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Tavakoli: Time To Claw Back AIG Money Paid To Goldman Sachs
Janet Tavakoli Submits:
Now that the crisis is over, and given the special circumstances of the crisis, and Goldman’s contribution to value-destroying securitizations, it is in the public interest to claw back the money paid to Goldman Sachs. AIG did not need to settle for 100 cents on the dollar in November 2008, and in September 2008, a good negotiator would have refused to hand over more collateral, and should have clawed some back (or insisted it was a temporary loan). Money should be clawed back before Goldman pays out taxpayer subsidized bonuses.
In late July 2008, SCA settled with Merrill for $500 million on $3.7 B of contracts, or around 13.5%. On August 1, 2008, Ambac settled $1.4 B with Citi for $850 million, or around 60% on the dollar, but unlike SCA and AIG, Ambac wasn’t on the brink of insolvency at the time. Calyon, a French bank also involved in AIG’s transactions, settled similar contracts with FGIC, another bond insurer, for only ten cents on the dollar in August 2008, yet $13.9 billion of Goldman’s contracts with AIG were settled for 100 cents on the dollar in November 2008 via purchases by Maiden Lane III. Ambac recently settled similar credit default swaps for ten cents on the dollar ($5 billion in contracts for around $500 million) as Ambac needed capital, and MBIA has made deeply discounted settlements.
This link provides two examples of Goldman’s value-destroying securitizations that were protected by AIG. (You will have to enlarge the image after clicking, and the document is a bit awkward.) The first section shows the collateral of Abacus 2005-2 (Goldman underwrote and bought protection) and Davis Square Funding IV (Goldman underwrote this CDO, and Societe General bought protection from AIG against it).
Among the many shards of glass masquerading as gems, you will find Tourmaline CDO 2005-1, which went into acceleration in April 2008. It was managed by Blackrock. Perhaps the Fed’s theory in handing out no bid contracts to Blackrock has something to do with the diligence displayed by a fox watching a hen house.
Parts of tranches of the CDOs that were protected by AIG ended up as collateral of CDOs against which MBIA and Ambac sold protection (to their regret). This serves to illustrate the interconnectedness of value destroying CDOs.
More from Janet, courtesy of Fox Business News:
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It was time to do that the minute it was proffered!
You betcha!
Love to see it happen, but there is no one that will put their life/reputation/family on the line to push this through.
Talk about a den of thieves. . . .
Janet has shown through many well written accurate pieces that she has the cahounas. My preference would be that the Senate does not confirm Bernanke and instead very strongly suggests that Mr. Obama court Janet for the role. That is change I could believe in but we all know Mr. Obama's cahounas are not large enough to stand up to the establishment. Every day he reaffirms that he is nothing but a tool. No better and no worse than any other tool we have elected. It was the governing bodies blatent disregard for fairness that led to the first revolutionary war. History is one of those funny things that has a way of developing over time.
Talk of revolution sounds so out of control, so crazy and unstable. Something of the fringe crazies. Yet it is this power of a deterimined populous that created the country we citizens of USA now call home. Why would a revolution in the present be viewed as fringe and crazy? Who is to say when to revolt and when to bow down and take it up the ass? The answer is a successful revolution would be viewed favorably and a squashed revolution would go down as a terrorist event by fringe crazies. So if you want a revolution just make sure you are successful so you can be viewed favorably in the history books (that you will write convienently).
Mr. Obama your actions are very disappointing, but then again I guess it is racist to expect more from you than the other tools that have held that office.
No doubt you were one of those who believed in Mr O's sermons and voted for him. "Janet for the Fed" ? Dream on buddy, it is naive folks like you who are the real culprits making it possible for the den of thieves in Washington to perpetrate the rape of America. Stop dreaming, start thinking next time a snake oil salesman sell you a miracle cure.
My God! I wish we could all be as brilliant and all seeing as Anon 171345. Then all would be right in the world and the markets.
Resident Obama was put into power to cover pu/hide/ignore the crimes and to sacrifice the USA towards the goal of puttig in place the Global Carbon Dictatorship.
The New front for criminal banking cartel. This cartel will be near impossible to audit and will answer to no-one.
When the structure is complete the rug will be pulled from the Fedeal Reseve cartel. Any supposed benefits we had as reserve currency/taken away.
There is a movie about the never ending stream of bankers...
"The International"
(Instant Play on Netflix right now)
It's as if someone made a documentary of how
banks really operate.
That's 20 billion dollars they made of credit default swaps on AIG. That's a big clawback.
