Matt Taibbi writes another great article that will outrage people, and ultimately make no difference

Every time I read a new article by Matt Taibbi, it occurs to me that I should probably stop making blanket statements about the poor state of American investigative journalism. I don’t say it enough, but I’m incredibly thankful that he’s out there, exploring that fertile strip of territory between those cultivated so successfully by Hunter S. Thompson and Bill Moyers. If only there were a few more writers like him, and a few more magazines like Rolling Stone, that were willing to fund such endeavors, the world might not be in the condition that it’s in today.

Taibbi’s new piece is about Christy Mack, the wife of Morgan Stanley chairman, John Mack, and her friend Susan Karches. It would appear that the two women, in spite of the fact that they had very little investing experience, were able to found a company in 2009 and immediately receive a bailout loan for $220 million from the Federal Reserve. Here’s how the article starts out.

America has two national budgets, one official, one unofficial. The official budget is public record and hotly debated: Money comes in as taxes and goes out as jet fighters, DEA agents, wheat subsidies and Medicare, plus pensions and bennies for that great untamed socialist menace called a unionized public-sector workforce that Republicans are always complaining about. According to popular legend, we’re broke and in so much debt that 40 years from now our granddaughters will still be hooking on weekends to pay the medical bills of this year’s retirees from the IRS, the SEC and the Department of Energy.

Most Americans know about that budget. What they don’t know is that there is another budget of roughly equal heft, traditionally maintained in complete secrecy. After the financial crash of 2008, it grew to monstrous dimensions, as the government attempted to unfreeze the credit markets by handing out trillions to banks and hedge funds. And thanks to a whole galaxy of obscure, acronym-laden bailout programs, it eventually rivaled the “official” budget in size — a huge roaring river of cash flowing out of the Federal Reserve to destinations neither chosen by the president nor reviewed by Congress, but instead handed out by fiat by unelected Fed officials using a seemingly nonsensical and apparently unknowable methodology.

Now, following an act of Congress that has forced the Fed to open its books from the bailout era, this unofficial budget is for the first time becoming at least partially a matter of public record. Staffers in the Senate and the House, whose queries about Fed spending have been rebuffed for nearly a century, are now poring over 21,000 transactions and discovering a host of outrages and lunacies in the “other” budget. It is as though someone sat down and made a list of every individual on earth who actually did not need emergency financial assistance from the United States government, and then handed them the keys to the public treasure. The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses. “Our jaws are literally dropping as we’re reading this,” says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. “Every one of these transactions is outrageous.”

But if you want to get a true sense of what the “shadow budget” is all about, all you have to do is look closely at the taxpayer money handed over to a single company that goes by a seemingly innocuous name: Waterfall TALF Opportunity. At first glance, Waterfall’s haul doesn’t seem all that huge — just nine loans totaling some $220 million, made through a Fed bailout program. That doesn’t seem like a whole lot, considering that Goldman Sachs alone received roughly $800 billion in loans from the Fed. But upon closer inspection, Waterfall TALF Opportunity boasts a couple of interesting names among its chief investors: Christy Mack and Susan Karches.

Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley’s investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.

The technical name of the program that Mack and Karches took advantage of is TALF, short for Term Asset-Backed Securities Loan Facility. But the federal aid they received actually falls under a broader category of bailout initiatives, designed and perfected by Federal Reserve chief Ben Bernanke and Treasury Secretary Timothy Geithner, called “giving already stinking rich people gobs of money for no fucking reason at all.” If you want to learn how the shadow budget works, follow along. This is what welfare for the rich looks like…

But with an upfront investment of $15 million, they quickly received $220 million in cash from the Fed, most of which they used to purchase student loans and commercial mortgages. The loans were set up so that Christy and Susan would keep 100 percent of any gains on the deals, while the Fed and the Treasury (read: the taxpayer) would eat 90 percent of the losses. Given out as part of a bailout program ostensibly designed to help ordinary people by kick-starting consumer lending, the deals were a classic heads-I-win, tails-you-lose investment…

A key aspect of TALF is that the Fed doles out the money through what are known as non-recourse loans. Essentially, this means that if you don’t pay the Fed back, it’s no big deal. The mechanism works like this: Hedge Fund Goon borrows, say, $100 million from the Fed to buy crappy loans, which are then transferred to the Fed as collateral. If Hedge Fund Goon decides not to repay that $100 million, the Fed simply keeps its pile of crappy securities and calls everything even.

This is the deal of a lifetime. Think about it: You borrow millions, buy a bunch of crap securities and stash them on the Fed’s books. If the securities lose money, you leave them on the Fed’s lap and the public eats the loss. But if they make money, you take them back, cash them in and repay the funds you borrowed from the Fed….

Now, if there were just a prosecutor somewhere in the U.S. that had to guts to start unraveling this mess and bringing some of these people to justice. Of course, we know that’s not going to happen, though. These people who brought about our near financial collapse, and then had the audacity to hold our country hostage for billions of dollars more, will never see the inside of a jail cell. They’ve constructed the system in such a way as to make that impossible… So, we’ll bitch and complain for a while, and then things will continue on unchanged… If only our attention spans were longer, and our tolerance for violence were higher. Then, we might see some real, substantive change start to happen.

