Geithner's New York Fed Pushed AIG to Keep Sweetheart Deals Secret

[Octafish]

Here’s a story that seems to have dropped off Corporate McPravda’s radar…

Geithner's New York Fed Pushed AIG to Keep Sweetheart Deals Secret

by Shahien Nasiripour
Published on Thursday, January 7, 2010 by The Huffington Post

EXCERPT...

After the firm was given a taxpayer-funded backstop, one of its most controversial acts was to repay banks at 100 cents on the dollar for what was by that point nearly worthless insurance the banks had bought from AIG, known as credit-default swaps.

A brutal report issued in November by a government watchdog disclosed that AIG had actually been trying to negotiate better terms with the banks until - guess what? -- the New York Fed stepped in. The report held Geithner personally responsible, and led to renewed questions about his fitness for the job.

Now it turns out Geithner's people told AIG to delete references on draft regulatory filings to the sweetheart deals. And AIG then excluded any mention of them in its December 2008 filing with the Securities and Exchange Commission, keeping the information hidden from investors and the public.

SNIP...

Instead of bargaining with AIG's numerous counterparties to resolve its billions of dollars in souring derivatives contracts, Geithner's team ended up having AIG pay top dollar for toxic assets -- "an amount far above their market value at the time," the November report noted. It described how the team led by Geithner failed nearly every step of the way.

And consider the timing of the newly discovered action. Reports first emerged that Geithner was being tapped for the Treasury secretary post on Nov. 21, 2008; the Senate confirmed his nomination on Jan. 26. Details of AIG's 100-cents-on-the-dollar payments to various banks with taxpayer-supported funds totaling in the billions, which would otherwise have become public no later than December, weren't disclosed to the public until March, when Geithner was already in office.

CONTINUED...

http://www.commondreams.org/headline/2010/01/07-5

It'd be an understatement to say this is the kind of thing that really angers the typical American taxpayer.

[saracat]

1. but, But Huffopo is "biased". All media is against the WH.

And this has nothing to do with the Administration! Wait for it.......:sarcasm:

[Octafish]

6. The media have missed a lot of the AIG story, like 'No Mention of the Synthetics'...

$182 billion for bailing out AIG and its insurees. Gosh, what's even harder to believe is that there's been so little in the way of public outrage...

Geithner’s Fed Told AIG to Limit Swaps Disclosure

By Hugh Son
Jan. 7, 2010
Bloomberg.com

EXCERPT...

‘No Mention of the Synthetics’

The e-mails span five months starting in November 2008 and include requests from the New York Fed to withhold documents and delay disclosures. The correspondence includes e-mails between AIG’s Shannon and attorneys at the New York Fed and its law firm, Davis Polk & Wardwell LLP. Tom Orewyler, a spokesman for Davis Polk in New York, declined to comment as did Shannon.

According to Shannon’s e-mails obtained by Issa, the New York Fed suggested that AIG refrain in a filing from mentioning so-called synthetic collateralized debt obligations, which bundled derivative contracts rather than actual loans.

The filing “reflects your client’s desire that there be no mention of the synthetics in connection with this transaction,” Shannon wrote to Davis Polk on Dec. 2, 2008. “They will not be mentioned at all.”

AIG had about $9.8 billion of swaps protecting the synthetic holdings as of September 2008, the company said on Dec. 10, 2008. Goldman Sachs said in a press release last month that it was among banks that had losses on synthetic CDOs.

CONTINUED...

http://www.bloomberg.com/apps/news?pid=20601087&sid=aXIvW4igKV38&pos=1

Wonder what else the Geithner and the Fed have ordered people not to disclose?

[Po_d Mainiac]

14. I'm amazed that Joseph Cassano is still alive. n/t

[Octafish]

28. The guy's got a lot to answer for...

...and to:

Joseph Cassano: the man with the trillion-dollar price on his head

By Paul Vicente
The Sunday Times May 17, 2009



This is Joseph Cassano. He is the multimillionaire trader accused of bringing down the insurance giant AIG — and with it the world’s economy. So is he a criminal, an incompetent or a scapegoat?

