The Occupy Finance Book – Chapter 2: “The Bailout: It Didn’t Work, It’s Still Going On, and It’s Making Things Worse”

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Section 1. The Real Life Impact of Financialization on the 99%

Chapter 2. The Bailout: It Didn’t Work, It’s Still Going On, and It’s Making Things Worse
(a discussion of the purposes, magnitude, and continuing unfolding of the Bailout)

Interview with Cathy O’Neil
by Oriana P. Roerkraeyer

OPR: Hi Cathy. Can you tell us what securitization is?

CO: Securitization is a process by which a bunch of different loans are bundled together, they are pulled together. For example, you have a credit card bill and I have a credit card bill and Joe over there has a credit card bill, or it could be mortgages that we have to pay once a month or it could be student loans,..securitization usually just refers to any kind of debt and the point is that the people who get owed this money, they don’t like how inconsistently they get paid so with mortgages they might get paid once a month until all of sudden you sell your house and then everything gets paid back all at once and it’s very uneven and choppy for them. They are big investors, they are banks and pension funds, and they want things to very smooth and predictable and consistent so what they do is, instead of just owning yours they own a whole bunch of things and instead of actually owning a bunch of things the bank does the middle man job of buying up a bunch of these debt and combining them into a big pool and, that’s called securitization, and then selling pieces of that pool to these big investors. They are trying to guarantee smoothness like I just described.

OPR: Do we still know who these mortgages belong to when you put them in that pool?

CO: Well, technically you should right? I mean, I always thought if you know how to move the money around after someone pays then you should actually be able to also figure out who owns things. It’s kind of frustrating and shocking how little people really did understand legally speaking who owned what and that was part of the problem of course after the financial crisis. The actual record keeping became worse and worse by construction because it was in the interest of the people selling these loans, these pooled loans, the securitized instruments, it was in their best interest not to show too much information of what the actual underlying loans were made from. They actually made it harder and harder to dig in because they figured the obstacle for digging in for any given investor would be too large for anyone to bother doing it, which is pretty much true.

OPR: So they started with securitization, which is only one layer, but then they moved on from that and then the layers became bigger and bigger and more complicated, for example the so called CDO’s. What are they?

CO: Securitization in and of itself isn’t such a bad idea. The idea that you’re going to combine the securitizations with a sort of forgetfulness of what the actual underlying loans are is where it starts getting to be a bad idea. And people kind of knew that it was a bad idea and what they did was they said: ‘o well, I’m being risky with my purchase of this loan, this high risk loan, so I’m gonna protect myself’. So they invented this whole new instrument class called Credit Default Swaps, which was a way of protecting themselves against losses on these loans. And it was one of the ways they sort of out got out of feeling guilty for not understanding what the underlying loans were. So they’re like, well we don’t really know what the underlying loans are, we could spend a lot of time and effort and money understanding those loans on a very basic level, but instead we’re just gonna pay for insurance on top of it so that if the loan goes bad we get paid from these people who are insuring is, which is usually AIG.

OPR: And then they started playing with these CDS’s right? And then you got something called “Synthetic CDO”?

CO: Yes, so going back to CDO’s and I didn’t really answer your question before, CDO’s are just Credit Debt Obligations, they literally are what I just said securitized Debts or Obligations. They are any kind of debt, credit card, medical, student, mortgages. Mortgage backed securities are a specific kind that are only mortgages in the pool. CDO’s are more generic, car loans, things like that. Once you had this new industry called Credit Default Swaps, there was no regulation on it, partly because the people on the inside refused to let there be regulation on it. This idea that the market was gonna regulate itself and nobody would take more risk on than they should have, which was completely bogus. But once you had this Credit Default Swap market you had quants mathematicians, what I used to do, who said, what can we do with these and it was its own thing right? So one thing they realized they could do was they could buy a bunch of them. They didn’t actually have to use them like insurance. You could use them as bets and the bets were that ….well, depending on which side of the Credit Default Swap you were in,..if you were on the AIG side and you were guaranteeing a bunch of loans, then their bet was, the amount of money we’re gonna get paid for insurance stuff is way more than we ever have to pay when the loans go bad. The other side of course of the Credit Default Swap market were the people who were betting that these loans really would go bad. Btw. they were allowed to buy as many as they wanted, on anything. And so what they did was, what essentially the story of Magnetar is, they invented securitized debts that were built to go bad and then they could make a lot of money on Credit Default Swaps because people were selling Credit Default swaps too cheaply. So what they realized is that at some point nobody knew what was going on with the underlying loans, so why don’t they make a particular toxic product, particularly awful loans, and then sell those loans and then buy Credit Default swaps on those loans because they knew that they were gonna explode. They were built to explode.

OPR: And what does all this still have to do with the initial idea of banking and the initial idea of capitalism?

CO: Banks are in charge of taking on longterm risk so that you don’t have to. So that’s a good thing about banks right? What they do is, they take on your mortgage debt, which is a thirty year thing, it’s a lot of risk, it’s a contract that lasts 30 years, and in exchange they allow you to have your cash money anytime you want. So they don’t know when you’re gonna want your cash but the rule is, you get to go get your cash whenever you want, but they don’t get their money back for 30 years. So their job as the middleman is,…we take longterm risks in exchange for some fees and we give you shortterm liquidity. And securitization actually goes in that direction of course, because securitization is a way for banks to take on tis longterm risk in a more efficient way. As long as they have enough of these mortgages or whatever kind of loans to pool so that their overall risk is more predictable, it is a way for them to do their job more efficiently. The problem was when they started to do way more than their job. They started to say ‘hey, we can make bets on this,..hey, we can lie about the underlying loans,..hey, we can keep incredibly shitty records and have no one check because everyone is so focused on greed and shortterm profits,..’ In fact it was all about the insiders, everybody involved in this whole thing,…except of course the dumb money investors who were convinced to buy some of these explosive loan packages, the securitized loans. Most of these people were in on the game.

OPR: You keep mentioning the word “risk”. The financial system is based on risk and they design risk models. Can you explain this?

