SIGTARP Releases Quarterly Report To Congress
Some preliminary highlights from the report.
Update on TCW the whole Jeff Gundlach fiasco:
On December 4, 2009, The TCW Group, Inc. (“TCW”) dismissed Jeffrey Gundlach, a “key man” under TCW’s contract with Treasury, who served as TCW’s chief investment officer and the lead portfolio manager of its PPIF. At that time, consistentwith the terms of the Limited Partnership Agreement, Treasury froze TCW’s PPIF and halted all fund transactions.225 On January 4, 2010, TCW withdrew as a manager in PPIP. According to Treasury and TCW, TCW liquidated the approximately $500 million in securities held by its PPIF at a profit and paid back the loan from Treasury with interest. Treasury entered into a winding-up and liquidation agreement with TCW governing the liquidation and distribution of the fund. Treasury will allow TCW’s private investors to re-allocate their funds to a different PPIF of their choice. In this case, Treasury will still provide matching debt and equity investments.
During the formation of PPIP, SIGTARP recommended that Treasury adoptstrict “key man” provisions in its fund manager agreements, which were subsequently included in Treasury’s agreements. The agreements provide that the PPIF obtain the services of the personnel who were promised during the application process. As a result of these important “key man” provisions, Treasury had the option of terminating TCW’s involvement in PPIP because key personnel were no longer running the PPIF.
It appears even the SIGTARP wonders who is in charge:
In sum, Treasury did not conduct direct oversight of AIG’s executive compensation prior to March 19, 2009, but chose instead essentially to defer to FRBNY. This, coupled with Treasury’s subsequent limited communications with FRBNY with respect to that issue, meant that Treasury invested tens of billions of taxpayer dollars in AIG, designed AIG’s contractual executive compensation restrictions, and helped manage the Government’s majority stake in AIG for several months, all without having any detailed information about the scope of AIG’s very substantial, and very controversial, executive compensation obligations. Treasury’s failure to discover the scope and scale of AIG’s executive compensation obligations, in particular at AIGFP, potentially resulted in a missed opportunity to avoid the explosively controversial events surrounding the AIGFP retention payments and the considerable public and Congressional concern that followed. Although SIGTARP saw no indication that Secretary of the Treasury Timothy Geithner (the “Treasury Secretary” or “Secretary Geithner”) had personal knowledge of the AIGFP bonuses until shortly before they were paid, this too suggests a failure of communication. In light of the political sensitivities associated with the bailout of AIG, in his role both as then-President of FRBNY and subsequently as Treasury Secretary, it was necessary that Secretary Geithner be informed by his staff, in a timely manner, ofsuch sensitive and significant information so that he could have sufficient time to explore possible solutions.
On the magical inability to extract concessions out of Goldman, but doing phenomenally well when faced with GM bondholders:
Similarly, the refusal of FRBNY and the Federal Reserve to use their considerable leverage as the primary regulators for several of the counterparties, including the emphasis that their participation in the negotiations was purely “voluntary,” made the possibility of obtaining concessions from those counterparties extremely remote. While there can be no doubt that a regulator’s inherent leverage over a regulated entity must be used appropriately, and could in certain circumstances be abused, in other instances in this financial crisis regulators (including the Federal Reserve) have used overtly coercive language to convince financial institutions to take or forgo certain actions. As SIGTARP reported in its audit of the initial Capital Purchase Program (“CPP”) investments, for example, Treasury and the Federal Reserve were fully prepared to use their leverage as regulators to compel the nine largest financial institutions (including some of AIG’s counterparties) to accept $125 billion of TARP funding and to pressure Bank of America Corporation (“Bank of America”) to conclude its merger with Merrill Lynch & Co., Inc. (“Merrill Lynch”). Similarly, it has been widely reported that the Government, while arguably acting on behalf of General Motors Corporation (“GM”) and Chrysler Holding LLC (“Chrysler”), took an active role in negotiating substantial concessions from the creditors of those companies.
In concordance with data previously prepared by Zero Hedge, SIGTARP is continuing an investigation into whether GM and Chrysler dealerships were closed based on political considerations.
Automobile Dealership Closures: This audit, undertaken at the requests of Senator Jay Rockefeller and Representative David Obey, examines the process used by GM and Chrysler to identify the more than 2,000 automobile dealerships that have or will be terminated in connection with the recent GM and Chrysler bankruptcies. The objectives of the audit are to determine whether GM and Chrysler developed and followed a fair, consistent, and reasonable documented approach; to understand the role of Government in these decisions; and to review to what extent the terminations will lead to cost savings orother benefits to GM and Chrysler.
