Former managing director at Goldman Sachs reveals the truth about the bailouts

Nomi Prins, former managing director at Goldman Sachs, exposes the revolving door
between Wall Street and Washington. This is a must read. Corruption must end
and the system must be restored before we can talk about the new boom and the
end of the crisis in the USA. The crisis is a culmination of what has been going on for
some time – the crony capitalist system and unfair profits for Wall Street at the expense
of the real economy. By perpetuating the same system that has led to the crisis, the
collapse will only deepen. This economic crisis cannot be solved by printing money;
the financial system must be reformed and the corruption must end.

JH: Now, we hear a lot about the little people’s irresponsibility
in all this — in the collapse. They took on more debt than they could sustain,
they thought the good times would roll forever. You argue this was never about
the little guy, right?

NP: Neither the crisis, nor the bailout was about the little guy. Former
Treasury Secretary Henry Paulson was explicit in stating several times,
and in several ways, that the government should not be bailing out homeowners
who got in over their heads. And true to those sentiments, it didn’t. Instead, amidst
trillions of dollars of subsidies to the industry were made available in the most original
and creative of ways, and no heed was paid the jointly humane and economical solution
which would have been to find ways to restructure personal mortgages and loans,
as opposed to dumping buckets of money over the top layers of the financial community
and promising it would somehow trickle down and loosen credit for the “little guy.”

The people that blame the Community Reinvestment Act for the avalanche of
predatory lending are missing the true numbers that represent the situation.
Only $1.4 trillion worth of subprime loans were extended between 2002 and 2007.
On the back of those loans, the industry created $14 trillion worth of various types
of assets and borrowed up to 10 times that amount using those new assets as collateral.

If the government had wanted to help homeowners and contain the costs of the bailout,
it could have subsidized underwater mortgages directly at the loan level, or made it mandatory
for banks to renegotiate credit terms or mortgage balances with individuals, as opposed to
making it a mild suggestion that the banks have no incentive to follow.

For the money spent on subsidizing the industry, the government could have bought
out every single outstanding mortgage in the country. Plus, every student loan and
everyone’s health insurance. And on top of that, still have trillions of dollars left over.

That’s why I get so enraged at the bizarre notion that a 10-year, $900 billion health
care option is somehow egregious and government interfering with our lives. We should
all take $90 billion a year to sustain our health and access to health care over lavishing
trillions on the banking system any day, no matter what our political party affiliation is.

Nomi Prins: It Takes a Pillage: Behind the Bailouts, Bonuses and Backroom Deals From Washington to Wall Street

Nomi Prins: Bailout Tally Report

Sunday, November 15th, 2009 The global financial and economic crisis

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