CO: Risk is a very generic term and it should be understood as like how everybody understands risk. There’s lots of ways for thinking about risk. What people do in finance that often makes them money is sort of try to narrowly define risk so that they can pretend they ‘re hedging their risk. If you define risk very generally, it’s very hard to proof that you are dealing with risk, but if you define general risk as an incredible narrow financial market risk or something then you’re allowing yourself to squeeze out profit because of the risk you are not thinking about. So one of the risks that people weren’t thinking about in this whole mortgage backed security, Credit Default Swap, CDO stuff were counterparty risks. That was a risk that was growing and growing and growing and once Lehman fell we saw how enormous that risk was. What I mean by that is, the banks got more and more interconnected with thousands upon thousands upon tens of thousands of contracts that were connecting all the different banks and investment banks and when Lehman fell all those were frozen. A given bank may actually have netted out their exposure, they might owe Lehman a million dollars on this transaction but be owed by Lehman a million dollars on that transaction but it was still completely a pain in their ass to figure out what next because essentially they had become addicted to this very fast cycle of movement between banks and investment banks and when Lehman fell, that pipe, in that huge network of pipes of the financial system, was just blocked. And it exposed this incredible interconnectedness and counterparty risk that everyone inside was taking on. It’s one of the risks that people don’t really think about.
Risk could be anything you know.
Another risk that people weren’t taking seriously was the risk that the housing market was a bubble and could pop. Everything was based on historical prices which is just a general blind spot with financial analysts that would always use historical data even now to try to predict the future. Historically speaking housing prices hadn’t gone down so they were all under that assumption or you could say that they weren’t actually under that assumption but individually they were thinking the fastest way for me to get enough money for a summer house is to hope this bubble lasts until my next bonus.

OPR: But I read that they were counting on that bubble to burst in about 2-4 years.

CO: I think on the inside most people knew there was a bubble and that it was gonna burst but I don’t think they were actually counting on it. Most people were not actually betting on it. In finance it’s always about putting your money where your mouth is. If you actually have a belief you’re supposed to bet on it and just by looking at how many people lost money, or didn’t make money anyway when that happened I don’t think it’s fair to say that everybody was counting on it to burst at a specific time.

OPR: Were they predicting the bail out? Were they counting on getting bailed out?

CO: No, I mean, look…you could think of it as yes or you could think of it as no. I actually think the answer is no. I think the answer is nobody gave a shit. Nobody actually gave a shit. They were just like, well the system is totally corrupt. I mean the insiders knew that, the insiders knew that it was a complete shit show with all the incredibly bad CDO’s and mortgage backed securities and they had no idea what was gonna happen but they knew that had already made a lot of money and they really didn’t feel responsible. Each of them felt like they indented some small part and they weren’t really to blame. Everyone had somebody else to point to and most people pointed up but then the ironic thing was that the people at the very top, the Fed and The Treasury, were macro economists who didn’t actually know enough about the market to understand how bad it was.

OPR: Can you describe the situation at the time of the bail out?

CO: The situation was a panic at the time of the bail out. After Lehman feel nobody knew who was gonna be next to fall and everybody knew that the markets had suddenly been exposed as dysfunctional. The overnight credit markets, which were used just for a bank to close its doors on Tuesday and open up on Wednesday, were frozen. Which meant literally that any bank at any time, even if it had a pretty good portfolio, might not be able to function. In particular that meant that if payroll might be able to be met for the average person in this country, that people might not be able to get money out of the bank. So the risks were very real at the time of the bail out. Something needed to be done. I don’t judge the government badly for stepping in and doing something but I do judge the government for what it did and how it did it. There were lots of other options for them and I could go on and on at length what other things they could have done. That’s what I wrote about in my chapter on the bail out..

OPR: Could you mention a couple?

CO: A couple? Sure. They could have let the banks fail and just made sure that payroll was met and that cash was available and they just sort of said, you guys fucked up, you guys messed up and private banks and investment banks are not functioning so we need to make sure that the average person doesn’t have no currency. The real economy has to continue while you guys sort yourselves out but we’re not bailing you out. That’s one thing. Another thing is, the banks could have been bailed out but nationalized, just owned literally by the government and all the CEO’s and managers could have been fired. And that didn’t happen. Even so, the thing that really outrages me more than the actual actions at the moment of the bail out, because I know politicians aren’t finance insiders and the finance insiders, even the macro economists of the Fed and Treasury, were telling them this is an emergency, you need an expert to know how to do this and we have to keep the experts in their jobs because they are the only ones that can sort this out. So I can understand why politicians didn’t doubt that at the moment of panic. What really gets to me is what happened since then and how it’s a continual bail out. We have too big to fail subsidies, we have made the banking system more concentrated and with fewer banks, we haven’t gotten Dodd-Frank started, it’s way behind schedule and it’s been watered down extremely by the lobbyists and nobody is doing anything about it. In some sense the financial industry has done an incredible job of paying both sides of government, Democrats and Republicans, to not think about and not talk about it. One of the things that really bugged me is that in the presidential debate it never got discussed. It never got discussed. At the Democratic and Republican conventions it never got discussed. And btw. the financial industry had been at parties at both of those conventions, so they basically bought out the government. That’s really frustrating because what we saw is that the financial industry broke the world, scared the politicians into not acting and now buying politicians to continue to not act and in the meantime, the rest of us who are tax payers and helped bail out those banks haven’t seen a dysfunctional system being replaced. So the real question here is, what did we bail out and why? Why should we continue to bail out the system?

OPR: This whole process leaves me the question, what happened to democracy? Was the democratic process honored during the bail out? And also, for the proponents of capitalism, letting the banks fail, isn’t that exactly what capitalism is supposed to be?

CO: Yeah, good point. So first, I mean you could say we have democracy because we voted in Obama a second time, we did that. Romney and Obama were almost identical on their financial platforms, which were non-existent. Their platforms were basically pretend to care, pretend to have a hard line with respect to fraud and the banks and in fact don’t do anything except for continuously bail out the banks in various ways by sort of getting them out of liability and giving them small wrist slaps and fines and not making them admit accountability and in fact the fines are paid by the shareholders not the people who got rich and they didn’t lose their jobs, they didn’t go to jail. So they are really really weak tools and they talk about them as if they’re strong but they’re not. In terms of capitalism, yes. That’s what funny about being an Occupier, is that I actually have a lot in common with some of the Tea Partiers I tell you the truth. What we can all agree on is that this is not capitalism, it’s crony capitalism I guess, but the idea that something that has utterly failed is not allowed to actually fail that’s nobody’s ideal.

OPR: So you want to have a combination of capitalism and socialism?

CO: I’m not saying that. I’m saying we can all agree that it’s not capitalism. In terms of what would be ideal. I’m actual kind of neutral to various visions all of which are not this one. So one of my visions is you guarantee a sort of service banking. You have like a national bank that is,…like the post office, not that the post office is doing awesome right now, it’s not but it functions and it’s really really boring, it does what it does and doesn’t do anything else, so to have a national bank would be appropriate I think or you could have size limits on banks so that they can’t threaten the entire system if they fail. So you get rid of too big to fail banks. So you either have to get rid of too big to fail banks, because they are private and no private institution should have that much power or you say fine, we’re gonna have big banks but then they’re not private.

