How Wall Street Sabotages the Democratic Party

“The suspicions that the system is rigged in favor of the largest banks and their elites, so they play by their own set of rules to the disfavor of the taxpayers who funded their bailout, are true. It really happened. These suspicions are valid”.

-Niel Barofsky, Special Investigative Counsel, TARP

Part 1 of this article here explains how Wall Street always has its men in the right place for the right time. In 2008, they ensured an original $700 billion for homeowner relief trickled down to only 12.2 billion dispensed through HAMP resulting in about 10 million foreclosures due to the 2008 Crisis .

In this article, I will explain the stealth methods the Treasury Secretary used to defeat HAMP by letting the banks administer the program and deny qualified applicants so their houses would go into foreclosure.

This all seems to be ancient history. Why is it important? Because Trump will destroy the economy and the working class will wake up to the fact that they have been taken in by a clever showman. But the next time the Dems are in power, Wall Street will again use this undetectable method to defeat the Dem’s programs to help the working class- and once again convince them that the Republicans are their saviors.

As I’m writing this, a current example has manifested. In 2021, Congress passed the Corporate Transparency Act requiring companies to reveal their ultimate shareholders. This would make it easier for the IRS to uncover the ultra wealthy who hide their assets in tax havens. It has yet to come into force.

This week Treasury Secretary, Scott Bessent, (a former hedge fund manager) announced Treasury would not be enforcing that Act. Instead, Treasury would write a new rule that only applied to foreign corporations. Congress wishes be damned — again!

How Did Geithner Do It?

Banks create separate corporations to administer their mortgages called mortgage servicers. Geithner used these bank-controlled mortgage servicers to implement HAMP.

For more on this process called securitization see:The Quiet Change in Commercial Banks.

* The big banks were the big offenders. “J P Morgan Chase and Bank of America, Historically the Two largest HAMP Servicers, and Citibank each turned down 80% or more of homeowners who applied for HAMP.” (p106)

* “Homeowners living in the middle of the United States, including the Great Plains, had the hardest time getting into HAMP” (p104)

Romero described what her investigators found on many Servicers premises. Sun Trust was the most egregious example:

“SIGTARP found that SunTrust Mortgage had no effective document management system in place to process and retain borrowers’ documentation and, as a result, routinely lost HAMP application paperwork. SIGTARP found that SunTrust employees piled so many unopened Federal Express packages from homeowners containing their HAMP supporting documents into one room that eventually the floor buckled. SIGTARP also found that SunTrust mass denied homeowners from HAMP without reviewing their applications at all.’ (p113)

As the report naively noted, “Treasury has a responsibility to ensure that the banks involved in the program are not wrongfully rejecting homeowners for a modification. But that’s not happening.” [Emphasis added.] As in the introductory quote above, earlier, the Senate Congressional Oversight Panel on TARP had made the same negative finding ( St. Louis Fed, Jan 09, 2009). Nothing changed.

The Perverse Incentives

But that was Geithner’s intent.

Bank Staff Bonuses for Denials

These Servicers had massive financial conflicts of interest so could be relied upon to reject applications.

Bankers saw a way to use HAMP to make money.

How Did a Failed Regulator Get to be Treasury Secretary?

Bank of America denied all of what the former employees were saying, pointing to how many mortgages it had in fact modified. As there was no trial, you will have to decide whether you believe the denials by management of the Bank of America or the claims by its former employees.

Lawyer economist Bill Black, who oversaw the prosecution and conviction of 1000 bankers in the S&L crisis ( Frontline, Jan 22, 2013), as explained to Bill Moyers that Geithner failed in his job as head of the New York Federal Reserve to investigate bank conduct despite clear warnings from the FBI:

“Well, Geithner, was one of our nation’s top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well, he’s a failed legacy regulator”.

( For more on the fraud that was covered up see: Fraud at Every Step of the Mortgage Securitization Chain).

But Citibank wanted him there.

Citibank also got its reward. Under Geithner’s administration, Citibank would ultimately become the recipient of the largest bailout from the federal government during the financial crisis.

As Michael Lewis and David Einhorn explained Treasury gave Citibank:

* $25 billion from the Troubled Asset Relief Program (TARP) initially.

* Later, another $20 billion from TARP.

* Guarantees of $306 billions of Citibank’s assets.

Why the colossal guarantee? As Lewis and Einhorn explain:

What Was in It for Geithner

“The $306 billion guarantee was an undisguised gift. The Treasury didn’t even bother to explain what the crisis was, just that the action was taken in response to Citigroup’s “declining stock price”.” ( NYT, 2009/01/04)

Geithner went to his reward on Wall Street. The German private equity firm Warburg Pincus appointed him managing director in 2014. His take home pay went from six figures to seven overnight.

What Can Be Done

The message for all government regulators: Wall Street generously rewards all its faithful servants when they leave their former government positions.

Indicating that the entities subject to regulations, in this case the banks, control the person in the government that regulates the and in this case the Secretary of the Treasury.

This corrupting practice could be ended by prohibiting anyone who takes a cabinet position from ever taking a job, directly or indirectly, from an entity that they regulated after retirement from government.

And yet, surprisingly, no politician has made this a central part of their platform, no media has given this the attention that they would give to the missing Debbie Petitto to make it part of public consciousness.

What happened to all the foreclosed homes comes next.

Originally published at https://jandweir.substack.com.