Geithner’s ‘Dirty Little Secret’: The Entire Global Financial System is at Risk

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DrKrbyLuv
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Geithner’s ‘Dirty Little Secret’: The Entire Global Financial System is at Risk

Article by F William Engdahl Published by Global Research

US Treasury Secretary Tim Geithner has unveiled his
long-awaited plan to put the US banking system back in order. In doing
so, he has refused to tell the ‘dirty little secret’ of the present
financial crisis. By refusing to do so, he is trying to save de facto
bankrupt US banks that threaten to bring the entire global system down
in a new more devastating phase of wealth destruction.

The Geithner Plan, his so-called Public-Private Partnership Investment
Program or PPPIP, as we have noted previously is designed not to
restore a healthy lending system which would funnel credit to business
and consumers.  Rather it is yet another intricate scheme to pour even
more hundreds of billions directly to the leading banks and Wall Street
firms responsible for the current mess in world credit markets without
demanding they change their business model. Yet, one might say, won’t
this eventually help the problem by getting the banks back to health?

Not the way the Obama Administration is proceeding. In defending his
plan on US TV recently, Geithner, a protégé of Henry Kissinger who
previously was CEO of the New York Federal Reserve Bank, argued that
his intent was ‘not to sustain weak banks at the expense of strong.’
Yet this is precisely what the PPPIP does. The weak banks are the five
largest banks in the system.

The ‘dirty little secret’ which Geithner is going to great degrees
to obscure from the public is very simple. There are only at most
perhaps five US banks which are the source of the toxic poison that is
causing such dislocation in the world financial system. What Geithner
is desperately trying to protect is that reality. The heart of the
present problem and the reason ordinary loan losses as in prior bank
crises are not the problem, is a variety of exotic financial
derivatives, most especially so-called Credit Default Swaps.

In 2000 the Clinton Administration then-Treasury Secretary was a man
named Larry Summers. Summers had just been promoted from No. 2 under
Wall Street Goldman Sachs banker Robert Rubin to be No. 1 when Rubin
left Washington to take up the post of Vice Chairman of Citigroup. As I
describe in detail in my new book, Power of Money: The Rise and Fall of the American Century,
to be released this summer, Summers convinced President Bill Clinton to
sign several Republican bills into law which opened the floodgates for
banks to abuse their powers. The fact that the Wall Street big banks
spent some $5 billion in lobbying for these changes after 1998 was
likely not lost on Clinton. 

One significant law was the repeal of the 1933 Depression-era
Glass-Steagall Act that prohibited mergers of commercial banks,
insurance companies and brokerage firms like Merrill Lynch or Goldman
Sachs. A second law backed by Treasury Secretary Summers in 2000 was an
obscure but deadly important Commodity Futures Modernization Act of
2000. That law prevented the responsible US Government regulatory
agency, Commodity Futures Trading Corporation (CFTC), from having any
oversight over the trading of financial derivatives. The new CFMA law
stipulated that so-called Over-the-Counter (OTC) derivatives like
Credit Default Swaps, such as those involved in the AIG insurance
disaster, (which investor Warren Buffett once called ‘weapons of mass
financial destruction’), be free from Government regulation.    

At the time Summers was busy opening the floodgates of financial
abuse for the Wall Street Money Trust, his assistant was none other
than Tim Geithner, the man who today is US Treasury Secretary. Today,
Geithner’s old boss, Larry Summers, is President Obama’s chief economic
adviser, as head of the White House Economic Council. To have Geithner
and Summers responsible for cleaning up the financial mess is
tantamount to putting the proverbial fox in to guard the henhouse.

The ‘Dirty Little Secret’

What Geithner does not want the public to understand, his ‘dirty
little secret’ is that the repeal of Glass-Steagall and the passage of
the Commodity Futures Modernization Act in 2000 allowed the creation of
a tiny handful of banks that would virtually monopolize key parts of
the global ‘off-balance sheet’ or Over-The-Counter derivatives
issuance.

