WHERE WAS THE BLUE-COLLAR COMMUNITY ORGANIZER WHEN TIMOTHY GEITHNER TOLD HIM TO TRUST THE BANKS?
by Robert Scheer
for HUSTLER Magazines – May 2010
What’s up with Barack Obama? I thought this guy had some tough, everyday smarts and, having witnessed life a bit on the mean streets of Chicago, would stand up to the Wall Street big shots who’ve made life so miserable for the little people back in the blue collar communities he once tried to organize. Instead, he got bamboozled by the banking bandits big time and may have fatally sunk his own legacy in the process.
Sure, the President inherited the banking mess rather than helping to create it. That distinction goes to his Republican predecessor George the Second, who fiddled while the financial markets burned. And while the fires raged through the mortgage market, destroying the savings of 15 million families whose homes were suddenly “under water” and in danger of foreclosure, it was Bush who decided to save the bankers and not those they had swindled.
Yet it was Obama who decided to blindly follow Bush’s example and turned to the Democrat toadies of Wall Street who had cooperated in that scam to be his point men on the economy.
One was Timothy Geithner, who was picked by Obama to replace Henry Paulson as Treasury secretary in the obvious but erroneous belief that more of the same— mindlessly throwing money at Wall Street—was the way to go.
Indeed, Geithner was, from jump street, even more enthusiastic than his Republican predecessor in doing just that: In June 2008, while president of the New York Federal Reserve branch, he shocked even Paulson and other GOP bankers in a crisis meeting by proposing they ask “Congress to give the President broad power to guarantee all the debt in the banking system,” according to two participants cited by a New York Times report. Incurring what could be many trillions of dollars in bad debt was too rich for even that crowd. Later, though, in the White House, Geithner was able to maneuver Obama aggressively down that road. The fantasy was that if the banks, who had sunk themselves with high-risk behavior, were made more liquid with government welfare, they, in turn, would bail out beleaguered homeowners.
Of course they did nothing of the sort, as the 15 million families whose homes are under water—real value now falling below the mortgage value—and subject to foreclosure could tell you.
The smoking gun here, the incident that tells you all you need to know about what went wrong with the Geithner plan to help homeowners by bribing the banks, was reported by Joe Nocera in the New York Times back on October 25, 2008, a few weeks before Obama’s victory. An intrepid reporter covering Wall Street, Nocera managed to get in on a conference call of heavyweights at JPMorgan Chase, a bank that was given $25 billion by Bush that it apparently didn’t even need.
“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” one of the top bankers on the call said, according to the Times, gloating over the fact that his bank was not in as much trouble as some of the others. But JPMorgan Chase was going to take the money and run—not in the direction of helping families stay in their homes but in locking up profits in other distressed banking properties. “What we do think it will help us do is perhaps be a little more active on the acquisition side or opportunistic side for some banks who are still struggling,” the aforementioned banker added.
That strategy, the same as the one employed by Goldman Sachs and the others who got more money from the Feds than they needed, paid off super-big. By the end of Obama’s first year in office the banks reported an all-time record of $145 billion in payouts to their top executives. JPMorgan Chase garnered $11.7 billion but didn’t put it into lowering the terms for distressed homeowners.
As the guy on the call had correctly predicted in what was supposed to be a secret conference call 14 months earlier, “We would think that loan volume will continue to go down as we continue to tighten credit.”
The dismal results of the misplaced trust the United States put in these banks have been reflected in Obama’s falling poll numbers as homeowners, the unemployed and stressed small businesses feel the pain of that tight credit market. Folks have turned against the President who had promised so earnestly to represent the little guy but who sold out so totally to Wall Street.
Before serving 30 years as a columnist for the Los Angeles Times, Robert Scheer spent the late 1960s as Vietnam correspondent, managing editor and editor in chief of Ramparts magazine. Now editor of TruthDig.com, Scheer has written such hard-hitting books as The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America and his latest, The Great American Stick-Up: Greedy Bankers and the Politicians Who Love Them.
MAY 2010 – HUSTLER Magazine
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