Our Treasury Secretary Was Chosen to Represent Bankers. Not You.

Cross posted in Orange.

That’s right, and it was clear to everyone who opposed the pick of Tim Geithner from the start. In his testimony yesterday on the NY Fed’s knowledge of the LIBOR scandal, Tim Geithner once again stated the falsity that the NY Fed was not a regulator (like he has before showing he either a liar or completely incompetent), when in fact he was one of the most important regulators unknown to him, sadly.

This was during the proceedings looking into the 100 cents on the dollar backdoor bailout of Goldman Sachs through AIG facilitated while he was President of the NY Fed.

COUNT 2: He wasn't even a regulator! In Geithner's own words during confirmation hearings in March: "First of all, I've never been a regulator...I'm not a regulator." According to the New York fed bank's Web site, that was your job!!

Quoting from the Fed's website: "As part of our core mission, we supervise and regulate financial institutions in the Second District." That district of course is the epicenter for bailed out banks and billion dollar bonuses.

It is not just the responsibility of Fed Board governors like Tim Geithner said in his testimony yesterday while trying to inflate the case for his so called “intervention” that wasn't on LIBOR. This lack of knowledge and corruption bothers me and it also bothers me that so many don't care, because there is an election. I feel like we are all being lulled to sleep every night by MSNBC and the partisan cable news 2012 election war syndrome.

Shortly after the President was elected, there were many naive Democrats who claimed Giethner was “a brilliant pick” merely because the President picked him which is always the criterion, sadly. I saw it as the beginning of the end of any chance of a functioning financial system that we were promised during the 2008 election by this President. That's why I got involved in 2008, and that’s why a lot of us are unmotivated to say the least.

You see, to be making excuses for Tim Geithner even now while not even understanding the responsibilities of the NY Fed is outright embarrassing and immoral for all the damage it causes.

It causes a real human toll for our President to pick someone as unqualified and corrupt as Tim Geithner to be one of the most important regulators in our entire financial system. Pseudo “experts” on the so called merits of fraudulent finance for fixed markets should probably study this. You know who you are.

The NY Fed failed to take any significant action under Tim Geithner’s leadership once they all found out about Barclays, Citigroup, JP Morgan Chase, Bank of America and multiple other banks’ LIBOR manipulation of the benchmark interest rate on 800 trillion of all loans including mortgages, corporate bonds, municipal bonds, and derivative contracts way back in 2008 to now. It's clear that the suggestions in that email Geithner sent to British regulators at the Bank of England do not cut it or amount to any real action.

Tim Geithner's Libor Recommendations Came Straight From Banks, Documents Show

But the Fed, along with its statement, also released the staff work that led to the recommendations. Those documents reveal that the recommendations Geithner sent to London did not come from staff, but rather were proposed by major banks and more or less forwarded on verbatim.

The policy recommendations Geithner forwarded in an attachment on June 1 first appear in a staff memo dated May 20 that reads: "A variety of changes aimed at enhancing LIBOR's credibility has been proposed by market participants, and seem to be under consideration by the BBA. These proposed changes include, but are not limited to..."

A comparison between Geithner's recommendations and those put forward by "market participants" -- shorthand for banks -- makes it clear that Fed staff asked banks how to fix the problem, then presented those answers as their own. (Most of the banks consulted were likely U.S.-based institutions, as several of the recommendations are aimed at giving more power, not surprisingly, to U.S. banks.)

It’s also stupid to think you can get rid of an incentive during the bust of a massive housing bubble for bankers to cover their ass (why LIBOR was manipulated a lot of the time) by suggestions about better private market “incentives” instead of real regulation of these vampire squid financial blood suckers. It's even dumber to suggest that certain banks not identify themselves if they set lower rates to somehow curb these twisted incentives, because we all know it's about suggesting the right private incentives without regulatory oversight. Yeah, in La La Land!

Luckily we have a knowledgeable regulator like Sheila Bair who actually knows she is a regulator at the FDIC, to set him straight.