And some of the just announced investigations:
Selection of Asset Managers for the Legacy Securities Program: This audit will examine the process Treasury followed to select fund managers to raise private capital for joint investment programs with Treasury through the Public-Private Investment Program (“PPIP”). This audit will examine the criteria used by Treasury to select Public-Private Investment Fund (“PPIF”) managers and minority partners, and the extent to which Treasury consistently applied established criteria when selecting fund managers and small, veteran- , minority- , and women-owned businesses...Term Asset-Backed Securities Loan Facility (“TALF”) Collateral Monitors’ Valuation: This audit will examine the Federal Reserve’s valuation determinations used to issue loans under TALF. This audit will assess how the Federal Reserve made valuation determinations, including the role of the collateral monitor, when making decisions regarding the eligibility of the collateral and theappropriateness of the requested loan amounts.
The BofA investigation continues:
SIGTARP continues to play a significant role in the investigations by the Office of the New York Attorney General, the U.S. Attorney’s Offices for the Southern District of New York and Western District of North Carolina, the Securities and Exchange Commission (“SEC”), and the FBI into the circumstances of Bank of America’s merger with Merrill Lynch and its receipt of additional TARP funds under the Targeted Investment Program.
The housing mortgage market is now completely controlled by the Federal Reserve:
The Federal Government is stepping in as the private sector has shed more than $1.5 trillion of mortgage assets in the past two years. Figure 3.2 illustrates this active downsizing by the private sector and the reduction in its exposure as well as some of the accompanying decrease in values due to foreclosures. In short, between net mortgage lending and existing mortgage management, the Federal Government now completely dominates the housing mortgage market, with the taxpayer shouldering the risk that had once been borne by the private sector.
The most comprehensive chart highlighting why the Fed is the new New Century:
The collapse of the GSEs:
A summary of all the artifical home price increase programs set up by the government:
59 Qualified Financial Institutions have missed one or more dividend payments on the TARP's CPP program.
HAMP trial programs started since program inception: 902,620; number permanent mortgage mods completed: 66,465.
A summary of all the PPIP managers:
- AllianceBernstein L.P. is a publicly traded investment management firm that offers research and diversified investment services to institutional clients, individuals and private clients in major markets around the world. It has $496 billion in assets under management and employs more than 500 investment professionals in more than 20 countries.
- Angelo, Gordon & Co. is a privately held registered investment advisor focused on alternative investing. The firm was founded in 1988 and currently manages, with its affiliates, approximately $21 billion in assets. Angelo, Gordon & Co. is partnering with GE Capital Real Estate for the purposes of PPIP asset management.
- BlackRock Inc. is a publicly traded asset management firm and provides global investment management, risk management, and advisory services to institutional, intermediary, and individual investors around the world. The firm has $3.2 trillion in assets under management and employs more than 8,500 professionals in 24 countries.
- Invesco Ltd. is a publicly traded global investment management company. The firm provides investment solutions for retail, institutional, and high net worth clients around the world. With $417 billion in assets under management, Invesco Ltd. employs approximately 4,900 individuals in 20 countries; the company is listed on the New York Stock Exchange under the symbol IVZ.
- Marathon Asset Management LP is a private alternative investment and asset management company. Marathon’s core businesses include hedge funds, structured finance, emerging markets, and real estate. Founded in 1998, the firm has more than $11 billion in assets under management and 140 professionalsworldwide with headquarters in New York City and investment offices in London and Singapore.
- Oaktree Capital Management L.P. is an investment management firm specializing in less efficient markets and alternative investments. Founded in 1995, Oaktree Capital Management has $67.4 billion in assets under management. The firm is headquartered in Los Angeles and has more than 500 employees in 10 countries.
- RLJ Western Asset Management LP is a newly created, minority-owned entity that is 49% owned by Western Asset Management, the fixed-income affiliate of Legg Mason, Inc. and 51% owned by The RLJ Companies, the portfolio holding company owned by Robert L. Johnson. Western Asset Management is a global investment firm, and The RLJ Companies include private equity real estate funds, a private equity mid-sized buyout fund, and a bank, Urban Trust Bank.
- TCW Group Inc. is a private asset management firm, headquartered in Los Angeles, offering individual and institutional investors a range of U.S. equity and U.S. fixed income alternatives, as well as international investment strategies. As of September 30, 2009, TCW had approximately $108 billion in assets under management. TCW’s management has an average of 23 years of industry experience and the firm’s portfolio managers have approximately 11 years of tenure with TCW. On January 4, 2010, TCW withdrew as a manager in PPIP. Treasury has entered into a winding-up and liquidation agreement with TCW.
- Wellington Management Company LLP is a private partnership investment advisory firm headquartered in Boston. Wellington Management has more than $506 billion in assets under management and serves as an investment advisor to more than 1,600 institutions located in more than 40 countries.
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