EXCERPT...

There is, however, an alternative reading. This says that the furore over bonuses is a convenient distraction from the real causes of the crisis, which go to the heart of how the world is run. There is dishonesty in this collapse, on a scale that is almost too vast to comprehend. There are conflicts of interest in American finance and politics that make our own, dear House of Lords look like beginners. There are frauds so large, and so long-standing, that it can be hard to see them for what they are. And all these things were allowed to thrive in an intellectual atmosphere that tolerated no dissent. This reading is optimistic for those who believe in free markets, even if it is pessimistic for the US. “Capitalism has not failed,” says Bernard-Henri Lévy, the French philo-sopher. “We have failed capitalism.” The thesis can be tested through Patient Zero.

SNIP...

But Greenberg faced a problem. Insurance is not like iPods, where if you invent the market, growth comes fast. Over time, it performs in line with the economy. In 1987 he found an answer: AIG would enter a joint venture with Howard Sosin, a pioneer in the new “Frankenfinance” of derivatives trading. You can thank Sir Isaac Newton for Frankenfinance. By showing in the 17th century that the universe conforms to natural laws, he encouraged our age to see money as a branch of physics. Starting in 1952, two generations of economists worked to show that people are like molecules, whose behaviour can be predicted in ways that are stable over time. Science then infected everything, from how much capital banks need to protect themselves against insolvency, to the risk in credit-default swaps. But there was a flaw: the City’s faux physicists never go back far enough in their analysis, because the data on the Bloomberg terminal cover a tiny period of history. “Real scientists tend to be much more sceptical about their data and their models,” says William Janeway, an MD of the private-equity firm Warburg Pincus and a Cambridge University lecturer. “They had all of the maths, but none of the instincts of good scientists.” There is also the 4x4 effect: if you give people a safer car (read, a safer world through financial innovation), they tend to drive faster. But we are getting ahead of ourselves.

To start with, AIG trod carefully in the new, scientific universe. Sosin’s idea was to buy financial risk from people who did not want it, then sell the risk to others in a series of “hedges” so that AIG kept the fees but not the risk. If a big organisation wanted to lock in an interest rate, for example, AIG would promise to pay the difference in costs if rates rose, then pass the risk to other parties in separate contracts. Sosin supplied the nerds and the models, AIG supplied the reassurance of its AAA rating, and for a long time the alchemy worked. AIG Financial Products (AIGFP), a unit with 0.3% of AIG’s 116,000 employees, made over $1 billion in profits between 1987 and 1992, a vast sum at the time. But Sosin left. And so did his successor, a mathematician named Tom Savage. When Savage departed in 2001, Greenberg put in charge a man he saw as “smart, tough and aggressive”: the unit’s chief operating officer, Joseph Cassano. The new leader had no background in Frankenfinance; his degree, from Brooklyn College, was in political science. The cop’s kid had ascended through what is called the “back office”: his expertise was in supervising the contracts and running the lawyers and accountants. This did not matter, Greenberg thought. Underlings had the right maths, and besides, Greenberg’s AIG held everyone, Cassano included, to account. The London team would be scrutinised. Which was just as well, as the huge intellectual error meant nobody else was in charge. “Why did no-one see it coming?” asked the Queen last November, on a visit to the London School of Economics. Well, they did, ma’am. Charles Bowsher, head of the US government’s General Accounting Office, testified as long ago as 1994 that “the sudden failure or abrupt withdrawal from trading” of large dealers in derivatives “could cause liquidity problems in the markets and could also pose risks to others, including… the financial system as a whole”. It took another 13 years, but that is exactly what happened.

