Rahm, we barely know ya

It occurs to me that one of the most powerful men in the US (at least in the public sphere) is Rahm Emanuel. I first became aware of him when he was in charge of distributing cash to Democratic contenders for Congress in 2006, when he both feuded with Howard Dean and snubbed anti-war candidates—thus, in my opinion, turning what could have been a huge landslide for Democrats into a moderate one. It's no secret that he was a big-time war hawk and proponent of the Iraq War. I did not know, however, what he had been doing before that.

Thus, I turn to Wikipedia:

. . .

Emanuel was encouraged by his mother to take ballet lessons as a boy and is a graduate of the Evanston School of Ballet. He won a scholarship to the Joffrey Ballet but turned it down to attend Sarah Lawrence College, a liberal arts school with a strong dance program. He graduated from Sarah Lawrence College in 1981 with a B.A. in Liberal Arts, and went on to receive an M.A. in Speech and Communication from Northwestern University in 1985. While still an undergraduate, he joined the congressional campaign of David Robinson of Chicago.^[14] In the first Gulf War, Emanuel served with the Israel Defense Forces as a civilian volunteer helping to maintain equipment.^[15]

Career in finance

After serving as an advisor to Bill Clinton, in 1998 Emanuel resigned from his position in the Clinton administration and became an investment banker at Wasserstein Perella (now Dresdner Kleinwort), where he worked until 2002.^[29] In 1999, he became a managing director at the firm’s Chicago office. Emanuel made $16.2 million in his two-and-a-half-year stint as a banker, according to Congressional disclosures.^[29][30] At Wasserstein Perella, he worked on eight deals, including the acquisition by Commonwealth Edison of Peco Energy and the purchase by GTCR Golder Rauner of the SecurityLink home security unit from SBC Communications.^[29]

Emanuel was named to the Board of Directors for the Federal Home Loan Mortgage Corporation ("Freddie Mac") by then President Bill Clinton in 2000. His position earned him at least $320,000, including later stock sales.^[31][32] He was not assigned to any of the board's working committees, and the Board met no more than six times per year.^[32]

During his time on the board, Freddie Mac was plagued with scandals involving campaign contributions and accounting irregularities.^[32][33] The Obama Administration rejected a request under the Freedom of Information Act to review Freddie Mac board minutes and correspondence during Emanuel's time as a director.^[32]

The Office of Federal Housing Enterprise Oversight (OFHEO) later accused the board of having "failed in its duty to follow up on matters brought to its attention." Emanuel resigned from the board in 2001 when he ran for Congress.^[34]

So, follow along with me here. We see a guy with experience (in ballet, liberal arts, speech and communications, and as an Israeli Defense Repairman) becoming an investment banker for a few years, for which he makes $16.2 million. In the process we see him working on a deal that put together Exelon, the largest operator of nuclear power plants in the country, just as the artificial "gas crisis" is building in California. At the same time he found himself making at least $320,000 sitting on the board of directors of Freddie Mac, which subsequently found itself embroiled in a series of scandals while it made a series of risky investments that resulted in it's collapse last year.

Chicagotribune.com:

Sarah Feinberg, a spokeswoman for Emanuel, said there was no conflict between his stint at Freddie Mac and Obama's vow to restore confidence in financial institutions and the executives who run them. At the same time, Feinberg said Emanuel now agrees that presidential appointees to the Freddie Mac board "are unnecessary and don't have long enough terms to make a difference."
. . .

In an interview, Falcon said the Freddie Mac board did most of its work in committees. Yet proxy statements that detailed committee assignments showed none for Emanuel, Free or Ickes during the time they served in 2000 or 2001. Most other directors carried two committee assignments each.

Contrary to the proxy statements, Feinberg said she believed that Emanuel served on board committees that oversaw Freddie Mac's investment strategies and mortgage purchase activities. But Feinberg acknowledged she had no official documents to back up that assertion.

The Obama administration rejected a Tribune request under the Freedom of Information Act to review Freddie Mac board minutes and correspondence during Emanuel's time as a director. The documents, obtained by Falcon for his investigation, were "commercial information" exempt from disclosure, according to a lawyer for the Federal Housing Finance Agency.