Sheila Bair On New York Fed's Role In Libor Scandal: 'I Don't Understand Why They Didn't Investigate'

"Looking at those e-mails, it looks like they had pretty explicit notification of some very bad behavior, and I don't understand why they didn't investigate," Bair, former chair of the Federal Deposit Insurance Corporation, said of Geithner's New York Fed on CNBC Friday. "They did have authority to do that."

Bair added that Geithner and the New York Fed "deserve credit for trying to suggest some reforms, but again, even then those reforms did not tackle the core problem, which was that it wasn't a transaction-based survey; it was a judgment survey."

LIBOR is based on transactions, not any judgement about what it takes to tweak magical market incentives in the private sector. Sheila Bair is right once again. This is the biggest in a long string of failures from our corrupt Wall St Treasury Secretary.

We know now particularly just how corrupt he is in comparison to people who actually care about the victims of this economic and financial crisis. One of those people is TARP Inspector General Neil Barofsky. His new book explains Timmy's disdain for working people and how they came to blows.

Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street

It's shocking to see how a handful of powerful banks really do control our economy. So, Tim Geithner and the other officials I was dealing with down there, they would view these incidents through Wall Street colored glasses... If you find out something in April of 2008 and more than four years later nothing has happened about it -- I mean, that tells you everything you need to know about what's wrong with Washington.

"Over 10000 criminal referrals and over 1000 felony convictions of financial Oligarchs during the S&L crisis" former regulator Bill Black dives deep into this whole dynamic.

Reinventing Crony Capitalism: the Context of Geithner’s Obscene Rant against Barofsky

My column, however, expands on the article’s last paragraph:

“[T]he more-damning allegations of the book [are] that Geithner’s Treasury Department repeatedly tried to undermine Barofsky’s authority, ignoring his warnings about the risk of fraud in TARP programs and generally carrying water for the banking industry.”

[.........]

I do not detail Geithner’s actions against Barofsky in this article. I write to situate Geithner’s rage against Barofsky in the broader context of how the “reinventing government” movement helped destroy effective financial regulation and was particularly blind to the essential role that regulators must play to restrain the epidemics of fraud that drive our recurrent, intensifying financial crises. The reinventing government movement’s embrace of the three “de’s” – deregulation, desupervision, and de facto decriminalization, its embrace of modern compensation, and its trivialization of the risks of control fraud contributed greatly to the maximization of the perverse incentives that produce epidemics of accounting control fraud. The reinventing government’s ideological embrace of neoliberal dogma created an intensely criminogenic environment. The irony is that it became dominant at the federal level in the same year that its dogmas were confirmed to be false and criminogenic in the savings and loan context. Indeed, reinventing government did not simply become dominant – in 1983 it became the exclusive acceptable (anti) regulatory philosophy of the Clinton administration.

[........]

Ideologically, the reinvention dogma was an application of the “Washington Consensus.” The Washington Consensus embraced an anti-regulatory, anti-governmental dogma that promised to transform Latin America – the primary test bed for the consensus. If readers have ever wondered why so many Latin American leaders have been elected on platforms that call for a major governmental role in the economy the shortest answer is that the Consensus failed to deliver on its promise of rapid growth and many aspects of the Consensus enraged a majority of the electorates.

President Clinton and Al Gore were Southern politicians who rose to power as “New Democrats.” The New Democrats created the Democratic Leadership Council (DLC) to move the Democratic Party to the right. The DLC was explicitly pro-business and allied with many of the largest corporations. The DLC was anti-regulatory and shared the neo-liberal dogma that government was frequently a bloated failure while the private sector was a raving success.

[.........]

This article focuses on one aspect of the reinventing movement’s dogma – the hostility to taking the vigorous regulatory, supervisory and enforcement actions that were essential to prevent control fraud and the destruction of the regulatory support essential to prosecute elite corporate criminals. The reinvention dogma held that the federal officials who most obviously fought to prevent and punish fraud were the central problem. The greatest villains were the inspector generals. Geithner’s visceral attacks on Barofsky did not arise randomly – they exemplify the core dogma of the reinvention movement.

