Matt Taibbi Asks Why The Fed Gave $220 Million In Bailout Money To The Wives Of Two Morgan Stanley "Bigwigs"

Tyler Durden's picture

Matt Taibbi has resurfaced with another stunner of Wall Street impropriety which will lead to merely more silence, even more unanswered questions and be quickly buried by the kleptocratic oligarchy.

The Real Housewives of Wall Street: Look Who's Cashing In On the Bailout

Why is the Federal Reserve forking over $220 million in bailout money to the wives of two Morgan Stanley bigwigs?

From Rolling Stone Magazine

In August 2009, John Mack,
at the time still the CEO of Morgan Stanley, made an interesting life
decision. Despite the fact that he was earning the comparatively low
salary of just $800,000, and had refused to give himself a bonus in the
midst of the financial crisis, Mack decided to buy himself a gorgeous
piece of property — a 107-year-old limestone carriage house on the Upper
BeerEast Side of New York, complete with an indoor 12-car garage, that
had just been sold by the prestigious Mellon family for $13.5 million.
Either Mack had plenty of cash on hand to close the deal, or he got some
help from his wife, Christy, who apparently bought the house with him.

The Macks make for an interesting couple. John, a Lebanese-American
nicknamed "Mack the Knife" for his legendary passion for firing people,
has one of the most recognizable faces on Wall Street, physically
resembling a crumpled, half-burned baked potato with a pair of
overturned furry horseshoes for eyebrows. Christy is thin, blond and
rich — a sort of still-awake Sunny von Bulow with hobbies. Her major
philanthropic passion is endowments for alternative medicine, and she
has attained the level of master at Reiki, the Japanese practice of
"palm healing." The only other notable fact on her public résumé is that
her sister was married to Charlie Rose.

It's hard to imagine a pair of people you would less want to
hand a giant welfare check to — yet that's exactly what the Fed did.
Just two months before the Macks bought their fancy carriage house in
Manhattan, Christy and her pal Susan launched their investment
initiative called Waterfall TALF. Neither seems to have any experience
whatsoever in finance, beyond Susan's penchant for dabbling in
thoroughbred racehorses. But with an upfront investment of $15 million,
they quickly received $220 million in cash from the Fed, most of which
they used to purchase student loans and commercial mortgages. 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.

So how did the government come to address a financial crisis caused
by the collapse of a residential-mortgage bubble by giving the wives of a
couple of Morgan Stanley bigwigs free money to make essentially
risk-free investments in student loans and commercial real estate? The
answer is: by degrees. The history of the bailout era reads like one of
those awful stories about what happens when a long-dormant criminal
compulsion goes unchecked. The Peeping Tom next door stares through a
few bathroom windows, doesn't get caught, and decides to break in and
steal a pair of panties. Next thing you know, he's upgraded to homemade
dungeons, tri-state serial rampages and throwing cheerleaders into a
panel truck.

The impetus for this sudden manic expansion of the bailouts was a
masterful bluff by Wall Street executives. Once the money started
flowing from the Federal Reserve, the executives began moaning to their
buddies at the Fed, claiming that they were suddenly afraid of investing
in anything — student loans, car notes, you name it — unless
their profits were guaranteed by the state. "You ever watch soccer,
where the guy rolls six times to get a yellow card?" says William Black,
a former federal bank regulator who teaches economics and law at the
University of Missouri. "That's what this is. If you have power and
connections, they will give you a freebie deal — if you're good at
whining."

This is where TALF fits into the bailout picture. Created just after
Barack Obama's election in November 2008, the program's ostensible
justification was to spur more consumer lending, which had dried up in
the midst of the financial crisis. But instead of lending directly to
car buyers and credit-card holders and students — that would have been
socialism! — the Fed handed out a trillion dollars to banks and hedge
funds, almost interest-free. In other words, the government lent
taxpayer money to the same assholes who caused the crisis, so that they
could then lend that money back out on the market virtually risk-free,
at an enormous profit.

