H. Rodgin Cohen's (Failed?) Quest To Backstop Every Bank... Ever (And Usurp Geithner's Throne)

Tyler Durden's picture

Over the past two weeks many banks issued press releases and opened up the PR spigot to indicate just how stable they all are now that a few have managed to pay down their TARP commitments. This of course, is nothing but a complete farce, and simply yet another chapter in the "consumer confidence" game played by the administration and its financial underlings. In order to see just how much the banking system depends on the continued unlimited wallet of taxpayers and Geithner's printing presses, and how much certain law firms continue to depend on the somewhat less limited wallet of Wall Street, I present an October 31, 2008 letter recently obtained by Zero Hedge, in which Sullivan & Cromwell, Wall Street's #2 favorite law firm (or is that #1: I am sure Wachtell Lipton would have a few choice words with regard to that particular league table rating, although it may be hard pressed to match S&C's $241,975 in donations to the Democratic National Convention), goes to town to make sure that its well-deserving clients including Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JP Morgan Chase, Merrill Lynch, Morgan Stanley, State Street and Wells Fargo get to not only have the taxpayers' cake (in perpetuity), but eat more and more of it each day. Before I get into the meat of the letter, it just has to be a complete coincidence, that these are exactly the same 9 firms that a mere 2 weeks prior to this letter was sent out had a rather direct head to head with the President's Working Group, during which each one was apportioned $x billion in TARP after exactly zero due diligence, in order to plug the dike of complete financial collapse with almost a hundred billion fingers of taxpayer dollars. But, as they say, once you've had a taste of the free buffet, you only want more and more and more. True to form: the banks promptly showed up for another serving, and Sullivan & Cromwell was gladly there to charge taxpayers at the preferential rate of almost a thousand taxpayer dollars an hour, compliments of one H. Rodgin Cohen (more on him later).

Now, it is no secret that when it comes to taxpayer guarantees and subsidies, the TARP is and has always been mere window dressing: as a backstop tranche, it only has to do with equity values, which as any rational observer of the financial system (this list of course excludes the likes of Dick Bove) knows full well, are at best equal to zero if all the FAS 115, 157, Level 3, Mark To Magic and other accounting sleight of hand gimmicks were to be removed.

The math is simple: bank assets have to equal bank liabilities + equity. The liabilities are there (and growing), yet the assets shrink every single day backstopped by such solid collateral as emptying midtown office space CMBS, bankrupt hotel and Harlem multi apartment whole loans, and 2nd liens in Ukrainian and Argentinean bison farms. If equities were marked appropriately, shareholders would likely have to be paid to own a share of Citi or BofA.

Then again, caught in a massively engineered short squeeze over the past 3 months, financial stocks ended up bottlerocketing straight up, not on fundamentals, or even on charts, but merely on two large stock loan issuers (themselves participants in the list of nine mentioned above) making it not only impossible to short fin stocks, but forcing anyone currently short to cover. And while TARP manipulation serves at best to fool some outlying marginal retail investors into a false sense of calm, the TLGP is where the real action is. And as of May, there was a lot of action: $345 billion worth of.

One last background item worth pointing out is that recently the FDIC realized its Deposit Insurance Fund was on the verge of depletion, sucked dry by those very banks that seem to fall like dominoes every Friday (or lately Thursday, with the total YTD now passing an unprecedented run rate of over 100 for the year). Recall that the FDIC's primary responsibility is to make sure that come hell or high water, deposits are secured and insured. Well: surprise, they aren't, which is why in March Sheila Bair announced several emergency steps to restore the rapidly dwindling reserves of the FDIC, most notably having to do with charging incremental assessments to both depository institutions and bank holding companies (well that, and also tapping a huge line of credit directly with the Treasury in case Citi were to finally admit that it is nationalized in all but name).

Enter H. Rodgin Cohen and Sullivan & Cromwell, on behalf of the Ben's Big 9 Bailout Beneficiaries (BB9BB). The letter sent to the FDIC pretty much made it clear that banks want not only to gestate in the warm cocoon provided by taxpayers' dollar bill plastered abdomens, but to have immediate recourse to essentially unlimited FDIC funding at practically no cost to them for ever and ever.