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  1. werm creft
    Posted April 12, 2011 at 10:10 pm | Permalink

    my tolerance for violence is growing faster than my attention span.

  2. Knox
    Posted April 13, 2011 at 5:47 am | Permalink

    Their argument will be that everything was done aboveboard and in accordance with the rules, which may well be true. Unfortunately, none of us knew about the program and how to participate. The only people who knew that were the ones who helped construct the program. It may have been legal, but, in this case, it doesn’t pass the sniff test. At the very least, all $220 million should be returned to the American people.

  3. Glen S.
    Posted April 13, 2011 at 6:48 am | Permalink

    The 2008 financial “crisis,” and the economic, social and political fallout since then provide what is perhaps the ultimate example of what author Naomi Klein describes as the “Shock Doctrine” in action.

    By this I mean the idea that powerful elites have discovered how to take advantage of real catastrophes (i.e. natural disasters) or manufactured ones (i.e. financial crises), by using the ensuing chaos to quickly push through systemic changes that dramatically benefit the already wealthy and powerful — before a shocked, fearful, disorganized public ever has a chance to figure out what’s really going on.

    For decades, the right has wanted to weaken government at all levels — to tame its power to regulate corporations, and to shred the social safety net, weaken laws that protect the environment and public health, erode public education, etc. — but could only find sporadic success against a somewhat organized opposition.

    Now, the financial “crisis,” the resulting economic “downturn,” and most important of all … gasp! DEFICITS!!! … are being used to scare the public into accepting all kinds of draconian cuts that would have been virtually unthinkable only 18 months ago.

    While we are all still “shocked, fearful and disorganized,” we are watching our local governments and public schools about to be privatized, the bedrock of our social safety net (Medicare, Medicaid, Social Security, etc.) about to be dismantled, our real-dollar wages continue to fall, our benefits continually threatened, etc., — while being told by politicians (of both parties) that there is no other choice: “Shared Sacrifice” and “Austerity” simply must be the order of the day.

    Meanwhile, U.S. Corporations are sitting on more cash that ever before assembled in human history, and the richest 1% of Americans control a larger share of the national wealth than at any time before.

    The result is that The United States remains the richest nation on earth, yet we rank 97th in family-income equality — behind nations often associated with corruption, poverty, oppression, or collapsed governments — Nigeria, China, India, Ivory Coast, Tunisia, Egypt, Burundi, Nicaragua, Bangladesh, Ethiopia.

    Meanwhile, President Obama is scheduled to speak today at 1:30 p.m., where he will outline his budget goals for the coming fiscal year. Listen carefully to find out whether he will propose some modest steps toward alleviating this growing inequality or whether, instead, he will will call for more “shared sacrifice,” and “austerity.”

  4. Edward
    Posted April 13, 2011 at 8:29 am | Permalink

    I’d love to see Obama go off script today and tell the American people what’s really happening. As we all know, though, it will never happen. And the people of America are too dumbed down and desperate to demand it. All they care about is keeping their heads above water, and their cable entertainment flowing. We’re losing a war right now. This isn’t just about the 2012 deficit. It’s about the future of our nation and the world. Transnational corporations and their human enablers are systematically destroying the capacity of the American people. They are defunding public schools, restricting free speech, and controlling access to information. The men behind the Tea Party were brilliant. They tapped into the fear and anger that exists, and they channeled it toward those areas where they needed help — breaking unions and privatizing social security. Our country is being commoditized. We, the men and women of America, are being bought and sold.

  5. Tommy
    Posted April 13, 2011 at 9:15 am | Permalink

    Obama will not go off script because he is part of the script. He was Wall Street’s choice back in ’08. Think it is coincidence that the guys he put in place to ‘fix’ the biggest financial crisis that the world has faced in a long time were all Wall Street insiders with close ties to the companies that caused the mess and who directly benefitted from the fix? I don’t think so! It is naive to think otherwise, and anybody who does is very foolish.

  6. Stephen
    Posted April 13, 2011 at 12:54 pm | Permalink

    Here’s something to further inflame the base.

    Just take a look at the latest reports on what the top hedge fund managers haul in. In 2010 John Paulson led the list with a record $4.9 billion in personal earnings. That’s a whopping $2.4 million an HOUR. Here’s a factoid to make you wretch: It would take the median US household over 47 years to earn as much as Paulson pocketed in just 60 minutes. And, every hedge fund manager pays a lower tax rate than the average family.

    The top 25 hedge fund earners took in $22.07 billion in 2010. Thanks to a generous tax loophole these billionaires will pay a top tax rate of 15 percent instead of 35 percent. Closing that loophole on just those 25 individuals – just 25 guys who wouldn’t miss a penny of it — would raise $4.4 billion, which is enough to rehire 126,000 laid-off teachers.

    Now where’s the fucking pitchfork of mine?

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