Cue your Billy Mays voice, because wait, there's more! A key aspect of TALF is that the Fed doles out the money through what are known as non-recourse loans.
Essentially, this means that if you don't pay the Fed back, it's no big
deal. The mechanism works like this: Hedge Fund Goon borrows, say, $100
million from the Fed to buy crappy loans, which are then transferred to
the Fed as collateral. If Hedge Fund Goon decides not to repay that
$100 million, the Fed simply keeps its pile of crappy securities and
calls everything even.

This is the deal of a lifetime. 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. "Remember that crazy guy
in the commercials who ran around covered in dollar bills shouting, 'The
government is giving out free money!' " says Black. "As crazy as he
was, this is making it real."

read the full article here

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no2foreclosures's picture

Now, that's what you call receiving a "financial blow job." Getting all the fun(d) without getting your hands wet.

spankthebernank's picture

Rolling Stone is a POS mag, but Taibbi has written some great pieces.

long juan silver's picture

You knew there was shit in those loan packages that Bernak didn't want public and it was hard to believe that his concern was limited to the foreign CB loans.

Watch. There's plenty more ugly buried in those doc's. Remember the program includes at least 21,000 loans and it takes a while to peel back the ownership structure where the owner prefers it confidential.

NotAllowed's picture

Nothing a couple .308's cant handle!

lynnybee's picture

as usual, am sitting here stunned.    what the hell ...... sure could feed a lot of hungry americans with that money ....... better yet, could have given the elderly a much - needed social security benefit raise to compensate them for ZIRP .    elderly don't even get to earn interest on their paltry bit of money in a bank account, but, MACK (+others) get their needs met.     stop paying taxes people, put the FEDERAL RESERVE BANK out of it's (& our) misery.

gangland's picture
I junked you. make me or get me a suicide vest or equivalent. I'LL GO FIRST.  you can continue chasing that Fico. Ms. Lynnybee, YOU STAY UP.
Hacksaw's picture

Don't wait for them to jump, throw the fuckers out the window.

ChiefJohnRutledge's picture

The big macro problem here is that the Generation of 1968 still has a massive presence in Wall Street, money-center banks, and law firms.  Until they are purged, the country will continue to suck.  From Woodstock to TARP, their legacy is one of disclaiming responsibility and blaming others for the woes they inflict on the country.

John Mack ran his bank into the ground, took TARP money, and should have lost his job.  Instead, he remained chairman of Morgan Stanley, and now we found that his wife engaged in these TALF shenanigans.   Subpoenas should be flying.   Even if Mack's wife did nothing illegal, what the Baby Boomers on Wall Street have lacked is a nice public flaying.   If I were in Congress, I would demand a disgorgement of the Mack profits from TALF and a return of those to the Treasury.

NotAllowed's picture

I have to agree.  This generation seems to be the most selfish generation of them all.  Although they claim not to be.  I am amazed at the amount of age discrimination I run into when trying to do anything other than work my 9-5.

Mad Max's picture

+1000

The greediest and most entitled generation of all.

TheMerryPrankster's picture

It's not generational warfare, its a class war. Try not to obfuscate the issue by regurgitating "information" you've been spoon fed by the corporate media.  Your parents or grandparents aren't to blame, it is the structure that is the agent that is sucking you dry and destroying your life.

There will be scum in every generation, as in every race and every religion. We don't destroy everything to save everything, that was the Vietnam model that didn't work so well.Purge the disease and save the sick, hate the sickness not the sickened.

We need all the friends we can muster irregardless of age or generation. Damn those who would destroy us but lets not jettison an entire generation because they lived before us.

samsara's picture

it's not generational warfare, its a class war.

 

Thank You,  Standing Clapping.

Those who foist that canard are trying intently to change the debate to their turf.  It is to gently change it to us fighting us again.

Those who put forth that POV are the THEM.

 

Muir's picture

"t's not generational warfare, its a class war."

+1

 

-

"The big macro problem here is that the Generation of 1968 still has a massive presence in Wall Street, money-center banks, and law firms.  Until they are purged, the country will continue to suck.

