless there is some sort of offset like oil money or they dont totally stifle capitalism.

    Then when it fails they blame capitalism, when in reality it was socialist/collectivist/fascist policies which failed.

    I dont want that kind of brotherly love. They [the collectivists] can have it.

  7. http://www.theobjectivestandard.com/blog/index.php/2013/08/how-detroit-became-starnesville-from-ayn-rands-atlas-shrugged/

    “What killed Detroit is collectivism—the notion that the collective (i.e., the “community” or the “union” or the “city” or the like) is the unit of moral and political concern, and thus that individuals and business have a moral duty to serve the collective. Whether it was to meet the demands of the unions, or to provide for the financial needs of crucial companies that (allegedly) couldn’t make it on their own, or to support the city’s “greater good”—individuals and businesses were forced to act against their own best judgment and thus driven from the city or throttled if they stayed.”

  8. Elaine, anyone that advocates privatizing SS is a fool or a brigand. That we have so many public and political figures doing so is dangerous. I’d rather the country not go back entirely to the gilded age.

  9. “Elaine, you ought to realize that you are reading a very slanted propaganda piece when it says that a CEO stole employee pension money but it is legal. The word “steal” or “stole” suggests it was illegal. Apparently theft was not involved here, even though the article says it was. Oh, well, I guess they add the word “essentially” so that makes the article accurate.”
    ****

    Maybe Elaine nor the WSJ has not fallen for the semantic fallacy (for lack of a better description) that the law is just or justice. It’s not. It’s like any other commodity, fungible to the extent that it can be transformed to serve ends moral or immoral, beneficial or harmful to society or parts thereof. Perhaps the WSj was using “stole” in the moral sense.

    1. lottakatz wrote: ” Perhaps the WSj was using “stole” in the moral sense.”

      WSJ did not use that word stole. The article quoted a WSJ article and proceeded to put their spin on it.

      In regards to SS, if nothing is done, it will end up just like Detroit. Sometimes I think liberals just live in a fantasy world and don’t realize it even when the ship is sinking due to their policies.

  10. lottakatz,

    I agree.

    We all know how eager Wall Streeters are to get their greedy little hands on Social Security. That’s why there has been a push to privatize that public pension/insurance plan.

  11. Darren Smith
    August 11 9:05 pm
    Maybe it might be time for some of these cities to look at defined contribution plans rather than defined benefit ones.
    ————-

    The trouble with a defined benefit plan is that you rely entirely on Wall Street since that is where these plans are invested. I’ve had both and know their virtues and pitfalls personally. What people are slow to realize that the only secure place to stash retirement money is some analog to under the mattress. The way the financial world works today is that as a matter of course workers will be screwed out of any pension (or large chunks thereof) they think they have coming due to engineered booms and busts benefiting the banking and investment industry. Business and government have conspired to make that the most likely outcome of any pension plan or investment. That’s the “plan” in “pension plan”.

  12. BILL MOYERS JOURNAL | William K. Black | PBS
    The financial industry brought the economy to its knees, but how did they get away with it?With the nation wondering how to hold the bankers accountable, Bill Moyers sits down with Bill Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout. This show aired April 3, 2009.

  13. The Great American Bubble Machine
    From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression — and they’re about to do it again
    By Matt Taibbi
    July 9, 2009
    http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405

    Excerpt;
    The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who’s Who of Goldman Sachs graduates.

    By now, most of us know the major players. As George Bush’s last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton’s former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There’s John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multi-billion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain’s sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There’s Joshua Bolten, Bush’s chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman — not to mention …

    But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

    The bank’s unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumer credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you’re losing, it’s going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it’s going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.

    They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They’ve been pulling this same stunt over and over since the 1920s — and now they’re preparing to do it again, creating what may be the biggest and most audacious bubble yet.

    If you want to understand how we got into this financial crisis, you have to first understand where all the money went — and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long — including last year’s strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn’t one of them.

  14. Is the SEC Covering Up Wall Street Crimes?
    Matt Taibbi: A whistle blower says the agency has illegally destroyed thousands of documents, letting financial crooks off the hook.
    By Matt Taibbi
    August 17, 2011
    http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817

    Excerpt:
    Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file – “Hey, chief, didja know this guy had two wives die falling down the stairs?” No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.

    That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation’s worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – “18,000 … including Madoff,” as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.

    Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency’s records – “including case files relating to preliminary investigations” – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term “Orwellian,” devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or “Matters Under Inquiry” – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission’s internal website. “After you have closed a MUI that has not become an investigation,” the site advised staffers, “you should dispose of any documents obtained in connection with the MUI.”

    Many of the destroyed files involved companies and individuals who would later play prominent roles in the economic meltdown of 2008. Two MUIs involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.

