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Additional Perspectives On The AIG Fiasco
- AIG
- American International Group
- Ben Bernanke
- Blackrock
- CDO
- CDS
- Collateralized Debt Obligations
- Counterparties
- Countrywide
- Credit Default Swaps
- Credit Line
- Darrell Issa
- default
- Federal Reserve
- Goldman Sachs
- goldman sachs
- Hank Paulson
- Hank Paulson
- Henry Paulson
- Home Equity
- Jamie Dimon
- Janet Tavakoli
- Joe Cassano
- JPMorgan Chase
- Lloyd Blankfein
- Merrill
- Nationalization
- Neil Barofsky
- New Century
- Rating Agencies
- SIGTARP
- Tim Geithner
- Warren Buffett
While Tim Geithner may hope the AIG situation is now dead and buried, it is likely anything but, with the recently launched investigation into disclosure fraud by the SIGTARP, and the relentless efforts by Darrell Issa to metaphorically crucify the tax-challenged treasury secretary currently ongoing.
As these noble pursuits continue, we ask two simple questions:
1) In Yesterday's hearings, it became clear that everyone essentially recused themselves of any oversight over the AIG disclosure issue, including Hank Paulson, with most, even Bernanke, claiming they had no control over the counterparty decision-making process. We ask - then who did? Surely someone at the FRBNY had to pull a trigger at some point. Who is that person? And if it is merely Sarah Dahlgren, is there a formal notification that she had obtained proxy power from Tim Geithner, who yesterday disclosed had recused himself only informally to a very select circle of TurboTax-challenged friends.
2) Why did the Fed not guarantee AIG's assets ahead of the firm's implosion. Surely, the realization, which as everyone trumpets these days, that AIG's failure would have destroyed the world should have been known to at least one person in authority? And as all know, the collateral call toxic spiral commenced only once AIG was formally downgraded by the rating agencies. Well, had the AIG had the formal guarantee of the Federal Reserve, which is implicitly a guarantee by the U.S., then AIG would not have been downgraded in the first place, and no collateral calls would be forthcoming. Of course, Goldman would end up owning CDOs that as Janet Tavakoli points out, and contrary to what the Fed claims, are now worth at best pennies on the dollar. Furthermore, Goldman's AIG CDS would immediately have become worthless, with Goldman unable to sell them in the open market for a profit of billions of dollars, yet the firm would continue extracting collateral as per its prior arrangement with AIG, in essence not impairing Goldman at all. And had AIG not started down the downgrade spiral, then numerous other adverse consequences of the nationalization of the insurance company would not have transpired. While it would not have saved America's financial system, it would have made the descent more manageable. Yet with Goldman having benefited massively from the elimination of a vast swath of competitors, one wonders if the guarantee track may have been considered and subsequently denied, under the wise tutelage of 85 Broad advisors. We suggest Senator Issa and Neil Barofsky focus very closely on any email released as part of the disclosure process that highlight the Fed's reasoning as to why AIG should not receive a guarantee, and what the nature of such reasoning may have been.
And speaking of Janet Tavakoli, her latest analysis of AIG's Schedule A disclosure as posted earlier in the Huffington Post presents yet another reason why Goldman bonuses should be withheld until the billions in illicit profits from AIG are clawed back.
Congress Exposes Potential Profiteering in AIG's Deals: Delay Enabled Further Cover-Up
Yesterday the House released some missing details of the AIG bailout. (Click here to
see the unredacted pages of the March 2008 SEC filing.) The public knew
that the Fed paid 100 cents on the dollar to AIG's trading
counterparties to resolve its credit default swaps, but the details of
the assets behind the trades were kept secret.
Plenty of Time to Renegotiate AIG's Contracts
The first bailout of AIG occurred in September 2008 when the FRBNY
extended an $85 billion credit line to AIG. By the September 2008
initial bailout, Goldman Sachs had extracted $7.5 billion in collateral
from AIG, and other banks that bought Goldman's CDOs also extracted
billions from AIG (click here for details).
Goldman CEO Lloyd Blankfein claims he had no idea AIG had trouble
producing collateral. I knew AIG was headed for grave trouble more than
a year before the September 2008 bailout and raised the issue with both Warren Buffett and JPMorgan Chase CEO Jamie Dimon.
Goldman Sachs claims to be superior risk managers, yet asks the public
to believe that it was clueless about AIG's distress, even though
Goldman itself was a key contributor to it.
Then Treasury Secretary Henry Paulson was CEO of Goldman Sachs at
the time it put on these trades with AIG. Lloyd Blankfein was (and
remains) CEO of Goldman and was the only Wall Street CEO at one of
Paulson's bailout discussions. Stephen Friedman, then Chairman of the
NY Fed, also served on Goldman's board.
