America can not allow the passage of time to lessen the outrage over the Obama administration’s Christmas Eve bonus to the financial sinkholes known as Freddie Mac and Fannie Mae. Platitudes and posturing aside, the American taxpayer is being set up as never before.

A blank check may serve to cover a host of past financial and legislative failures promoted by the likes of Barney Frank, Chris Dodd, John Kerry et al, but who is monitoring and verifying the legitimate and proper use of these funds? Are we to blindly trust Treasury Secretary Geithner, White House economic adviser Larry Summers, and their respective staffs in this process? Are you kidding me? America needs to voice its outrage long and hard. In that spirit, I called yesterday to Audit Freddie and Fannie.

In the same vein, I am heartened by initiatives launched this week by Rep. Dennis Kucinich (D-OH), and Reps. Scott Garrett (R-NJ) and Spencer Bachus (R-AL) to pursue an investigation of this blank check.

The Wall Street Journal reports, Lawmakers Want Probe Into Treasury Aid for Fannie, Freddie:

The Treasury Department’s surprise Christmas Eve move to uncap the potential aid to Fannie Mae and Freddie Mac should be investigated, lawmakers from both political parties said Wednesday.

Rep. Dennis Kucinich (D., Ohio) said his congressional subcommittee plans to investigate Treasury’s decision to lift the existing $400 billion cap on government cash available to the two firms. Separately, Reps. Scott Garrett (R., N.J.) and Spencer Bachus (R., Ala.) called for the House Financial Services Committee to hold a hearing on the matter.

Mr. Kucinich, who chairs the domestic policy subcommittee on the House Oversight and Government Reform panel, said he is concerned about how the two government-controlled firms will use their new flexibility.

“This cannot be used simply to purchase toxic assets at inflated prices, thus transferring the losses to the U.S. taxpayers and acting as a back door [Troubled Asset Relief Program],” Mr. Kucinich said in a statement released by his office.

Messrs. Garrett and Bachus raised similar concerns in a letter to Rep. Barney Frank (D., Mass.), who chairs the Financial Services panel. The two GOP panel members decried what they called a “transparent attempt to hide the news from the American people” by announcing the news the day before a major holiday.

I am not only concerned about Geithner’s and Summer’s influence over the allocation of the funds behind this blank check, but I am equally concerned because of the influence of that individual to whom Garrett and Bachus directed their letter. Barney Frank (D-MA), Chair of the House Financial Services committee, has always been in bed with Freddie and Fannie. I do not doubt for a second that Frank would use this blank check to cover his misguided policies and misappropriated funds supporting Freddie and Fannie over the years.

Need I remind you of Frank’s “I want to roll the dice…” comment in regard to Freddie and Fannie’s support of sub-prime lending in 2003?

America can not allow time and other issues to distract us from what may very well be the single largest misallocation and misappropriation of taxpayer funds in the history of this country.

Trust Geithner? Trust Summers? Trust Frank?

Put Sense on Cents in the verify camp!!

How about you?

LD

During the presidential campaign, Peggy Noonan rhapsodized about an Obama presidency, trashing Hillary Clinton to the bargain. Recent months have seen Ms. Noonan pen several articles deconstructing her prior romantic notions, reaching the same conclusions as the very people she derided for not jumping on Obama’s bandwagon. In her WSJ piece, He Can’t Take Another Bow, Noonan complains that the Obama White House is “coming to seem amateurish”:

This week, two points in an emerging pointillist picture of a White House leaking support—not the support of voters, though polls there show steady decline, but in two core constituencies, Washington’s Democratic-journalistic establishment, and what might still be called the foreign-policy establishment.

From journalist Elizabeth Drew, a veteran and often sympathetic chronicler of Democratic figures, a fiery denunciation of—and warning for—the White House. In a piece in Politico on the firing of White House counsel Greg Craig, Ms. Drew reports that while the president was in Asia last week, “a critical mass of influential people who once held big hopes for his presidency began to wonder whether they had misjudged the man.” They once held “an unromantically high opinion of Obama,” and were key to his rise, but now they are concluding that the president isn’t “the person of integrity and even classiness they had thought.”

Misjudged? What other politician have you ever heard of who got a lot of important people to stake their reputations on his “integrity” without having offered any more than “words, just words” attesting to the same?

