The Fin Report Isn't About Sharks, At Least Not The Ones Swimming In The Oceans

Yesterday, finally, the full report from the Financial Crisis Inquiry Commission was released. It should turn the stomach of every American who has ever paid one dime to the taxman. It took long enough because the Republicans on the Commission did everything they could to stall, undermine and twist its work on behalf of their Wall Street benefactors.

For months now, the Financial Crisis Inquiry Commission — which is supposed to be offering a report on the causes of the 2008 financial meltdown — has been bogged down by partisan bickering, with the Republican commissioners griping about the tone of the commission’s final report, which they think is too tough on the banking industry. Now, as Shahien Nasiripour reported, all of the commission’s Republican members “voted in favor of banning the phrases ‘Wall Street’ and ‘shadow banking’ and the words ‘interconnection’ and ‘deregulation’ from the panel’s final report.”

And HuffPo's Shahien Nasiripour had an advance copy of the report yesterday and his post on just the role of bankster criminals Goldman Sachs was absolutely terrifying. The American ruling elite should pay for this, pay for the fact that there has been "a direct transfer of wealth from the Treasury to Goldman's shareholders," for example.

Goldman Sachs collected $2.9 billion from the American International Group as payout on a speculative trade it placed for the benefit of its own account, receiving the bulk of those funds after AIG received an enormous taxpayer rescue, according to the final report of an investigative panel appointed by Congress.

The fact that a significant slice of the proceeds secured by Goldman through the AIG bailout landed in its own account-- as opposed to those of its clients or business partners-- has not been previously disclosed. These details about the workings of the controversial AIG bailout, which eventually swelled to $182 billion, are among the more eye-catching revelations in the report to be released Thursday by the bipartisan Financial Crisis Inquiry Commission.

The details underscore the degree to which Goldman-- the most profitable securities firm in Wall Street history-- benefited directly from the massive emergency bailout of the nation's financial system, a deal crafted on the watch of then-Treasury Secretary Henry Paulson, who had previously headed the bank.

"If these allegations are correct, it appears to have been a direct transfer of wealth from the Treasury to Goldman's shareholders," said Joshua Rosner, a bond analyst and managing director at independent research consultancy Graham Fisher & Co., after he was read the relevant section of the report. "The AIG counterparty bailout, which was spun as necessary to protect the public, seems to have protected the institution at the expense of the public."

Goldman and AIG both declined to comment.

Did they? We've gone over this before, but let's recall that after Congress turned down the Bush administration's request for the billions it took to bail out their Wall Street bankster allies, the terror they released on Congress and the public, was accompanied by threats from Republican congressional leaders to squeeze enough votes out of their caucus to pass the bill. And which Republicans fought the hardest for Wall Street and against the interest of the American people? Well, just look who took over Congress after November: Wall Street shills John Boehner, Eric Cantor, Paul Ryan, Pete Sessions, Spencer Bachus, David Dreier... They all voted for the Wall Street bailout and they all twisted arms to persuade Republican congressmen (like Charlie Dent) who had opposed it the week before, to change their votes and pass it. Over two dozen Republicans changed their votes, enough to pass TARP and flood Wall Street bankster's pockets with taxpayer dollars. Among the vote switchers-- (besides the hapless Dent) were the new head of the House Foreign Relations Committee, Ileana Ros-Lehtinen (FL), Mean Jean Schmidt of Ohio, Sue Myrick of North Carolina, the new Governor of Oklahoma, Mary Fallin, and Nebraska's Lee Terry all of whom are trying to ride the faux conservative Ryan bandwagon of teabagger ignorance into lifetime political careers.

And which freshmen did Boehner put on the House Financial services committee after he grabbed power? All Wall Street shills. And it goes beyond just bank lobbyist Steve Stivers (R-OH).

The ten incoming House freshmen chosen to serve on the House Financial Services Committee should denounce incoming committee chairman Rep. Spencer Bachus’ (R-Ala.) statement that Washington is there to serve big banks, said nonpartisan campaign watchdog Public Campaign Action Fund. A Public Campaign Action Fund analysis of data from the Center for Responsive Politics found that the incoming members had already raised $1.9 million in campaign donations from Wall Street and financial interests.
 
“Spencer Bachus may think his job is to serve the banks, for which they reward him handsomely, but a wide majority of the American people would disagree,” said David Donnelly, national campaigns director for Public Campaign Action Fund. “The ten incoming Republican members chosen for the committee should stand with consumers and not the bankers that brought the economy to its knees.”
 
The ten new Republican House members that have been selected to serve on the House Financial Services Committee in January have already received a combined $1.9 million in campaign contributions (see below) from the financial, insurance, and real estate industries during the 2010 election cycle.

Robert Dold (R-IL)- $554,024
Steve Stivers (R-OH)- $294,105
Michael Grimm (R-NY)- $222,350
Nan Hayworth (R-NY)- $204,215
Steve Pearce (R-NM)- $176,580
Robert Hurt (R-VA)- $127,200
Michael Fitzpatrick (R-PA)- $122,250
Francisco Canseco (R-TX)- $101,550
Sean Duffy (R-WI)- $91,175
Bill Huizenga (R-MI)- $68,250

Total- $1,961,699

...“Washington has served the banks for too long, and that’s why, in part, we’re in this economic mess,” said Donnelly. “These incoming members ought to send a very clear signal that they work for their constituents and not the big banks by publicly distancing themselves from Rep. Bachus’ statement and the sentiments expressed by him. Otherwise, they’ll look like they're catering to their big donors, just like he is.”

