If there is one blatant fact to be understood from watching the events of the past two-years, it would have to be that we are under the influence of Crony-Capitalism.
The Birmingham Sewer debacle back in 2008 was a prime example of how the public's money can be easily manipulated and stolen. With the need to update the public sewer system, a gang of more than twenty local officials, politicians and businessmen took giant profits, leaving the taxpayer on the hook. Originally estimated to cost $250M. in 1996, through contract-padding, bribes, and graft that figure continued to rise. By the time the mayor, Larry Langford and J.P. Morgan bank were done financing and refinancing the deal (23 times), the tab rose to $5B. JP Morgan made millions on every re-finance while Langford and friends were stuffing their pockets with cash.
All right, you may say, it's the function of Capitalism to earn money, but the key word is "earn". Shuffling paper doesn't earn a dam thing. The results speak for themselves as Jefferson County had to shut down many public services, close the courthouse, jails and police precincts, resulting in massive layoffs so that the bank, JP Morgan could be paid. At one point, it is rumored, JP Morgan paid Goldman Sachs a bribe of $3M to stay away from doing business with Jefferson County, Alabama. The appointed Finance Director was allowed by the County Commissioners to raise sewer rates to meet the payments on the debt, which by 2003 included over $90M in finance charges. The bottom line is that sewer fees which were less than $15/month in 1996, now cost in excess of $64. The current estimate is that every taxpayer in the county will need to pony-up $4,800 each to resolve the debt.
Crony-Capitalism, complete with back door deals, bribes, hush money, and financial corruption almost placed Jefferson County into bankruptcy. JP Morgan was fined $25M for it's complicity and "shook-down" for an additional $50M to aid displaced workers by the SEC. Paying out $75M in the deal was just the cost of doing business to JP Morgan as they made several billions of dollars. While the politicians went to jail, JP Morgan Bank went on to find the next big opportunity.
Rod Blagojevich, Governor of Illinois, and his chief of staff John Harris and five other individuals were indicted by Federal Prosecutors, April 2, 2009 for influence peddling, soliciting bribes, and "pay to play" activities surrounding the appointment of someone to fill the Senate seat left open by Barack Obama.
Additionally, the charges include:
* attempting to extort the owners of the Tribune Company to fire editors at the Chicago Tribune who criticized the governor's handling of state affairs
* abuse of power concerning release of US$8 million of state funds to Children's Memorial Hospital expecting to obtain a $50,000 campaign contribution.
* seeking graft in the form of $2.5 million in campaign contributions (through 2008) from companies and individuals who have received state contracts or appointments.
While Blago sits in a jail cell as his trial is just beginning, those in Congress could easily be accused of the same kind of crimes. The New York Times and the Washington Post both seem to support Republican ideology and fail to report many abuses by Republican Congressional members. Whether this is extortion or just plain editorial clumsiness the results are the same. Congressional members receive campaign contributions every day from industry lobbyist and grant no-bid contracts to their favored friends. They are spending taxpayer money to enrich themselves. If Congressional members are not peddling influence by taking campaign contributions then why do lobbyists even exist. Crony-Capitalism is wide spread and involves just about anyone in power.
The Credit Crisis is on everyone's mind these days, but it didn't happen overnight. Government Sponsored Enterprises (GSE) such as Freddie Mac and Fannie Mae have been buying risky loans since 1993 (thank you Bill Clinton) and labeling them AAA in spite of their sub-prime nature. Freddie & Fannie held or guaranteed 51% of all outstanding home loans in "93. Today they own or guarantee over 53% of the county's mortgages. Backed by the Treasury of the U.S. Government, these two GSEs have received $145B from Washington and expect to see an additional $389B in federal subsidies through 2019. That is, of course, taxpayer money keeping the dream of home ownership alive.
