Sunday, February 7, 2010
"New documents submitted to Congressional investigators examining the 2008 rescue of the [AIG] show that officials at the [Fed] were deeply divided over the structure of the bailout and its long-term implications. At the same time, regulators had to contend with major banks that were AIG's trading partners and were unwilling to accept a discount from the government when closing out the contracts the banks had struck with the insurance giant. ... The Fed's decision to pay AIG's trading partners in full on tens of billions of dollars in contracts has been controversial because many analysts say they believe the government could have negotiated a price for a fraction of that amount, reducing taxpayer funds used in the rescue. Similar contracts were being settled at heavy discounts in other deals where the government was not involved. ... 'We asked for concessions, and they said no,' according to the notes. 'I wonder why we even bothered.' Mr. [Thomas] Baxter also said that Mr. [Timothy] Geithner verbally approved the decison to pay full price to the banks. ... According to a 13-page slide show prepared by the asset management firm BlackRock that was submitted to the committee, Merrill Lynch [ML] and French bank, Societe Generale, were 'resistant to deep concessions' on their AIG contracts. Goldman Sachs, another trading partner, was willing to accept only 'a small concession' on its contracts", my emphasis, Louise Story and Gretchen Morgenson at the NYT, 23 January 2010, link:
This is laughable. Imagine Vampire Squid (VS) told the Fed what it would accept. How many divisions has VS? Kill the Fed. Roll out that CNC guillotine and set it to work in front of 85 Broad Street. The correct response Zimbabwe Ben (ZB) was, "Well VS, ML recently settled some CDOs for 22 cents on the dollar. If you want more, put AIG's CDOs up for bid. By the way, I prepared a press release of the substance of your demands. If you do not do as you were told, I will hold a press conference at 9:00 AM tomorrow morning and tell 306 million Americans of your demands. What will you do if they respond and within 48 hours our 535 legislators are hit with 50 million e-mails and faxes saying "No bailout. No hell no way"? ZB isn't evil. Just cowardly. Now ZB, do us a favor, return to Princeton, play pinochle with Krugman and Blinder and leave us peasants alone. You are less capable negotiating with the VS than a 42nd Street three-card monte dealer. "Divided over ... implications"? How incompetent are the Fed's economists? "Unwilling to accept a discount"? When the alternative was AIG's bankruptcy? In July 2008 ML sold some CDOs for 22 cents on the dollar. ZB should have told ML, "The burden is yours. Why are the AIG CDSs worth more? Make me a believer. Show me"!