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AIG: Time for Treasury Secretary Geithner to Clean Up the Mess
- AIG
- American International Group
- Barack Obama
- Bear Stearns
- Central Banks
- Citigroup
- Fannie Mae
- Federal Deposit Insurance Corporation
- Federal Financing Bank
- Federal Reserve
- Freddie Mac
- General Motors
- goldman sachs
- Goldman Sachs
- Great Depression
- JPMorgan Chase
- Lehman
- Lehman Brothers
- President Obama
- Private Equity
- Richard Alford
- TARP
- Tim Geithner
- White House
Over the past several weeks, the news has been filled with reports
about the likelihood of taxpayers recovering their investment in
American International Group (AIG). We wrote about the AIG bailout in
The Institutional Risk Analyst a great deal over the past two years,
most recently in 'The AIG Rescue: What Did We Bail Out and Why?', March 22, 2010. Our contributor Richard Alford then opined:
“Why did the Fed let itself be put in the position where it became
expected to act as a bankruptcy court and a supplier of capital to
private insurance concerns? And why did we bail out the operating and
capital deficits of AIG, deficits which suggest the same type of
questionable accounting maneuvers and regulatory arbitrage as was seen
in the Lehman Brothers collapse. If a bailout of AIG was better than
bankruptcy, how would we know?”
How indeed. Part of the problem with the AIG situation as well as
the other “investments” made by the Fed and Treasury in assets from the
failure of Bear, Stearns, is that Treasury Secretary Geithner has not yet
done the right thing and asked Congress to clean up his mess. The
reasons for this reluctance are obvious now barely over a month before
the mid-term election. And Tim Geithner’s latest efforts to window
dress the AIG situation stem from the same political motivations.
The fact is that the “loans” by the Fed to AIG were really private
equity investments and thus illegal under the Federal Reserve Act.
Under the new Dodd-Frank law, the Fed could not make these advances at
all. Thus the first step to getting this situation in order is to
recognize that the stakes in AIG as well as the assets acquired from
Bear, Stearns prior to the acquisition by JPMorgan Chase are illiquid,
long-term investments that are inappropriate for the balance sheet of
the U.S. central bank.
The Treasury should issue debt to the Fed in exchange for these
assets and the ownership would ultimately shift to the Federal Financing
Bank (FFB). The FFB is the part of the Treasury that ultimately holds
all financial investments by the government, including the stakes in
AIG, General Motors and Citigroup.
The FFB is the appropriate place for these assets to be house,
managed and eventually disposed of, but there should be no hurry. To
paraphrase Jesse Jones, head of the Reconstruction Finance Corporation in the Great Depression and WWII,
in this case “time is our friend.” And Secretary Geithner has private
advisers and even the FDIC available to assist in managing and disposing
of these assets.
Rather than trying to achieve some illusory political game by moving
forward with another pretend scheme for the disposal of the stake in
AIG, a scheme dreamed up in a hasty and ill-considered fashion,
Secretary Geithner and the White House should start with a small but
very important step, namely to reorganize the public stakes in AIG and
other firms now held by the Fed.
This first step will show the American people that Washington is
starting to take some significant and purposeful steps toward the restructuring which still must occur in the financial
sector. Fannie Mae, Freddie Mac and the FHA will be next. And it will
show the world that the American people are starting to take ownership
of a problem we all helped to create. Once the Treasury is fully in
control of AIG, then Secretary Geithner and Congress can deal with the
entire public portfolio of troubled companies in a unified and
transparent fashion.
If you accept that situations such as AIG and other cases where Buy
Side investors (and, indirectly, the US taxpayer) were defrauded through
the use of public bailouts of firms like Goldman Sachs and JPMorgan,
then key first step to restoring sanity to public policy is to remind
Americans that central banks are not supposed to use used for subsidies
nor for making private equity investments. Dodd-Frank properly puts the
responsibility for bailouts with the Treasury and that is a point that
the President and the Treasury Secretary need to emphasize and take
credit for winning. But only hindsight is 20/20.
