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Former Wall Street Player Reveals the Inside World Behind Shady Bailouts to Bankers

An interview with Prins, former managing director at Goldman Sachs, now a razor-sharp financial muckraker and author of the new book, "It Takes a Pillage."

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Geithner, in particular was one of the key architects of the Wall Street bailout and subsidization. In a recent analysis I did of Paulson's phone records, he had 375 direct phone calls with Geithner, compared to just 212 with Ben Bernanke, chairman of the Federal Reserve. Geithner was central to the formation of this bailout, and the N.Y. Fed extended 85 percent of the entire (now) $4.4 trillion of loan facilities that the Fed put on tap to aid for the banking sector (not including GSE's and system injections) under his leadership.

The top guy on Geithner's speed dial today is Goldman Sachs CEO Lloyd Blankfein. There's no scenario under which Geithner would ever say that what he did during the bailout and crisis period was wrong. Bill Clinton still doesn't see how repealing Glass-Steagall was at all involved in this crisis. Summers of course, was treasury secretary that day, a decade ago, when the Glass-Steagall Act was repealed, in fact, he introduced the ceremony.

The big lie about bank consolidation and deregulation was that it was necessary for America to compete in the global markets. Well, American banks lead the crisis, and other nations are right angry with that. So, with the same crew, and with the exceedingly powerful bank lobby pushing for status quo (or worse) every single day, it's hard to see where the appropriate lightbulb of reason and logic will flash.

Paul Volcker, is the one guy on the Obama team calling for a separation of commercial and investment banks and rightly warning that if we don't do that, we have set ourselves up for a greater fall.

JH: So if you were Queen for a day, you'd do things very differently. In the book, you lay out "6 steps to real reform," and I want to focus on one of them. The fourth of your steps is to "fix the entire banking foundation." What does that mean, Nomi? What would it look like?

NP: We need to deconstruct the banking landscape by reinstating the Glass-Steagall Act of 1933 that was repealed in 1999. What the government now considers "too big to fail" I consider "too big to succeed."

Last year's bank crisis devolved into the fastest government consolidation of an industry ever. For their near-failure, the surviving megabanks were rewarded with name changes to allow easier access to government capital and government (i.e. taxpayer) backed mergers.

Today, some are posting record earnings and are on track to record bonuses because of federal subsidies and renewed risk-taking. That means an inherently risky environment, only now with our money on the table, not just the capital banks were lending to each other before the crisis.

A bipartisan Congress, Republican treasury secretary and Democratic president -- FDR, established the Glass-Steagall Act. It was enacted to segment the financial industry into two parts -- commercial banks dealing with the public, and thus taking less risk, and receiving more government backing, and investment banks dealing with speculations and not getting government capital for their self-made problems.

In 1999, a bipartisan Congress repealed Glass-Steagall in a 90-8 vote ([Arizona's Sen.] John McCain didn't vote). Two senators in particular, Byron Dorgan, D-N.D., and the late Paul Wellstone, D-Minn., warned of the impending cost to the American people of recombining the banking system and allowing any commercial bank to merge with any investment bank and insurance company. They were right.

Yet, in a flourishing deregulatory speech condemning the old Depression-era act in the fall of 1999, President Bill Clinton signed our fate -- a gift that would keep taking a decade later. As banks merged with a vengeance across once-defined lines, they needed more and more capital to buy each other and in order to compete with each other -- it didn't matter how they got it or concocted it in shady assets. The result was poorer reporting standards on risk, greater speculative appetite and a multitrillion bailout.