Which, coincidentally, is pretty close to 1:1 when compared to their 2009 bonus pool.
not Goldman but came across this article (from earlier this year) on Summers' stint at DE Shaw
A Rich Education for Summers (After Harvard)http://www.nytimes.com/2009/04/06/business/06summers.html?_r=2&pagewante...
and related to that Shaw is a fascinating company in the land of quant
http://www.deshaw.com/Watson.html
I particulary find their India software division revealing
http://www.deshawindia.com/InformationTechnology.html
Add to the list....
All individuals that derived a bonus from all of the bugus securitizations....
ALL OF THEM....
WHY ????
WHAT IS THE DIFFERENCE BETWEEN MERRILL, CITI, GOLDMAN, BEAR STEARNS, LEHMAN....ESPECIALLY FULD....
From Bloomberg earlier today on the non TARP taxpayer gifts to Goldman
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aaLwI2SKYQJg
video
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aaLwI2SKYQJg
Sounds like Summers was groomed for his present job and paid well for it. Well at least he wasn't a lobbyist, no thats his next job.
Bloomberg is by far the best of the MSM. I'm glad that people are starting to talk about the benefits banks get from manipulated interest rates. If the government manipulated the price of steel and rubber GM and Chrysler wouldn't have needed a bailout. And we consider those companies gross failures! The banks need to have the cost of money manipulated to zero and bailouts yet they are still teetering on insolvency. And they have the audacity to claim they need to pay high salaries to retain talent? What fucking talent??? They print money via fractional reserve banking, the Fed manipulates interest rates to zero, the Fed buys every mortgage backed security for sale at whatever price asked and they still are on the brink of failure. If that is talent I would hate to see what a group of hacks would do. Then again I say BULLSHIT they are full of it. We could replace them all with some highschool graduates and they would do a better job. Please how could they do any worse??? These assholes need a fast pass to the unemployment line.
Dear Janet Tavakoli,
I've read your Dear Mr. Buffett, and used it extensively in a paper I wrote during the Fall semester 2009. I think you are one of the brightest finance professionals on the planet and admire you and all of your knowledge. I'm extremely happy to see you at ZH. I hope you stay here for a while!
John
What did the Lehman holdings auction for last fall -- 30 cents? As I recall there were noises about price discovery that got sidestepped by Maiden Lane II/III. If the scum had had any political antennae they would have factored in a substantial haircut and been thankful they got anything.
whitewashed or whitehousewashed.
A logical course of action. If only...
Ms. Tavakoli-
I've always appreciated your insightfulness and well-reasoned conclusions.
I'm beginning to think they really are the smartest guys in the room. After all they got bonuses for basically selling hot air, then when the hot air collapsed they got a gov bailout for 100 cents on the dollar when others only got 13 cents. Now they doin' the washington whitewash. They good. They real good.
How smart is it for Barzini to make money from the grocers, beauty salons, and barber shops in Little Italy?
It ain't smart; it's called extortion.
How smart is it for a defense contractor to make a lot of money by paying off a politician to vote for the purchase of his airplanes? It ain't smart; it's called bribery.
Their not smart their as crooked as a back country road.
after being raped and pillaged, the stoopid American turns around and calls his rapist "good". Sadomasochism?
Claw it back. Do the math. Goldman Sachs would probably make a profit on the clawback.
do a 10/1 split and tie bonus amounts to stock price appreciation then do an 300m offering to pay for it . Shareholders (fed) take a short term hit but reap the rewards when the economy rebounds 2020...swamp gases are thick today.
Nice Janet thanks.
I love those MSM articles that somehow misteriously paint certain people as larger than life figures,with larger than Einestein's brain. However,they forget to mention,that those big names,would have been serving alcohol in the bars around Manhatten if it wasn't for the trillions of dollars of subsidies that hardly brought the stock market to its 10 years ago level. And it seems that they also forget,that actually those trillions were largely made available,thanx to burger flippers or bar tenders tax payers,who didn't benefit out of it...
Noone in the white house will push for this. Not when your career plans include parachuting into the banking industry once your tour of duty in government is finished (ie: Summers, Geithner).
Regulators have been captured. When corruption is systemic in the base of public leadership, corruption as we know it, becomes public policy. Timothy Geithner would proudly say Goldman is strong and we helped it to become so. How can you claw-back that which was INTENDED by government? Need to claw-back government before we force claw-back from Goldman.
Late last week a story ran that Bernanke allowed some knee walking banking committee staffers to review the AIG documents but refused to allow any senators to see the documents. If this story is true, then it would appear that Bernanke realizes that what he determined to be a secret distibution of funds will not be considered as falling under the definition of a secret fed policy transaction.
