New York Fed Told AIG To "Stand Down" On All Counterparty Discussions
In one week, Tim Geithner will testify before Congress on his involvement in the AIG disclosuregate scandal, which, in late 2008 sought to prevent material information about AIG counterparty make-whole arrangements from seeing the light of day. Of course, in March of 2009, following political pressure, AIG and the FBRNY caved and disclosed that $27 billion in taxpayer capital had been used to yield to the bankers' every whim and to take them out at par, while their underlying AIG CDOs were priced 50% lower, if not more. Zero Hedge previously wondered when will Goldman be approached by the SEC with questions on whether or not they sold their direct AIG protection in the form of CDS to parties under a "big boy" letter, or did Goldman transact on a $2.5 billion notional position while in possession of material, non-public information. This, of course, in addition to having absolutely no impairments on their actual CDOs, thereby providing the firm with material excess returns over and above what their total capital at risk would have been. With Goldman's Stephen Friedman accompanying Geithner in the hearings, he hope that someone in authority will finally ask the right questions. And while they are at it, and have both a Goldman and a New York Fed employee in tow, maybe they can ask why NY Fed Senior Vice President on AIG Relationship Monitoring Steven Manzari told former AIG Financial Services CFO Elias Habayeb to "stand down on all discussions with counterparties on tearing up/unwinding CDS trades on the CDO portfolio."
And, herein lies the rub, David Herzog, then AIG CFO's, when being informed that it is in everyone's best interests to simply take taxpayer capital and not antagonize the banks, writes:
Thanks, and noted on the tear up stand down.
We should get back with Goldman. I will talk with Bill [Dooley, head of AIG Financial Services].
So the questions are swirling as usual: the SIGTARP report back in November disclosed that the NY Fed has purportedly "attempted" to extract some concessions on the CDO make-whole with the AIG counterparties, and primarily Goldman Sachs and SocGen. However, due to the banks calling the Fed's bluff, the response was to pay everyone in full. Yet, in last week's FCIC hearings, Goldman CEO Lloyd Blankfein informed the public for the first time that he "never got a request to take less than 100 cents on the dollar" on the firm's AIG CDO exposure (not like it would matter to him - as noted above, the firm was fully hedged through direct CDS on AIG itself to the tune of $2.5 billion). And this latest revelation, indicates that in the disclosure of information from Geithner to the SIGTARP, somewhere along the way there was a pretty bad case of "broken telephone" - it appears the NY Fed itself was doing all it could to force AIG to "stand down" in doing the right thing for American taxpayers, which was to minimize the public capital at risk used to preserve the viability of the very same Goldman Sachs which in a few days will be paying out all time record bonuses.
Will someone in Congress finally approach Mr. Geithner and representatives from Goldman Sachs and ask them to reconcile these blatant examples of lying in the public arena? We understand that the "only" impaired party is the stupid American peasantry, but the unauditable New York Fed should be accountable to someone at some point, and that someone should not be Goldman Sachs. And yes, we do understand the inherent conflict of interest in that current FRBNY president and Geithner successor William C. Dudley, was employed by none other than Goldman Sachs, where he worked from 1986 to 2007, and where he attained the rank of Partner and Managing Director... But at least make it a little less easy for the American public to discern the "joined at the hip" relationship of the Goldman-Fed wealth reappropriation cabal.