Ben White wrote in Politico this week:
“Sources tell Morning Money that the Fed, Treasury and AIG are very
close to a deal that would dramatically cut the government's exposure to
the insurer-from $180 billion at its peak to $70 billion-and would
accelerate repayment to taxpayers… If this deal comes through it would
be a HUGE win for Treasury and make serious criticism of TARP even more
difficult…”
The problem facing President Obama and Secretary Geithner in AIG is
not merely avoiding public criticism due to the cost of the bailout.
The more profound issue is that the more time which is wasted
temporizing and avoiding the key issue of restructuring, the deeper the
fiscal hole facing future generations. Tim Geithner and Barack Obama
should stop worrying about the voters and start worrying about the
history books. And they can show people that they are serious about the
nation’s financial crisis by starting with cleaning up the AIG mess.
»
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Oh, for the record, I tripped getting out of the car and my coins all rolled into the drain. Boy, was I pissed. Oh well.
In other non related news, I went down to my local coin store today. Very interesting dynamics. 1st, I've NEVER had more than 1 person in front of me. Not today. There were 3 people waiting. 2nd, about an equal amount of buying v. selling. But a very interesting dynamic. The selling people were probably in their early 60s. They had some interesting junk silver, but also a lot of what could best be characterized as crap. My coin guys were being as gentle as they could explaining melt vs. sentimental value. Very sad as it appears they need the money. 3rd, and last, there was an obvious unmarked squad or some other cop vehicle out in the parking lot but not in front. 2 guys watching the comings and goings. It seriously freaked me out because my guys have their own security and this is NOT a dangerous area or even close. Perhaps I'm just getting paranoid these days. Still, it was really odd.
Sorry for the OT rant.
Have seen the same at my local shop. Have been able in the past to trade 1 collectible grade silver eagle for 2 "junk" grade (loved that deal...all my Y2K eagles were doubling), but no longer.
"Time for Treas. Secy. Geithner to clean up the mess..."
Oh, HO, HO, HO, Ha, Ha, Hee, hee, ho, ho, ha, ha,...
Whew! You got me there! Amusing!
thank goodness for Mr. Whalen. I've heard his speeches on YOUTUBE MISES.ORG . I'm still scared to death of what's coming; HOWEVER, just knowing that there are people like him out there comforts me.......... maybe it won't all end in tears afterall.
AIG was bailed out due to its deep ties with the CIA.
AIG is trading their debt for equity.
http://seekingalpha.com/article/227783-aig-pays-the-government-back-with-its-own-money-again?source=hp_wc
How long will this go on before we make it stop? The giant money centers are ringing our door bells and giving us the finger.
AIG will still get to pay bonuses this year right? LOL
Repayment? Whaddya mean repayment?
You mean to tell me that all the butt-fucks at Goldilocks, Deutsche, Barclays, and every other AIG counter-party under the sun are paying back the money they got from the US taxpayer via AIG at 100% on the dollar?
What fucking repayment?
Josef Goebbels would be proud of the Gubamnit's diversions and obfuscation redacting memory of past events.
Exactly. I couldn't say any better myself. Just being reminded of this fraudulent bs makes me so upset I could scream. Did you see the latest version of fixing AIG; The treasury will convert its holding to common stock and sell it to the public, on the stock market !
And it will show the world that the American people are starting to take ownership of a problem we all helped to create.
What BS! "The American people" didn't create the AIGFP mess-- AIGFP was domiciled in London of course BTW - - and the Lloyd Blankfein/Geithner-Paulson deal re AIG was hardly democratically done.
