The Shock Doctrine
Disaster Capitalism in Action
Iraq Auctioning Off Contracts to Big Oil
Gina Chon, Wall Street Journal, June 25, 2009
"Next week, Iraqi officials plan a welcome-back party for Big Oil. The government intends to auction off oil contracts to foreign companies for the first time since Iraq nationalized its oil industry more than three decades ago. If all goes according to plan in the first round, foreign oil companies will move in to help Iraq revive production at six developed fields that have suffered from years of war and neglect....
"Some 120 companies expressed interest in bidding for the contracts at the June 29 and 30 auction, according to the oil ministry. Thirty-five companies qualified to bid, including Exxon Mobil Corp., Royal Dutch Shell PLC, Italy's Eni SpA, Russia's Lukoil and China Petroleum & Chemical Corp., or Sinopec. The six oil fields at stake are believed to hold reserves of more than 43 billion barrels. Foreigners won't get the most prized piece of the action -- ownership stakes in the reserves -- but will be paid fees for ramping up output.
U.S. Overpaid Blackwater by at Least $55 Million
Yochi J. Dreazen, Wall Street Journal, June 16, 2009
"A government audit found that the State Department overpaid the contract-security firm once known as Blackwater Worldwide by tens of millions of dollars because the company failed to properly staff its teams in Iraq.
"The report didn't identify any specific security breaches, but it said the State Department should have withheld at least $55 million in payments to the company because of the shortfalls.
"The audit by the Special Inspector General for Iraq Reconstruction and the State Department's Inspector General said the firm didn't employ enough guards, medics, marksmen and dog handlers to fully man the teams, which were responsible for protecting the U.S. ambassador to Iraq and other high-level officials."
Lending By Bailed Out Banks Continues to Fall
Martin Crutsinger, Associated Press, June 15, 2009
"The value of loans held by the 21 largest institutions getting support from the government's $700 billion bailout fund fell in April, the fifth decline in six months....
"The big banks included in Treasury's monthly loan survey account for more than half of the net loans outstanding at financial institutions."
Banks Use Life Insurance to Fund Bonuses
Ellen E. Schultz, Wall Street Journal, May 20, 2009
"Banks are using a little-known tactic to help pay bonuses, deferred pay and pensions they owe executives: They're holding life-insurance policies on hundreds of thousands of their workers, with themselves as the beneficiaries.
Banks took out much of this life insurance during the mortgage bubble, when executives' pay -- and the IOUs for their deferred compensation -- surged, and banking regulators affirmed the use of life insurance as a way to finance executive pay and benefits.
"Bank of America Corp. has the most life insurance on employees: $17.3 billion at the end of the first quarter, according to bank filings. Wachovia Corp. has $12 billion, J.P. Morgan Chase & Co. has $11.1 billion and Wells Fargo & Co. has $5.7 billion....
"Though not improper, the practice is similar to what is known as 'janitors insurance,' an insurance-on-employees technique that has long been controversial. Critics say the banks' insurance contracts are a way for companies to create tax breaks for funding executive pensions. And some families have complained that employers shouldn't profit from the deaths of their loved ones."
Next Frontier of Disaster Capitalism: Private Equity Firms Controlling Banks?
Eric Lipton, New York Times, May 6, 2009
"For all the talk of the banking crisis, Mr. Flowers and other giant private equity players are circling distressed banks around the country, competing to buy into the industry.....They and other investors see banks as the recession’s biggest prize: potential money machines that could one day generate fabulous returns, particularly after the federal government eats the losses of failed banks, then heavily subsidizes their sale....
"To push their case at the White House, the Treasury and the Fed, Mr. Flowers and others in his industry have enlisted an all-star cast of advisers, lobbyists and lawyers. They include H. Rodgin Cohen, chairman of the Sullivan & Cromwell law firm and Wall Street éminence grise, and Randal K. Quarles, a managing director of the Carlyle Group and a Treasury under secretary in the administration of President George W. Bush. Part of their strategy, Mr. Flowers said, is to persuade the Treasury secretary, Timothy F. Geithner, to pressure the Fed to back down.
"The private equity firms are pitching to regulators a way to let them take control of banks while respecting banking traditions. Essentially, they would separate the entities — they call them silos — that buy the banks, walling off their other private equity investments from any newly created bank holding company. Fed officials will not speak about banks for the record, but they have told the firms that they view the silo concept as little more than a subterfuge....
"Mr. Flowers, in an interview, said he was confident he would prevail. Even if he cannot make the Fed reverse its policy, he will consider it a victory if the Fed approves an individual deal. He has estimated his banking empire will one day earn at least a 35 percent return on banks it has bought in the United States. 'I find it to be an extraordinary time to invest,' he said. He was even more blunt when he spoke to an industry group in New York earlier this year. 'Lowlife grave dancers like me will make a fortune,' he predicted."
