I want to thank Stranded Wind for his great diaries and for introducing many of us (self included) to The Automatic Earth. If you desire to be reality-based, then you could do worse that to read the blog.
Just this week, Illargi started posting twice a day, once midday and again 2 or 3 hours after the markets close. Illargi does a fantastic job identifying and posting key articles on finance from around the globe. Some of the articles are provided to show the BS that is being fed to the public while others provide laser insight that cuts right through the very same BS.
I'll highlight one by F. William Engdahl that is a great example of laser insight. Note that the link is to the source, not the repost on The Automatic Earth:
Geithner’s 'Dirty Little Secret': The Entire Global Financial System is at Risk
When the Solution to the Financial Crisis becomes the Cause
Please jump the fold for an overview...
Some clear sighted members here at the DK have noted that Geithner appears more concerned with saving certain US banks rather than saving the valuable functions that banks are supposed to provide. Unfortunately, that observation is exactly right. The handful of banks that Geithner is working so hard to save, are the very ones that are bringing down the entire global system, destroying vast real wealth and our financial means to move to a sustainable future in the process. Block quotes are excerpted from the article, emphasis is mine.
The Geithner Plan, his so-called Public-Private Partnership Investment Program or PPPIP, as we have noted previously is designed not to restore a healthy lending system which would funnel credit to business and consumers. Rather it is yet another intricate scheme to pour even more hundreds of billions directly to the leading banks and Wall Street firms responsible for the current mess in world credit markets without demanding they change their business model.
The ‘dirty little secret’ which Geithner is going to great degrees to obscure from the public is very simple. There are only at most perhaps five US banks which are the source of the toxic poison that is causing such dislocation in the world financial system. What Geithner is desperately trying to protect is that reality.
Engdahl explains that ordinary loan losses, which have been the cause of previous bank crises, are not the problem this time, despite right wingnutia claims to the contrary. Rather financial derivatives, especially Credit Default Swaps, are the cause this time around.
He goes on to explain that in 2000, Larry Summers, Obama's chief economic advisor, was Clinton's Treasury Secretary. Summers convinced Clinton to sign several Republican bills into law which opened the floodgates for banks to abuse their powers. The $5 billion that lobbyists spent on the effort in the late 90s clearly made a difference.
As many on the DK are already aware, one such law that Summers got through was the repeal of the 1933 Depression-era Glass-Steagall Act that prohibited mergers of commercial banks, insurance companies and brokerage firms.
A second law backed by Treasury Secretary Summers in 2000 was an obscure but deadly important Commodity Futures Modernization Act of 2000. That law prevented the responsible US Government regulatory agency, Commodity Futures Trading Corporation (CFTC), from having any oversight over the trading of financial derivatives. The new CFMA law stipulated that so-called Over-the-Counter (OTC) derivatives like Credit Default Swaps, such as those involved in the AIG insurance disaster, (which investor Warren Buffett once called ‘weapons of mass financial destruction’), be free from Government regulation.
Summers assistant at the time was Tim Geithner, Obama's US Treasury Secretary.
To have Geithner and Summers responsible for cleaning up the financial mess is tantamount to putting the proverbial fox in to guard the henhouse.
What Geithner does not want the public to understand, his ‘dirty little secret’ is that the repeal of Glass-Steagall 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. Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default.
The five are, in declining order of importance:
- JPMorgan Chase which holds a staggering $88 trillion in derivatives
- Bank of America with $38 trillion in derivatives
- Citibank with $32 trillion
- Goldman Sachs with a ‘mere’ $30 trillion in derivatives
- Wells Fargo-Wachovia Bank at $5 trillion
Britain’s HSBC Bank USA has $3.7 trillion. After that the size of US bank exposure to these explosive off-balance-sheet unregulated derivative obligations falls off dramatically.
As has also been reported at the DK, the Government bailouts of AIG at over $180 billion to date has primarily gone to pay off AIG’s Credit Default Swap obligations to counterparty gamblers Goldman Sachs, Citibank, JP Morgan Chase, Bank of America.
Some have called it a bankers’ coup d’etat. It definitely is not healthy. This is Geithner’s and Wall Street’s Dirty Little Secret that they desperately try to hide because it would focus voter attention on real solutions.
So there it is folks. Geithner, Summers and, I hate to say it, by extension, Obama, are protecting what must be allowed to fail. It is insanity (at best) that these banks have not already been placed into receivership.
This is what Wall Street and Geithner are frantically trying to prevent. The problem is concentrated in these five large banks. The financial cancer must be isolated and contained by Federal agency in order for the host, the real economy, to return to healthy function. This is what must be put into bankruptcy receivership, or nationalization. Every hour the Obama Administration delays that, and refuses to demand full independent government audit of the true solvency or insolvency of these five or so banks, inevitably costs to the US and to the world economy will snowball as derivatives losses explode. That is pre-programmed as worsening economic recession mean corporate bankruptcies are rising, home mortgage defaults are exploding, unemployment is shooting up.
Many of us were deeply unhappy when Obama chose Summers and Geithner. Without understanding the details presented in this article, I knew that they were truly terrible and terrifying choices. Now I see incontrovertible evidence proving our foreboding correct.
I do not know whether Obama is unaware of the utterly corrupt and functionally evil work of Summers and Geithner or if he is under some kind of thrall or threat from the forces they represent (Tin Foil Hat tip to Lincoln and Garfield who were no fans of allowing private banks to control the destiny of our country). What is crystal clear is that the only way we will save our economy is by demanding and requiring as citizens of OUR country that these 5 banks be placed IMMEDIATELY into receivership as a first step.
In conclusion, Engdahl has this to say:
Once the five problem banks have been put into isolation by the FDIC and the Treasury, the Administration must introduce legislation to immediately repeal the Larry Summers bank deregulation including restore Glass-Steagall and repeal the Commodity Futures Modernization Act of 2000 that allowed the present criminal abuse of the banking trust. Then serious financial reform can begin to be discussed, starting with steps to ‘federalize’ the Federal Reserve and take the power of money out of the hands of private bankers such as JP Morgan Chase, Citibank or Goldman Sachs.