Financial coup d’etat in the U.S. – Part 1 – Hello feudalism
By Peter Ewart
Monday, September 22, 2008 03:45 AM
By Peter Ewart
There is no other way to describe it. The biggest financial institutions in the U.S, in league with Republican and Democratic leaders in Congress, are staging a kind of coup d’etat against the American people.
If allowed to proceed, they will put forward legislation later in the week that will assign dictator-like powers to the U.S. Secretary of Treasury and certain big banks, and, using these powers, dump hundreds of billions of more bad debt on ordinary Americans. The consequences are dire, not just for the economy, but also for the civil rights of Americans.
Working behind closed doors over the weekend, leaders of the political and financial elite have been putting the final touches on a plan whereby the big banks and financiers will shift up to $700 billion of bad debt and toxic mortgages (which they created) onto the backs of the American people via the federal government, as well as put themselves in an ideal positon to strike a blow at other competitors, including non-monopoly financial institutions that are smaller or more community and regionally based.
All of this is in addition to the hundreds of billions that have already been pledged to bail out various big banks and other Wall Street financial institutions, as well as pump liquidity into the markets. The scale of this bailout is almost beyond description.
For example, various politicians and bankers are saying that the total amount of the bailout will be between $1 to $1.5 trillion, which is bad enough, being more than the GDP of a country like Canada. The government has already pledged $200 billion alone to prop up the mortgage companies Fannie Mae and Freddie Mac. What the politicians who support this bailout often fail to mention is that the American taxpayer must also now take on the debt of these giant mortgage companies, a sum that adds up to around $5 trillion. If housing prices do not recover (they are already down more than 15% on average), taxpayers could be liable for a substantial portion of that amount.
Likewise with the government bailout of AIG Insurance last week which cost $85 billion and results in the government now owning 80% of the company. One of the reasons why other banks would not touch AIG with a ten foot pole was that, over the last few years, AIG has been heavily involved in what are called “credit default swaps,” a kind of insurance policy for other companies in case they go bankrupt. If the American economy tanks, which many believe it is in the process of doing, no one can really say for sure how much the U.S. government (and the American taxpayer) would get back from the sale of AIG assets, if anything.
It is important to remember that these hundreds of billions of government bailout funds are being directed to aid an extremely tiny, but unimaginably wealthy, section of the population that is notorious for its greed, corruption, high living and recklessness, and that is responsible for hatching up the schemes to spread the bad mortgages, toxic securities, and other questionable financial instruments through, not only the American, but also the world financial system, thus triggering the worst financial crisis since the Great Depression of the 1930’s. Indeed, even the notoriously corrupt emperors Caligula and Nero of Ancient Rome would be shocked by the sheer avarice, arrogance, and egotism of this privileged 21st Century elite.
Examples of their out-of-control greed abound. One individual, Dick Fuld, CEO of the now bankrupt Lehman Brothers, walked off with $490 million for his term of office. Goldman Sachs sold toxic securities to unsuspecting pension funds, companies and individuals around the world, while at the same time selling “short” these securities, i.e., betting that their value would decrease. It is estimated that Goldman Sachs made billions of dollars on this scheme alone, which, if not constituting fraud, certainly borders on it. And there are numerous other examples of both questionable and criminal behavior by top investment banks and brokers.
Which brings us to the legislative proposal that the White House has sent to Congress. Who is spearheading this proposal? None other than Henry Paulson, Secretary of the U.S. Treasury, who, surprise, surprise, was a former official with the same Goldman Sachs. The fox looking after the henhouse, so to speak.
The actual text of the Bush government’s legislative proposal sounds like the proclamation of a banana republic “coup d’etat” and is chilling in its implications. For example, the proposal gives Henry Paulson, as Secretary of the U.S. Treasury, dictatorial powers to designate any financial institutions he chooses as “financial agents of the Government.”
You can bet that the financial institutions that will be handed these extraordinary government powers will not be your local credit union, community-based bank or smaller investment house. Rather it will be the big banks associated with the Federal Reserve and other chosen financial monopolies (both domestic and foreign) that caused the crisis in the first place and are now using it to mount a sort of “coup” against other competitors (especially the smaller, non-monopoly ones), and the American people as a whole.
In other words, the same individuals who wrecked the U.S. financial system are the very ones given the lucrative contract to “rebuild it.” Many analysts are predicting that hundreds of smaller banks and financial companies across the U.S. will go bankrupt in the coming period. Guess who will be swooping in to take over their business.
Further language in the Bush government proposal gets even spookier. Section 8 reads: “Decisions by the [U.S. Treasury] Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
In essence, this is putting above the law any decisions or actions carried out under this Act by the U.S. Secretary or by any financial institutions it has chosen to be “agents of the government.” This is feudal rule, pure and simple, whereby the rulers put themselves over and above the law, and the civil right of citizens to challenge arbitrary decisions does not exist.
Using this anti-democratic legislation, the U.S. government, working on behalf of the big banks, can shift hundreds of billions of dollars of the big banks’ toxic debt onto the American people, as well as knock off other players in the financial sector that are not part of the “chosen few”. And nobody can challenge these decisions. No one can even mount a lawsuit against unfair or discriminatory practices.
