The Market Ticker
Commentary on The Capital Markets- Category [Federal Reserve]

smiley

There are times that all I can do is laugh.  This "revelation" by Matt Stoller is one of them.

In other words, Greenberg’s case is revealing that the bailouts were done selectively, and there was an attempt to cover up what happened. The Federal Reserve and the Treasury ended up treating Goldman/JP Morgan/Citigroup shareholders and employees exceptionally well, AIG shareholders less well, and the public like irrelevant peasants. 

Well, sort of.

What's really at issue here is that The Fed and Treasury (along with the Insurance Commissions involved) acted illegally, both in the first instance (either there was a duty to regulate if there was systemic risk and these were regulated industries, in which case they failed to do so, or there was no systemic risk in which case let 'em fail was the only proper outcome) and in the second instance in that the actions The Fed took were not authorized at the time by law and then everyone scrambled for retroactive means to cover their ass.

This narrative is fundamentally dishonest. Opponents of the bailouts said a lot of things at the time about the motives of the people in charge. It turns out that bailout opponents were largely correct, and the bailout apologists were lying and/or wrong. Increasingly, the public, judges, and politicians will recognize that the way the corrupt manner in which bailouts were done turned property rights into an explicit reflection of arbitrarily exercised political power.

This is not news.

Nor is it news that Bernanke lied regarding to the commercial paper market; he claimed TARP was necessary to protect it, TARP was passed, Paulson knew before it was passed that he had modified its intent to not rescue commercial paper but did not tell Congress this and then Bernanke set up his own facility at The Fed to perform that rescue -- without TARP, thereby proving it was unnecessary for that purpose (in other words, proving up his own lie.)  Neither Bernannke or the Fed ever answered for that lie or the myriad others he told during that period of time, despite myself and others calling him on the carpet for same.

One of the most-outrageous examples of these "fibs" was Bernanke's testimony shortly after the collapse occurred that he had been "adding liquidity" into the maw of the collapse itself.  As I pointed out at the time from data published by the NY Fed itself The Fed did no such thing -- it in fact drained system liquidity into the maw of the collapse.

GM was another example.  Those who held GM credit were unlawfully dispossessed of their right to recover in bankruptcy what was theirs because payouts were made to others who held inferior positions in the capital structure (primarily the UAW via their benefit programs.)  Those who were disadvantaged sued and lost.

Then there were those who bought various structured products that were designed so that in order to look at the documentation necessary to make a claim for fraud you needed a supermajority that included the super-senior tranche holders.  You could never get there, since those people were kept whole even if everyone else lost 100% of their money and, what's worse, since investigations and document production cost money to perform and that must come from the trust beneficiaries the super-senior holders not only had no incentive to cooperate they had an active incentive to obstruct any such attempt so long as their position was paid out. 

This little clever bit of design made it effectively impossible for any holder of these "products" to sue for fraud on the premise that the underlying loan quality was intentionally misrepresented because they could not gain the documentation necessary to file a suit and actually win, as you can't sue on speculation, you must sue on facts.  That in turn has led to those suits being thrown out.

 

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