Tuesday, December 27, 2011

Crooked Treasury Secretary


By Porter Stansberry
for The Daily Reckoning


The Ethos of ‘Getting Yours’

Americans know, in their bones, that something terrible is happening. Maybe you can’t articulate it. Maybe you don’t have the statistics to understand exactly what’s going on. But my bet is, you think about it a lot.

For me, a poignant moment of recognition came this month.

Bloomberg news published an article based on confidential sources about how Henry Paulson, the former CEO of Goldman Sachs and the Republican U.S. Treasury secretary during the financial crisis, held a secret meeting with the top 20 hedge-fund managers in New York City in late July 2008. This was about two weeks after he testified to Congress that Fannie Mae and Freddie Mac were “well-capitalized.”

I knew for a fact that what Paulson told Congress wasn’t true. I wrote my entire June 2008 newsletter detailing exactly why Fannie and Freddie certainly had billions in losses that they had not yet revealed to investors — $500 billion in losses, at least. There was no question in my mind, both companies were insolvent  “zeros,” as I explained.

And yet, in front of Congress, the U.S. Treasury secretary was saying exactly the opposite. Either I was a liar or he was.

Then  only a few days later what did Paulson tell those hedge-fund managers?

He told them the same thing I had written in my newsletter. He told them the opposite of what he’d said publicly to Congress. He told these billionaire investors that Fannie and Freddie were a disaster They would require an enormous, multibillion-dollar bailout… The U.S. government would have to take them over… And their shareholders would be completely wiped out.

Here you had a high-government official, explicitly lying to Congress (and by extension, the general public), while giving the real facts to a group of people who represented the financial interests of the world’s wealthiest folks. The story didn’t come to the public’s attention for two years.

This was the most outrageous example of graft and corruption I have ever seen. Certainly it involves more billions of dollars in misappropriated value than any other similar story I can recall. These managers had the risk-free ability to make tens of billions of dollars, if not hundreds of billions, by using derivatives to capitalize on what they knew was the imminent collapse of the world’s largest mortgage bank. Who picked up the tab? You know perfectly well. It was you and me, the taxpayers.

(One of the investment managers present at this meeting was Steve Rattner, who by that point was already deeply involved in another bit of graft, his efforts to bribe New York state pension-fund managers for large investments into his hedge fund, from which he earned perhaps as much as $100 million. He later settled the charges for a mere $10 million shortly after Andrew Cuomo was elected governor of New York.)

The Bloomberg story about a crooked Treasury secretary handing a room full of crooked billionaires inside information worth billions of dollars… hardly caused a ripple. As far as I know, no actions are being planned against Henry Paulson or any of the hedge-fund managers involved. No other major media outlet picked up the story. I saw nothing about it from the Department of Justice or the Securities and Exchange Commission.

What does that say about our country when even the most egregious kind of corruption involving hundreds of billions of dollars  is simply ignored?

It seems like everyone in our country has lost his moral bearing, from the highest government officials and senior corporate leaders all the way down to schoolteachers and local community leaders. The ethos of my fellow Americans seems to have changed from one of personal integrity and responsibility to “getting yours” the all-out attempt, by any means possible, to get the most amount of benefits with the least amount of work.

You can see this in everything from the lowering of school standards (revising the SAT) to the widespread use of performance-enhancing drugs in professional, college, and high school sports. Cheating has become a way of life in America.

I have an idea about how this happened about the root cause of this kind of corruption and why it was inevitable, given some of the basic facts regarding how we’ve organized our government and our corporations.

Let me show you the numbers the hard facts  behind what’s happened to our country.

Regards,

Porter Stansberry
for The Daily Reckoning





Read more: The Corruption of America http://dailyreckoning.com/

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