"Grand Larceny" on a Monumental Scale: Does the Bailout Bill Mark the End of
America as We Know It?
By Richard C Cook
Global Research, October 2, 2008
www.globalresearch.ca/index.php?context=va&aid=10413
OCTOBER 1, 2008-Tonight the Senate passed the $700 billion Wall Street
bailout bill by a vote of 74-25. This follows the rejection of the bill by
the House on Monday. In an MSNBC poll, 62 percent of Americans oppose the
giveaway, but the lobbyists are doing everything possible to assure the
rejection is overturned. According to Bob Borosage, co-director of The
Campaign for America's Future, House leaders "are bringing in the small
business lobby and the banking lobby to buy the twelve Republican votes they
need."
The Senate took up the bill in order to pressure House members who voted
against it to change their positions when it returns to a vote on the House
floor on Friday. This procedure may be unconstitutional, because revenue
bills must originate in the House, but there is no time or political will
for anyone to mount a challenge on constitutional grounds. As another means
of inducement-or blackmail-the bill includes the repeal of the wildly unjust
alternative minimum tax.
Every reputable economist commenting on the bill opposes it, including NYU's
Nouriel Roubini, who says the plan is "totally flawed." He says the plan is:
"a disgrace: a bailout of reckless bankers, lenders, and investors that
provides little direct debt relief to borrowers and financially stressed
households and that will come at a very high cost to the US taxpayer."
My own view is that the plan is worse than that: a crime; grand larceny on a
monumental scale.
Here's why: We know that the debacle started with homeowner defaults on
subprime mortgages and that it has now spread to other types of mortgages as
foreclosures spread. We know that the unhealthy use of subprime mortgages
started during the Clinton administration, as did the bundling and sale of
these mortgages into mortgage-backed securities sold in the financial
markets.
What has not been reported is that the Bush administration turned these acts
of reckless lending into a national program of mortgage fraud. Soon after
George W. Bush became president in 2001, meetings at the White House between
Federal Reserve Chairman Alan Greenspan and administration officials became
more frequent. According to mortgage industry insiders I have interviewed,
direction soon began to come down from the banks to mortgage brokers to
falsify borrower income information to allow them to qualify for loans that
were otherwise out of reach.
The FBI has investigations underway to prosecute some of these cases of
mortgage fraud. But they are not reaching above the brokers' level. The FBI
is not gaining access-or at least they have not reported it publicly-to
information about collusion at the political level or at the level of the
banks which provided the leveraged funding for mortgage money.
But at the time the housing bubble was inflating, no one was watching. Note
that when Secretary of the Treasury Henry Paulson testified before the
Senate Banking Committee last week, he said he was shocked to learn when
assuming office in June 2006 that no federal agency regulated mortgage
lending. Rather this was an area left to the states.
What Paulson did not say was that when the states attempted to intervene,
they were blocked by the Treasury Department's Office of the Comptroller of
the Currency. In a February 14 article in the Washington Post written before
he resigned, New York governor Eliot Spitzer wrote:
"In 2003, during the height of the predatory lending crisis, the OCC invoked
a clause from the 1863 National Bank Act to issue formal opinions preempting
all state predatory lending laws, thereby rendering them inoperative. The
OCC also promulgated new rules that prevented states from enforcing any of
their own consumer protection laws against national banks. The federal
government's actions were so egregious and so unprecedented that all 50
state attorneys general, and all 50 state banking superintendents, actively
fought the new rules. But the unanimous opposition of the 50 states did not
deter, or even slow, the Bush administration in its goal of protecting the
banks. In fact, when my office opened an investigation of possible
discrimination in mortgage lending by a number of banks, the OCC filed a
federal lawsuit to stop the investigation."
Why did the Bush administration do this? The only possible answer is that it
had every intention of producing the housing bubble, one that had the effect
of not only inflating the cost of homes and real estate but also pumping
billions of dollars of borrowed cash into the economy through mortgage and
home equity loans.
The bubble enriched huge numbers of executives, managers, and shareholders
throughout the financial and real estate industries, and provided jobs to
millions of people. The bubble also brought back foreign capital to U.S.
markets that had been scared away by the dot.com bust of 2000-2001.
