Adonis Diaries

Posts Tagged ‘Bear Stearns

George W. Bush explains: The financial crisis

“The information and pieces of intelligence I had, the principles that I followed, and the decisions that I took…In a few decades, I hope to be appreciated as a President who kept his promises to protecting his country…A president who took advantage of the influence of America in order to disseminating liberty…Whatever is the verdict of History, I wish I am no longer among the living.” G.W. Bush

I am reading the French version of “George W. Bush: Decisive moments”.  I consider this book an “Official documents”: A President of the USA is not entitled to lie on facts.  It is our duty to mine this document for another set of facts in order to rectify distorted images and impressions.

“In my first budget of 2001, I warned of the two gigantic private societies of Fannie Mae and Freddie Mac.  These two powerful financial institutions, guaranteed by Federal government, have grown to be potential problems:  They expanded outside their initial guidelines of promoting private properties into functioning within speculative funds.  Fannie Mae and Freddie Mac had huge leverage compared to institutions of same size and initial capital: vast amounts of transactions were done with all kinds of investment enterprises, and they were taking huge risks susceptible of carrying decisive repercussions in the financial markets.”

My plan was to reduce taxes. By 1999, taxes represented the highest share in the GNP since WWII.  President Clinton and Congress had agreed to increase discretionary expenses by 16% in 2001. In March 2001, we witnessed a recession and I begged Congress to act quickly on my tax reduction reforms of 1.35 billion.  Tax reform will not take effect until 2003.(See note 1)

Then, the attack on the Twin Tower in 9/11/2001 devastated our economy.  The US lost 500 billion in a single year, an additional one million workers were out of jobs, airliners had no passengers, and tourism dropped 90%.  Whatever budget surpluses we had vanished in thin air.

In 2003, I advanced a project of laws to tighten regulations on Fannie Mae and Freddie Mac, which enjoyed government support.  It turned out that most high level personnel in Fannie Mae and Freddie Mac and the key deciders, were previous government officials and these enterprises had established vast web connections and interests among the Congress and Senate members, particularly with democrats.  For example, Chris Dodd and Barney Franks who declared: “Fannie Mae and Freddie Mac are not facing any financial crisis.”

In the 2005 budget, I iterated my strong warning: “Enterprises and organizations financed by federal governments are viewed by financial enterprises as enjoying strong leverage compared to other private enterprises.  Consequently, any minor error in government supported financial institutions can send devastating waves in the country economy…”

Treasury secretary John Snow worked closely with Senator Richard Selby, president of banking committee, for stricter regulations that would reduce the portfolio of government guaranteed financial institutions.  The democrats in the Senate opposed the reforms.

Investment bank Bear Stearns was facing serious liquidity problems in March 13, 2007:  This financial institution had borrowed $33 for each dollar in capital as leverage to invest in real estates titles. Treasury secretary Hank Paulson, (a former investment banker of Goldman Sachs), found a buyer in JPMorgan Chase on condition that the government extend a loan of 30 billion to purchasing “toxic titles”. JPMorgan Chase purchased Bear Stearns for $2 a share.

By summer 2008, I had demanded the financial regulation reform 17 times.  In July 2008, Congress adopted the reform, but gave the treasury secretary additional power to injecting capitals Fannie Mae and Freddie Mac to maintaining liquidity, if need be. Jim Lockhart realized in August 2008 that Fannie Mae and Freddie Mac were on the verge of bankrapcy.  China and international financial institutions were dead certain that Fannie Mae and Freddie Mac were financially guaranteed by the Federal government.

Treasury secretary Hank Paulson decided to place Fannie Mae and Freddie Mac under direct government supervision.  Paulson said: “We’ll act so swiftly and take them by surprise, Fannie Mae and Freddie Mac won’t have time to say ouf!”  Amazingly, Fannie Mae and Freddie Mac decided not to challenge the decision in court.

On September 2008, Lehman Brothers declared a loss of 4 billion in the last quarter and its stock market dropped from $16 to 3.6.  Bank of America was more interested in acquiring Merrill Lynch, and the British bank of Barclay was faced by a rejection of the British government for the deal.  On Monday Sept. 15, the 158 year-old investment institution closed door.

Question: “Why Lehman was not saved by the government as it did with Bear Stearns?” Plausible answer: Hank Paulson wanted a serious competitor in investment banking to disappear!

“Wall Street gets drunk: It is up to common people to wake up with headaches”

Note 1: Bush claims that tax break on the richest 1% increased from 38.4 to 39.1% (whao), while the poorest 50% of the population enjoyed a reduction from 3.4 to 3.1% (double whao)

Note 2: So far, G.W. Bush keeps the record of worst perpetrator of crimes against humanity in this century: Bush Junior was directly responsible of the death of more than one million Iraqi civilians during his “preemptive war” against a dictator that was no threat to any State anymore.


adonis49

adonis49

adonis49

October 2020
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