Some of the key demands made by the BB9BB - S&C cartel include:

1. The FDIC guarantee should be an unconditional guarantee of timely payments of principal and interest when due backed by the full faith and credit of the U.S. government.

Goodness, we wouldn't want to have conditions when providing the entire American financial systems with a taxpayer-funded blank check now would we. A blank check with even one footnote of small print is inappropriate when dealing with the instigators of the biggest financial catastrophe since the Depression. So no fine print please. Done and Done.

2. Because the FDIC's guarantee expires on June 30, 2012, there should be an acceleration provision to June 30, 2012 in the event of default for guaranteed debt that matures after that date.

Wouldn't want forced short-squeezors, pardon, investors, to somehow think that there is such a think as risk in the banks' capital structures now, would we. In fact, this whole concept of risk, let's just do away with it entirely as the market trades merely on rolling buy-ins and follow on equity issuances. Done and Done.

3. If investors regard the guarantee as weak, they will look to institutions' underlying financial strength, thus lending to a tiered market where weaker institutions have insufficient access to liquidity.

What an abhorrent concept - judging a bank by its fundamental merits: the Horror, the Horror. How would the FDIC possibly allow a financial institution to be judged based on its "underlying financial strength": don't they realize that the BB9BB have made it all too clear that we now live in a communist regime where nobody can every fail based on their own "merits" and that everyone will be bailed out in perpetuity. How shallow: H. Rodgin Cohen, please explain to them how the system works. Done and Done.

4. Institutions should have the flexibility to issue senior unsecured debt not guaranteed by the FDIC, regardless of the stated maturity.

Yes Goldman, we realize you want to pay record bonuses even as unemployment hits 11% without starting a mass revolutionary uprising. Duly noted and Done and Done.

5. The Banking Organizations (BB9BB) agree with the FDIC that participating entities should have some mechanism to opt in or out of guarantees on a per issuance basis but believe that this option should not be limited to debt with stated maturities after June 30, 2012. [T]he Banking Organizations believe that this limitation will not achieve the FDIC's stated objectives [of not raping the taxpayer? of course, the BB9BB would like to interject here].

Hell, just make guarantees perpetual: it is not like the financial system will ever rebound. After all who are we fooling here? Well, aside from CNBC's primetime TV audience, wink, wink. Nonetheless, we advise readers to read the "cliff maturity" justification on or around June 30, 2012. This coincides nicely with the $1 trillion in CMBS that comes due about the same day. Should prove to be an amusing "day", "week", "month", "end of tenure" for whoever is president then. But who cares: that will occur at a time when the U.S. sovereign debt approaches something with a "quad" and ending in "rillion", and all the current BB9BB executives (long retired then) will have that 98th, 99th and 100th house in Cannes, Fiji and inside the crater of Mt. Etna. Done and Done.

6. We believe it would be appropriate to exclude public sector clients, banks and other financial institutions from because imposing a 75 basis point on deposit accounts for such institutions would eliminate the yield paid on these products and potentially encourage such institutions to move funds into higher yielding "unguaranteed" products, thus potentially reducing a participating entity's liquidity sources... Considering the current level of interest rates, the [BB9BB] believe that the 75 bp fee is too high with respect to the Federal Funds, and should be lowered. The high cost of insuring Federal Funds may lead institutions to other secured borrowing sources so that, in lieu of Federal Funds, financial institutions will, in order to mitigate their funding costs, increase their utilization of secured borrowings sources such as the Federal Reserve Discount Window, the Term Auction Facility and the FHLB advance program. Such an outcome would not achieve the FDIC's goal of improving short-term unsecured inter-bank funding markets [and, again, of not raping the U.S. taxpayer, which is so totally contrary to the lobbying effort contained herewith]

What irony: the BB9BB are demanding for unlimited guaranteed and unguaranteed backstops and someone dares to ask them to pay for it. If this isn't the most unhinged and inequitable concept the BB9BB have ever heard, then nothing is. H. Rodgin Cohen will set it all straight, and make sure that not only can banks borrow Fed Funds but taxpayers will have to pay them a portion of how much they borrow and at what rate. In fact the bank that recently ended up "borrowing" 7% Fund Funds was actually a lender, and H. Rodgin Cohen made sure that instead of paying 7%, they received that amount of money. Done and Done.

