From BloombergNews:

On the morning of July 21, before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie’s books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets.

A Different Message

At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.

Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives — at least five of them alumni of Goldman Sachs Group Inc. (GS), of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.

After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” — a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.

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In the wake of the $700 billion TARP bailout, Warren Buffett apparently shaped a plan to clean up toxic assets that Treasury Secretary Tim Geithner later adopted–resulting in massive profits for Buffett.

That’s the latest bombshell revelation from investigative journalist and Breitbart editor Peter Schweizer’s sensational new book, Throw Them All Out.

According to Schweizer, after the bailout bill’s passage, Warren Buffett sat down and wrote then-Treasury Secretary Henry Paulson a four-page private letter laying out a plan to clean up the toxic assets plaguing numerous financial institutions.  Buffett proposed something he called a “public-private partnership fund.”  For every $10 billion the private sector invested, Buffett said the government should put up $40 billion.

After Paulson’s exit, incoming Treasury Secretary Tim Geithner tweaked the plan and rolled it out in March 2009. But according to quarterly reports from Buffett’s holdings company, Berkshire Hathaway, between the time the billionaire crafted his plan and Geithner adopted it, Buffett quietly purchased 12.4 million shares of Wells Fargo stock and 1.5 million shares of U.S. Bancorp. Once the government unveiled its “Public-Private Investment Program,” bank stocks jumped, resulting in large profits for Buffett.

How much Buffett profited is hard to calculate, since there’s no way to know what his purchase price was. But prior to the government adopting Buffett’s plan, Wells Fargo had been trading at roughly $20 a share. In the weeks after Geithner’s announcement, the stock jumped to $30 a share. Likewise, U.S. Bancorp went from $8 in February 2009 to more than $20 a share by May. (more…)

The bankruptcy of MF Global demonstrates that the 1% of crony capitalists in America are now subject to the same risks of economic losses as the other 99% of us. Led by former Goldman Sachs Chairman Jon Corzine, MF Global engaged in speculating on the bonds of Portugal, Italy, Greece, and Spain (PIGS) with shareholder money; they then tried to hedge their bets with derivatives called Credit Default Swaps (CDS). The firm relied on Corzine’s inside expectation that crony politicians in Germany and France would stick taxpayers with the cost of bailing-out bondholders, like MF Global. The bet buckled when voters rebelled and demanded bondholders suffer losses. Once subject to capitalist risks, MF Global collapsed.

Jon Corzine made most of his fortune from developing intimate relationships with politicians and government officials. As Chairman of Goldman Sachs, in 1999 he led the effort to convince the Clinton Administration and Congress to repeal the Glass-Steagall Act of 1933. The Act banned commercial banks that receive insurance from the Federal Deposit Insurance Corporation (FDIC) from engaging in speculation and trading in securities. Historians have blamed the start of the Great Depression on massive leveraged speculation by banks in the stock and bond bubbles of the “Roaring Twenties.” Many of the victims of the 1929 crash turned out to be the proverbial “widows and orphans” whose small deposits were wiped-out when trading losses forced their savings institution into bankruptcy.

Goldman Sachs had been a private-partnership for over 100 years when Corzine joined the firm as a bond trader in 1975. Consequently, the capital of partners in Goldman Sachs and the other investment banking firms were at 100% risk for trading losses by their firms. When Jon Corzine became Chairman and CEO of Goldman in 1994, he understood that stocks were legal to leverage by 100%, but U.S. government bonds could be leveraged by 5,000%. Corzine knew his older partners would never be willing to risk their own capital at very high leverage. Corzine set his sights on repeal of Glass-Steagall Act so his partners could get their money out through a public offering and the firm could take advantage of the leverage risk trading on shareholders’ money. (more…)

There is a long 20^th century history of Wall Street protests in America.  After all, Wall Street is the financial center of the country. Today, we’re in a financial crisis so Wall Street (or its financial center equivalent in other cities) is the logical place to protest, right?

Actually, we think it’s a poor second to Lafayette Park across from the White House — where the current crisis was hatched and nurtured.  No, this isn’t an anti Obama screed.  His predecessors (several of them) are far more to blame for the current economic disarray in which we find ourselves, although we think his proposed remedies are anything but remedial.

