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I T T A K E S
A P I L L A G E
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I T T A K E S
A P I L L A G E
Behind the Bailouts, Bonuses,
and Backroom Deals from
Washington to Wall Street
Nomi Prins
John Wiley & Sons, Inc.
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Copyright (c) 2009 by Nomi Prins. All rights reserved
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
No part of this publication may be reproduced, stored in a retrieval system, or transmitted
in any form or by any means, electronic, mechanical, photocopying, recording, scanning,
or otherwise, except as permitted under Section 107 or 108 of the 1976 United States
Copyright Act, without either the prior written permission of the Publisher, or authori-
zation through payment of the appropriate per-copy fee to the Copyright Clearance
Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600,
or on the web at www.copyright.com. Requests to the Publisher for permission should
be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street,
Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley
.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and the author have used
their best efforts in preparing this book, they make no representations or warranties with
respect to the accuracy or completeness of the contents of this book and specifi cally dis-
claim any implied warranties of merchantability or fi tness for a particular purpose. No
warranty may be created or extended by sales representatives or written sales materi-
als. The advice and strategies contained herein may not be suitable for your situation.
You should consult with a professional where appropriate. Neither the publisher nor the
author shall be liable for any loss of profi t or any other commercial damages, including but
not limited to special, incidental, consequential, or other damages.
For general information about our other products and services, please contact our
Customer Care Department within the United States at (800) 762-2974, outside the
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Wiley also publishes its books in a variety of electronic formats. Some content that appears
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ucts, visit our web site at www.wiley.com.
ISBN: 978-0-470-52959-1
Printed in the United States of America
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C O N T E N T S
Acknowledgments vii
Introduction: The More Wall Street Changes,
the More It Stays the Same
1
1 Where'd the Bailout Money Go, Exactly?
16
2 This Was Never about the Little Guy
42
3 Everybody Wants to Be a Bank
65
4 Government
Sachs
80
5 We Already Have a Bad Bank:
It's Called the Federal Reserve
100
6 Everyone Saw This Coming
133
7 Bonus
Bonanza
150
8 Big Banks Mean Big Trouble
175
9 Change,
Really?
192
The Real Numbers: Bailout, TARP, and CEO Compensation 225
Notes 227
Index 283
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A C K N O W L E D G M E N T S

To write a book in four months on a subject that ' s such a moving target
is intimidating. When data are not always readily available and those
most involved with handling the crisis rarely say what they mean or act
on what they say, it makes the endeavor especially daunting.

I would not have been able to complete this task without the sup-
port of, yes, a small village of people. First of all, I would like to express
my heartfelt gratitude for the invaluable research work provided by
Sara Abbas, Clark Merrefi eld, Don McAdam, and Krisztina Ugrin,
who all clocked exceedingly long hours over the course of this project.
In particular, Krisztina ' s compilation of the bailout numbers was vital
to my understanding the breadth of the Pillage. Clark ' s sharp eye for
detail and consummate editorial skills were critical in shaping the book
through every stage, especially in the face of the constant barrage of
information. Thanks also to Theresa Diamond and Ed Cole for their
research work. Thanks to David Lobenstein, whose editorial advice
during the earlier stages of this book was crucial. Thanks to my dear
friend and agent, Mark Suroff, for always being there.

My special thanks to my editor, Eric Nelson at John Wiley & Sons,
who reached out to me at the end of 2008 to write this book and whose
outrage matched my own. I am also grateful to the rest of the fabulous
team at Wiley, including production editor Rachel Meyers and free-
lance copy editor Patricia Waldygo. Thanks to my publicist, Celeste
vii
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viii
A C K N O W L E D G M E N T S
Balducci, for all of her dedication, as well as to the rest of Monteiro &
Company.

My gratitude to Demos for all the support they ' ve provided since
I left Wall Street in 2002 and for the important contributions they
make every day, especially Miles Rapoport, David Callahan, Tammy
Draut, Carol Villano, Bob Kuttner, Lew Daly, and the man who never
seems to sleep, Tim Rusch.

