Nobody publicly admits to liking TARP anymore. At one time, it was believed that another 1940s style depression could be averted if the Fed could only print money as needed to prevent a run on the banks. On the subject of too big to fail, US Assistant Attorney General Lanny Breuer had argued against letting banks in the red sell out, downsize, or spin off subsidiaries. He considered it his duty to consider, “that innocent employees could lose their jobs. That entire industries could be affected, and that even global markets will feel the effects.” Ivry noticed he made no mention of “suspicious behavior of large multinational companies, which can also harm people who are innocent.”
Ivry begins the book taking the progressives’ approach to putting a face on the problem. He tells the tale of a single mom who had gotten a mortgage she should never have gotten in the first place. She had been told she was getting a fixed-rate mortgage, but that was not what the documents said. Her problem with mortgage companies was not as pronounced as others’. Toward the end of the book, Ivry tells another tale. A couple was six months away from paying off their $113,000 mortgage when they got a letter from the bank saying they owed $116,000 and monthly payments were rising from $1742 to $5000.
That couple tried to fix the accounting error, but every time they called the bank, they were “pushed” toward getting into the president’s Home Affordable Modification Program. After back and forth and untruthful assurances, the foreclosers showed up at the doorstep. The situation was far from isolated. Although Bank of America was the perp in both of these scenarios, CitiBank was also at fault. Citi demoted and threatened whistleblowers while offering bonuses for employees who could, effectively, process the most defective mortgage applications.
After the big banks wrote a lot of bad mortgages, they employed a number of funky strategies to deal with them, like bundling them with good mortgages for resale, speculating in derivatives games, and even betting against them. Speaking of one tool, Ivry ranted, “I say that if traders persist in buying credit default swaps for corporate bonds they don’t own, then start selling fire insurance on their offices to the general public. . . . Those dollars would be better invested elsewhere, such as figuring out a way to originate and service mortgages without constantly screwing the whole thing up or attempting to issue annual reports that actually tell the public what your bank is up to.”
Ivry was not impressed by obfuscation in financial reports from the large financial institutions. He described the country’s leading financial institutions as country clubs where the bigwigs spoke baloney, played around, and then ran to the Fed to get the taxpayers to compensate them for their incompetence. Printing money is, after all, an indirect tax. Anyway, Ivry held up Bruno Iksil (a.k.a. the London Whale) as the poster child for making a killing on a lucky speculation and selling his superiors on an investment plan that included the likes of, “Go long risk on some belly tranches especially where default may realize.”
Not knowing what is going on is a common feature among people responsible for problems with big banks. Even Senate subcommittees investigating them go soft, as they know it will help campaign contributions. What’s worse, incompetence in the banking world gets rewarded with promotion in government offices and then a return to a high place in the private sector. The process is known as riding the revolving door. Timothy Geithner’s resume is just one example.
When the big boys do know what’s going on, they often wish to protect the public. It was known that the Fed was giving banks money outside of the unpopular TARP program, but nobody knew how much or to whom. Bloomberg demanded the information through the Freedom of Information Act, and when the Fed wasn’t cooperative, Bloomberg sued and won in three rounds. Their prize was 27,000 pages of user-unfriendly data, which staff scoured diligently.
All in all, it seems the Fed has about ten different vehicles for funneling money to banks without the public having to know about it – or being informed in such a manner that they and the experts don’t realize it. Bloomberg sorted out big winners of taxpayer dollars from the Fed’s discount window, a deal endearingly referred to as St. Omo, and other quiet bailouts. Morgan Stanley received $10 billion from TARP but borrowed as much as $107 billion one day. Citigroup received $45 from TARP but borrowed $99.5 billion another time. Bank of America borrowed $91.4 billion on another day. Many have speculated that TARP was intended to bailout either one or three favorite-son financial institutions without singling them out. The Fed would not want to cause a run on a single cooperative bank. Richard Fuld of Lehman Brothers was not in with the in crowd.
As if getting free money from the Fed was not enough, the “big boys” have a history of rewriting laws to suit their needs, and then going ahead and breaking them. Citigroup was described as a supermarket for financial services after it expanded the law to offer deposit banking and speculation from the same pot. As if that wasn’t enough, JP Morgan Chase got permission from the Fed to stretch into trade, defied the restrictions on even that, and then proceeded to play money games with warehouse bottlenecks and loophole freebeeing in California’s energy market.