“Federal managers complain bitterly about the inspectors general, for example. Part of the auditing system, each IG’s office has hundreds of auditors and inspectors—many of them former law enforcement people—who comb through the organization looking for wrongdoing. Created by Congress in the late 1970s, they are a legacy of the Watergate era. Unfortunately, they operate as an enormous barrier to innovation, because when reinventors try new things they often have to bend a few rules. The IGs typically slap their wrists, regardless of how petty the infraction or how silly the rule.

This was a long piece, but it's well worth the read. It's illuminating because I always wondered how even the regulation agencies we still have(that have always worked particularly well) suddenly seems useless. Well the Inspector Generals in charge of making sure they operate correctly were cajoled by the Washington Consensus and former President Clinton and Vice president Al Gore's reinvention of the regulatory apparatus. Since the Watergate era they have always maintained their independence and were not captured themselves but not anymore.

As seen in the well documented piece, IGs were the number one complaint by business friendly agencies and lobbyists for deregulation because they didn't have to be business friendly. An apparatus that puts regulators at the behest of capture by the business they are supposed to be regulating through a false sense of getting rid of red tape and making things more efficient by cutting down agencies's staff was the norm after the former VP's plan. William K. Black worked for the Federal Home Loan Bank Board from 1984 to 1986, deputy director of the Federal Savings and Loan Insurance Corporation in 1987, and Senior VP and the General Counsel of the Federal Home Loan Bank of San Francisco from 1987 to 1989, which regulated some of the largest thrift banks in the U.S.

These agencies functioned in a way where Black could root out the control fraud that pervades all of our banking institutions of this day. No reinvention was necessary except to rid regulators of the tools they need to do their jobs well for the people and not business interests according to third way corporatist-a-crats. It's why the UMKC is adopting his and George Akerlof's and Paul Romer's papers on accounting control fraud into Modern Monetary Theory. This is the right diagnosis of our corrupt financial system, and those making excuses for it have nowhere to stand when they deny the history of the S&L crisis and Black's successes.

SIGTARP Neil Barofsky is one of the few besides Black that still represents this era and the Washington Neoliberal consensus that exists within this President's treasury hates him for it. They don't like to be called out for their poorly designed HAMP programs that rip working people off through a bait-and-switch process for the benefit of the banks while they lose their homes.

As you might know, I've met Neil Barofksy and saw him at NN12 during David Dayen's foreclosure fraud panel. Marcy Wheeler has an excellent live blog of that panel.

It was one of the few panels not filmed perhaps because it's the most dangerous panel in the world for the Washington consensus. Maybe because it was too real in an election year, but it doesn't help victims of the foreclosure crisis from this economic and ponzi financial crisis to ignore them. You're really not laying groundwork for the future of the Democratic Party by falling completely in line during an election year and letting this kind of behavior go by the wayside.

It makes it look like Democrats don't stand for anything and validates criticism from people who claim that voters in both parties are so politically polarized that they are incapable of nuance or critical thinking and just represent their chosen party most of the time for better or worse like a marriage. When we represent our party and defend everyone in the party for better or worse, we are not forming a sacred union, we are upholding a sacrilege in a government wholly owned by the banking elites and the .01%

No we should be allowed to say Tim Geithner is a failure, a shill for the banks, and that he should be fired. We should be allowed to say that Eric Holder's DOJ is a failure going by the numbers of convictions and even referrals of financial crime and he should be fired. I hate to break it to you, but if some out there claiming to be in the progressive blog-o-sphere think insulting me and others who are informed on these issues(and worked to elect the President and Democrats in Congress in 2008) will somehow energize the base, they are sadly mistaken.

"At least we're better than the Republicans" didn't work in 2010 either. We are the base whether you like it or not; the purist, pony loving, reality acknowledging, antiwar, pro union, issue voting, personality politics avoiding, New Deal defending, Social Security preserving base some of you know and love and love to hate.