" From Woodstock to TARP, their legacy is one of disclaiming responsibility and blaming others for the woes they inflict on the country."

-1

 

" From Woodstock to TARP"

Nope, nope, no, no....

Not the same people, nope.

Guaranteed.



RockyRacoon's picture

What I don't understand (other than quantum physics) is how some folks who spout "hang 'em high!" from one side of their mouths can sip the kool-aid from the party that is hell bent on "tax cuts for the rich".  There must be some real mental conflict going on in those skulls.  I say hang 'em, too, but I don't want to give the tax breaks to folks who don't need them.  I like how they are sometimes referred to as "the real economic producers".   (Yeah, I know all the arguments...)  Surely that doesn't include the wives in the article.   See how difficult all this is?   That's one reason why I don't get tweaked at these revelations of wrong doing in financial circles.   The man-bites-dog news would be that some connected person DIDN'T get largesse from the captive government.

disabledvet's picture

actually, no.  Dem's still "believe it's possible" and therefore think "hope is just a tax hike away."  The tax cut Right believe "all is lost again so phuck it."

RockyRacoon's picture

Could be.  You'll get no argument outta me.  It's all moot by now, eh?

Uncle Remus's picture

And you were born when? You were where during Vietnam?

Caviar Emptor's picture

There's something you're missing. Looking at it as "an entire generation" is overly general. Most of that generation are in fact the victims. Closer to the truth is this: Supply-siders are still in power at the Fed, in Washington and around the Western world. They believe in Federalism, that there should exist an elite in every country, including the US, and that giving them favorable "supply-side" treatment (including tax treatment) is favorable to the society as whole because it "trickles-down", and because concentrating wealth allows for good business. It's top-down rather than bottom-up. Think Tories in the UK. Most people in the 60s generation believed in bottom-up, but they were overtaken by the elitists (few in number,  big on power). 

falak pema's picture

Slap bang rat-a-tang analysis. You hit it out of the park like...Mickey Mantle; when I was young! So there it is...its an historical trait and it has to be flushed out...Reagan/Thatcher same paradigm, same mayhem. Brave new world.

 

Hacksaw's picture

Think Alexander Hamilton, it goes back a long way in this country.

samsara's picture

"From Woodstock to TARP, their legacy"

Don't tell me, you were born somewhere around 1935-1945sh right?

That's how much you know.  It's like saying that Animal House's fraternaties  Delta house and Omega House were the same guys.

Delta House gave you Woodstock

Omega House gave you TARP

It WASN'T ONE generation there yo yo.

I can see Greg Marmalard and Doug Neidermeyer working for GS.

With Mandy Pepperidge being Lloyd's wife.

 

trav7777's picture

to those who think the elites are super smart...read the article...REIKI? WTF. Some kinda mystical asianmade con.
These elites are so clueless and out of touch they will latch onto any kind of bullshit. I mean look at Scientology!

The so-called elite is completely out of it. Remember, they get access to all kinds of free pills

Troublehoff's picture

Most of the Third Reich elite were off their tits on speed and utterly delusional - what's new?

I hate this shit, don't get me wrong but look at all your own possessions and remember that just as we are exploited/milked by these people, there are those below us in the global hierarchy who are getting a raw deal on our account, and just as you are pissed and want heads to roll... they want our heads to roll

TheMerryPrankster's picture

I think your vision is a bit myopic, the poor, the extreme poor, and the middle class are all exploited to provide revenue and control to the uber wealthy. The fact that the middle class might 'use' the products of the labor of the poor of other nations is not a deliberate act by the middle class, it is however a deliberate act by very wealthy who control the means of production and control the labor used within that production. That labor is merely a tool to maximize their profit and induce you to buy so that they might profit, it is a way to acquire your money, while paying a tiny fraction of it to the 3rd world. The impoverished are merely the cost of doing business, a tool to extract revenue from the middle class of the world, while also destroying the middle class of the world.

