Wednesday, October 20, 2010

Mortgages: Multiple Scams, Obvious Fraud by Wall Street

First there is this:
Mortgage Electronic Registration System: the private corporation built by the mortgage lending industry, whose tool for electronically trading mortgages has thrown the entire housing market into turmoil. In the name of saving a buck, the mega-banks used this tiny company with almost no employees and entrusted it with 60 million of the nation’s mortgages on its system – 60% of all mortgages in the United States – to predictable results.

Starting in the early 1990s, the mortgage lending industry, seeking speed and the evasion of land title costs, decided to bypass the state and county registrars which would normally track and assign the title ownership of properties. Instead they created and used MERS, which operates a database to track that ownership. And they list MERS as the “mortgagee of record” with the county recorder – so that all the sales and resales and securitization of the mortgages will not result in the fees that follow the recording of mortgage assignments. Peterson explains that this saves the servicers a measly $22 a loan, which of course adds up when you consider the number of loans and trades per year.

Once again, MERS does not actually advance any loan principal to the homeowner, does not have the right to receive any payments from the borrower, and is not the actual party in interest in any foreclosure proceeding. Nevertheless, the actual mortgagee pays a fee to MERS to induce MERS to record the mortgage in MERS’s name. By eliminating the reference to an actual mortgagee or the actual assignee, MERS estimated it would save the originator an average of $22.00 per loan.

This saves the industry money in recording, but basically shields the county recorders from actually divining the owner of the loans. When a loan falls into delinquency and then foreclosure, MERS carries out the foreclosure process in their own name – despite the fact that they don’t own legal title to the mortgages on its database, and therefore lack standing to foreclose. MERS also doesn’t have the personnel (they have almost no employees) to engage in millions of these foreclosure operations or perform any of the other legal duties required of a mortgage owner. So they outsource this capacity in just about the most fraudulent manner possible, relying on the lack of public records and their role as a masked agent for the servicers.

This sure sounds like some sort of CIA shell company scam... and whether it is or not, it is outrageous. Unfortunately, the mortgage mess gets worse, in terms of the foreclosure crisis.
In the crazed frenzy to get as many mortgages securitized during the Oughts, banks took shortcuts with the paperwork necessary for the Mortgage Backed Securities. The reason was because everyone in the chain of this securitization mania got a little piece of the action—a little slice of the MBS pie in the shape of commissions.
So in the name of “improved efficiencies” (and how many horror stories are we finding out, carried out in the name of “improved efficiencies”), banks digitized the mortgage notes—they didn’t physically endorse them, like they were supposed to by the various state and Federal laws.

Plus—once the wave of foreclosures broke, and the holes in this bureaucratic paperwork became evident and relevant—some of the big law firms handling the foreclosures for the banks started doing some document fabrication and signature forgery, in order to cover up the mistakes—which is definitely illegal.

Long story short (since this is the short version): A lot of the foreclosed properties might not have been foreclosed legally. The people evicted might still have a right to their old houses. The new buyers might not actually own the REO’s they bought off the banks. The banks could be on the hook for trillions of dollars, and in the sights of literally millions of lawsuits.
And then there is this older but still relevant story about how Wall Street ignored clear signs of mortgage problems:
As the mortgage market grew frothy in 2006 — leading to a housing bubble that nearly brought down the banking system two years later — ratings agencies charged with assessing risk in mortgage pools dismissed conclusive evidence that many of the loans were dubious, according to testimony given last week to the Financial Crisis Inquiry Commission.

The commission, a bipartisan Congressional panel, has been holding hearings on the origins of the financial crisis. D. Keith Johnson, a former president of Clayton Holdings, a company that analyzed mortgage pools for the Wall Street firms that sold them, told the commission on Thursday that almost half the mortgages Clayton sampled from the beginning of 2006 through June 2007 failed to meet crucial quality benchmarks that banks had promised to investors.

Yet, Clayton found, Wall Street was placing many of the troubled loans into bundles known as mortgage securities.

Mr. Johnson said he took this data to officials at Standard & Poor’s, Fitch Ratings and to the executive team at Moody’s Investors Service.

