Thursday, March 19, 2009

AIG, Again?-2

"Americans awoke to the news on Monday that federal officials had spent yet another feverish weekend concocting yet another bailout. This time, the Obama Treasury Department--sounding a lot like the Bush Treasury Department--promised another $30 billion to the American International Group, the giant insurer. ... In a joint statement with the [Fed] on Monday, the Treasury justified the move, saying that 'the potential cost to the economy and the taxpayer of government inaction would be extremely high.' That's a textbook rationale for any bailout. What no one is saying--the Bush folks wouldn't, and the Obama team seems to have taken the same vow of Wall Street omerta--is which firms would be most threatened by an AIG collapse. ... That means that by enabling AIG to avert bankruptcy proceedings, the taxpayer is also bailout out--whom exactly? ... At this stage of a deepening crisis, no one is arguing that the government should let AIG collapse into a disorderly bankruptcy. It is too interconnected. ... The AIG bailouts fail the basic test of trasnparency: Who ends up with the money? Major financial institutions are not innocent victims of AIG's demise. They are sophisticated investors, and they should have known the risks being taken--and who profited mightity from the relationship before it all came crashing down. Whomever the recipients are, they should be investigated for their roles in the crash and, to the extent possible, be made to pay for the bailouts. The serial bailouts are especially problematic for their connection to the Wall Street bank Goldman Sachs [GSG]", my emphasis, Editorial at the NYT, 3 March 2009, link:

"A top [Fed] official, under fire for the government's rescue of [AIG], acknowledged Thursday that the aid contributed to 'moral hazard' risks by allowing some of the big insurer's trading partners to fully recoup billions of dollars tied to the firm. ... The government's help for AIG's trading partners illustrated the policially volatile decisions officials have made in the name of financial stability, pouring tens of billions of dollars into troubled firms to prevent a borader financial meltdown. ... Facing lawmaker objections, Mr. [Donald] Kohn defended the Fed's move as necessary to avoid broader threats to confidence. 'We're not so much worried about those particular counterparties,' he said. 'I'm worried about the knock-on effects in the financial markets. Would other people be willing to do business with other US financial insitutitons ... if they thought, in a crisis like this, they might have to take some losses?' ... 'It's not clear who we're rescuing--whether it is whatever remains of AIG or its trading partners,' said Senate Banking Chairman Christopher Dodd, a Connecticut Democrat. 'It's reasonable to ask why holders who would have received only pennies on the dolar for their credit-default swaps absent any government intervention would expect or deserve payments for what is essentially a bankrupt company'," Sudeep Reddy and Michael Crittenden at the WSJ, 6 March 2009.

"Lawmakers blasted state and federal regulators for dodging blame and keeping secrets after the failure of giant [AIG], which now has access to more than $170 billion in taxpayer money. ... In turns apolofetic and defensive, the regulators explained why their agencies weren't set up to oversee a company like AIG, or why the company's problems were outside of their jurisdictions. ... 'I share your concern. I share your anger,' Bernanke told the Senate Budget Committee Tuesday. ... Banking Committee Chairman Sen. Chris. Dodd, D-Conn., demanded to know Thursday which other banks had benefitted from the billions of dollars AIG has spent winding down its credit-default swap business and other relationships. ... [David] Kohn refused to say who had been made whole after deals with AIG went bad, arguing that the information would undermine what little confidence remains in the financial markets", my emphasis Daniel Wagner at the Houston Chronicle, 6 March 2009, link:

"The beneficiaries of the government's bailout of [AIG] include at least two dozen US and foreign financial institutions that have been paid at least $50 billion since the [Fed] first extended aid to the insurance giant. Among those institutions are Goldman Sachs Group Inc. and Germany's Deutsche Bank Ag, each of which received roughly $6 billion in payments since September and December 2008, according to a confidential document and people familiar with the matter", Serena Ng and Carrick Mollenkamp at the WSJ, 7 March 2009.

I say bring the system down. People laughed at Ben Stein's comments about GSG, my 4 December 2007 post: I didn't. All the more reason to indict GSG and its employees. If they now claim they did not understand AIG's business and make a public profession of incompetence consider the implication: GSG doesn't understand finance! Incomptence is GSG's defense to fraud charges. Indict 'em all, let a petit jury sort it out! Who? Balogna. As I read about 19 years ago in a law review article on White Collar Crime, fraud is not a "who dunnit", but a "what was done". We know who. Now it's what. Well DOJ. What are you doing about this? Chasing down nickel and dime (ugh) crack dealers?

AIG, bankrupt indeed. Let's reclaim every dime AIG's counterparties got since September 2009 for AIG's bankruptcy estate. Where are the Big 87654? Shouldn't each counterparty have disclosed what it got from AIG since September? These look like material transactions to me. GSG particularly should disclose this. Aren't the Fed and Treasury GSG "related parties", see SFAS 57, paragraph 24a and b, "Afiliate. A party that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with an enterprise. Control. The possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an enterprise through ownership, by contract, or otherwise". Well PWC, "auditor" of AIG and GSG, how about it? You're on both sides of these transactions! Well SEC and PCAOB, what will you do about this? Are the Fed, Treasury and GSG related parties? Read SFAS 57 and you decide.

Kohn admits the financial markets are a confidence game. The SEC generally seeks more disclosure. It seems to me that the receipt of these funds from AIG while insolvent is a fraudulent conveyance. Why isn't the receipt of these funds reportable on Form 8-K? Well Mary Schapiro? What are you going to do about this?

If GSG only got $6 billion from AIG, why did it bother? I can't believe GSG got only $6 billion. Apparently it got $13 billion.


Anonymous said...

It seems like the Treasury should just set up an automated electronic funds transfer to AIG's thugs (counterparties!)

You have to imagine the "insured" assets are going to have more downgrades and require additional collateral calls...

I listened to Kohn testify and also last summer on CDS... he never seemed to know what he is talking about... it made me worry about who is at the Fed running these big, important systems (:::yes::: IA - dismantle all these systems...)

It's all so corrupt and broken... but since the Prez-O man's team is new I'm sure they have confidence they can make it all better again... you have to imagine that confidence is fading very fast... message to Prez-O men... deep six Geithner at a minimum... and give up trying to protect Goldman Sachs... it's not worth your legacy...

Negocios Loucos said...

AIG is the patsy, Geithner and Paulson are the Capos and

Negocios Loucos said...

AIG is the patsy, Geithner and Paulson the Capo, Blair and Cox are Lieutenants, and Bernanke is the god father. USA = Mob