"Charting the Road to Ruin . . . Good Billions After Bad?"

Hurray!!!! The Wall Street Journal reports that Ron Paul (R-TX) (and Alan Grayson (D-FL)) call for "Delay in Bernanke Confirmation."

In a letter they will send to Senate Banking Committee Chairman Christopher Dodd this afternoon, Reps. Ron Paul (R., Tex.) and Alan Grayson (D., Fla.) will ask that the Senate hold off on Federal Reserve Chairman Ben Bernanke’s confirmation hearing until the central bank releases more information about its rescues. (Read the full letter.)

It is up to the Senate and not the House to confirm the Fed chairman, and the congressmen’s letter might not carry much weight in the neighboring chamber. Still, it is a sign of the potentially hostile environment Mr. Bernanke could face when he returns to Congress in the weeks ahead to defend his policies in confirmation hearings. Mr. Paul has won broad support in the House for a bill that would subject the Fed to audits by Congress’s Government Accountability Office.

And thank whatever deity you thank for providence for Matt Taibbi. He has exposed exactly how Bear Stearns' casino gods stole the last of your great-grandchildren's tax dollars with a technique that the mafia gods could only admire.

In “Wall Street’s Naked Swindle” in Rolling Stone’s new issue, Matt Taibbi examines how a scheme to flood the market with counterfeit stocks helped kill Bears Stearns and Lehman Brothers — and the feds have yet to bust the culprits. The scheme that helped do in two of the five major investment banks in the U.S. is known as naked short-selling — the sale of shares you don’t have or won’t deliver.

(If you would like to make a contribution to Welcome to Pottersville2, please do so now as I urgently need $340 in order to pay bills so I can continue to write for and gather insightful essays for this blog. I know that everyone is asking for your help due to the increasingly bad economic times (and gosh knows no one has it easy anymore), but please consider making even a small donation to my site if you care to continue seeing its content and viewpoint. You may either use the Paypal button on the top left of this site, or send me an email at susanwinstoday@yahoo.com for a snail mail address. My heartfelt thanks go out to the lovely people who have supported me so generously in the past. As a terminally loud-mouthed critic of both the foreign and domestic policies of the U.S. since the 80's (from within a management position within the aerospace defense establishment) who will never be employed again but would accept any job or aid offered, I desperately need your help. Thank you!)

Vanity Fair has done us the service of actually figuring out where a lot of the (previously hidden (unaccounted for)) moolah went. And these guys (Donald L. Barlett and James B. Steele) are just being kind to the thieves here really; just trying to trace the money without exactly assigning responsibility - making nice with the mafia dons. (Emphasis marks were added and some editing done for legibility - Ed.)

Good Billions After Bad

As the Bush administration waned, the Treasury shoveled more than a quarter of a trillion dollars in tarp fundsinto the financial system – without restrictions, accountability, or even common sense. The authors reveal how much of it ended up in the wrong hands, doing the opposite of what was needed.

Just inside the entrance to the U.S. Treasury, on the other side of a forbidding array of guard stations and scanners that control access to the Greek Revival building, lies one of the most beautiful interior spaces in all of Washington. Ornate bronze doors openinward to a two-story-high chamber. Chandeliers line the coffered ceiling, casting a soft glow on the marblewalls and richly inlaid marble floor.

In this room, starting in 1869 and for many decades thereafter, the U.S. government conducted many of its financial transactions. Bags of gold, silver, and paper currency arrived here by horse-drawn vans and were carted upstairs to the vaults. On the busy trading floor, Treasury clerks supplied commercial banks with coins and currency, exchanged old bills for new, cashed checks, redeemed savings bonds, and took in government receipts. In those days, anyone could observe all this activity firsthand - could actually witness the government and the nation’s bankers doing business. The public space where this occurred became known as the Cash Room.

Today the Cash Room is used for press conferences, ceremonial functions, and departmental parties. And that’s too bad. If Treasury still used the room as it once did, then perhaps we’d have more of a clue about what happened to the billions of dollars that flew out of Treasury to selected American banks in the waning days of the Bush administration.

Last October, Congress passed the Emergency Economic Stabilization Act of 2008, putting $700 billion into the hands of the Treasury Department to bail out the nation’s banks at a moment of vanishing credit and peak financial panic. Over the next three months, Treasury poured nearly $239 billion into 296 of the nation’s 8,000 banks. The money went to big banks. It went to small banks. It went to banks that desperately wanted the money. It went to banks that didn’t want the money at all but had been ordered by Treasury to take it anyway. It went to banks that were quite happy to accept the windfall, and used the money simply to buy other banks.

Some banks received as much as $45 billion, others as little as $1.5 million. Sixty-seven percent went to eight institutions; 33 percent went to the rest. And that was just the money that went to banks. Tens of billions more went to other companies, all before Barack Obama took office. It was the largest single financial intervention by Treasury into the banking system in U.S. history.

But once the money left the building, the government lost all track of it. The Treasury Department knew where it had sent the money, but nothing about what was done with it. Did the money aid the recovery? Was it spent for the purposes Congress intended? Did it save banks from collapse? Paulson’s Treasury Department had no idea, and didn’t seem to care. It never required the banks to explain what they did with this unprecedented infusion of capital.

Exactly one year has elapsed since the onset of the financial crisis and the passage of the bailout bill. Some measure of scrutiny and control has since been imposed by the Obama administration, but even today it’s hard to walk back the cat and trace the money. Up to a point, though, it’s possible to reconstruct some of what happened in the first chaotic and crucial three months of the bailout, when Treasury was still in the hands of Henry Paulson and most of the money was disbursed. Needless to say, there is no central clearinghouse for information about the tarp money. To get details of any kind means starting with the hundreds of individual recipients, then poring over S.E.C. filings, annual reports, and other documentation — in other words, performing the standard due diligence that the government itself failed to perform.

In the report that follows, we have no more than dipped a toe into the morass, but one fact emerges clearly: a lot of the money wound up in the coffers of some very surprising institutions— institutions that should have been seen as “troubling” as much as “troubled.”

A Reverse Holdup

The intention of Congress when it passed the bailout bill could not have been more clear. The purpose was to buy up defective mortgage-backed securities and other “toxic assets” through the Troubled Asset Relief Program, better known as TARP. But the bill was in fact broad enough to give the Treasury secretary the authority to do whatever he deemed necessary to deal with the financial crisis. If TARP had been a credit card, it would have been called Carte Blanche. That authority was all Paulson needed to switch gears, within a matter of days, and change the entire thrust of the program from buying bad assets to buying stock in banks.

Why did this happen? Ostensibly, Treasury concluded that the task of buying up toxic assets would take too long to help the financial system and unlock the credit markets. So, theoretically, something more immediate was needed — hence the plan to inject billions into banks, whether or not they wanted or needed the money. To be sure, Citigroup and Bank of America were in precarious condition. So was the insurance giant A.I.G., which had already received an infusion from the Federal Reserve and ultimately would receive more TARP money—$70 billion—than any single bank. But rather than just aiding institutions in distress, Treasury set out to disburse money in a more freewheeling way, hoping it would pass rapidly into the financial system and somehow address the system-wide credit crunch.

(How did the economy get into this mess? Visit our archive “Charting the Road to Ruin.”)

We'll get the real facts after the coming crash.

Don't hold your breath. Suzan _________________