“Occupy Wall Street” and “Wall Street Greed” are great memes.  They are highly memorable and easily passed on as a rallying cry. Unsurprisingly, President Obama and the left has sought to adopt them.  Of course, the protestors are an outgrowth of the wider sense of entitlement many young people have developed (including quotas disguised under the term “diversity”).  As George Will stated in his column in The Washington Post on October 13, 2011:

“Demands posted in [Occupy Wall Street’s] name include a ‘guaranteed living wage income regardless of employment’; a $20‑an‑hour minimum wage (above the $16.00 entry wage the UAW just negotiated with GM); ending ‘the fossil fuel economy’; ‘open borders’ so ‘anyone can travel anywhere to work and live’; $1 trillion dollars for infrastructure; $1 trillion dollars for ‘ecological restoration’; ‘free college education’, and forgiveness of ‘all debt on the entire planet.”

But abuses by Wall Street are an affect, not the cause of the current economic disarray. As anyone who has read our essays knows, we carry no brief for Wall Street excesses or those of the various Government Sponsored Enterprises (GSE’s) that are the real culprits. But Wall Street was simply the vehicle by which the White House, Congress, the Fed and the Washington bureaucracy carried out very ill advised objectives. As is well known by now, the seeds of our current discontent were sowed a quarter century ago when President Jimmy Carter signed the Community Reinvestment Act (CRA).  This legislation and the regulatory policies that it set in motion may have been well intentioned, but as history teaches, roads paved merely with good intentions often lead where no one wants to go.

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Winston Churchill warned; “An appeaser is one who feeds a crocodile, hoping it will eat him last”. Churchill would understand the dynamics of the European and American sovereign debt crisis. Modern warfare is not about a blitzkrieg of panzers, dive-bombers, and storm-troopers swarming across borders to over-whelm patriotic defenders. Today’s world dominators sucker their prey into financially destroying themselves from within. Once the quarry is crippled; the invader walks in and takes control of the victim’s economy on the cheap.

Recently bureaucrats from Austria; Belgium; Cyprus; Estonia; Finland; France; Greece; Ireland; Italy; Luxembourg; Malta; Netherlands; Portugal; Slovakia; Slovenia; and Spain quietly surrendered their sovereignty to Germany. In contrast, Americans stand alone as the only nation on earth in full rebellion against their government’s dangerous addiction to deficit spending.

Hitler slyly wrote: “How fortunate for governments that the people they administer don’t think.” Most Europeans did not question the too-good to-be-true claims of the euro when it was first introduced in 2002 as the continent’s common currency. Overnight, serial debt-defaulters were granted unlimited power to raise huge volumes of cheap capital in the untested euro-bond markets. Fans boasted the new currency created the largest economic trading group in the world; with 332 million direct users and another 175 million people worldwide who pegged their currency exchange rate to the euro.

Thomas Jefferson cautioned: “I believe that banking institutions are more dangerous to our liberties than standing armies”; but Europeans don’t study American history. Germans designed the euro to be dominated by the Frankfurt-based European Central Bank (ECB); who control all money printing and operate the eurozone electronic payment systems. Member central banks are allowed to sit on Eurosystem Board, but only as junior members. With their supremacy of ECB rule-making, Germans implemented banking regulations eliminating reserve requirements for loans to euro members; while increasing collateral requirements against loans to the private sector. Goldman Sachs and other camp followers gave the local banks access to derivatives; which allowed for astronomic leverage of euro member loans.

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Late yesterday, the highly respected credit rating firm, Moody’s Investor Services, officially warned that if there is no imminent progress in Congress on the debt ceiling fight, the United States of America’s Aaa credit rating would be cut. Understanding that such a draconian event as a U.S. credit downgrade would infuriate voters; it should not come as any surprise that the media was distracted today over news that the Manhattan Attorney’s office happened to issue a criminal subpoena to Goldman Sachs for insider trading and securities fraud earlier this morning.

Goldman Sachs is the perfect scapegoat to blame for America’s credit woes. The firm is the largest investment bank in the world and its history of ethics violations are legendary. Goldman agreed to pay $550 million to settle Federal claims that it misled investors in a subprime mortgage product just as the housing market began to collapse. Essentially the company recommended to its individual, hedge fund, bank, and money manager clients that they make investments in sub-prime mortgages loans Goldman Sachs was betting were already failing. The settlement was among the largest in the 76-year history of the Securities and Exchange Commission, but it represented only a small financial hiccup for Goldman, which reported a profit of $13.39 billion for 2009, the worst period of the credit crisis.

Goldman Sachs has shown its appreciation to each of America’s political parties by donating handsomely to their elections success.

As a show of appreciation, U.S. taxpayers have been very good to Goldman Sachs.

