Good Morning! It’s been a tough weekend. As usual when dreadful events happen, the cable channels are covering the shooting in Arizona 24/7. Things are still happening in the DC despite the horror of that story. I just don’t know how much more I can read about it. Thinking about senseless hatred and violence is starting to make me feel physically ill.
If you do want to read more about the Arizona tragedy, the Washington Post has special section on it: Special Report: The Tucson shooting rampage. The New York Times also has lots of stories and photos on the front page.
Now I’ll see if I can find any other important stories for you to check out this morning.
On Saturday, I wrote a long piece on Darrell Issa, the man who is going have subpoena power as Chairman of the House Oversight Committee. The man is a thug, and we’d better be paying attention to what he’s doing. I hope when the news about the shooting calms down that people will take a look at that piece. I don’t usually “pimp” my posts, but I feel that this one is important.
Now I see that the Republicans plan to make changes in another important House committee: Republicans banish ‘civil rights’ and ‘civil liberties’ from House subcommittee
Congressman Jerrold Nadler (D-NY) blasted Republicans for planning to change the name of the Subcommittee on the Constitution, Civil Rights, and Civil Liberties to the “Constitution Subcommittee.”
“Once again, the new Republican majority has shown that it isn’t quite as committed to the Constitution as its recent lofty rhetoric would indicate,” Rep. Nadler, who has served as the Chairman of the Subcommittee on the Constitution, Civil Rights, and Civil Liberties since 2007, said.
“It has yet again shown its contempt for key portions of the document – the areas of civil rights and civil liberties – by banishing those words from the title of the Constitution Subcommittee.”
The Subcommittee on the Constitution is one of five subcommittees of the US House Committee on the Judiciary. The subcommittee has jurisdiction over constitutional amendments, constitutional rights, federal civil rights, ethics in government, and related matters.
I’ve seen people talking about this in the comments, but can I just say that I’m sick and tired of people tampering with Huckleberry Finn? It’s one of my favorite books. I have read it multiple times, and I happen to think it’s a candidate for the Great American Novel.
Mark Twain wrote the book the way he did to deliver some serious messages, one of which was an argument against racism. He did that by demonstrating in his novel why racism is wrong. There is also a strong message in the book about child neglect and abuse and about alcoholism. It’s a brilliant book, and there is no need to censor it. If it is taught in school, then the context of the language Twain used can be discussed and debated. Huckleberry Finn is not a children’s book. High school students are perfectly capable of understanding the book and its importance.
Here’s a piece at Truthdig that offers 10 Reasons Why the Slurs Should Stay in ‘Huck Finn.’ It’s pretty good.
When I was a senior in high school I read Shakespeare’s plays in my English class. There were two teachers who taught the Shakespeare course. My teacher had us read the plays aloud as written. The other teacher, an elderly woman, had students read the “dirty” parts silently. I’m glad I wasn’t in her class. But at least she didn’t make the students skip over those parts entirely or try to censor the plays.
I say let’s read the greatest works of literature as written.
Here’s a interesting and ironic story at the LA Times: 1800s-era skeletons discovered as crews build L.A. heritage center
Under a half-acre lot of dirt and mud being transformed into a garden and public space for a cultural center celebrating the Mexican American heritage of Los Angeles, construction workers and scientists have found bodies buried in the first cemetery of Los Angeles — bodies believed to have been removed and reinterred elsewhere in the 1800s.
Since late October, the fragile bones of dozens of Los Angeles settlers have been discovered under what will be the outdoor space of La Plaza de Cultura y Artes downtown near Olvera Street. According to archaeologists and the chief executive of La Plaza, they appear to be remains from the Campo Santo, or cemetery, connected to the historic Catholic church Our Lady Queen of Angels, commonly called La Placita. The remains are just south of the church.
Pieces of decaying wood coffins as well as religious artifacts such as rosary beads and medals have also been unearthed.
The cemetery, which officially closed in 1844, was the final resting place of a melting pot of early Los Angeles — Native Americans; Spanish, Mexican, European settlers; and their intermarried offspring. But the repercussions of the discovery outside La Placita have been anything but peaceful.
So digging up the bones of early settlers in order to build a monument to early settlers. Ironic.