Maybe firing some of the wholly banker owned officials in each department of the executive branch would help motivate the more populist factions that agree with us on these issues? Then we could stop wondering where the Democratic Party we read about in our history books went.

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a truly excellent post priceman! :D

poligirl's picture

gawd Timmy's an ass! the fact that that kind of arrogant, didn't do anything wrong smugness has come from both Republican and now Democratic admins is pretty much proof that the parties - both of them, are here to serve a master, but it ain't we the people... sigh...

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Great diary!

Futbol Dad's picture

I did quite a bit of research on Reinventing Government back in my grad school days. I'm always interested in the origins and assumptions behind theories and policies because I think you can learn more about what the true goals are from that. Interesting background on it with some input from some real powerhouses in the Public Administration and Public Policy fields.

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Thanks, Futbol Dad!

priceman's picture

I see you are well aware of the non perverse beginnings of the concept, but given what has been done in its name, it's probably better not to trust Democrats with it and go back to the way government was as far as regulation is concerned, though it is very interesting what you added.

I appreciate the info!

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"either naive or reprehensible"

geomoo's picture

It is a stunning article, revealing a lot more than just mistakes here and there, but rather a rotten philosophy beginning with Gore and Clinton in the early 1990's, more evidence that we will not find solutions to these endemic problems through party politics. I wish the article were written more plainly--it does require deciphering for those of us less familiar with these issues. A particularly striking passage concerned Geithner's profanity-laced tirade against IG Barofsky.

The following excerpt shows that the problem we face is a lot more than merely ineffectual regulation--it is a belief among Dem and Rep officials alike (a belief held in the face of mountains of contrary evidence) that regulation is unnecessary.

...The anti-regulatory reinventors assumed away the perverse incentives of fraudulent elites and the resultant Gresham’s dynamic (perverse incentives) they can create that can lead to a substantial increase in fraud. They have also assumed that it suffices if the “majority” of industry members do the right thing. All these assumptions are not only false, but obviously false. The problem is that the administration’s false assumptions were implicit. An explicit assumption challenges the entity making it to determine its accuracy. Implicit assumptions carry no such protection against disastrous error. The anti-regulatory reinventors were and are spectacularly, dangerously naïve about regulation, fraud, and many industries. They were either naïve or reprehensible in defining the industry as the regulators’ “customers” and “partners” – and I personally witnessed them do so at an OTS training event attended by hundreds of our staff. They failed utterly to understand how rules both prevented or reduced criminogenic environments and made it far easier to prosecute the frauds....

After reading about the conscious creation of a "regulatory" culture in which officials are encouraged to "bend the rules," I thought of my wife and my recent struggles with Medicare--a struggle too twisted to summarize--in which no one felt empowered to take common sense action in response to confusing regulations. The entire orientation of our elected officials for decades now has been to treat industry and corporations as "customers" while treating the public as pawns to manipulate and hide from behind unbendable rules and regulations.

This is change only a nincompoop would believe in.

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Just woke up from my nap

priceman's picture

Thanks, George! Good summation and I hope you're wife is OK. It really is quite a sick culture third way Democrats have created in our regulatory apparatus in Washington. This really reminds me of how bad the former VP was and why he really couldn't get over the hump his stolen election.

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Geitner isn't fit to regulate the air pressure in my tires

sartoris's picture

The very fact that this administration selected Geitner proves that it is not serious in any way about regulating the criminal elements of the financial industry. Geitner's personal tax crimes were enough to keep most people out of federal service. Geitner is in deep in the LIBOR fraud and he is in deep on the behind the scenes deals made with foreign banks during the meltdown.
This administration had a real opportunity to reform the industry in the most meaningful manner since the SEC Acts of 1933 and 1934. Those acts were the basis of the industry until the gutting began under Clinton. What happened in 2007 and 2008 was a result of unregulated derivative trading and outright fraud. The Mortgage Backed Securities were specifically created to skirt already weakened regulations. Too big to fail. Our country was not too big to fail but the banks were. We lost our treasury to bankers. Greeks are being punished to keep the bankers in their mansions.
Did you know that the SEC has historically returned 5 times its budget in fines? That is a fact. We need to staff the SEC and set the goal of 7 to 10 times a return on their budget. We need to breakup the banks and reimplement the New Deal Glass-Steagal Act. We need to ban derivatives. We need to reestabilsh realistic margin requirments. We need to prevent speculation on the commodities markets by enforcing the rule that if one cannot accept delivery then one cannot make the purchase. That rule alone would bring much needed stabilty to the commodities market. Ugh. Sorry for the rant.

