Sunday, February 7, 2010

Fed Rift?

"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"!


Anonymous said...

I'm beginning to think President elect Obama was in the loop on this payment... and he was just doing what his largest campaign contributor (Goldman) suggested.

The timing of the AIG counterparty payments coming right after his election is curious. Paulson claims that Obama stopped talking to him after he won... so very odd for a President elect to shut off the flow of information from the Treasury Secretary during the largest credit crisis in 80 years.

Bernanke? Overseeing AIG negotiations? What's his incentive? His incentive is to give Goldman Sachs whatever they want. Or in this case to ensure their survival. Paulson kills Lehman and saves Goldman. Classic. The history books will be retell this one over and over.

Imagine Bernanke overseeing the supervision of the open market operations. Ha! Wall Street always wins in those trades. It's well known.

This is the true reason they are petrified of being audited. The AIG bailout was nothing unusual for the Fed. It's STANDARD OPERATING PROCEDURE to give the Wall Street banks everything they want.

*Don't want CDS clearing (ok delay for years)
*Don't want to reduce fails (ok delay for years)
*Don't want to end liquidity support for MBS (ok delay)
*Don't want a central trade reporting system for Treasuries (ok never)

Goldman won in the AIG deal. It was a walkover.

Who is Dan Jester by the way?

Independent Accountant said...

Read Yves Smith's 7 February 2010 post on AIG. This fiasco gets worse every day. Dan Jester is a Goldman executive.


edgar said...

The Squid is everywhere, it is all around us, even now in this very room. You can see it when you look out your window, or you turn on your television. You can feel it when you go to work, when you go to church, when you pay your taxes. It is the world that has been pulled over your eyes...

Morpheus The Matrix