Rubin, the champion of deregulation who served as Treasury Secretary under Bill Clinton, spent the past few years as the eminence grise of Citigroup. Under his stewardship, what was once the largest banking conglomerate gorged itself on toxic assets while Rubin collected more than $100 million in personal compensation.
Last month, with Citi still hemorrhaging despite an infusion of $45 billion from U.S. taxpayers, Rubin crawled away from the scene of the carnage. On his way out the door, he petulantly told the New York Post that anyone complaining about his compensation needs to understand that he had better offers elsewhere, but took less to play his role in the destruction of the U.S. banking system.
So it should come as no surprise that Rubin’s protege, the tax cheat Timothy Geithner, is as clueless as his mentor.
Geithner emerged in the aptly named Cash Room at the Treasury Department yesterday to unveil his long-awaited plan to rescue the banking system.
With the global financial system completely broken, many leading economists assumed that the new Treasury chief would announce a thinly disguised nationalization of the U.S. banking system. They assumed that Geithner would have no choice but to tell us that Uncle Sam would scoop up all the toxic assets and lock them in a federal vault until they regain a smidgeon of value, and that the government would take a majority ownership stake in all the large banks and recapitalize them. This would be very expensive—say $3 trillion or so—but it might work.
The conventional wisdom said that shareholders in the defunct banks would be told to shut up and accept a nickel for every dollar in worthless equity they hold. Some of us also fantasized that the boards of directors of the defunct banks would be removed and sent to undisclosed locations, where they would be subjected to enhanced interrogation techniques until they reveal what they did with the $400 billion in federal bucks they received last fall.
Well, this was all wishful thinking. Timmy the tax cheat thinks he has a better idea.
Geithner says he plans to give up to $1 trillion to private investors known to speculate in distressed assets — in common Wall Street parlance, these characters are referred to as ”vultures”– and then have them purchase the toxic assets from all the wounded banks.
The new whiz kid at Treasury was short on details, but here’s what it sounds like: The vultures will privately negotiate with the banking executives who destroyed the financial system, so that they can all privately set a value on the toxic assets and make sure that everyone participating in this scheme continues to pad their secret bank accounts in the Cayman Islands. When the big deal is ready to be consummated, Uncle Sam will deliver a bunch of suitcases filled with $1-trillion in crispy new Franklins. The swap probably will take place in an abandoned warehouse in Hoboken.
The only thing missing from this brilliant plan is an announcement that Bernie Madoff will serve as a mediator if the bank frauds and the vultures can’t agree on the vigorish for this mega-transaction.
So it is now obvious that official Washington still has not had the epiphany that has swept across the rest of America – that the real problem is not the banks, but the crooked bankers who have been running them and their fellow masters of the universe who run the government outposts that are supposed to regulate the financial system.
The bank frauds continue to thumb their noses at us as they loot the federal treasury. Over the weekend, two of our largest banking welfare cases, Bank of America and Wells Fargo, used taxpayer dollars to purchase full-page ads in American newspapers to lecture the American people about the importance of letting them do what they know best.
The Wells Fargo ad complained that all this fussiness about bad bank behavior had forced it to cancel its annual “recognition” junkets to Las Vegas for its top executives. Wells Fargo wanted all of us to know how important these trips to Vegas are and how stupid we are for making an issue of them.
Memo to President Obama: It might be prudent to rethink your decision to close the infamous facility at Guantanamo.