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“AIG, the US government-controlled insurer, is considering pursuing Goldman Sachs over losses incurred on $6bn of insurance deals on mortgage-backed securities similar to the one that led to fraud charges against the US bank.”
(See full article at Financial Times)
Ahead of tomorrows big show on the Hill, Tim Geithner’s written testimony has been leaked. I do not know if this was intentionally leaked or not. Nor do I know how it came to be on the net ahead of the embargo period, but it is swilling around the net now.
Tim Geithner Written Testimony
Treasury Secretary Tim (Turbo Tax) Geithner has come under a lot of fire in recent months, and with just cause I might add.
Today Tim Geithner came under heavy fire on Capital Hill for his failed policies, bailouts, and the growing deficit. The pivotal moment for me was when Tim Geithner said the following:
{I do not believe that the removal of Glass-Steagall had any impact on the current crisis}
That my friends is an outright admission that he does not work for the good of America or its citizens, but instead works for the good of Wall Street, even if it means placing the taxpayers at great risk.
It was the elimination of Glass-Steagall in 1999 that allowed banks to cross the line into non banking endeavors such as mortgage backed securities. The Glass-Steagall Act was originally enacted following the Great Depression to prevent banks from putting the financial system at risk. How Mr. Geithner thinks that this had nothing to do with the current financial disaster is simply beyond words.
Recall that before becoming Treasury Secretary he was the President of the Federal Reserve Bank of New York. The very Federal Reserve bank that was instrumental in aiding and abetting the bailouts of the insolvent banks, participated in the meetings and doings of the Bear Stearns collapse, Merrill Lynch, Lehman, and many other “investments” that we as taxpayers were forced to pay. He also allowed non-banks to acquire bank holding company status so they may be able to draw upon the Fed’s (tax payer) funds via the discount window. Something that was until this crisis only available to ‘real’ banks.
Recall that earlier this year Tim Geithner was speaking to a group of university students in China and stated that China’s investments in the United States were safe. This was followed by an outburst of laughter from the audience (some people don’t fall for lies).
Recall that Tim Geithner was instrumental in the behind the scenes arrangement that allowed Goldman Sachs to receive full payment for credit default swaps that were tied to AIG. Those credit default swaps would normally have paid between 25 and 55 cents on the dollar in this situation. Instead Tim Geithner allowed Goldman Sachs and even some foreign banks to receive par on the default swaps and worst of all it was essentially laundered money. The money went from the tax payer to AIG, from AIG it went directly to Goldman Sachs. Everybody has to save Goldman Sachs… right? This all took place when Geithner was running the show at the New York Federal Reserve and former Goldman Sachs chairman Steve Friedman was on the board of directors of the New York fed when the money laundering operation was devised.
Mr. Tim Geithner – RESIGN NOW
Mr. Jake DeSantis, an AIG executive VP resigned this morning from the company and submitted his resignation to the New York Times.
I have read what Mr. DeSantis wrote.. my final opinion is the following:
As an owner (tax payer) of AIG I accept your resignation, don’t let the door hit you on the back side on the way out.
Did Mr. Liddy, AIG CEO lie before Congress?
Information made public today shows that the amount of money AIG employees received in the form of bonuses was actually larger. This was revealed in documents subpoenaed by the Connecticut Attorney General.
NEW HAVEN, Connecticut – Connecticut’s attorney general says documents turned over to his office by American International Group Inc. shows the company paid out $218 million in bonuses, higher than the $165 million previously disclosed.
Attorney General Richard Blumenthal’s office received the documents late Friday after issuing a subpoena.
Blumenthal says the documents show that 73 people received at least $1 million apiece, and five of those got bonuses of more than $4 million. The financially ailing insurance giant has been under fire for giving bonuses after receiving more than $182.5 billion in federal bailout money.
AIG spokesman Mark Herr declined to comment Saturday.
From the WSJ:
The House gave strong approval to legislation intended to recoup bonuses paid by American International Group Inc. and other recipients of federal aid, after a sharp-edged debate that dramatized populist outrage over the government’s sweeping efforts to prop up the nation’s financial system.
The legislation was rushed to the floor by Democratic leaders amid a storm of protest among rank-and-file lawmakers over AIG’s decision to pay bonuses to hundreds of current and former employees, while receiving more than $100 billion in taxpayer assistance. Approved on a 328-93 vote, the measure would impose a 90% surtax on the disputed payments, effective for bonuses made after Dec. 31, 2008.
The legislation would apply widely to payments by all institutions that have received at least $5 billion in taxpayer aid. The special levy would be in addition to existing income taxes, and would apply to bonuses received by individuals with at least $250,000 in adjusted gross income.[...]
[...]Under the plan, the first $250,000 of compensation including any bonuses earned by executives at the firms would be taxed at normal federal income tax rates. Any bonus over that amount would be taxed at a much higher rate of 90%.
The Senate is working on its own plan to try to recoup the bonuses. Lawmakers there have yet to roll out their legislation, although according to Sen. Max Baucus ( D., Mont.), the chairman of the Finance Committee, a bill will be introduced later Thursday.