Details That Could Anger the Public
An analysis of the previously secret details shows that at the time of
the November 2008 buyout, some CDOs had implied prices of around 60
cents on the dollar. Others had implied prices of around 20 cents on
the dollar.
Not revealed by the new report is that many of the assets backing
some of the CDOs have a high risk of severe or total principal loss
(many have actual losses). These CDOs have "cliff risk," as in falling
off of one. (There is currently no reliable secondary market, and
similar CDOs have traded as low as one penny.) One such CDO is Davis
Square IV, a CDO on which French bank Societe Generale bought
protection from AIG. The CDO is a poster child for Wall Street's key
contribution to a financial crisis that devastated the U.S. economy.
Goldman Sachs created and closed Davis Square IV in April of 2005. The CDO was managed by Trust Company of the West (TCW). (Click here for a list of assets of Davis Square IV from the time period around January 2008).
The original portfolio included mortgage-backed securities from Goldman
Sachs Alternative Mortgage Products, Merrill, and problem mortgage
lenders Countrywide, New Century, Novastar, First Franklin, and Fremont
(among others). Assets include home equity loans, midprime loans,
subprime loans, and adjustable rate mortgages. The CDO also includes
other CDOs.
AIG's Joe Cassano said AIG was basically out of the business of
guaranteeing mortgage product at the end of 2005, yet the report shows
more than 10% of the CDOs on which AIG sold protection appear to be
from 2006, 2007, or 2008. (Around 14% of the CDO tranches are 2006,
2007 or 2008 vintage, but they make up more than one-third or more than
$21 billion of the $62.13 billion notional amount purchased by the
Fed.) Furthermore, CDOs from 2006 and 2007 are buried within the
portfolios backing the original CDOs. For example, TCW traded mortgages
from 2006 and 2007 vintages into the portfolio backing Davis Square IV.
These "assets" are among the worst of the lot.
CDO managers may disclose conflicts of interest, but a conflict of
interest shouldn't mean that new assets "managed" into your portfolio
are highly likely to do you harm. TCW and Goldman Sachs had a
relationship that benefited TCW, which earned fees from deals like
Davis Square IV. Davis Square IV included several tranches of Goldman's
Abacus deals, including $53.5 million from 2006. By September 2008,
Goldman's CDO, Abacus 2006-12, was already downgraded from AA2 to Ca, a
junk rating--it means you are likely to lose your shirt. Another part
of this CDO in Davis Square IV's portfolio was downgraded from A3 to
Ca. Three of Goldman's slices of Abacus 2006-15 also made their way
into Davis Square IV, and they were also all downgraded to Ca, a junk
rating, by September 2008.
Among other eyebrow raising assets in Davis Square IV, one finds a
CDO called Pinnacle Point Funding 2007-a. This CDO was managed by
Blackrock. It closed June 7, 2007, and went into acceleration (not a
good sign) on December 13, 2007. Davis Square IV's "investment" was
originally rated triple-A. By the time of AIG's September 2008 bailout,
it was already downgraded to C, a junk rating, by Moody's. Yet the Fed
awarded no-bid contracts to Blackrock to manage the assets it bought
from AIG.
Profiteering and Track-Covering: Possible Reasons for Redaction
The financial windfall conferred by AIG's bailout, the self-serving
claim that the crisis prevented negotiation, and the subsequent
cover-up of details were very much to the benefit of Goldman Sachs and
its current and former officers involved in the bailout discussions.
In the example above, I show the Davis Square IV portfolio as of
January 2008. One would need similar snapshots of all the CDOs to
figure out who did what to whom. The fact that the Fed and SEC
suppressed potentially explosive facts is bad enough, but the delay in
making the information public has given interested parties a window of
opportunity to cover their tracks by dumping the worst of the assets,
thus hiding them forever from public view.
Suppressing the details of AIG's trades made it easier for AIG's
counterparties to cover-up profiteering and then exploit public funds.
If details of these trades had been made public in September 2008, a
reasonable negotiator would have demanded that the billions of dollars
that had been extracted from AIG (including the $7.5 billion Goldman
extracted by then) should be recharacterized as a loan.
Instead, the Fed gifted tens of billions of dollars to banks that
supplied the financing for bad loans that damaged the U.S. economy.
More than that, these banks engaged in suspect deals that covered up
losses and allowed them to continue to report apparent "profits" and
pay inflated bonuses. Meanwhile, their securitization activities
continued to harm the economy during a period at which the United
States was at war.