One regulator tried to act on Bowsher’s warning, but she was silenced. Brooksley Born, who monitored the futures markets, tried to extend her remit to unregulated derivatives. Alan Greenspan and Robert Rubin, the then Treasury secretary, persuaded Congress to freeze her already limited power, forcing her departure. Rubin had come into government from Goldman Sachs; when he left he went back to banking, and pushed for Citigroup to step up its trading of risky, mortgage-related investments. For his advice, he earned over $126m (£84m) and then, as Citigroup collapsed, became an adviser to Barack Obama. After Greenspan stepped down from the US central bank in 2006, he became a consultant to Pimco, the world’s biggest bond fund, where his insights have been praised by his boss. “He’s made and saved billions of dollars for Pimco already,” said Bill Gross last year. Greenspan is also an adviser to Paulson & Co, a hedge-fund group that has made billions from the collapse in American housing.

The lightness of touch reached a level that defies belief. America has an Office of Risk Assessment, set up in 2004 to co-ordinate risk management for the main regulator, the Securities and Exchange Commission (SEC). Jonathan Sokobin, its director, says it is charged with “understanding how financial markets are changing, to identify potential and existing risks at regulated and unregulated entities”. According to its website, it also helps to “anticipate, identify and manage risks, focusing on early identification of new or resurgent forms of fraud and illegal or questionable activities… across the corporate and financial sector”. By early 2008, this office was reduced to a staff of one. “When that gentleman would go home at night,” says Lynn Turner, the SEC’s former chief accountant, “he could turn the lights out. We had gotten down to just one person at the SEC responsible for identifying the risk at all the institutions.” The $596-trillion market in unregulated derivatives, including $58 trillion in credit-default swaps, was being watched by one person. That’s when he wasn’t looking at the rest of the corporate world, of course.

CONTINUED (with a tip of the fin to the great DUer KoKo...

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6281953.ece?token=null&offset=0&page=1

The guy can grow a beard and bicycle from Southampton to Sverdlovsk and people will still recognize him.

[slipslidingaway]

2. knr nt

[Octafish]

8. AIG -- Masters of Perfidy

Where the money that could've gone for progress like Universal Health Care went, from Jeffrey St. Clair:

AIG and the System

The Masters of Perfidy

By JEFFREY ST. CLAIR
CounterPunch July 23, 2009

The first clue that something was terribly amiss with the insurance giant AIG should have been made manifest when the conglomerate began offering products--and financial products at that. What exactly does an insurance company produce? The short and nasty answer is that AIG manufactured precisely what it was meant to guard against. Namely, risk. Extreme risk.

Ultimately, AIG was cashiered on several trillion dollars of risky financial products, sewn together by Ivy League math whizzes and aces in the arcane art of arbitrage. These were fanciful consolidations of debt that no sane insurer would ever have indemnified. When the company crashed in the dismal autumn of 2008, it turned sheepishly to the insurer of last resort for rescue: the U.S. government. The disgraced executives made the case that the rot in AIG was spreading and was threatening to go systemic. Too big to fail became the mantra of the bailout. AIG, perhaps the most recklessly managed company in the world, was so thoroughly enmeshed in nearly every sector of the American—and even global—economy that to let it sunder would be to risk the crash of the nation. Or so they said.

Both the Bush and the Obama teams—themselves thoroughly marinated in the AIG mindset—quickly capitulated to financial extortion and infused the company with more than $182 billion in taxpayer cash—a sum that continues to rise each month with the inexorability of a lava dome inside an active volcano. Thus did the Obama administration in one of its first official acts endorse the remorseless logic of throwing good billions after bad.

The Treasury Department and AIG’s management were so harmonious that Timothy Geithner allowed AIG’s executives to continue to run the company even after the bailout. The top brass at AIG had successfully duped Geithner and his political puppet master Larry Summers into buying the far-fetched idea that the collapse of AIG had been perpetrated by a handful of rogue traders operating out of satellite offices in distant London and suburban Wilton, Connecticut.

Indeed, Geithner and Summers were so sympathetic to the plight of these corporate titans that they sanctioned more than $450 million in executive bonuses to managers at AIG, including the disgraced Financial Products Division.

