Timothy Geithner reportedly says “we’re having a major financial crisis in part because of failures of supervision” — despite the fact that he ‘regulated’ major U.S. banks before becoming the U.S. Treasury Secretary. Now Geithner allegedly wants to clean up the mess he helped create.
In September 2005, Geithner started a process that helped streamline an antiquated system that threatened Wall Street’s boom. Billions of dollars worth of credit derivatives were being traded daily as banks and investors worldwide tried protecting themselves from losses on increasingly complex and risky financial bets.
Geithner, then head of the Federal Reserve Bank of New York, pressed 14 major financial firms to build an electronic network that would make the market easier to monitor. By the Fall of 2006, the new system helped the derivatives trade become more efficient. During this streamlining process, clear signs of a catastrophe in the making were missed.
Once the housing market collapsed, derivatives stoked the fires that ignited inside some of the biggest banking companies that failed to assess an array of risks they were taking that emerged as a key element in the multitrillion-dollar meltdown of the global financial system.
Despite repeatedly raising concerns about the failure of banks understanding their risks, Geithner and the Federal Reserve system did nothing to stop the troubles as they ensued, primarily because he and other ‘regulators’ relied too much on assurances from senior banking executives that their firms were safe and sound. The Fed did not use key enforcement tools until it was too late.
Pushing for Financial Regulation and More Authority For the Fed
Now Geithner is pushing for the biggest expansion of financial regulation since the Great Depression. His plan would empower regulators to broadly analyze risk and would grant more authority to the Fed and its 12 reserve banks.
The Fed was responsible for watching for systemwide risks but Geithner said the Fed was limited by a lack of explicit authority over financial institutions outside of the banking system — such as American International Group — whose fraudulent derivative schemes helped fuel the financial collapse last September.
Credit-default swaps — one type of derivative — operate like insurance for complex financial transactions. They enhanced Wall Street’s ability to package mortgages into exotic securities they were able to resell to investors. That fueled the housing bubble by expanding the supply of money for home loans.
In 2005, Alan Greenspan, then chairman of the Federal Reserve, said that the development of credit derivatives contributed to the stability of the banking system by allowing banks, especially the largest, systematically important banks, to measure and manage their credit risks more effectively. In May 2006, Geithner also cited the merits of credit derivatives, saying they “probably improve the overall efficiency and resiliency of financial markets.”
By that time, some financial institutions worried about the subprime mortgages underlying exotic securities but few understood the magnitude of the impending disaster. Nobody seemed to be aware that credit derivatives moved from alleged risk diversification and a risk management vehicle to what H Rodgin Cohen, a NY attorney for large financial companies, referred to as the world’s biggest gambling casino.
Collusion Between The Fed and Wall Street Needs to End
That same year Geithner initiated what the Washington Post called a Fed-wide review of how well financial giants were able to measure their ability to survive the stresses of a market downturn. The reviews turned up several weaknesses and found that banking companies were pretty good at measuring the risks to specific parts of their businesses but had little understanding of the dangers to the institution as a whole. The firms also failed to take worst-case scenarios that ended up crippling several banking giants to account.
Banks fought back against the stress tests and thought that testing for worst-case scenarios was implausible. ‘Regulators’ did not take forceful action to correct the risk-management deficiencies until the crisis occurred.
Geithner and his colleagues didn’t utilize some of the harsher tools that were available and brought no formal enforcement actions against the banks to bring them into line nor did the Fed use its confidential process to downgrade any large banks risk ratings which could have triggered costly consequences for the firms.
Instead, they relied on the larger banks assurances that the quality of their loans and investments remained “strong” so the Fed concluded that there were no substantial issues of supervisory concern.
Geithner’s close relationship with Citigroup also raises several concerns. According to the Washington Post, no banking firm has received a larger bailout than Citigroup. The Fed has been playing the financial system for too long and it’s time to do something about it. A lot more information can be found in the article from The Washington Post.
The Rich Will Get Richer Under Geithner’s Plan
Geithner’s $1 trillion plan to subsidize the purchases of junk mortgages and their derivatives, according to AlterNet, will help alleviate the stress on the banking system. It will make things better, but it will not actually clean up the mess in our banking system. Some hedge and equity fund managers could end up making hundreds of millions or even billions of dollars off of Geithner’s plan.
