AIG

Ben Bernanke has yielded to increasing public pressure to finally disclose all the details surrounding the AIG bailout, and in a letter to Acting Comptroller General Gene Dodaro, Bernanke said he would welcome a full review of the AIG taxpayer bailout by the GAO and will make available "all records and personnel necessary to conduct this review," emphasizing that a review should give taxpayers "the most complete understanding of our decisions and actions." One wonders why stop at AIG? Why not open up the Fed to a GAO audit on all bank bailout activities undertaken in the period commencing with the GSE nationalization, and culminating with the Lehman bankruptcy. Surely that would provide an ever more "most complete" understanding of just who got what and how much taxpayer capital was put just so Wall Street could enjoy another record bonus season.

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."

Soon coming to a daylight drama TV show near you: Ben Bernanke, Hank Paulson and Stephen Friedman, valiantly defending America from itself and the dumb peasants that inhabit it.

"[A]t a centerpiece of the president's reform proposals is to give the government the tools to unwind, dismember, break up, sell these institutions without the taxpayer being put in the position of having to absorb their losses. That's one of the most important reasons why we have to get reform in place. We had no choice at the time other than to do this. And I'm, personally, very confident it was the right thing to do, and we did it in the best way possible for the American people." - Tim Geithner

So... Timmy... Who's lying here?

With all the recent outrage over the AIG fiasco focusing on Tim Geithner, is the anger misplaced? Is the real culprit in this situation Goldman Sachs, which allegedly sold its $2.5 billion in extremely profitable AIG CDS prior to March 15, when the full disclosure of the government's measure to preserve AIG became first known; a time in which Goldman, by implication, may well have been in possession of material, non-public information?

"Between November 24 and the time that he became Secretary of the Treasury, Tim Geithner purported to be absolutely engaged in all aspects of saving America. He didn't go to a monastery for those days. We still have a right to know what Tim Geithner knew and when he knew it and why didn't he know that we were paying more than double the amount that was commercially reasonable... Certainly Barney Frank doesn't seem to be interested enough in getting to the bottom of that. More importantly, in the future does the Fed have a right to pay more than a mark to market, simply on the strength of their own decisions and then keep it secretive?" - Darrell Issa

Bloomberg: "Treasury Secretary Timothy Geithner “was not involved” in decisions by the Federal Reserve Bank of New York when it told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks in 2008, White House press secretary Robert Gibbs said."

The latest observation on our depressing economic reality, behind the glitzy headlines and the 3D TV screens, comes from Bloomberg's Jonathan Weil who rightfully asks "if AIG executives repeatedly claimed the stock was worthless, how do the executives, auditors, regulators, and, ultimately, the government, still have the balls to indicate the company's stock has any intrinsic value, both its publicly traded version and its book equity." Weil also joins the long list of people who wonder, just what the hell is the SEC's function in this day and age, when publicly-traded companies, many of them government backstopped, can disclose anything and everything they desire, even when such disclosure is flawed and purposefully misleading (see Bank of America and the earlier piece on a lying Tim Geithner and the very same AIG) with absolutely no repercussions. It is all really getting just far too depressing for US taxpayers to even be indignant. Maybe that has been the point all along...

It is pretty clear that officials and the likes of Tim Geithner were directly involved in editing documents that would eventually become public disclosures by AIG in the form of SEC filings.  To the extent these filings were knowing material omissions or misstatements of fact Tim, along with executives at AIG, should be heading to jail, right?  Well, not necessarily.  As we wrote two months ago, there is at least one little hitch that permits firms to cook the books and skate off after the fact.

Ontario Teachers' buys AIG's Canadian mortgage business and CPPIB makes some internal shifts in management.

"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." - Janet Tavakoli

The two specialists on using email as a key prosecutorial device (both from the pitching and catching end), discuss the validity of bringing up emails to the public domain in the AIG case. Why this hasn't been done already, especially with round after round of public outcry and various regulatory agencies involved, is a mystery which can only be solved if one realizes that those in charge have nothing to gain from uncovering the dirty truths at the heart of the crash that almost cost Goldman Sachs a bankruptcy, scratch that, a liquidation (of course, nothing could be further from the truth, sayeth His Holiness Viniar. We, on the other would point out that in this case (and incalculable others) Viniar himself would probably be the only exception to the prior statement, thus invoking a nightmarish analysis of non-exclusive Venn diagrams and other logical gibberish).

As one so vividly remembers, probably the key catalyst that set off the chain of events last fall following the collapse of Lehman were the closed loop (and much delayed) downgrades of AIG, which in a span of hours went from AAA to much lower, thus springing various collateral requirements which the company could not satisfy, and in turn forcing even more downgrades, until ultimately it became clear that the firm (like most others on Wall Street) is merely a lot of hot air and unjustified valuations. Ironically, the rating agencies, and more specifically Moody's, could once again be the catalyst for the much anticipated collapse of the European house of cards, which as all now know, has Greece as its weakest link. The threat: a Greek downgrade by Moody's from its current rating of A1 to anything with a B handle would make the country's sovereign debt ineligible for ECB collateral in 2011, sparking a sovereign liquidity crisis. Recall that both Fitch and S&P recently downgraded Greece to BBB+, implying that the fate of Greece, and specifically its ability to access cheap and quick capital via the ECB, could be cut off on the whim of the rating agency that Warren Buffett himself can't stop selling enough of.