Too Big to Bail: The Fed's Wall Street Dilemma By Pam Martens

http://www.informationclearinghouse.info/article19555.htm

17/03/08 "Counterpunch" -- - Americans learned two new truths last week from the Bush Administration's version of Life's Little Instruction Book: if you're a Wall Street miscreant you're thrown a lifeline; if you're a Wall Street crime fighter you're thrown a land mine.

In the first effort, the Feds effectively handed a Federal Reserve ATM card to JPMorgan to funnel your tax dollars to the teetering Bear Stearns brokerage firm to address counterparty risks that have been building for at least 4 years as the Feds snoozed. Counterparty risk is the trillions of dollars of insurance contracts (credit default swaps and other derivatives) taken out by Wall Street firms on each others (counterparty) bonds, bundled mortgage and commercial debt (collateralized debt obligations). The firms have used unregulated over-the-counter contracts to perform this risk transfer alchemy and funded their own company, Markit Group Ltd., to take the place of a regulated exchange for price discovery.

In the second effort, the Feds tapped the Department of Justice, Internal Revenue Service, U.S. Attorney's office in New York, FBI, five federal judges and a busy federal court to root out that Code Red threat to our national security: consensual sex. The sex involved a prostitution ring and Democratic New York State Governor, Eliot Spitzer, who was savaged and forced to step down by an avenging media mob abundantly fed with well placed leaks from a suspiciously homogenous group called "anonymous law enforcement officials." Governor Spitzer, in his former role as New York State Attorney General, had taken the lead in rooting out Wall Street crimes against small investors because the Federal Reserve was preoccupied with lobbying to remove regulations on Wall Street's crime factory.

As usual, the Feds handed the bill to the governed with no thought to the will of the governed.


Pam Martens worked on Wall Street for 21 years; she has no securities position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire. She can be reached at pamk741@aol.com

America today is like Chile in the 1980s.

"The Chicago Boys persuaded the junta that removing restrictions on the nation’s banks would free
them to attract foreign capital to fund industrial expansion.

Pinochet sold off the state banks - at a 40% discount from book value - and they quickly fell
into the hands of two conglomerate empires controlled by speculators Javier Vial and Manuel
Cruzat. From their captive banks, Vial and Cruzat siphoned cash to buy up manufacturers - then
leveraged these assets with loans from foreign investors panting to get their piece of the state
giveaways.

The bank’s reserves filled with hollow securities from connected enterprises...

By 1982, the pyramid finance game was up. The Vial and Cruzat “Grupos” defaulted. Industry shut
down, private pensions were worthless, the currency swooned."

And the results were spectacular:

"In 1973, the year General Pinochet brutally seized the government, Chile’s unemployment rate was
4.3%. In 1983, after ten years of free-market modernization, unemployment reached 22%. Real
wages declined by 40% under military rule.

In 1970, 20% of Chile’s population lived in poverty. By 1990, the year “President” Pinochet left
office, the number of destitute had doubled to 40%. Quite a miracle."

The US is in for the same thing.

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