Millionaire insiders get rescued but what about millions of outsiders?
Public dollars are already lining speculator pockets on Wall Street
Bailing out big banks means more of the same. Look where the AIG money went. Where billions of Fed dollars are going. And the underlying land -- called housing” -- market still has not hit bottom. We trim, blend, and append five 2008 articles: Bloomberg of Sept. 29 by Mark Pittman, the Associated Press of Sept. 29 by Min Lee, Reuters of Sep 24, and CBS MarketWatch of Sept 24 and 17.
by Jeffery J. Smith, September 2008Pittman: As much as $37 billion from federal bailout loans to American International Group Inc. has gone to investment banks including Goldman Sachs Group Inc., the firm Treasury Secretary Henry Paulson used to run.
Without the government money, AIG, which had provided guarantees on bundled mortgages, would’ve gone bankrupt, owing billions to brokers and bankers.
Paulson's successor at Goldman, Lloyd Blankfein, was the only chief executive at a meeting Sept. 15 at the New York Federal Reserve Bank at which the troubles at AIG were discussed, although representatives of other firms were present, a Fed spokesman said.
The same day, when its credit rating was downgraded, AIG needed as much as $37 billion to pay collateral calls from Wall Street firms and others because the value of its holdings had declined.
Later, the Fed appointed a member of Goldman's board, Edward Liddy, to run AIG, replacing Robert Willumstad. Paulson hired former Goldman colleague Edward C. Forst to advise him on his own $700 billion rescue plan. If it goes through, some brokers will reap billions in fees.
As Congress prepares to vote on a broader $700-billion bailout, the payments show how bailouts engineered by Paulson and Federal Reserve Chairman Ben Bernanke are beginning to shift money from taxpayers to Wall Street firms involved in subprime mortgage trading.
JJS: While the Wall Street brokerage with the right connections comes out smelling like roses, one not on the guest list expired. After speculating in mortgages, Lehman Brothers Holdings Inc. filed the biggest bankruptcy in US history on Sept. 15. It reported assets of $639 billion and debt of $613 billion. Their collapse jeopardizes little investors worldwide.
AP: About 400 people marched through Hong Kong's central financial district to nearby government headquarters -- their second protest in a week. These investors in Lehman Brothers accuse Hong Kong banks of misleading them about investment products backed by the failed US investment bank. They urged the Hong Kong government to better regulate methods of selling investment products.
JJS: Regulate? Truth in advertising should be more than a rule, it should be the law. Sellers should disclose all risks, the nature of the asset, and past performance. And don’t let anyone off with a fine. Tell a lie, go to jail.
Meanwhile, don’t look now but the Fed just subsidized another insider.
Reuters: The US Federal Reserve set up $30 billion worth of new currency swaps with central banks in Australia and Scandinavia. The action comes on top of $247 billion that the Fed has already set up for currency swaps with other major central banks: $110 billion with the European Central Bank, $60 billion with the Bank of Japan, $40 billion with the Bank of England, $27 billion with the Swiss National Bank, and $10 billion with the Bank of Canada. Otherwise, banks and brokers are afraid to lend to each other -- the credit crunch -- since none is telling any other how much bad debt in the way mortgages it holds.
JJS: The value of mortgage bundles must keep falling since the value mortgages keeps falling with the falling value of homes, which is really the value of underlying land.
MarketWatch: Resales of US single-family homes and condos fell 2.2% in August. Resales have fallen 10.7% in the past year. The median sales price fell 9.5% in the past year -- a record drop -- to $203,100. According to the Office of Federal Housing Enterprise Oversight -- which over estimates real market prices -- said overall home values were 5.3% lower than in 2007July and down 5.8% since prices hit an 2007 April peak. (MW, Sept 24)
MarketWatch: Home building tumbled again in August, with the number of new building permits for single-family homes dropping to a 26-year low. Starts of new homes fell 6.2% to a seasonally adjusted annual rate of 895,000, the lowest in 17 years. Starts will almost surely fall well below the 1-million-unit mark this year for the first time since 1945. (MW, Sept. 17)
JJS: These figures keep fitting into the 18-year land price cycle. To smooth out that cycle -- and provide a real estate focused cure to a real estate caused crisis -- society as a group, not as competing individuals, needs to recover and share the value of land. Competing in other economic arenas is fine, where individuals create the value of their contributions, of their labor and capital. But land is different, since none of us made Earth and all of as a community create its value, the value of locations.
To recover this “land rent”, we could pay “land dues” (tax, lease, or fee) into the public treasury; to share it, we could get dividends and/or social programs back. Once we, the people, share this stream of spending, then nobody, whether on Wall Street or in Hong Kong, would find it quite so appealing to speculate in mortgages. Without their speculation inflating underlying land prices, defaults are precluded and at little risk the credit market would operate.
Jeffery J. Smith runs the Forum on Geonomics.
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