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Secret Fed Loans Gave Banks $13 Billion Banks worldwide earned an estimated $13 billion by taking advantage of below-market rates on emergency U.S. Federal Reserve loans from August 2007 through April 2010. Roll over the bars below to explore details for each. To compare results with banks' net income or losses for the same timeframes, click the corresponding button. Worldwide total is the sum for 190 firms with available data; those banks lost a combined $21.6 billion.
The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.
The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue. (Bloomberg)
Revealed: the capitalist network that runs the world AS PROTESTS against financial power sweep the world this week, science may have confirmed the protesters' worst fears. An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.
The study's assumptions have attracted some criticism, but complex systems analysts contacted by New Scientist say it is a unique effort to untangle control in the global economy. Pushing the analysis further, they say, could help to identify ways of making global capitalism more stable.
The idea that a few bankers control a large chunk of the global economy might not seem like news to New York's Occupy Wall Street movement and protesters elsewhere (see photo). But the study, by a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zurich, is the first to go beyond ideology to empirically identify such a network of power. It combines the mathematics long used to model natural systems with comprehensive corporate data to map ownership among the world's transnational corporations (TNCs). (New Scientist)
Is the SEC Covering Up Wall Street Crimes? Matt Taibbi: A whistle blower says the agency has illegally destroyed thousands of documents, letting financial crooks off the hook. - Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file – "Hey, chief, didja know this guy had two wives die falling down the stairs?" No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.
That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – "18,000 ... including Madoff," as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.
Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency's records – "including case files relating to preliminary investigations" – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term "Orwellian," devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or "Matters Under Inquiry" – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission's internal website. "After you have closed a MUI that has not become an investigation," the site advised staffers, "you should dispose of any documents obtained in connection with the MUI." (Rolling Stone)
Why the Dollar's Reign Is Near an End For decades the dollar has served as the world's main reserve currency, but, argues Barry Eichengreen, it will soon have to share that role. Here's why--and what it will mean for international markets and companies. - The single most astonishing fact about foreign exchange is not the high volume of transactions, as incredible as that growth has been. Nor is it the volatility of currency rates, as wild as the markets are these days.
Instead, it's the extent to which the market remains dollar-centric.
Consider this: When a South Korean wine wholesaler wants to import Chilean cabernet, the Korean importer buys U.S. dollars, not pesos, with which to pay the Chilean exporter. Indeed, the dollar is virtually the exclusive vehicle for foreign-exchange transactions between Chile and Korea, despite the fact that less than 20% of the merchandise trade of both countries is with the U.S.
Chile and Korea are hardly an anomaly: Fully 85% of foreign-exchange transactions world-wide are trades of other currencies for dollars. What's more, what is true of foreign-exchange transactions is true of other international business. The Organization of Petroleum Exporting Countries sets the price of oil in dollars. The dollar is the currency of denomination of half of all international debt securities. More than 60% of the foreign reserves of central banks and governments are in dollars. (Wall Street Journal)
Why Isn't Wall Street in Jail? Financial crooks brought down the world's economy -- but the feds are doing more to protect them than to prosecute them By Matt Taibbi. Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.
"Everything's fucked up, and nobody goes to jail," he said. "That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that."
I put down my notebook. "Just that?"
"That's right," he said, signaling to the waitress for the check. "Everything's fucked up, and nobody goes to jail. You can end the piece right there."
Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world's wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.
This article appears in the March 3, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive February 18.
The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What's more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even "one dollar" just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick "The Gorilla" Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars. - "You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street," says a former congressional aide. "That's all it would take. Just once." (Rolling Stone)
All-Time Record: Wall Street Compensation Hits $135 Billion Wall Street was on the ropes just 25 months ago. Citigroup, Merrill Lynch, Lehman Bros., Bank of America, Wachovia, maybe Morgan Stanley; Goldman Sachs and JP Morgan Chase were wounded. GE could not role over its commercial paper. European banks required cash infusions from our central bank.
Just in the wake of a report highlighting Wall Street’s narrow, selfish imbecilities, we are treated to the stunning realization that the captains of the sinking liner are today enjoying the all-time record payoff for surviving with massive transfusions. The payout of $135 billion to employees of Wall Street firms in 2010 is equivalent to the total market value of both Bank of America and Citigroup. Imagine– in two years. (Forbes)
Goldman shares plunge as feds open criminal probe The SEC brought civil fraud charges against Goldman and a trader in connection with the transactions in 2006 and 2007. The agency alleged the firm misled investors by failing to tell them the subprime mortgage securities had been chosen with help from a Goldman hedge fund client, Paulson & Co., that was betting the investments would fail. Goldman and the trader, Fabrice Tourre, have denied wrongdoing and said they will contest the allegations in court. (Associated Press)
Bernanke Reflects on Fed's Actions in Forum In a forum on the Fed's role in the handling of the economic crisis and recovery, Federal Reserve Chairman Ben Bernanke reflected on his desire not to be the Fed chief who "presided over the second Great Depression." (PBS)
The Great American Bubble Machine From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression — and they're about to do it again - But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy. (Rolling Stone)
Cashing in on 'Government Sachs' The fact that the chairman of the New York Federal Reserve Bank made millions off his secret purchase of Goldman Sachs stock, "in violation of Federal Reserve policy," as the WSJ put it, at a time when the N.Y. Fed was ostensibly overseeing the antics of the Wall Street firm, has barely registered a blip of outrage (Huffington Post)
Soros sees no bottom for world financial 'collapse' Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.
Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.
He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system. (Reuters)
U.S. Taxpayers Risk $9.7 Trillion on Bailout Programs, would've paid for 90% of all mortgages The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.
The Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation have lent or spent almost $3 trillion over the past two years and pledged up to $5.7 trillion more. The Senate is to vote this week on an economic-stimulus measure of at least $780 billion. It would need to be reconciled with an $819 billion plan the House approved last month.
Only the stimulus bill to be approved this week, the $700 billion Troubled Asset Relief Program passed four months ago and $168 billion in tax cuts and rebates enacted in 2008 have been voted on by lawmakers. The remaining $8 trillion is in lending programs and guarantees, almost all under the Fed and FDIC. Recipients’ names have not been disclosed.
“We’ve seen money go out the back door of this government unlike any time in the history of our country,” Senator Byron Dorgan, a North Dakota Democrat, said on the Senate floor Feb. 3. “Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?” (Bloomberg)
Fed Refuses to Disclose Recipients of $2 Trillion Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression - Bloomberg didn’t receive a formal response that would let it file an appeal within the legal time limit. (Bloomberg)
We Need a Bank Of the World The financial crisis is global, and only an international central bank can deal with it - If George W. Bush's upcoming global summit on how to fix the world's broken financial system—an event proposed by several European presidents and prime ministers—is to be a serious effort, the leaders should begin laying the groundwork for establishing a global central bank. - Had it existed, a global central bank would have acted without the air of panic that has been exhibited by national central banks and finance ministries in this meltdown. Ideally, it would have gathered its governing board well in advance of a financial blowup to execute a coordinated rescue and global-stimulus plan, part of what should be its ongoing role of preparing for crises.
It would be hard to overestimate the political pushback that any official proposal for a global central bank would draw from various constituencies, most especially within the United States. Among their many charges, critics will protest the establishment of "world government." But we have a World Trade Organization with legally binding powers over trade disputes. We have a World Health Organization for communicable disease with the ability to quarantine entire countries. And a World Court functions today that has considerable legal and moral clout.
No one should want too much globally centralized oversight. But the world's gathering misery shows that too little leadership from the center can be equally dangerous. The November summit itself won't solve anything, but if it gave instructions to finance ministers and central bankers to explore what a new central bank could do, with a deadline to come back with concrete ideas shortly after a new U.S. president is inaugurated, it will have made real progress on one of the great problems of our times. (Newsweek)
The Guys From ‘Government Sachs’ This summer, when the Treasury secretary, Henry M. Paulson Jr., sought help navigating the Wall Street meltdown, he turned to his old firm, Goldman Sachs, snagging a handful of former bankers and other experts in corporate restructurings (New York Times)
More Bitter Pills For Big Pharma: Patents are expiring on blockbuster drugs, and there's not much in the pipelines -- Executives fear that Washington will get tough in the wake of the Vioxx debacle Last year, Merck & Co. made pharmaceutical history as the company that suffered the greatest agony due to a pain remedy. In September, Merck withdrew Vioxx, its $2.5 billion pain medication, after a study confirmed fears that the drug raised the risk of heart attacks.
Within weeks, Merck had plenty of company: A study linked Pfizer Inc.'s (PFE ) Celebrex to heart problems. Eli Lilly & Co. (LLY ) warned of potential liver problems with Strattera, a drug for attention-deficit hyperactivity disorder. AstraZeneca PLC (AZN ) disclosed that Iressa, a lung cancer treatment, did not extend patients' lives. And Crestor, a cholesterol-lowering drug from the same company, fell under scrutiny for potential side effects. By the end of the year, all this heat was battering pharmaceutical company valuations and misting future prospects for drug stocks.
The current year is unlikely to mark a return of robust health for the drug sector. A preliminary estimate from business information and consulting firm IMS Health (RX ) shows drug sales in the U.S. will be up 9.5% this year, to $259 billion. That's a tad better than 2004, with estimates showing sales rising 9%. But it's hardly a stellar performance: The industry hadn't posted single-digit growth since 1994. (Bloomberg)
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