The Bailout Is a Fraud That Could Bring Down Obama

By Ruth Conniff, The Progressive. Posted April 23, 2009.

"We have lost the ability to be blunt," Black tells Barrons. He is talking about the person he describes to Bill Moyers as a "failed regulator," Geithner. "Now we have a situation where Treasury Secretary Tim Geithner can speak of a $2 trillion hole in the banking system, at the same time all the major banks report they are well capitalized. And you have seen no regulatory action against what amounts to a $2 trillion accounting fraud. The reason we don't see it--aren't told about it--is that if they were honest, prompt corrective action would kick in, and then they would have to deal with the problem banks."

In other words, the banks are insolvent. That's why they must rely on the Troubled Assets Relief Program. But at the same time, they are claiming to be healthy. Both things can't be true.

So we get smiley-face reports about how Goldman and Wells Fargo are posting record profits. Investors and citizens are supposed to be excited to see those profit numbers--comprised of their own tax dollars plus the banks refusing to accurately value their toxic assets.

This is more than an unfortunate downturn, Black says. It is the result of massive, pervasive fraud, and a deregulatory culture that has nurtured criminal behavior by very highly paid bank executives.

The whole culture is rotten. And the regulators come right out of that corrupt, Wall Street culture.

"No one has to tell someone to stretch the numbers," Black says of the way corruption trickles down through these institutions. "It is all around them. It is in the rank-or-yank performance and retention systems advocated by top business executives. Here, the top 20 percent get the bulk of the benefits and the bottom 10 percent get fired. You don't directly tell your employees to lie or cheat. You set up an atmosphere of results at any cost."

Yet we live in a broader culture so enamored of the money-making magicians of Wall Street that a front-page story in the Sunday New York Times is still lamenting the "brain drain" on Wall Street. The lead anecdote features former UBS employee (whose firm's  major screw-ups turned it into a prime TARP welfare recipient). He is so disturbed by shrinking bonuses and a climate of gloom in his old gig that he has moved to the high-rolling Aladdin Capital. That's the real name. As in Poof! There goes your money!

It's time for real regulation to stop all this, says Black. Geithner must go.

"Unless the current administration changes course pretty drastically, the scandal will destroy Barack Obama's presidency," he predicts.

The beauty part: real regulators will have no trouble getting through Congress, Black tells Moyers, because they pay their taxes.

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