Dakinikat sent me this Bloomberg article about Goldman Sachs and their investment in Facebook.
News has leaked out that Goldman, supposedly the smartest Wall Street firm, will buy $450 million of stock in closely held Facebook, with Digital Sky Technologies, which invests in start- ups and is partly owned by Goldman, purchasing another $50 million.
The anonymous folks who put out these numbers said the deal sets a value for Facebook equal to that of Boeing Co. and approaching that of Home Depot Inc.
Goldman clearly is capitalizing on Wall Street’s latest diversion: a semi-public stock market for private companies.
Several firms now offer shares of closely held companies or offer estimates of their value, or both.
It seems that Goldman is hyping Facebook in order to increase the value of its own investment in advance of Facebook going public. Shouldn’t that be illegal?
Dak also sent me this link to the Economist about the war on government unions: It’s a long article and I haven’t been able to read the whole thing yet, but it looks worthwhile. Perhaps Dak will do a longer post on this issue.
Bethany McLean from Vanity Fair has a great reportage about Goldman Sachs. These poor guys, they’re so misunderstood.
The Bank Job
One of the biggest disconnects on Wall Street today is between the way Goldman Sachs sees itself (they’re the smartest) and the way everyone else sees Goldman (they’re the smartest, greediest, and most dangerous). Questioning C.E.O. Lloyd Blankfein, C.O.O. Gary Cohn, and C.F.O. David Viniar, among others, the author explores how their firm navigated the collapse of September 2008, why it has already set aside $16.7 billion for compensation this year, and which lines it’s accused of crossing.
There’s more on the heinous crimes of the week-end, violent rhetoric from Right (spare me the “Both-Sides-Do-It”), and intimidation of political figures.
How the Tucson Massacre Rattled U.S. Judges
For a moment, U.S. District Judge John M. Roll seemed as likely the main target of the Tucson massacre as Congresswoman Gabrielle Giffords. In 2009, Roll had come under threats severe enough that he and his family were placed under 24-hour protection by the U.S. Marshals Service. After he ruled that a high-profile suit brought by a group of Mexican immigrants could proceed, his phone lines were deluged with angry callers — including at least four that threatened violence.
At the time, the U.S. Marshal for Arizona told the Arizona Republic that the threats had been egged on by radio talk-show hosts critical of Roll’s decision. Critics began sharing his personal information on Web sites as the rhetoric became more heated. The round-the-clock protection lasted a month, though Roll ultimately decided not to press charges against the callers.
For some members of the judiciary, the news that Roll was among the six who died during the shooting spree in Tucson was unsettling in ways that went beyond personal grief from those who knew and served with Roll, who had been placed on the bench by President George H. W. Bush in 1991 at the urging of Senator John McCain. Just minutes after learning of the slayings, U.S. District Judge Robert Gettleman of Chicago told TIME in an email that the news of the murder was “very disturbing… Just when we were beginning to feel more secure.”
Or I see. There’s a big difference between men’s tears and women’s tears. As “luck” would have it (or as always in these matters), men’s tears are a turn on for women, but women’s tears are a turnoff for men. Or is it? There’s an interesting study out but not all agree on the interpretation of the results.
Crying, Sex, and John Boehner: Not So Fast
The study is, predictably, getting a lot of media attention (WOMEN’S TEARS SAY, ‘NOT TONIGHT, DEAR’), but experts on tears and crying aren’t so sure the findings mean what the Weizmann scientists say they do. “I like their study very much, and I think their results are fascinating, but I have my doubts about their interpretation,” says Vingerhoets. “I suspect the sexual effect is just a side effect: testosterone, which was reduced when men sniffed the women’s tears, isn’t only about sex: it’s also about aggression. And that fits better with our current thinking about tears.”
Sooooo…. What are you reading this morning?
