The banksters plot their next robbery

November 4, 2009

Petrino DiLeo reports that executive bonuses on Wall Street are back to their pre-crisis levels--courtesy of the federal government.

"WE HAVE to tolerate the inequality as a way to achieve greater prosperity and opportunity for all." Those were the words of Lord Brian Griffiths, a former adviser to British Prime Minister Margaret Thatcher, at a recent panel discussion in London.

And why wouldn't Griffiths feel that way? After all, he's vice chairman of Goldman Sachs International, and therefore is about to personally experience much, much "greater prosperity"--thanks to record bonuses the banking giant is preparing to pay out at the end of the year.

Goldman--along with plenty of other financial institutions--is looking forward to a bonus orgy, with end-of-year payouts to financial executives worth billions of dollars--ostensibly for a job well done in 2009.

During the most recent three-month period, Goldman Sachs reported $3 billion in profits, JPMorgan Chase earned $757 million, and Wells Fargo raked in $3.2 billion in profits. As a result, Goldman Sachs is projected to have a record bonus pool of $20 billion to distribute among employees--an average of about $700,000 for each one, though the bonanza for top executives like Griffiths will skew that number.

Goldman Sachs CEO Lloyd Blankfein and billionaire Warren Buffett are among the few people laughing during the current crisis
Goldman Sachs CEO Lloyd Blankfein and billionaire Warren Buffett are among the few people laughing during the current crisis

Goldman isn't alone. Overall, Wall Street firms are on track to pay out $140 billion in bonuses this year, according to a Wall Street Journal survey of 23 banks, investment firms, hedge funds and other institutions. That's $10 billion more than in 2007, the year before the financial meltdown and the high point of Wall Street's boom.

It seems hard to believe that just 12 months ago, the U.S. financial system stood on the brink of ruin, following the collapse of investment bank Lehman Brothers, the last-minute government bailout of insurer AIG and other crises.

How did Wall Street recover so quickly that the banks could be rolling in the dough again? To hear the banks tell it, their boffo quarterly earnings reports and the coming tidal wave of bonuses are the result of their financial skill--proof that the wizards of Wall Street are a cut above the rest of us. So it's only right that they should be showered with cash which most of the rest of us deal with layoffs, wage cuts, foreclosures and personal bankruptcy.

But that picture is a fraud. The banksters' profits are being subsidized by our money.


THE MONEY handed over to Wall Street by the federal government was supposed to get lending started again to create new jobs, restructure mortgages and otherwise trickle down to "Main Street." But that's not what the financial wizards did.

Take Goldman Sachs. Taxpayers pumped a total of $70 billion into the bank through direct cash, guarantees and access to cheap lending facilities provided by the government's Wall Street bailout program, the Federal Reserve Bank and the Federal Deposit Insurance Corp.

Goldman also managed to make money off the collapse of insurance giant AIG. According to recently released documents, in the weeks leading up to the government's takeover of the company in September of last year, AIG was offering 40 cents on the dollar to anyone owed money from the more than $60 billion in credit default swaps the company had issued. Goldman had over $13 billion tied up in these swaps and stood to lose 60 percent of it.

Then the Federal Reserve Bank of New York--led by Tim Geithner, now Barack Obama's Treasury Secretary--came into the picture. After the takeover, Geithner directed AIG to pay out the swaps at 100 cents on the dollar. Rather than take a loss, Goldman Sachs ended up being fully paid back--for another $14 billion in taxpayer dollars.

So what did Goldman and other firms do with this free money? They didn't lend it out. Instead, the last quarter shows that almost all of Goldman's revenue in those months--$10 billion out of $10.8 billion--was from trading. Goldman posted its $3 billion in profits based largely on gains from those trades and fees from customers. As one financial blogger wrote, "Goldman, in other words, generates most of its revenue trading its own money and earning vigorish on customer transactions. It's a hybrid hedge fund and bookie, with an investment bank and asset management business thrown in for good measure."

The bottom line: Goldman didn't create a single job or stop a single foreclosure.

It doesn't take a financial genius to profit from this kind of setup. "When you have access to trillions of dollars of taxpayer money with no strings attached, it's very easy to make a few billion dollars," MSNBC commentator Dylan Ratigan pointed out. "A billion is only a one-thousandth of a trillion, and because our government is allowing the indulgence of the risk-taking of the trillions of our own money, not only is it allowing Wall Street to make the billions, but it is also depriving the rest of our economy of the use of those funds."

Every bank that's preparing to pay out bonuses is guilty of the same things as Goldman. The secret to their success has been getting cash infusions and cheap debt from the federal government that guarantees their losses and gives them the ability to swap bad debts for rock-solid Treasury bonds to shore up their balance sheets. All in all, the government has provided a $12 trillion backstop to the financial system--almost as much money as the U.S. economy generates in a single year.

This capital has fueled the stock market's rally in recent months and is the source of Wall Street's sudden windfall. And even worse, the government is on the hook for the money it poured into the banks, even as the federal deficit is ballooning. Eventually, that deficit will have to be repaid--which means that Wall Street profits today are being subsidized by cuts and crucial social services and increased taxpayer revenues tomorrow.


BUT DON'T expect any humility on Wall Street.

Responding to the anger at the size of Goldman's coming bonuses, the firm's Chief Financial Officer, David Vinar scoffed, "I do think it's too big a focus. I would prefer people to be focused on the success of our business, how well we're doing, and how well our people are performing."

Banksters like Vinar think the rest of us are too stupid to understand the swindle they're operating. But it's all too obvious. As Elizabeth Warren, the Harvard professor and chair of the Congressional Oversight Panel created to oversee the Wall Street bailout, commented:

So let me understand this. They can take taxpayer money and go out and make investments--gambles. These are not loans. This is not from lending activity, which is what I thought the banks were in the business of doing. Instead, they can go out and make short-term profits in investing and be rich, and that's the healing of the financial system? I'm sorry, I don't think so.

As for the bonuses, Warren said:

I not only don't think it's appropriate...I am wordless over this. Speechless. I do not understand how it is that financial institutions can think that they can take taxpayer money, and then turn around and act like it's business as usual...I don't understand how they can't see the world has changed in a fundamental way. It is not business as usual when you take taxpayer dollars. But all I can say right now is that they seem to be winning this argument.

The audacity on Wall Street was enough to make even the Economist magazine blush. "Worst of all," it wrote, "bonuses are being paid in part from subsidies: this is not a free market, but a perversion of it." The magazine further wrote that banks "enjoy laxer accounting, loose collateral rules at central banks, explicit debt guarantees and asset-purchasing schemes. And critically, they can borrow cheaply because they are deemed too big to fail. All of them--from comparatively healthy Goldman to the nationalized weaklings--are being subsidized by the rest of us."

There has been some anger about the bonuses, but not enough to derail the banks' plans. Even worse, the government has come up with a completely toothless response.

The Obama administration is planning on ordering executive pay cuts at seven companies--Citigroup, Bank of America, AIG, General Motors, Chrysler and the financing arms of the two automakers. This is punishment for firms that haven't yet repaid funds from the Troubled Asset Relief Program (TARP) bailout yet.

But TARP isn't the only program propping up the banks. The government would be well within its rights to slap restrictions on all of Wall Street. But it won't do that without pressure from below.

What's playing out today only proves that the rich will continue to take all they can for as long as they can get away with it. It's an outrage. But outrage isn't enough. The only thing that will stop the banksters from continuing their robberies is a movement of ordinary people that demands financial justice.

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