Friday, February 25, 2011

Jim Flaherty, Golman Sachs and a "Pig in a Poke"

This is the next in my series on Jim Flaherty, Goldman Sachs, AIG and Canada's massive bank bailout. Those following the story already knew of the $125 billion from Canadian taxpayers, but for the first time we heard of how our big five banks also received bailout money from the U.S. Treasury, apaprently in the amount of $111 billion.

But unfortunately the story that appeared in the Globe and Mail vanished almost as soon as it was posted. The only other person who had seen this illusive column was Mark McQueen: Fed's Remarkable Disclosure of Funds for Canada’s Five Largest Banks. His link to the story is also broken.

So I decided to do a bit of digging on my own, and it is indeed true. You just have to let your fingers travel the globe and pick up scraps where you can, so bear with me.

On May 13, 2010, American journalist John Lott reported: Guess What, America, You're Bailing Out Banks All Over the World!
To say that Americans weren't thrilled by the original government bailout of American financial institutions is an understatement. But if they were upset with that plan, imagine how furious they’re going to be when they start to understand that the Obama administration has begun bailing out banks from Japan, Canada and Europe.

.... With the exception of $30 billion to Canadian banks, the Federal Reserve won't reveal how much of these subsidized loans they are giving to foreign banks. And why we would want to subsidize Canadian banks is a mystery in the first place. Compared to the U.S. economy, the Canadian economy has done fairly well during the global economic crisis.
In September of 2008, the U.S. government was already contemplating bailing out foreign banks who had dealing in the U.S., lifting many requirements, and this was being handled by Henry Paulson.
Treasury Secretary Henry Paulson confirmed the change on ABC's "This Week," telling George Stephanopoulos that coverage of foreign-based banks is "a distinction without a difference to the American people."
And who is Henry Paulson? The former Chairman and Chief Executive Officer of Goldman Sachs. He loosened the criteria for bailouts to include anyone who had dealings with AIG. And as we know, that included Canadian banks courtesy of Steve and Jimbo.

The Financial Post reported in March of 2009 that the Bank of Montreal scored big on the deal.
Bank of Montreal has emerged as one of the key beneficiaries of the costly decision by the U.S. government to rescue American International Group. Canada’s fourth-largest bank is among the top 10 recipients of federal bailout money paid to financial counterparties by the stricken insurer, according to documents published by AIG.

The payments were revealed after pressure from Capitol Hill for an account of how taxpayer money had been spent by the company amid a rising populist backlash. The documents show a least US$1.1-billion of bailout money was funneled to BMO alongside payouts of up to US$13-billion each to U.S. and European banks.
So while they were given $125 billion tax dollars so that we could buy back their toxic paper, they also put out their other hand and took from American taxpayers. And while they were losing their homes and their livelihoods, our so-called "good banks" were feeding from the public trough on both sides of the border.

CNN were also reporting on our "good banks" and the difficulty in getting information South of the border. BMO appears on the list. And with some of the money they bought up AIG in Canada. As a result they were investigated by the NY Attorney general's office.
Bank of Montreal is being caught up in a widening probe into the use of bailout funds by American International Group, the distressed U.S. insurer. Payments made by AIG to Canada’s fourth-largest bank are due to be examined by the New York Attorney-General Andrew Cuomo as part of an inquiry into billions in taxpayer money funnelled to financial institutions.

The investigation comes as the attention of U.S. lawmakers turns to the payouts to banks following a political firestorm over bonuses handed by the insurer to staff at a controversial unit that sold credit protection to sophisticated financial clients. "Our investigation into corporate bonuses has led us to an investigation of the credit default swap contracts at AIG," the Attorney-General’s office said. BMO declined to comment.
And according to Insurance News Net:
Reports name AIG's derivative counterparties, including BMO NEW YORK _ The U.S. government bailout of insurance giant American International Group Inc. has benefited at least two-dozen U.S. and foreign financial institutions _ including the Bank of Montreal _ who together collected some $50 billion, news reports said Saturday.
BMO was also a partner in their derivatives game, that brought on the global economic crisis.

So Goldman Sach's Henry Paulson was in charge of distributing funds to banks and is trying to keep quiet how much went to foreign interests, including Canada's big five. Goldman Sach's Mark Carney is now the Governor of the Bank of Canada. Goldman Sach's Timothy Hodgson is his assistant in charge of derivatives, and Flaherty is allowing our CPP funds to be invested in this high-risk gamble.

Our Pig in the Poke

Matt Taibbi in his piece Wall Street's Bailout Hustle, refers to one aspect of the entire scam as a "Pig in the Poke".
The scam's name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he'd miss the switch, then get home and find a tied-up cat in there instead. Hence the expression "Don't let the cat out of the bag."The "Pig in the Poke" scam is another key to the entire bailout era. After the crash of the housing bubble — the largest asset bubble in history — the economy was suddenly flooded with securities backed by failing or near-failing home loans. In the cleanup phase after that bubble burst, the whole game was to get taxpayers, clients and shareholders to buy these worthless cats, but at pig prices.

One of the first times we saw the scam appear was in September 2008, right around the time that AIG was imploding. That was when the Fed changed some of its collateral rules, meaning banks that could once borrow only against sound collateral, like Treasury bills or AAA-rated corporate bonds, could now borrow against pretty much anything — including some of the mortgage-backed sewage that got us into this mess in the first place. In other words, banks that once had to show a real pig to borrow from the Fed could now show up with a cat and get pig money. "All of a sudden, banks were allowed to post absolute shit to the Fed's balance sheet," says the manager of the prominent hedge fund.
At about this time, we were in the middle of an election campaign in Canada, and when Stephane Dione sounded the alarm, both Jim Flaherty and Mark Carney laughed and referred to him as "Chicken Little". And yet not long after Flaherty announced his first 25 billion bank bailout, when he started buying their toxic assets on behalf of the Canadian taxpayer.

He tried to say it was not a bailout, but what did the Canadian tax payer get for this investment? The cat in the bag. Our "good banks" played fast and loose with the requirements for loans and mortgages, absorbing none of the risks.

When it all came tumbling down, what did they do? They used their bailout money to buy up defunct U.S. banks, and deregulated our industry to meet the lower U.S. standards, meaning that if there is another meltdown, Canada will not do so well.

And according to Market Watch, that could take place as early as Christmas of 2011.

Yet the Conservatives are using our money to convince us that they are the best to handle the "economy". Our "pig in the poke". We think that somewhere we have money and sound investments, but in fact we have nothing but a boatload of debt and no regulations to protect us from unscrupulous Wall Street. Instead they've been moved in.


1. It's Time to Have a Serious Conversation About Jim Flaherty and Goldman Sachs

2. Jim Flaherty, Goldman Sachs and the Foxes in the Henhouse

3. Jim Flaherty, Goldman Sachs and "The Swoop and Squat"

4. Jim Flaherty, Goldman Sachs and AIG Comes Calling

5. Jim Flaherty and Goldman Sachs: The "Cooling Off" period

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