Four years after the massive bailout that rescued Wall Street, Democracy Now! looks at the state of the financial sector with Rolling Stone’s Matt Taibbi and former financial regulator William Black. In a new article for Rolling Stone, Taibbi argues the government did not just bail out Wall Street, but also lied on the financial sector’s behalf, calling unhealthy banks healthy and helping banks cover up how much aid they were getting. The government’s approach to the banks came under new scrutiny this week after it reached an $8.5 billion settlement for improprieties in the wrongful foreclosures on millions of American homeowners, including flawed paperwork, robo-signing and wrongly modified loans. The settlement will end an independent review of all foreclosures, meaning the banks could be avoiding billions of dollars in further penalties, in addition to criminal prosecution.
"This is a longstanding dispute between the former CEO of AIG, Hank Greenberg, and the government. And it’s funny. If you actually read Greenberg’s suit, there are some points in it that have a little bit of validity. I mean, it’s still preposterous that Greenberg, who was, in a way, kind of like the Patient Zero of the financial crisis, because the scandal that he started at AIG back in the 2000—in the early 2000s. It was a reinsurance scandal where he was artificially inflating the balance sheet of AIG, that led to a downgrade of AIG, which led to the catastrophe of 2008, when the company went into—imploded. And that subsequently caused the entire financial crisis. You can really point to Hank Greenberg as maybe the guy who caused the financial crisis, and here he is suing the American government over the bailout."
"But one of the things he says in this—his lawsuit is that the bailout of AIG was not really a bailout of AIG, it was a bailout of the companies that were owed money by AIG, because they gave 100 cents on the dollar to all the companies—the counterparties of AIG, like Goldman Sachs and Deutsche Bank and Barclays, and that if he were in that position, he would have negotiated a much tougher deal. That’s probably true. I mean, there’s actually some validity to that point, that there’s no way, under any rational circumstances, that those companies should have gotten 100 cents on the dollar for the money they were owed by AIG."
A full transcript of the interview after the jump.
JUAN GONZÁLEZ: We turn now to look at the state of Wall Street four years after the massive bailout and the news of this week’s mortgage settlements with the major banks. Matt Taibbi has just written a new piece for Rolling Stone titled "Secrets and Lies of the Bailout." Also still with us is former financial regulator William Black, author of The Best Way to Rob a Bank Is to Own One. He is an associate professor of economics and law at the University of Missouri-Kansas City.
Matt, beginning with you, the latest announcement of the agreement for some of the banks to pay several billion dollars now to—supposedly to homeowners who were cheated in one way or another in the foreclosure crisis?
MATT TAIBBI: Yeah, I mean, I think this is just—to me, the most significant aspect of this is that it speaks to the failure of the government to address the foreclosure problem still, four and five years after the financial crisis. And one of the points I make in the piece I just wrote, "Secrets and Lies of the Bailout," is that foreclosure relief was originally written into the statute, the TARP statute, as a primary function of the original bailouts. It’s right there in black and white, section 109, that TARP was supposed to provide all—a massive program of foreclosure relief, and they never got around to it. And the only bailout program that ever provided any foreclosure relief was HAMP, and that only—to date, they’ve only ended up spending about $3 [billion] or $4 billion out of all the bailout on that program. They have now—through litigation, there are these settlements that are starting to trickle in, but it’s just too little, too late. And you contrast that with what happened at the beginning of the bailout, where the banks and the financial companies were instantly handed hundreds of billions, trillions of dollars of relief, and I think that that dichotomy is important for people to recognize, that the relief for ordinary people is still coming slowly and insufficiently years later, whereas relief for Wall Street came instantaneously and was excessive.
AMY GOODMAN: The latest news about AIG, the board has decided not to sue the American people—
MATT TAIBBI: Right.
AMY GOODMAN: —for not bailing them out enough, not joining the former CEO, Hank Greenberg.
MATT TAIBBI: I think they probably didn’t want to become a Saturday Night Live routine this weekend, but yeah.
AMY GOODMAN: Can you talk about the significance of this and what actually is going on? Greenberg, the CEO, the former CEO, is suing.
MATT TAIBBI: Right, right, yes. This is a longstanding dispute between the former CEO of AIG, Hank Greenberg, and the government. And it’s funny. If you actually read Greenberg’s suit, there are some points in it that have a little bit of validity. I mean, it’s still preposterous that Greenberg, who was, in a way, kind of like the Patient Zero of the financial crisis, because the scandal that he started at AIG back in the 2000—in the early 2000s. It was a reinsurance scandal where he was artificially inflating the balance sheet of AIG, that led to a downgrade of AIG, which led to the catastrophe of 2008, when the company went into—imploded. And that subsequently caused the entire financial crisis. You can really point to Hank Greenberg as maybe the guy who caused the financial crisis, and here he is suing the American government over the bailout.