Noonan and Drew should not be surprised that another big Obama supporter now sits under his bus. Greg Craig was a highly respected operative and his early endorsement of Obama and simultaneous belittling of Hillary’s foreign policy street cred carried a lot of weight with beltway insiders. What a difference a year makes…

[Ms. Drew] scored “the Chicago crowd,” which she characterized as “a distressingly insular and small-minded West Wing team.” The White House, Ms. Drew says, needs adult supervision—”an older, wiser head, someone with a bit more detachment.”

And speaking of an older and wiser choice, this is the most telling part of Ms. Noonan’s article:

As I read Ms. Drew’s piece, I was reminded of something I began noticing a few months ago in bipartisan crowds. I would ask Democrats how they thought the president was doing. In the past they would extol, with varying degrees of enthusiasm, his virtues. Increasingly, they would preface their answer with, “Well, I was for Hillary.”

Thanks, Peggy, so was I. Noonan then worries that “No one loves Barack Obama; they’re not dazzled and head over heels. That’s gone away.” Is she kidding? The sycophantic press and his virulent supporters have not shown enough love? If she is wondering why the love has gone, I would like to point out one can only be dazzled by a movie trailer once. Having then paid for your ticket and bought your popcorn, you expect the film itself will deliver the goods. If the two minute trailer is as good as it gets, patrons will turn off very quickly.

“He himself seems a fairly chilly customer; perhaps in turn he inspires chilly support.”

Now Noonan’s figuring out he’s a chilly customer? There’s no there there. There never was. Please tell me which constituency or issue he has ever gone to the mat for? Noonan continues…

…In the Daily Beast. Mr. Gelb, president emeritus of the Council on Foreign Relations and fully plugged into the Democratic foreign-policy establishment, wrote this week that the president’s Asia trip suggested “a disturbing amateurishness in managing America’s power.” The president’s Afghanistan review has been “inexcusably clumsy.”

He added that rather than bowing to emperors—Mr. Obama “seems to do this stuff spontaneously and inexplicably”—he should begin to bow to “the voices of experience” in Washington.

When longtime political observers start calling for wise men, a president is in trouble.

It appears Obama’s cheerleaders, The New York Times and Newsweek, concur with this thinking. During the primary, wine rack liberals I knew who supported Obama said “Congress does everything anyway. He’ll surround himself with really great people.” I wonder what they’re saying now about the “good judgment” they touted. One could say he exercised good judgment in appointing Hillary as SoS, yet he has been accused of hamstringing her at every turn. Many suspect the appointment was to ensure she was no longer a threat to him politically.

Aside from Noonan’s condemnation of the current health care bill “as a poor piece of legislation that Obama ought to scrap so that he may live to fight another day,” most shocking is her acknowledgment of what Democratic holdouts feared from the beginning:

There is the growing perception of incompetence, of the inability to run the machine of government. This, with Americans, is worse than Obama’s rebranding as a leader who governs from the left. Americans demands baseline competence. If he comes to be seen as Jimmy Carter was, that the job was bigger than the man, that will be the end.

She then brings us back to the issue of Obama once again bowing to a foreign head of state.

In a presidency, a picture or photograph becomes iconic only when it seems to express something people already think. When Gerald Ford was spoofed for being physically clumsy, it took off. The picture of Ford losing his footing and tumbling as he came down the steps of Air Force One became a symbol. There was a reason, and it wasn’t that he was physically clumsy. He was not only coordinated but graceful. He’d been a football star at the University of Michigan and was offered contracts by the Detroit Lions and Green Bay Packers.

But the picture took off because it expressed the growing public view that Ford’s policies were bumbling and stumbling. The picture was iconic of a growing political perception.

Noonan is right about perception. Last week, I spoke with a young urban professional male, who I would have thought was Obama’s demographic. There were some things he did not know about Obama’s policies but he did know about the “bows” and he didn’t like them. Ms. Noonan concludes:

It is true that Mr. Obama often seems not to have a firm grasp of—or respect for—protocol, of what has been done before and why, and of what divergence from the traditional might imply. And it is true that his political timing was unfortunate. When a great nation is feeling confident and strong, a surprising presidential bow might seem gracious. When it is feeling anxious, a bow will seem obsequious.

The Obama bowing pictures…express a growing political perception … that there is something amateurish about this presidency, something too ad hoc and highly personalized about it, something . . . incompetent, at least in its first year.