 

Someday soon you will be able to buy goods made in America again, the bad news is you won't be able to afford them as your wages will be sub poverty level. The middle class has little control over the means of production and cannot be held largely accountable for the destruction and exploitation leveled upon the poor.

Blaming the middle class for buying goods made in China, is like blaming your car for burning foreign gasoline - your car can't make gasoline, it has to use the gasoline available to it. The problem is "free trade" which is a government policy that we don't get to vote on.

NumberNone's picture

Trav, that is just negative body thetans causing you to say such things.  

centerline's picture

The long term plays also take thier toll on elite as well.  As we are slowly brainwashed, many of them get weak - soft - and similarly brainwashed.  The same as new wealth typically only lasting a couple of generations maximum.  Most of the rich will likely get wiped out at some point, the same as J6P.

Milton Waddams's picture

This is the generation that spent its formative years in constant fear of being incinerated by A-bomb at any moment.  Under the media din warning of the "Reds'" imminent obliteration of any given urban center, they were literally living the question of "what would you do today if you knew you were going to die tomorrow?"  No surprise that they responded by living in the moment, acting selfishly with little regard for the future costs of their present actions.  I would imagine if an experiment was conducted on a group of sentient lifeforms; where they were told they have a fifty-fifty chance of enduring a nuclear holocaust, that they too would act extremely irrational, with little regard to the consequences of their actions.  Well, we are all witness to the outcome of that experiment.  Also this is the outgrowth of the "free love, free drugs, free, free, free" sentiment.  It should be no surprise there is an embedded sense of entitlement.  Even further, if one analyzes the predictions of futurists in the 60s, the boomers were sold quite a bill of goods on what the future had in store for them.  It was to be a sort of Eutopia, with an abundance of free time to build out culture and the like.  A time where the average working man would be transported to work in his personal helicopter to oversea the robots operating industry.

Hacksaw's picture

As a boomer I don't think boomers need to have excuses made for them. As with any other large group of people the boomers aren't monolithic. As in any other generation there are evil men, heroes, cowards, and saints in the boomer generation. Most boomers live day by day and do the best they can with what they have, just like most people have through the ages and will continue to do so on into the future. This it's all the boomers fault mantra is put forth by men who make their money spouting such drivel and absorbed by those too lazy or dumb to think for themselves. As it has been, it is, and it will continue to be.

Milton Waddams's picture

If science can classify generations of mice so to can it classify generations of humans.

If the preceeding generation is to be titled "the greatest generation", the boomers are certainly owed the title of "the myopic generation".  And understandably so- their formative years were spent in a world where instant, unforeseen, wide spread death was a real possibility.  Drop and cover; your school desk will most certainly protect you from the fallout.  With that said, all generations subsequent to boomers are deserving of the title "the apthetic generation".  Millions of men and woman aimlessly meandering with no cultural endzone; media-message compliant debt slaves grasping at the fading illusion of the American dream.

topcallingtroll's picture

No welfare or bailouts for anybody.
An honest system is not possible so
it is better just to recognize the fact and
severely limit government so it doesnt cause
unfairness.

MachoMan's picture

+1.  It's so simple, but some asshole is always trying to iceskate uphill...

Muir's picture

"severely limit government so it doesnt cause

unfairness."

 

-

Well, you fucking missed the boat.

You are beyond help.

Fred Hayek's picture

I wonder if "palm healing" would do you much good if your head was on a f*cking pike?

chindit13's picture

I'm a firm believer in giving people a second chance. 

Mack's wife is a palm healer?  To me that says:  Crucifixion.

Let's see how good she is at her "craft".  Nail her to a cross in Central Park, both hands and feet, and see if she can heal herself.  If not, she's a fraud.  No harm done.

SilverIsKing's picture

Eric Holder is going to investigate in this in 3...2...1...1,000,000...999,999...

tickhound's picture

Lead counsel on Dancing with the Stars

Calculated_Risk's picture

He's a whore pretending to be a lawyer.

TheMerryPrankster's picture

that comment is offensive to whores...

the real colbert's picture

He's busy reading law books, trying to find something to prosecute Julian Assange on.