This key sentence is pure banksterism from another person who began his career . . . drumroll . . . at the Fed. Which Fed? The New York Fed, of course. Here's a little bio of Mr. Whalen:
In 1984, he was hired as a management trainee by the Federal Reserve Bank of New York, where he worked in the bank supervision and foreign exchange departments. He subsequently worked in the fixed income department of Bear, Stearns & Co, in London.
After returning to the United States in 1988, Christopher spent a decade providing risk management and loan workout services to multinational companies and government agencies operating in Latin America. His clients included the U.S. Export-Import Bank, Toshiba Corp, Kroll Associates and Weyerhaeuser.
http://www.theglobalist.com/AuthorBiography.aspx?AuthorId=121
Yes, this sentence you quoted reveals the wolf under the sheeps coat. Nobody has time to waste reading any-thing by this propagandist. It's very interesting isn't it that the trigger event for the financial crisis can be definetely blamed on one person who ran the AIGFP; in London, as you say. At the same time everyone involved; eg. the purchasers of the dis-functional "insurance" contracts that his unit sold, was playing "wink-wink, nudge-udge"; they all knew they were buying make believe insurance to satisfy their financial regulators that required insurance; and I believe that is why they'll never be any effective investigation of this affair; its already sinking into obscurity under the usual layers of public ignorance and credulity.
What, is a former position at the Fed or a major Wall Street firm now some kind of scarlet letter? How many more banksters are hiding among us, Senator McCarthy?
I'm not sure what exactly Chris thinks "we all helped create", and I doubt I would agree, but in my opinion, the average American is very much culpable of voting for populists who promise we can have our cake and eat it, too.
Yes; it is some sort of a Scarlet Letter; exactly. Instead of reading "Chris" get the book from the public library and find out what really happened to AIG.
Chris Whalen gave Zero Hedge a shout-out this morning on CNBC in a phone interview. That was nice in spite of having Kudlow on the same screen.
Interview starts around 2:15, shout-out around 3:05
My apologies for this brief off topic post. I am off to Greece tomorrow. Should be interesting. Morocco will have to wait for another day. Too bad, because It is french speaking, kind of, and have relatives working there which would have made the on the ground reconnaissance more in depth.
I have found that the Chinese export model has been modified. To get around protectionism, China is sending people over to Italy. Not a few, many. Instead of exporting cheap goods the Chinese are now exporting people to produce cheap goods in Italy driving down local factory wages.
Having spoken with Italian business people for the last week, I can confirm that problems are profound and deteriorating. There is palpable concern. Italys banking system has many local banks. They are being absorbed or going belly up.
In Italy, having Chinese work in factories is pervasive and now the Chinese themselves own the factories, living in them and working 24 hours a day on a rotation system. Raw materials are imported from...China. Would be interesting to see if this is happening elsewhere.
I will report from Greece.
Cheers,
Louie
What happen?
Somebody set up us the bomb!
We get signal: Gentlemen, all your Factory are belong to us -- you are on the way to destruction what you say!
Give cones change the machine!
You have no chance to survive make your time take off every sig!
Link a fast ether lord fucking net ascending for great justice.
That's absolutely terrible. I hope you post more on this situation in the future.
Interesting, "Globalization, coming to a location near you soon."
Interesting, "Globalization, coming to a location near you soon."
Louie, Thanks for the post!
Repayment? Who is kidding who?
Where is this "repayment" going? Does anyone know?
It sure as hell is not being used to reduce the deficit. Obama is spending it.
Now the next time, someone says well, $787 billion of the deficit was Bush's TARP - remind them it was a loan - been paid back - and Obama spent it - so NOW it is Obama's deficit
"remind them it was a loan - been paid back -.." That's a good one.
Tim better wear gloves, wouldn't want his own hands to add to the dirt.
I guess I shouldn't be surprised by the willingness of goobs like Ben White to swallow and regurgitate such blatant propaganda.
Somebody should produce a list of all the real beneficiaries of government bailouts and the amounts they received.