Goldman is not solely responsible, but it had a large role in AIG's
crisis and a unique position of conflicted interest and influence over
the terms of the bailout. Now that the crisis is over, this issue
should be reopened, and billions in collateral should be clawed back to
pay down public debt, before Goldman Sachs pays more than $16 billion
in taxpayer subsidized bonuses to its employees.
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Thank you for the update and poignant questions Tyler, particularly queston number one.
All I can say is FEDGATE
Stay tuned, folks, the hits will keep coming.
side note to Rahm: please tell Barry this one is all on him and that making all in bets can backfire.
license to steal
In Bloomberg today Issa is quoted as saying Geithner was "not doing his job" during the recussal period.
A better analogy for Issa to make would be to liken Geithner to being the Captain of a fighting ship who chose to sit in his cabin for over 2 months while he awaited promotion. In the meantime the helm without clean instructions and command during one of the worst battles in recent history.
I commend Rep. Issa for all of his efforts to hang the lying Geithner.
I can see the novel coming when this is all over. "The Caine Geither!"
www.RevokeTheFed.comMarch 2008
WHEREAS, Article I, Section 8 of the Constitution of the United States of America authorizes Congress "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures";
WHEREAS, on December 23rd, 1913 the US Congress enacted the Federal Reserve System;
WHEREAS, the Federal Reserve System is considered an independent agency within the federal government, with oversight of Congress and containing appointed public officials on its board of directors;
WHEREAS, the Federal Reserve System Controls the Federal Reserve Note, the official currency of the great nation of the United States of America;
WHEREAS, there may be controversies regarding the legality and constitutionality of the Federal Reserve System, it is recognized that the said system has operated continuously as the central banking system of the United States since the inception of the Federal Reserve Act of 1913;
WHEREAS, the Constitution of the United States of America granted Congress the authority to create the current Federal Reserve System, it also does grant Congress the authority to modify or revoke the Federal Reserve System;
WHEREAS, the actions of the Fedreral Reserve System represent the credit and currency of the United Stated of America to the citizens of this great nation and to the world;
WHEREAS, the Federal Reserve System, acting independently within the federal government allowed, supported, and even promoted parasitical and non-productive uses of the money and credit of the United States of America;
WHEREAS, the United States and likely the entire world's financial system is undergoing massive de-leveraging of the said parasitical and non-productive uses of the credit and money of the United States of America (as well as other nations' currencies);
WHEREAS, the US dollar, the "Federal Reserve Note" is declining in value due to these parasitical activites, as well as potentially other causes;
WHEREAS, it is recognized that the citizens of the United States and other nations did willingly participate at some level in the creation and propogation of said parasitical activities;
WHEREAS, it is also recognized that the United States of America, a sovereign nation, has the legal, moral, and God given authority to take actions to benefit its citizens and to protect its good name, credit and money in times of difficulty;
WHEREAS, it is recognized that the current time is such a time of great difficulty;
WHEREAS, it is recognized the parasitical financial institutions and their activities are at odds with citizens of the United States of America and the good credit and money thereof;
WHEREAS, the current indications are that the Federal Reserve System is acting to preserve the financial system currently flooded with the parasitical activities;
WHEREAS, the current indications are that the neither the Federal Reserve System, nor the Congress of the United States, nor the people of the United States have access to the books of the institutions being preserved by the Federal Reserve, and therefor the degree of inter-connectivity and risk associated with the institutions and other entities cannot be determined;
WHEREAS, the Federal Reserve System is accepting non-performing assets as collateral for credit with ultimate taxpayer responibility to entities not under its legislative mandate;
IT MUST BE CONCLUDED, that the Federal Reserve System is not acting to the benefit of the people of the United States of America, its credit, money, and good name;
WHEREAS, it is recognized that the political will and capability of the government of the United States of America may not be up to the task of prosecuting this proclamation ; It is also recognized that this may be the only hope for the continued survival of the United States of America as the great nation as it has historically existed.
NOW THEREFORE, it is PROCLAIMED by those supporting this Proclamation that the Congress of the United States of America FULLY NATIONALIZE the Federal Reserve System, and take full control of the credit and money of our great nation; The Congress must take whatever action necessary to seperate out, sequester, disown, or otherwise neutralize the effect of the parasitical financial activities which led to the current crisis; The Congress of the United States of America must reorganize, replace, or terminate the Federal Reserve System as appropriate; or otherwise devise a system for creation of the national currency.