I ' ve been fortunate to have the backing, inspiration and friend-
ship of some wonderful people -- writers, editors, and thinkers -- over
the years. Thanks to Megan Kiefer, Margaret Bustell, Viv Shelton,
Deborah Dor, Francesca Lieb, Jessica Weizman, Karen Meola, Matt
Suroff, Lynne Roberts, Robin Lentz, Marna Bunger, Doug Henwood,
John Dizard, Michael Deibert, Tracy Quan, Colin Robinson, Andy
Robinson, Monika Bauerlein, David Corn, Alleen Barber, Betsy Reed,
Esther Kaplan, Andy Serwer, Michael Pollack, Suzi Weissman, Neil
Weinberg, Walt Pavlo, Don Hazen, Amy Rowe, Jay Kramer, Natalie
Schwartzberg, Tom Mackell, Harry Phillips, Jed Wallace, Jon Elliott,
Ralph Nader, and Greg " the navigator " Della Stua. Thanks to my
friends on the Street who remain in contact and keep me abreast of
what ' s going on.

My love and appreciation to my fi anc e , Lukas Serafi n, for being so
supportive and reading through the many versions of this book with
love and attention. Thanks to my family for putting up with my long
hours, absences, and constant tirades about the subject matter.
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Document Outline

• It Takes A Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street
  • CONTENTS
  • ACKNOWLEDGMENTS
  • Introduction: The More Wall Street Changes, the More It Stays the Same
    • The Causes of the Crisis
    • The Borrowing Chain
    • Expensive Failure
  • Chapter 1: Whered the Bailout Money Go, Exactly?
    • Paulson Loves Small Government for Big Reasons
    • Paulson Discovers Big Government for Little Friends
    • Two Hundred Billion IsnАt What It Used to Be
    • It Was Never about Fixing the Crisis
    • They Encouraged Banks to Sit on Their Money
    • They Spent It on Mergers and Paying Bills
    • They Secretly Gave Away Billions
    • No Money for Anyone Else
    • Geithners No Friend to Homeowners, Either
  • Chapter 2: This Was Never about the Little Guy
    • Risk Models Built on Thin Air
    • Lazy Lending Legislation
    • How Lenders Created a Risk-Free Business
    • More about Making Simple Loans into Complex Securities
    • Making Complex Securities into Incomprehensible Securities
    • Everyone Was Invited, Everyone RSVP Аd, and Everyone Showed Up
    • Making Incomprehensible Securities into Inconceivable Insurance
    • The Cruelest Lie of All
  • Chapter 3: Everybody Wants to Be a Bank
    • Will They Really Be More Regulated Now?
    • Not Only Investment Banks Can Be Banks
    • What the Fed Created, the FDIC Cleaned Up
    • If You Cant Beat Them, Buy Them
    • The Stage Is Set for DЩja Vu
  • Chapter 4: Government Sachs
    • Oh, the Status
    • Genius or Really Lucky?
    • Mentors and Kings
    • Global Flow, D.C. Dollars
    • Robert Rubins Always Up to Something
    • Having Influence Means Actually Influencing
    • Yet More Goldmanites in the Mix
    • The End Game
  • Chapter 5: We Already Have a Bad Bank: ItАs Called the Federal Reserve
    • Chase Hunts a Bear with the Feds Rifle
    • Geithner WasnАt Kidding
    • Giving Loans against NonͅInvestment Grade Securities
    • Remember: That $700 Billion Is the Smallest Part of the Bailout
    • The Silent Coconspirator
    • Controlling the Punch Bowl
    • The Last Banking Crisis
    • Advocating the Wrong Policies
    • “Had the Models Been Fitted More Appropriately”
    • Fighting the Fed
    • The Open-Door Policy Is Now Closed
    • The Tag-Team Bailout Approach
    • The Real Cost and Risk of the Bailout
  • Chapter 6: Everyone Saw This Coming
    • A Law That Really Worked
    • Who Killed Glass-Steagall?
    • Senator Byron Dorgan Predicts Weΐll Rue the Day
    • “An Awfully Big Mess”
    • The Bank Holding Company Bonanza
  • Chapter 7: Bonus Bonanza
    • CEOs Dodge the Blame
    • Bank of America Acquires a Countrywide Can of Worms
    • Big Bonuses and Big Layoffs
    • Whats a Few Million in Bonuses When Your Losses Are in the Billions?
    • They Kept the Money
    • Conflict of Interest
    • Please DonАt Call It a Bonus
    • Bonuses Always Bounce Back
    • Its the Complexity, Stupid!
    • Take V
  • Chapter 8: Big Banks Mean Big Trouble
    • The History of Small Is Better
    • Too Big to Do Anything but Fail
  • Chapter 9: Change, Really?
    • Tight Credit, Loose Talk
    • Some Solutions
    • Pour Some Sugar on It
    • Free Markets ArenАt Free
  • THE REAL NUMBERS: BAILOUT, TARP, AND CEO COMPENSATION
  • NOTES
  • INDEX

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