Commentary and review of The New Trough - Naomi Klein's article in Rolling Stone's November 13, 2008 issue

http://www.rollingstone.com/politics/story/24012700/the_new_trough

The details are starting to emerge on the Bailout and it is apparent this criminal administration and Congress are at it again. It was bad enough to send partisan republicans to Iraq to hand out Plane Loads of money to Contractors, but this latest scam takes the cake.

Reuben Jeffrey III is named the chief investment officer for the bailout program. This is the guy who as chairman of the Commodity Futures Trading Commission between 05 and 07 who advocated for flexibility in regulation, which did not regulate the high risk trading at the heart of the meltdown.

Jeffrey, who was also part of the Bremer CPA in Baghdad in the early days. He ws in charge of hiring a staff who's function was to hand over plane loads of money to private contractors. When asked by Congress what he learned he said contracts should be handed out with more speed and flexibility.

So we are now outsourcing the bailout with no time for a bidding process or the drafting of rigorous rules to make sure those applying do not have conflicts of interest. In other words, an open invitation to bullshit about how they love their country and can be trusted to regulate themselves.

Six law firms were invited to bid for the first major contract. Four declined because of conflicts of interest. The firm awarded the contract - Simpson Thacher & Bartlett apparently takes a more relaxed approach to conflicts of interest.

It provided legal support to companies trading mortgage-backed securities - the financial WMDs as Warren Buffett called them, that detonated the banking industry.

This firm was hired to spend $250 billion of the bailout money to purchase equity in Americas banks. The first stage was to buy stakes in 9 of the country's top banks - 7 of which this firm represented.

This firm agreed to not represent these banks against the US when they negotiate with Treasury for the equity money. This firm has retained the right to represent banks when they apply for other parts of the $700 billion bailout not covered by its contract. The conflicts of interest increase further when you look at Simpson Thacher's lead lawyer; Lee Meyerson, who personally represented 3 of the 9 banks bailed out in the first round.

This firm could act right, but the first test wasn't reassuring. the deal to give the 9 banks $125 billion to ease the credit crunch; crippling the economy, in the form of badly needed loans. Problem is no one put this in writing. The part about lending money to homeowners and small businesses was implied - not required. There is no obligation for the banks to lend the money one way or the other says a Treasury spokeswomen. We're not looking to control their operations.

Many of the banks appear to have no intention of wasting the money on loans; at least for the next quarter. The CFO for Citigroup; Gary Crittenden, has hinted his company would use its share of the cash - $25 billion - to buy up competitors. He said the buyouts present the possibility of taking advantage of opportunities that might normally be closed to us.

Add to this Morgan Stanley planning to pay themselves $10.7 billion this year, much of it in bonuses. Not only do the taxpayers save this company, we are funding their 2008 bonuses.

England's Gordon Brown negotiated a similar bailout, but with meaningful guarantees for taxpayers, voting rights at banks, seats on the boards, 12% annual dividend payments to the government, suspension of dividend payments to shareholders, restrictions on executive bonuses and legal requirements that the banks lend money to homeowners and small businesses.

We got no controlling interest in banks we saved, no voting rights, no seats on the boards and 5% in dividend payouts to the government while shareholders continue to colle ct dividends. Golden parachute and bonuses already promised by the banks will still be paid out to executives.

The day after Paulson met with the top banks, Treasury announced Bank of New York Mellon would receive the contract of Master Custodian of the bailout. Bank of Mellon has a bad record for mischief. $22.5 billion money laundering lawsuit in Moscow and has been forced to pay out $14 million in settlements.

The contract prohibits unethical behavior, but the arrangement is rife for abuse. Mellon holds $1.2 billion in subprime mortgage securities. It will rceive $3 billion as part of the equity program and be eligible to apply for taxpayer money from the program it is being paid to administer.

This is a must read article. All this information can be independently checked out. Of course, always remember if you want the facts to go your way, turn a blind eye to what does not fit into ones world view.