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Paulson's Con

The natural result of the federal government response that emerged over the weekend around the Lehman Brothers catastrophe is to place the venerable Federal Deposit Insurance Corporation, the government institution that insures the bank deposits of hundreds of millions of Americans, in grave jeopardy. While Treasury secretary Henry Paulson and others talk about not sinking taxpayers’ funds into saving Lehman, the real, unstated policy is just the opposite.

It is going to work like this: As it did with Merrill Lynch, the government’s approach to the crisis will force commercial banks to swallow troubled Wall Street investment companies, flooding the commercial banks with the lousy junk bonds and faulty mortgages that the investment companies own, and that started this mess to begin with. More and more commercial banks will find themselves on the edge, and they will turn to the FDIC. But the FDIC can’t possibly shoulder the growing burden. At that point, Congress will have to step in and shore up the FDIC. The deal doubtless will include some version of the S&L bailout, with the creation of a Resolution Trust Company type institution into which the banks can dump the sub-prime mortgages, junk bonds, and the like.

In other words, the public will end up paying for Wall Street’s financial binge. And the leaders of the financial community who got us into this expensive mess? They’ll get the traditional golden parachutes and lavish pension arrangements--huge payoffs for screwing the public.

It's worth noting that Sheila Bair, a longtime Treasury Department official who is now head of the FDIC, was one of only a handful of people in Washington who repeatedly warned then Fed Chairman Alan Greenspan about the dangers of unregulated banking in general, and the growing housing bubble in particular--warnings that Greenspan roundly ignored. As French economist said of Greenspan last year, "He created four major crises: savings and loans, LTCM [Long-Term Capital Management], new-technology shares, and subprime mortgages," and then won praise for his handling of these crises. "He's congratulated for his role as fireman," said Artus, "but he's the one who started the fire." Now its U.S. taxpayers who will get burned, through the very institution--the FDIC--that FDR created 75 years ago to protect them.

Comments

They don't get their golden parachutes and insane pensions for screwing the public. They get them for helping members of Congress and the rest of the current regime get into power and stay there.

Posted by: smitisan on 09/16/08 at 7:26 AM Respond

They get the golden parachutes - we get the golden shower.

Posted by: Gary on 09/16/08 at 8:09 AM Respond

It's Tuesday morning and stocks are rebounding because the Fed pumped 70 billion into Wall Street. That would be great if it was actually real money, but with the war's black budget and the current deficits, where is this money coming from? I wouldn't be surprised to see a run on the banks this afternoon wipe that 70b right out. Oh well, better to be pissed on. . . No, wait, how's that go? You can piss on half the people some. . . No. Piss on me once, shame on us? Is that it? Dawg.

Posted by: smitisan on 09/16/08 at 8:44 AM Respond

I hope everyone used their Bush tax rebate checks to buy Rosetta Stone's program for learning Mandarin.

Posted by: bacon on 09/16/08 at 9:09 AM Respond

Shareholders have lost money, but at least they can claim the capital tax losses and move onto their next investment. It is it is the unfortunate employees who suffer the most at the end of the day because not only do they rely on the company for their paycheck and livelihood, they also tend to be long term stock holders (via ESPP)

Posted by: Andy on 09/16/08 at 10:16 AM Respond

There is no taxpayer bailout of Lehman, dude. Paulson never even considered it.

Posted by: eh on 09/16/08 at 12:30 PM Respond

These Jewish speculators are very cleaver.

Posted by: Bob on 09/16/08 at 8:34 PM Respond

This seems to be the next Great Depression. This was intentionally planned, as are all market swings. The market is fully controlled by the corporate-owned Federal Reserve which has been in power since 1913. The transfer of wealth away from the US middle class is agenda #1. Once the middle class is poor, they will have no power to challenge the international central banking families that own the US government and several other governments. Socialism will be presented to us as a means to save us from the crisis created by these same people. Socialism will lead to communism and this will help allow the elites to remain in power indefinitely. You have to destroy the middle class to protect your power.

Posted by: Don on 09/23/08 at 9:05 AM Respond

Posted by: Don on 09/23/08 at 9:08 AM Respond

This seems to be the next Great Depression. This was intentionally planned, as are all market swings. The market is fully controlled by the corporate-owned Federal Reserve which has been in power since 1913. The transfer of wealth away from the US middle class is agenda #1. Once the middle class is poor, they will have no power to challenge the international central banking families that own the US government and several other governments. Socialism will be presented to us as a means to save us from the crisis created by these same people. Socialism will lead to communism and this will help allow the elites to remain in power indefinitely. They have to destroy the middle class to protect their power. History has shown this same pattern, over and over. They seem to want to go back to ancient Babylon, when the elites rules the slave class.

Posted by: donn on 09/23/08 at 9:10 AM Respond