Emanuel's board term expired in May 2001, and soon after he launched his Democratic congressional bid.

One of Emanuel's fellow directors at Freddie Mac was Neil Hartigan, the former Illinois attorney general. Hartigan said Emanuel's primary contribution was explaining to others on the board how to play the levers of power.

He was respected on the board for his understanding of "the dynamics of the legislative process and the executive branch at senior levels," Hartigan recalled. "I wouldn't say he was outspoken. What he was, was solid."

By the time Emanuel joined Freddie Mac, the company had begun to loosen lending standards and buy riskier sub-prime loans. It was a practice that later blew up and contributed to the current foreclosure crisis.

In his investigation, Falcon concluded that the board of directors on which Emanuel sat was so pliant that Freddie Mac's managers easily were able to massage company ledgers. They manipulated bookkeeping to smooth out volatility, perpetuating Freddie Mac's industry reputation as "Steady Freddie," a reliable producer of earnings growth. Wall Street liked what it saw, Freddie Mac's stock value soared and top executives collected their bonuses.

That's Emanuel's own spokeperson saying she thought he served on committees that oversaw investments in the very time period when investments were made that led to Freddie Mac's downfall... and yet there is no record of him being on those committees... and the adminstration refuses to allow FOA requests for documents that pertain to such things.

For an interesting googling time, try checking out the links in that Emanuel Wikipedia piece. PECO Energy (largest owner of nuclear power plants in the US.) And GTCR:

Wikipedia:

The company was founded in 1980 as Golder Thoma & Co. by Stanley Golder and Carl Thoma. In the 1970s, Golder built the private equity program at First Chicago Corp.^[2] where he is noted primarily for backing Federal Express and for efforts as chairman of the National Venture Capital Association and the National Association of Small Business Investment Companies to change federal laws allowing pensions to invest in private equity.^[3][4]

"...to change federal laws allowing pensions to invest in private equity." This sounds like one of the roots of the present financial meltdown, the reason banks had to be bailed out: gambles made with pension funds.

I think this Googling Expedition could continue indefinitely... but I have to go to sleep....

The cost of the Bailout so far? How about $2.5 trillion..!

Bailout Sleuth:

By Chris Carey on November 10, 2008 6:50 PM

Although the price tag on the Treasury Department's Troubled Asset Relief Program is $700 billion, the full amount that the government has invested in its rescue effort for struggling financial institutions appears to be closer to $2.5 trillion.

Bloomberg L.P., the parent company of Bloomberg News, said last week that it filed a lawsuit seeking information on the collateral that a group of banks pledged for some $2 trillion in emergency loans from the Federal Reserve.

Bloomberg asked a federal court in New York to require the Federal Reserve to disclose the identity of the banks that borrowed money through certain financing mechanisms, and to disclose what assets they pledged against those loans.

Bloomberg filed the suit after the Federal Reserve said that it would deny Bloomberg's request for the information under the Freedom of Information Act.

The financial firms that were eligible for some of the loans through the Federal Reserve included many of the same firms that split $125 billion in the first round of the Treasury Department's relief program.

The Treasury Department has approved more than $170 billion in capital injections for banks that applied to sell preferred stock to the government. It has about $80 billion remaining for additional participants, who must submit their applications by Friday.

The Treasury Department announced Monday that it also is investing $40 billion in the preferred shares of American International Group Inc. The financing it part of a new plan to salvage an earlier rescue plan that was going awry.

The revised plan brings the total assistance that AIG has received from the Federal Reserve and the Treasury Department to $150 billion.

Bloomberg reported that the Federal Reserve made its $2 trillion in emergency loans under 11 different programs, eight of which were created in the past 15 months.

The Treasury Department also made a little-noticed change to tax policy that experts say could save banks that merge with other banks as much as $140 billion in taxes. One of the biggest beneficiaries of the change would be Wells Fargo & Co., which is absorbing Wachovia Corp. in a deal spurred by the Federal Deposit Insurance Corp.'s concerns about Wachovia's solvency. According to an article Sunday in the Washington Post, Wells Fargo stands to save about $25 billion in taxes.