But one of the things he says in this—his lawsuit is that the bailout of AIG was not really a bailout of AIG, it was a bailout of the companies that were owed money by AIG, because they gave 100 cents on the dollar to all the companies—the counterparties of AIG, like Goldman Sachs and Deutsche Bank and Barclays, and that if he were in that position, he would have negotiated a much tougher deal. That’s probably true. I mean, there’s actually some validity to that point, that there’s no way, under any rational circumstances, that those companies should have gotten 100 cents on the dollar for the money they were owed by AIG.
JUAN GONZÁLEZ: William Black, I’d like to ask you about this whole issue of the mortgage settlement that was announced. It is really, to me, amazingly scandalous that, years later, justice has not been forthcoming for all of these homeowners who lost their homes. I think the settlement calls for about $3.5 billion in cash to some three million homeowners; that works out to maybe about $1,000 a homeowner. And here we had instances of banks, with the massive robo-signings, evicting people from homes that they didn’t even legally own at the time. And the thing became such a mess that the government review ended up wasting about a billion dollars just on the consultants hired to review all the bank foreclosures. What do you make of this settlement?
WILLIAM BLACK: So, the first thing is, this is more of what Matt and people like me have been writing about for years: the complete immunity of the elite Wall Street folks who caused this crisis through fraud, who became wealthy because of those frauds, and were then bailed out as a result of their frauds. None of them are being prosecuted. So we have admissions—and, by the way, this would have continued but for the discovery of this fraud. In other words, the banks weren’t stopping it on their own.
The robo-signing, that means what they were doing was lying systematically to the tune, typically, of the large places, of 10,000 times a month, so over 100,000 times a year, committing felonies that would lead to people being made homeless in America, in many cases. It’s just an astonishing aspect that nobody has gone to prison for all of this and that they gave them one of the largest grants of immunity you’ll ever see.
Second thing, as you say, the money in the press reports is grossly inflated. There’s only about $3 billion in cash. You’re quite correct, that works out to less than $1,000 per victim. So it is exactly what Barofsky quotes Geithner as saying, that these housing programs were not designed for the victims; they were designed to, quote, "foam the runways" for the banks to reduce their loss exposure. So the rest of the supposed $5 billion in settlement is really just what in the commercial world we call "troubled debt restructurings," which are the things you would do anyway if the government didn’t exist, because in most cases it’s better for the bank not to have the default, to instead reduce the principal slightly. So, none of that is actually a bailout. None of it is actually a settlement. It’s just the banks doing that which will profit maximize for the banks anyway.
AMY GOODMAN: ...June, when JPMorgan Chase’s Jamie Dimon testified on Capitol Hill. This is Oregon Democratic Senator Jeff Merkley questioning Dimon.
SEN. JEFF MERKLEY: In 2008, 2009, your company benefited from half-a-trillion dollars in low-cost federal loans, $25 billion in TARP loans, of TARP funds, untold billions indirectly through the bailout of AIG that helped address your massive exposure in repurchase agreements and derivatives. With all of that in mind, wouldn’t JPMorgan have gone down without the massive federal intervention, both directly and indirectly, in 2008 or 2009?
JAMIE DIMON: I think you were misinformed. And I think that misinformation is leading to a lot of the problems we’re having today. JPMorgan took TARP because we were asked to by the secretary of Treasury of the United States of America, with the FDIC in the room, head of the New York Fed, Tim Geithner, chairman of the Federal Reserve, Ben Bernanke. We did not, at that point, need TARP. We were asked to, because we were told—I think correctly so—that if the nine banks there—and some may have needed it—take this TARP, we can get it to the—all these other banks and stop the system from going down. We did not—
SEN. JEFF MERKLEY: I’m going to cut you—
JAMIE DIMON: We did not borrow from the Federal Reserve, except when they asked us to. They said, "Please use these facilities, because it makes it easier for other" —
SEN. JEFF MERKLEY: We would all like to be asking—
JAMIE DIMON: And we were not bailed out by AIG, OK? If AIG itself would have—we would have had a direct loss of maybe a billion or $2 billion if AIG went down, and we would have been OK.
SEN. JEFF MERKLEY: Then you have a difference of opinion with many analysts of the situation who felt the AIG bailout did benefit you enormously. And I’m not going to carry that argument with you now.
JAMIE DIMON: Well, but they’re factually—
SEN. JEFF MERKLEY: Sir—
JAMIE DIMON: They’re factually wrong.
SEN. JEFF MERKLEY: Sir, this is not your hearing. I’m asking you to respond to questions. And I also only have five minutes.
AMY GOODMAN: That was Oregon Democratic Senator Jeff Merkley questioning JPMorgan Chase’s Jamie Dimon. Matt Taibbi, the significance of this exchange?
