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| Robert Rubin |
What A.I.G. and Goldman Did - One of the most notorious intermediaries of financial lunacy in the perverted post Glass-Steagall era was A.I.G. This insurance company underwrote reckless financial policies (known as credit default swaps) for commercial and investment banks. A.I.G. did this because it collected what management thought were generous premiums. At one time A.I.G. deluded itself into thinking it was generating huge underwriting profits for the company the C.D.S. business. Wall Street investment houses including Robert Rubin's former employer Goldman Sachs believed A.I.G. was capable of actually hedging trillions of insane bets. As a result, commercial and investment banks collectively and individually escalated the scheming, becoming practically drunk with embodiment. Virtually every New York-based bank borrowed and bet as much as it could on flimsy mortgages. Even Goldman's management team suffered from greed-induced delusions. However, eventually Goldman's management began to see that mortgage defaults were bound to mushroom and that credit default swap claims against A.I.G. could run tens of billions of dollars. Since Goldman was hardly sufficiently reserved for this sort of colossal-sized folly, it began to write synthetic securities where it could bet against the process of sub-prime mortgage underwriting.
New York, Washington D.C. and Corruption - For decades large commercial and investment banks have provided a steady flow of campaign contributions to the re-election war chests of most elected officials in Washington. For many years Goldman Sachs has been the biggest contributor of the pack. The payoff for commercial banks wasn’t more "fairness" and less bank risk taking as Presdient Clinton, Robert Rubin, and Senator Phil Gramm claimed. Instead, it was the end of the taxpayer protections provided by Glass-Steagall for decades that Senator Byron Dorgan predicted.
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| Hank Paulson |
As A.I.G. catapulted towards complete insolvency it gradually became clear to C.E.O.’s at the largest commercial and investment banks that they were getting trapped. Having unwisely borrowed to buy flimsy mortgage securities, they too were at the point of insolvency. And as their sense of greed receded and their sense of reality set in, these C.E.O.’s quickly secured the ears of their former colleagues (Treasury Secretary Hank Paulson and others), who just happened to be working in the Bush Administration as high level banking system regulators. The goal of Wall Street C.E.O.’s in the late summer of 2008 was to quickly gain access to taxpayer guarantees and cash injections to cover mistakes they made. Their errors should have required wipeouts of their stock and bondholders and receiverships for an interim period. That did not happen. Instead, first Paulson and Co. used Lehman Brothers as a stage setter for the remaining firms. After the panic that ensued with the Lehman failure the rest of the street including Goldman Sachs was able to gain access to the seemingly infinite resources of the taxpayers. Under pressure, Hank Paulson went to Capital Hill. Publicly and privately he injected a gigantic dose of FEAR for official consumption. The extraordinary government intervention he sought had to be framed as an effort to “Save the American Financial System from Catastrophe” instead of a bailout for the greediest on Wall Street.
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