|Wall Street's 10 Greatest Lies of 2009
By Nomi Prins, AlterNet
Lies that justify screwing over Main Street.
On December 13, President Obama declared that he was
not elected to help the "fat cats." But the cats got
another version of that memo. A day later, 10 of them
were supposed to partake in some White House face-time
to talk about their responsibilities to the rest of the
country, but only seven could make it. No-shows for the
"very serious discussion" -- due to inclement New York
weather or being too busy with internal bonus
discussions to bother with the President -- were
Goldman Sachs CEO Lloyd Blankfein, Morgan Stanley CEO
John Mack and Citigroup Chairman Richard Parsons.
Yes, Obama inherited a big financial mess from the Bush
administration - which inherited its set-up from the
Clinton administration (financial recklessness, it
turns out, is non-partisan) -- but he and his
appointees have spent the year talking about fighting
risk and excess on Wall Street, while both have grown.
Treasury Secretary Tim Geithner patted himself on the
back for making the "difficult and necessary" decisions
of fronting Wall Street boatloads of money to cover its
losses and capital crunch last fall. Federal Reserve
Chairman Ben Bernanke (a Bush-Obama favorite) was named
Time Magazine's Person of the Year for saving the free
world as we know it. And Congress is talking "sweeping
reform" about a bill that leaves the banking landscape
intact, save for some minor alterations. For starters,
it doesn't resurrect the Glass-Steagall Act of 1933,
which separated risk-taking (once
non-government-backed) investment banks from consumer
oriented (government-supported) commercial banks.
Meanwhile, Wall Street is restructuring (the financial
equivalent of re-gifting) old toxic assets into new
ones, finding fresh ways to profit from credit
derivatives trading, and paying itself record bonuses
-- on our dime. Despite recent TARP payback enthusiasm,
the industry still floats on trillions of dollars of
non-TARP subsidies and certain players wouldn't even
exist today without our help.
Wall Street's return to robustness and Main Street's
continued deterioration are the main takeaways for 2009
that stemmed from the 2008 choices to flush the
financial system with capital and leave the real
economy to fend for itself. Lies that exacerbate this
divide only perpetuate its growth. With that, here is
my top 10 list of lies. Please consider adding your
own, and let's all hope for a more honest New Year.
1) The economy has improved.
Earlier this month, Bernanke declared, "Having faced
the most serious financial crisis and the worst
recession since the Great Depression, our economy has
made important progress during the past year. Although
the economic stress faced by many families and
businesses remains intense, with job openings scarce
and credit still hard to come by, the financial system
and the economy have moved back from the brink of
Sure, the economy is better -- if you work at Goldman
Sachs or had an affair with Tiger Woods. But while
Bernanke, former Treasury Secretary Hank Paulson and
Geithner turned the Federal Reserve into a national
hedge fund (cheap money backing toxic assets in
secrecy), and the Treasury Department into a bank
insurance policy, the rest of the real economy took hit
after hit -- starting with jobs.
The national unemployment rate remains at double
digits. Despite Washington's bizarre euphoria about
unemployment rates last month being better (they edged
down in November to 10 percent from 10.2 percent in
October), the number of Americans filing for initial
unemployment insurance rose during the second week of
December. After all the temporary holiday hires, that
number will probably increase again. Plus, unemployment
rates in 372 metropolitan areas are higher than they
were last year.
2) If you give banks capital, they will lend it out.
On Jan. 13, 2009 Bernanke concluded that "More capital
injections and guarantees may become necessary to
ensure stability and the normalization of credit
markets." He said that "Our economic system is
critically dependent on the free flow of credit." He
was referring to the big banks. Not the little people.
Ten months later, though, he admitted that, "Access to
credit remains strained for borrowers who are
particularly dependent on banks, such as households and
small businesses" and that "bank lending has contracted
sharply this year."
In other words, big banks don't share their good
fortunes. Shocking. And as a result, bankruptcies are
rapidly rising for businesses and individuals - a
direct result of lack of credit coupled with other
economic hardships like job losses.