“We went to the ratings agencies and said, ‘Wouldn’t this information be great for you to have as you assign tranche levels of risk?’ ” Mr. Johnson testified last week. But none of the agencies took him up on his offer, he said, indicating that it was against their business interests to be too critical of Wall Street.
Yes, wouldn't want to be too critical of Wall Street. Jesus. Wasn't that their fucking job?

Saturday, October 2, 2010

NYTimes Alters and Sugar Coats AIG Repayment News

Final article: "A.I.G. Reaches Deal to Repay Treasury and Fed for Bailout":
A.I.G.’s exit agreement, announced Thursday, includes a number of steps that must be taken by early 2011, when the Federal Reserve Bank of New York will officially sever its ties to the company and the Treasury Department will expand its stake to 92.1 percent, then convert all of its preferred shares to common.

For many months if not years afterward, the Treasury will retain an A.I.G. exposure as it slowly sells off its stake on the public markets. A rapid sell-off would spoil the taxpayers’ recovery by driving down the share price.

The exit plan does leave open the possibility that the taxpayers will ultimately be made whole for the assistance they extended to A.I.G., by far the most offered to any nongovernmental company during the financial crisis of 2008. But taxpayers could end up in the red if A.I.G.’s stock price falls before the Treasury can finish selling its shares. Market-moving events, like big jury awards or hurricane losses, are at the heart of the insurance business.

Treasury officials said that as long as A.I.G.’s stock remains above $28.75, they will consider the taxpayers to be in the black on the company’s bailout. The stock closed Thursday at $39.10.
Pretty amazing if the company actually pays back everything. Oddly, the NYTimes article was originally very different, as noted here:
A.I.G. has been busy at the Glenn Beck Chalkboard, devising a plan to repay American taxpayers the hundreds of billions of dollars it borrowed all those many years ago. Hooray! According to the New York Times, “Under the plan, the Federal Reserve Bank of New York would be repaid the nearly $20 billion that it is owed and the Treasury Department would convert the $49.1 billion in preferred stock that it holds into 1.66 billion common shares. Over all, A.I.G. received a bailout package of nearly $180 billion.” Wait, what? What about the other $160 billion? Good grief. [NYT]
The final NYTimes piece does NOT have the quote about the actual price of the $180 billion AIG bailout-- kind of important info. That info appears in this more obscure NYTimes blog post.

So, to recap, the NYTimes originally writes up the AIG repayment agreement and notes the actual USGovt price tag-- then later completely edits that out! I wonder who was behind this sugar-coating.

Friday, July 16, 2010

Goldman Sachs Pays $550 Million to Settle Fraud Case with SEC

WASHINGTON — Goldman Sachs has agreed to pay $550 million to settle federal claims that it misled investors in a subprime mortgage product as the housing market began to collapse, officials said Thursday.

If approved by a federal judge in Manhattan, the settlement would rank among the largest in the 76-year history of the Securities and Exchange Commission, but it would represent only a small financial dent for Goldman, which reported $13.39 billion in profit last year.

News of the settlement sent Goldman’s shares 5 percent higher in after-hours trading, adding far more to the firm’s market value than the amount it will have to pay in the settlement.

Even so, the settlement is humbling for Goldman, whose elite reputation and lucrative banking business endured through the financial crisis, only to be battered by government investigations that shed light on potential conflicts of interest in its dealings.

“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” said Robert S. Khuzami, the commission’s director of enforcement.

The civil suit brought by the S.E.C. focused on a single mortgage security that Goldman created in 2007, just as cracks appeared in the housing market. That security, called Abacus 2007-AC1, enabled a prominent hedge fund manager, John A. Paulson, to place a bet against mortgage bonds.

The commission contended that Goldman misled investors, who were making a positive bet on housing, because Goldman did not disclose Mr. Paulson’s involvement in creating the deal. Mr. Paulson has not been accused of wrongdoing.

Though Goldman did not formally admit to the S.E.C.’s allegations, it agreed to a judicial order barring it from committing intentional fraud in the future under federal securities laws.

In addition, Goldman acknowledged that the marketing materials for Abacus “contained incomplete information” and that it was “a mistake” not to have disclosed Mr. Paulson’s role. As part of the agreement, the bank also said it “regrets that the marketing materials did not contain that disclosure.”
Yeah, this is REALLY going to hurt Goldman.

Note the 33 in Goldman's profits from last year.