I was beginning to think that EU was going to be the only hope for sorting through the mess Goldman Sachs has made of the financial markets of the world. I’ve mentioned the Issa documents which show how deeply Goldman Sachs was involved with the failure of AIG. We’ve also seen mounting evidence that Greece was part and parcel of the Goldman Sachs side bet operations also. It’s looking more and more that the side bets weren’t placed as hedging or insurance tools which is technically their function in financial markets. Hedging is a tool for locking in a rate of return when prices could possibly move against you. I used to hedge commercial mortgage originations with GNMA contracts back in the early 1980s. This was because interest rates were moving around so much, that we needed to insure the market wouldn’t move against us while we contracted with the home buyer. Farmers use hedges to lock in a price in the future for their crops when they harvest based on the costs they incur at planting. Businesses that sell things overseas and collect money in foreign currencies later, also using hedging. I won’t go into the details of how these things work or how you value them, because this is a real math exercise, but believe me in certain instances and markets, hedging works like a form of insurance. It’s to help a business manage its risk.
In the case of Goldman Sachs, it looks like they put together deals that they knew were problematic then used the side bets to reap the rewards of the shoddy deals. In other words, the purposefully seemed to invest in things that were going to blow up, sucked markets and the investors into thinking the deals were okay, and then waited to collect the true profits from the side bets. Oh, and they also seemed to have put the same sidebets on their own stock during the entire financial crisis. If this is found to be true, I can’t even imagine how big the consequences are going to be. If you want another take on this go see Naked Capitalism. It appears Yves Smith actually worked there for awhile and she’s talking about the experience.
However, my original thought was that it was going to be the EU that actually went after them. It appears–according to today’s NY Times–that the FED is looking into this too.
Ben S. Bernanke, the Federal Reserve chairman, told Congress Thursday that the Fed was “looking into a number of questions relating to Goldman Sachs and other companies and their derivatives arrangements with Greece.”
Mr. Bernanke said the Securities and Exchange Commission was also concerned about how derivatives — financial instruments that are largely unregulated and do not trade on public exchanges — have contributed to Greece’s problems. “Obviously, using these instruments in a way that intentionally destabilizes a company or a country is counterproductive,” he said.
The S.E.C., in a statement, said that it could “neither confirm nor deny the existence of an investigation,” but added that it was cooperating with United States and international regulators in examining “potential abuses and destabilizing effects related to the use of credit-default swaps and other opaque financial products and practices.”
It is about time some one look into these activities. Not to be left out of the loop, Congress appears to have gotten a bit more educated on the situation, despite its heavy reliance on the FIRE lobby for campaign contributions.
Senator Christopher J. Dodd, Democrat of Connecticut and the chairman of the Senate Banking Committee, also took aim at credit-default swaps, which allow banks and hedge funds to wager on whether a company or country might default.
Critics say the swaps have contributed to Greece’s problems and increased the odds of a financial collapse.
“We have a situation in which major financial institutions are amplifying a public crisis for private gain,” he said.
The Fed inquiry was begun about three weeks ago, according to an official involved in the investigation who was not authorized to comment publicly. Fed examiners are focusing on whether Goldman and other banks complied with guidance the Fed issued in 2007 outlining how to manage the risk of complex financial vehicles. The investigation is still in its early stages, he added, as officials sift through records detailing how the derivatives were created, what compliance procedures were followed and what internal analysis was performed. The Fed is also looking at whether Wall Street made additional financial arrangements for Greece that have not been disclosed.
The Greek situation is bad. The country may default and because it’s part of the monetary union, it’s bringing the Euro down and the interest premiums up. If Greek sovereign debt (debt guaranteed by the government) goes into default, the costliness to Greece and the contagion that creates for the rest of the EU cannot be understated. Given that, even Goldman Sachs with all its White House connections will not be able to escape the number of Captain Ahab’s that will go after the Great White Vampire Squid. I can imagine there will be a lot of folks that will be glad to supply the harpoons.
I should’ve stuck to my research agenda, but no, I just had to go look at business headlines. There’s a debate on at The Economist over “Who benefits from financial innovation?” Nobel Prize winning Economist Joseph Stiglitz is arguing that financial innovation hasn’t been boosting economic growth but his position (which is mine) is currently in the minority.
The right kind of innovation obviously would help the financial sector fulfil its core functions; and if the financial sector fulfilled those functions better, and at lower cost, almost surely it would contribute to growth and societal well-being. But, for the most part, that is not the kind of innovation we have had.
In terms of that big question up there, the answer is found today on Bloomberg.com. If you answered “what is the vampire squid”,you’re absolutely right. The more relevant question appears to be what did that cost us? For that, I can only answer a lot and there’s more to come. Here’s the headline: Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs.