OPR: Some say the banks paid back the money.

CO: That’s a very narrow way of thinking and I address that in my chapter. First of all, they didn’t really pay back, they didn’t get their loans on terms that were reasonable, they got free money. If they hadn’t have the US government to give them that money the terms of their loans would have been much much harder if they had borrowed from China or the Middle East. Second, they paid back their debts before they actually could afford to because they wanted to look good and the government had a vested interest also. Basically they teamed up with Geithner and those guys to make themselves look strong by paying back their money before they could afford to. So it was kind of just a political thing that they had paid back their money. Part of the reason they paid back the money is because there is a threat of a law that said that if you are still being bailed out by the banks you couldn’t pay really big bonuses. So a lot of it was just political theater so that it would seem strong, oh and by the way we are also paying huge bonuses. And finally I think the focus on the money is also too narrow, for me it’s about risk. It’s about systemic risk, it’s about what’s gonna happen in the future, what kind of incentives are being encouraged and what I see is that we have a precedent now that the government, when the banks mess everything up, the government will come in and fix that. Fix all their problems. So whenever someone says they paid back their money, I always say they might have paid back their money but they didn’t take back their risk. We have officially inherited that risk and we have not returned it to the banks and nobody thinks we have and the idea that we have a viable path towards bankruptcy for one of these too big to fail banks is again political theatre. There is no way we actually have a plan if one of these banks really gets screwed again.

OPR: And do you think they are still doing it? All the things that they were doing? Will they still risk getting into another crisis?

CO: I absolutely think they are still doing it. Let’s keep this in mind, the individual working at this bank does not see it as a risk. They don’t see themselves as responsible, just as the other ones who actually made the markets die, they didn’t take responsibility. How many people confessed? It just didn’t happen. The system is set up to be so large and so complicated that a given person in a given function doesn’t feel like they are crucial to the functioning of the system so they don’t feel culpable. And that’s continuing now and we have every reason to think it’s worse than it used to be because we have a couple of things that have made it worse. One of them is this too big to fail subsidy. Moody’s came out and explained what the ratings of the banks were with or without government backing and showed that the rating was quite bad if, I don’t remember exactly, in the B range, if they weren’t given a subsidy, based on what they’re doing, but it’s a triple A because of government backing. So there’s and explicit acknowledgment there of the fact that they are getting away with doing risky things because the government is backing them. Now what does that mean for the person working inside one of those banks? It means they get to do whatever they want because they know that the government is backing them. So it’s incentivizing them to do this again and faster because the other thing is that the fraud that has been discovered by the SEC mostly hasn’t really been punished as I said. The fines that have been levied are against the shareholders and the people that are responsible and they are just a fraction of the amount of profit that they are making. Look at HSBC and the drug money laundering. Just fractions of the actual profits. So you should think of it more as a tax than a s a punishment and now once you have a pricelist for your illegal activities as the banks now have, once you have a price list what’s stopping you from doubling down on your fraud?

OPR: A lot of it hinges on those ratings right? How much power do these credit rating agencies have and what is their ratings system based on?

CO: They don’t really have that much power nor do they have a lot of respect because they themselves were part of the crisis and they’ve triple A-rated anything including really terrible mortgage backed securities. The fact that they still exist in exactly the same form that they did pre-crisis just points to how dysfunctional our regulation revamp has been under Dodd-Frank. We just haven’t addressed anything. There was a hearing by the SEC, it was just a token.

OPR: We have, I believe, a couple of entities that are watching over this whole process. What are their results and what can they do?

CO: The entities I think you refer to are the Fed, the SEC, the Treasury,…Look, they could do a lot if they wanted to, they just don’t want to. You know Obama doesn’t want to. We’re writing right now, or trying to write, an op-ed about Gary Gensler and how he’s been fired by Obama, really not reappointed to the CTFTC chair. He’s the only regular that’s been doing his job and he’s being punished by not being reappointed because Obama doesn’t want regulators to do their job.

OPR: Why not?

CO: Look, Obama is afraid of financers for whatever reason. That’s my belief. I don’t know the guy personally but my feeling is that the only thing that could explain his behavior is that he’s afraid of all the bullies in finance like Jaimie Diamond and all those guys who say, look you mess with us we’ll bring down the world you know and I mean that’s sort of my only explanation for why he loves Larry Summers so much. Because the approach is if you’re a fear mongerer like insider financers, look, this stuff is so complicated only real experts and mathematical geniuses could possibly understand this and regulate this and do something about this and therefore you must trust the experts. And the expert expert of all is Larry Summers, so please trust him. And this is in spite of his absolutely horrendous record on common sense and diplomacy and politics. I’m glad he’s not gonna be Fed Chair, put it that way. But the real question is , here’s a guy Gary Gesler, who’s actually been doing his job in spite of the fact that he was in Goldman Sachs and in the Treasury during deregulation and you think, surprise surprise, that a man who’s actually doing his job would be reappointed but for some reason he’s not. And the only conclusion I could take from that is that Obama doesn’t want someone who’s effective.

OPR: So if we can’t count on politicians to protect us from another crisis what can we do as people?

CO: The thing that’s good and bad about politicians, and I’m not saying this is always true, they only do stuff when they have to. Because they are gonna loose votes if they don’t. So it has to become an issue, a political issue, and that’s were people become involved. They have to make it a political issue. That’s’ one of the reasons we’re trying to educate people by writing the book “Occupy Finance” is to get people informed enough about the issues to make the demands that obviously need to be made.

OPR: Thank you.

The bailout: it didn’t work, it’s still going on, and it’s making things worse

“We’re not that fussed about safety because, if we have an accident, it’s you who pays”

John Lanchester (1)

The $700 billion bailout of the banks in 2008 is the most grotesque example of the how the financial system has been consistently shielded from its mistakes while citizens have paid the price of those same mistakes. Despite the narrative we all hear from the Obama Administration about how successful the bailout was and how it will never need to happen again, the truth is different: the bailout didn’t work, it’s still going on, and it’s making things worse.

In this chapter we’ll investigate how the bailout was intended to work, why the outcome wasn’t even close to what was promised, and how the bailout morphed into our current system: the continual drip-feed of taxpayer money and obligation to an increasingly unstable financial system, a system that is, in many ways, more dysfunctional than it was before the financial crisis.

