By David Reilly – Bloomberg.com
The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.
Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.
We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system — apart from the matter of AIG’s bailout — deserves further congressional scrutiny.
The New York Fed is in the hot seat for its decision in November 2008 to buy out, for about $30 billion, insurance contracts AIG sold on toxic debt securities to banks, including Goldman Sachs Group Inc., Merrill Lynch & Co., Societe Generale and Deutsche Bank AG, among others. That decision, critics say, amounted to a back-door bailout for the banks, which received 100 cents on the dollar for contracts that would have been worth far less had AIG been allowed to fail.
That move came a few weeks after the Federal Reserve and Treasury Department propped up AIG in the wake of Lehman Brothers Holdings Inc.’s own mid-September bankruptcy filing.
Saving the System
Treasury Secretary Timothy Geithner was head of the New York Fed at the time of the AIG moves. He maintained during Wednesday’s hearing that the New York bank had to buy the insurance contracts, known as credit default swaps, to keep AIG from failing, which would have threatened the financial system.
The hearing before the House Committee on Oversight and Government Reform also focused on what many in Congress believe was the New York Fed’s subsequent attempt to cover up buyout details and who benefited.
By pursuing this line of inquiry, the hearing revealed some of the inner workings of the New York Fed and the outsized role it plays in banking. This insight is especially valuable given that the New York Fed is a quasi-governmental institution that isn’t subject to citizen intrusions such as freedom of information requests, unlike the Federal Reserve.
This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed’s bailout programs. It’s as though the New York Fed was a black-ops outfit for the nation’s central bank.
Geithner’s Bosses
The New York Fed is one of 12 Federal Reserve Banks that operate under the supervision of the Federal Reserve’s board of governors, chaired by Ben Bernanke. Member-bank presidents are appointed by nine-member boards, who themselves are appointed largely by other bankers.
As Representative Marcy Kaptur told Geithner at the hearing: “A lot of people think that the president of the New York Fed works for the U.S. government. But in fact you work for the private banks that elected you.”
And yet the New York Fed played an integral role in the government’s bailout of banks, often receiving surprisingly free rein to act as it saw fit.
Consider AIG. Let’s take Geithner at his word that a failure to resolve the insurer’s default swaps would have led to financial Armageddon. Given the stakes, you might think Geithner would have coordinated actions with then-Treasury Secretary Henry Paulson. Yet Paulson testified that he wasn’t in the loop.
“I had no involvement at all, in the payment to the counterparties, no involvement whatsoever,” Paulson said.
Bernanke’s Denials
Fed Chairman Bernanke also wasn’t involved. In a written response to questions from Representative Darrell Issa, Bernanke said he “was not directly involved in the negotiations” with AIG’s counterparty banks.
You have to wonder then who really was in charge of our nation’s financial future if AIG posed as grave a threat as Geithner claimed.
Questions about the New York Fed’s accountability grew after Geithner on Nov. 24, 2008, was named by then-President- elect Barack Obama to be Treasury Secretary. Geither said he recused himself from the bank’s day-to-day activities, even though he never actually signed a formal letter of recusal.
That left issues related to disclosures about the deal in the hands of the bank’s lawyers and staff, rather than a top executive. Those staffers didn’t want details of the swaps purchase to become public.
New York Fed staff and outside lawyers from Davis Polk & Wardell edited AIG communications to investors and intervened with the Securities and Exchange Commission to shield details about the buyout transactions, according to a report by Issa.
That the New York Fed, a quasi-governmental body, was able to push around the SEC, an executive-branch agency, deserves a congressional hearing all by itself.
Later, when it became clear information would be disclosed, New York Fed legal group staffer James Bergin e-mailed colleagues saying: “I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals — too many counterparties, too many lawyers and advisors, too many people from AIG — to keep a determined Congress from the information.”
Think of the enormity of that statement. A staffer at a body with little public accountability and that exists to serve bankers is lamenting the inability to keep Congress in the dark…
Read more at Bloomberg.com
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These are the guys that should now be at Guantanamo Bay being tortured for information!!!
secret banking cartel emerges? Come on David, where have you and yours been for the last 150 years? Don’t they teach you anything in high school and college? Journalism school? Oh, right, they don’t. Sorry I asked.
What we have today is the re-emergence of mercantilism, established 400 years ago in the colonies by the european elites. Under this system, the colonies were not allowed to manufacture value-added products, only raw materials like tobacco and cotton. These raw materials were shipped to British and european factories which then manufactured the clothes, etc. that were then sold back to the colonies and elsewhere. This was to keep the elites in europe in business and power, and the colonies from getting rich.
The elites today, using the U.N., the bought-and-paid for lawmakers, and federal agencies like the EPA, are shutting down American factories. The latest method being used to accomplish this is to give bailouts of taxpayer money to major American manufacturers to move their factories to India and China. This supports “zero growth” in America, which falls under the environmental agenda, with China, India and a few other third world countries being exempt from EPA restrictions.
Meanwhile, “green energy” systems are being funded and supported by American taxpayers, systems which will decrease energy output and greatly increase the cost of energy per kilo-watt hour. The oil companies support this fully because they will build, operate and own the inefficient wind systems, driving the cost of their oil throuhh the roof. The main polluters will simply pay the international government for the right to pollute (with “carbon credits”), which is tantamount to a pay off. This should result in even more pollution, and even reinforce and perpetuate the whole environment-based scam-agenda.
Natural gas, of which the United States has the largest repositories in the world, and which is cheap and clean, will be taxed 20% to keep this energy solution at bay.
“We must not let our rulers load us with perpetual debt. We must make our selection between economy and liberty or profusion and servitude. If we run into such debts as that we must be taxed in our meat in our drink, in our necessities and comforts, in our labors and in our amusements, for our callings and our creeds…our people.. must come to labor sixteen hours in the twenty-four, give earnings of fifteen of these to the government for their debts and daily expenses; and the sixteenth being insufficient to afford us bread, we must live.. We have not time to think, no means of calling the mis-managers to account, but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow suffers. Our landholders, too…retaining indeed the title and stewardship of estates called theirs, but held really in trust for the treasury, must…be contented with penury, obscurity and exile.. private fortunes are destroyed by public as well as by private extravagance.
“This is the tendency of all human governments. A departure from principle becomes a precedent for a second; that second for a third; and so on, till the bulk of society is reduced to mere automatons of misery, to have no sensibilities left but for sinning and suffering… And the fore horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression.” Thomas Jefferson
Americans lost their country a long time ago to the international financiers. 1913, and since then everything is going downhill.
The federal reserve is the source of all that is ailing us. It has impoverished us, involved us in wars, falsehoods and bankruptcy. It should be abolished.
Thomas…………..Regarding your second post: Entering the steel mills of Birmingham Alabama in the early seventies, I remember the first oil panic during the Carter administration. A coworker worked a part time job with the local gas company, and found it simple to convert his chevy pickup truck over to natural gas. He even had a switch that allowed him to switch back and forth between gasoline and natural gas.(He loved it and said that performance was virtualy the same.)………The issue was that like the service vehicles, he could only access the gas at the same site that the company vehicles did.
That was 40 years ago and no progress, or even discussion on that option ever takes place amongst our “Energy Gurus”?……But they have managed to bring diesal fuel up to the same price as gasoline!