Of course, AIG had, among other giants of Wall Street, insured Goldman Sachs, which had made its own dementedly bad investments in subprime loans to the tune of tens of billions of dollars. And there was no way in hell that Geithner, Summers or Hank Paulson was going to let Goldman Sachs eat those loans. And that bit of political sleight-of-hand seems to have paid off handsomely for Goldman Sachs, which just posted record quarterly profits of $700 million only a brief nine months after it seemed like the investment house was on the verge of an ignominious collapse. In other words, the $54 billion in direct payments the feds had lavished on Goldman, Merrill-Lynch and the other Wall Street firms was just the icing on a very rich cake.

CONTINUED...

http://www.counterpunch.org/stclair07232009.html

It's like Pentagon spending -- Washington does what's best for the "Ownership."

[slipslidingaway]

13. Yes and we are not members of that class. n/t

[Autumn]

3. So I wonder what will happen

to that thieving SOB?

[Octafish]

12. Golden Boys get Golden Parachutes

From every indication.

What atomic number is my parachute? 82.

[glitch]

4. What a weasel. I hope he starts feeling some intense heat some time soon. nt

[Octafish]

18. Geithner and the AIG Emails Scandal Is Only Tip of the Iceberg

Help is on the way...

Geithner and the AIG Emails Scandal Is Only Tip of the Iceberg

By Eliot Spitzer and William K. Black and Frank Partnoy, NewDeal 2.0
Posted on January 7, 2010, Printed on January 8, 2010

In a December New York Times op-ed, we called for the full public release of AIG email messages, internal accounting documents and financial models generated in the last decade. This Thursday, a Bloomberg story revealed that under Timothy Geithner's leadership, the Federal Reserve Bank of New York told AIG to withhold details from the public about its payments to banks during the crisis. This information was discovered when emails between the company and the Fed were requested by representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The emails requested by Issa span five months beginning in November 2008. If five months of emails reveal information key to our understanding of the aftermath of the crisis, imagine what 10 years of emails could contribute to our understanding of its causes. We believe the AIG emails and other internal company documents are the 'black box' of the financial crisis. If we understand the failure of AIG, we will more fully understand the crisis -- what caused it and more importantly how to prevent it from happening again.

The emails today detail the efforts of the Fed to suppress the disclosure of payments made to banks such as Goldman, Sachs Group for reimbursement of their credit-default swap exposure. When the Treasury Department stepped in, AIG had at least $440 billion in credit-default swaps outstanding. The Fed, led by Tim Geithner, paid Goldman, Sachs Group and other banks 100 cents on the dollar for these instruments rather than negotiating a lower rate closer to the actual value, (estimated by some to have been as little as 20 cents). In testimony to the Congressional Oversight Panel, Tim Geithner insisted it was necessary to make these payments in full, arguing that even a small downward negotiation would prove catastrophic to the financial sector. Elizabeth Warren, head of the oversight panel has repeatedly challenged repeatedly this assertion.

Regardless the size of the payments, the Fed's request to suppress both their amount and the parties to whole these payments were made would not have come to light without the release of these emails. Without the rest of the emails, we will be unlikely to fully understand what led to the collapse of AIG and the financial markets. If we can't understand it, we will be unable to prevent it from happening again.

SNIP...

The taxpayer's stake in AIG is held by the A.I.G. Credit Facility Trust, whose three trustees are Jill M. Considine, a former chairman of the Depository Trust Company and a former director of the Federal Reserve Bank of New York; Chester B. Feldberg, a former New York Fed official who was chairman of Barclays Americas from 2000 to 2008; and Douglas L. Foshee, chief executive of the El Paso Corporation and chairman of the Houston branch of the Federal Reserve Bank of Dallas. We call on these three officials (interestingly all former Fed officials) to immediately release the documents we request.

CONTINUED...

http://www.alternet.org/politics/145020/geithner_and_the_aig_emails%3A_scandal_is_only_tip_of_the_iceberg

No wonder the BFEE turned the NSA on Spitzer.

[notesdev]

5. This is a hanging offense

Where's the accountability?

Leave Geithner in there and you are guaranteeing an historic loss in 2010 and that Obama will be a one-termer.