The Bailout Didn’t Work

The Situation at the Time of the Bailout

In the summer of 2008, banks were in full-bore crisis mode, especially when Lehman Brothers was allowed to fail. The extensive interconnectivity of contracts between the banks, as well as the complexity of the legal and financial obligations among so many massive institutions, meant that the failure of the mortgage-backed securities market on the one hand and Lehman, one of the largest players in the mortgage and credit default swap (CDS) markets (see more about CDS’s in the insert entitled CDO’s, CDS’s, and Magnetar Capital), on the other hand, was freezing all sorts of very short-term financing markets, putting all the institutions on the brink of illiquidity and insolvency at the same moment.

What are short-term financing markets and why are they so critical to the financial system? As was explained in The Bankers’ New Clothes [2], over the past few decades the banks slowly evolved out of many kinds of long-term agreements between each other – on the scale of years or decades – and into short-term agreements – on the scale of days and weeks. This was a way of reducing the presumption of trust and the expectation of long-term solvency among them, and it allowed for more and more risk-taking by each individual bank. The new mindset was something like this: ”I don’t have to trust this bank to be around forever, but it’ll probably survive another week”.

Rather than trying to understand the impenetrable accounting of the big banks (which would be needed for long-term investments), the system evolved to the point of depending crucially on overnight loans and very short-term financing by the time the financial crisis erupted in 2008. Indeed, the entire market hinged upon this fragile system of minimized trust to function, and once it failed, it came completely undone.

It’s still a convincingly terrifying memory to recall: if something wasn’t done immediately, we were at real risk of a situation in which businesses couldn’t meet payroll, so people couldn’t get their paychecks cashed, and possibly couldn’t even withdraw their cash from savings. Since we no longer live in a local community where, by reputation alone, we can borrow or write IOU’s until the system starts up again, this was indeed a menace to the citizens as well as to the politicians in this country. Have no doubt about it: when the Fed or Treasury tells politicians “Do this or the financial system will collapse,” there’s real power behind that.

So the largest private financial institutions may in fact have been too big to let fail entirely, and we were quite right to prevent a very short-term emergency situation as outlined above. However, that doesn’t mean we couldn’t have implemented it in a very different way, a way that was fairer and would have encouraged better conduct in the future. To name a few obvious possibilities:

1. We could have nationalized the banks since there was never any moment when the need for “banking as service” was more obvious. That this was never seriously considered is a testament to how strongly the Bush Administration, and since then the Obama Administration, have trusted the expertise of economists with a passionate belief in the “free market” when it comes to banks, except when bankers need help.

2. Since we are supposedly such free-market thinkers, we could have allowed real losses for the bond-holders of the institutions, which is to say the banks could have defaulted on their loans. Presumably the bondholders knew about the risk they were taking when they bought the debt in the first place. That’s what’s supposed to happen in the free market after all. And yes, some of those bond holders were pension funds, but bailing out pension funds directly would have been more honest, forthright, and palatable than not letting insolvent banks fail. The fact that we didn’t do this is evidence that our free-market ideologies only go so far.

3. At the very least, we could have negotiated a change of management for the banks we were bailing out. We could have fired all of the CEO’s, CFO’s, and CRO’s who got us into these outrageous messes and had them replaced.

We didn’t do any of these things. Why? Because these bankers used to work for the Fed and the Treasury and were being protected by their friends in high places who were orchestrating the bailout.[3]

We didn’t even ask the banks to explain what they were doing with the money. The terms of the bailout were virtually devoid of any accountability.

Whenever you hear someone wax poetic about moral hazard for dead-beat borrowers, people who owe large sums on their credit cards (often through medical debt), or through their mortgages (possibly through predatory loan practices), or through their student debt (quite probably through inflated tuition at a for-profit institution or because the college in question simply had to hire another set of assistant deans), remind that person about the analogous moment in the bailout when dead-beat banks were given money with no strings attached, with no accountability. Where’s the real moral hazard?

Think, for a moment, about why things had come to this. Over a 40 year period we permitted the retail and investment banks to capture a disproportionate piece of our economic lives. They did so with outrageous and unregulated markets in derivatives (see chapter 4), including the overgrown mortgage derivatives market, wild west accounting games played with repos [4], and enormous interconnected counter-party agreements which inextricably tied each individual institution’s fate to the fate of the larger market. Even the so-called boring and huge money market was at risk of collapse as the Treasury felt compelled to guarantee over $2 trillion in funds.[5].

To make a comparison between banks that played this game and a dead-beat individual, we’d need to create that rare character who had filled out every credit card offer ever mailed to him, had bought and flipped 15 homes and was in the process of doing that with 20 more, and was borrowing student loan money to satisfy a cocaine habit. That’s the type of guy we gave our bailout money to.

How Big Was the Bailout?

The scale of the bailout that banks received is literally incomprehensible. This is painfully evident when we get confused between the words “billion” and “trillion”. Just to have one solid reference point, the total current student debt just surpassed 1.1 trillion dollars, and it also recently surpassed the total credit card debt in this country.

Because the bailout was so massive, it’s difficult to measure how big it ended up being. Given this, we’ll rely on two different sources. According to the New York Times, the total bailout commitment was over $12 trillion, with about $2.5 trillion already spent. [6]

But let’s be conservative and use the Bloomberg account from August 2011that calculates that the total outflow of the bailout at that time was 1.2 trillion dollars.[7] Numerically, that’s $1,200,000,000,000!

Specifically, the bailout consisted of the $700 billion TARP program, which had an actual outflow of over $605 billion, and which we will describe in the next section, as well as other programs intended to boost lending and to provide emergency “liquidity”.

As the Bloomberg article notes, there were actually six different federal programs intended to keep the private credit markets–which allow for day-to-day financing of the economic system – functioning with taxpayer money in the fall of 2008 after the private lending markets had shut down. While we were being told that the 10 largest financial institutions had borrowed about $160 billion from the Treasury Department, we weren’t being told that the same ten firms were also borrowing an additional $669 billion in emergency funds from the Fed. For example, Morgan Stanley borrowed $107 billion, Citicorp borrowed $99.5 billion, and Bank of America borrowed $91.4 billion.

Almost half of the Fed’s top 30 borrowers were European – not American – firms, including Royal Bank of Scotland, which borrowed $84.5 billion, and UBS AG, which borrowed $77.2 billion. A few European institutions required emergency federal loans from the Fed to stay liquid well into 2010.

Given all of these facts, we’ll make the case that the Financial Sector used the opportunities presented by a crisis of their own making to secure even greater public advantages at taxpayer expense.