The Senate bill is much broader than the House version — taxing bonuses at any company that received federal assistance, not just the largest ones. It would tax bonuses at 70%, split evenly between the company paying the bonus and the employee receiving it.[...]
I will have commentary on this issue in tonight’s video update.
It has been said over and over that AIG represents a “systemic risk” to the global economy. This has been used not only for AIG but for Citigroup, and many others.
What is it that the U.S. Government is so afraid of? What is systemic risk anyway?
When we hear the term ‘systemic’ we often think of medical conditions which are very severe. A ‘systemic infection’ to the financial sector is the equivalent of a lymphatic cancer. But is the diagnosis of a systemic risk as it pertains to these individual companies really warranted? Or is is simply an ‘excuse’ to garner public support for actions that actually have other objectives?
Today AIG released its counterparty obligations. Those obligations were essentially obligatory payments that AIG was responsible to make good on to other companies, governments, and states that were for the most part linked to losses on securities linked to U.S. mortgages and were sold by AIG.
So who was it that a failure of AIG would have resulted in severe losses to?
From AIG Counterparty disclosure statement:
AIG Chairman and Chief Executive Officer Edward M. Liddy said that the counterparty and collateral information show that billions in government assistance flowed to dozens of financial counterparties and municipalities during a time of acute stress in the economy.
Mr. Liddy emphasized that AIG’s disclosure of the counterparties does not change AIG’s commitment to maintaining the confidentiality of its business transactions. “Our decision to disclose these transactions was made following conversations with the counterparties and the recognition of the extraordinary nature of these transactions,†Mr. Liddy said.
Payments made by AIG after September 16, 2008, the date on which AIG began receiving government assistance:
There is what the Government claims is a ‘systemic risk’. The failure of AIG would have resulted in many billions of of dollars in losses for numerous other banks and financial institutions, but none of them should have been anything near a ‘systemic’ collapse. Instead the U.S. taxpayer money was immediately transferred to bailout and protect the losses in other institutions and countries.
So the bailouts of AIG amounted to nothing more than a conduit for distributing tax payer funds around the world in this authors view with the threat of ‘systemic failure’ only to gain public support, to ‘justify’ their bailouts.
Is AIG a systemic risk capable of bringing the entire financial system to a ‘crashing’ halt… not in my view.
But what the U.S. Government is doing by providing bailout after bailout IS a systemic risk to the entire financial system.
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In other news tonight AIG announced they will be paying nearly $1.2 Billion in bonus and retention payments to employees. Many of which are those who were directly responsible for the catastrophic failure and reckless risks that AIG put themselves in.
Mr. Liddy, AIG CEO, said in a statement that it was important to retain the top talent needed to unravel the mess the company was in. And to be able to continue attracting top talent.
Why are those who had their hands in creating the largest financial disaster since the Great Depression being considered ‘top talent’? And why is it important to keep them?
I say that AIG must fail. This company is an embarrassment to the United States, the tax payers, and to the financial community. AIG is ‘too big to be allowed to survive‘. It is time for this company to be put out of ‘our misery‘.
AIG reported a $61.66 billion loss for the fourth quarter, the largest corporate loss in United States history.
“The company continues to face significant challenges, driven by the rapid deterioration in certain financial markets…. The additional resources will help stabilize the company, and in doing so help to stabilize the financial system,” the Treasury and Federal Reserve said in a statement.
The new deal, the government’s fourth for AIG, represents a nearly complete reversal from the one first laid out in mid-September. Back then, federal officials acted as a demanding lender, forcing the insurer to pay a steep interest rate for what was expected to be a short-term loan. Now the government is relaxing loan terms by wiping out interest in hopes of preserving AIG’s value over a longer period.
Tax payers have been on the ‘expendable’ list as the Government now appears to have no desire whatsoever to protect taxpayer interest any longer.
AIG CEO: CEO: COMPANY WAS IN MUCH DIRE CONDITION THAN EXPECTED
- Deal with the government keeps difficult economic situation from deteriorating further by making sure company survives.
Today’s Bailout highlights:
US GOVT TO EXCHANGE $40B IN CUMULATIVE PREFERRED SHARES FOR NEW COMMON SHARES
- In agreement with US government for $30B equity capital facility
- AIG to issue convertible preferred stock representing 77.9% of shares to US Treasury trust
- US Gov’t ready to support AIG further if markets do not stabilize
- Fed to make new loans of up to $8.5B to AIG Life Subsidiaries
- Fed states AIG continues to face “significant challenges”
- The restructuring components of the government’s assistance begin to separate the major non-core businesses of AIG, as well as strengthen the company’s finances.
- The long-term solution for the company, its customers, the U.S. taxpayer, and the financial system is the orderly restructuring and refocusing of the firm.
- As required by the credit agreement governing the Revolving Credit Facility, AIG has agreed to issue on March 4, 2009, shares of convertible preferred stock representing an approximately 77.9% equity interest in AIG to an independent trust for the sole benefit of the United States Treasury.
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