You can get tagged, typed and pegged your first year.

Punditry is allergic to a long view and demands to stay vital by offering grand pronouncements daily so Noonan passing judgment on a snapshot in time is hardly evidence of anything. Yet we have seen one after another of these types of indicators, well stated in Steven Stark’s brutal RCP article last week, Has Obama Peaked? Yes, He Has. Stark states that the high point for Obama was the night of his election, but:

“[Y]ou can only be elected the first African-American once.”

Now that we, as a nation, have awakened from our post-election, post-racial dream state, we’ve begun to notice that our president may not be much interested in being a chief “executive,” given that he’s never run anything before or expressed the slightest inclination to do so. He has big ideas, to be sure, but that’s only a small part of the job. The hard, nitty-gritty labor of figuring out how government can actually work better – the operative word is “governing” – seems to hold no appeal for him.

Put another way, where are our flu shots? It’s worth recalling that, in what seems a lifetime ago, it was Clinton – not Obama – who promised to be ready on Day One.

More in the pundit class are wistfully mentioning Hillary, the work horse, not the show horse. It’s a shame they spent so much time kicking her around instead of lauding her when it would have mattered. I wonder if the glowing write up of “her brilliant career” in December’s Vogue Magazine sent the WH frat boys Gibbs-y and Favreau spinning? I’m sure they are looking for new ways to trash her and her ever increasing popularity.

Mr. Stark seems to think Obama needs to “come down from the mountaintop” and stop talking at us, i.e., campaigning, and start listening to the American people, yet he wonders if the President is capable of such a transformation. He rightly points out we are waiting for Obama “to lead us in real time.” When Governor Rendell of PA endorsed Hillary, he stated that the real work of governing is much more suited to Hillary’s knowledge, work ethic and indefatigable nature. Obama’s endless need for campaigning and photo-ops are not what is required now. Understanding proper protocol wouldn’t hurt either.

Stark points out that President Obama’s outsourcing of important legislation to Congress without offering adequate leadership, putting the foxes in charge of the henhouse by appointing Tim Geithner Treasury Secretary, and basically continuing the policies of President Bush, along with his many other rookie mistakes are making many raise the “c” word in Washington.

Competence. What a concept.

The knocks against Mr. Summers are by now familiar. During his five years at Harvard, his most high-profile moment came in 2005 when the school’s faculty attacked him for comments he made about differences between men and women related to their aptitude in science and engineering.

The incident is part of a litany of offenses cited by critics, such as Cornel West, a black professor of African-American studies who clashed with Mr. Summers at Harvard in 2001.

“Summers, we know, is just socially challenged. He cannot treat certain people with decency and empathy, and I’m one of them,” Mr. West said earlier this month.

Mr. West was too kind. Larry Summers is a dirt ball. But “Socially Challenged” will do, I guess.

As further proof of just how Socially Challenged Larry Summers is, for the second time since President Obama hired him, he has shown that he doesn’t even have the courtesy to stay awake, not even when the guy who pays his salary is talking. So in addition to being Socially Challenged, Larry is also rude and a national embarrassment.

Larry Summers fell asleep againwhile Barack Obama was briefing reporters after a meeting with the Credit Card companies. How’s that for hubris?

Here’s a closeup of Summers doing what he does best.

I do hope this Top Adviser at least stayed awake for the original meeting while the President discussed how Credit Card companies are gouging their customers.

Well, now we have a special gift for Larry to help his work day at the office go more smoothly. Here ya go, jerk. Your own personal pillow keyboard so you don’t end up with QWERTY embedded in your face after you wake up from a day’s snooze at the office.

Hopefully, you didn’t snore at that meeting.

**Thanks to our Swell528 for the pillow link.

Congress said nothing, the President said nothing. Nobody stopped every major credit card company in the USA from screwing with everyone’s credit scores by cranking up their interest rates in mid-stream and offering customers no options other than to “freeze” their cards, which of course would also affect their credit ratings. The Screwing of American credit card holders is pretty much completed.

Even the best, most reliable customers were burned without a place to turn. Very few people knew that they could call their credit card companies and refuse to allow them to do this. Even then, this would involve threatening to pay the card off and refusing to use it again until the company reinstated the original interest rate.