Maybe Obama is too much of a lightweight for the responsibility he's taken on. At this point I'm willing to take my chances with Biden, shoe in mouth and all.

[Octafish]

22. The Real AIG Scandal: How the Game is Rigged at Wall Street’s Casino

It's weird how important the number of zeros in a check are to those of zero conscience.

The Real AIG Scandal: How the Game is Rigged at Wall Street’s Casino

Congress has deftly avoided the real story of AIG’s collapse, which will make a few million in bonuses seem like peanuts.

There’s nothing like a grandstanding member of Congress to deflect attention from the real issues at hand by throwing a few juicy bones to the masses. Most legislators at a House Finance subcommittee hearing last week deftly avoided the real story of AIG’s collapse. Instead, they homed in on the public relations disaster of hundreds of top AIG officials and staff getting $165 million (later revealed as over $218 million) in bonuses.

The key issue ignored by the congressmen and women was the potential catastrophe represented by as much as $2.7 trillion in AIG derivative contracts and how AIG and the U.S. government are dealing with them. To put that number in context, we’ve so far provided the company only about $170 billion.

An exception at the hearing was Rep. Joe Donnelly, D-Ind., who declared that “naked credit default swaps” were little more than “gambling … dreamed up” by Wall Street to create additional profits, and he suggested that instead of being bailed out, “when the casino goes bust, the guys who are gambling close shop.” He noted that if ordinary Indiana citizens acted the same way as the titans of Wall Street had, they’d be in jail. But Donnelly never got to explain what he meant by “naked credit default swaps.” We did learn early at the hearing that the Federal Reserve is in charge of overseeing AIG. The Fed is strongly influenced by some of the same big banks and brokerages that are getting AIG payouts and taxpayer funding.

These same firms have opposed regulating credit default swaps, other derivatives and naked short selling (which are explained below). That should have set the stage for the rest of the questions, not to mention an investigation into where, exactly, all that money that AIG received went.

More Money for AIG

We discovered in passing at the hearing that AIG has $1.6 trillion of derivatives left to “unwind” — the mess remaining of the AIG derivatives debacle. Nobody asked the basic details of how the other $1.1 trillion was “unwound” or how the rest will be dealt with. And nobody got an answer to the question of how much more in taxpayer money it will take to finish the job, and who will benefit from this unwinding process. Or, since the U.S. government is now in the derivatives business through its financial support of not only AIG but also Citigroup ($300 billion in guarantees), and other financial companies, how much taxpayer money may be required to pay off those other firms’ derivatives bets.

CONTINUED...

http://thekomisarscoop.com/2009/03/the-real-aig-scandal-how-the-game-is-rigged-at-wall-streets-casino/

The future does look bleak for the Democrats. Whether the Senator from MasterCard can do the job: at one time, maybe. Nowadays, it seems like we're the party destined to always clean up the messes of the oligarchs, not as ranch hands either -- they were paid.

[L0oniX]

7. Why would you expect anything else?

[Prism]

9. Geithner must resign or be indicted. This is a VERY BIG DEAL

I don't think people really appreciate how bad this is. Not only was this illegal, but it was intended to cover-up the transfer of billions to Goldman Sachs and other companies by snatching up toxic assets for 100 cents on the dollar - full value. The government paid full-price for assets that were basically worthless.

Basically, the government came in and said "We must bail-out AIG". AIG then started buying up the bad assets of other banks. In simplistic terms, Wall Street and the government used AIG to launder money. So the government went to the American people and said "We really need to save AIG" while they were quietly transferring other banks, like Goldman Sachs, profit-destroying assets to AIG.

So all these losses, all these bad assets from other, non-failing banks, ended up in AIG and the government was able to tell the people "We're just bailing out this one bank - not the others."

This is a swindle almost unparalleled severity. It is outright theft from the American taxpayer. And the officers of this administration have their fingerprints all over it.

If this doesn't infuriate people, they're not paying attention. I hope people see this.

[Nikki Stone1]

15. +1

A MUST READ post.