Adding together the $170 billion that the Treasury Department has currently agreed to provide banks in additional capital, the $150 billion that the Treasury Department and the Federal Reserve are providing to AIG and the $2 trillion that the Federal Reserve has provided banks in emergency loans brings the total assistance to $2.32 trillion.

If the estimated savings from the new tax breaks are included, the assistance would climb to $2.46 trillion. That total does not include other measures not focused directly on banks, such as Treasury Department's $200 billion in support for Fannie Mae and Freddie Mac, and the Federal Housing the Administration's $300 billion HOPE for Homeowners program.

The Housing and Economic Recovery Act of 2008: An Analysis by Catherine Austin Fitts

Scoop.co.nz:

The US Housing Bill 2008: Parts I - IV

Thursday, 21 August 2008, 5:40 pm
Column: Catherine Austin Fitts

Catherine Austin Fitts' Mapping the Real Deal series
See also: Parts I, II, III IV, V, VI, VII, VIII and IX

Part I – Overview

I have had several requests to comment on the Housing and Economic Recovery Act of 2008.

This afternoon, I read hundreds of pages of bill language. Essentially, my take on the bill is that Fannie Mae and Freddie Mac have issued more debt than can be paid back, so the "solution" is to have the United States government essentially assume responsibility for this debt until the fact that the government cannot service its own debt is addressed.

By clearly signaling to the market that the U.S. government stands behind Fannie Mae and Freddie Mac, this new law increases the national debt from $9.5 trillion to $14.8 trillion overnight (that is a $5.3 trillion increase as opposed to the $800 billion increase provided for in the debt-limit increase accompanying the bill). Not surprisingly, a lot of pork needs to be added to pay a lot of people to go along.

A more appropriate bill title would be the Housing and Economic Takeover Act of 2008. Rather than declaring the New World Order, we are apparently going to legislate it sector by sector.

Here is the bill language:

Housing and Economic Recovery Act of 2008

Here is a rosy summary from the Senate Finance Committee:

Senate Finance Summary – Housing and Economic Recovery Act of 2008

The best overview so far is from Larry Lindsey. Lindsey was one of the more excellent governors of the Federal Reserve. Lindsay had to resign from the Bush Administration in 2002 as director of the National Economic Council when he had the good sense to warn that the Iraq War would be expensive.

Hank Paulson's Fannie Gamble

As Lindsay points out, the number of porky add-ons in this bill are stupefying. Bloomberg provides a review of one:

Fed Loans to Banks Made Easier By Fannie Mae Rescue

Part II – Nation State or Investment Syndicate?

One of the instructive features of the housing bill is the nature of creditor politics that is a subtext on housing and mortgage politics these days. One investment newsletter this weekend reported that there are $947 billion of Fannie and Freddie paper listed as being held in foreign exchange reserves worldwide, of which $100 billion is held by Russia.

That sounds low to me. However, since these are "reported" figures, we will work with them. Can you imagine the politics of a Fannie Mae or Freddie Mac bankruptcy when their largest investor also has nuclear bombs, submarines, and satellites? Also, can you imagine the politics if the Russians bought their Fannie Mae and Freddie Mac securities with IMF and other foreign-engineered "bailout" loans arranged contingent on a secret agreement that a portion of the proceeds would be used to buy Fannie Mae and Freddie Mac debt?

I once had a senior Russian official encourage me to switch sides, so to speak. I told him that no one ever accomplished anything by betraying their country, and that working inside is the best way to address policies gone off kilter. It was not until we parted company that I realized that I had been speaking with a representative of one of Fannie Mae's largest investors.

Chinese Government Is Top Foreign Holder of Fannie Mae, Freddie Mac Bonds

Report on Foreign Portfolio Holdings of U.S. Securities, as of June 30, 2007, published April 30, 2008 by U.S. Treasury, Federal Reserve Bank of New York, Board of Governors of the Federal Reserve System

Part III – Your House Is Bigger Than My House

When I was Assistant Secretary of Housing and Federal Housing Commissioner, then Secretary of HUD Jack Kemp asked me to his office for a private discussion. He explained that he was concerned that I was standoffish and did not socialize with the other political appointees, the "principal staff," at the agency.