That’s not the only thing these thieves got away with. As far back as February of this year, the usual suspects made arrangements with 30 states to have unemployment checks deposited into debit cards they owned. Then they gouged the Unemployed by charging them fees and squeezing some of their unemployment money out of them. Nobody with any power said boo on their behalf. All the while, these same companies had taken billions in bailout money.

Companies like Chase, Citigroup, Capital One, AMEX, and Bank Of America have completed their gouging plan. The only effort to stop them came from the Fed with a rule that they couldn’t arbitrarily raise rates……after the year 2010, a rule that was designed to give their goombahs in the banking industry plenty of time to screw America first.

So now that it’s all pretty much over and everyone is duly screwed, President Obama had a meeting with these thieves and he means to make sure credit card reform happens. Unless this is going to be retroactive, it’s all bullcrap.

This is also same man who, as Senator, voted “No” to capping interest rates. His claim early on during the Presidential Primaries was that “30% cap was still too high”. Damned right it was. But apparently, in his own brand of wisdom, Obama deduced that NO cap was better than a 30% cap. In other words, he voted “Present”. See 10:00 in this debate video where that pig John Edwards comes right out and laughs about Obama’s ‘rationale’.

Here’s a video of President Obama roaring like a lion at Credit Card company big shots–now that most all Americans who have credit cards have already been F*cked.

Thanks Barack! Put your teeth back in and make this retroactive, else it will be clear that this is just another pretend photo opportunity where you hand out snowballs in the summertime and the public watches them melt right in their hands. But we can at least say that you stayed awake. Your “Top” financial advisor Larry Summers didn’t. When you you going to fire that arrogant ass? Just wondering.

President Obama likes to tease Larry Summers as a “propeller head” and a “numbers guy,” shorthand for a policy wonk who relishes the kind of esoteric arguments that everyday people might find boring and incomprehensible. But Summers doesn’t seem to mind. In fact, the former Harvard president takes the joking with good cheer, his White House associates say, because he is so pleased to be back in power at a historic time.

With a rumpled appearance and a tendency to ramble to the far corners of any debate, the 54-year-old Summers has emerged as Obama’s designated thinker. Despite the occasional ribbing, the president is actually quite deferential to the man he mostly calls “Professor Summers.” He relies on Summers for advice on a huge portfolio of issues, including the budget, energy policy, healthcare reform, education, and international trade. “Larry coordinates all of the economic activity,” says White House Press Secretary Robert Gibbs. “He’s the in-house White House economic adviser. And one of his most important roles is he is the keeper of the president’s daily economic briefing, where a number of decisions get made and the president gets updates on what’s going on.” (Emphasis mine.)

Of course, others of us remember Summers for his tenure as the president of Harvard University.

Perhaps this will refresh your memory:

Within months of becoming president, Summers had a confrontation with African-American studies professor Cornel West over his work; West later left for Princeton.

Last year, Summers sparked international outrage by speculating at an economics conference that innate differences between men and women might be one of the reasons women lag behind in science and math careers.

This led to an apology and a no-confidence vote in the faculty of arts and sciences in March of last year. (Click the link above for the rest of the story.)

Uh, yeah. The bottom line was, he was asked to leave his position, but stayed on as a university professor.

Unfortunately, Summers did not leave his position soon enough for Iris Mack.

Who is Iris Mack, you ask? Well, this is Ms. Mack:

But more than that:

A former quantitative analyst at Harvard Management Company, the university’s once-vaunted endowment manager, tells the Harvard Crimson she was fired for voicing concern to then-university president Larry Summers’ chief of staff about the money manager’s risky use of derivatives the traders didn’t understand.

The episode dates back to 2002, when analyst Iris Mack, whose website identifies her as the second African American woman to earn a Harvard PhD. in applied math (and someone who likes primary colors) joined the much-venerated Harvard Management Company, which invests the university’s then $18 billion endowment, to find what she termed a “frightening” state of affairs.

Oh, dear. Well, that doesn’t sound good. Neither does this:

“The group I was working for had no background whatsoever to be working on [derivatives],” Mack says, adding that, to her knowledge, several of her colleagues were not licensed securities traders. “Sometimes the ways they handled even basic Black-Scholes models [widely used to price stock options] were puzzling.”