  15. The Last Mystery of the Financial Crisis
    It’s long been suspected that ratings agencies like Moody’s and Standard & Poor’s helped trigger the meltdown. A new trove of embarrassing documents shows how they did it
    by Matt Taibbi
    JUNE 19, 2013
    http://www.rollingstone.com/politics/news/the-last-mystery-of-the-financial-crisis-20130619?print=true

    Excerpt:
    What about the ratings agencies?

    That’s what “they” always say about the financial crisis and the teeming rat’s nest of corruption it left behind. Everybody else got plenty of blame: the greed-fattened banks, the sleeping regulators, the unscrupulous mortgage hucksters like spray-tanned Countrywide ex-CEO Angelo Mozilo.

    But what about the ratings agencies? Isn’t it true that almost none of the fraud that’s swallowed Wall Street in the past decade could have taken place without companies like Moody’s and Standard & Poor’s rubber-stamping it? Aren’t they guilty, too?

    Man, are they ever. And a lot more than even the least generous of us suspected.

    Thanks to a mountain of evidence gathered for a pair of major lawsuits by the San Diego-based law firm Robbins Geller Rudman & Dowd, documents that for the most part have never been seen by the general public, we now know that the nation’s two top ratings companies, Moody’s and S&P, have for many years been shameless tools for the banks, willing to give just about anything a high rating in exchange for cash.

    In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.

    “Lord help our f*cking scam . . . this has to be the stupidest place I have worked at,” writes one Standard & Poor’s executive. “As you know, I had difficulties explaining ‘HOW’ we got to those numbers since there is no science behind it,” confesses a high-ranking S&P analyst. “If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value,” complains another senior S&P man. “Let’s hope we are all wealthy and retired by the time this house of card[s] falters,” ruminates one more.

    Ratings agencies are the glue that ostensibly holds the entire financial industry together. These gigantic companies – also known as Nationally Recognized Statistical Rating Organizations, or NRSROs – have teams of examiners who analyze companies, cities, towns, countries, mortgage borrowers, anybody or anything that takes on debt or creates an investment vehicle.

    Their primary function is to help define what’s safe to buy, and what isn’t. A triple-A rating is to the financial world what the USDA seal of approval is to a meat-eater, or virginity is to a Catholic. It’s supposed to be sacrosanct, inviolable: According to Moody’s own reports, AAA investments “should survive the equivalent of the U.S. Great Depression.”

    It’s not a stretch to say the whole financial industry revolves around the compass point of the absolutely safe AAA rating. But the financial crisis happened because AAA ratings stopped being something that had to be earned and turned into something that could be paid for.

    That this happened is even more amazing because these companies naturally have powerful leverage over their clients, as they are part of a quasi-protected industry that enjoys massive de facto state subsidies. Largely that’s because government agencies like the Securities and Exchange Commission often force private companies to fulfill regulatory requirements by retaining or keeping in reserve certain fixed quantities of assets – bonds, securities, whatever – that have been rated highly by a “Nationally Recognized” ratings agency, like the “Big Three” of Moody’s, S&P and Fitch. So while they’re not quite part of the official regulatory infrastructure, they might as well be.

    It’s not like the iniquity of the ratings agencies had gone completely unnoticed before. The Financial Crisis Inquiry Commission published a case study in 2011 of Moody’s in particular and discovered that between 2000 and 2007, the agency gave nearly 45,000 mortgage-backed securities AAA ratings. One year Moody’s doled out AAA ratings to 30 mortgage-backed securities every day, 83 percent of which were ultimately downgraded. “This crisis could not have happened without the rating agencies,” the commission concluded.

    Thanks to these documents, we now know how that happened. And showing as they do the back-and-forth between the country’s top ratings agencies and one of America’s biggest investment banks (Morgan Stanley) in advance of two major subprime deals, they also lay out in detail the evolution of the industrywide fraud that led to implosion of the world economy – how banks, hedge funds, mortgage lenders and ratings agencies, working at an extraordinary level of cooperation, teamed up to disguise and then sell near-worthless loans as AAA securities. It’s the black box in the American financial airplane.

  16. Bankrupt Detroit Receives Less U.S. Aid Than Colombia
    By Chris Christoff & John McCormick
    Jul 30, 2013
    http://www.bloomberg.com/news/2013-07-31/bankrupt-detroit-receives-less-u-s-aid-than-colombia.html

    Excerpt:
    President Barack Obama proposed giving Colombia about $323 million in aid next year, mostly to combat drug trafficking and violence. Detroit, with an 81 percent higher homicide rate, will get $108.2 million.

    As Michigan’s largest city entered a record $18 billion municipal bankruptcy on July 18, the message from Congress and the White House was that no new money would be forthcoming.

    Detroit’s implosion has rekindled debate over how and whether a federal government that managed to provide more than $700 billion in aid to banks and automakers in 2008 and 2009 should help cities with unsustainable retirement debt, hollowed-out tax bases and diminished services that endanger the public. From 1990 to 2010, the percentage of the U.S. population that lives in urban areas grew to 81 percent from 75 percent, according to Census Bureau figures.

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