[Sebastian Doyle]

10. Timmy should have stuck with his original goal

...being a dentist.

Get rid of this asshole.

[doremus jessup]

20. Geithner is safe.

Kissinger and associate members never walk the plank. Look at bremer , greenspan,bernanke, et...

[glitch]

26. Never too late for some change we can believe in. nt

[leftstreet]

11. K&R

[slipslidingaway]

16. kick nt

[ozymandius]

17. This needs to be kept in the public eye.

His fingerprints are all over the "smoking gun" documents that show Geithner did not recuse himself from any business with AIG - even when Treasury says he did. Utter fools. Their actions evidence a belief that reality and propriety are just things for other people.

[Octafish]

19. The American Elite - LBJ, Lincoln Gordon and the Origins of the Desaparecidos

William Blum pegs the people who believe the rules don't apply to their royal backsides:

LBJ, Lincoln Gordon and the Origins of the Desaparecidos

The American Elite

By WILLIAM BLUM
CounterPunch
January 7, 2010

Lincoln Gordon died a few weeks ago at the age of 96. He had graduated summa cum laude from Harvard at the age of 19, received a doctorate from Oxford as a Rhodes Scholar, published his first book at 22, with dozens more to follow on government, economics, and foreign policy in Europe and Latin America. He joined the Harvard faculty at 23. Dr. Gordon was an executive on the War Production Board during World War II, a top administrator of Marshall Plan programs in postwar Europe, ambassador to Brazil, held other high positions at the State Department and the White House, a fellow at the Woodrow Wilson International Center for Scholars, economist at the Brookings Institution, president of Johns Hopkins University. President Lyndon B. Johnson praised Gordon's diplomatic service as "a rare combination of experience, idealism and practical judgment".

You get the picture? Boy wonder, intellectual shining light, distinguished leader of men, outstanding American patriot.

Abraham Lincoln Gordon was also Washington's on-site, and very active, director in Brazil of the military coup in 1964 which overthrew the moderately leftist government of João Goulart and condemned the people of Brazil to more than 20 years of an unspeakably brutal dictatorship.

Human-rights campaigners have long maintained that Brazil's military regime originated the idea of the desaparecidos, "the disappeared", and exported torture methods across Latin America. In 2007, the Brazilian government published a 500-page book, "The Right to Memory and the Truth", which outlines the systematic torture, rape and disappearance of nearly 500 left-wing activists, and includes photos of corpses and torture victims. Currently, Brazilian President Luiz Inácio Lula da Silva is proposing a commission to investigate allegations of torture by the military during the 1964-1985 dictatorship. (When will the United States create a commission to investigate its own torture?)

In a cable to Washington after the coup, Gordon stated — in a remark that might have had difficulty getting past the lips of even John Foster Dulles — that without the coup there could have been a "total loss to the West of all South American Republics". (It was actually the beginning of a series of fascistic anti-communist coups that trapped the southern half of South America in a decades-long nightmare, culminating in "Operation Condor", in which the various dictatorships, aided by the CIA, cooperated in hunting down and killing leftists.)

Gordon later testified at a congressional hearing and while denying completely any connection to the coup in Brazil he stated that the coup was "the single most decisive victory of freedom in the mid-twentieth century."

CONTINUED...

http://www.counterpunch.org/blum01072010.html

These people not consider themselves above the law, they consider themselves superior to most of humanity.
IMFO, that's not only undemocratic, it's un-American.

[Dappleganger]

21. You know, I'll defend the President until my face turns blue...

but I'll be damned if Geithner is part of that package. He was bad news from the very beginning (along with Bernanke).

[KittyWampus]

23. Couldn't agree with you more. Obama will hopefully convince him to spend more time w/

his family.

[Oilwellian]

24. Ah, you beat me to it

This should be on the front page. It's one thing for "Timmeh" to forget paying his taxes...and quite another for outright fraud. I smell congressional hearings in the near future. K&R

[G_j]

25. K&R

[lonestarnot]

27. Giethner is the problem that I knew he would be.

Not the change I voted for unfortunately. :(