Back In Bidness

by digby

Just in case you were wondering if the exploitation of taxpayers by the rich and shameless has abated,well, it hasn’t:

PRECISELY one year ago, we lucky taxpayers took over Fannie Mae and Freddie Mac, the mortgage finance giants that contributed mightily to the wild and crazy home-loan-boom-turned-bust. In that rescue operation, the Treasury agreed to pony up as much as $200 billion to keep Fannie in the black, coughing up cash whenever its liabilities exceed its assets. According to the company’s most recent quarterly financial statement, the Treasury will, by Sept. 30, have handed over $45 billion to shore up the company’s net worth.

It is still unclear what the ultimate cost of this bailout will be. But thanks to inquiries by Representative Alan Grayson, a Florida Democrat, we do know of another, simply outrageous cost. As a result of the Fannie takeover, taxpayers are paying millions of dollars in legal defense bills for three top former executives, including Franklin D. Raines, who left the company in late 2004 under accusations of accounting improprieties. From Sept. 6, 2008, to July 21, these legal payments totaled $6.3 million.

Here’s the thing. There’s good reason for taxpayers to bear the burden of legal bills for average workers who are sued for doing work on behalf of the taxpayers. (And maybe you can even make an argument that these people qualify under the weird charter of Fannie and Freddie, I don’t know.) But regardless of that, they are all wealthy people who could easily afford to pay for their own legal defense and should do so regardless of whether they are entitled to have it paid for. It’s just another sign of the way the masters of the universe always milk the system to its very limits, even when it would do them a world of good in terms of reputation and public relations. It just doesn’t matter to them. If they can get away with it, they will do it.

And their example is what pushes everyone else in American society to believe that they are chumps and losers for not taking the low road themselves and getting whatever they can no matter how much it costs others. You can hardly blame people for feeling like it’s a fools game to have integrity in America.

It seems as if Alan Grayson is waging a one man war against this ethos. It certainly doesn’t look like the administration plans to join the fray:

In its final communiqué, the G-20 ministers called for “global standards on pay structure,” emphasizing long-term results in awarding pay and urging provisions to take back bonuses if bank profits tumble, known as “clawbacks.” They also suggested limits on guaranteed bonuses.

That was a setback for French and German ministers who had been pushing hard in recent weeks for a more concrete plan to address bonuses, amid rising public anger that just months after they were rescued, major financial institutions are returning to old habits and rewarding executives who take excessive risks.

In Europe, where Germany’s chancellor, Angela Merkel, is running for re-election later this month and the British prime minister, Gordon Brown, faces a general election within the next year, bonuses have been met with controversy.

While bonuses are still a contentious issue in the United States, they have been overtaken recently by the debate over health care reform. Negotiations between the American and European delegations over bonuses grew tense Friday night, according to one official who insisted on anonymity because he was not authorized to speak publicly.

He said the European negotiators felt their American counterparts were seeking to sidestep the bonus issue out of fear the White House could be accused of yielding too easily to European pressure, which might endanger progress on health care reform.

Mr. Geithner has been cool to proposals to restrict bonuses, instead emphasizing the need for higher capital requirements at banks and other broader regulatory measures to prevent a repeat of the financial crisis that began almost exactly a year ago with the collapse of Lehman Brothers.

Right. Like health care reform is going to be “compromised” more than it already is if if Tim Geithner comes out with a concrete plan to restrict obscene bonuses. Jesus, even the teabaggers hate them.

Meanwhile, everyone is very excited about the next big scheme:

After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.

The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.

Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them. But some who have studied life settlements warn that insurers might have to raise premiums in the short term if they end up having to pay out more death claims than they had anticipated.

The idea is still in the planning stages. But already “our phones have been ringing off the hook with inquiries,” says Kathleen Tillwitz, a senior vice president at DBRS, which gives risk ratings to investments and is reviewing nine proposals for life-insurance securitizations from private investors and financial firms, including Credit Suisse.

“We’re hoping to get a herd stampeding after the first offering,” said one investment banker not authorized to speak to the news media.

In the aftermath of the financial meltdown, exotic investments dreamed up by Wall Street got much of the blame. It was not just subprime mortgage securities but an array of products — credit-default swaps, structured investment vehicles, collateralized debt obligations — that proved far riskier than anticipated.

The debacle gave financial wizardry a bad name generally, but not on Wall Street. Even as Washington debates increased financial regulation, bankers are scurrying to concoct new products.

I don’t know why anyone is worrying about risk. These entities are all “too big to fail” so the taxpayers will bear the risk, while the players will reap gargantuan, unrestricted bonuses as long as the party continues. And if their “too big to fail” corporation gets sued after the whole thing falls apart, the taxpayers will even pay their legal fees. It’s an awesome scam.

If this is what constitutes free markets, no wonder all the rich people love them.

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