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From the 1^st quarter through the 4th quarter of 2010, GM’s lobbying expenses more than doubled from $1.8 million to $3.89 million – a 113% increase.  After all, when the government is your largest shareholder, your company execs will inevitably be spending an inordinate amount of time cozying up to Washington politicians.

Moreover, GM’s lobbyist team reads like a who’s who of the government bailout business.  And why wouldn’t it?  When you’re lobbying Washington to privatize gains for your clients and socialize their losses among taxpayers, you hire those firms with the most experience representing other notorious companies that received massive bailouts by U.S. taxpayers — Fannie Mae, Freddie Mac, Goldman Sachs, AIG and others.

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We are navigating through truly uncharted political and economic territory.  Members of the financial cognoscenti have freshly alluded to the notion of the ‘government bubble’ as the next blow to the world economic order.

Since 2008 we have seen the housing, financial, and insurance markets hit on a global level, one after the other.  At one point, they all burst because they were unsustainable.  You don’t have to be a politico to know that the sovereign debt crisis is real.  Just look around.  As European countries (Portugal, Ireland, Italy, Greece, Spain, and Belgium) reshuffle hundreds of billions of dollars to lighten rising government deficit and debt levels, Republican appropriators here at home futilely attempt to get our books in order.  Ladies and gentleman, something is afoot.

The recent crisis in Egypt has only intensified discussion on the stability of the world economic order. No one knows what’s going to happen.  In an ideal situation, a peaceful transition of power will re-stabilize what has triggered a sell-off in equity markets and posed more geo-political uncertainty in the region as energy commodities are poised for gains based on fear.  And the bad news just keeps pouring in.

According to Reuters,

Adding to Cairo’s financial woes, ratings agency Moody’s downgraded the country’s debt rating on concern the Mubarak regime may spend more to placate protesters.

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Today on Coffee and Markets Francis Cianfrocca and I discuss the decay of the movie business, the challenges of running a hedge fund, and the banal business practices of Goldman Sachs.

We’re brought to you as always by Stephen Clouse and Associates. You can find our iTunes feed at CoffeeandMarkets.com. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

The Banality of Goldman’s Business Standards – CNBC
Clarium Hedge Fund Slumps 90% From Peak After Thiel Has Third Losing Year – Bloomberg
AEI – Liftoff or Cold Shower?
The Numbers – Movie Market Summary 1995 to 2010

This week the world discovered that Goldman Sachs and Russian investor Digital Sky Technologies are planning to invest $500 million in Facebook, a deal which values the company at $50 billion.

As a part of the deal, Goldman also plans to raise $1.5 billion by peddling $2 million stakes in Facebook among its most wealthy clients.  With all the recent Chinese internet IPOs (DangDang, Youku) it’s no surprise that major US players want to get bullish on untapped American internet companies (Facebook, Twitter, Groupon, LivingSocial).  There’s an angle.  In order to circumvent the financial disclosure requirements set by the SEC that would force Facebook to go public, Goldman has come up with a ‘special purpose vehicle’ according to Business Insider:

The best thing about the vehicle: It will bypass SEC requirements that firms with over 499 investors have to disclose their financial results to the public, since the vehicle will be managed by Goldman, which, despite pooling the funds of thousands of investors, is deemed to be a single investor.

Bravo, Mark Zuckerberg and Goldman Sachs.  Zuckerberg has raised a serious amount of capital through a backroom deal, effectively bypassing the scrutiny of an initial public offering and listing on the New York Stock Exchange.  This is what we call a loophole.  What does this loophole mean for the future?  Well for one, we can almost be certain that the SEC will continue to overcomplicate the process of companies going public.  More laws, more regulation.

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The Federal Reserve announced “Quantitative Easing 2” (QE2) last week, a stimulus program whereby the Fed will print $600 billion of paper money to buy U.S. government bonds. Fed Chairman Ben Bernanke took the extraordinary step of trying to justify this action by writing an Op Ed in the Washington Post. The article claimed his goal is to drive down longer term interest rates and drive up stock prices, so that “a virtuous circle will support further economic expansion.” The concept is that if Americans felt richer because their 401Ks went up in value there would be a “wealth effect” encouraging the public to spend more money and businesses to increase capital investments. Unfortunately, this is like starting a barbeque with a flamethrower. You will surely create a fire, but it will probably burn down the neighborhood.

Back when Lehman Brothers filed for bankruptcy in the fall of 2007, the Fed panicked and “Quantitatively Eased” by slashing interest rates and purchasing $1.7 trillion of mostly dicey mortgage related bonds from the banks at full value. The price of food and other commodities were sent skyrocketing, oil climbed to an all-time record of $145 per barrel. Consumer price inflation rose by 5½% over the next year, but the higher costs of essentials hammered personal disposable income and consumers put the brakes on their discretionary spending. As the U.S. money supply leaped, hedge funds borrowed in depreciating U.S. dollars to invest in appreciating Asian currencies.

Instead of creating an economic boom, Chairman Bernanke actions caused the worst recession since the 1930s. As business profitability tanked due to lower sales and higher material costs; production was cut and workers laid-off. The rate of unemployment and underemployment soared on Main Street. When the bubble burst and the markets fell back “under their own weight” and a period of deflation began that is probably far from over.

Wall Street on the other hand, did quite nicely thanks to Ben and his buddies at the Fed.

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Excerpted from Bought and Paid For: The Unholy Alliance Between Barack Obama and Wall Street. Published by Sentinel. Copyright Charles Gasparino, 2010.

But despite his trials, [Lloyd] Blankfein had taken time out of his grueling schedule to help a firm that wasn’t a Goldman client, not even a prospective one. The firm was ShoreBank Corporation, a small community bank located in Chicago that lent money to inner-city businesses and was exploring the possibility of financing nascent and as-yet-unprofitable “green” businesses through so-called conservation loans and environmental banking, according to the bank’s Web site.

The bank’s self-described mission was to “change the world.” And yet despite its seemingly good intentions, the bank’s urban commercial borrowers were suffering greatly from the lower property values and high unemployment that stemmed from post–financial crisis recession. Without Blankfein’s help (and the help of other
major Wall Street firms) ShoreBank would follow the fate of dozens of other banks during the great recession and face almost certain collapse and government liquidation.

To be sure, helping out a struggling bank that wasn’t even a client was a most un-Goldman-like thing to do. Goldman dealt with only the biggest companies in corporate America or with superwealthy individuals (typically, those with $10 million or more to invest with the firm). More thanthat, this was a firm that had a reputation for screwing just about any company, clients included, when business was on the line. Goldman, of course, would deny that assertion. Even so, in the normal course of business, a bank like ShoreBank, with its modest funds and do-gooder reputation, wouldn’t even appear on Goldman’s radar as a potential customer.

Yet for some seemingly inexplicable reason, Lloyd Blankfein—who had a net worth close to $500 million and until recently had never heard of ShoreBank—started imploring his friends at other firms, like Morgan Stanley, GE Capital, and others, to help this little bank. Not that Blankfein suggested there was money to be made here. Quite the contrary; it was simply the right thing to do.

To any casual observer, this puzzling scenario raises the question: Why would Blankfein possibly want to save ShoreBank?

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From James Pethokoukis at Reuters:

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. A few key points:

1) Republican leaders believe this is going to happen since GOPers and Democratic moderates in the Senate are unwilling to spend more taxpayer money on more stimulus. But such a housing plan would allow the White House to sidestep congressional objections and show voters it is doing something tangible about an economy that seems to be weakening.

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In the wake of recent reports that Shorebank’s financial status worsened in the second quarter, some interesting new developments have surfaced.

Yesterday afternoon, Fox Business News reported that Shorebank will now be the target of a federal investigation, to look into whether political pressure was exerted on Wall Street banks to give money to help the troubled Chicago community lending bank reach the monetary threshold needed to allow the bank to qualify for federal TARP funds.

Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program (TARP), has said that he will begin looking into whether or not top-level political operatives (e.g., Eugene Ludwig, former comptroller of the currency under President Bill Clinton) and FDIC chief Sheila Bair were involved in exerting direct pressure to force Wall Street banks such as JP Morgan Chase, Goldman Sachs, and others to give money (which now totals more than $150 million) to the ailing bank.  Interestingly enough, Shorebank has been involved in raising private capital to qualify for TARP funds despite the fact that Shorebank senior vice president Michelle Collins emphatically stated just last year that Shorebank would take “no TARP money.”

Although the Obama administration has officially denied any involvement in helping to prop up Shorebank, the rush by other banks to come to its aid has been nothing short of remarkable.  More than a few eyebrows have been raised in response to the general flurry of activity shown by other, larger banks seeking to involve themselves in helping to rescue Shorebank.

For example, Lloyd Blankfein, Goldman Sach’s chief executive, was personally involved in making phone calls to encourage other Wall Street banks to inject capital into the the failing Shorebank.  This, in a stated effort to allow Goldman Sachs to fulfill its obligations under the 1977 Community Reinvestment Act.  (Interestingly, Ron Grzywinski, one of the founders of Shorebank, was the only banker to testify before Congress in favor of the Community Reinvestment Act.)

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On Wednesday, if all goes as planned, President Barack Obama will sign the financial-reform bill crafted by Senator Chris Dodd of Connecticut and Congressman Barney Frank of Massachusetts, sponsored by the Democratic Party in both houses, and supported by three Republican Senators – Scott Brown of Massachusetts and Susan Collins and Olympia Snowe of Maine. When the bill is signed, we will be told, as we have repeatedly been told in the last few months, that the measures included within it will prevent future financial crises of the sort that we have suffered from over the last two years.

By now, of course, most Americans have become skeptical of such claims. We were to told that the so-called “stimulus” bill would bring unemployment down, and we learned that its main function was to reward constituencies favoring the party in power. It increased dramatically the salaries of those within the federal civil service, it expanded that civil service massively, and it enabled the state governments and the localities to continue to pay those who worked within the public sector at those levels. Similar lies were told during the healthcare debate. We were told that no one would lose his coverage, that no one would be forced to acquire health insurance, that the cost curve would be bent downward. It is proper to ask whether we are being lied to now and whether Senators Brown, Collins, and Snowe have sold us down the river.

The answer depends – to a considerable degree – on what were the causes of the recent financial crisis. Was it caused by a market failure? If so, is it likely that governmental regulation will prevent such failures in the future? These are the claims advanced by Paul Krugman and the like; these are the claims put forward by President Obama, Senator Dodd, and Congressman Frank. And, on the face of it, they would appear to be true. There was, after all, a bubble in the real estate market. Goldman Sachs and the like marketed junk bonds, made up of mortgages, on a gigantic scale and managed to get for them a triple-A rating from S&P and from Moody’s, and insurance against default was purchased from outfits like AIG that had no idea of the risks involved. The Securities and Exchange Commission and the Federal Reserve could and should have intervened.

But one must be cautious about calling what happened “a case of market failure,” for the real-estate market was not a free market. One could, of course, reply that no market is a genuinely free market. The “free market” is an ideal type. It does not exist in reality. The government interferes and gives shape to virtually every market through taxation, regulation, and laws detailing how contracts are to be enforced.

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Charlie Gasparino breaks down the “financial reform” bill at FoxNews:

Goldman executives say they have conducted an internal study of the various proposals in the financial-reform legislation, which while still incomplete, is likely to pass in some semblance of its current form and signed into law by President Obama by the end of the year.

The areas that are likely to be in any final package will include cutbacks in proprietary trading, or trading with the bank’s own money, a new consumer-watchdog agency and forcing firms to give up positions in hedge funds.

But, dig deeper inside the bill and there are plenty of new rules and regulations that will be squeezing commercial banks, and that will directly impact JPMorgan’s bottom line. These regulations include capping fees on debit cards and limits on how many bank branches can be owned in a particular geographic area.

Even the so-called Volcker Rule, named after presidential economic adviser Paul Volcker, with its limitations on prop trading and hedge fund ownership, will likely hit JPMorgan hard.

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The Central Illinois 9/12 Project became one of the first to expose — beginning this past March on BigGovernment.com – Shorebank’s extensive green and microfinancing agendas, in anticipation of that bank’s impending bailout.  Shorebank, a Chicago-based, community-based investment bank, is focused on domestic and foreign microfinancing, is heavily engaged in the financing of “green” projects and “green” jobs, and has a host of ties to the Obama and Clinton administrations.  Most recently, we wrote in April about Shorebank seeking a “bailout” from larger financial firms that have previously received bailout money from the federal government. Congresswoman Jan Schakowsky had previously proposed that the bank receive funds from the State of Illinois to help cover its loss of capital since the beginning of the nation’s economic downturn in 2008.

As we previously wrote, Shorebank would potentially be eligible for TARP funds if it were to be recognized as a “Community Development Financial Institution.” In order to to received needed federal TARP money and prevent seizure by the FDIC, Shorebank needed to receive appropriate matching funds from private sources.  News stories have been released over the past several days indicating that Shorebank has potentially received such funding.