Wednesday, June 30, 2010

Cassano Says He Could Have Saved taxpayer Money by Negotiating with Banks

Figure in A.I.G. Crisis Testifies

Joseph J. Cassano, the man who oversaw the unit that brought the American International Group to its knees, testified Wednesday that he could have saved taxpayers billions of dollars if he had stayed at the company to negotiate with banks that were demanding more collateral as the insurer hit trouble.

Speaking on the issue in public for the first time, Mr. Cassano appeared before the Financial Crisis Inquiry Commission, which is studying the causes of the financial crisis, in Washington.

A.I.G.’s derivative contracts are the subject of the commission’s latest hearing, scheduled to last for two days. The commission is interviewing experts, regulators and A.I.G. executives about the contracts, most of which were dismantled by the New York Federal Reserve during the bailout of 2008. The Fed retained the risk of the mortgage securities that A.I.G. insured.

Goldman to Blame Somewhat? Banks Given Preference in Bailout...


At the end of the American International Group’s annual meeting last month, a shareholder approached the microphone with a question for Robert Benmosche, the insurer’s chief executive.

“I’d like to know, what does A.I.G. plan to do with Goldman Sachs?” he asked. “Are you going to get — recoup — some of our money that was given to them?”

Mr. Benmosche, steward of an insurer brought to its knees two years ago after making too many risky, outsize financial bets and paying billions of dollars in claims to Goldman and other banks, said he would continue evaluating his legal options. But, in reality, A.I.G. has precious few.

When the government began rescuing it from collapse in the fall of 2008 with what has become a $182 billion lifeline, A.I.G. was required to forfeit its right to sue several banks — including Goldman, Société Générale, Deutsche Bank and Merrill Lynch — over any irregularities with most of the mortgage securities it insured in the precrisis years.

But after the Securities and Exchange Commission’s civil fraud suit filed in April against Goldman for possibly misrepresenting a mortgage deal to investors, A.I.G. executives and shareholders are asking whether A.I.G. may have been misled by Goldman into insuring mortgage deals that the bank and others may have known were flawed.

This month, an Australian hedge fund sued Goldman on similar grounds. Goldman is contesting the suit and denies any wrongdoing. A spokesman for A.I.G. declined to comment about any plans to sue Goldman or any other banks with which it worked. A Goldman spokesman said that his firm believed that “all aspects of our relationship with A.I.G. were appropriate.”

A Legal Waiver

Unknown outside of a few Wall Street legal departments, the A.I.G. waiver was released last month by the House Committee on Oversight and Government Reform amid 250,000 pages of largely undisclosed documents. The documents, reviewed by The New York Times, provide the most comprehensive public record of how the Federal Reserve Bank of New York and the Treasury Department orchestrated one of the biggest corporate bailouts in history.

The documents also indicate that regulators ignored recommendations from their own advisers to force the banks to accept losses on their A.I.G. deals and instead paid the banks in full for the contracts. That decision, say critics of the A.I.G. bailout, has cost taxpayers billions of extra dollars in payments to the banks. It also contrasts with the hard line the White House took in 2008 when it forced Chrysler’s lenders to take losses when the government bailed out the auto giant.

As a Congressional commission convenes hearings Wednesday exploring the A.I.G. bailout and Goldman’s relationship with the insurer, analysts say that the documents suggest that regulators were overly punitive toward A.I.G. and overly forgiving of banks during the bailout — signified, they say, by the fact that the legal waiver undermined A.I.G. and its shareholders’ ability to recover damages.

“Even if it turns out that it would be a hard suit to win, just the gesture of requiring A.I.G. to scrap its ability to sue is outrageous,” said David Skeel, a law professor at the University of Pennsylvania. “The defense may be that the banking system was in trouble, and we couldn’t afford to destabilize it anymore, but that just strikes me as really going overboard.”

“This really suggests they had myopia and they were looking at it entirely through the perspective of the banks,” Mr. Skeel said.

This month, the Congressional Oversight Panel, a body charged with reviewing the state of financial markets and the regulators that monitor them, published a 337-page report on the A.I.G. bailout. It concluded that the Federal Reserve Bank of New York did not give enough consideration to alternatives before sinking more and more taxpayer money into A.I.G. “It is hard to escape the conclusion that F.R.B.N.Y. was just ‘going through the motions,’ ” the report said.