Everyone seemed to benefit, but it was those at the top who skimmed the
greatest profits. And for an economy that had already given away millions of
its best manufacturing jobs through NAFTA, Most-Favored-Nation trading
policies with China, World Trade Organization agreements, etc., the bubble
acted as a kind of substitute economic engine.
It also resulted in tax revenues that allowed the Bush administration to
implement its 2001 and 2003 tax cuts for the rich and provide funding for
the Afghanistan and Iraq wars. Of course these tax revenues were not enough,
as the national debt soared to over $9 trillion during the Bush years as
well.
Economist Dean Baker of the Center for Economic and Policy Research makes
the point:
"The near hysterical discussion (count the times 'Great Depression' appears
in news stories) of the bailout still largely fails to recognize the roots
of the economy's current problems in the collapse of the housing bubble.
Much of the discussion assumes that the problem is just bad subprime loans
and that house prices will bounce back once the credit markets are working
properly."
The point is critical, because what the Senate and House leaders are telling
us, as are President George W. Bush, presidential candidates Barack Obama
and John McCain, and Federal Reserve Chairman Ben Bernanke, is that the
bailout is to get the American economy moving again. Credit, they say, is
the lifeblood of the economy, and without credit no one can make a move.
But credit is the lifeblood of the economy only because people are broke.
Purchasing power in the U.S. has collapsed, and it is getting worse as the
recession which has now begun worsens.
People can't get loans, not because the credit markets are stalled, but
because they have no savings for down payments and can't afford to repay
what they wish to borrow. If they could repay their loans, plenty of credit
would be available. But there is no money-and no savings-within the economy
for it to get moving again. The only possible source is more federal
borrowing to prime the pump Keynesian-style. That is what the politicians
claim the bailout will do. But it won't.
Then what is happening?
What is happening is that the Bush administration is engineering a massive
raid on the Federal treasury to pay off the people within the financial
industry who have been operating the housing scam because the politicians
told them to do it. This is hush money.
The people in the financial institutions who are getting the money will be
passing it on to the big banks that leveraged their criminal lending
practices. The giant sucking sound you hear is almost a trillion dollars of
future taxpayer earnings going into the vaults of the nations's biggest
banks, such as Citibank, Bank of American, and-the pet bank of the
Rockefeller family-J.P. Morgan Chase. Much will also go into the vaults of
foreign investors such as the Bank of China.
And these banks have no intention of recycling the money into productive
U.S. investments. Despite the political posturing, where much of it will go
at the second or third tier is into executive salaries and bonuses. The fat
cats are "gittin' out while the gittin's good."
What happens next?
Well, it is already happening. In the post-bubble era there will be no more
economic engines for the American economy. A long term recession and
depression are inevitable, and they are expected by those in the know. In
fact, there has been a plan in the works for a very long time to bring down
the U.S. economy, and it will be happening over the coming months.
This is why the government is also preparing to implement martial law, or
something close to it, in case public unrest breaks out. We will likely also
see a clampdown on free speech, the right to protest, and use of the
internet. Federal facilities are being prepared all around the country to
backstop state prisons and local jails that are already bursting at the
seams.
This is the plan, so people need to begin to take whatever measures they can
to cut their cost of living, get out of debt, and protect themselves and
their families.
The url address of this article is:
www.globalresearch.ca/index.php?context=va&aid=10413
Richard C. Cook is a former U.S. federal government analyst, whose career
included service with the U.S. Civil Service Commission, the Food and Drug
Administration, the Carter White House, NASA, and the U.S. Treasury
Department. His articles on economics, politics, and space policy have
appeared in numerous websites and print magazines. His book on monetary
reform, entitled We Hold These Truths: The Hope of Monetary Reform, will
soon be published. He is the author of Challenger Revealed: An Insider's
Account of How the Reagan Administration Caused the Greatest Tragedy of the
Space Age, called by one reviewer, "the most important spaceflight book of
the last twenty years." His website is www.richardccook.com. Comments or
requests to be added to his mailing list or to purchase his special report
on the 2008 election may be sent to [EMAIL PROTECTED]
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