Well, there’s your financial innovation for you.
So, the fun thing about the story is that the unlikely hero is Darrold Issa (Republican) member of the House Committee on Oversight and Government Reform who “placed into the hearing record a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.” Oddly enough,it appears that Issa may have not really known exactly what he had just disclosed. It didn’t really attract any attention at the time. Luckily, some one who knew something eventually looked at it. This was essentially a list of the deals that made AIG insolvent. These were also the deals that the government basically bought when it rescued AIG.
The document Issa made public cuts to the heart of the controversy over the September 2008 AIG rescue by identifying specific securities, known as collateralized-debt obligations, that had been insured with the company. The banks holding the credit-default swaps, a type of derivative, collected collateral as the insurer was downgraded and the CDOs tumbled in value.
The public can now see for the first time how poorly the securities performed, with losses exceeding 75 percent of their notional value in some cases. Compounding this, the document and Bloomberg data demonstrate that the banks that bought the swaps from AIG are mostly the same firms that underwrote the CDOs in the first place.
Here’s an even more interesting analysis from a legal standpoint. I know the deal was shady, I just have never known exactly if shady=unethical=illegal. The devil is truly in the details placed into public record by Issa.
The identification of securities in the document, known as Schedule A, and data compiled by Bloomberg show that Goldman Sachs underwrote $17.2 billion of the $62.1 billion in CDOs that AIG insured — more than any other investment bank. Merrill Lynch & Co., now part of Bank of America Corp., created $13.2 billion of the CDOs, and Deutsche Bank AG underwrote $9.5 billion.
These tallies suggest a possible reason why the New York Fed kept so much under wraps, Professor James Cox of Duke University School of Law says: “They may have been trying to shield Goldman — for Goldman’s sake or out of macro concerns that another investment bank would be at risk.”
Okay, so we know who we’re speaking of when Cox says the New York Fed, right? That would be Treasury Secretary Timmy-really-in-the-well-this-time Geithner. Bloomberg is going as far as to label his actions a cover-up. I frankly think that looks like a mild charge. Interestingly enough, an earlier version of the information was released by AIG but the counterparty names were redacted at the time. Chris Dodd’s committee had requested the information. Without the names–or more truthfully the frequency of ONE name in particular–you can’t really see much of a conspiracy.
What this detailed list shows–because the names are now out there along with the deals–is that the very same folks that underwrote the original toxic securities were the same folks that went to AIG to bet against them. It doesn’t look like they were hedging or placing insurance on their risk which would be natural and understandable transactions. It appears they fully knew the securities were bad and were preparing to make money by placing offsetting bets. This activity could only be determined if you saw the names of the counterparties next to the deals themselves. So, the appropriate document to list the information on would be a Schedule A. AIG released a schedule A for several years during the crisis, but without some of the most relevant details. We know now that this was at the request of the NY Fed (aka Tim–I’ve got GS on speed dial–Geithner).
In late November 2008, the insurer was planning to include Schedule A in a regulatory filing — until a lawyer for the Fed said it wasn’t necessary, according to the e-mails. The document was an attachment to the agreement between AIG and Maiden Lane III, the fund that the Fed established in November 2008 to hold the CDOs after the swap contracts were settled.
AIG paid its counterparties — the banks — the full value of the contracts, after accounting for any collateral that had been posted, and took the devalued CDOs in exchange. As requested by the New York Fed, AIG kept the bank names out of the Dec. 24 filing and edited out a sentence that said they got full payment.
The New York Fed’s January 2010 statement said the sentence was deleted because AIG technically paid slightly less than 100 cents on the dollar.
Before the New York Fed ordered AIG to pay the banks in full, the company was trying to negotiate to pay off the credit- default swaps at a discount or “haircut.”
Read that date. We’re talking November 2008. If you read further into the Bloomberg article you’ll see that the names were withheld also during 2009. Issa put the names out because he wanted to show U.S. taxpayers where their money went. It’s unclear to me if he understood then or maybe even now that by putting out the details of the deals, he’s basically provided information that let’s us know how deeply Goldman Sachs was in on the financial innovations that blew up the economy. Not only that, it appears they knowingly may have been loading some of those innovations with assets they knew would explode and that they were actively placing bets on that outcome at AIG. As of the end of January, 2010 meeting, Geithner and the NY Fed still didn’t want the details released. No fucking wonder!