What We Said the Bailout Would Be Versus What it Actually Was

TARP was originally voted down by Congress. There wasn’t much support at the time for saving bankers from their own mistakes. Then the market went down by 9% in one day and Congress, under pressure from the Treasury and Fed, capitulated to the banks and approved the $700 billion bailout program.

There were a few stipulations. One of them was to have a Special Inspector General (SIGTARP) in charge of overseeing the allocation of funds and making sure TARP wasn’t defrauded and that the banks were held accountable. The second stipulation was that the banks would only get the first half‒$350 billion–and then they would have to come back for a second Congressional vote to get the second half.

The only real mistake the bankers and their lobbyists made in orchestrating the bailout came when they allowed Neil Barofsky to become the SIGTARP. Barofsky, formerly an assistant district attorney in the Southern District of New York, had just spent years prosecuting cases against Colombian drug lords that resulted in the indictment of the top 50 leaders of the Revolutionary Armed Forces of Columbia (FARC) on narcotics charges, the largest narcotics indictment filed in U.S. history. Barofsky was also a member of the Securities and Commodities Fraud Unit, where he prosecuted white collar crimes, including the accounting fraud case that led to the convictions of the top officers at Refco Inc.

In other words, Barofsky was just too honest and too tough to capitulate to Timothy Geithner, even when Geithner told Barofsky that was his job. In particular, Geithner wouldn’t allow Barofsky to require the banks to explain what they were doing with the bailout money, essentially threatening Barofsky with the “utter collapse of the entire financial system” if he tried.

Neil Barofsky’s book, entitled Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street, was published in July 2012. It is an excellent account of the bailout from the inside. Barofsky explains that when the time came, Congress was reluctant to give Treasury access to the second half of TARP funds unless it was earmarked directly to help people stay in their homes. After all, the “TA” in TARP stands for “Troubled Assets,” and the program was sold to Congress and the public (a) to prop up the mortgage market directly so that the investments people had made in their homes wouldn’t be lost and (b) to renegotiate predatory or unrealistic mortgages directly, so that people could remain in their homes.

One of the first efforts the Obama Administration made towards cleaning up the financial mess was called the Home Affordable Modification Program (HAMP). Sadly, HAMP was nothing more than a token nod towards helping homeowners take advantage of the second half of the TARP money. It has been a failed project, to date only helping 1.1 million people stay in their homes [8]and denying millions more, although the program was originally intended to help 4 million homeowners.[9] Indeed, it is possible that HAMP was more harmful than helpful because of the perverse incentives it created for banks to string homeowners along without ever actually remediating their mortgages.

The way HAMP worked ultimately made more profit for banks if they got desperate homeowners to try to qualify for the program while, at the same time, foreclosing on those same homeowners and accruing fees. Why? Because the fee structure set up through HAMP was perverse: if, at the end of the HAMP application process, a homeowner’s application was denied, the bank got to collect all the accrued late fees. If the application went through, they didn’t.[10]

If this all seems completely crazy, there’s one last kicker: it was intentional. Members of Congress may have been earnest when they said they wanted the second half of TARP to go towards keeping people in their homes, but Geithner, the Treasury Secretary, once admitted to Barofsky that the real goal was to “foam the runway for the banks”[11] (see Barofsky’s Bailout). In other words, he wanted to slow down the entire process for the sake of the banks – ignoring the pain of homeowners entirely.

Specifically, the plan was to compare rates of profit and loss: the profit that banks would make through cheap Fed loans versus the losses that they would realize as they slowly acknowledged the true depleted value of their mortgage-related investments. If they could lower the rate of losses enough, on the one hand, while keeping the rate of profit high on the other, then the banks would never need to go bankrupt. That’s what Geithner’s plan had been all along.

But Didn’t the Banks Return the Money?

Lots of people argue that the bailout “worked” and that the banks paid back the money, so no harm was done.

This is nonsense. We’ve already argued that the bailout was utterly misrepresented to Congress and to the American people, with disastrous consequences for desperate homeowners and millions of people who lost their jobs and are living under the weight of debt while the economists and bankers responsible for this mess are being honored as national heroes.

As for the actual money, it’s true that the largest banks have returned the money, with some interest. But, as it turns out, this comes with a bunch of caveats, and whether or not the banks have returned the money is actually the wrong question to ask. These are the caveats:

1. Many people have argued (sometimes in satire[12] and sometimes with rigorous analysis [13]) that we didn’t get nearly enough of a return on our investment. In other words, we gave the money to the banks at extremely low interest rates, much like you might loan your daughter money to go to college and tell her to pay it back when she has a good job and can afford it, at little or no interest.

Indeed it would be very difficult to measure the correct level of risk that was present at the time of the bailout and to infer what the appropriate interest rate should have been, because there were simply so few institutions or individuals other than taxpayers that could have lent the money to the banks. Improbably, some combination of China, rich oil guys from the Middle East, and Carlos Slim (the richest man in the world) might have gotten together eventually to loan money to the banks, but they certainly would have charged a lot more interest than we did.

2. Fannie Mae and Freddie Mac haven’t paid back all the money, nor has AIG. So it’s incorrect and unreasonable to say “We got our bailout money back” unless we consider every institution we bailed out.

3. The banks paid back the money primarily for the sake of appearances, and in collusion with Treasury. For the same reason that the so-called “stress tests” have been orchestrated to make it seem like the banks are sturdy and solvent, the banks returned the TARP money in part for PR purposes, to look strong, and in part so they could go back to giving huge bonuses to their risk-takers, which was unacceptable under TARP. So the money was returned before it was actually available – in other words, before the banks could truly afford to pay it back – with the undercover agreement that the bank could always borrow it from Treasury or the Fed again if it were needed.

Given all of this, it’s clear that when people bring up the “They paid back the money” argument, we shouldn’t be talking about the money, we should be talking about the risk.

What really happened when the taxpayers bailed out the banks – and what didn’t stop happening when the banks “paid back the money” before they could actually afford to do so – is that we, the taxpayers, have taken on the risk of the banks. We are firmly on the hook for that risk, and any money which happens to be attached to that risk, whenever the time comes. And although risk is harder to measure than money, it’s much more dangerous. You can print money and you can destroy it at will, but you can’t create or destroy risk at will.

Next time someone says to you, “They paid back the money,” tell them, “Yeah, they gave us back our money but we didn’t give them back their risk.”

What Did We Save?

Another important thing to remember when people talk about the so-called success of the bailout is that our current financial system is borderline dysfunctional and may not have been worth saving.

There are fewer banks now and they are bigger than before. Their power is massive and their lobbyists are incredibly powerful and act as information conduits to politicians. Indeed the complexity of the financial system acts in favor of the big banks in more than one way: first, because it allows more trickery and imprecise risk measurements, and second because it makes it difficult for smaller banks to compete.