So Mack took inventory of the abuses — high employee turnover, lax risk management practices and a “low level of productivity in the workplace” were among others, and detailed them in an email to Marne Levine, Summers’ chief of staff and a Treasury staffer on the Obama Transition Team. (Summers was the only person to whom Meyers reported, and according to a recent Forbes story he personally ordered the university’s biggest derivatives trade, a purchase of interest rate swaps that cost the university billions this year.)

A month after sending her email, Mack was fired after a meeting in which the endowment fund’s then-chief furnished her the emails and castigated her for making “baseless accusations.” She later sued for wrongful termination and settled out-of-court with the university. But she claims the practices “shocked” her, and — the punchline is — she had joined the company from Enron.

You know it’s bad when someone who has worked at ENRON is acting as a whistleblower for the Harvard Management Company. I’m just saying – yikes.

But more than that, for her to be FIRED for blowing the whistle is even more telling, about the company, to be sure, but also about Obama’s “Economic Guru.” There’s more:

Which is also to say, lest you dismiss Mack as an opportunistic snitch capitalizing on Summers fateful opposition to regulating the derivatives that wreaked havoc on the financial system, she had a pretty valid reason to believe in the importance of whistleblowing.

“I’m not trying to pretend I’m omniscient or anything, but a lot of people who were quantitative traders, in the back of our minds, we knew a lot of these models were just that: guestimates,” Mack says. “I have mixed feelings, on the one hand, I wasn’t crazy, I knew what I was talking about. But maybe if more and more people had spoken up, the economy wouldn’t be the way it is now.”

Mack is doing her part to affect change: she’s a vociferous advocate of better math education for minorities and like FDIC chairman Sheila Bair, the writer of a children’s book. It’s called Mama Says Money Don’t Grow On Trees (sequel idea: *…Unless You Are A Monstrously Overleveraged Bank With Access To The Federal Reserve Discount Window!).

Now, I am not even going to pretend I know the depth and breadth of what Ms. Mack is talking about here. After all, the woman has a freakin’ PhD in MATH. But I do know about integrity and honor, two important characteristics for someone in her position. And characteristics on which she relied to try and highlight some major issues that had a tremendous impact:

If Mack’s allegations are true Harvard certainly paid the price for its recklessness: Summers’ swaps sowed the seeds for a financial disaster at HMC:

It doesn’t feel good to be borrowing at 6% while holding assets with negative returns. Harvard has oversize positions in emerging market stocks and private equity partnerships, both disaster areas in the past eight months. The one category that has done well since last June is conventional Treasury bonds, and Harvard appears to have owned little of these. As of its last public disclosure on this score, it had a modest 16% allocation to fixed income, consisting of 7% in inflation-indexed bonds, 4% in corporates and the rest in high-yield and foreign debt.

For a long while Harvard’s daring investment style was the envy of the endowment world. It made light bets in plain old stocks and bonds and went hell-for-leather into exotic and illiquid holdings: commodities, timberland, hedge funds, emerging market equities and private equity partnerships. The risky strategy paid off with market-beating results as long as the market was going up. But risk brings pain in a market crash. Although the full extent of the damage won’t be known until Harvard releases the endowment numbers for June 30, 2009, the university is already working on the assumption that the portfolio will be down 30%, or $11 billion.

Is now when I remind you – again – that Larry Summers is playing a HUGE roll in this Administration’s Economic policies?? He is the one who has Obama’s ear, the one to whom Obama is “deferential.” That’s just jake, especially considering:

Mack’s boss at HMC, Jack Meyer, parted ways with the university in 2005. His bets were still paying off but his relationship with Summers had reportedly cooled — among other things, over alumni outcry led by the university’s Class of 1969 over the hedge fund-sized bonuses being awarded to employees of a supposed nonprofit. But if there’s anything we’ve learned from the past year, gratuitous compensation and gratuitous risk go hand-in-hand.

“The events of the last year show that the whole procedure of rewarding people so handsomely based on increases on paper value of the endowment was deeply flawed,” says a spokesman for the [Class of 1969], which recently sent a letter to the Harvard president suggesting HMC staffers return $21 million of their latest bonuses. “Even now we don’t really know how well it has done in the last ten years.”

Well, NO KIDDING. I don’t think we need PhD’s in Mathematics to understand that – people should be rewarded for a job well done, not work that runs the company into the ground. Seems to me, anyway.