Bear shareholders - They had, and fully deserved to have, exactly zero equity in an insolvent company. Instead the Fed gifted them a payout, by overpaying for shoddy assets.
Bear creditors - Fully deservedly, they were facing haircuts. Instead, the Fed made them whole, by overpaying for shoddy Bear assets.
AIG shareholders - They had, and fully deserved to have, exactly zero equity in an insolvenet company. Instead the Fed and Treasury gifted them a sizable stake in a company whose only equity consists of money that the Fed and Treasury has pumped into it.
AIG creditors (including counterparties on derivative contracts, eg Goldman) - Fully deservedly, they faced big haircuts, maybe total losses. Instead, the Fed and Tresury made them whole.
These were huge giveaways, exactly to the people who deserved them least and who had definitely proved they were least likely to employ capital productively.
obama is a benedict arnold.
http://covert2.wordpress.com
Mr Whalen,
I am supremely enthused to see your writings posted on this site. I've always enjoyed watching you on the teevee and was not exposed to your writings until now. Great to have you!
IRA is mostly subscription, but their latest 'article' is always available for free - they are mostly penned by Chris and are a must read:
http://us1.irabankratings.com/pub/catalog.asp
(top one is always free -- back catalog is not)
History will remember Obama as an eloquent coward. Geithner is just a rodeo clown.
"Geithner is just a rodeo clown."
Love the visual :)
I would love it more if the visual was a bull was stomping him.
LOL
So who goes to jail when the government breaks the law? *Naive*
Like the Admin gives rat's ass about this. More window dressing, blather & hot air. Here's what they're really hepped up about -
www.epa.gov/environmentaljustice.interagency/index.html
Grab your pocketbooks and run for the hills, boys & girls.
Goog Stash:
EPA Hosts Historic Meeting on Environmental JusticeOn September 22, 2010 EPA Administrator Lisa P. Jackson and White House Council on Environmental Quality Chair, Nancy Sutley, reconvened the Interagency Working Group on Environmental Justice (EJ IWG) in a meeting held at the White House. The meeting, attended by five cabinet members, demonstrates the federal government’s dedication to ensuring all Americans have strong federal protection from environmental and health hazards. Read the press release.
Next Steps:The Federal Interagency Working Group on Environmental Justice (EJ IWG) was established in 1994 under Executive Order (EO) 12898 PDF (6 pp, 123K, About PDF). The EJ IWG is comprised of eleven federal agencies and several White House offices.
Focus and Goals-
-
-
Current Environmental Justice EffortsIdentifying opportunities for Federal programs to improve the environment, public health, sustainable economies, and other environmental justice issues of concern for rural, suburban, urban and tribal disadvantaged communities.
Identifying opportunities to assist American Indian and Alaska Native tribes working to develop their renewable energy resources, to promote green jobs/green economies and reduce climate change impacts.
Holding quarterly meetings to share best practices for integrating and addressing environmental justice, as well as identifying opportunities to enhance coordination and collaboration among federal agencies.
- Plan EJ 2014 - A four-year roadmap to help EPA develop stronger community relationships and increase the Agency’s efforts to improve environmental and health conditions in overburdened communities. The plan includes three main sections: Cross-cutting Agency Strategies, Tools Development, and Program Initiatives.
- EJ in Rulemaking Guidance - The Interim Guidance on Considering Environmental Justice During the Development of an Action is a step-by-step guide that helps EPA staff consider environmental justice at key points in the rulemaking process.
- Sustainable Communities Partnership - A collaborative Department of Housing and Urban Development, Department of Transportation, and EPA partnership to improve access to affordable housing, more transportation options, and lower transportation costs while protecting the environment in communities nationwide.
ResourcesLamont,
Link apparently taken down but thanks for trying.
Must have been Verrrry interesting.
Yes, VERY scary. Around 7-8 cabinet members & Carol Browner involved; huge redistribution plan. Well hear more on this as tempus fugit.
google cache has it stashed....