“American International Group Inc.’s bailout had a ‘poisonous’ effect on the U.S. financial system because it demonstrated the government would protect Wall Street firms from their own risk-taking, said a Congressional” bailout oversight panel.
Earlier, the Obama administration used the $170 billion AIG bailout to give billions in legally unnecessary payments to the Wall Street firm of Goldman Sachs, which is so rich that it has admitted it didn’t even need the money. Goldman Sachs, one of the Democratic Party’s biggest donors, is using its political connections to reap record profits.
Obama and Congressional leaders later pushed through a Trojan-horse financial “reform” bill backed by Goldman Sachs that would further enrich Goldman Sachs, which was recently accused of fraud by the Securities and Exchange Commission (SEC).
In a party-line vote, Senate Democrats earlier blocked any reform of Fannie Mae and Freddie Mac, the corrupt, government-sponsored mortgage giants that even Obama administration officials admit were at the “core” of “what went wrong” in the financial crisis.
(Obama received $125,000 in contributions from these mortgage giants as a Senator, second only to the corrupt Senator Chris Dodd, who is retiring this year due to his financial scandals, yet is the chief drafter of the financial “reform” bill.)
At the direction of the Obama administration, Freddie Mac ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes. Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.) The Obama administration showered the mortgage giants’ executives with $42 million in compensation.
Fannie and Freddie helped spawn the mortgage crisis by acting as loan toilets, buying up risky mortgages and thus creating an artificial market for junk. “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.” They paid their CEOs millions, and engaged in massive accounting fraud — $6.3 billion at Fannie Mae alone — to increase the size of their managers’ bonuses. As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.
Government pressure on banks to make loans in economically-depressed neighborhoods was a major cause of the mortgage crisis. That pressure will increase under the financial “reform” legislation. Legislators approved Obama’s proposal to create a new consumer “protection” agency. But it may harm rather than help consumers. Why? “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.” It would do so without regard for banks’ financial safety and soundness, even though the Community Reinvestment Act was a key contributor to the financial crisis.