Obama Administration Seeks an Out On Bailout Rules for Firms

Administration Seeks an Out On Bailout Rules for Firms
Officials Worry Constraints Set by Congress Deter Participation
By Amit R. Paley and David Cho
Washington Post Staff Writers
April 4, 2009

The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials.

The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.

This strategy has so far attracted little scrutiny on Capitol Hill, and even some senior congressional aides dealing with the financial crisis said they were unaware of the administration's efforts. Just two weeks ago, Congress erupted in outrage over bonuses being paid at American International Group, with some lawmakers faulting the administration for failing to do more to safeguard taxpayers' interests.

Rep. Edolphus Towns (D-N.Y.), chairman of the House Oversight and Government Reform Committee, said the congressional conditions should apply to any firm benefiting from bailout funds. He said he planned to review the administration's decisions and might seek to undo them. "We have to make certain that if they are using government money in any sort of way, there should be restrictions," he said.

Please read the complete article at:

http://www.washingtonpost.com/wp-dyn/content/article/2009/04/03/AR2009040303910.html?hpid=topnews

Rep. Edolphus Towns favors enforcing the restrictions on participating firms.

In an explosive interview on PBS' Bill Moyers Journal, William K. Black, a professor of economics and law with the University of Missouri, alleged that American banks and credit agencies conspired to create a system in which so-called "liars loans" could receive AAA ratings and zero oversight, amounting to a massive "fraud" at the epicenter of US finance.

But worse still, said Black, Timothy Geithner, President Barack Obama's Secretary of the Treasury, is currently engaged in a cover-up to keep the truth of America's financial insolvency from its citizens.

The interview, which aired Friday night, is carried on the Bill Moyers Journal Web site.

Black's most recent published work, "The Best Way to Rob a Bank is to Own One," released in 2005, was hailed by Nobel-winning economist George A. Akerlof as "extraordinary."

"There is no one else in the whole world who understands so well exactly how these lootings occurred in all their details and how the changes in government regulations and in statutes in the early 1980s caused this spate of looting," he wrote. "This book will be a classic."

But that book only covers the fallout from the 1980s Savings & Loan crisis; Black's later first-hand involvement in that scandal being the ensuing liquidation of bad banks.

"A single bank, IndyMac, lost more money than the entire Savings and Loan Crisis," reported PBS. "The difference between now and then, explains Black, is a drastic reduction in regulation and oversight, 'We now know what happens when you destroy regulation. You get the biggest financial calamity of anybody under the age of 80.'"

That financial calamity, he explained, was brought about not by mishap or accident, but only after a concerted effort to undermine and remove all regulations, allowing a creditor free-for-all that hinged on fraudulent risk ratings for bad loans.

"he way that you do it is to make really bad loans, because they pay better," he told Moyers. "Then you grow extremely rapidly, in other words, you're a Ponzi-like scheme. And the third thing you do is we call it leverage. That just means borrowing a lot of money, and the combination creates a situation where you have guaranteed record profits in the early years. That makes you rich, through the bonuses that modern executive compensation has produced. It also makes it inevitable that there's going to be a disaster down the road.

"...This stuff, the exotic stuff that you're talking about was created out of things like liars' loans, that were known to be extraordinarily bad," he continued. "And now it was getting triple-A ratings. Now a triple-A rating is supposed to mean there is zero credit risk. So you take something that not only has significant, it has crushing risk. That's why it's toxic. And you create this fiction that it has zero risk. That itself, of course, is a fraudulent exercise. And again, there was nobody looking, during the Bush years. So finally, only a year ago, we started to have a Congressional investigation of some of these rating agencies, and it's scandalous what came out. What we know now is that the rating agencies never looked at a single loan file. When they finally did look, after the markets had completely collapsed, they found, and I'm quoting Fitch, the smallest of the rating agencies, "the results were disconcerting, in that there was the appearance of fraud in nearly every file we examined."

He equated the entire US financial system to a giant "ponzi scheme" and charged Treasury Secretary Timothy Geithner, like Secretary Henry Paulson before him, of "covering up" the truth.

"Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?" asked Moyers.

"Absolutely, because they are scared to death," he said. "All right? They're scared to death of a collapse. They're afraid that if they admit the truth, that many of the large banks are insolvent. They think Americans are a bunch of cowards, and that we'll run screaming to the exits. And we won't rely on deposit insurance. And, by the way, you can rely on deposit insurance. And it's foolishness. All right? Now, it may be worse than that. You can impute more cynical motives. But I think they are sincerely just panicked about, 'We just can't let the big banks fail.' That's wrong."

Ultimately, said Black, the financial downfall of the United States in the wake of the Bush years is due to "the most elite institutions in America engaging in or facilitating fraud."

"When will Americans wake up and hold the real criminals - Banksters - accountable for their actions, and pressure the government to enact systemic changes to prevent future abuses?" asked Huffington Post blogger Mike Garibaldi-Frick.

The full interview can be viewed on-line.

http://rawstory.com/news/2008/Economist_US_collapse_driven_by_fraud_0404.html

Geithner certainly looks "scared to death" everytime he is on TV.
Hard to have any faith in this guy.

Except, you know, for the corporations...

raises red flags for me. Obama wants to limit exec compensation for "bailed out" firms to $400,000 so it's misleading to suggest he doesn't want limits. It sounds like the devil is in the details, and the words "imposed by Congress" probably refer to Congress' lame attempts to tax 90 percent of bonuses for a very small group of people. Or, maybe Congress is thinking about imposing lower pay limits, which Obama opposes.


This story doesn't read quite right. It never says exactly what Congress is attempting to impose, or that Obama favors imposing a $400,000 per year salary limit on "bailed out" CEOs. It sounds like irresponsible reporting and bullshit in the same way that the media always implies that JPMorgan Chase and Wells Fargo received "bailout money" which they never did. They were forced to take TARP money which was not a bailout because they were relatively healthy and never requested a dime. This sounds like the same type of bullshit reporting.

And you do?

not know what he's talking about is certainly not unusual. Half of them are fools or worse.

By your argument, I guess we have to assume Michelle Bachmann knows what she's talking about too. I don't agree.

Pretty much everyone, except Republicans, agree their should be limits on executive compensation for firms that received government assistance. The President said in a speech that he wanted to limit exec pay to $400,000, so what is it that this Congressman wants to do differently? He doesn't say. Sounds like he's just posturing to take credit for something that has already been offered up by the President. If he's proposing something different, he should say what it is.

Again, it's pretty hard to judge his position when he offers no specifics, so he either doesn't know what restrictions he wants to propose, or he just isn't saying. And when politicians propose rules with no specifics, they're usually posturing.

the story is baseless and has only come from WaPo.

Towns himself is one to talk about taking payola.

C'mon guys. Seriously. C'mon.

completely ignoring the best source of all --- the horse's mouth: http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=132x8323306

Why would they do this? They know how toxic this is politically, if nothing else. What is their incentive to want to give these companies a way around the rules?

...that if they exposed what is really going on, people would "run for the exits."

They seem to be making it easier to keep covering up the truth ~ huge mistake imo. The people can handle the truth.

Unless, of course, they run afoul of marijuana laws.

Giving their businesses trillions is not nearly enough. We gotta keep the millions and billions rolling directly into the pockets of the financial geniuses who have destroyed our economy and tens of millions of jobs with it.


How are the acolytes spinning this one, I wonder.

the Wapo Story had no basis whatsoever and the whitehouse denied it was true. Im guessthat by spinning your wondering why we here don't believe Wapo over Obama?