What we have now is an international system of intensely confusing and complicated legal and financial rules that no one person can possibly understand, regulators that don’t have the resources or political power to force simplicity or transparency, and a political system that is afraid to push back.

What even happened to the original goal of banking, anyway? Wasn’t the financial system originally intended to help grease the machine of commerce? How can that case be made when small and medium-sized businesses still have trouble getting loans and when people are being disenfranchised from their own money?

Next time we go all-out to save the financial system, let’s do ourselves a favor and get rid of the complicated, corrupt, and/or greedy aspects that do more harm than good.

The Bailout Is Still Going On: Backdoor Bailouts

In additional to skewed incentives, the financial crisis and ensuing bailout gave birth to a series of backdoor bailouts for the banks. These are settlements that, on the surface, look like they take the banks to task for improper or illegal behavior or are neutral to banks, but they actually serve to inflate bank profits at the expense of taxpayers. Examples of backdoor bailouts are as follows:

Mortgage Settlements

As Yves Smith[14] anticipated months before the rest of the world caught on, the recent mortgage settlements, in which the banks were supposedly fined $35 billion to correct mistakes from their shoddy paperwork and foreclosure process, was actually a backdoor bailout for those banks. Indeed the amount of actual money they needed to hand over was only $5 billion, and they managed to “pay off” their debt in part by writing down other people’s debts.[15]

What’s also unsettling is that the banks were excluded from liability from those with whom they settled (such as state Attorney Generals, Department of Justice, U.S. Department of Housing and Urban Development) on the practices named in the settlement, although this still allowed for private rights of action.

As for the future, there are “threshold error rates” which dictate the servicing standards and allow for a minimum threshold of the same conduct up to and including foreclosing with false documents.

In reality, if there have been new illegal foreclosures – and there have been – any federal prosecutor worth his or her salt could ignore the threshold error rates and sue under a new case, and, if need be, open up the terms of the original settlement. There’s ample precedent for that in cases where the guilty party goes back to the same illegal conduct after settling out of court.

So it’s really a question of will. And there is none.

SEC “Do Not admit Wrongdoing” Settlements

It doesn’t make sense to make a financial penalty so minor that the expected profit from the crime, if discovered, is still positive. But that’s exactly what the SEC has done with their recent settlements with the mega-banks. For example, the SEC settlement for the HSBC decades-long facilitation of money laundering to drug cartels and terrorists, at $1.9 billion, is only a small fraction of the firm’s profits. There were no prosecutions, either of the firm or the individuals who allowed it to happen, despite their admission to serious crimes. In addition to not having to pay a financial price, there seems to be no political price either: the former CEO and chair of HSBC, Lord Stephen Green, is now UK Minister of Trade, and there seems to be no pressure on him to resign.

This means that there will be even less hesitation in the future when mega-banks pursue a profitable criminal activity because they now face nothing more than a “regulatory wrist-slapping fee” as a consequence.

Inflated Markets

Given our disappointment in Treasury’s ability to use HAMP to help homeowners threatened with foreclosure, we might have held out some hope that, through its monetary policies, the Fed would somehow be able to revive our economy and people would be able to get back to work.

That hasn’t happened. And it’s not totally the Fed’s fault. They’ve lowered the interest rates to essentially zero, but the banks have been hoarding money and still don’t make loans. Indeed the discrepancy between what banks charge for loans and what they pay has never been wider, which is one reason we can see the Fed policy as yet another bank bailout.

“Cheap money” has created a very bad value proposition for the investing class. People who might have invested in U.S. Treasury bonds are now investing in junk bonds and stocks in search of a return. Fed policy has had the obvious effect of bailing out the banks and of inflating stocks and junk bonds. Nevertheless, both are at risk of falling and, while smart money insiders have made considerable profit on these investments, little has been done to help the average person.

The Bailout Is Making Things Worse: Skewed Incentives

The narrative that we hear from most mainstream media goes like this: The banks got themselves into a huge pickle by dint of their interconnectivity and patently stupid assumption that housing prices would always go up.

It’s time to point something out. Namely, it wasn’t a stupid assumption at all, but rather a calculation made by each individual banker that going along with the market in this respect would earn him more bonus money than going against it. In truth, there were not many bankers on the inside who thought housing prices would continually go up and there weren’t many credit rating agency experts who thought the mortgages were all getting paid, either.

The truth is, “the market” isn’t a person and banks aren’t people (whatever the Supreme Court may claim about the personhood of corporations). If we think about them as people, we will get the wrong impression. For instance, fining a company won’t have a deterrent effect if the people in that company can benefit from the illegal acts for which they were fined. For example, in the LIBOR scandal, many traders manipulated interest rates to increase the profits of their trading desks. It is far from clear this benefited the banks as a whole, but it certainly did increase the traders’ bonuses – which is all they cared about.

Assumptions about the market are, in this case, used as a front for something far more sinister. In reality, the financial system is a big complicated web of people who are each trying to make money for themselves. Once in a while they seem to work together, if their agendas align as they did with inflating home prices. But keep in mind that it can happen again, in a different setting, that aligned agendas and greed will distort the markets to the detriment of investors and/or homeowners.

Of course, a few smart bankers figured out how to make money by timing the bursting of the bubble, but don’t feel too sorry for the ones that lost money in the end because most of them were already rich.

The housing prices narrative is a simple example of skewed incentives. What’s important to understand, here, is that there are lots of other versions of this specific market foible that serve as fronts for other skewed incentives. And, unfortunately, some of these fronts have been born out of the bailout itself. Note the following examples of skewed incentives:

The Financial Sector Has Used the Crisis as a Growth Tool

The number of big banks has dramatically decreased in the aftermath of the crisis and bailout, as the above graphic demonstrates[16]. From the perspective of a given survivor like JP Morgan Chase, the disaster which they helped create has been perversely rewarded—they are now the biggest bank in the U.S..

Power and influence. It’s not just a growth in the size of the banks, but also in the relative amount of power the heads of the banks have over Congress and the regulators. Judging from the recent JP Morgan “whale trade” fiasco[17], where the London CIO office lost more than $6 billion through a risky and hidden trade, there doesn’t seem to be much power regulators can reasonably wield over too-big-to-fail bankers.

Increasing risk from artificial protection. Just as today’s carbon dioxide emissions bring about global warming, today’s bail-out assumptions are seeding future bail-outs by allowing and incentivizing banks to increase their risk rather than diminish it.