7. Under 370.6(e) there is a 150 basis point penalty fee and enforcement mechanisms for debt that is represented as being "guaranteed by the FDIC" but which exceeds the guaranteed amount. In order to enhance investor confidence in the Debt Guarantee Program, the Banking Organizations propose that investors be expressly allowed to rely on the borrower's representation with respect to the availability of the guarantee for a particular debt issuance.

You see, FDIC, it is simply unfair for investors and depositors to have an objective and unbiased representation. Especially since the BB9BB have every intention of abusing the guarantee/non-guarantee barrier at every possible occasion. However, this whole 150 bps penalty, well, that's just too rich for S&C's billionaire clients' blood. Let's cut a deal: the BB9BB will represent the debt in any way they want, and in turn, the FDIC will not only turn a blind eye to any and all (guaranteed) abuses that occur as a result, but also will not charge any penalty or enforce any actions against this outright abuse? Done and Done.

This and much more is contained in the attached missive, which was undoubtedly scribbled in short-hand by the BB9BB on the bent over back of one H. Rodgin Cohen. I recommend readers familiarize themselves with just how the world's most effective lobby power works when it hegemonic status quo is even remote threatened.

Which brings us to topic #2 for today, that of the mellifluously sounding H. Rodgin Cohen. Frequent readers may recall, that H. Rodgin Cohen, whose name rolls out like a haiku by a moderately drunk Basho, was supposed to become none other than Tim Geithner's right hand man, yet something odd happened on the greenback-bricked road which was supposed to guarantee H. Rodgin Cohen's unbridled immortality by having his portrait prominently featured on the $100 trillion bill. Just what was, as George Stephanopoulos noted, the "issue that arose in the final stages of the vetting process."

While still on the topic of the haiku-esque H. Rodgin Cohen, many relevant questions brought up, and few answered, in this craftfully worded post by Tom Blumer of NewsBustes. I recommend readers familiarize themselves with the persona that nearly became TurboTaxTim in waiting. In the meantime, Zero Hedge will continue to present any and all lobby papers by Sullivan & Cromwell on behalf of the BB9BB, just in case H. Rodgin Cohen has decided to bypass the post of Secretary of the Treasury and apply straight for that of Overlord and Viceroy of all of Western Capitalism. With the backing of such "clients" as Goldman Sachs, he is essentially guaranteed to "win" that particular popular (or not)election.

hat tip Richard

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Anonymous's picture

The URL to the PDF doesn't work. There are many familiar issues with using spaces in filenames on the Internet.

I suggest using underscores instead of spaces in your file names. Eliminates space problems in url's.

maximus's picture

Bears be patience.

Whatever comes out of these gates, we've got a better chance of survival if we work together. Do you understand? If we stay together we survive...

Anonymous's picture

H. Rodgin Cohen
A mysterious fellow
Dark Operator

Anonymous's picture

H. Rodgin Cohen, A mysterious fellow, Dark operator

Anonymous's picture

More haiku......H.Rodgin Cohen, Operates in secrecy, What is he hiding?

pancho's picture

The United States of America, the best damn Banana Republic in history.  Now that is something to be proud of.

Anonymous's picture

5,7,5 half-wit

RobotTrader's picture

The U.S. a "Banana Republic"?


Don't laugh.  We should be proud.  The Fed and the Treasury Department have pulled off the impossible:

The United States is the "Hugh Hefner" of sovereign nations.

1).  Despite trillions in deficits, Interest rates are still at 45-year lows, with yields on the short end still under 2%

2)   U.S. Dollar still viewed as the global reserve currency of choice.

3)   Both U.S. dollar and U.S. Treasuries enjoy the status of "safe haven" investments where billions flee to whenever there is the slightest whiff of a stock market or commodity selloff.

4)  U.S. runs unlimited budget and trade deficits, yet our foreign creditors continue to happily finance our profligate spending without any concern whatsoever.

5)  Our banks are choking on toxic assets, yet they are able to issue new equity within 24 hours, bascially on demand with no prospectus, no due diligence, no road shows.

