The Fraud Is Rampant

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Though private fraud gets the bigger headline (think Bernie Madoff), fraud in federal government programs is now so pervasive that even the Obama press is taking notice. The scope of fraud in all federal programs dwarfs the corruption in the private sector the media loves to sensationalize.

Consider the fraud in the Wall Street bailout. Here's just one example.

This past week, the Inspector General for the TARP $700 billion bailout reported that taxpayers will "almost certainly" lose money on their investments in the "too big to fail" financial institutions. One reason, it’s safe to say, is contained in Neil Barofsky’s revelation that he is conducting 65 separate investigations of possible fraud involving TARP funds.


Barofsky criticized then-President of the New York Federal Reserve (and now Treasury Secretary) Tim Geithner specifically for the bailout of one of those institutions, AIG (American International Group), the largest insurance conglomerate in the world. Barofsky says that the initial $85 billion credit line given AIG came with a bailout plan designed by Geithner the terms of which “were unworkable".

That's being polite. The Barofsky report documents that credit default swaps worth 40 cents on the dollar were bought at 100 cents on the dollar under the Federal bailout terms, funneling "tens of billions of dollars of government money...inexorably and directly to AIG's counterparties"--including Goldman Sachs.
That's being polite. The Barofsky report documents that credit default swaps worth 40 cents on the dollar were bought at 100 cents on the dollar under the Federal bailout terms, funneling "tens of billions of dollars of government money...inexorably and directly to AIG's counterparties"--including Goldman Sachs.

According to Bloomberg news this week, Geithner arranged for Goldman Sachs to receive full payment on credit default swaps they had purchased rather than 40 cents on the dollar AIG proposed. A Fed-run entity called Maiden Lane III was used to sell these CDSs, which cost American tax payers at least $13 billion dollars at the time. It is currently estimated that due to a continuing decline in value, this bank favoritism case could cost the American tax payer $35.6 billion.

To quote Bloomberg: "The deal contributed to the more than $14 billion that over 18 months was handed to Goldman Sachs, whose former chairman, Stephen Friedman, was chairman of the board of directors of the New York Fed when the decision was made."

LINK HERE