Janet Tavakoli, founder of Tavakoli Structured Finance Inc., a Chicago-based consulting firm, says the New York Fed’s secrecy has helped hide who’s responsible for the worst of the disaster. “The suppression of the details in the list of counterparties was part of the coverup,” she says.
E-mails between Fed and AIG officials that Issa released in January show that the efforts to keep Schedule A under wraps came from the New York Fed. Revelation of the messages contributed to the heated atmosphere at the House hearing.
Tavakoli also says that the poor performance of the underlying securities (which are actually specific slices or tranches of CDOs) shows they were toxic in the first place and were probably replenished with bundles of mortgages that were particularly troubled. Managers who oversee CDOs after they are created have discretion in choosing the mortgage bonds used to replenish them.
“The original CDO deals were bad enough,” Tavakoli says. “For some that allow reinvesting or substitution, any reasonable professional would ask why these assets were being traded into the portfolio. The Schedule A shows that we should be investigating these deals.”
So, check this out.
Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, who delivered a report on the AIG bailout in November, says he’s not finished. He has begun a probe of why his office wasn’t provided all of the 250,000 pages of documents, including e-mails and phone logs, that Issa’s committee received from the New York Fed.
Okay, now, follow closely as I connect the dots to this one: U.S. Treasury loan plan may exclude TARP watchdog.
If you were Timothy Geithner, would you want Neil Barofsky poking around any more programs? Wouldn’t you be highly interested in controlling TARP oversight? No wonder Treasury officials and others have been after Barofsky for some time. (Here’s an outline of their actions and attempts to remove independency by Glenn Greenwald at Salon from last summer. )
Geithner basically knew the vampire squid was a huge contributor to the fall of AIG. It looks like he may have actively encouraged covering-up that information. It also looks like GS actively securitized mortgages it knew would fail eventually and made huge counterbets based on that information using AIG as its personal bookie. Then, when AIG couldn’t cover the bets, GS refused to negotiate any deals (they must’ve known something like a bail out was forthcoming). Then knew exactly what was in those securities so they knew their real value. Geithner made AIG pay GS 100% of the value when it appears they were worth around 35%. When AIG tried to report the counterparties, the NY FED told them to withhold the information. (Yet, post Timmy, the NY FED appears to have released everything to Issa’s committee. During Timmy’s time, remember, everything was heavily edited and Barofsky appears not to have gotten the same information.) They also were told not to provide details on the mark downs. Timmy must’ve known that Goldman was betting against the toxic assets they had created. Not only that, it looks like Goldman was actually shorting themselves! AND these guys were Obama’s major contributors. Giethner must’ve been part of the packaged deal.
I got one thing to say now. A lot of folks should be doing a perp walk on this one. This looks like fraud. If this is the kind’ve financial innovation these folks voting on The Economist poll want, then they should just as well turn their life savings over to Bernie Madoff right now. I just wish they’d stop giving the likes of him mine too.
(I hope I’ve explained this adequately, cause this sure is one fucking twisted tale.)
Matt Taibbi of the Rolling Stone spells out why Goldman Sachs is making all that money in a piece called “Wall Street’s Bailout Hustle”. The contents shouldn’t be new for any reader here because it basically spells out what we’ve been talking about for some time. Also, any avid reader of Yves over at Naked Capitalism or Karl Denninger at the Market Ticker will have also followed the heist of taxpayer monies. The good news is that the Rolling Stone has a much bigger audience. The bad news is that I don’t know at this point if what any of us say will really matter. The fix is in and has been in for some time.
We’ve talked about how by allowing the investment banks to become commercial banks,the FED opened the discount window to institutions that normally cannot borrow money there or for that matter borrow any where that cheaply. Having your marginal cost of capital suddenly go to close to zero lets you invest in a lot of projects whose net present value would not be positive otherwise. Unfortunately, these ‘projects’ weren’t things like inventory loans or loans for new equipment which are items that generally are funded by commercial banks. The proceeds of the Fed loans were used to buy up deep discounted (by the Treasury) financial assets from the remnants of a failing AIG.