6)  United States is the home of the most sophisticated financial powerhouse ever known in history:  Goldman Sachs.  Goldman essentially dictates stock market direction via its prop desk, and world commodity prices are determined entirely by Goldman computer traders who can push futures around via unlimited naked short selling or binge buying, whatever suits their needs.

I mean really, what other country has pulled off such a magnificent feat?  Hugh Hefner has 3-4 wives/girlfriends at a time, all 60-years younger than him.  The U.S. is no different.  The envy of the world.

shortsail03@yahoo.com's picture
shortsail03@yahoo.com (not verified) RobotTrader Jul 5, 2009 12:28 PM

Envy?" You meant most despised by the rest of the world, didn't you?

agrotera's picture

Hi Robo,

I am sure you are right for the population of the world, but i think that the governments of the world have caught on the the heist the day that obama and geithner announced that instead of investigating TARP and the other paulson/bernake plan, they would back it and add to it.  That same week China announced a warning to the US to be careful with their investment and the UN announced it's intention to recommend moving away from the US$ as world currency.  From the obama inauguration to that week, the world seemed quite and in my opinion, there was still hope that obama wasn't actually a federal reserve shill puppet.  All hope was lost that week.

Anonymous's picture

Timothy Geithner, One more Haiku friendly name, Cheats on his taxes

chumbawamba's picture

How many goverment lackeys do you think inhabit the 0H comments so they can snipe at the people who laugh daily at their silly and retarded escapades?

I am Chumbawamba.  I will eat your soul and vomit it back out onto you.

Anonymous's picture

I like to think that it is the ratio of liquid assets, defined for you below, to FDIC insured liabilities that is the acid test, and that the FDIC and all the other "officials" know very well that the banks, individually and all together, don't have enough liquid assets to cover the FDIC insured liabilities with any margin of comfort.

By liquid assets, I mean cash plus assets about which there is no reason to rely on estimates of value: Marketable securities (that really can be sold in one day and about which there is no question as to valuation) and money-good Loans (meaning performing loans that are not, in bank examiner language, not adversely classified under any regulatory review, internal review or stress test).

The public has a right to know the extent to which the FDIC insurance fund is exposed, based on this calculation, because the taxpayer is ultimately on the hook for any shortfall.

To underscore ZH's point, Rod Cohen's negotiating points speak volumes about the posture of his counterparty. It's an adversarial game in which the side with the big bucks is perceived to be weak. Why? Cronyism, oligarchy, regulatory capture, all that stuff doesn't explain it completely.

The Fed, which has become the operational arm of the Treasury, which is dominated behind the scenes by the President's most powerful economic advisor is taking the position that massive liquidity provisions will buy enough time for the system to right itself. They are protecting a system of trading, which is the Fed's operational mode. The Sheila at the FDIC, which would have liked to start unwinding the exposure at the big banks, lost in the most recent battle that led to the proposed regulatory reforms. Nobody sees a way to manage the fallout from a big bank failure. The FDIC fund is a tower in the flight path of a hijacked commercial airliner.

RobotTrader's picture


The Fed will simply monetize more toxic assets, print more money, and engineer a stock market crash to get more "investors" to flee into the safety of U.S. Treasuries and U.S. Dollars.

Wash, Rinse, Repeat

Bam_Man's picture

Tyler forgot to mention that H. Rodgin Cohen is a former Outside Counsel to Goldman Sachs.


Another of the "Killer Vampire Squid's" tentacles.


Anonymous's picture


FYI -- Something's wrong with the HTML / CSS on this page. I get black text on a dark grey background. (Firefox 3.0.11)

Marla Singer's picture

That's me, editing.

Undertaker's picture
Undertaker (not verified) Jul 5, 2009 12:36 PM

Mr. Rodgin certainly has his dirty little finger under a lot of skirts.


crazyjerrygarcialover's picture
crazyjerrygarcialover (not verified) Jul 5, 2009 12:46 PM

Tyler, you wrote:


"yet another chapter in the "consumer confidence" game played by the administration and its financial underlings."


But could just as easily have written:


"yet another chapter in the "consumer confidence" game played by the financial/banking industry (parasite) and its administration/government underlings."


Which is the dog, which is the tail?

erich's picture

Attempted theft of Goldman's propietary trading software?



A Goldman trading scandal?