About $46 billion of the taxpayer money in the A.I.G. bailout was used to pay to mortgage trading partners like Goldman and Société Générale, a French bank, to make good on their claims. The banks are not expected to return any of that money, leading the Congressional Research Service to say in March that much of the taxpayer money ultimately bailed out the banks, not A.I.G.

Saturday, June 26, 2010

FinReg Summary

Some mild reforms were passed, with Dems trying to make some much needed changes and Repugs in opposition. Various naysayers can be heard of course, but who expected that legislators who get so much money from financial institutions would severely bite the hand that fed them? I could make the cynical argument that Congress merely passed reforms that would enable banks to stay viable enough to keep giving money to Congress...

To some extent, we should be happy anything happened at all, as I don't think there was a lot of public pressure passionately demanding this legislation. It didn't get that much attention, given so many other things going on. Further, it's hard to get into this material-- financial matters are NOT my thing at all, and the reporting has been pretty boring on this, imo.

Of course we should ask for more and expect more. And you know the Dems mostly did this so they could trumpet this as a major accomplishment. Nonetheless, on one level, it seems nice that SOMETHING was done to shore up the financial system and hopefully prevent another banking catastrophe-- given the huge rip off of the 2008 banking bailout. Too bad the outrage from that shameful incident has largely faded.

On a deeper level, it seems likely the economic meltdown was an inside job, meant by the PTB to further weaken the US and make it more susceptible to their evil demands. And everything since then, such as this legislation, has largely been for show-- window dressing to distract people from the even bleak future coming.

Tuesday, June 1, 2010

AIG Rejects Lower Bid to Sell Off Asia Unit

HONG KONG — American International Group refused Tuesday to lower the $35.5 billion price tag on its Asian operations, casting major doubt over the planned sale of the unit to the British insurer Prudential.

The rejection deals a major setback to Prudential’s ambitions to become a dominant player in a market with huge growth potential. It could also hinder A.I.G.’s ability to repay the $182 billion in U.S. government aid that the insurance giant has received in a series of rescues since September 2008.

Saturday, May 22, 2010

Cassano Gets Off

What a surprise...
Federal prosecutors investigating the events leading up to the collapse of the American International Group in 2008 will not bring charges against Joseph Cassano, the chief executive of the unit that insured mortgage-related securities with calamitous results, according to two people briefed on the matter.

Mr. Cassano and other executives at A.I.G.’s Financial Products unit, which had insured almost $80 billion in mortgage-related securities, came under scrutiny by the Department of Justice after the insurer failed in September 2008. Investigators were examining whether Mr. Cassano misled investors when he stated in December 2007 that the company’s obligations on the mortgage securities it backed were unlikely to produce losses.

The Federal Reserve Bank of New York and the United States Treasury rescued A.I.G. with a taxpayer backstop totaling $180 billion. Nearly $30 billion of that went directly to banks like Goldman Sachs and Société Générale, which bought insurance on mortgage securities from A.I.G. during the credit boom.

The people briefed on the decision not to bring charges spoke on condition of anonymity because they were not authorized to speak publicly on the matter.

Sunday, May 2, 2010

The Case Against Robert Rubin

Felix Salmon:
First of all, Rubin thought he couldn’t pass new laws because Wall Street wouldn’t like them. This is just another way of saying that Rubin was so completely captured by Wall Street that he considered any legislation which might slow it down to be a political impossibility. He never even tried.

Secondly, Rubin was afraid of opposition from Greenspan — an unelected official at an independent central bank which was at the time proud of the fact that it has no control over legislation. (Today, of course, things are different, to the degree that a leaked Fed memo is playing a huge role on Capitol Hill with respect to the prospects for Blanche Lincoln’s derivatives proposals making it into law.)

Thirdly, Rubin faced “some skepticism” from his deputy, Larry Summers. This one hardly needs comment — but for the fact that Rubin not only was overly solicitous to his deputy on this subject, but was also instrumental in promoting him to Secretary upon his own departure, thereby installing as his successor someone who had no desire to regulate derivatives at all.