How will this cabal of Wall Street financiers that is pulling the strings of the U.S. government wipe out their competition? One way - Designated as “financial agents” of the government, these chosen banks will have huge influence over which financial institutions get to unload their bad debt and which will not. If you are a small bank or credit union somewhere in rural America that has some bad mortgages on your balance sheets and you are not one of the Wall Street chosen few – watch out!
Another way – The big banks will sell their toxic mortgages at top price to the government, say 40 cents on the dollar. Then watch the government turn around and sell these same mortgages back to another arm of the same banks at a big loss, say 10 cents on the dollar. Thus the big banks make bundles of money “going up” and “going down.” This situation is not farfetched at all. Similar shady banking schemes were exposed in the aftermath of the U.S. savings and loans scandal of the 1980s.
To their great shame, both Republican and Democratic Party leaders in Congress, are cheerleading this scheme of the moneybags. The role of the Democrats is particularly treacherous, in that they are proposing a “sweetener” to the scheme, i.e., some form of help for homeowners and ordinary people to add to the “cocktail”.
But people should not be fooled. No matter how much sweetener you add to a poisonous brew, it still remains toxic.
Next installment in the series: “Financial coup d’etat in the U.S. – Part 2 – Make the people pay, pay and pay again”
Peter Ewart is a writer and college instructor based in Prince George, British Columbia. He can be reached at peter.ewart@shaw.ca
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Posted by: Mercenary on September 22 2008 10:22 AM
These same people built up the telecom bubble selling drive-by-bond-sales to unsuspecting investors to raise the funds to build billions of dollars worth of infrastructure mostly with unsecured bonds and equity investments. Once the plug was pulled on the Enron style datacom bubble... the same investment banks who were pumping these companies and doing the drive-bys', were then shorting these same companies (with the Chinese wall removed for investment banks) to the point that the distressed companies had no hope of raising money on the equity side and went into a death spiral to be picked up by the secured bank creditors for as much as 5-cents on the dollar for the infrastructure build out costs.
These bankers needed control of the datacom network infrastructure to run their casino racket around the world faster than any of their competitors, and eventually to control information.
Once they acquired these telecoms for the secured owed... eg Vancouver based 360 networks, $8 Billion global fiber optic infrastructure build out cost, $24 Billion market cap, acquired for $250 million secured owing... in the case of 360 Networks they made the company private and gave the senior management 16% of the new equity for successfully keeping the company whole through the change of ownership to the bank via the bankruptcy courts... and this now debt free telecom with the worlds only mesh network was able to buy out all their competitors (with off shore money stashed in South America during the BK proceedings), as these other competitors went into the same bankruptcy death spiral and ultimately were auctioned off for pennies on the dollar. The telecoms now private (secured converted to equity) with no more build out cost debt for their billion dollar networks... now had the operating ability to undercut any company that didn't also rid itself of debt for the infrastructure build out.
Basically the banks acquired private control over all the fiber optic infrastructure and the companies that operate them and removed them from public disclosure and transparency/accountability ... while they created monopolies by removing the rights of all other stakeholders of acquired companies in a financial death spiral process that was driven by the banks insider interests through out the financial process. There is nothing capitalist about the way the banks acquired those companies when it involved insider information and fraudulent futures manipulations.
The bankers needed these networks to continue the financial crimes we are seeing today coming back to haunt us. It was the template for the current take over plan of the financial sector, and I predict it will be Rothschild's Goldman Sacks that will own almost all of it in the end.
IMO we lost the battle when the financial regulators refused to so much as investigate some of the serious crimes that took place in the previous bubble/bust asset grabs... like what took place during the telecom bubble.
BC dropped the ball in protecting future BC financial and media data when it allowed the sovereign independence of the 360 Network to be given to Wall Street through a BC Supreme Court bankruptcy hearing setting the template for what transpired in the rest of the telecom sector during that meltdown (BC Supreme had the lead over the Manhattan Lower District (Vancouver based with substantial US operations), thus set the precedence for the industry), as well as what we seeing today in the financial sector... and at the time of 360 Netowrks and the BC Supreme setting the precedence... the BC liberals would only say they could not instigate an investigation through the BCSC, because the liberals were elected to deregulate and not to regulate (I thought maybe in forestry, but in administering existing financial laws?).
Pat Bell said at the time that any formal investigation into the $24 billion dollar 360 networks deal in BC Supreme court bankruptcy hearings would send a signal to Wall Street that BC is closed for business and the province would see all investment dry up... and implied to myself that even if there was wrong doing involved it is better to allow the markets to sort it out, so as not to cause injury to the Vancouver Venture Exchange through the perception that BC is back to the same ways as the previous ndp.
I felt opposite to the BC liberal position on deregulation of financial fraud in our markets. I felt that any investor burned in 360 Networks would probably spread the word never again to invest in a BC based company..., because in BC they don't protect their investors through our regulators (BCSC), but rather protect the banks who are taking advantage of average investors to fund their exploration and infrastructure built out risks socializing those costs to investors. Long term this perception of lawless BC financial markets is a bigger problem for BC for BC companies wishing to raise capital, than the alternative of the BC liberal problem avoidance of banks upset because we could investigat financial irregularities in a mega corporate take over.
I think BC had a central role to play in facilitating the financial mess we see now... because the BC government allowed the 360 Networks precedence to be set here in BC that was the precursor to what we are seeing today. Of course Gordon Campbell sees little impact for BC from all of this so we shouldn't worry....
Time Will Tell