So the scam–as we’ve talked about in several posts–was pretty easy. First, you borrow from the FED at close to zero per cent interest. Then you get inside information on what’s going to be stripped out of AIG by then NY Fed chairman Timothy Geithner (who sees to it that the price is discounted to Filene’s Basement-levels) and you buy. Then, the NY Fed pre announces a program to buy whatever bad investments you may have on your book (including those deeply discounted AIG assets that you just bought at giveaway prices) so that you and your competitors can shift the assets around several times from place to place and run the price up. Just when the price goes up to an unreasonable level, you sell it to the FED. Then you stand in line for your huge bonus check in a few months for being a Master of the Universe when just about any freshman who took an investments course at the local community college could’ve figured out the same thing. La voilà! Fait accompli!
It would’ve been much cheaper for all of us if they’d have just bought the AIG assets directly but for some reason a bunch of folks in Washington D.C. insisted that the ‘market’ set the price. So, instead of having a phony price set by the FED directly, we had a scammed price set by investment banks. Was all this so Obama could say he’s a good capitalist and not a socialist or was it just away to dance with them that brought you? As we’ve also talked about before, Goldman Sachs and the FIRE lobby invested heavily in the Obama campaign.
So, if you want it spelled out a little bit more completely–with some much better prose than I can come up with–you can visit the Taibbi article and weep for your hard earned tax dollars. Here’s a great example of that.
Fast becoming America’s pre-eminent Marvel Comics supervillain, the CEO used the call to deploy his secret weapon: a pair of giant, nuclear-powered testicles.
No really. It’s a quote from the first paragraph. I swear I didn’t make it up. Nor did I make this up.
The only reason such apathy exists, however, is because there’s still a widespread misunderstanding of how exactly Wall Street “earns” its money, with emphasis on the quotation marks around “earns.” The question everyone should be asking, as one bailout recipient after another posts massive profits — Goldman reported $13.4 billion in profits last year, after paying out that $16.2 billion in bonuses and compensation — is this: In an economy as horrible as ours, with every factory town between New York and Los Angeles looking like those hollowed-out ghost ships we see on History Channel documentaries like Shipwrecks of the Great Lakes, where in the hell did Wall Street’s eye-popping profits come from, exactly? Did Goldman go from bailout city to $13.4 billion in the black because, as Blankfein suggests, its “performance” was just that awesome? A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble?
The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients.
So, it explains pretty clearly how Wall Street made that money in a sort’ve pulp fictionish way which hopefully will bring some attention back to culprits like Timothy Geithner who basically was the “loan arranger” of the sting on taxpayers. If that’s what it takes to wake folks up to the scam behind the masters of the universe, then so be it. WAKE THE FUCK UP FOLKS!
Every day, as the AIG saga unfolds, I have to wonder if there is any vestige of a functional regulatory scheme left in this country. I’ve already decided that there is no shred of decency left in any one whose hand came close to unraveling the insurance giant and its deals. I know this is an area where eyes glaze over, but really, it’s like solving a crime that even Miss. Marple couldn’t fathom. Ladies and Gentlemen, we’ve been robbed.
It may be too complex for most journalists to report about, but the financial blog realm, full of individual investors, academics and pissed off Americans is keeping the story alive. The headline today from the Atlantic is there are $100 Million More in AIG bonuses. Don’t forget, we basically OWN this company so this is OUR money. Most voters are wise enough to know that this alone does not pass the threshold of decency. You don’t have to have a PHd with an emphasis on corporate governance to figure out that something is very wrong when people can bankrupt a company one year, and still collect bonuses the very next.
In the ongoing AIG bonus saga, the troubled insurer will distribute around $100 million in bonuses today, that’s likely much to the dismay of taxpayers who now own the firm. Despite the fact that AIG is technically under compensation restrictions, many so-called “guaranteed bonuses” that were in place before AIG’s collapse still must be honored by law. This is a regrettable situation, and speaks loudly to the messy problem that bailouts pose.
This is the headline today in many of the mainstream papers. This includes the NY Times that reports those bonuses may have been lowered by$20 million to lessen the blow. This is a mere trifling compared to what was pilfered from the dying AIG by Goldman Sachs as it was in the throes of death. Those Revenuers let Goldman Sachs pick clean the dead body of AIG before we got the bill for the funeral.
