Naomi Klein on the Bailout Profiteers and the Multi-Trillion-Dollar Crime Scene

AMY GOODMAN: World leaders from nearly two dozen countries met in Washington over the weekend to discuss plans to increase regulation of international financial activity. They acknowledged that a failure of market oversight in countries like the United States had precipitated the financial crisis.

Meanwhile, here at home, it's been a month into the Bush administration's more than $700 billion bank bailout. Last week, Treasury Secretary Henry Paulson outlined a new bailout strategy intended to boost consumer borrowing and promote financing for companies that give out loans. President-elect Obama's transition team is reportedly working on improving the management of the bailout come January 20th.

But that's two months away and according to the Washington Post, with $290 billion already committed, the Bush administration has taken no action to fill congressionally-mandated independent positions to oversee how the bailout is used.

According to Naomi Klein's latest article in The Nation, “The more details emerge, the clearer it becomes that Washington's handling of the Wall Street bailout is not merely incompetent. It is borderline criminal.” The article is called “In Praise of a Rocky Transition.”

Naomi Klein, investigative journalist, author of The Shock Doctrine, joins us now from Toronto, Canada.

Welcome to Democracy Now!, Naomi.

NAOMI KLEIN: Thanks so much, Amy.

AMY GOODMAN: “Criminal”? Explain.

NAOMI KLEIN: Well, there's a few elements now that are being described as illegal that we're finding out. First of all, the equity deals that were negotiated with the largest banks and also some smaller banks, representing $250 billion worth of the bailout money, this is the deal to inject equity into the banks in—to inject capital into the banks in exchange for equity. The idea was to address the so-called credit crunch to get banks lending again. The legislation that enabled this was quite explicit that it had to encourage lending. Barney Frank, who was one of the architects of that legislation, has said that it violates the act if the money is not going to that purpose and is instead going to bonuses, is instead going to dividends, going to salaries, going to mergers. He said that violates the acts, i.e. it's illegal. But what we know is that it's going precisely to those purposes. It is going to bonuses. It is going to shareholders. And it is not going to lending. The banks have been quite explicit about this. Citibank has talked about using the money to buy other banks.

Then there's other aspects of this that are borderline illegal. We found out that in the midst of the crisis, the Bush—the Treasury Department pushed through a tax windfall for the banks, a piece of legislation that allows the banks to save a huge amount of money when they merge with each other. And the estimate is that this represents a loss of $140 billion worth of tax revenue for the US government. Many tax attorneys who were interviewed by the Washington Post said that they felt that the way in which the Treasury Department went about this by unilaterally changing the tax code was illegal, that this had to be—this had to include Congress. Congress only found out about it after the fact.

There's another piece of this puzzle that is also borderline illegal, which is that in addition to the $700 billion that we are discussing, the $700 billion bailout, there's another $2 trillion that's been handed out by the Federal Reserve in emergency loans to financial institutions, to banks, that actually we don't really know who they're handing the money out to, because, apparently, it's a secret. They could be handing it out to a range of other corporations—I think they are—but they're saying that they won't disclose who has received these taxpayer loans, because it could cause a run on the banks, it could cause the market to lose confidence in the institutions that have taken these loans. Once again, that represents an additional $2 trillion.

The other thing that the Fed won't disclose is what they have accepted as collateral in exchange for these loans. This is a really key point, because, of course, at the heart of the financial crisis is—are these so- called distressed assets. The value of these assets is enormously controversial. They may be worth very little. So if the Fed has accepted distressed assets as collateral in exchange for these loans, there's a very good chance the taxpayers aren't going to be getting this money back. So Bloomberg News has launched a lawsuit in federal court to find out who has received the loans and what has been accepted as collateral, because they believe that this lack of transparency is illegal. So that's why we're calling this the “trillion-dollar crime scene” or the “multi-trillion-dollar crime scene.” And they're really challenging lawmakers to call them out, the Treasury is.

And I think, you know, Amy, the last time I was on Democracy Now!, we were talking about Henry Paulson's original three-page proposal, the $700 trillion stickup, where he basically said, “Give me $700 trillion. Don't ask any questions. I can never be challenged by any arm of government or any court of law.” Now, that aspect of the bailout was supposedly dealt with, and we were all reassured that there was going to be transparency, accountability, legality. But now we're finding out that, in fact, Henry Paulson has achieved his original goal by stealth, because there is no accountability, and lawmakers are very hesitant to challenge this, because they're afraid of causing a run on the banks, of causing more market instability. So, essentially, what the Bush administration has done is said, you know, “We dare you to challenge us and be responsible for the great depression.” And the Democrats, not known for their firm spines, have so far failed to challenge them in anything other than rhetoric.

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