Total bankruptcy filings for the first nine months of
2009 were up 35 percent to 1,100,035 vs. the same
period in 2008. The number of business bankruptcies
during the first three quarters of 2009 eclipsed all of
2008. Individual consumer filings totaled 373,308
during the third quarter of 2009 and were up 33 percent
vs. the same period of 2008. Tell those people about
the free flow of credit, Ben.
3) Taxpayers are being repaid.
On December 17, the Treasury Department announced: "As
a result of our efforts under EESA (the Emergency
Economic Stabilization Act that spawned TARP),
confidence in our financial system has improved, credit
is flowing, and the economy is growing. The government
is exiting from its emergency financial policies and
taxpayers are being repaid."
Even as banks rush to repay TARP in order to get the
government off their backs before annual bonuses are
set, the Treasury Department is helping them out. On
December 11, the Internal Revenue Service gave
government-subsidized banks a tax exemption that, for
instance, allows Citigroup to keep the benefit of $38
billion. Three days later, Citigroup announced its $20
billion repayment of TARP. Get the math? Not exactly a
Additionally, the FDIC gave banks including Citigroup,
Bank of America, and JPMorgan Chase a holiday gift --
at least a six-month break from having to raise capital
to support the billions of dollars of securities (read:
toxic assets - remember those?) that firms are going to
have to add to their books in 2010. That will open a
whole new can of worms - a glimpse into either
insolvency and a replay from the too-big-to-fail
scenario, or book-cooking (the Financial Accounting
Standards Board, as of last year, has allowed banks to
price their own assets if there's no true market for
them - fun times), or both. Meanwhile, banks can use
the capital for bonus payments instead.
4) Homeowners are being helped.
Last year's big lie was that banks would turn around
and help their borrowers if they got federal money.
Yet, they were under no obligation to do so, and thus,
Since the Obama administration released guidelines for
the Home Affordable Modification Program (HAMP) on
March 4, 2009, the HAMP permanent loan modification
numbers have been anemic.
Separately, by almost every measure, mortgage and
credit problems are worse this year than last. There
were almost a million new foreclosure fillings in the
third quarter of this year, 5 percent more than in the
second quarter, and 23 percent more than during the
third quarter of 2008.
Plus, foreclosures are not abating. Mortgage
delinquencies (borrower 60 or more days overdue)
increased for the 11th quarter in a row, reaching a
national average record of 6.25 percent for the third
quarter of 2009. Delinquencies precede foreclosures.
Compared to last year, mortgage borrower delinquencies
are up 58 percent. Meanwhile, banks are sitting on
properties they acquired to avoid selling them into the
market and having to book the resultant loss.
5) Big banks will help small businesses.
On October 24, because a whole year had passed without
this happening, Obama declared, "It's time for our
banks to stand by creditworthy small businesses and
make the loans they need to open their doors, grow
their operations and create new jobs."
Small businesses, which employ half of all private
sector employees, had received less than $400 million
in new loans under government programs, and were
granted access to just one program that buys up to $15
billion in securities tied to small business loans.
According to the Small Business Administration (SBA)
the number of approved loans shrunk from 124,360 in
2007 to 69,764 in 2009 (it was 93,541 in 2008).
Two months later, since that didn't work, Obama
reiterated, "given the difficulty business people are
having as lending has declined, and given the
exceptional assistance banks received to get them
through a difficult time, we expect them to explore
every responsible way to help get our economy moving
again." He asked the big bank chiefs to take
"extraordinary" steps to revive lending for small
businesses and homeowners.
Too bad banks don't gear their business strategy to
expectations and suggestions. Still, as a gesture of
good faith, Bank of America promised to kick in an
extra $5 billion more to small- and medium-sized
businesses next year. JP Morgan Chase promised to
increase lending by $4 billion. Goldman had already
decided to go the pledge route a few weeks earlier,
putting up half a billion dollars in small business
"charity" to help its deservedly negative image.
