Hockey moms aren�t the only ones wearing Maybelline. Pigs
come in cherry gloss too.
Like the porkers at Wall Street lining up with their lips in
a pucker behind Washington�s plush behind. Having pigged out at the public
trough for years, they now want their sticky little trotters washed down in the
righteous waters of the Potomac.
Tarting up comes natural to our Wall Street-walkers. Turns
out these great big masters of the universe were really, well, girly men
who couldn�t balance their check-books and put out more than they took in . . .
like any working girl.
Lipstick is especially right for Goldman Sachs, which likes
to cross-dress as a devout public servant in after-hours and has at least one
set of heels working the floor of the Treasury department during any
crisis. Yep, I�m pretty sure Hank Paulson would look good in high-gloss plum.
You see, lip shtick is just what Hank�s good at. He was out on Monday
flapping his lips with the kind of plummy platitudes you�d expect from
semantically challenged mental health workers, not from a Treasury Secretary. A
Treas. Sec., mind you, who was once a Goldman CEO not above inserting carefully
chosen knives into the ribs of colleagues.
�We need to put this behind us,� quoth Hank. �We must move
�We need to work through this.�
�We need to heal.�
We, of course, need to do nothing. There is no we
here. This is a Wall Street crisis. And the usual suspects on Wall
Street need to line up, bend over and get caned for their misdeeds. Barring
that, they need to take the market�s medicine like men.
Instead, they were out in full therapeutic mode, pouting and
whining for a change of their soggy diapers by dear Nanny Washington.
And Nanny obliged.
First there was Fannie and Freddie, the terrible twins, who
were taken lovingly into the conservatorship
of the state. Translation: they went belly up and the funeral expenses were
billed to the tax-payer, though the estate had been sold at private auction a
long time before.
Oh, those twins.
Inhaling the swampy fumes of government but croaking from
the terra firma of the market. Owned by individuals, backed by the
state. The formula of the managed economy - privatized profits and socialized
Created by Congress to expand home ownership by making
finance available to a bigger part of the population, the two companies own (or
guarantee) around 40 percent of the $8.5 trillion U.S. residential mortgage
market. They are the biggest single borrowers in the US, after the federal
government. In 2006 they were hit with a $350 million dollar fine, one of the
biggest ever assessed by the SEC, as a penalty for
accounting malpractice. Then Fannie even got caught trying to pull Nanny�s
strings to discredit the regulator. Which strings were those? We can only
Quote: �Goldman Sachs was one of several institutions
actively involved in the accounting fraud, its contribution being earnings
manipulation through the creation of MBS�s - mortgage-backed securities - in
Fannie�s portfolio, a strategy remarkably similar to Goldman�s actions on
behalf of Enron. Of note also is the fact that in 2005, while the investigation
was ongoing, Congress placed Fannie directly under the Federal Reserve, raising
the specter of a surreptitious government bail-out outside the public eye, at
[That�s from an investment report I did on Goldman Sachs in
The only thing wrong in it was that the government bail-out
took place in full view of the public].
That is to say, while Hank blubbers on about how we need
more regulation, that�s only now, during bust-time. Way back in bubble-time,
Hank�s old firm was busy dabbing rouge on the pork in Fannie�s books and
playing hopscotch with regulations.
O tempora, O mores.
Why, back in bubble time, even the former Fed chairman, the
all-but-sainted Alan Greenspan was more prescient. He noted that failure to
smack down the bratty twins could lead to �systemic
risk� in the capital markets.
Of course, he said that after first
telling Jane Citizen to go forth and borrow. But that�s because, like the
monetary philanthropist he was, Greenspan believed in the widespread giving of
As public servant Hank today, so public servant Greenspan
Greenspan too liked dabbing rouge on pork. He
relished painting market bottoms with the varnish of cheap money. It made them
look plumper and rosier than they really were. Eventually the bottoms looked up
and turned into booms, he reminded us.
The rouge worked. Books got beautified. Risky turned risqu�.
�The image of Fannie Mae as one of the lowest-risk and �best
in class� institutions was a facade,� said James B. Lockhart, the acting
director of the Office of Federal Housing Enterprise Oversight (OFHEO) when it
released its report
in May 2006.
In other words Fannie was a pig, even with the lipstick.
Of course, Goldman�s not the only one on Wall Street with a
wicked hand for make-up artistry. The ratings agencies haven�t been too bad
themselves, with all that triple A
gloss they plastered on gangrenous sub-prime debt. What was that about? A
little make- over for the corpse before the public viewing?
Truth be told. Goldman got good at putting lipstick on
porkers long before they dabbed it on Fannie and Freddie. They were doing it in
1999 in ole Hank�s CEO days. Goldman helped Enron�s �smart guys� conduct
massive energy futures trading and its leverage, like Enron�s, ballooned. [They
had their leverage thang going in those days too].
