Hank the Bank
Copyright © 2008, Henry Norman
“If BS was currency, Henry Paulson could bail out Wall Street all by himself.”
—Quote picked up on the Internet
Here’s a logic puzzle for y’all to ponder:
Who would give up a job paying $250 per hour, for another job, paying only $1 per hour? In somewhat different numbers, who in his (or her) right mind would give up a $50 million compensation package for a “paltry” $191,300 annual salary?
Henry Merrit “Hank” Paulson Jr., that’s who. He gave up his Goldman Sachs CEO title (yearly “compensation” $30-$50 million) July 10 2006, when almost elected president George “Dubia” Bush handed him the keys to the US treasure chest (annual salary: $191,300). One wonders—what’s wrong with this picture?
A prominent architect behind the current “economy in crisis” (euphemism for “complete greed-caused screw-up”), Hank the Bank proposed that US taxpayers ought to dole out $700 billion (that’s seven hundred thousand million) to his old cronies and banking friends. No questions asked. What’s wrong, indeed!
One problem with big numbers is that they are difficult to grasp, to visualize. As Speaker Tip O’Neill allegedly once said, “A billion here, a billion there—pretty soon you’re talking serious money!” And serious it is. Look at a US “billion” (in most of the civilized world, a “milliard”) in terms of time, and you may get a sense of how much one thousand million is: One billion seconds (3 600 per hour, 86 400 per day) represents well over 31 years. That’s right—31.4 years. If banks and other recipients of this bonanza were to pay back $700 billion at one dollar per second, it would take them just under 22 000 years. Make no mistake: a billion bucks is a lot of money (at $25,000 a pop, one billion bucks buys 40,000 trucks), and 700 billion is a whole f(inanc)ing lot more!
The recipe for creating the 2008 CCC (capitalistic cash catastrophe)? Simple:
1) Find a bunch of suckers known for not paying their debts on time (if at all). “Prime” suckers are no good, as they tend to hang in there and pay what they owe, so target the “subprime” crowd, people with documented bad habits when it comes to honoring a contractual debt!
2) Persuade each such sucker to buy a home s/he cannot afford “Before you know it, the value of your house has ballooned so you can refinance the mortgage and buy yourself a brand-new Bentley to boot! Just sign here! Here!!!”
3) Charge the sucker substantially higher interest rate—that is, make sure s/he will follow the debt-paying pattern outlined under (1)—set’em up to fail!
4) Sell the mortgage to a big Wall Street firm, and get paid a bonus up front (as if the mortgage would actually run its course of 30 some years, at high interest rate). “Betting on the come,” big time. A “come” that doesn’t…
5) Wall Street (among several others, Bear Sterns, Lehman Brothers, Merrill Lynch, Morgan Stanley, and—oh yes!—Goldman Sachs (names ring a bell?)) now “repackaged” these risky mortgages into “high yield bonds” (a practice they call “securitizing,” making it sound as if “security” is somehow involved). With the Big Player Wall Street firms “backing” the “securities,” the resulting bonds sold fast, all over the world. Why? Because the bonds now have an implied (but not really existing: call it virtual!) triple-A rating, rock solid, like US Treasury bonds! Not! This was nowhere said out loud, but who has time to read a fat and fine-printed prospectus, when juicy profits are on the line?
At this point in this (somewhat simplified) narrative, it is worth noting that, early 2006, Goldman Sachs announced a record 64% Q1 revenue increase (highest ever for a Wall Street firm—way above analyst estimates—netting over $10 billion in three months(!)), driven by “strong performance in bond trading” and other high-roller transactional games. Did I mention hotcakes?
Later in 2006, almost elected president George Dubia Bush offered Hank Paulson about $190,000 annually to guard the US Treasury—and he took the offer! In 2005, Goldman Sachs awarded Hank a bonus package valued at $38 million. In 2006, his successor Lloyd Blankfein received a $53+ million bonus (poor impoverished Hank only got a consolation $18.7 million cash bonus for the first half of 2006) so one can safely assume that Hank turned down yet another $30+ million fortune for a measly $190K yearly salary (does this makes sense to anyone?). Good thing he did, though—who could be better suited to deal with the oncoming planet-wide economy crisis, than one of its chief architects and underwriters?
6) After some time—from a few weeks to a couple of years—many of the loans became delinquent (surprise!), their backing “collateral” (insanely inflated property values) worth less than the balance of the loan. The remedy? Go back to (1), but increase the pressure on the “loan officers” to push more mortgages onto “subprime” borrowers, sell the mortgages to Wall Street (or to Fannie, or to Freddie), where they get “securitized” and sold as high yield bonds to unsuspecting (but oh so greedy) banks and insurance companies all over the world (i.e., rob Peter to pay Paul). The people fanning this economy wildfire later claimed ignorance of how precarious the situation had become. People with CEO and CFO titles? (What do these acronyms mean? “Chief Embezzling Officer” and “Chief Fraud Organizer,” respectively?)
At this point (mid December, 2006)—world economy foundations now thoroughly undermined, eroding at an alarming rate—Lehman Bros, Goldman Sachs, Bear Stearns, and Morgan Stanley, all reported record profits. Profit source? Bond (“securitized” mortgages) trading. (Names ring a bell? Lehman CEO Richard Fuld got a $10.9 million bonus in 2006, Morgan Stanley CEO John Mack got $40 million (stock $36.2M, options $4M))—Merry Christmas, ho ho ho!!!
7) Before the putrid reality of this massive scam hits the scammed masses, sell off any holdings of high finance stock—grossly inflated bank, insurance company, or financial institution shares—locking in preposterous profits.