Did someone try to steal Goldman Sachs’ secret sauce?

While most in the US were celebrating the 4th of July, a Russian immigrant living in New Jersey was being held on federal charges of stealing top-secret computer trading codes from a major New York-based financial institution—that sources say is none other than Goldman Sachs.

Eduardo's picture

So ... the first Goldman explanation to their domination of the program trading at the NYSE was that they were part of the SLP program. That did not fly. Now, the second explanation and contradictory to the first one is that they were actually making tons of money with their exquisite, low latency, proprietary software. So great that everyone wants to steals it. Therefore the NYSE should not publish the program trading statistics anymore in order to protect poor innocent Goldman ... Yeah, right  !

erich's picture



Umm, you mock the story and seem to imply Goldman is promoting it for some bizarre reason, while Tyler calls it a national security issue.  Interesting...

Anonymous's picture


Comrade de Chaos's picture

"At least 3 people have been killed during the riots in northwest China, state media reports."

So which bubble will pop first, the Green Shoots or Red Dragon. Maybe we should have a poll. 




P.S. Reuters


Spring US housing market hints recovery ... LoL

Anonymous's picture

Nauseating scum.

Jump you fuckers.

Anonymous's picture

Let's hear everyone's take on ECRI:

Good news, everyone: The recession will end this summer.

The economic forecasting gauge with the best track record was positive in the past two weeks for the first time in nearly two years.

The Weekly Leading Index from the Economic Cycle Research Institute was up 2.1 percent when it came out June 25 and then up 4 percent Thursday.

"We'll definitely see the end of this recession this summer," ECRI managing director Lakshman Achuthan said Wednesday. "As unique and unprecedented as this recession has been, the transition to recovery is showing up in a textbook way in the leading indicator charts."

Achuthan said the recovery is also showing up in the longer, shorter and coincident indexes maintained by ECRI - plenty of evidence that it has a life of its own.

"When you have a pervasive move in the leading index as we have now, it suggests a more virtuous cycle that feeds on itself has begun," he said.

Achuthan acknowledged that difficulties such as unemployment and excess debt will take a long time to overcome, and that confidence is weak. That's to be expected.

"The general mood is probably overly pessimistic. That's quite normal in the wake of a crisis. There is almost always a giant error of pessimism," he said.

Since we understand now how an excess of optimism led to the borrowing and buying boom that caused the recession, our efforts to avoid making such a mistake again push us in the opposite direction, he said.

What's unclear and perhaps yet to be determined is the strength of the recovery, he said.

Achuthan said that since only a small portion of the $780 billion federal stimulus approved in the spring has been spent, as more of it reaches the economy it could reinforce the upturn showing in the leading indexes.

"Another kind of game changer relates to home prices, where if we have a stabilization in home prices - and there's evidence that is happening - then the toxic assets that have been at the heart of the crisis start to get neutralized," he said. "The reason that's important is if home prices stop falling, these essentially 'zombie' banks start to come back to life."

Banks are sitting on a lot of monetary stimulus from the Federal Reserve, he said, and when they get back to normal, they'll start passing that liquidity through to businesses and the economy.

While those events would signal a stronger recovery, it's also possible the economy could experience a second dip, as it did in 2002, but not go back into recession, he said. The worst case would be like the early 1980s, where after a year of recovery another recession hit.

But Achuthan thinks those outcomes are unlikely and is confident that the Weekly Leading Index would will give warning ahead of time. "If it begins to turn back down, that's a big warning sign of worse to come," he said.

For that reason, he's somewhat bullish about the markets.

Even though stocks have risen about 40 percent since March and many commodities are up more than 100 percent, there is still room for improvement in market sentiment, he said.

"I think there is a significant group, maybe a majority, that believes one way or another that the market rally is a bear trap and not a real upturn," Achuthan said.

"The indicators don't forecast the markets directly - we don't make calls - but they can tell us that the likelihood of a cyclical downturn in the market from here is low," he said. "So that can be taken as marginally or outright bullish. ... We're not saying it can't go down 5 (percent) or 10 percent."

Exactly when the recession ends this summer won't be known until a year from now, he said.

That will happen when the data revisions are done and the National Bureau of Economic Research sets the date. In the last recession, the NBER decided in July 2003 that the recession had ended in November 2001.

