Editor’s Note: Robert Scheer is the author of The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street (Nation Books). The first part of a two-part excerpt appears below. Part II is here.

After the inauguration, the new Obama administration made it clear from day one that pleasing Wall Street rather than distraught homeowners would be the focal point of policy. On February 10, 2009, new Treasury secretary Timothy Geithner, rising to what he termed “a challenge more complex than any our financial system has ever faced,” committed to give up to $2 trillion more to the very folks who profited from that malignant complexity. For all the brave talk about transparency and accountability in the banking bailout, he gave the swindlers who got us into this mess yet another blank check to buy up the “toxic assets” they gleefully created.

According to the Congressional Oversight Panel created by Congress to monitor the bailout, the Bush Treasury Department had already overpaid by $78 billion of our money in the first ten purchases of those assets. Yet Geithner insisted that “Congress acted quickly and courageously” in throwing that money at Wall Street. At the same time, there was still no commitment to directly help the millions of homeowners already foreclosed out of their homes, with millions more to come.

The New York Times report of February 10, 2009 noted that “the plan largely repeats the Bush administration’s approach of deferring to many of the same companies and executives who had peddled risky loans and investments at the heart of the crisis and failed to foresee many of the problems plaguing the markets.” The Times added that “as intended by Mr. Geithner, the plan stops short of intruding too significantly into bankers’ affairs even as they come onto the public dole.”

The word “dole” is usually applied pejoratively to welfare mothers, not to top bankers ripping off the taxpayers. But as opposed to welfare mothers, who must survive stringent monitoring, the bankers would be largely self-monitoring. Under Obama as with Bush and Clinton before him, there was to be tough love for welfare mothers but never for bankers.


In the fall of 2008, while Bush was still president, taxpayers began bailing out AIG with more than $140 billion, and then it went and lost $61.7 billion in the fourth quarter, more than any other company had ever lost in one quarter. Now in 2009, Obama was president, and it was on his watch that government officials huddled late into the first weekend of March and decided to reward AIG for its startling failure with thirty billion more of our dollars. Plus, they sweetened the deal by letting AIG off the hook for interest it had been obligated to pay on the money taxpayers previously gave the company. That’s money, as it turned out, that was passed on to Goldman Sachs and other financial giants that had hedged their bets with what would have proved to be AIG’s worthless credit default swaps, had U.S. taxpayers not been forced by their government to come to the rescue.

The Wall Street bailouts were a frantic response to a crisis that resulted from the radical deregulation pushed by former Goldman Sachs honcho Robert Rubin when he was President Clinton’s Treasury secretary. Another Goldman Sachs chair-turned-Treasury-secretary, Henry Paulson, in the Bush administration designed what became the more than $1 trillion bank bailout that will go down as the greatest swindle in U.S. history.

Goldman Sachs alums were no less prominent in the Obama administration than had been the case with his Republican predecessor. A key example of the enduring influence of one firm would be on display in March 2009, when Obama picked former Goldman partner Gary Gensler for the position as head of the Commodity Futures Trading Commission, once held by Brooksley Born, the stalwart consumer watchdog back in the Clinton years who had stood for regulation of the derivatives that would humble the world’s economy.

During confirmation hearings, Senator Bernie Sanders, got right to the point: “While Mr. Gensler is clearly an intelligent and knowledgeable person, I cannot support his nomination. Mr. Gensler worked with Sen. Phil Gramm and Alan Greenspan to exempt credit default swaps from regulation, which led to the collapse of AIG and has resulted in the largest taxpayer bailout in US history.”

Gensler was nominated because Congress and the president sought to give Wall Street whatever it wanted to make the stock market go up. And Gensler was a reassuring figure to the moguls of finance: a partner at Goldman Sachs before being brought by Goldman exec Robert Rubin to the Treasury Department and promoted to Treasury undersecretary by Rubin’s successor Summers.

In 2000 Clinton signed off on the Commodity Futures Modernization Act, which former Goldman Sachs chair Robert Rubin and his protégés pushed into law to deregulate those derivatives. And it was future Treasury secretary Paulson who headed up Goldman when it jumped through that legal loophole to package and sell those toxic derivatives. And it was this same Paulson as Treasury secretary in the administration of George W. Bush who along with then New York Fed chair Geithner pushed through the $180 billion dollar rescue of AIG, the company that was holding the credit default swaps insuring the questionable Goldman derivatives.