IT IS FURTHER PROCLAIMED, that the Congress of the United States of America in cooperation with the Executive of the United States of America contact allied nations and any other nation willing to participate in the overhaul of the failing and parastical financial sytem currently in operation and create new treaties and alliances as necessary to create a sane and productive system of finance with the express goal of supporting a productive national, and by extension and through voluntary cooperation, world economy;
FURTHERMORE, it is PROCLAIMED that it should be the goal of such an international effort to maintain fair international trading practices allowing for protection in national interest of labor, resources, and productive capabilities;
WHEREAS, it is recognized that such a move on the part of the United States of America may result in the necessity of an isolationist policy IF the other developed nations do not follow our lead; If such occurs, so be it.
SO HELP US GOD!
No doubt this is the tip of the proverbial toxic iceberg that rests on the Fed balance sheet. No wonder the Fed does not want to be audited. They would be found to be guilty of fraud at the expense of the taxpayer so that the banksters can get their fat bonuses. There is no justice - only crime.
Kudos to Janet Tavakoli who keeps the light on the path to truth.
Spitzer had it right, FED=Ponzi scheme
Suggestion -- you might consider modifying the second sentence in the second paragraph in the section marked "Plenty of Time to Renegotiate AIG's Contracts." The underground is all about not being exposed. Feel free to delete this as well.
I wish my father had been a democrat senator. He would have believed every lie I told him. Unfortunately he wasn't and I got my butt beat regularly.
In 6 minutes none of this will matter anymore. Once Bernanke is confirmed, Geithner is as good as gold. He will become untouchable again. FUCK THE WHOLE DAMN SYSTEM.
Preliminary count, for 2006+ vintage I get 26 (out of 178) CDOs on which AIG sold protection. However, if you look at notional size ($21bn out of $62bn) and mark-to-market ($11bn out of $33bn), you can see that those deals were larger and accounted for about a third of AIG's losses. But what's a teracent (you know, 1% of $1tr) between friends?
I'm basing this all on the Schedule A and haven't actually pulled info on the CUSIPs from Bloomberg. Some tranches are missing a vintage year (CAMBR, INDE6, MKP, SCF), and I'm not including them in 2006+ figures.
I think it is perfectly reasonable to use this "sample" of the Fed's balance sheet (i.e., the infamous "Schedule A") and extrapolate the value of the Fed's balance sheet from that. If that were true, what are the losses?
On Bernanke, rest comfortably friends, knowing Ben will be there when the prosecutors come a callin'.
It will soon be time for Issa to call a grand jury for the AIG debacle, and fix this the only way it is going to get fixed, by bringing in the sheriff to enforce the law. It is silly to expect that a group of criminals will suddenly decide to straighten up. These guys are recidivists, incurable and essentially financial pederasts.
There are only a few things in the world that stink so bad I will not roll in them. I can't think of any just now but I know they exist. This whole affair is beginning to remind me of road kill skunk.
If our Treasury secretary is lying sack of poop, will the USA still be able to raise the necessary $2.4 Trillion in new debt. Yes, because its the taxing power that supports the debt not a lying sack of poop.
"...the report shows more than 10% of the CDOs on which AIG sold protection appear to be from 2006 and 2007."
See http://www.nakedcapitalism.com/2009/11/how-goldman-secretly-bet-on-the-u...
for a possible explanation:
AIG got out of subprime in 2005/2006 – whenever – but it didn’t matter. Why?? Because the same crappy borrowers that made it into 2005/2006 subprime RMBS refinanced and ended up in the 2007 vintage. Guess who had to buy the 2007 subprime RMBS paper when the 2005/2006 paper repaid? You got it – the 2005/2006 CDOs. CDOs have reinvestment periods (4 yrs for SF CDO) whereby they have to continue to be fully invested rather than letting their liabilities get repaid. The liability buyers don’t want their valuable paper to be repaid early – or, do they????
If the Pulitzer still has any credibility, it should be awarded unanimously for 2009 to ZeroHedge. 2010 too.
Thank you very much.
Next...
Obtaining Property by DeceptionSection 15 of The Theft Act 1968 makes it an offence to obtain property (money and all other property, real or personal, including things in action and other intangible property) by deception:
(1) A person who by any deception dishonestly obtains property belonging to another, with the intention of permanently depriving the other of it, shall on conviction on indictment be liable to imprisonment for a term not exceeding ten years.
(2) For purposes of this section a person is to be treated as obtaining property if he obtains ownership, possession or control of it, and "obtain" includes obtaining for another or enabling another to obtain or to retain.
(3) ...
(4) For purposes of this section "deception" means any deception (whether deliberate or reckless) by words or conduct as to fact or as to law, including a deception as to the present intentions of the person using the deception or any other person.
Only applies to persons; not corporations, institutions, or politicians. Nice try though.