Today five US banks according to data in the just-released Federal
Office of Comptroller of the Currency’s Quarterly Report on Bank
Trading and Derivatives Activity, hold 96% of all US bank derivatives
positions in terms of nominal values, and an eye-popping 81% of the
total net credit risk exposure in event of default.

The five are, in declining order of importance: JPMorgan Chase which
holds a staggering $88 trillion in derivatives (€66 trillion!). Morgan
Chase is followed by Bank of America with $38 trillion in derivatives,
and Citibank with $32 trillion. Number four in the derivatives
sweepstakes is Goldman Sachs with a ‘mere’ $30 trillion in derivatives.
Number five, the merged Wells Fargo-Wachovia Bank, drops dramatically
in size to $5 trillion. Number six, Britain’s HSBC Bank USA has $3.7
trillion.

After that the size of US bank exposure to these explosive
off-balance-sheet unregulated derivative obligations falls off
dramatically. Just to underscore the magnitude, trillion is written
1,000,000,000,000. Continuing to pour taxpayer money into these five
banks without changing their operating system, is tantamount to
treating an alcoholic with unlimited free booze.

The Government bailouts of AIG to over $180 billion to date has
primarily gone to pay off AIG’s Credit Default Swap obligations to
counterparty gamblers Goldman Sachs, Citibank, JP Morgan Chase, Bank of
America, the banks who believe they are ‘too big to fail.’ In effect,
these five institutions today believe they are so large that they can
dictate the policy of the Federal Government. Some have called it a
bankers’ coup d’etat. It definitely is not healthy.

This is Geithner’s and Wall Street’s Dirty Little Secret that they
desperately try to hide because it would focus voter attention on real
solutions. The Federal Government has long had laws in place to deal
with insolvent banks. The FDIC places the bank into receivership, its
assets and liabilities are sorted out by independent audit. The
irresponsible management is purged, stockholders lose and the purged
bank is eventually split into smaller units and when healthy, sold to
the public. The power of the five mega banks to blackmail the entire
nation would thereby be cut down to size. Ooohh. Uh Huh?

This is what Wall Street and Geithner are frantically trying to
prevent. The problem is concentrated in these five large banks. The
financial cancer must be isolated and contained by Federal agency in
order for the host, the real economy, to return to healthy function.

This is what must be put into bankruptcy receivership, or
nationalization. Every hour the Obama Administration delays that, and
refuses to demand full independent government audit of the true
solvency or insolvency of these five or so banks, inevitably costs to
the US and to the world economy will snowball as derivatives losses
explode. That is pre-programmed as worsening economic recession mean
corporate bankruptcies are rising, home mortgage defaults are
exploding, unemployment is shooting up. This is a situation that is
deliberately being allowed to run out of (responsible Government)
control by Treasury Secretary Geithner, Summers and ultimately the
President, whether or not he has taken the time to grasp what is at
stake.

Once the five problem banks have been put into isolation by the FDIC
and the Treasury, the Administration must introduce legislation to
immediately repeal the Larry Summers bank deregulation including
restore Glass-Steagall and repeal the Commodity Futures Modernization
Act of 2000 that allowed the present criminal abuse of the banking
trust. Then serious financial reform can begin to be discussed,
starting with steps to ‘federalize’ the Federal Reserve and take the
power of money out of the hands of private bankers such as JP Morgan
Chase, Citibank or Goldman Sachs.

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

My Comments -

The "plan" is another shell game scam to loot already wobbly taxpayers.  I found a very good video that explains the banking problem and how they will profit from Geithner's scheme

Geithner Plan Part I

Geithner Plan Part2

investorzzo's picture
investorzzo
Status: Diamond Member (Offline)
Joined: Nov 7 2008
Posts: 1182
Re: Geithner’s ‘Dirty Little Secret’: The Entire ...

Good one, you beat me to that one.  Videos are great addition.

camanojim's picture
camanojim
Status: Member (Offline)
Joined: Jan 29 2009
Posts: 1
Re: Geithner’s ‘Dirty Little Secret’: The Entire ...

Holy Crap! Are those numbers real?  How could we possibly fix $200 trillion dollars worth of bad assets?

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