Those who end up getting exremely rich off of Geithner’s plan, under current law, will pay a very low tax rate, lower than those paid by teachers and firefighters.
Another Wall Street benefit of Geithner’s plan allows those who defrauded the U.S. and bankrupted their banks to keep their jobs and earn multi-million dollar salaries. Washington keeps coming up with plans that benefit Wall Street because they too benefit from being in Wall Street’s pocket. Some of the taxpayer funded bailout money received by these large financial firms has been ‘donated‘ to some members of Congress.
Many of the largest banks are actually bankrupt. They’re concealing it by listing assets on their books at prices way above market value. They’ll be able to do this for a long time unless the Government forces them to write-down the actual value of those assests. As long as the banks are bankrupt, the ability of many businesses to get capital will be limited and the banks won’t make new loans. Instead of cleaning up and fixing the problem, Geithner will instead use more deception and continue the ongoing screwing of America by Wall Street. More information can be found in the article from AlterNet.
Geithner Has a Dirty Little Secret
Geithner’s plan — the so-called Public-Private Partnership Investment Program or PPPIP — will not result in funneling credit to business and consumers. It will reportedly pour more taxpayer money into Wall Street without demanding any changes to how they do business.
The PPPIP will sustain the weak banks, which in this case are the five largest banks in the system. The ‘dirty little secret’ Geithner is trying to hide from the public involves those five banks that are at the heart of the problem with the world’s financial system involving so-called Credit Default Swaps.
Geithner’s dirty little secret, as noted by 321Gold.com, is that the repeal of the Glass-Steagall Act and the passage of the Commodity Futures Modernization Act in 2000 allowed the creation of a tiny handful of banks that would virtually monopolize key parts of the global ‘off-balance sheet’ or over-the-counter derivatives issuance.
Five U.S. banks hold 96% of all U.S. bank derivatives positions and 81% of the total net credit risk exposure in the event of default. JP Morgan Chase holds $88 trillion in derivatives. Bank of America holds $38 trillion in derivatives, Citibank holds $32 trillion in derivatives and Goldman Sachs holds $30 trillion in derivatives. Wells Fargo-Wachovia holds $5 trillion in derivatives and Britain’s HSBC Bank USA holds $3.7 trillion in derivatives. As noted by 321Gold.com, continuing to pour taxpayer money into these banks without changing how they operate is tantamount to treating an alcoholic with unlimited free booze.
The $180 billion — so far — given to AIG in the Government’s bailout has primarily gone to Goldman Sachs, Citibank, JP Morgan Chase, and Bank of America, the banks who believe they are too big to fail. These institutions also believe that they are so large that they can dictate the policy of the Federal Government. They have controlled the U.S. Federal Government by buying off most of the politicians in Washington for several decades.
It’s Time To Break Up the Wall Street Cabal
Geithner and Wall Street are keeping this dirty little secret hidden because they don’t want voters to focus their attention on real solutions like letting the FDIC take over their insolvent institutions, place them in receivership and getting rid of the criminals responsible for all of this. Splitting up these ‘too big to fail’ institutions would make it harder for them to control the Federal Government while blackmailing the entire nation into paying for their crimes.
These five entities need to be broken down and dealt with in order for the economy to return to functioning healthily. Neither Geithner nor Wall Street want this. More information on Geithner’s ‘dirty little secret’ can be found in the article from 321Gold.com.
This country hasn’t learned yet that putting the crooks responsible for the fraud that has collapsed the world’s economy in charge of fixing it is akin to letting a child molester teach kindergarden. It’s a bad idea that will inevitably end up doing more harm than good.
It’s time to break up the Wall Street cabal and return control of the Federal Goverment to we the people. Too many lives have already been destroyed due to the political corruption that has caused a lot of the world to go bankrupt. The Federal Reserve needs to be audited and abolished.
The fraudulent financial follies of our Federal Government and Wall Street need to come to an end and all of the criminals need to be held accountable for their actions.