Then, in 1993 Goldman invented a
special accounting scheme to perk up Enron�s books - �Monthly income
preferred shares� (or MIPS) they called it. MIPS let Enron sell fifty-year
securities through specially created off-shore companies. To the IRS, Enron
described the preferred stock as �debt� and claimed tax deductions on the
interest payments. To shareholders, Enron called the same stock �equity� and
counted it in the company�s capital value. Goldman took home massive
underwriting fees from the scheme
In one year, Goldman had helped 17 companies besides Enron
sell 2.7 billion MIPS. There was an offering every week, each dodging IRS rules
with more and more finesse. Average commission and interest rates on MIPS ran
much higher than on normal debt - between 1 and 1.2%. Goldman made tens of
When the IRS, Treasury and the SEC decided to plug the
loophole that was costing them hundreds of millions of dollars a year, Goldman
and Merrill Lynch, along with the industry trade group, the Bond Market
Association, began big time lobbying. Then
Goldman CEO Jon Corzine (later a US senator and NY Jersey
governor) made sure the legislation got nipped in the bud and Goldman�s little
accounting number actually ended up a chart-busting hit on the financial
So when Hank Paulson rushes to put together a bail-out for
Merrill Lynch but brushes Lehman aside, he�s just remembering who he used to
jam with in the old days. (Of course, buying
up Merrill shares trading at $17 for $29 might not be most people�s idea of
a bail-out. But that�s another story).
It could be also that when he�s not actually slitting
throats, Hank just likes to lend a helping hand to old Goldmanites, like
Merrill�s John Thain (a Goldman COO, CFO and President). You see, our Hank is a
helping kind of guy. Like
the time he helped Thain help himself to Dick Grasso�s seat at the head of
the New York Stock Exchange. Oh, those public servants. Never a moment of rest
from the helping.
That�s probably why Hank is helping out A.I.G.
Turns out Maurice (�Hank�) Greenberg, the former chair of
A.I.G., is an old friend of John Whitehead, another former Goldman head.
The pranks of these Hanks get to be almost as complex as
those derivative deals that melt hedge-funds like marshmallows on a grill. But
the short of it seems to be that Greenberg jumped ship at AIG after Eliot
heavy of the SEC, came sniffing around in 2005.
Improprieties, . . . bid rigging . . . hissed Spitzer, turning on the heat.
Hank (G.) denied it stoutly, but AIG had to restate some of its numbers. It got
so warm that even Hank (P.) who left his roost at Goldman Sachs in 2006 to
perch at Treasury could smell the flames.
The operative word here is Treasury. That is to say, in the normal run of
things, hookers and pols having always gone together like dill and pickles, a
married man�s booty calls would provoke no more than a yawn. They certainly
wouldn�t have come to the attention of the revenue department. But Spitzer�s
zeal had aroused the ire of the banking mafia. And thus it was that no sooner
did things get really toasty on Wall Street, then along comes an IRS probe that
turns up Spitzer�s sins of the flesh. And thus the public was regaled with the
seedy drama of the Emperor�s Club and Eliot. And thus also Wall Street
dethroned the hated securities czar and sent him scurrying back to his former
life as a mere real estate billionaire.
But now, with Hank (G., not P.) defending
AIG as a national treasure fully deserving of taxpayer TLC, you begin to
wonder about it all. If AIG was such a treasure, why did Greenberg ever leave?
Why did he rail against his successor? And why defend AIG now? Was
he thinking about the shares he still has at AIG?
[Maybe he was taking a leaf out of
the book of yet another Goldman CEO, Robert Rubin, slated to be Obama�s
economic point man, a man who�s made an art out of jumping ship at the right
time (read, Citigroup) leaving his successors to hold the sub-prime bag.
It�s a trick Rubin worked at as Secretary of the Treasury in
the 1990s, when he (along with St. Alan) was responsible as much as anyone else
blocking regulation of the over the counter derivative trade and for
consolidating the banks � misdeeds for which the rest of the financial industry
is now paying].
And what about the Starr Foundation, the charity that
Greenberg headed, and which Spitzer claimed he also misused? Turns out Spitzer
wasn�t so wrong. Greenberg seems to have been using public funds to pursue
his own agenda. Maybe Starr is another national treasure in the making . . . Or
is national just what comes in after treasure goes out?
You wonder some more.
Just this March, before AIG took ill, Hank (P, not G) came
up with a proposal for insurance reform that amounted to an end run by the big
insurance players around the state insurance system. Now your wondering
becomes positively thunderous.
There is no bigger player than AIG. Yet no private bids were
considered. Had they been, AIG would surely have found private buyers. Lehman
Instead the Fed bailed it out. Actually, it was the Federal
Reserve Bank of New York, the most important of the 12 federal reserve banks
and the one responsible for carrying out the Fed�s exchange rate policy, i.e.
for buying and selling dollars. It was the same NY
Fed which cobbled together the rescue of Bear Stearns. On NY Fed chairman
Geithner�s board of directors sits another Goldman chief, Stephen Friedman.
Geithner also takes unofficial advice from Goldman alums Gerald Corrigan and
the aforementioned John Thain. Then, of course, there�s the man whose bidding
Geithner is bound officially to do, the Treas. Sec. himself, His Holiness Hank,
servant of the people.
However you cut it, that�s a lot of Goldman.
Which means that however you cut it, the bail-out of the
giants of finance is not just a bail out of the economy . . . or of the
banking system. . . .
It�s an evisceration of some banks by others. . . . a
cannibalistic binge billed to the tax-payer.
No matter how much rosy gloss gets slathered on it, it�s a
pig-out at the public trough.
Copyright � 2008 The Mind-Body Politic. All Rights
Lila Rajiva is
a freelance journalist and author of �The Language of Empire: Abu Ghraib and the
American media,� (Monthly Review
Press) and Mobs, Messiahs and Markets. She can be reached at: firstname.lastname@example.org or through her blog at: www.mindbodypolitic.com.