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Thanks, sartoris7!

priceman's picture

Great comment. What third way neoliberal Democrats have done to the SEC is shameful. They need to enact more fines and to stop destroying evidence of their collusion with the banking cartels.Yes we need Glass Steagall and the only derivatives that need to exist are traded on exchanges and highly regulated, those with valid commercial use like the kind Brooksley Born used to regulate at the CFTC.

We need to reestabilsh realistic margin requirments. We need to prevent speculation on the commodities markets by enforcing the rule that if one cannot accept delivery then one cannot make the purchase. That rule alone would bring much needed stabilty to the commodities market. Ugh. Sorry for the rant.

Those are important points. NO, thank you for the rant!

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Love this line:

aigeanta's picture

When we represent our party and defend everyone in the party for better or worse, we are not forming a sacred union, we are upholding a sacrilege in a government wholly owned by the banking elites and the .01%

Ain't that the truth. You say it, priceman.

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Electing Romney Will Make Things Worse!

BruceMcF's picture

And re-electing Obama and doing nothing else will fail to make things any better.

We've lost four years between 2008 and 2012, with a Hedge Fund Democrat was elected to the White House, and so the prospects for possible electing a Progressive Populist to the Presidency in 2016 are fairly dim, since its likely to take 8 years if not more. So that makes 2020 or 2024.

In the meantime, we need to be building movements, and developing coalitions, and building a progressive populist platform that we can rally behind. We don't get there automatically because we try, but we certainly fail to get there if we fail to try.

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This is exactly how I feel:

Glinda's picture

We've lost four years between 2008 and 2012, with a Hedge Fund Democrat was elected to the White House, and so the prospects for possible electing a Progressive Populist to the Presidency in 2016 are fairly dim, since its likely to take 8 years if not more. So that makes 2020 or 2024.

We never had a decent chance to support a primary challenger. The power and the money were too overwhelming.

I predict that if Obama does win, there is no way that a Democrat wins in 2016.

I just want to get it over with now so we can move forward, meaning let's quickly get it back to 2007/2008 after eight years of Bush -- people yearned, wanted change. Then maybe we'll have a good chance to support a great candidate in 2016.

But with money equaling free speech, I have very little voice.

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This election is not that important IMO

priceman's picture

Mainly because only Congress really matters(and Romney and Obama are more alike than people think) and nothing is going to change in the Senate. So expect gridlock and nothing serious to be done like now.

Democrats were too stupid to get rid of the filibuster to enact anything meaningful in a life changing way so not a lot will change sadly. I do agree we need to build more on populist movements but it's scary to think what the word will be like in 2020-2024. Climate change will be irreversible.

But maybe something good will happen between now and then, but it won't be because of electoral politics unless that amounts to the PTB being really scared of the people. In a Citizen's United world that seems quite daunting, but I do hope something changes.

Thanks for the comment, BruceMcF!

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Every election's important ...

BruceMcF's picture

... if one is attempting to build a movement aiming to have an impact on setting the policy agenda.

If there is a progressive or a populist running to upset an incumbent Corporate Party legislator in the State Legislature, and has a shot of winning the upset, that makes the election important in that state. If there's a progressive or populist, more or less, running for Congress or the Senate, either to hold on against a flood of corporate money or to upset an incumbent member of the Corporate Party, that makes the election important. If you are in a state that elects its Attorney General in the Presidential election year, hell, its normally better to have a Corporate Whig faction AG than a Corporate Tory faction AG.

