Best of the Week
Most Popular
1.Ukraine Preface, the Emerging Dynamics Of Petro-Yuan Standard - Jim_Willie_CB
2. Speculations Reversed - Gold Price Stealth Rally 2014 - Peter_Schiff
3.Bubbleberg News Drivel Masquerading as Financial Reporting - David A. Stockman
4.Nationwide UK House Prices 9.5% Inflation, Housing Market on Steroids, Help to Buy Anniversary - Nadeem_Walayat
5.How to Profit from Palladium Huge Price Surge… - Peter Krauth
6.UK Home Solar Panel Installations Good or Bad for House Buying and Selling? - Nadeem_Walayat
7.Global Gold Manipulation Update - MAP Wave Analysis - Marc_Horn
8.Ukraine Capital Controls and 200% Inflation But Still In Better Shape Than US! - Jeff_Berwick
9.The Rise of a Euro-Chino-Russian Superpower - Stephan Bogner
10.Across Europe Secession Movements Intensify - BATR
Last 72 Hrs
Glaring Q.E. Failure Spotted - Money Velocity Is Falling Rapidly - 16th Apr 14
High-Frequency Insider Trading - 16th Apr 14
Gold Prices 2014: Do What Goldman Does, Not What It Says - 16th Apr 14
These CEOs Will Make Investors Rich - 16th Apr 14
Climate Change, Central Banking And The Faustian Bargain - 16th Apr 14
Every Central Bank for Itself - 16th Apr 14
Social Security, U.S. Treasury Stealing Every Last Penny From Americans - 16th Apr 14
Ukraine Falling to Economic Warfare and Its Own Missteps - 16th Apr 14
Silver and Gold Miners Still Disappoint - 16th Apr 14
Silver, Gold, and What Could Go Wrong - 15th Apr 14
How I Intend to Survive the Meltdown of America - 15th Apr 14
France Wakes Up To The Multicultural Multi-Threat - 15th Apr 14
The Real Purpose Of QE - It’s Not Employment - 15th Apr 14
Peak Coal - 15th Apr 14
Flash Crash, Rigged Markets - What’s the Frequency Zenith? - 15th Apr 14
Forecasting U.S. GDP Growth: A Look at WSJ Economists’ Collective Crystal Ball - 15th Apr 14
Stock Market - Is Something Nasty About to Happen? - 15th Apr 14
How to Trade Your Way To Freedom - 15th Apr 14
Understanding (and Ignoring) the Media Bandwagon Against Gold - 15th Apr 14
When Stock Market Bubble Crashes, Take Refuge in Gold Stocks - 15th Apr 14
Bitcoin Price Strong Appreciation to Be Followed by Declines? - 14th Apr 14
Greece, Turkey, We're Shuffling The Cards on Our Europe Investing Play - 14th Apr 14
Silver Price Ultimate Rally: When Paper Assets Collapse - 14th Apr 14
Get Your Share of an Extra Trillion Euros Money Printing - 14th Apr 14
Fourth Reversals in The Gold and Silver Charts - 14th Apr 14
Stock Market Nearing Rally in a Downtrend - 14th Apr 14
London House Prices Bubble, Debt Slavery, Crimea 2.0 - Russia Ukraine Annexation - 14th Apr 14
Four Horsemen - Top Economists Explain the Source of Our Economic Crisis - Video - 13th Apr 14
Peak Oil And Global Warming – A Question Of Culture - 13th Apr 14
The Global Banking Game Is Rigged, and the FDIC Is Suing - 13th Apr 14
College Degree Earnings Propaganda - 13th Apr 14 - Andrew Syrios
Stock Market Potential Diagonal Triangle Pattern Forming - 12th Apr 14
Ukraine Crisis – Military Flash Drive Thinking - 12th Apr 14
Gold And Silver – 2014 Coud Be A Yawner; Be Prepared For A Surprise - 12th Apr 14
Gold Preparing to Launch as U.S. Dollar Drops to Key Support - 12th Apr 14
Manipulated Stocks Markets And The Empty Bag - 12th Apr 14
Stock Market - It’s Not Time to Panic… It’s Time to Buy - 12th Apr 14
Doctor Doom on the Fiat Money Empire Coming Financial Crisis - 12th Apr 14
Sheffield, Rotherham Roma Benefits Plague, Ch5 Documentary Gypsies on Benefits & Proud - 11th Apr 14
This Bitcoin Price Rally Might Be a Fake One - 11th Apr 14
GDX Gold Stocks Benchmark - 11th Apr 14
Silver Price Finally Outperforms – How Bullish Is That? - 11th Apr 14
Limits to Employment Participation, and Societal Change - 11th Apr 14
US Moves To Restrict Travelers Taking International Flights - 11th Apr 14
Bill Gross to El-Erian: 'Come on, Mohamed, Tell Us Why' You Resigned PIMCO - 11th Apr 14
British Pound GBP/USD - Double Top or Further Rally? - 11th Apr 14
Don't Miss the Boat on Big Biotech Catalysts: Keith Markey - 11th Apr 14
Russia Invaded Crimea and These US Energy Companies Made a Killing - 11th Apr 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Geithner Asks Americans to Bend Over to Uncle Sam

