Mention bailouts in the company of polite establishment and you will likely get either an eye-roll, or sober reassurance that every dollar has been paid back with interest – depending on just how compromised your audience is.
If you want to know what the rest of America thinks of bailing out privileged bankers who commit massive fraud, BAILOUT: The Dukes of Moral Hazard is a fine place to start. Americans are apparently pissed off about having their tax money used to save reckless and criminal financial sector executives from their own bad behavior.
John Titus and his crew have done a masterful job of describing the crony path chosen by American elites following the crisis. There is no ambiguity in terms of who was served by bailouts: criminal bankers, corrupt politicians, captured regulators, and an army of compromised middlemen. Who are the victims? Taxpayers. Middle class Americans. And anyone on the wrong end of a contract. The wrong end of a contract, when it comes to contracts with banks, is your end.
When Tim Geithner, as president of the Federal Reserve Bank of New York, insisted that Goldman Sachs be made whole by forcing US taxpayers to pay AIG counterparties 100 cents on the dollar, he justified it stating that he was ensuring the sanctity of US contract law. But contract law was not so sanctified when it came to borrowers who were on the losing end of the robo-signing scandal. Those parties have been denied due process.
By all appearances, the US justice system has been compromised, such that the wealthy and powerful are essentially exempt from law enforcement, while the rest of America is subject to lobbyist-penned legislation, and to justice that is only enforced against those who are not powerful or well-connected enough to avoid prosecution.
What BAILOUT really connects well is the ubiquitous moral hazard that the US government has created for this country. The US government protected elite criminals and gave no-strings-attached-taxpayer-money to reckless and dishonest individuals. What lessons are Americans to learn from that? Politicians are corrupt. The justice system is compromised. Cheaters prosper. People who leverage up and gamble will be rewarded.
Here are a few (paraphrased) quotes from the movie:
- There is very little difference between Barack Obama and George Bush. You have a continuum here.
- We are taking $600bn to $700bn per year out of the hands of consumers to subsidize the banks. That’s what the Fed’s low interest rate policy is doing.
- The losses are coming from shareholders and the public – not from the management of the banks.
- Goldman Sachs was Obama’s single largest campaign contributor.
- Not long after GS got the TARP money, they paid $10bn in bonuses. They then said, “We didn’t use the TARP money for bonuses; we used other money.”
- The entire bailout was a racket. TARP was created to keep banks in the business of paying bonuses.
- Lehman was saying that they needed $10bn to $20bn to survive. When all was said and done, Lehman left a $600bn hole in their balance sheet.
- Bernanke’s goal is to allow the banks to earn their way back to solvency – with time and gifts and quantitative easing and purchasing their bad assets – but it’s not going well.
- Goldman planned the demolition and destruction of AIG.
- It was an organized pillaging and raping of taxpayers in order to pay Goldman 100 cents on the dollar.
- We have damaged the rule of law by letting people get away with lying and abusing the court system and showing there are no consequences. Do you think a lot of other people have not noticed this?
- The cover-up: Tell people the only thing at risk is the TARP money. Distract them with the $700bn and they will ignore the $23tn. It worked. The media followed the $700bn and everyone thought, “Oh, they’re paying back the $700bn.”
- Banks did not have negotiating leverage when they failed. But they were negotiating with morons; they were able to scare the living crap out of the morons and get the leverage back.
- Paulson is a formidable individual who should be held to account for his failure to muster his own cajones. He should have said, “We have to restructure this debt; this is not a fair solution.”
- It is remarkably profitable to sell insurance on something that you never have to pay claims on.
- Hank Paulson and Ben Bernanke used the $700bn to recapitalize the banks.
- The essence of a AAA rating, which most of these securities were rated, is that the probability of losing money in that security is approximately equal to the risk of being hit by lightning while walking to the mailbox.
- It is a mathematical impossibility for consumable asset prices to go up at a rate faster than incomes.
- People with absolutely no investment management experience got 100’s of millions of dollars to buy dodgy assets with the premise that if they performed they got to keep the money, and if they didn’t the government would eat the loss.
- When President Obama came into office, he said, “Let’s look forward, not backwards.” That was his way of absolving himself of all crimes.
Note: BAILOUT is full of colorful language, which effectively communicates individuals’ anger – but may not be suitable for all audiences.
Interview of John Titus and Sean Fahey by Dylan Ratigan: