With (Wall Street) friends like these …

The steps the government took to rescue AIG were motivated solely by what we believed to be in the best interests of the American people” — Timothy Geithner, Newsweek, February

This is one of the biggest lies to ever trip off a forked tongue. I say “one of the biggest,” because it’s been said before, notably by (former) Treasury Secretary Hank Paulson, when he told Congress on Sept. 24, 2008, that the proposed Troubled Asset Relief Program was “about benefiting the American people, because today’s fragile system puts their economic wellbeing at risk.”

According to author Nomi Prins, though, there was a lot Paulson and his banker buddies, including Geithner (then president of the New York Federal Reserve) and others weren’t telling Congress, such as: “We need the taxpayer to buy up our toxic assets because no sane private business will,” and: “We sat down and came up with this idea in about an hour; can we please have billions?” and: “Homeowners with bad mortgages are the perfect scapegoats for our greed.” Further, their ties and vested financial interests in the “too big to fail” banks somehow failed to raise eyebrows in Washington.

Now We the People find ourselves in a fine little pickle, funding a government that continues to throw (our) good money after bad.

Fortunately for the Average Joe and Jane, Prins is on our side. In her book “It Takes a Pillage: Behind the Bailouts, Bonuses and Backroom Deals from Washington to Wall Street,” Prins, a journalist and former Goldman Sachs managing director, uses plain English to explain that we’ve done been hornswaggled — and that the outrageous bonuses paid to Wall Street execs are the least of the scandal.

Actually, scandal is too tame a word. The more apt word would be “crime.”

As Prins tells it, neither of two firms, Barclays and Bank of America, stepped up to buy faltering Lehman Brothers, which failed on Sept. 14, 2008. The day after, though, Barclays picked up Lehman Brothers’ $72 billion in assets for a song — $250 million — all allegedly with the knowledge of Paulson, Geithner, SEC Chairman Chris Cox and the CEOs of several other large banks, which held an “emergency meeting” a few days earlier. Later, Bank of America was able to take over Merrill Lynch for $50 billion, but stock kept nosediving, and BOA’s board of directors tried to back out under the material- adverse-change clause. “Paulson,” writes Prins, “would have none of it.”

Instead, he and Ben Bernake “promised (BOA’s CEO Ken) Lewis they would provide taxpayer money to help out with the takeover of Merrill, but it had to be done in secret … The public’s money kept this merger financed.”

Then there was the matter of AIG, for which Paulson assured a total of $182 billion in taxpayer dollars to back “AIG’s credit bets and the corporate clients to whom it owed money.”

In other words, the very people who denounce “regulation” as the killer of capitalism used our money to effect private mergers and line their own pockets.

The idea behind TARP, of course, was to give the big banks enough credit to lend out to you and me, but as we know, this did not happen. We’ve seen little relief.

And, what is the solution floating around Washington these days? Another bailout. Apparently, our elected representatives didn’t get the memo. Either that, or they’re practicing selective blindness because Wall Street is funding their campaigns. Prins reports that Democratic Sen. Chris Dodd netted $132,000 from the banking and mortgage industries during the 2008 election year.

When reading “It Takes a Pillage,” it’s hard to decide what’s most offensive. There is the rapacious conduct of Wall Street, and the manipulation and shady dealings of those who are supposed to protect us, or, at a minimum, be honest. But there’s also a truth so stark that Prins used it to title one of her chapters: Everyone saw this coming.

As well they should have. The Great Depression was, after all, decades ago, and following it, a strong law (the Glass-Steagall Act) was put into place. Among other things, it prohibited commercial banks from merging with investment banks. The idea was “that a single bank entity should not control financial products that had widely varying levels of risk that could damage the American public,” Prins explains. At about the same time, the Securities Act of 1933 was passed and the SEC was created to enforce the act. Under Glass-Steagall, further, only commercial banks could receive government backing, and not investment banks, which engaged in risky speculation. Wall Street then, as now, pitched a fit about the regulation, yet America somehow survived — without another Depression.

Until, that is, the Glass-Steagall Act was repealed during the Clinton years, and without critical “legislation to strengthen regulatory oversight for newly consolidated supermarket financial firms amalgamated from brokerdealers, commercial banks, and insurance companies.”

This, Prins says, is bad for a simple reason: “History had already shown that if commercial banks speculate or borrow too heavily against their customers’ assets, the system self-destructs.”

I am no financial wizard. I can balance my checkbook and sort of do my taxes. But I can understand what’s put in front of me, and my fearless suggestion is this:

Send the next bailout directly to the banks on Main Street, with the explicit order to lend out that credit. The little banks, the ones that didn’t screw us over in the first place, can then lend to businesses, which can use the money to grow and put people back to work. These newly employed people, together with their newly invigorated workplaces, will then “stimulate” the economy like nothing else.

It’s been said that it’s not what you know, but who you know. Nowhere does that appear truer than on Wall Street. It also appears certain avaricious hucksters who convinced us deregulation is good for the economy own the very people entrusted with representing our interests. What a pity we, the taxpayers, don’t have friends like these.

“It Takes a Pillage” is available through all major booksellers. Read it. And pass it on to your congressman or senator.

Katharhynn Heidelberg writes from Montrose, Colo. She recently won four individual first-place awards from the Colorado Press Association and shared in two more first-place staff awards forher work with the Montrose Daily Press.

From Katharhynn Heidelberg.