Politics / Credit Crisis Bailouts Mar 25, 2009 - 03:43 AM GMT

By: Mike_Whitney

Politics Best Financial Markets Analysis ArticleTimothy Geithner refuses to take underwater banks into receivership and resolve them, but has no problem transforming the FDIC into a hedge fund. Go figure? Here's what everyone needs to know: The US government (you) will provide up to 94 percent of the financing (low interest, of course) for dodgy mortgage-backed assets that no one in their right mind would ever buy so that wealthy and politically-connected banksters can scrub up to $1 trillion of red ink from their balance sheets. Ugh!


The so-called "private partners" in this confidence scam, will get non recourse loans, which means that if the plan backfires and they lose their skimpy 6 percent investment they can call it quits and leave the taxpayer holding the bag. ($1 trillion in potential losses!) Here's how Paul Krugman sums it up:

"The Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. This isn't really about letting markets work. It's just an indirect, disguised way to subsidize purchases of bad assets."

"Markets"? Who said anything about markets? This is corporate welfare, pure and simple.

Also, the partnerships will be conducted through off-balance sheets operations, (Enron-type structured investment vehicles or SIVs), so the parent company (our new business partners) can avoid liability when they dump all types of ineligible, unmarketable, toxic garbage into the program, which they will since the average banker has moral scruples of Hannibal Lector.

The opportunities for fraud in Geithner's "public-private" Banker's Bonanza are truly breathtaking. All the bank has to do is shovel its mountainous pile of B-grade dog-dung into its newly-minted SIV and then hide behind its government-issue "no risk" loan and claim ignorance when the FDIC tries to get its money back.

"I'm so sorry. How did that 2006 vintage subprime CDO made up of liar's loans from unemployed Pizza Hut workers get mixed up in there? My bad."

In Geithner's defense, we should point out the challenges he's facing. It's not easy pulling the wool over people's eyes, especially when they've been repeatedly fleeced. The Treasury Secretary's main job is "to keep the big banks in private hands" and to remove over a trillion dollars of toxic mortgage-backed assets that are worth only a fraction of their original value. According to economist Dean Baker, these junk assets are worth roughly 30 cents on the dollar, although the banks have them listed on their books at 60 cents on the dollar. If the banks are unable get full price, then many of them will be forced into bankruptcy. Geithner's job is to make sure that doesn't happen, which is why he has created the "partnership" smokescreen to conceal the fact that the government is intentionally overpaying for significantly-downgraded sludge. Here's how economist James Galbraith puts it:

"The bad assets are bad because they are worth less than the banks say they are. House prices have dropped by nearly 30% nationwide. That has created something in the neighborhood of $5+ trillion of losses in residential real estate alone (off a peak market value of housing about $20+ trillion). The banks don't want to take their share of those losses because doing so will wipe them out. So they, and Geithner, are doing everything they can to pawn the losses off on the taxpayer."

Galbraith (indirectly) explains why Geithner has avoided "price discovery" at all cost. Think about it for a minute: We are now 19 months into the biggest economic catastrophe since the Great Depression and STILL the public has no fixed idea of what these rotten assets are really worth. Why? The business media, the government and big finance have engineered the biggest cover up in memory in order to protect the interests of privately-owned financial institutions. Is that how a free market is supposed to work?

The question that should be on everyone's mind is this: Why would Geithner create a program that rewards bankers and hedge funds at the expense of the public? Or to be more specific: What manner of man would conjure up a transaction where taxpayers put up 94 percent of the investment but only stand to get 50 percent of the profits?

Who is Geithner working for anyway?

There's no way around the fact that Geithner is a financial industry representative planted in the White House to do Wall Street's bidding. Institutional bias precludes him from doing his job and operating in the public interest. Thus, the first step in any financial rescue plan must be to remove Geithner, Summers and all the other parasitic Rubin-clones that have infected the present administration and bring in a whole new team. That will prepare the ground for nationalizing the banks and providing debt-relief to the people who need it most, the victims of Wall Street's Ponzi-credit bubble.

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

Mike Whitney Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

rbf
29 Mar 09, 22:56
Bending over for uncle sam

Awesome commentary, now I have good insight to the back door bailout that is really happening. Thank you so much for telling the truth. I am appalled that this isn't discussed in more detail on the financial talk shows! The taxpayers need to wake up!!!


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014