I would be remiss to not include this:

Late update: Harvard spokesman John Longbrake called to emphasize that the university had conducted thorough investigations of all allegations about Harvard Management Company and point out the 13.8% annualized returns HMC delivered in the ten years that ended June 2008. In a separate development, we learned that Mack was scheduled to be the subject of a February 23 Newsweek story by Michael Hirsh that had been subsequently shelved. Hirsh declined to comment.

Interesting. I wonder who put the lid on THAT pot…Ahem.

Summers is quite something, isn’t he? Gets Cornel West, considered to be one of the foremost philosophers of our time (and I should add, West was one of my former professors) to leave Harvard for Princeton; essentially claimed that women are innately unable to compete on the same level in math and science; and got a whistleblower fired. But of COURSE he is one of Obama’s closest economic advisers! He fits right on in with faux outrage over compensation, the big plans to save the economy – heck, even Paul Krugman has something to say about him:

…Larry is a first-rate economist with a job to do, and I wish him luck in it. He understands what I’m saying, of course, but he’s doing his best to support the official line.

That line now goes like this: first, the Geithner put is just “one component of the plan” — although the other components are invisible to the rest of us, now that the stress test seems to have been downgraded to irrelevance. Second, rather than defending the large subsidy the plan creates for anyone who buys troubled assets, administration officials tout the virtues of markets in general, and say, hey, this creates a market, so it must be good.

It’s a bit disappointing to see the Obama administration engaging in this sort of market-worship — hailing markets as a Good Thing in themselves, rather than as an often but not always useful means to an end. But I have reason to think that unlike the Bushies, they don’t really believe it; it’s just politics. Which is actually better than having genuine market fanatics running things, I guess.

I don’t know about you, but the majority of Obama’s picks seem just a tad questionable. And how is it that Obama thinks he can claim to be supportive of women’s issues when he surrounds himself with men like Summers, Favreau, and Kaine? He can’t. Actions speak louder than words, and Obama keeps showing us the same thing from the primary on – his support for women is “words, just words.”

[U]nder the Geithner-Summers plan the loan is precisely designed to be a one-way bet, for the purpose of overpricing the toxic asset in order to bail out the bank’s shareholders at hidden cost to the taxpayers.

People must scream to the high heavens about the the toxic assets plan, not the AIG bonuses. The plan costs incalculably more, and unfairly rewards plutocrats while stealing hard-earned taxes paid by lower- and middle-classes and small businesses (the “underclass”) neglected by 0bama and Geithner.

Readers, this is where YOUR rubber meets the road. Now is the time when we prove if we can get it or, sigh, that we can only comprehend simpleton issues like the AIG bonuses. Populist anger only shakes things up IF it’s focused on what truly matters. You can be sure Obama/Geithner/Summers loved the distracting AIG bonus outrage whilst they launched this far more costly, undemocratic plan to reward their filthy rich pals while further pauperizing the rest of us.

Although the toxic assets plan can require some explanation, you can tell people that:

1) Taxpayers bear the burden and investors carry no risk except their own investment — that even though they get government money six-plus times their own investment, they bear NO responsibility if their venture fails;

2) The toxic assets plan rewards only plutocrats, not the U.S. government or its taxpayers (barring a miracle if toxic assets sell high); and

3) The same long unregulated, irrationally wild gamblers who created our crisis will benefit the most financially.

NOW, here’s another world-famous economics expert, JEFFREY SACHS, who is as correct as Paul Krugman. From today’s Financial Times, in “Obama’s bank plan could rob the taxpayer“:

The Geithner-Summers plan, officially called the public/private investment programme, is a thinly veiled attempt to transfer up to hundreds of billions of dollars of US taxpayer funds to the commercial banks, by buying toxic assets from the banks at far above their market value. It is dressed up as a market transaction but that is a fig-leaf, since the government will put in 90 per cent or more of the funds and the “price discovery” process is not genuine. It is no surprise that stock market capitalisation of the banks has risen about 50 per cent from the lows of two weeks ago. Taxpayers are the losers, even as they stand on the sidelines cheering the rise of the stock market. It is their money fuelling the rally, yet the banks are the beneficiaries.

The plan’s essence is to use government off-budget money to overpay for banks’ toxic assets, perhaps by a factor of two or more. This is done by creating a one-way bet for private-sector bidders for the toxic assets, then cynically calling it “private sector price discovery”. Consider a simple example: a toxic asset with face value of $1m pays off fully with probability of 20 per cent and pays off $200,000 with probability of 80 per cent. A risk-neutral investor would pay $360,000 for this asset.

