How Wall Street Sabotaged the Democratic Party
“BILL MOYERS: Yeah. Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?
WILLIAM K. BLACK: Absolutely. And they’re deliberately leaving in place the people that caused the problem because they don’t want the facts”.
This is the fifth post in the foundation series for the later sections that open the black box on the aspects of the tax, corporate and banking systems that are used for the upward transfer of wealth. The foundation section begins here.
This is the story of how the invisible hand of Wall Street sabotaged the Democrats chance to retain the support of the working class by crippling the program the Democrats intended for homeowner relief. Estimates report that some 10 million people lost their homes during Obama’s tenure. Economist Gregg Daneke called it the Great Dispossession.
The banking crisis of 2008 came to light in September of that year. Bush’s term was ending. The Democrats controlled both chambers of Congress and Obama was poised to win the presidency. The Democrats immediately passed a bill allocating $700 billion to help the homeowners with mortgage foreclosure relief. The New York Times published a draft of the bill that month.
But we know what happened:
* $350 billion went instantly to the banks.
* Of the remaining 350 billion, the Obama administration allocated only $56 billion to help with homeowner mortgage relief.
* Less than 1 billion of the $56 billion trickled down to homeowners.
* Some 10 million homeowners lost their homes to foreclosure ( LA Times, Sept 15, 2018).
The Big Switch
The key question: What happened to all of the foreclosed homes?
The predatory capitalists were able to divert the homeowner aid to banks and banker bonuses; subvert the homeowner relief program so the bankers could buy the millions of homes foreclosed at fire sale prices, then convert owners into renters driving up housing costs. Here’s how it happened.
In a quick response to the ’08 Crisis, to help troubled homeowners, Congress passed the Legislative Proposal for Treasury Authority to Purchase Mortgage Related Assets. The bill allocated $700 billion to purchase troubled mortgages. But when the Treasury Department got the allocation in its budget, Treasury Secretary Hank Paulson (recall he is an ex-Goldman Sachs CEO) thumbed his nose at Congress and said he was going to give $ 350 billion in cash to the banks with repayment secured by bank preference shares ( Newsweek, Nov. 11, 2009). Furthermore, there would be no strings attached to the money:
• The bankers could take their full bonuses out of the bailout funds for the time they screwed up so badly that they put the financial system in jeopardy.
• The bankers could keep all their past bonuses. There would be no claw back of pay for incompetent management from 2002 onward.
House speaker Nancy Pelosi (D-CA) was livid. Market Watch quoted her:
“It was very clearly spelled out in the initial legislation that funds would be used for mortgage foreclosure forbearance.”
Pelosi’s complaint went nowhere. When Obama assumed the presidency, there was $350 billion left at Treasury. He created the Home Loan Modification Program (HAMP) using $56 of that $350 billion. Treasury sent back the remainder.
The average voters, already facing economic insecurity, had voted for Obama and his promise of “Hope and Change”. This is what they got.
Obama gave responsibility for implementing HAMP to his new Treasury Secretary Timothy Geithner. We have Neil Barofsky to thank for disclosing what Geithner did. Barofsky was special counsel appointed to oversee the spending of the bailout money.
At a meeting with Geithner and Elizabeth Warren, Barofsky relates that Geithner proudly announced that he had successfully slowed the flow of money to the homeowners, letting only enough dribble down to “foam the runway” for the banks.( Reuters, Aug 6, 2012).
‘Foaming the runway’ is a bankruptcy term by which the trustee in bankruptcy pays only the necessary expenses to preserve property for secured creditors, who are usually the banks. The trustee would pay electricity and heating charges on buildings, for example, to give the banks time to organize seizure and sale of the properties.
Geithner added that with the bailout money at his disposal, he could slow the foreclosure process down to allow the banks to organize the processing of up to 10 million foreclosures.
And so he did. (St Louis Fed, Dec 02, 2016)
How he did it and why next.
Originally published at https://jandweir.substack.com.