Looking at past stock performance charts, the sell-off silently started around fall 2007: Those “in the know” followed the good ol’ J.P. Morgan advice: “buy low, sell high.” When the shit really hit the fan, a year later, these really fat cats were safely and mightily purring away, looking forward to spending a mere fraction of these ill-gotten profits scooping up panic-sold shares in banks and other companies at cents on the dollar. Behold Citigroup and Wells Fargo, fighting over who gets to cut up the fat Wachovia carcass… And JPMorgan, devouring the remains of Washington Mutual… Wow! The superrich get richer, and suckers get poorer—so what else is new?
8) So what’s the point of orchestrating this asinine bubble, one might ask? This is where the real (well hidden, therefore hard to see) beauty of the scheme comes in: When enough financial institutions, foreign and domestic banks, insurance companies, and investment funds has taken the bait, buying busted-mortgages backed bonds—lots of them!—you short-sell (borrow bonds, sell them at the top, repay with bonds repurchased after steep declines) and make tons (literally!) of money! Economies everywhere began crumbling—as soon as it was realized that the (supposedly) “triple-A” bonds were next to worthless, banks became insolvent, stock markets slid big time, and before long good solid companies and banks could be picked up for a song, or for pennies on the dollar… We’re talking gigaprofits here, hundreds of billions, maybe even thousands! And best of all, the system can start growing again, so we can start the profit cycle all over!!!
Goldman Sachs profited heavily from the 2007 “subprime mortgage bond” collapse, by short selling subprime mortgage-backed securities—it seems to me as if all along, they knew very well what was coming…
It is sublimely ironic that these high-flying financial finaglers, apparently with no sense of shame whatsoever, tend to give their vile ventures names including words like “security” and “trust”… (well, these practices can also be seen as a big fat middle finger, thrusted in the face of the unsuspecting “investing” public).
According to a Goldman regulatory filing on July 2, 2006, Hank had accumulated 3.2+ million Goldman shares of common stock valued at $490+ million, restricted shares valued at $75+ million, and options to purchase 680,000+ shares (value not known). To get the Treasury job, he was forced to sell the loot (sorry, the lot)—in order to comply with government ethics rules—and a convenient Internal Revenue Service rule waived the 20% taxation. Poor guy—if he had to pay the taxes, he would only get to keep a measly $440 million. Highway robbery!
That’s over half a billion, extracted from subprime mortgage junk, all by itself coming out to an average $14+ million for each year he spent with Goldman Sachs. And his salary as Secretary of the Treasury was $191,300… What indeed is wrong with this picture? Could it be that this was just a ploy orchestrated in order to sell off the GS shares—at top value, and with no major disturbance of the GS share value—with no tax penalty? In return for donations made to the Bush/Cheney election campaign?
It was not only the main chicken coop that was guarded by one of the biggest foxes the game ever saw: as CFO of the US Government, Hank the Bank was also a member of the President’s National Economic Council, and also acting as:
· Chairman of the Board of the Social Security and Medicare Trust Funds
· Managing Trustee of the Social Security and Medicare Trust Funds
· Chairman of the Thrift Depositor Protection Oversight Board
· U.S. Governor (USG) of the International Monetary Fund
· USG of the International Bank for Reconstruction and Development
· USG of the Inter-American Development Bank
· USG of the Asian Development Bank
· USG of the African Development Bank
· USG of the European Bank for Reconstruction and Development.
Was Hank keeping himself busy, or what? Did we have any reason at all to be especially worried about these bullion bullets? Wasn’t Bush and his wealthy cronies interested in “privatizing” Social Security? Who was getting the bulk of the $700 billion bank bailout bonanza, again? And, don’t forget: that was after bailing out Fannie Mae, Freddie Mac, and AIG (to the tune of $200+ billion in paid taxes)!
The question was: how could Henry “Hank the Bank” Paulson compensate a loss of $50 million in bonuses? Could the answer be: by selling $550+ million worth of Goldman Sachs shares—all sold “at the top,” tax free? That’s a cool $110 million, at least twice the bonus he could have received as CEO for Goldman Sachs. And there are indications that he may well be back “home” at Goldman Sachs, sometime in the near future…
Another question is: The people running these firms, receiving yearly multimillion dollar bonuses on top of million dollar salaries, are supposedly the cream of the US financial leadership crop… And none of them saw the economy crisis coming? I mean, seriously: What’s wrong with this picture?
Hank’s original proposal asked for a carte blanche, preventing any review of how the Treasury would actually use the $700 billion in taxpayer funds (increasing the US debt from $10.6 trillion (thousand billion) to $11.3 thousand billion—that’s, on average, about $40,000 for each and every US individual, from infant to oldest!).
A big piece of the meltdown puzzle is missing. I have asked this question left, right, and center, to bankers and to traders, and no valid answer has so far been forthcoming: Where’s the loot? Where did these trillions of dollars in “securitized” mortgages go? The securities for which buyers paid in cash (pension funds, insurance premiums, 401(K) funds)? Ant the funds (some 50 billion (!)) that Bernie Madoff made off with—Where’d all that money go? Why did bank coffers have to be refilled with fresh taxpayer cash?
As for my personal finances—if I had any shares to convert to cash, I surely would have to pay the 20% capital gains tax that the other Hank so craftily evaded... Even though I neither live in nor am a citizen of them there United States. That sounds just like Taxation Without Representation… Now where did I hear that?
Frankly, I don’t know whether to laugh or to cry…
Henry Norman
Semi-Retired Computer Systems Analyst
Independent Researcher, Tagaytay City, Philippines
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