I thought corporations were now to be considered the same as citizens since the supreme court ruling this past week.
'Persons' are considered corporations and treated to summary court martial in the public courts of equity/admiralty so why the hell not.
I'm no Barrister, so I won't comment on English law. The Theft Act thingy is an English law. I cited it because it is possible that there could be some concerns about these things in London.
As for what has been done, and what to do about it in the USA, these are matters best left in the hands of Messrs. Barofsky & Holder.
NY Attorney General Andrew M. Cuomo probably should weigh in as well since possible violations of NY law may have occurred in his jurisdiction.
The criminal justice system and asunder attorneys are likely to be very busy for a long time.
From the hearings 1/27/10
Marcy Kaptur: A lot of people think that the president of the NY Fed works for the US Government, but in fact you work for the private banks that elected you!?
Tiny Tim: NO! THAT IS NOT TRUE!!!!
Kaptur: Can you provide for the record the names of the handful of bankers on the board of the NY Fed that elected you in 2003?
Tiny Tim: Well thats a matter of public record. Congressman, what you just said wasn't true! I work in the public interest [That doesn't preclude you being a stooge for the private banking clan. This guy dodges answers like Neo dodging bullets]. Officials of the Federal Reserve...work for the public interest [Of course they do, gotta keep the public paying those taxes], and they work for the government [uhhmm....hmmm...well.....no, actually, they don't]
Kaptur: (Brief)..but the government doesn't elect you....
Tiny Tim (this is a good one-- Non stop lying):
What the congress did in setting up the Fed *pause* [I'm all ears!], they set up a system *pause* where the presidents of the regional reserve banks are elected by their board but that requires the approval of the chairman of the board of governors in DC for them to serve [so.... in other words, neither the people nor the government elect you, and you work for private bankers.. Didn't he just say that's not true??? this guy is unbelievable] so it is a delicate balance *pause* of checks and balances [no.. it isnt] and congress designed that system [no.. they didn't, the bankers did].
Timmy needs a backhanded pimp slap in the mouth and some eyebrows. What a piece of filth.
GAWWD--you nailed that one!
Where the hell is Grayson when you need him???
We need to start from the ground up, and educate Americans about the roots and anatomy of the Federal Reserve.
Our founding fathers are rolling over in their graves, of that we can be sure. Over and over, they have tried to warn us in the strongest of terms about people like Geithner and Bernanke.
There is nothing up for debate.
Obvious crimes have been committed by Geithner and the FED toward the American people.
This is black and white. The only question is---WHERE ARE THE HANDCUFFS and WHY would this administration back these criminals????
Barry has just learned there is an Unemployment problem in this country, after having wasted a full year squandering the biggest clean-up opportunity ever presented.
Denials, obfuscation,Goldman plants everywhere in the government, offshore bank accounts, crooked bonuses- hey, these guys believe they will continue to get away with the CRIME OF THE CENTURY.
Perhaps they will, but everyday, Me thinks, they protesteth too much.
You guys don't really think the top end of the financial elite is going to fall from it's perch when they have the power to pass the losses on , do you?
We all know they should face the consequence of their failed bets but they have the power and connections to corrupt the system to their benefit whilst impoverishing the rest of the people.
The bankers have political, military, police and judicial support now to protect themselves and remain as rich as the French aristocracy before the Terror.
I still read blogs where the dispossessed believe in the American Way and democracy, what a joke.
Does this apply to the AIG debacle?
Commentary - 01/28/2010
Noble Lies And Muddy Brains
It's extremely frustrating to see those who lie and steal be financially rewarded, yet those who try to help others hang onto the rewards of their labor and efforts seem punished and drained until they can do no more. Until recently, I had not realized that it has been that way for a very long time. We're talking back to 380 B.C.! Plato's time. By inadvertently coming across Noble Lies and Muddy Brains, today's current events seem more easily and clearly understood.
When trying to truly understand something, one must drill down deep into their subject. In martial arts, it's called "breaking down," studying movements within movements. In economics, it's "pure research." While doing so, a click of the mouse landed me in the description of the "Noble Lie."
In politics a noble lie is a myth or untruth, often, but not invariably, of a religious nature, knowingly told by an elite to maintain social harmony, particularly the social position of that elite.
Maybe this is what Thomas Jefferson meant when he wrote:
"How soon the labor of men would make a paradise of the whole earth,
were it not for mis-government, and a diversion of all his energies
from their proper object -- the happiness of man --
to the selfish interest of kings, nobles, and priests."
http://greatreddragon.com/
AIG Should have been allowed to fail: http://www.truthsavvy.com/content/why-us-government-should-have-allowed-...