The Americans for Financial Reform issued a statement immediately upon release of the report:

It is important that the Financial Crisis Inquiry Commission's majority report-- based on 19 hearings and 700 interviews lays out some of the abusive, reckless, and sometimes criminal behavior on Wall Street that caused the financial crisis, and cost Americans millions of lost jobs, billions in tax-payer funded bailouts and trillions in lost homes and savings. We must document what led to the financial crisis, and learn lessons from it so that neither the financial industry nor regulators are allowed to repeat their devastating failures.

These failures make the case for strong implementation of the 2010 Financial Reform law; for holding individual corporate heads, financial institutions, and regulators who abetted wrongdoing,
accountable, including through prosecution; and for more action to end the 'heads we win, tails you lose' privileges of the biggest Wall Street banks and to redirect the financial system to support families and businesses looking to invest and grow. We need to protect and strengthen laws that rein in Wall Street abuses; we need to fund agencies like the CFTC and SEC crucial to enforcing them; and we need to hold Wall Street accountable for following them. Financial industry interests that lost important fights in the battle over Wall Street reform last year are working now to reverse those decisions in the regulatory process; by defunding the cops we need to police the rules as the CFTC and SEC must do for new derivatives regulations, and even to roll back the new consumer protections and transparency for the shadow markets. But the public's broad support for Wall Street Reform will only grow as evidence continues to emerge of the details of the Wall Street actions that caused the crisis.

Only this week, for example, stories are emerging in a lawsuit filed by mortgage insurer Ambac Assurance against Bear Stearns, now owned by JPMorgan Chase, that show executives stunning disregard for the truth, and for contractual obligations to clients, with high ranking traders knowing and even bragging about how they were ripping off investors.

Unbelievably, instead of getting tough on Wall Street, the dissenting Commission members decided to absolve the financial industry of all responsibility-- going so far as to support banishing key words--
including 'Wall Street,' 'shadow banking,' 'interconnection,' and 'deregulation' from the report vocabulary entirely. This approach rewards and therefore perpetuates Wall Street's bad behavior, and that's unconscionable. Thankfully, the public has no appetite for moving backwards on Wall Street Reform.

One thing is certain-- without real accountability, of which we can be sure there will be absolutely none, there will be no lessons learned and there will be premeditated gambles made to try the same shenanigans again and again and again.




UPDATE: Economist Dean Baker Asks If We Can Take Away Alan Greenspan's Pension

Dean Baker, author and co-Director of the Center For Economic And Policy Research, is probably the clearest and most credible voice about the Bush era economic collapse of anyone in Washington. Today he took a look at the Financial Crisis Inquiry's Commission's report and agrees that it is a story of "gross negligence, greed, and outright fraud" the catastrophic effects of which were exacerbated by the housing bubble. And at the core of the problem-- the unwillingness of Randian "regulator" Alan Greenspan to actually do any regulatin'. "[C]entral bankers like Alan Greenspan and Ben Bernanke... are not supposed to succumb to mass delusions. They are supposed to make their assessments of the economy based on a measured analysis not the hysterical rantings of the deluded masses."

Using simple economic analysis and the arithmetic we all learned in 3rd grade it was possible to recognize the housing bubble as early as 2002. It was also possible to know that the bursting of the bubble would be bad news for the economy and that the news would get worse as the bubble grew larger.

The Fed had enormous power with which to shoot at the bubble. First, Greenspan and Bernanke could have used the resources of the Fed to document the evidence for the existence of the bubble and highlight the consequences of its bursting. Note that this is not about mumbling "irrational exuberance." The idea is have the Fed's research staff put out paper after paper showing that house prices were hugely out of line with their historic levels with no plausible explanation in the fundamentals. This research could have been highlighted in Congressional testimony and other public appearances by Greenspan and other top Fed officials.

The second step involves the Fed's regulatory power. The deterioration of lending standards and outright fraud in issuing mortgages that is documented in the FCIC report was knowable to regulators at the time. (I knew about it because people from around the country were telling me about abuses by their friends/relatives in the mortgage industry. And, I have no regulatory authority.) The Fed could have used its regulatory authority to crack down on the banks that were issuing fraudulent mortgages and to prod the SEC to go after the investment banks that were securitizing them.

Finally, if steps one and two did not work, the Fed could have raised interest rates. Greenspan has always been dismissive of the idea that higher interest rates could have popped the bubble, noting that long-term rates stayed low in 2005 and 2006 even as short-term rates rose by several percentage points. This is again a silly cop out.

Suppose that Greenspan started a round of rate increases with the explicit target of popping the housing bubble. For example, suppose he announced the first half point rise in the federal funds rate and said that he would continue to raise interest rates until the real value of the Case-Shiller 20 City index fell below its 2000 level. This likely would have gotten the attention of financial markets and had some impact on house prices.

Instead Alan Greenspan, with Ben Bernanke at his side, did nothing. In fact, at several points he seemed to foster the bubble by dismissing the concerns of those who raised questions about the run-up in house prices.

There is a real problem of incentives here. Greenspan and Bernanke would have gotten serious heat from the financial industry if they had done the right thing and shot at the bubble. After all Angelo Mozillo, Robert Rubin, and many other rich and powerful types were getting very rich. On the other hand, they seem to have suffered zero consequence from doing nothing, even when their failure to act had absolutely disastrous consequences.

The lesson here for future central bankers is to keep the financial industry happy and everything will be fine. If that is the case, then we should expect more irresponsible behavior from the industry and possibly more bubbles. The problem is that the cops are on their payroll.

It is not too late-- we could still fire Bernanke and take away Alan Greenspan's pension. Unfortunately, the financial industry is not about to let that happen nor is the business media likely to even let these options be discussed in polite circles.