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Behind the scenes of Wall Street’s spectacular rise

InternationalBehind the scenes of Wall Street’s spectacular rise
“The Public Private Partnership Investment Program (PPPIP) introduced (yesterday) by US Treasury Secretary Tim Geithner is nothing more than a continuation of the greatest swindle in world history, in which money from the U.S. taxpayers is being stolen to bail out the insolvent banking system.” — James K. Galbraith. According to Galbraith’s “No Return to Normal” in the Washington Monthly, “the likely scenario under the Geithner plan is a combination of looting, fraud, and a renewed speculation in volatile commodity markets such as oil.” Under the PPPIP, the government will loan money to hedge funds and other speculators to buy “toxic waste” from the banks, with the provision that the loans will not have to be paid back if the deals are not profitable.
 
The government’s problem is simple: to bail out the banks, it must dramatically overpay them for the worthless loans and securities they now carry on their books. At the same time, for political reasons, it must keep up the pretense that it is protecting the taxpayers, who are actually being stolen blind. Therefore, the government will set up phony mechanisms to allow it to pretend that the “market” is setting the price, when in fact the whole thing is a government operation.
 
Wall Street and the banks like the plan, because they get to dump their worthless assets on the taxpayers. The government likes the plan, because it provides some modicum of political cover to its complicity in this theft. What remains unclear at this early point, is who would want to buy this toxic waste, and why. No matter what any of the parties involved claim, the buyers must significantly overpay for what they buy, and even though the government will pick up most of the cost, the private buyers will still have to put in three cents on the dollar, which they will lose, unless other arrangements such as fees for managing the assets are made.
 
This latest one-trillion-dollar scheme, on top of the $ 11 trillion of hyper-inflation bailout commitments already made by the previous Bush administration, is about 86% of the pre-collapse GDP of the United States of some $ 14 trillion. The plan consists of two parts, one to buy loans such as credit card and auto, and one to buy derivative securities.
 
The loan program will be administered through the FDIC, which will hold auctions for pools of loans the banks want to unload. In the example given in the Treasury press release, a private buyer would pay $84 to buy loans with a face value of $100, but the government would cover $78 of that, leaving the buyer to pay only $6. The loans would be placed in a special purpose vehicle, which the buyer would manage. The securities program would operate through the Term Asset-Backed Securities Loan Program (TALF), which would finance professional fund managers to buy and manage the securities.
 
“The program will particularly encourage the participation of individuals, mutual funds, pension plans, insurance companies and other long-term investors,” Treasury said in their press release. One reason that former Treasury Secretary Hank Paulson could never get the plan to work, is that the “toxic assets” are actually worth less than thirty cents on the dollar. But were Wall Street and banks to admit that, they would be admitting that they are insolvent, and must be taken into receivership for bankruptcy protection, as both Lyndon LaRouche and James Galbraith have insisted. Therefore, they demand they be paid eighty cents or more, nearly three times the true value, simply as a device to conceal their actual insolvency. One reason Paulson had to abandon the TARP scheme was that he realized he couldn’t get away with paying three times what the trash paper was worth.
 
The new wrinkle, by which Larry Summers and Tim Geithner hope to make it work, where Hank Paulson failed, is that the valuation and purchase of the trash paper will supposedly be done by “private buyers” rather than the government. These so-called “private partners” will use low-interest government loans of up to 97 percent of the price they pay for the “assets,” and will not even have to repay the government unless they first break even on their own three percent share!
 
Geithner and Summers’ hope is that under these artificially rigged circumstances, these so-called partnerships will overpay sufficiently for the worthless paper, to shovel hundreds of billions more taxpayer money into the big, bankrupt banks, and so put off once more their inevitable day of reckoning.
 
In his article in the Washington Monthly, Galbraith made it very clear that if we are in a “true collapse of finance,” then our usual “numerical models just don’t capture the key feature of the crisis – which is precisely, the collapse of the financial system.” “It is then appropriate” he said, “to reach back to the experience of the Great Depression, where Roosevelt’s ambition exceeded anything yet seen in this crisis:
 
“Franklin D. Roosevelt’s government hired about 60% of the unemployed in public works that planted one billion trees, modernized rural America, built much of Chicago’s lakefront, New York’s Lincoln Tunnel and the Triborough Bridge complex, the Tennessee Valley Authority, and the aircraft carriers Enterprise and Yorktown. It also built and renovated 2,500 hospitals, 45,000 schools, 13,000 parks, 7,800 bridges, 700,000 miles of roads, and a thousand airfields. And it employed 50,000 teachers, rebuilt the country’s entire rural school system, and hired 3,000 writers, musicians, sculptors and painters.
 
“The New Deal rebuilt America physically, providing a foundation (the TVA’s power plants, for example) from which the mobilization of World War II could be launched. But it saved the country politically and morally, providing jobs, hope, and confidence that in the end democracy was worth preserving. There were many, in the 1930’s who did not think so.
 
What did not recover, under Roosevelt, was the private banking system…A brief reflection on this history and present circumstances drives a plain conclusion: the full restoration of private capital will take a long time. It will follow, not precede, the restoration of sound private household finances. There is no way the project of resurrecting the economy by stuffing the banks with cash will work. Effective policy can only work the other way around.”
 
It should be noted that under Roosevelt unemployment fell from 25% in 1933 to less than 9% in 1936 and only increased again when he listened to and succumbed to pressure from Wall Street and the banks and tried to balance the Federal Budget in 1937. However, by 1938 The New Deal was relaunched and again, unemployment decreased and the economy recovered. For over 16 years private banks had no power over the economy of the United States under President Roosevelt. Farmers and businesses that needed loans got money from banks set up by the government at low interest rates of under 5%. It was only with the death of President Roosevelt that the power of the bankers over economic policy was reestablished under President Truman who introduced Keynesian economics to America.
 
Yesterday, Lyndon LaRouche denounced the latest bailout swindle, announced by Treasury Secretary Tim Geithner, as nothing more than a “continuation of the original bailout scheme put forward by then-Treasury Secretary Henry Paulson in Nov. 2008.” LaRouche warned that, if this so-called Public Private Partnership Investment Program (PPPIP) scheme is allowed to go forward, it will not only trigger Weimar scale hyperinflation. “It could, ultimately, bring down the Obama Presidency.” LaRouche elaborated. “This is the same kind of Keynesian—i.e. fascist—swindle that was put in place just hours after the death of President Franklin Roosevelt, by his replacement, Harry Truman. Truman’s instant abandonment of FDR’s Bretton Woods System, a credit system of fixed exchange rates which was adamantly opposed by Lord Keynes, the British delegation and their Wall Street accomplices, was tantamount to treason by Truman. It was a betrayal of everything that FDR stood for, beginning with Roosevelt’s commitment to the elimination of the British Empire at the close of the war. That is why I warn President Obama that if he goes along with this latest version of the same swindle that goes back to Harry Truman and his abandonment of FDR in favor of that self-professed Fascist, Lord Keynes, his Presidency is in jeopardy.”

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