MATT TAIBBI: Well, I think that’s one of the things that’s really interesting. And one of the things that I write about in this article is that this is what Neil Barofsky, the bailout inspector, calls the "original sin" of the bailout, which is this moment in time where—right after TARP was passed, where the government elected to call companies that were unhealthy and insolvent "healthy" and "solvent." When they scrapped the plan to buy up troubled assets—remember, TARP was the Troubled Asset Relief Program—well, they scrapped that idea a few days after the bill was passed and decided to just dump a whole bunch of money onto the balance sheets of these banks. This was called the Capital Purchase Program. They spent $125 billion right off the bat. It was spent on nine companies. And one of the things they said was, all of these companies are healthy and viable. And it turned out later, according to numerous sources, including all the SIGTARP reports, including—according to Barofsky and other sources, that they didn’t even check to see if these companies were solvent at the time. They had no interest in discovering that, one way or the other. And, in fact, many of these companies were on the brink of failure at the time. Barofsky was told specifically that Morgan Stanley and Goldman Sachs were both on the brink of disaster when they were given this money.
It’s interesting that Jamie Dimon talks about how his company didn’t need that Fed money. You know, it came out in the—in Bloomberg’s Freedom of Information request, when they got all the data from the audit of the Federal Reserve, it came out that his company, at that time, in late 2008, had a $50 [billion] or $60 billion line of credit with the Fed on top of all the money they were getting through the TARP bailout, through the bailout of Bear Stearns and other facilities. So, apparently, they didn’t need all that money, you know, that $100 billion or whatever it was they got from the federal government; it was just they were taking it because they were being polite, they were being—and they were asked to by the federal government. And this fiction, that they didn’t need the money, that they were healthy all the time, the government—we not only gave them money, but we vouched for them, and now we’re stuck vouching for them basically forever. And that’s the ongoing bailout that has become the real problem.
JUAN GONZÁLEZ: I wanted to ask William Black—in the deal that the Obama administration reached on taxes recently with the House Republicans, there hasn’t been a lot of attention to the issue of what happened to carried interest. The hedge fund moguls of the world were most concerned about that, their abililty to evade taxes by having their payments as capital gains instead of actual fees and salaries. Could you talk about what the Obama administration did there?
WILLIAM BLACK: Yeah. Let me mention just one thing, though, that fits to Matt’s point. They also changed the accounting rules, so the banks didn’t have to recognize their losses, so that they could hide them and pretend to be healthy. So that’s a huge part of that story.
As to taxes, you know, this was, again, a classic example of the Obama administration snatching defeat from the jaws of victory, where it had all the leverage and negotiated against itself once again. And so, yes, the wealthiest folks—and this is the irony, of course, is we’re talking about the George Romneys of the world—I’m sorry, the Mitt Romneys of the world—I grew up in Michigan; I’m dating myself—are the principal beneficiary through the—something that is completely unsupportable, on any policy ground, which is this carried interest, which simply treats income as if it weren’t income anymore for the wealthiest Americans who receive their money from running hedge funds. And that’s continued.
AMY GOODMAN: Let’s end with the legacy of the outgoing treasury secretary, Timothy Geithner. On Thursday, President Obama praised his time in office.
PRESIDENT BARACK OBAMA: Thanks in large part to his steady hand, our economy has been growing again for the past three years. Our businesses have created nearly six million new jobs. The money that we spent to save the financial system has largely been paid back. We’ve put in place rules to prevent that kind of financial meltdown from ever happening again. An auto industry was saved. We made sure taxpayers are not on the hook if the biggest firms fail again. We’ve taken steps to help underwater homeowners come up for air and opened new markets to sell American goods overseas. And we’ve begun to reduce our deficit through a balanced mix of spending cuts and reforms to a tax code that, at the time that we both came in, was too skewed in favor of the wealthy at the expense of middle-class Americans. So, when the history books are written, Tim Geithner is going to go down as one of our finest secretaries of the Treasury.
AMY GOODMAN: That was President Obama. Professor Black, final seconds.
WILLIAM BLACK: OK. First, Geithner is a principled person who caused the crisis. He was supposed to be the top regulator preventing it in New York and did nothing. Second, he has created crony capitalism, American style. Third, those regulations in fact will not prevent future crises and were designed to make sure they were not. And I agree strongly with Matt that the choice of Jack Lew is to not only produce continuity with Geithner’s disastrous failed policies, but to signal the administration’s desire to continue the bailout of Wall Street.
AMY GOODMAN: Matt Taibbi?
MATT TAIBBI: Yeah, I think the legacy of Tim Geithner is simple. He’s the architect of "too big to fail." And that’s going to be, historically, his legacy. When this all blows up—and it’s going to blow up, for sure, because it can’t—things can’t continue the way they are right now—people are going to look back in history, and they’re going to say, "Who was to blame for this?" And Timothy Geithner is going to be the guy who designed this entire system.
JUAN GONZÁLEZ: Of course, and he will always be remembered as the first treasury secretary who neglected to pay his own taxes.
MATT TAIBBI: Right, right, there’s that, true, exactly.
AMY GOODMAN: We want to thank you both for being with us. Matt Taibbi, a contributing editor at Rolling Stone, his latest piece, "Secrets and Lies of the Bailout." We’ll link to it at democracynow.org. And William Black, professor of university—professor at University of Missouri-Kansas City. This is Democracy Now! We’ll be back in a minute on this anniversary of the earthquake in Haiti. Stay with us.