To make up for what the banks aren't doing, the Obama
administration is setting aside $30 billion from the
financial bailout fund to stimulate lending to small
6) The Fed values transparency.
On February 10, Bernanke told the Committee on
Financial Services that he "firmly believes that
central banks should be as transparent as possible.
Likewise, the Federal Reserve is committed to keeping
the Congress and the public informed about its lending
programs and balance sheet."
Yet, on March 5, the Fed refused to comply with a
Freedom of Information Act request and lawsuit filed by
Bloomberg News to disclose the details of its 11
lending facilities. In front of the Senate Budget
Committee, and in response to a question from Senator
Bernie Sanders, I-VT, about naming the firms that got
money from those facilities, Bernanke said "No" -- such
disclosure would be "counterproductive" and risk
Undaunted by this irony, on May 5, before the Joint
Economic Committee, Bernanke reiterated, "The Federal
Reserve remains committed to transparency and openness
and, in particular, to keeping the Congress and the
public informed about its lending programs and balance
sheet." He told PBS NewsHour on July 28 that "We are
completely open to providing any information Congress
To date, the Fed has not disclosed the recipients of
its cheap loans for toxic collateral.
7) History will not repeat itself.
In the beginning of the year, Obama said of Wall Street
firms, "There will be time for them to make profits,
and there will be time for them to get bonuses. Now is
not that time."
He also said that "part of what we're going to need is
for the folks on Wall Street who are asking for help to
show some restraint and show some discipline and show
some sense of responsibility."
Yeah. Wall Street's really into restraint....
Nine month later, as banks were racking up record
profits and bonuses, Obama said the same thing, in
different words, in his September 14 Federal Hall
speech. "We will not go back to the days of reckless
behavior and unchecked excess at the heart of this
crisis, where too many were motivated only by the
appetite for quick kills and bloated bonuses... the old
ways that led to this crisis cannot stand...History
cannot be allowed to repeat itself."
The only problem? History was repeating itself, as he
spoke. Big banks took more risk in 2009, and posted
more of their profits from trading operations than they
had before they nearly collapsed in 2008. Trading
profits at the top five banks rose from a $608 million
loss in 2008 to $118.5 billion for annualized 2009, and
$61.7 billion in 2007.
8) The pay czar will fight against - pay.
Treasury Department pay czar Ken Feinberg was
supposedly appointed to keep a lid on excessive
compensation for companies sitting on federal bailouts.
Two problems with that: first, the Treasury Department
continues to ignore the fact that the TARP portion of
the bailout was only a tiny portion of the full
bailout, and second, Wall Street was pushing back and
winning at every turn.
For instance, after announcing he'd cap compensation
for the top 25 execs at AIG, on October 23, Feinberg
gave three of them a pass. These men were apparently
"particularly critical to the company's long-term
financial success." Turning to his other role as Wall
Street's mouthpiece, Feinberg made excuses for AIG.
"AIG compensation practices are unique. We took into
account independent, very credible opinions of others
to come up with a package that we think will help AIG
thrive." That's nice.
But he's not kidding about thriving - those three
employees will receive bonuses of about $4 million, $5
million and $7 million. AIG's new CEO, Robert
Benmosche, who joined AIG in August and got his pay
approval out of the way on October 2, is bagging $10.5
million in annual compensation, including $3 million in
cash, $4 million in stock options and $3.5 million in
annual performance bonuses.
Then, on November 12, Feinberg said he was "very
concerned" about scaring away top talent at the seven
firms that took the biggest bailouts. Way to keep a lid
on it, Ken.
But to be fair, it's not really Feinberg's fault. New
York Fed and Treasury Department officials have been
urging him to dial back restrictions for AIG folks in
2010 as well. Why? Because restricting pay will make it
harder for the government to get back its loans to AIG.
Right. Somehow paying these people stupid sums of money
is the only way to get our money back. Because their
"talent" worked out so well going into last year.