Here in Ohio, we have a citizen's veto on the Kasich Anti-Democracy Bill, and are trying to get an non-partisan district boundary commission onto the ballot. Those alone make it an important election.

One of the main tricks to con us into taking our eye off the ball is to treat the entire election season as if its just about picking our Presidential Dictator for the next four years.

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Local elections are more important. fair enough

priceman's picture

They still face the hurdle of big money, but it's not completely hopeless for anything life changing like it is in the 50% millionaire's US Senate. The problem is deeper than that. there are no more Eugene McCarthys to speak out against their parties' leaders, therefore there are numerous structural patterns that need to change even if we do get rid of the filibuster.

I hate to say it, but the recent foreclosure fraud settlement, sellout, and lack of a task force settlement kind of makes my point about state AGs, though.

OK, the Presidential dictator and one chamber Oligarchy election doesn't matter that much, but do what you can locally and hope you can survive because WI and labor didn't. Things worked out better in your state though so that is something because John Kasich's anti-labor law was defeated. That is something.

I do appreciate your optimism, but I am a little more pessimistic though I do hope things start to turn rather than just the peoples wasting whatever resources they have.

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I truly don't think it was because they were stupid...

Glinda's picture

Democrats were too stupid to get rid of the filibuster to enact anything meaningful in a life changing way so not a lot will change sadly.

I think the majority of them wanted it to be that way so they could retain their power and get reelected.

It's turned into all about them, if they can keep their jobs, and if not, how can they vote to ensure a lucrative job when their either lose or retire. Of course there are a few exceptions, but, sadly, very few.

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Or corrupt ;)

priceman's picture

However the sad thing is if they did get rid of it and enact real life changing policy then they would protect their seats, but they want the fundraising excuse of 60 votes without doing any heavy lifting. They also tried to block the audit of the FED(after LIBOR broke through too which says a lot about them) in the House but were unsuccessful. One of the few times I side with Ron Paul.

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Never forget that there are two wings ...

BruceMcF's picture

... in the Democratic Party, and the majority of the Senate Democrats are in the Whig wing of the Corporate Party, aka the Hedge Fund wing of the Democratic Party. Then there are Democrats in the Tory wing of the Corporate Party, and a handful of moderate progressives.

The Corporate Party almost unanimously voted against filibuster reform. The Taliban Party voted unanimously against filibuster reform. That makes it an unbreakable majority.

Winning filibuster reform either takes a robust movement that can force the the majority of Corporatist Democrats to vote for filibuster reform to avoid losing a primary challenge to a progressive or populist, or else a political calculation by the Whig wing of the Corporate Party that the filibuster is a strong net negative in their intra-party fight against the bulk of the Republicans, which is to say the Tory Wing of the Corporate Party.

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Yes, they don't act like it till voting time though on that...

priceman's picture

issue. It's all complaining about the filibuster in every singe form letter, but they are split in those wings. Problems is they are not honest about it.

I don't know , IMO unless there are candidates that can buck the money the corporate Democrats receive, my advice would be the same advice I give to labor which is to sit out and let them lose their seat unless they want to be taken for granted like in HCR, no EFCA, and even having to take some hits on the auto rescue.

I would prefer more progressively populist candidates to rise up and have the ability to make them fear losing their seats, but this is a very different electoral world than it was even in 2008. The system is a lot dirtier and it was never clean to begin with.

Still I agree with your prescription, we are just dealing with a black plague of dark money and influence that is swallowing whatever we thought was in our system representing us.

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I'd reckon it would be easier to work out ...

BruceMcF's picture

... which Senators or Senate Candidates would be worth spending time door knocking for, and as far the others let them go and get their support from Democratic partisans.

Given the amount of money that the banksters and Big Oil is putting into defeating Sherrod Brown, I'd reckon he's worth door knocking for. Elizabeth Warren is. Bernie is. Anyone else running this year?

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