By Robert Wenzel
Back in June, I wrote: "First, they [the power elite] always take advantage of crisis to make a [power and money]grab...Taking advantage of crisis and making things complex is how the elite play. The current crisis is the mortgage crisis. They are taking advantage of the crisis to sweep up and buy into banks on the cheap, and they are sitting in a conference room with the Fed to create regulations so onerous that only the elite will be able to play."
Treasury Secretary Henry Paulson and Goldman Sachs, this weekend, have gone overboard in proving my point.
We are in the midst of one of the greatest power and money grabs in the history of the world. I am stunned by the Russian style oligarch aggressiveness and boldness of the moves made this weekend, led by Paulson.
In a bold strike, he asks for $700 billion in "bailout money" and hopes the panic environment will push his proposal through with scant review by Congress. The proposal contains this remarkable clause:
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency
Then, in a Sunday night press release, 9:30 PM ET, the Federal Reserve announced that it has approved the applications of Goldman Sachs and Morgan Stanley to become bank holding companies. Goldman is, of course, where Paulson served as CEO before he joined the Treasury. (On Goldman's insider pedigree, see my column: Does Goldman Sachs Run the World?)
Here is what Dealbook says tonight about the approval:
Now, Goldman and Morgan Stanley can become direct competitors to larger firms like Citigroup,JPMorgan Chase and Bank of America...By becoming bank holding companies, Goldman Sachs and Morgan Stanley gained some breathing room in the immediate term. But it likely lays the groundwork for additional deal making. Given the expected bank failures this year, it is possible Goldman and Morgan Stanley could seek to buy them cheaply in a “roll-up” strategy.
This is what I wrote in April:
So what’s Treasury Secretary Henry Paulson’s call for changes in regulation of the financial markets all about? A clue may have been revealed today by Randal Quarles, former Under Secretary of the Treasury who led the Treasury Department’s effort in the coordination of the President’s Working Group on Financial Markets and is a current Managing Director at Carlyle Group.
Quarles spoke at a luncheon meeting of the Washington DC-based National Economists Club. His topic: “Restructuring Financial Regulation”. Quarles told the luncheon group that he chose the topic in January. Hmmm... How did Quarles pick this topic back in January?
Short-answer, Quarles is a major insider and his comments should be monitored to get a sense for what insiders are thinking.
In his talk, Quarles said that estimates go into the hundreds of billions in terms of capital that will be required by the financial industry because of losses sustained as a result of the current crisis (NOTE! Quarles said this last April.). He said there will be more financial institutions that will go under in coming months.
I titled the column from the above quote: Carlyle Group's Plan to Takeover the Banking Industry. Carlyle is the sister insider group to Goldman Sachs. Papa Bush was a senior adviser to the firm. Anything I write about Carlyle goes for Goldman and vice versa.
This is what I wrote in July:
It's obvious that Treasury has been after Fannie Mae and Freddie Mac for years. They are using the current crisis to put a nail in the coffin...What appears to be going on is a Russian oligarch style takeover of major parts of the financial sector. Randal Quarles, who spoke for the Treasury warning that changes would have to be made at Freddie and Fannie, is gone from the Treasury and is now at the Carlyle Group...So what we have here is a huge, I MEAN HUGE MONEY GRAB, Quarles' former boss Paulson continues to make statements that scare bank shareholders. While Quarles gets ready to scoop up bank stocks.We are at the scare the public stage, and they sure have that running well. Next, when fear is everywhere, they will start the scooping up of the bank stocks.
I titled the column from the above quote: Will The Mortgage Crisis Create The First Trillionaires?
Talk about scooping up bank stocks on the cheap, when fear is everywhere. That is exactly what the Goldman approval from the Fed to become a bank holding company is all about! And, we might add, all of Goldmans competitors were wiped out by a series of rumors. Dick Fuld CEO of the latest victim, Lehman Brothers, thought that Goldman was behind the rumors:
Mr. Fuld grew increasingly frustrated about chatter over Lehman's future and rumors that counterparties were shying away from trading with the firm. At one point, Mr. Fuld contacted Goldman Sachs Group Inc. CEO Lloyd Blankfein. "You're not going to like this conversation," Mr. Fuld told Mr. Blankfein, according to people familiar with their talk. Mr. Fuld said he was hearing "a lot of noise" about Goldman traders who were allegedly spreading negative rumors about Lehman.
And a book is due out next week charging that Paulson was behind the takedown of Bear Stearns. Interestingly, Paulson was not able to takeout Morgan Stanley, so he will have to share some of his Master of the Universe status.
There are only months left to the Bush Administration, so Paulson is in the endgame. The crisis that his former assistant, Quarles, foresaw back in April is in full rage. The panic is everywhere. And, the scooping up of bank stocks by the Carlyle Group and Goldman Sachs is about to began. With a hoped for backstop of $700 billion, courtesy of the American taxpayer.
So what is left to the endgame is to see where Paulson lands after he leaves The Treasury. Will he go back to Goldman or go over to Carlyle? It is likely that move has already been decided.
As I have written before, the upside gains, on the mortgages that are now spiraling downward in the Paulson stoked atmosphere of fear, will eventually be huge. The owners of those mortgages, properly leveraged at fire sale prices, are likely to become the world's first trillionaires and the group is likely to include the names Randal Quarles and Henry Paulson, American Oligarchs.
Robert Wenzel is an economic consultant and Editor & Publisher of economicPolicyJournal.com. He can be reached at firstname.lastname@example.org.