“A.I.G. has taxpayers over a barrel,” said Senator Charles E. Grassley, an Iowa Republican, in a statement on Tuesday night. “The Obama administration has been outmaneuvered. And the closed-door negotiations just add to the skepticism that the taxpayers will ever get the upper hand.”
A.I.G. first promised the retention bonuses to keep people working at its financial products unit, which traded in the derivatives that imploded in September 2008, leading to the biggest government bailout in history.
The contracts, which were established in December 2007, were intended to keep people from leaving the company and called for the bonuses to be paid in regular installments to more than 400 employees in the unit. The final payment, which was for about $198 million, was due in mid-March, but was accelerated to Wednesday as part of the agreement to reduce its size.
Fearing a firestorm like the one last spring, A.I.G. had been working with the Treasury’s special master for compensation, Kenneth R. Feinberg, on a compromise that would allow it to keep its promise in part, without offending taxpayers.
So, the bonuses plays into the theme of the moment–Populist Outrage–which is driving everything from angry teabots to high ratings for media screamers like Glenn Beck. It hides a bigger problem. What is going on behind the schemes in the books and the deals as we attempt to bailout a group of bad gamblers is far worse. Yves Smith of Naked Capitalism lays out some of the issues on HuffPo as well as a series of thread at her own blog. While we rage at the bonuses, the real crime happened behind the curtains, where you’re not supposed to notice Timothy Geithner, pulling the strings and blowing the steam from the giant talking head of Glenn Beck.
Although the focus of press and public attention has been the decision to pay out “100%”, this issue has not been framed as crisply as it should be. Remember, the underlying transactions were crap CDOs that the banks (or bank customers, a subject we will turn to later) owned, and on which the banks had gotten credit default swaps from AIG. The Fed in fact paid out WELL MORE than 100% on the value of the AIG credit default swaps by virtue of also buying the CDOs.
That is one simple paragraph to describe the scheme behind the bailout of AIG. The facts are nearly beyond belief and as Congressman Dennis Kucinich put it, the testimony provided by Timmy-in-the-Well-again Geithner and among others doesn’t “pass the smell test.” I’m not sure how you miss the smells coming from an open, festering mass grave. But, the majority of Americans, and Congressio Critters, seem to think it could be just a few dead birds in the attic. The evil is the ledger accounts at the New York Fed.
Smith says the details show the FED as either captured regulator exhibiting ‘crony behavior’ or the behavior of Geithner was duplicitous and merits legal action. That is even mild. Her Huffpo article lays out the arguments for both scenarios. Either way, Giethner’s NY Fed comes off badly and Paulson and the Bush Treasury come off as co-conspirators to a heist.
Another article which demonstrates palpable anger at both the ineffective Fed and Congress is written in the financial/investment blog Money Morning by Shah Giliani who is a retired Hedge Manager. Again, the lack of knowledgeable staff could be the reason the pieces to the puzzle are being put together outside of the mainstream media. It could be the story is too complex to be glamorous and deemed beyond the reach of the average 5th grade reading level achieved at most major newspapers. It’s even possible no one wants to take on the financial industry. The deal is what happened as outlined in the testimony–had some one on that Congressional Panel actually had a background in something other than professional politics subsidized by the FIRE lobby and a plethora of worthless law degrees and knew finance–should’ve caused outrage around the country and sent subpoenas flying out of the justice department and the SEC. The central players in this are Goldman Sachs and the New York Fed whose people are so entrenched now in the Treasury and the West Wing that you have to wonder if there ever will be enough justice left in this country to counteract what should be the cries of lynch mobs. Following through with the legal obligations to pay out the bonuses–with the smallish $20 million concession–is just the sprinkles on the cake. Perhaps it’s easier to pay them than to have the AIG financiers talk about the details as the FED and Treasury unwound their deals.
The rationale for what is essentially the breaking of so many laws is the rescue of the U.S. and the world from another Great Depression. There are always ignoble deeds, however, done in the name of the most noble causes. This should go down in the press and in history as The Great U.S. Treasury and Financial Market Heist. The last two secretaries of Treasury-Paulson and Geithner–should be hauled before a government tribunal and stuck in Gitmo with the rest of the terrorists and enemies of the state. The dirty details follow the fold.