While watching the media coverage of bus loads of angry Americans protesting in front of AIG headquarters and executives’ homes, another historical political diversion came to mind—Nero feeding Christians to the lions in giant public spectacles as the unwitting victims of Nero’s accusations. Nero, needing to find a way to divert attention from him as the cause of the fire that burned Rome for seven nights, found the little-understood sect of Christians a good focal point.
The AIG protests were equally provoked and staged as a political diversion. Not surprising was the source of the organization of busses and protestors: ACORN (Association of Community Organizations for Reform Now), WFP (Working Families Party), and SEIU (Service Employees International Union).
ACORN gained notoriety in the recent presidential campaign for its “ask no questions, follow no rules” approach to registering voters. The WFP was established in 1998 and receives funding from affiliated community groups, unions, and party participants. The SEIU represents health and public service employees including 850,000 local and state government workers.
By purposefully fomenting anger among Americans for the “outrageous” bonuses received by AIG executives that they approved, President Obama, the Treasury Secretary, the Federal Reserve Chairman, and Congress deflected questions regarding their own culpability in the failure of AIG and the resulting bailout.
Instead, we are told that AIG failed because it chose to operate in a “shadowy unregulated world and cleverly exploited gaps among Washington overseers.”
That story was refuted in March, however, when Scott Polakoff, a top banking regulator in the Office of Thrift Supervision, told the Senate Banking Committee that AIG’s Financial Products (AIG-FP) unit did not slip through the regulatory cracks. He assured the Committee that the whole of AIG was regulated by his agency and by a “college” of global bureaucrats.
Mr. Polakoff also testified that his was not the only federal regulator. In fact, state, foreign and various U.S. federal regulators were all looking over AIG’s shoulder and approving the bad housing bets. “After all, Americans always pay their mortgages, right?” This was misplaced faith considering new sub-prime lending practices.
In hindsight, Mr. Polakoff said his agency “should have taken an entirely different approach” in regulating the contracts written by AIG’s Financial Products unit.
Interestingly, after his testimony, Mr. Polakoff was suddenly placed on leave of absence pending a review by the Treasury Department of the Office of Thrift Supervision related to non-AIG transactions in early 2008.
Mr. Polakoff, who was the agency’s chief operating officer, had held the acting-director position less than two months following the resignation of OTS Director John Reich. It appears current AIG CEO Ed Liddy is not the only one sitting in a political hot seat created by the Treasury Department.
The Treasury Secretary, the Federal Reserve Chairman, and Congress are clearly involved in the construction of the banking bailouts, including the huge AIG financial negotiations.
So what is it that Washington does not want the American people to look too closely at? Why focus so much public attention on bonuses that represent less than one tenth of one percent of the total $185 billion bailout funds to date for AIG? Why not focus on other banks, Fannie Mae, Freddie Mac, or other failed institutions?
First, AIG became an easy target for public attention following their disastrous decision to participate in an expensive employee “retreat” immediately following receipt of bailout funds.
Second, this is an attempt to vilify the AIG executives to cover the fact that the American taxpayers have been fleeced for purposes definitely not “American.”
The government is using AIG, a once great American company, to distribute foreign aid to offshore financiers. In a trail that eerily resembles “money laundering,” the federal takeover of AIG without shareholder approval allows the government to funnel money from the U.S. through AIG to offshore institutions.
In distributions from September 2008 to date, $120 billion in cash, collateral and other payouts have gone to banks, municipal governments and other derivative counterparties around the world. This includes $20 billion to European banks and at least $13 billion to Goldman Sachs, whose executives claimed publicly that they did not need a bailout.
However, even the AIG funding is only a fraction of the bail-out funds proposed by the Obama Administration. While Americans are stirred to anger about the “immoral” behavior of Wall Street executives accepting contractual bonuses, our elected and appointed officials are working overtime to ensure the next generation of American taxpayers inherit a bankrupt country.
In addition to the AIG bailout, the following list details the total cost of the fleecing for which Washington needs a distraction:
• TARP (Troubled Asset Relief Program - $700 billion (81% of which is committed)
• Fannie Mae and Freddie Mac - $400 billion
• Big Three Auto Bailout - $42 billion
• Bear Stearns - $29 billion
• Citigroup - $350 billion
• FHA Rescue Bill - $300 billion
• JP Morgan Chase - $87 billion
• TAF (Federal Reserve’s Term Auction Facility) - $200 billion
• Support of short-term corporate IOUs held by money market mutual funds - $50 billion
• Credit markets rescues - $500 billion
• Currency swaps for industrial nations - $620 billion
• FDIC’s new, expanded bank deposit insurance – (undisclosed trillions)
• Additional trillions in sweeping financial guarantees
This, however, was obviously not enough to jumpstart the economy. The Federal Reserve has since announced plans to buy $300 billion in long-term Treasury bonds, an additional $750 billion in agency mortgage backed securities, plus $100 billion more in Fannie Mae and Freddie Mac paper.
While Americans are overly focused on approximately $185 million in executive bonuses, the total tally of taxpayer funds committed to date is getting very close to $13 trillion!
Additionally, according to the Federal Reserve Flow of Funds Accounts of the United States, $12.9 trillion in wealth has vaporized in real estate, stocks, and other assets from American households since the onset of the financial crisis.
The question Americans need to be asking: Does the government understand the magnitude of the debt crisis? Some financial advisers think not.
The FDIC’s “Problem List” includes 252 institutions with assets of $159 billion. Analysts estimate the actual number of banks and thrifts in risk of failure could top 1,500 with assets over $2 trillion.
The case was made by AIG that its $2 trillion in credit default swaps (CDS) would have been the big event that could have caused the global financial collapse with its counterparties’ $36 trillion in assets. Perhaps AIG’s fear of “systemic risk” more aptly applies to Citibank, with a CDS portfolio of $2.9 trillion; or JPMorgan Chase, with $9.2 trillion; or the global Bank of International Settlements, with $57.3 trillion.
The G-20 Summit
With this financial picture in view, the world leaders from twenty countries met in London for the Group of 20 (G-20) Summit. Without proof of even one initiative aimed at dealing with the global economic meltdown, President Obama joined other leaders in praising the nations’ joint efforts as a historic step on the road to stability. Unfortunately, the disease that triggered the crisis is still raging. Foreclosures, bankruptcies, and unemployment are still rising rapidly.
The “bailout without end” is not the answer to economic recovery for America. The enormity of debt and crippling tax burdens being levied against the American taxpayer are not going to bring relief. It will only hasten the journey to complete financial collapse and the establishment of a new currency to replace the dollar. Then again, the fleecing of America and the redistribution of funds through entities such as AIG may have been the plan from the beginning. For if there is not a plan, why create a diversion out of thin air?
This is definitely a time in which Americans need to pay attention and hold the government accountable for the financial decisions it is making. Let us not be as sheep that have gone our own way, especially if it means blindly following the flock onto the broad path to destruction. Instead, let us focus on Proverbs 3:5-6, in which we are admonished to: “Trust in the Lord with all your heart and lean not on your own understanding; in all your ways acknowledge Him, and He will make your paths straight.” [This “must-see” video (www.youtube.com/watch?v=jeYscnFpEy) is a perfect ending to this article.]
[Ed. Note: In our March 2009 article, The End of America As We Know It: Part 2, the source for the section titled “Ineffectual Remedies” was not properly footnoted as coming from Monetary and Economic Review, published monthly by FAMC, Inc.]
