Sunday, March 15, 2009

All too familiar, trends never ever fail to detect the most criminal enterprises...

All too familiar, trends never ever fail to detect the most criminal enterprises...

Is a multi-trillion dollar fraud being perpetrated on America by Lawrence Summers and the same transnational network that defrauded Russia of $1 trillion?

The appointment of Lawrence Summers as Barack Obama’s top economic adviser may herald a U.S. version of the loans-for-shares fraud that financially pillaged Russia, leaving in its wake a politically powerful oligarchy.

Shielded by the credibility of a Harvard advisory team handpicked by Summers, Moscow saw a mid-1990s credit crisis used to shift the ownership of state-owned assets to a handful of Russians. At the time, Summers was serving as Under Secretary for International Affairs, the U.S. Treasury’s senior financial diplomat.

When the government of Boris Yeltsin ran low on cash, advisers urged that funds be borrowed from oligarch-controlled banks. As collateral, Moscow pledged shares in state-owned oil companies, the crown jewels of the Russian economy.

When the loans defaulted, the shares were sold to those same oligarchs in rigged auctions. Portrayed as “privatization” by Summers and Harvard’s accommodating advisers, Russians called it simply “mafia-ization.” Mikhail Gorbachev estimates that the oligarchs stripped $1 trillion from Russia’s struggling economy. With an Ashkenazi population of less than two percent, eight of Russia’s nine richest oligarchs qualified for Israeli citizenship.

Summers succeeded Robert Rubin as Treasury Secretary in 1999, marking their success in repealing Depression-era laws that banned the merger of banks, brokers, insurance firms and investment banks. A former co-chairman of Goldman Sachs, Rubin joined CEO Sanford Weill at Citigroup, the first financial institution to fully embrace the Rubin-led repeal.

At Rubin’s urging, Citi thrived by bundling loans as securities (mortgages, credit card loans, auto loans, student loans, etc.) and selling them as collateralized debt obligations (”CDOs”). Meanwhile Summers championed the deregulation of financial derivatives, ensuring the globalization of losses from those securities. With “assets” of $2 trillion (largely troubled loans) and operations in 100 countries, Citi is now “too big to fail.”

Rubin protégés advised Obama that taxpayers should assume responsibility for $306 billion of Citi’s junk loans–$1,000 per American. Treasury’s bailout funds will cover $5 billion and $10 billion will be paid by the Federal Deposit Insurance Corporation (funded by banks). Additional losses will be paid by the Federal Reserve printing money as needed–with all that implies for inflation and stagnation. Summers is the leading candidate to succeed Fed chairman Ben Bernanke in 2010.

Obama picked Tim Geithner as Treasury Secretary. A protégé of Henry Kissinger and then of Rubin and Summers, Geithner and Summers often vacation together. Known to wilt in the presence of Summers’ notorious arrogance, Geithner will oversee bank shares given the government in return for the bailout.

In this funds-for-shares program, what happens if, as in Russia, the funds prove insufficient? If America’s debt-laden economy continues its decline, does government become the owner? If not, to whom will those shares be sold?

Look to private equity firms adept at acquiring companies with little cash and lots of debt. Is that the political role being played by former Republican National Committee chairman Ken Mehlman? Mehlman serves as chairman of public affairs for Kohlberg Kravis Roberts & Co., the nation’s leading leveraged buyout firm.

Americans have long shared a healthy aversion to concentrations of financial power. Was Mehlman hired to facilitate the bank consolidation we now see emerging? The Comptroller of the Currency announced in August that private equity firms could become banks–and acquire other banks. The bank bailout covers leveraged corporate loans, clearing their books to fund more leveraged buyouts.

If, as appears likely, today’s vast pyramids of debt continue to collapse, into whose hands will control of the financial sector shift? With banking already consolidated in four major institutions–each too big to fail–the American counterpart to the Russian oligarchs could be the senior partners in private equity firms: Kohlberg, Kravis and Roberts plus Stephen Schwarzman at Blackstone Group, David Bonderman at Texas Pacific Group, David Rubenstein at Carlyle Group and Leon Black at Apollo Group.

In Russia, state-owned assets shifted into a few private hands–in response to a credit crisis–when advisers urged that Moscow assume debts it could not repay. Those assets were then sold for cents on the dollar. In America, banks may well migrate into the hands of a few private equity firms, leaving in their wake a trail of socialized debts as junk loans are upgraded to gilt-edged bonds backed by the full faith and credit of the U.S.–undermining the nation’s credit standing worldwide.

As in Russia, both the advisers and the new owners qualify for Israeli citizenship. Summers had a hand in both bailouts. As President-elect Obama scrambles to stabilize the financial system, will his pledge of clarity and transparency include an account of how–and by whom–he was advised to capitalize a transnational Ashkenazi oligarchy?