Finally, faced with a real-life proposal to regulate derivatives, Rubin opposed it, on the grounds that it “could have created dangerous market uncertainty”. I know what dangerous market uncertainty looks like, Bob: it looks like the TED spread gapping out to more than 450bp, as uncertainty over derivatives-related counterparty risk brings the global financial system to the edge of the precipice. I’d love to know what kind of dangerous market uncertainty Rubin was worried about: maybe the danger that senior Goldman Sachs derivatives traders would no longer be able to afford their fourth house?

Back to Weisberg:

Rubin was not wrong about the risk of unregulated derivatives, nor was he opposed to regulating them. To the contrary, he was prophetic about the risk and correct in his prescription.

Well, Rubin was opposed to regulating derivatives when someone (Born) tried to come along and actually do it. And he never bothered to try to enact his prescient precription. It’s a bit like seeing someone’s house burn down, and then saying “you know it’s OK, he really knew — and even said in public — that he ought to buy fire insurance”. Being prophetic, Jacob, is no defense at all. Quite the opposite.

But Weisberg continues with the same idea when he defends Rubin’s indefensible tenure at Citigroup:

Many a Citi executive sat in his corner office listening to the same apprehensions I heard so often about the mispricing of risk, the excesses in the credit market, and the danger of relying on mathematical models.

Except after delivering his disquisitions on the dangers of derivatives, Rubin would then turn around and tell Chuck Prince to let Tommy Maheras take ever more risk in the Citigroup fixed-income department, relying on exactly the mathematical models which he had just been deprecating. Writes Weisberg:

Even if Rubin had better understood the risks Citi traders were taking and been in a position to do something about it, he almost certainly would not have said, “sell the AAA-rated CDOs.”

Actually, Rubin was in a position to do something about the risks that Citi traders were taking. And what he said was “buy even more AAA-rated CDOs”. Rubin, the golden Goldman Sachs arbitrageur, was so highly respected within Citi that neither the CEO nor the board ever thought about questioning his judgment on the proper risk exposure that the fixed-income department should be allowed to take. And so it ended up growing out of control.

Weisberg ignores most of the many other criticisms which can be made of Rubin. To repeat myself:

  • He epitomized the way in which traders ousted investment bankers and turned investment banks into systemically-dangerous institutions by making them much larger than they had ever been in the past.
  • For all his vocal bellyaching about tail risk, he ultimately made his money as an arbitrageur, making leveraged bets that something with a 95% chance of happening was, indeed, going to happen. That’s a strategy which works until it doesn’t — but by the time it failed, Rubin had moved on to greater things.
  • He was one of those senior men at investment banks who encouraged risk-taking without understanding the risks which were being taken.
  • He was perfectly happy to see Larry Summers cheer on the single most disastrous deregulation of derivatives ever, the CFMA.
  • He allowed the illegal creation of Citigroup with a nod and a wink, knowing that Gramm-Leach-Bliley was just around the corner and would make Citigroup legal in retrospect.
  • He then collected his just rewards in the form of $126 million in pay from Citi, for a job which even Weisberg admits involved no managerial responsibility.
  • He turned the job of Treasury secretary into a job where the first priority was to make Wall Street happy, asking for nothing but cheap debt in return.
  • He institutionalized and epitomized the revolving door from Wall Street to Washington and back again.
  • He set himself up as a wise expert on risk, even as he had no idea what risks his own company was running.
  • He took on a job with significant power, but ducked any responsibility which might normally go with such power.
  • He specifically refused to take any responsibility for his recommendations to Weill and Prince on the subject of risk-taking.
  • He failed to push Prince to put in place any kind of succession plan, thereby creating a horrible vacuum at the top of Citigroup just as strong leadership was desperately needed.
  • He’s slippery and unapologetic in hindsight.

So let’s not try to let Rubin off the hook here: he, more than any other individual, deserves an enormous amount of blame for the financial crisis.

Saturday, April 24, 2010

Goldman Sachs Fraud Case Watch

Is it weak and politically motivated, or is it likely to cause real problems for GS?

Conceivably, both could be true, I suppose.

Today, this-- "Goldman Sachs Messages Show It Thrived as Economy Fell"
In late 2007 as the mortgage crisis gained momentum and many banks were suffering losses, Goldman Sachs executives traded e-mail messages saying that they were making “some serious money” betting against the housing markets.