"Let's not hold our breath for that," Achuthan said. "We'll all get a sense in retrospect that the recession ended this summer."

Anonymous's picture

I have been enjoying William K. Black's "The Best Way to Rob a Bank is to Own One" (U Texas Press 2005). It's like deja vu all over again, only this time ramped up by more than a few orders of magnitude. Now, where can I get my blue pill?

agrotera's picture

This post makes me feel like i have felt when someone i love has died....

US citizens and the world are held hostage to the ramifications of what might have happened if the actions taken by the fed/treas weren't taken over the last 9 months...but part of what holds everyone hostage is having no way to looks at the long term ramifications of what is currently in play, verses the scenario where instead of lobbying for TARP, MER, GS, MS and C had either made it or failed, and paulson/bernake had asked for authority to unwind these entities ( not to mention the AIG scam). 

In other words, the energy/money/goodnameoftheUS  that went into the current bank heist where banks have gotten every last bit of our countries credit, that good name and money printing potential was conserved for that real problems that must be addressed with a decaying infrastructure, an underfunding social net (social security) and other things to protect our nation.  Our creditors know that this heist has been implemented and i believe this is the straw that broke the camels back in the world patience has been broken and that we can't get it back unless we have a huge crackdown on this bank robbery, and set right what is wrong.


Shaza's picture
Shaza (not verified) agrotera Jul 5, 2009 4:16 PM

Agrotera, another good post from you today. Somehow you just seem to encapsulate 'it'. I guess the thing to realise and never forget is that banks do not have any allegiance to any country. BUT, the Governments of the world have some sort of sick allegiance to their Banks ( CB's). Very twisted. That is the world in which live, unfortunately.

agrotera's picture

Hi Shaza!  It is so hard to live with what seems to be such gargantuan, monumental deception!  Yes of course banks are important, but keeping failed entities alive with our last shred of world credit and integrity seems be be the most obvious way of unmasking what looks like a bank heist.  And even if we had the means, as a country to pour in the trillions that have been printed to do this, it wouldn't make it just and right.  I think people know, but they are just too afraid to argue with the lies.

Shaza, maybe i am just a dreamer, but i can't give up on the idea that this can all be uncovered and corrected in some way--if the public knew the truth and if the public peacefully insisted on corrective actions, that would do it wouldn't it (i know i probably sound like a 6 year old who wants to save the world from corruption!)

Thank you!

Anonymous's picture

agroterra, I thought you might find this interestng. It's long, though. http://www.oftwominds.com/survival-plus1.html

Shaza's picture
Shaza (not verified) Jul 5, 2009 4:28 PM



you bring up an interesting point...Yes, Americans as a group are becoming despised and that is so sad and dangerous, espcially for expats from USA who live abroad. I live in Australia  and have a few friends in Sydney from USA. All of them are starting to tell strangers who ask where they are from that they are Canadian.

Some of my American friends here have been told things like, " If I had a gun a would line you ( Americans) up against the wall and shoot you".  That sort of sentiment is disgusting BUT it is happening. IT is a sad day when individual Americans are taking the brunt for the egregious policies of Governments/Banks ( sorry, I don't seperate the two anymore) 

I have one American friend who is taking his family back to the US as he is afraid to live outside US borders now due to escalating prejudice against US citizens living abroad, very, very sad that the leadership of US is putting Americans in this position of fear abroad...Where this is leading can not be good for human rights or human dignity. 


agrotera's picture

Shaza, it is so very tragic to hear your story here.  It just highlights how important it is for some corrective justice to be done here--if obama doesn't want to step up and do the right thing, i am still holding out for the house of representatives to keep enough courage, integrity and backbone to now bowdown and kiss the ring of the federal reserve(and all their agents including our president, senators, member banks et al)

If the audit the fed hr1207 bill doesn't pass, i hope that will be enough to set into motion enough outrage for instead, a new bill to be passed which revokes the federal reserve's private ownership, and revokes all tarp and other acronyms, etc.  But, someone needs to keep the public aware that the fed is ready for this battle with their new x-enron lobbyist.

Anonymous's picture

Nice find, good stuff Tyler, thanks