When people imagine the great American bank robbers, images of Jessie James, Bonnie and Clyde or Baby Face Nelson come to mind. But in reality, what they stole was chump change. Their exploits combined never came close to the $7 trillion dollars that Henry Paulson printed and gave away to the largest financial firms in the world. The robbery was not from the banks, but to the banks from the American people. Not only has Henry Paulson the most successful thief in history, he’s gotten away with it.
The Great American bank heist began over 30 years ago with several deregulations of the banking system dating back to the Carter administration and continuing until the 2008 bubble burst. Most of these regulations were put in place to prevent another Great Depression. The previous unregulated market led to the “Roaring 20s” and the subsequent crash. The only excuse for market deregulation is to recreate the booming economic conditions of the 20s but pull out, or Short, the market in time to make billions. Matthew Sherman points out in his economic paper, “A Short History of Financial Deregulation in the United States,” when and how each deregulation occurred, beginning with the Carter administration. 1978 marked the first deregulation in the case of Marquette v. First of Omaha. In it, The Supreme Court ruled that state anti-usury laws, which limit interest rates, cannot be applied to nationwide chartered banks.
The deregulation occurred during every administration with strong bi-partisan support. But the small fissure was ripped into a chasm when Bill Clinton made Co-Chairman of Goldman Sachs, Robert Rubin, U.S. secretary of Treasury in 1995. Rubin led the , which allowed an insurance underwriter, Travelers, to merge with Citigroup banks. In reality, this was illegal due to the 1933 Glass-Steagall Act. Rubin allowed the merger to happen then killed the Glass-Steagall Act the very next year with the . This allowed a conglomeration of commercial, insurance and investment banking creating an exponential growth to the housing market. , also pushed through by ex-Goldman Sachs man Robert Rubin, legalized the Credit Default Swap (CDS). The 2004 Voluntary Regulation was more of the same. Political affiliation is beside the point, these deregulations were passed with heavy bi-partisan support and expanded every presidency starting with Jimmy Carter through George W. Bush. One of the important aspects of the deregulations and the market boon is the fact that Goldman Sachs is always connected in some way.
One of the great American lies is, “It was irresponsible people who ruined the economy by taking loans they couldn’t afford.” Individuals should never have the power to decide for themselves if they can have a loan or not. It is the job of the banks to look at a person’s finances and decide if they qualify. The bankers are supposed to be the experts and more importantly, they are supposed to be the “gate keepers.” The American public was tricked into mortgages they couldn’t afford through the “teaser” rates, very low interest rates with a very short life span. After a couple years, those interest rates returned to normal levels –or higher– making default inevitable. The banks were making billions of dollars giving out these sub-prime loans. These are loans for people who accrued too much debt to otherwise get a loan. The idea was to extend a life of a loan, and consolidate all debt into the sub-prime, then roll the interest into the principle. Many investors bought the most toxic bonds available, then purchased insurance for those bonds through companies like AIG. This would gain the buyer hundreds of millions, even billions, of dollars. The larger corporations would then hedge these bundled bonds, taking high risk with nothing to fall back on if the risk failed. In a , Nicholas D. Kristof (Vice President of Chase) describes how the banking system pumped through the sub-prime loans in order to make billions.
Deregulating made sub-prime loans possible. The loaning bank would then sell the bond to a bond agent that would bundle them into Collateral Debt Obligations (CDO). The “toxic” bonds were then sold to larger bank for a heavy profit. The sleight of hand came in when S&P and Moody’s gave these toxic CDO’s the top grade: triple A rating. The bloated ratings were driven for profit and not bond assessment. In the paper, “” Moody’s and S&P revenue increase as they continue to rate toxic CDOs. The seemingly random nature of Fitch’s models were so bad they were known as the, “Fitch’s Random Rating Model.” According to the , a U.S. House Oversight panel released an email exchange between two S&P employees including the line, “Let’s hope we are all wealthy and retired by the time this house of cards falters.” All three rating agencies testified before the House Oversight Committee admitting that relaxing standards was necessary for increasing revenue.
The triple A ratings deceived traders to believe the CDOs were first-rate investments. Goldman Sachs then set the value and sold Credit Default Swaps. CDSs are gambles that borrowers will default on their loans. Once CDSs are bought, then they are insured by companies like AGI. The money is being made by people defaulting on their loans! Logically, if Goldman Sachs is selling CDSs as gambles the market will crash due to defaulting of loans, then Goldman Sachs must know, or planned, the housing bubble would pop. Interestingly, in 2006, at the height of the housing market, just one year before the ARMs would begin to increase and cause the default dominoes to fall, Henry Paulson chairman and chief executive of Goldman Sachs becomes U.S. Treasury. The question is: Why would the highest ranking person of a company leave at the height of an economic boom like the housing market in 2006? Adjustable Rate Mortgages would begin increasing after two years from the time of the loan. Paulson left Goldman Sachs one year before the 2005 ARM came of age. For someone who didn’t understand what direction the market was going, he sure picked a good time become Secretary of Treasury. Goldman Sachs dictated the price and sold the CDSs that were nothing more than gambles that homeowners would default. In fact, Paulson didn’t simply know how the market was structured to fail, he gave a talk to investors advising how his government plan would bail out financial institutions and where to put their money. This is highlighted in an . It details how Paulson gave specific information about the moves the Treasury Department would be making to companies such as Citi-group and Goldman Sachs. This type of material was nonpublic and illegal to give out to these hedge-fund managers.
There was never an accident, no “perfect storm.” The 2008 market crash couldn’t have been planned better to make a profit. As a result of hedge-fund schemes cooked up by these companies, we are in the worst recession in decades, the highest unemployment since the Great Depression and hundreds of thousands of people lost their homes and live in poverty. For all these criminal acts, no one has been brought to trial. The Congressional Oversight Committee was a joke. Scams were openly admitted by Standard & Poors, Henry Paulson gave insider information to bond traders and politicians. Not a single person has been brought to trial in the midst of the largest economic crash since the Great Depression. Regulation of the market has not been reestablished. Worst of all, Goldman Sachs has upped their influence in the Obama administration with GS men holding more government seats in his cabinet than all presidential cabinets combined.
The very people who robbed the American public blind are now the ones who are running our banking system.