Elsewhere on Wall Street, the top six banks are getting
set to pay out $150 billion in bonuses ($10 billion
more than in 2008). GS is leading the pack in terms of
bonus increases; it will dole out a projected $22
billion in compensation in 2009, compared to $11.8
billion in 2008 and $20.2 billion in 2007. JPM put
aside $29.1 billion for 2009, compared to $24.6 billion
in 2008 and $29.9 billion in 2007. Wells Fargo is
spending $26.3 billion this year, compared to $23.1
billion in 2008 and $25.6 billion in 2007.
9) The lobbyists made us do it.
Going back to the big bank love fest at the White House
earlier this month, execs promised to do better on
regulation matters, citing a "disconnect" between their
steadfast support for regulation and the fact that
their lobbyists were pushing for as little new
regulation as possible.
Really? Because this disconnect cost the financial
sector $334 million so far this year for 2,560
lobbyists; a pittance compared to bonuses, but still,
hard-taken cash. I'm sure another $334 million is
coming to fight for stricter regulation in the New
10) Citigroup is the picture of health and
too-big-to-fail is over.
Once the nation's largest bank, later its largest
bailout recipient, the firm exited its TARP obligation
on December 14 with CEO Vikram Pandit stating, "Once
Citi repays the $20 billion of TARP trust-preferred
securities and upon termination of the loss-sharing
agreement, it will no longer be deemed to be a
beneficiary of 'exceptional financial assistance' under
TARP beginning in 2010." (Read: I don't want to hear
about compensation caps anymore!)
He went on to say that, "By any measure of financial
strength, Citi is among the strongest banks in the
industry, and we are in a position to support the
Shareholders didn't feel the same way. Citigroup shares
already trading well below those of its main
competitors have fallen 13.5 percent since that
announcement. One of their key clients, the Abu Dhabi
Investment Authority, accused the firm of misleading
them over a $7.5 billion investment. Plus, in order to
come up with the money to pay back the government, they
had to raise it in the markets, thus diluting their
stock - all to keep their petulant star employees happy
at bonus time.
The Citigroup story should be examined for the other
big banks. They may talk tough about paying back the
government, but underneath they are hurting. And their
pain will become our cost again - because nothing
fundamental has changed this year, and that means -
floating on our public money, these banks are actually
still ticking time bombs.
Bonus Lie: Goldman Sachs is sorry.
On November 17, Lloyd C. Blankfein said he was sorry
about his firm's role in the financial crisis. "We
participated in things that were clearly wrong and have
reason to regret, we apologize." He didn't say he was
sorry the firm is still floated on $43 billion of total
subsidies including FDIC guarantees for debt it raised,
that were logically supposed to aid consumer oriented
banks, and the $12.9 billion it got through the AIG
Yet the firm has the highest percentage of trading
revenue of all the banks that got assistance; in other
words, the revenue most linked to risk-taking, at 79
percent, or $38 billion out of $47 billion for
annualized 2009. This is up from 41 percent, or $9
billion in 2008, and 68 percent in 2007 and 2006. And
as noted before, Goldman leads the bonus sweepstakes
for 2009. The firm is probably not very sorry about all
Maybe I'm being too hard on everyone. Maybe all those
toxic assets we all forgot about have value now. Maybe
bank profits are based on something real. Maybe the
increasing reserves against increasing credit losses
aren't happening. Maybe those foreclosures aren't
really happening. Maybe banks aren't sitting on homes
because they don't want to dump them into the market
and ruin the fantasy that prices have hit bottom. Maybe
eight million jobs are waiting on the other side of
2010. Maybe I should just send a holiday card to
Goldman saying thanks for everything. I'm sorry I ever
quit. Maybe Lloyd Blankfein really is God.
Or maybe, the next mammoth pillage will be the one that
makes a difference. But I truly don't want us to have
to find out. May 2010 be the start of a more insightful
Nomi Prins is a senior fellow at the public policy
center Demos and author of It Takes a Pillage: Behind
the Bailouts, Bonuses, and Backroom Deals from
Washington to Wall Street.