I was surprised and noted that I had invited the principal staff to my house for cocktails or brunch five times, and with one exception none of them had ever reciprocated. I noted, in fact, that I had invited Jack all five times and he had never once come. He looked at me with shock and said,

"I would never come to your house. Your house is bigger than my house. I would find it castrating."

I tell you this story because it is very difficult for hardworking, busy people who are subject to the discipline of market forces to fathom what is going on in Washington these days.

It is not in most people's experience to witness a complete breakdown of financial controls that does not impair one's ability to continue to borrow more money—indeed, access to more money is near infinite (see "The Military Holds the Dollar Up"). And this situation is combined with decision making driven by personal profit and imagined sexual potency.

This state of affairs can exist only when it serves the interests of those who are quite clear-thinking and far more powerful than those who work in the Administration. You can attack and take over a country. Or you can simply let it borrow itself to death in a financial coup d'etat. Recent history suggests that the second is infinitely more profitable for the victor.

Part IV – The Profits of Playing Ball

The housing bill brings up a number of important questions about the risks and rewards that result from government subsidy and bailouts.

One recent market commentator pointed out that Fannie Mae and Freddie Mac executives were allowed to keep the big bonuses they made engineering the housing bubble and bankrupting the companies.

One of the examples given was Jamie Gorelick, (1, 2) who joined Fannie Mae as vice chairman from 1997 to 2003 after engineering the move to private for-profit prisons as deputy attorney general in the Clinton Administration. Gorelick's name received national attention as a member of the 9-11 Commission and close advisor to Hillary Clinton.

Gorelick got Fannie Mae compensation and bonus payments of $26 million, which she gets to keep.

However, the bill stipulates that Americans at risk of foreclosure who get a mortgage workout must share future equity capital gains with the government.

Mainland Chine Lenders Ordered to Halt Interbank Deals with U.S. Firms

This could be serious...There's not a lot of money involved, yet... but it indicates a trend...

By Jane Cai and Adam Chen

South China Morning Post, Hong Kong
Thursday, September 25, 2008

BEIJING -- Mainland regulators have told domestic banks to stop lending to United States financial institutions in the interbank market in a bid to prevent possible losses during the financial crisis, industry sources said yesterday.

The ban from the China Banking Regulatory Commission (CBRC) applied to interbank lending of all currencies to US banks but not to banks from other countries, a source said.

The CBRC was not available for comment yesterday.

The decree appears to be Beijing's first attempt to erect defences against the deepening US financial meltdown after the mainland's major lenders reported billions of US dollars in exposure to the credit crisis.

Lending transactions on the mainland interbank market totalled 10.65 trillion yuan (HK$12.17 trillion) last year, according to the People's Bank of China.

In the first eight months of this year, transactions totalled 10.11 trillion yuan, up 104 per cent from a year earlier.

At the end of last year, the mainland interbank market had 717 members, including banks, securities companies and trust companies.

Another banking source said the CBRC issued the ban after obtaining data about the exposure of mainland banks to bonds issued by bankrupt Lehman Brothers Holdings.

Top officials said they were keeping a close watch on the crisis and warned mainland financial institutions to be cautious in their daily business and overseas expansion.

"The international transaction volume of Chinese banks is not big. Those concerning subprime loans are probably lower than US$10 billion," deputy central bank governor Ma Delun wrote this week in the China Business Post, a People's Bank of China-affiliated newspaper.

But the deteriorating situation in the US has shocked top officials.

Mr Ma said that among the unexpected developments was the effect the crisis was having on normal assets, not just problematic assets; its impact on the whole credit market, not just single products; and its effect on Europe and other nations, not only the US.

The exposure of seven listed mainland banks to bonds related to Lehman Brothers totalled US$721 million.

Mainland banks had US$9.8 billion in exposure to US subprime loans at the end of last year and US$25 billion to Fannie Mae and Freddie Mac by June 30.