The e-mails, released Saturday morning by the Senate Permanent Subcommittee on Investigations, appear to contradict some of Goldman’s previous statements that left the impression that the firm lost money on mortgage-related investments.

In the e-mails, Lloyd C. Blankfein, the bank’s chief executive, acknowledged in November of 2007 that the firm indeed had lost money initially. But it later recovered from those losses by making negative bets, known as short positions, enabling it to profit as housing prices fell and homeowners defaulted on their mortgages. “Of course we didn’t dodge the mortgage mess,” he wrote. “We lost money, then made more than we lost because of shorts.”

In another message, dated July 25, 2007, David A. Viniar, Goldman’s chief financial officer, remarked on figures that showed the company had made a $51 million profit in a single day from bets that the value of mortgage-related securities would drop. “Tells you what might be happening to people who don’t have the big short,” he wrote to Gary D. Cohn, now Goldman’s president.

Saturday, April 17, 2010

SEC Takes on Goldman Sachs!

Goldman Sachs, the Wall Street powerhouse, was accused of securities fraud in a civil lawsuit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly intended to fail.

The move was the first time that regulators had taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market.

The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment.

In a statement, Goldman called the commission’s accusations “completely unfounded in law and fact” and said it would “vigorously contest them and defend the firm and its reputation.”

The focus of the S.E.C. case, an investment vehicle called Abacus 2007-AC1, was one of 25 such vehicles that Goldman created so the bank and some of its clients could bet against the housing market. Those deals, which were the subject of an article in The New York Times in December, initially protected Goldman from losses when the mortgage market disintegrated and later yielded profits for the bank.

As the Abacus portfolios in the S.E.C. case plunged in value, a prominent hedge fund manager made money from his bets against certain mortgage bonds, while investors lost more than $1 billion.

Saturday, April 3, 2010

No criminal charges seen in AIG's collapse

NEW YORK (Reuters) – CBS News reported late Friday that Joseph Cassano, the former AIG executive closely linked with the giant insurer's near collapse in September 2008, will meet with U.S. Justice Department attorneys next week in what will probably end the two-year criminal investigation into the company -- with no criminal charges likely to be filed.

AIG received a $182 billion federal bailout during the height of Wall Street's liquidity crisis in September 2008, when regulators feared that AIG's massive losses from complex transactions could crash the global financial system.

"Sources tell CBS News that the criminal case against Cassano - once called 'the Man who Crashed the World' - has 'hit a brick wall,'" the network said in an exclusive story published on its website.

Federal investigators have found no evidence that Cassano lied to his bosses or shareholders about AIG's financial problems, sources told CBS News, according to the exclusive story posted online.

Sunday, March 21, 2010

Mainstream Media Sweeps Lehman Scam Under the Rug

Blogs are the place to go for the real scoop.

Lehman Brothers Collapse Scam-- Geithner Up to His Neck

You gotta see this! If this doesn't convince you that the Timothy Geithner knew about the securities shenanigans that were going on at Lehman, than I don't know what will.

Keep in mind, that Geithner ran Lehman through 3 "stress tests" prior to bankruptcy; all of which Lehman failed, and yet, nothing was done. Anton R. Valukas--the examiner who wrote the 2,200 page investigative-report which was released on Thursday-- has provided plenty of information detailing Lehman's “materially misleading” accounting and “actionable balance sheet manipulation.”

In other words, they cooked the books.

Eves Smith at Naked Capitalism sums up what was going on like this:

"Quite a few observers... have been stunned and frustrated at the refusal to investigate what was almost certain accounting fraud at Lehman. ....The unraveling isn’t merely implicating Fuld (Lehman CEO) and his recent succession of CFOs, or its accounting firm, Ernst & Young, as might be expected. It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations....

We need to demand an immediate release of the e-mails, phone records, and meeting notes from the NY Fed and key Lehman principals regarding the NY Fed’s review of Lehman’s solvency. If, as things appear now, Lehman was allowed by the Fed’s inaction to remain in business, when the Fed should have insisted on a wind-down ..... at a minimum, the NY Fed helped perpetuate a fraud on investors and counterparties.

This pattern further suggests the Fed, which by its charter is tasked to promote the safety and soundness of the banking system, instead, via its collusion with Lehman management, operated to protect particular actors to the detriment of the public at large.

