Rolling Stone Report: Wall Street Wives Got Secret $220 Million Bailout from U.S. Gov’t
A new report by Matt Taibbi in the upcoming edition of Rolling Stone reveals a secret back-door bailout of $220 million that the US Federal Reserve gave to a pair of Wall Street wives in the form of low-interest, risk-free loans.
“America has two national budgets, one official, one unofficial,” Taibbi writes. What most Americans don’t know is that in addition to the “traditional” budget, which covers things like military spending, infrastructure and Medicare,
…there is another budget of roughly equal heft, traditionally maintained in complete secrecy. After the financial crash of 2008, it grew to monstrous dimensions, as the government attempted to unfreeze the credit markets by handing out trillions to banks and hedge funds. And thanks to a whole galaxy of obscure, acronym-laden bailout programs, it eventually rivaled the “official” budget in size — a huge roaring river of cash flowing out of the Federal Reserve to destinations neither chosen by the president nor reviewed by Congress, but instead handed out by fiat by unelected Fed officials using a seemingly nonsensical and apparently unknowable methodology.
In addition to the billions spent by the Fed bailing out faltering Wall Street firms like Citigroup and Morgan Stanley (each of which received more than $2,000,000,000,000 in sweetheart loans), your tax dollars also funded nine loans totaling $220 million, given to an obscure enterprise called Waterfall TALF Opportunity. Chief among Waterfall TALF Opportunity’s investors are Christy Mack, wife of Morgan Stanley chairman John Mack, and Susan Karches, widow of Morgan Stanley executive Peter Karches. According to Taibbi, neither woman has any serious experience in finance. “Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.”
TALF stands for Term Asset-Backed Securities Loan Facility, a program created by the Fed in the panicked days of the 2008 financial crisis. Under TALF, the Fed supports the issuance of asset-backed securities collateralized by consumer loans by lending vast sums of money– up to $1 trillion– on a non-recourse basis. That means that the borrower doesn’t really have to pay back the loan; the recipient simply loses the collateral they used to secure the loan and the government (and, by natural extension, the American taxpayer) foots the bill.
“This is the deal of a lifetime,” writes Taibbi:
Think about it: You borrow millions, buy a bunch of crap securities and stash them on the Fed’s books. If the securities lose money, you leave them on the Fed’s lap and the public eats the loss. But if they make money, you take them back, cash them in and repay the funds you borrowed from the Fed.
In the case of Wall Street wives Mack and Karches, Taibbi writes:
The loans were set up so that Christy and Susan would keep 100 percent of any gains on the deals, while the Fed and the Treasury (read: the taxpayer) would eat 90 percent of the losses. Given out as part of a bailout program ostensibly designed to help ordinary people by kick-starting consumer lending, the deals were a classic heads-I-win, tails-you-lose investment.
Taibbi reveals that out of the $220 million that the two women borrowed from the Fed, about $150 million has not yet been paid back, “meaning that you and I are still on the hook for most of whatever the Wall Street spouses bought on their government-funded shopping spree.”
In the case of Christy Mack, that included a 107-year-old carriage house, complete with a 12-car garage, om Manhattan’s Upper East Side, bought for a cool $13.5 million.
Taibbi particularly despises firms that take advantage of offshore addresses in order to dodge their tax responsibilities. It should come as no surprise that Waterfall TALF Opportunity is itself an offshore company, nominally based in the Cayman Islands. “It’s one thing for the federal government to look the other way when Wall Street hotshots evade US taxes by registering their investment companies in the Cayman Islands,” Taibbi writes. “But subsidizing tax evasion? Giving it a federal bailout? What the fuck?”
What the fuck, indeed.
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