Shorebank has reportedly received $20 million from General Electric, $20 million from Goldman Sachs, and $20 million from Citigroup – with additional large funds being promised by J.P.Morgan Chase, Bank of America, and Morgan Stanley. Shorebank also has received funds from the Northern Trust Corporation, State Farm, and Harris N.A.  It has been reported that the bank could also receive funds from Wells-Fargo and PNC Financial Services.  Assistance from these financial institutions puts Shorebank’s raised capital from private sources within the range needed to make it eligible for TARP funds.

As we reported previously, Citigroup, Bank of America, and Chase all received tens of billions of dollars in taxpayer money from TARP.  Does this then mean that Shorebank is being bailed out by bailout money?

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Health care reform is the latest piece of the puzzle to be put in place. If you add this to what has happened in the financial industry and the banking industry a bigger picture begins to emerge. With the proposed financial regulations, there seems to be a movement towards the consolidation of power in a few institutions, systematically removing free competition, setting up the too big to fail phenomenon, thereby giving people less choice that will ultimately cost everybody more in the long run.

Since the passage of healthcare reform, there has not been a lot of talk about the role that hospitals will play. What no one talks about is the fact that there has been a quiet movement or shift of doctors from private practice to hospital employees. Many smaller community hospitals and doctor owned hospitals have gone out of business because they could not afford to keep their doors open. In addition, there has also been a quiet consolidation of hospitals. For example, in Atlanta, groups of specialists have become hospital employees.  With the movement of various specialists, hospitals have now become specialty centers for specific patient care.

It is not hard to visualize a future where there will only be a certain number of hospitals that are able to provide care for specialized diseases such as cardiac care, or orthopedic surgery.  If that happens, access will be restricted since patients will be limited as to where they will be able to go to receive their care.  If there was only one specialty heart center in the city and only a certain number of doctors on staff, by definition, there will be a limited number of patients that can be treated at any specific time. Unfortunately, these changes will likely lead to the de facto rationing of care.  In addition to the problem of access, costs will likely go up because of the lack of competition.

The demise of Lehman Brothers and the consolidation of other large financial companies have led to very few winners in the financial industry – the biggest of which is Goldman Sachs.  The banking industry has seen a few surviving large institutions such as Chase and Citibank. What the larger banks didn’t acquire in mergers, the FDIC removed by taking over and closing hundreds of smaller and community banks. Makes you wonder if the credit unions will be next on the list.

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Today it was reported that Goldman Sachs CEO Lloyd Blankfein has been calling Wall Street friends to cough up $125 million to save ShoreBank, which faces federal closure next week. Rep. Jan Schakowsky suggested in January that Illinois taxpayers foot the bill. That would have been the first state-led bank bailout in U.S history. The idea was abandoned–so it appears the government is shaking down Goldman Sachs instead.

ShoreBank has close connections to the Obama administration, including controversial figures such as former “green jobs czar” Van Jones. Its executives have contributed in the past to Rep. Schakowsky and other Illinois politicians. ShoreBank did not just make loans in poor communities–there are other local banks that do that without getting into trouble–but also specifically made loans that the recipients had little hope of repaying.

Now ShoreBank is calling in some political favors, and the politicians are responding with a classic Chicago-style shakedown. It is probably no coincidence that Goldman Sachs suddenly took an interest in ShoreBank after it was slapped with a federal civil fraud lawsuit and a criminal investigation. Many Wall Street observers believe that the charges against Goldman Sachs were politically motivated, in timing if not in substance.

Regardless, Mr. Blankfein got the message, telling Goldman Sachs shareholders last week that he would try to rebuild the company’s image. He called up other bailed-out institutions that are being threatened with federal charges–Bank of America, Citigroup, and JP Morgan Chase–and got them to cough up millions for ShoreBank. So although the ShoreBank bailout is “private,” American taxpayers are still indirectly on the hook.

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News reports last week suggested that 130 companies that cater to main street concerns — like Harley Davidson — had hired lobbyists because of the impact the financial reform legislation will have on their business. The regulatory boondoggle will affect almost every entity that caters to middle class America — from car dealers to dentists. That’s right dentists.

News from Washington is that the group representing America’s dentists are now in freakout mode over the bill. Most dentists offer payment plans. If Johnny need braces, dentists offer payment plans that help the middle class afford them. If the financial reform bill is enacted into law, the federal government would regulate the plans.

This is a prime example of how the legislation — while proporting to regulate Wall Street will actually regulate Main Street.

Yet Citi and Goldman Sachs are supporting the legislation supposedly aimed at them. If Wall Street wants this bill and Main Street is harmed by the bill, how exactly is this Wall Street reform?

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