One way to see that banks are being given extra room for risk is by examining the credit risk ratings of the banks. Moody’s rating agencies make it clear that they expect governments to bailout megabanks in the future. They give the banks substantially higher ratings than they would on a “standalone” basis based solely on the credit-worthiness of the banks without implicit government support. In addition to being an unfair government subsidy, this actually encourages the megabanks to take more risks.[18]

Future taxpayer support is assumed to be open-ended. For instance, Moody’s assigns “standalone” ratings of Baa3 to Bank of America, to Citigroup, and to Morgan Stanley. Baa3 is the lowest “investment grade” rating – a rating below Baa3 is termed “non-investment grade” or “junk.” However, Moody’s assigns ratings of A3 to the FDIC-insured bank subsidiaries of Bank of America, Citigroup, and Morgan Stanley, citing future taxpayer support as the rationale for the “rating uplift” of three notches from “standalone” ratings.

With higher ratings, banks borrow more money, book more derivative trades, and post less collateral than would be the case without the future bailout assumption. In turn, those activities enable banks to self-cannibalize, i.e. book profits today against derivative risk that will persist for 10 years, 20 years, 30 years or more. It’s a tricky accounting method which allows bankers to pocket bonuses today and then leave the building.

And with the five largest U.S. banks controlling 90% of the U.S. derivatives market, none can reap the folly of self-cannibalization without destabilizing the whole system yet again.

Implicit Subsidies. In a series of recent Bloomberg editorials, a price has been put on the current taxpayer subsidy of the too-big-to-fail banks. The price was estimated to be $83 billion. Although that exact figure has been disputed by various other parties, including Dean Baker on the value of implicit subsidies[19] and others, one thing is clear: the majority of people believe that the enormous taxpayer subsidy exists and the market appears to give the mega-banks a lower borrowing cost.

Too big to jail. The too-big-to-fail status has translated into something even more perverted: too-big-to-jail. This was evident last year when HSBC was slapped on the wrist for large-scale money laundering on behalf of drug lords and terrorists. Even Attorney General Eric Holder admitted the “too big to jail” problem recently, although he’s backtracked under pressure, no doubt from bank lobbyists.

Conclusion: Shifting the Blame, a Threat to Democracy

One disturbing trend coming out of the financial crisis and ensuing bailout is how we’ve seen the narrative of blame gradually shifting from the bankers onto the public. This shift has recently threatened dramatically expanded privatization of public goods in the midst of municipal bankruptcies[20].

Sequestration, austerity, attacks on public sector employees, and the dismantlement of pensions (both public and private) can all be traced back to the fact that we raided the public piggy bank when we bailed out the financial system, and it still has a slow leak as the bailout continues.

One goal of this book is to give you, the reader, the ammunition to fight back against that shifting narrative of blame and remind people of what actually happened and what is still happening.

If you think about it, none of this bailout was done democratically, in spite of the pride we take in living in a free democracy. To some extent, when Congress initially voted against the bailout, we were witnessing the democratic process in action, but then when the market responded badly and Congress capitulated, that was kind of the end of that. To see how democracy could have worked differently, consider the recent history in Iceland where they forced banks to default and prosecuted bankers.

One can look elsewhere in Europe, Greece in particular, to see how far the politicians have strayed from the democratic process. When is the last time the public was asked how to deal with ultimatums from some group of unelected economists or given the opportunity to understand and choose one policy initiative over another?

The bailout has taken a heavy toll on the democratic process in the US and globally. The current and growing aggregation of wealth in America’s Financial Sector is a large part of that story, as, indeed, is the heightened indebtedness and wealth-dissipation affecting the 99%. It’s hard to address cause and effect here, although we can absolutely point to one smoking gun, namely the Supreme Court’s decision in Citizens United, which closely linked financial expenditures and political activity. If we want to address too-big-to-fail, we need to address political influence, and if we want to address political influence, we must address Citizens United.

Insert: What is Securitization?

Part of the difficulty ordinary citizens, even well-informed ones, have in coming to grips with what has happened within international finance is the vocabulary used to discuss money matters. Not just you and me but elected representatives, bureaucrats, and even employees paid to oversee municipal and pension fund investments have widely varying levels of understanding of what, exactly, a particular investment consists of and how risky it is. And adding to the complexity is the fact that very smart people–what a BBC documentary termed “The Rocket Scientists of Finance”–are creating new financial instruments and naming them all the time, sometimes with intentionally obscure names.

Securitization is one term, and process, that is so fundamental to our current system that it is worth spending time clarifying, and admittedly simplifying, what it is. Most of us learned that a security is the name for a stock or bond, and many of us retain a basic, drawn-for-a-textbook idea of stocks and bonds.

Let’s start with the most basic financial instruments and work our way one step at a time. If you own stock in a company you own a share, a tiny little piece, of the company; you might receive a dividend if the company does well, although not all stocks provide dividends, or you might lose money if the company does poorly, in the sense that your little piece of that company would be worth less.

If you own a bond, you have given a loan to the company (or the government) and you don’t own a share but are promised a certain rate of interest for the loan. You can sell your stock or bond, but of course that will be difficult if the company is not doing well or if a lot of other people want to sell the same security at the same time.

Similarly, if you borrow money from a bank, they own the contract you signed promising to pay back the debt. So if it’s a mortgage, you’ve agreed to pay back the loan little by little, possibly over the course of 30 years. From the bank’s perspective, this is an asset they own, which they hope will be paid back, but of course 30 years is a long time to wait, and after all you might declare bankruptcy and not pay it back. In the meantime the bank is stuck waiting around for those 30 years to go by. At least that’s how it used to work.

Securitization is a way of turning one kind of financial product into another kind of financial product; it is a repackaging of assets so that they can be sold to investors, and it was invented so banks don’t have to sit around for 30 years to see if you actually pay off your mortgage. Instead, they put together a bunch of mortgages in what they call a “pool” and they make the statistical guess as to how often people in that pool will pay off their mortgage and how regularly.

More generally, securitization happens to certain flavors of debts, which are viewed as assets as the mortgage is above.. When many debts are added together or pooled, the expected regular payments by the debtors can be looked at as a source of income for the investors.

Let’s look into the mortgage debt and securitization example some more. An individual goes to a bank and takes out a thirty-year mortgage with specified monthly payments; a lot of other people go to banks and take out mortgages.

However, in our high-speed, pressured-to-maximize-all-possibilities society, we can intuit that the concept of mortgage repayment over fifteen or thirty years, with no extra money being made in the interim, seems incredibly stodgy and unimaginative, and the bank who owns all these mortgages is impatient. So that bank sells a whole group of mortgages, sometimes hundreds of them, to another financial firm. That firm divides the mortgages up into pools. These pools are then marketed as investments, or securities; the mortgages have been securitized.