According to a complaint filed by the Securities and Exchange Commission, Freddie Mac, known formally as the Federal Home Loan Mortgage Corporation, misreported profits by billions of dollars in order to deceive investors between the years 2000 and 2002. Rahm Emanuel, the Obama administration's Chief of Staff was named to the Freddie Mac board by President Bill Clinton in 2000 and resigned his position when he ran for Congress in May, 2001. Freddie Mac agreed to pay a $50 million penalty in 2007 to settle the SEC complaint and four top executives of the Federal Home Loan Mortgage Corporation were charged with negligent conduct and, like the company, agreed to settle the case without admitting or denying the allegations, according to ABC News. Imagine paying $50M of the taxpayers money to the SEC, another government entity, and still not admitting or denying any wrong doing.
The Financial Meltdown was largely the product of Crony-Capitalism, as Bear Sterns was forced by the Treasury and the FED to sell their business to JP Morgan at $2 a share. Hank Paulson, a former head of Goldman Sachs, and head of the Treasury and Timothy Geitner (Goldman Sachs alumni and president of the New York FED) along with the FED chief Ben Bernanke (GS alumni), refused to give BS government bail-out money (TARP) and forced their stock price to fall from $62.97/share on March 11, 2008 to $2/share on March 15th. The FED had arranged for a 28-day line of credit to keep the doors open at Bear Sterns, but Paulson decided to accelerate the time-line for the credit, giving Bear Sterns a weekend to find a buyer. Bear Sterns opened their books to JP Morgan who discovered that the standard rule of 12 to1 ratio of equity to loans had become a leverage of 33 to 1 mostly because of naked-short-selling. Essentially Bear Sterns held promissory notes and IOUs instead of assets as equity. JP Morgan insisted that they be given $29B in TARP funds to do the deal and Paulson agreed
While Goldman Sachs was shorting Bear Sterns stocks, betting on the failure of the firm, someone unnamed had placed $1.7M worth of options on March 11th that the value of Bear Sterns stock would fall at least 50% in the next 9-days or less. On March 17th that investor was rewarded with $270M. How lucky can one man get ?
Goldman Sachs biggest rival was Lehman Brothers. On September 15, 2008 Lehman Brothers declared bankruptcy as the price of their stock dropped to 21-cents. Treasury Secretary Hank Paulson decided that Lehman was not to get a federal bailout. On the same day Paulson bullied the Bank of America into buying up Merrill Lynch leaving just Morgan Stanley and Goldman Sachs as the only major players left in the industry.
Morgan Stanley and Goldman Sachs both seized the opportunity to become bank holding companies which entitled them to massive emergency federal aid. Normally, this kind of transition required a 5-day waiting period, but Geitner and the FED granted them overnight status. Crony-Capitalism has led to the Too Big To Fail syndrome allowing a multitude of privileges.
The Goldman Sachs connection to all of this is pretty obvious. And our new president has gone out of his way to assure it continues. Obama hired former Goldman Sachs lobbyist Mark Paulson to be chief of staff at the Treasury, Gary Gensler was appointed to oversee the commodities markets and Obama handed control of the Treasury and the FED to Geitner and Bernanke. The Cronies which began the meltdown are now in charge of policing themselves and writing policies. It's beginning to look a lot like "Lord of the Flies"
It has since been discovered that the FED has handed out over $2 Trillion in secret since the meltdown began in 2008. Auditing the Fed will do little in getting that money back, and the public will probably never know the extent of what Crony-Capitalism has cost them.
Wall Street salaries fall for the first time in 2009, with the average security-industry worker earning only $311,279. That is down from the 2008 average of $396,370 according to the New York Times. Not to be outdone, bonuses keep rising. The number of U.S. millionaires rose 15% to 4.7 million last year. Meanwhile Americans receiving food stamps has hit the 40-million mark in March, up 21% from last year (Bloomberg News).
The Gulf oil spill has resulted in 30% of the Gulf of Mexico being closed for fishing. The nation gets 15% of the seafood from this region. Crony-Capitalism has pretty much let the oil companies do as they please as witnessed by the last two months of government inaction. In 1985 there were only 55 federal oil-rig inspectors in the Gulf of Mexico inspecting 400 oil rigs. Today there are 62 inspecting 4,000 oil rigs, according to the Washington Post. Allowing the oil industry write their own policies and do their own policing is like letting a 7-year old loose in a toy store without parental supervision.
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