He stated that he would not allow anyone to see the documents that relate to the fed's undisclosed recipients that were requested by several senators- to do so would place the fed under political pressure.
Now it looks as though the audit the fed movement has placed enough pressure that Bernanke is allowing anyone but the senators to see the documents.
There is a problem with the AIG bailout that has Bernanke by the short and curlies. Either he is beginning to crack or, he was psychotic when he took the job.
Evidently, we do not know how much money was actually funneled through AIG to GS and friends. But, it appears Bernanke knows we are about to find out.
We do not now have a President who is willing to encourage, endorse or back such action. It won't happen.
What about the payouts to SocGen, Deutsche Bank and UBS? I would say to use the cash clawback to start a ZH slush-party fund! With that much money, Tyler could rent all of Cabo for an entire decade!
I wish it were so, but alas the Vampire Squid will never pay back this stolen money. Hank the Hammer Paulson, a Goldmanite and a traitor to the Republic (for which it stands, mind you) should go to Shawshank for this one, and perhaps he will by time the B of A trial is through in February, and we hear the dirty details of Ken and Ben's Excellent Adventure - and Hank's "aiding and abetting" escapades in the massive securities fraud that was the Merrill acquisition.
Of course, the fix is in, and it will never see the light of day, but hey, one can hope that justice prevails once in a while.
Supposedly, Goldman intermediated the AIG swaps for various hedgies including John Paulson. If in reality Goldman’s collateral and swaps on AIG itself would not have protected Goldman from AIG’s failure, and without a Federal bailout Goldman and the rest of the banks would have gone bankrupt, then isn’t the AIG bailout really a bailout of the hedgies? Shouldn’t any clawback be from them? Aren’t they the ones who loaded up AIG with risk by offering to pay high premiums for protection?
If part of the undoing of AIG was because of 'Value Destroying Securitizations', a toxin introduced into the equation by GS, a clawback should come from them.
Late last week a story ran that Bernanke allowed some knee walking banking committee staffers to review the AIG documents but refused to allow any senators to see the documents.
There was a recent story that involved Greenspan and congressional aides, but it had nothing to do with AIG. I just searched and could not find anything resembling what you are describing. Not disputing you, but do you have a link?
BUNNING STATEMENT: "Specifically, I have asked to see documents related to AIG and the Federal Reserve's role in the bailout but have been stonewalled at every turn. It has come to my attention that Chairman Dodd's staff has seen some of the documents related to AIG, but until today had refused to brief my staff on them. Chairman Dodd has promised that members of the committee who wish to see these documents will be allowed to do so before the floor vote on Chairman Bernanke and I plan to take him up on the offer. I want to know what Chairman Bernanke has to hide. While I do believe Ben Bernanke is a very good human being, he doesn't have a clue what he is doing as Chairman of the Federal Reserve."
Over? Did you say "over"? Nothing is over until we decide it is! Was it over when the Germans bombed Pearl Harbor? Hell no!
The Japs invading Poland was a bummer too.
Regards.
I agree that this can of worms should be reopened before the 09 bonus cash goes out the door. I'd love to see AIG clawback from GS, who'll clawback from SocGen etc.
GS'd argument is that the collateral rec'd from AIG was then shipped out to banks that did the basis trades with GS. GS was net flat, remember. In that case the it was the European banks who were effectively bailed out, with Goldman acting as the conduit.
The negotiations at the time probably went more like:
Fed- lloyd, you need to take a haircut on the AIG swaps
GS - Tim Sorry no time for me to negotiate a corresponding haircut with the Eurobanks. We're hanging by the short hairs now, if Soc Gen collapses tomorrow, we're all toast, so pay up now and we'll talk about it another day (or not). You go rescue the world, it won't bother us if we're tagged as the greedy villains here. We can live with that. Can you live with a global collapse. You know I'm so sorry that you're in this mess, but its a little late for that now, right buddy. We're just the middlemen here, besides who's gonna figure this out anyway.
I guess we could just delay the collateral calls, or take another look at our marks on this crap, but we've got bigger fish to fry right now. Good luck my boy, it'll be fine.
Ring Ring
Timmy, its Lloyd again. One other thing. The optics on this are terrible but don't worry about "100 cents on the dollar" thing. You'll be hearing a lot of that.
Sure ,you're paying us to channel the collateral payments through and we'll be made whole, as we should be, but this doesn't really equate to 100c on the $. Send the collateral along and all us ctpys will live to see another day.
But, I agree, you gotta F** AIG, just like Bear, but it's gonna take a little time.