Moreover, as securities, they are divvied up relative to their risk. So, the first-to-default loans are the most risky, and the last-to-default loans are the safest. The different levels of loans, seen from this risk perspective, are called the tranches of the security, and have different credit ratings accordingly – more on this in a later section entitled “CDO’s, CDS’s, and Magnetar Capital”.

The people at the bank that originally sold the mortgages to the financial firm are pleased, because they have made money on the sale and now have none of the risk of mortgage holders not being able to pay – it’s gone from their system.

The people at the financial firm that securitized the mortgages are also pleased, because they made money selling the securities, and they also don’t have to worry about not being paid by homeowners.

The buyers of the securities are also pleased because they believe that they are assured of a regular stream of income from those mortgage holders dutifully paying off their debt each month.

The buyers – investors – for the most part have been convinced that, while a few mortgage holders might not be able to pay in a given month, it is extremely unlikely that lots of them will not pay and risk losing their homes. Unless something really crazy happens, of course.

A few things need to be pointed out about securitization.

First, no particular person or group of people feels responsible for making sure that mortgage loans that are made can be repaid in a timely manner. The banks sells the mortgages and gets rid of them; next the financial firm packages them and gets rid of them; and the end investor knows nothing about the individual loans and is betting on how well the whole conglomeration of mortgage loans will do. As a result, mortgages were sold with little concern for whether the borrowers would be saddled with unpayable debts on depreciated properties.

Second, the original loan can land quite far from the place of origin of the loan. A firm in Germany may hold investments in mortgages that started out in West Virginia.

Finally, there is little access to the loan once it’s been securitized. A family with questions or difficulties with a mortgage often has great difficulty finding out who to contact about the issue.

Mortgages are not the only debts to be securitized. Credit card debt, student debt, auto loan debt – all of these debts and lots of others have also been securitized. So one person’s debt becomes another person’s investment opportunity, which may be why our society does not encourage us to live as debt-free as possible.

The complexity increases when additional financial innovations like Credit Default Swaps (CDS) get combined with our Mortgage-backed Securities (again, see the later section “CDO’s, CDS’s, and Magnetar Capital” for more on these).

Note: we are deep in the weeds and need a trusty guide to get us out. But there is a terrible shortage of trusty guides, likewise a shortage of laws to regulate the use of various financial instruments, and, most important, an unwillingness to imagine the consequences as each individual player tries to maximize his or her money-making opportunities.

[1] John Lancaster, “I.O.U.:Why Everyone Owes Everyone and No One Can Pay”, SimonandSchuster, 2010. The quote is meant to illustrate the typical banker’s attitude, not his own.

[2] Anat Admati and Martin Hellwig, “The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It”, Princeton University Press, 2012

[3] See the work of POGO, the Project on Government Oversight including http://pogoarchive.pub30.convio.net/pogo-files/alerts/financial-oversight/er-b-20090312.html

[4] Tom Selling, “FASB Could Have Easily Stopped the Repo Accounting Games: They Should Explain Why They Haven’t”, AccountingOnion.com, April 25, 2010
http://accountingonion.typepad.com/theaccountingonion/2010/04/fasb-could-easily-stop-repo-accounting-games-assuming-it-wants-to.html

[5] See John Carney, “Treasury’s Secretive $2.4 Trillion Mutual Fund Guarantee”, August 10, 2012, cnbc.com
http://www.cnbc.com/id/48578949

[6] “Adding Up the Government’s Total Bailout Tab”, New York Times, July 24, 2011
http://www.nytimes.com/interactive/2009/02/04/business/20090205-bailout-totals-graphic.html?_r=1&

[7] Bradley Keoun and Phil Kuntz “Wall Street Aristocracy Got $1.2 Trillion in Secret Loans”, Bloomberg, August 22, 2011

[8] Les Christie, “Mortgage holders’ aid plan gets extension”, @CNNMoney, May 30, 2013
http://money.cnn.com/2013/05/30/real_estate/hamp-extended/index.html

[9] “Reissuance of the Introduction of the Home Affordable Modification Program, HomeSaver Forbearance™, and New Workout Hierarchy”, Fannie Mae, April 21, 2009
https://www.fanniemae.com/content/announcement/0905.pdf

[10] Neil Barofsky, “Bailout”, Free Press, 2013.

[11] Ibid.

[12] Barry Ritholtz,“How Good an Investment Were the Bailouts?”,ritholtz.com,September 25th, 2012
http://www.ritholtz.com/blog/2012/09/how-good-an-investment-were-the-bailouts/

[13] TARP Congressional Oversight Panel Report: Valuing Treasury’s Acquisitions, 02/06/09,

[14] http://www.nakedcapitalism.com/2012/02/the-top-twelve-reasons-why-you-should-hate-the-mortgage-settlement.html

[15] http://dealbook.nytimes.com/2011/03/16/in-proposed-mortgage-fraud-settlement-a-gift-to-big-banks/

[16] taken from “Bank Merger History”, Mother Jones http://www.motherjones.com/politics/2010/01/bank-merger-history

[17] See http://en.wikipedia.org/wiki/2012_JPMorgan_Chase_trading_loss

[18] In Moody’s words of June 21, 2012, “Moody’s systemic support assumptions for firms with global capital markets operations remain high, given their systemic importance…While Moody’s recognizes the clear intent of governments around the world to reduce support for creditors, the policy framework in many countries remains supportive for now, not least because of the economic stress currently stemming from the euro area and the potential systemic repercussions of large, disorderly bank failures and the difficulty of resolving large, complex and interconnected institutions.”

[19] Dean Baker and Travis McArthur, “The Value of the ‘Too Big to Fail” Big Bank Subsidy”. Center for Economic and Policy Research, September, 2009. http://dspace.cigilibrary.org/jspui/bitstream/123456789/25806/1/Too%20big%20to%20fail%20-%20bank%20subsidy.pdf?1

[20] see Candice Bernd, “Detroit: Donald Cohen Warns of Privatization, Calls for Bailout”, Truthout, July 25, 2013 http://www.truth-out.org/news/item/17785-the-future-of-detroit-donald-cohen-warns-of-the-dangers-of-looming-privatization

Further Links

http://occupyfinancebook.wordpress.com

http://mathbabe.org/2013/09/19/book-club-for-occupy-finance-ows/

http://alternativebanking.nycga.net

http://www.meetup.com/Alternative-Banking-Group-Occupy-Wall-Street-of-NYC/events/140656272/