Treasury secretary Geithner would be confronted by revelations of his role in the AIG bailout when it was reported that Geithner, as head of the New York Fed overseeing the AIG bailout, had pressured AIG not to reveal the names of the insured clients that it was paying with government funds. And it turned out that the New York Fed had also brokered a deal in which AIG paid out generously at inflated valuations of the losses that the insured companies, particularly Goldman Sachs.


Thus was launched the government’s No Banker Left Behind program, begun by Paulson and continued by Geithner when Obama picked him to succeed Paulson. Within six months, the special inspector general in the Treasury Department would report that the bill had already run to nearly $3 trillion, an amount six times greater than would be spent by federal, state, and local governments the entire year on educating fifty million American children in elementary and secondary schools.

Where did the money go?

It took major pressure from a Congress reacting to an outraged public to discover that AIG, in addition to handing out hundreds of millions in bonuses to the very hustlers who created the firm’s swindles, was a conduit for at least $70 billion in taxpayer money to reimburse the banks and stockbrokers who got us into this crisis with their bad bets.

No surprise there, given the incestuous world of finance. The revolving doors between the Treasury Department, the Fed, and executive offices in the industry have been swinging throughout Republican and Democratic administrations. As a result, those orchestrating the bailout and those grabbing the money are for the most part friends and former colleagues, with enormous respect for each other but not for the American taxpayers and homeowners experiencing massive foreclosure rates.

Among the winners was Lawrence Summers, who remains convinced that he deserved every penny of the nearly $8 million that Wall Street firms paid him in 2008, when he was an Obama campaign adviser. It is especially disturbing that Summers got most of the $8 million or so from a major hedge fund at a time when such totally unregulated rich-guys-only investment clubs stand to make the most off the Obama administration’s plan for saving the banks. The scheme, as announced by Treasury secretary Geithner, is to clean up the toxic holdings of the banks using taxpayer money and then turn them over to hedge funds that will risk little of their own capital. At least the banks are somewhat government-regulated, which cannot be said of the hedge funds, thanks to Summers.

But why was someone as compromised as Summers who, as Clinton’s Treasury secretary, insured that the new derivatives market would be unregulated, named the White House’s point man overseeing nearly $3 trillion in federal commitments to the financial moguls he had enabled in creating this crisis, many of whom had benefitted him financially? Why would he be put in charge of the effort to create new regulations?

His efforts pushing deregulation back during the Clinton years helped guarantee that today we would continue to be robbed big-time, despite the change in party controlling the presidency and Congress. This was confirmed in an April 2009 scathing report by the Treasury Department’s special inspector general, Neil M. Barofsky, who charged that the TARP program from its inception was designed to trust the Wall Street recipients of the bailout funds to act responsibly on their own, without accountability to the government that gave them the money.

For all of its criticism of the original program, designed by the Bush administration, the report was equally severe in denouncing the Obama administration’s plan to partner with hedge funds and other private capital groups to buy up the “toxic” holdings of the banks. Charging that the plan carries “significant fraud risks,” the inspector general’s report pointed out that almost all of the risk in this new trillion-dollar plan is being borne by the taxpayers. The so-called private investors would be able to put up money they borrowed from the Fed through “nonrecourse” loans, meaning if the toxic assets purchased proved too toxic and the scheme failed, the private investors could just walk away without repaying the Fed for those loans.

The reason those loans may prove even more toxic than expected and the price paid by this government-underwritten partnership far too high is that the government is purchasing the most suspect of the banks’ mortgage packages. In addition, the plan is to accept at face value the evaluation of those packages by the very same credit-rating firms whose absurdly wrong estimates of the dollar worth of these securities helped create the problem that now haunts the world’s economy.

“Arguably, the wholesale failure of the credit rating agencies to rate adequately such securities is at the heart of the securitization market collapse, if not the primary cause of the current credit crisis,” the report found.

As with the entire banking bailout, the new Obama plan was likely to enrich the very folks who impoverished the rest of us, as the report notes: “The significant government-financed leverage presents a great incentive for collusion between the buyer and seller of the asset, or the buyer and other buyers, whereby, once again, the taxpayer takes a significant loss while others profit.”

At the heart of this potentially massive fraud was the original decision of Treasury secretary Paulson to not require the recipients of the bailout, such as his old firm, Goldman Sachs, to account for how the money was spent. Unfortunately, President Obama’s administration continued that practice. The only difference is that the amount of public money being put at risk was now far greater.

Editor’s Note: The second part of our two-part exceprt from The Great American Stickup appears here.

Robert Scheer is the author of The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street (Nation Books).