We'll unwind our CDS wAIG and return the bonds to you. We won't take a hit, so I guess we'll effectively get 100cents, but it's more important to screw AIG, not us, for this clusterf**. So, unwind and take back the bonds, then make AIG take the loss (about 35c I think). You take the bonds at 65c, which I think is probably about right, and sit on them. AIG is worth lots of money , so when you get around to selling the pieces, that'll cover the 35c loss you stuck with them. You may have to provide a little DIP financing for a while, but hey, AIG is a goldmine, so no sweat.
Gotta go, I've only got 30 seconds once they put through that call from Mack.
Value Destroying Securitizations+ hot air = fraud.
This is mind boggeling, how totally craven the participation and collusion of the Treasury with these banksters, with the AIG deal.
For which geithner has been repeatedly asked to account for and he has been able to deflect any probing. Now, to continue to gin up another phoney bubble and are fraudulently inflating the coffers of these guys as they sink their fangs in the jugular of the treasury at 0% with more hot air.
Thanks, it could mean he was stonewalled by Democratic staff members, not Bernanke.
Regardless, it means the Federal reserve has released the documents to the Senate. I rather doubt there will be anything there.
good luck with that
I appreciate this site and its contributors so much. When GS responded to ZH's questions a million dollars could not have bought a telephone survey with the depth of comentary expressed by us. I think those questions were carefully crafted to say as little as possible but to elicit a response. I would also bet that the responses were read, categorized and profiled by professionals for the exec's. Everyone elso can log on if they like. They may/may not be the smartest guys in the room but they are the most careless about you. While we are the ones with at least the curiosity to know more there are so many that are still living in their sports channel world. I watched Rick Santelli's tea party rant several times, I loved it. I haven't checked lately but only a million+ views of somthing so relevant and how many were forigners so the percentage was less than 0.3 of americans that heard about it. More people saw________________(pick a movie). This information is not making it out there. Drop off some flyers at your local homeless camp maybe with a bag of groceries. Computers are cheap and aircards not expensive either. If GS gets scared it wil be fight or flight but what have they got to be afraid of. The whole system is fucked, banks, gov, courts, (para-mil)police. Nicolo's theroy will come into play hard.
best regards
Tiny Tim Geithner blew it when the big boyz called his AIG bankruptcy bluff. No way Golman or anyone else would have wanted the collateral - the crap is worthless. However, one way for the govt can get back some money is to have employees of financial firms bonus correlated to the slope of the yield curve. The steeper the curve, the higher the marginal tax rates . Fed has rates at zero is stealing from the prudent saver and giving money to banks. The goal is to re-capitalize the banks, not enrich their employees. Maybe this "special
" tax can be imposed whenever short rates are more than 50 bp lower than the long term potential growth rate - currentle estimated to around 3%. I am no fan of using the tax code to re-distribute wealth but we do need to recognize that after years of being hooked on financial Heroin, too much of the benefits end up in the pockets of the bankers. The financial high from these low rates no longer gets transferred to main street.
Well, if it's worthless, then what they got is worthless because they kept all of it.
The Maiden Lane III securities that came from the vampire squid had a par value of 14 billion on which the vampire squid had purchased 14 billion notional in protection from the squid food otherwise known as AIG. When things got bad, the vampire squid sucked 5.6 billion in collateral (bloody cash/cash equivalents) out of the food bank (AIG). At this point the Federal Reserve loaned the squid food bank 85 billion, and the vampire squid sucked out another 2.5 billion (bloody cash/cash equivalents).
So at this point the vampire squid has sucked out 8.4 billion and its CDO's/whatever are now worth 5.6 billion. The 8.4 billion is not really quite theirs. They are holding it in a big sack deep inside the squid. At this point the Federal Reserve decides to buy the 5.6 billion in CDO's/whatever from the vampire squid. And there you have it. The vampire squid sucks in the 5.6 billion and drains its internal hoarding sack of 8.4 billion (they have their 14 billion back).
You can't claw it back. The suggestion is dumber than a box of rocks. Do the T accounts. It takes the trash out from under your rug and stuffs it into your closet. Your room is still not cleaned. Didn't your mothers teach you how to clean your room?
EMBRACE THE VAMPIRE SQUID; RESISTANCE IS FUTILE; SQUID LIFE IS GRAND
Wrong. GS room is nice and clean. The 14 billion (less spreads of course) went back to the original buyers of the underlying cdos who bought protection from GS who bought protection from AIG. GS was just taking care of its customers, something it keeps reminding us is their sole purpose.