World Bank Internal Auditor Says 1/3 of World Bank Health Programs Ineffective
Anthony Faiola, Washington Post, May 1, 2009
"One-third of World Bank health, nutrition and population programs from 1997 through 2007 produced unsatisfactory results, with weak monitoring and overly complex projects contributing to the problem, according to the institution's internal watchdog. The report, released yesterday by the World Bank's Independent Evaluation Group, paints a disturbing portrait of ineffectiveness in areas vital to public health in the developing world. Programs designed to combat HIV-AIDS in Africa, for instance, had only a 25 percent success rate, compared with an 80 percent success rate for World Bank programs overall.
"Many projects lacked a procedure to ensure that the poorest and most needy were receiving assistance. Others were poorly implemented. A $26.6 million HIV-response project in Ghana from 2000 to 2005, for example, failed to target populations at risk of contracting the virus. 'A third of the projects did not meet their objectives,' Cheryl Gray, IEG director, said. 'Over-complexity is a problem, as is the lack of capacity of countries to implement the programs.'"
Wall Street Pay Returning to Outrageous 2008 Level
Louise Story, New York Times, April 26, 2009
"Workers at the largest financial institutions are on track to earn as much money this year as they did before the financial crisis began, because of the strong start of the year for bank profits. Even as the industry’s compensation has been put in the spotlight for being so high at a time when many banks have received taxpayer help, six of the biggest banks set aside over $36 billion in the first quarter to pay their employees, according to a review of financial statements....
"Of the large banks receiving federal help, Goldman Sachs stands out for setting aside the most per person for compensation. The bank, which nearly halved its compensation last year, set aside $4.7 billion for worker pay in the quarter. If that level continues all year, it would add up to average pay of $569,220 per worker — almost as much as the pay in 2007, a record year."
Financial Firms Lobby to Cut Cost of TARP Exit
Damian Paletta and Deborah Solomon, Wall Street Journal, April 22, 2009
"The banking industry is aggressively lobbying the Treasury Department to make it less costly for financial institutions to get out of the Troubled Asset Relief Program. The move could prove controversial for the banking industry, which is busy deflecting criticism about higher fees it is charging consumers for credit cards and other products and services.
"At issue are 'warrants' the government received when it bought preferred stock in roughly 500 banks over the past six months as part of TARP. The warrants allow the government to buy common stock in the banks at a later date so taxpayers can receive more of a return on their investment when the banking industry recovers.
"Many banks want to return their TARP money and, as part of that effort, want to expunge the warrants. To do that, banks must either buy them back from the government or allow the Treasury to sell them to private investors. Today, most of the warrants are essentially worthless, because their exercise price is higher than where most banks' stocks are trading. But the government believes the warrants still have value, since they give the Treasury the right to buy common stock at a set price for 10 years."
See Also:
Letter from the American Bankers Association urging the Treasury Department to break provisions in existing contracts with the banks.
Lending by Bailed Out Banks Keeps Dropping
, Wall Street Journal, April 20, 2009
Lending at the biggest U.S. banks has fallen more sharply than realized, despite government efforts to pump billions of dollars into the financial sector.
According to a Wall Street Journal analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program. The total dollar amount of new loans declined in three of the four months the government has reported this data.
100 Former Govt Employees Now Working as Bank Lobbyists on Bailout
Daniel Schulman and Jonathan Stein, Mother Jones, April 9, 2009
"In late March, as public outrage over bonuses paid to executives of bailed-out financial firms exploded, Citigroup CEO Vikram Pandit met with Senate majority leader Harry Reid. Accompanying the under-fire CEO to the meeting was Jimmy Ryan, one of the banking conglomerate's top in-house lobbyists. Ryan was a familiar face to Reid and his staff. Up until 2003, he was the Nevada senator's chief counsel, and since then he has remained close to Reid. The senator, according to Reid spokesman Jim Manley, merely discussed with Pandit the financial state of Citigroup and the economy in general. If Pandit and Ryan had hoped that Reid would take action to benefit their company, Manley maintained, this effort was unsuccessful.
"Whether or not Ryan was able to win any sympathy (or anything else) from his old boss, the episode highlights one aspect of Washington bailout politics: Financial firms seeking big bucks and favorable terms from Congress and the White House are deploying Capitol Hill aides turned lobbyists to win favorable treatment from the congressional lawmakers who are managing various aspects of the financial recovery—overseeing or appropriating nearly $3 trillion in spending and lending. And some lawmakers—including Sen. Chris Dodd (D-Conn.), the chairman of the Senate banking committee—have declined to disclose whether they have had contact with former aides now lobbying for the financial sector.
"Corporations hiring departed congressional staffers as lobbyists is a ho-hum practice on K Street. But the stakes are particularly high when these Capitol Hill vets are sicced on programs and legislation that are crucial to the country's financial recovery and that involve massive amounts of government spending. In the past year, top bailout recipients, from Goldman Sachs to Bank of America to JPMorgan Chase, have dispatched more than 100 past congressional staffers and ex-government officials to shape the bailouts to their liking. This crew of well-connected lobbyists includes ex-employees of the congressional committees on banking, finance, and commerce; one-time aides to Democratic and Republican leaders; former Treasury officials; and a past aide to Rahm Emanuel, now the White House chief of staff."