Along comes the government and says it will finance 90 per cent of the investor’s purchase and, moreover, do so as a non-recourse loan. Non-recourse means the government’s loan is backed only by the collateral value of the toxic asset itself. If the pay-out is low, the loan is defaulted and the government ends up with the low pay-out rather than full repayment of the loan.

Now the investor is prepared to bid $714,000 (with rounding) for the same asset. The investor uses $71,000 of his/her own money and $643,000 of the government loan. If the asset pays off in full, the investor repays the loan, with a profit of $357,000. This happens 20 per cent of the time, so brings an expected profit of $71,000. The other 80 per cent of the time the investor defaults on the loan, and the government ends up with $200,000. The investor just breaks even by bidding $714,000, as we would expect in a competitive auction.

Of course, the investor has systematically overpaid by $354,000 (the bid price of $714,000 minus the market value of $360,000), reflecting the investor’s right to default on the loan in the event of a poor pay-out of the toxic asset. The overpayment equals the expected loss of the government loan. After all, 80 per cent of the time (in this example) the government loses $443,000 (the $643,000 loan minus the $200,000 repayment). The expected loss is 80 per cent of $443,000, equal to $354,000.

The idea of “private sector price discovery” is therefore flim-flam. There would be price discovery if the government’s loan had to be repaid whether or not the asset paid off in full. In that case, the investor would bid $360,000. But under the Geithner-Summers plan the loan is precisely designed to be a one-way bet, for the purpose of overpricing the toxic asset in order to bail out the bank’s shareholders at hidden cost to the taxpayers. …

You must read all of the Financial Times‘s “Obama’s bank plan could rob the taxpayer” by Jeffrey Sachs, director of The Earth Institute at Columbia University.

READ and MEMORIZE this closing paragraph of Sach’s op-ed:

Tim Geithner, Treasury secretary, and Lawrence Summers, director of the White House national economic council, suspect that they cannot go back to Congress to fund their plan and so are raiding the Federal Reserve, the Federal Deposit Insurance Corporation and the remaining Tarp funds, hoping that there will be little public understanding and little or no congressional scrutiny. This is an inappropriate institutional use of the Fed, the FDIC and the Tarp. Mr Geithner and Mr Summers should at the very least explain the true risks of large losses by the government under their plan. Then, a properly informed Congress and public could decide whether to adopt this plan or some better alternative.

We have THREE BRANCHES OF GOVERNMENT for a reason. Duh. One of the reasons is to keep the Executive Branch from calling the shots or from STEALING from taxpayers to REWARD their own friends.

I quibble with Mr. Sachs in that I do not wish to hear Mssrs. Geithner’s and Summers’ explanations that will obfuscate the essential problems with the plan (exposed by Mssrs. Krugman and Sachs) and just end up confusing Americans.

This is why our Forefathers protected the Fourth Estate, through which we occasionally get good, factually- and reality-based information we can use to evaluate our government and its leaders. We all lament the state of the media, but it is still, for now, publishing the likes of Krugman and Sachs who dare to tell us the truth.

Mr. Sachs, you and Paul Krugman have done an outstanding job of explaining this massive and undemocratic theft of the underclasses’ money. NOW it is up to US to all call our Representatives and Senators and demand 1) Hearings, and 2) Legislation to disallow Mssrs. Geithner and Summers from “picking our pockets” and bankrupting the United States of America.

::::::::::::::::::::::

WHO’S WHO:

1) Timothy F. Geithner is the Secretary of the Treasury;
2) Lawrence Summers is the director of the White House national economic council; and
3) Barack Obama is the president of the United States who is working on his bowling game except when he practices with his teleprompter.

“Me love you long, long time,” whisper the prostitutes Geithner, Summers, and Obama — telling us what we want to hear — as they slyly slip a drug in our drinks as they pleasure us with seductive talk and acts, but then empty our wallets while we’re passed out.

UPDATE: Run over to CNN and listen to Senate investment hearing. (C-Span3 is only carrying BO’s live townhall b.s.) BTW: Geithner is testifying before Franks’ House committee, but I can’t find live video. Can you? The WaPo is live-blogging Geithner’s testimony. Here’s Geithner’s prepared testimony.