And most important, it says that the NY Fed, and likely Geithner himself, undermined, perhaps even violated, laws designed to protect investors and markets. If so, he is not fit to be Treasury secretary or hold any office related to financial supervision and should resign immediately. (Naked Capitalism)

Repeat: "Accounting fraud", "collusion", "aiding and abetting." These are serious charges by a usually restrained blogger.

And this is from Zero Hedge:

"Lehman has become merely the latest example of all that is broken with today's crony capitalist system.... The evident conclusion is that the core driver of modern capitalist society is fraud at its very core, and nothing short of a massive revolutionary overhaul of the political system, which is the number one defender .. of very lucrative bribes and kickbacks originating from the same rotten Wall Street that (is) nothing but a sham filled with toxic assets" Zero Hedge

This story isn't going away. Someone has to go to jail. It's clear that Geithner acted as the "chief facilitator" of industrial scale securities flim-flam which led directly to the Great Crash of '08. He needs to be held accountable for his actions.

Wednesday, February 3, 2010

AIG to Pay $100 Million in Bonuses

The American International Group has agreed to cut employee bonuses by $20 million and will distribute about $100 million on Wednesday, according to people with knowledge of the negotiations.

But the reductions may not be enough to appease the company’s critics, who do not accept the company’s argument that it has to honor contracts established before its government bailout.

“A.I.G. has taxpayers over a barrel,” said Senator Charles E. Grassley, an Iowa Republican, in a statement on Tuesday night. “The Obama administration has been outmaneuvered. And the closed-door negotiations just add to the skepticism that the taxpayers will ever get the upper hand.”

A.I.G. first promised the retention bonuses to keep people working at its financial products unit, which traded in the derivatives that imploded in September 2008, leading to the biggest government bailout in history.

The contracts, which were established in December 2007, were intended to keep people from leaving the company and called for the bonuses to be paid in regular installments to more than 400 employees in the unit. The final payment, which was for about $198 million, was due in mid-March, but was accelerated to Wednesday as part of the agreement to reduce its size.

Fearing a firestorm like the one last spring, A.I.G. had been working with the Treasury’s special master for compensation, Kenneth R. Feinberg, on a compromise that would allow it to keep its promise in part, without offending taxpayers.

The agreement calls for employees who still work for the financial products unit to accept 10 percent cutbacks, while employees who have left the company must take 20 percent cuts. Those employees are still entitled to their bonuses under the contract, which adheres to the scheduled payments even if people have lost their jobs. The financial products unit has shed almost 200 people as it has wound down A.I.G.’s derivatives business.

A.I.G. has told all the affected people that if they do not accept the reduced amounts, they will get no bonus at all, according to a person with knowledge of the agreement.

But some people have not agreed to the cutbacks and are insisting on the entire amounts. People with knowledge of the negotiations said that a vast majority of those still employed at A.I.G. had accepted the cuts, but only about a third of the former employees had done so.

The holdouts seem determined to make A.I.G. pay the full contractual amounts, knowing they can make a reasonably good case under law, because A.I.G.’s own lawyers have previously issued an opinion that the contracts are binding. If they succeed, A.I.G. would have to pay them more money at some point in the future, and might even have to pay penalties for breaking its employment contracts.

Wednesday, January 27, 2010

Who Got Bailed Out by the AIG Bailout?

A key question at the heart of the controversial bailout of AIG is just how much money the government lost. The Federal Reserve and Treasury Department have worked to keep that number secret and to conceal who was on the winning end.

An unredacted document obtained by the Huffington Post shows the damage in detail.

The list was produced as part of a congressional investigation led by the House Oversight and Government Reform Committee into the federal bailout of AIG.

The Federal Reserve Bank of New York, then led by now-Treasury Secretary Tim Geithner, purchased a slew of souring assets from the world's biggest banks for 100 cents on the dollar in November 2008. A scathing report by a government watchdog held Geithner responsible for the overpayments.

The New York Fed initially pressured AIG to keep the list hidden from investors, regulators and the public. When it was eventually filed with the Securities and Exchange Commission, the SEC allowed the Fed and AIG to keep the details secret. A heavily-redacted version was made public last March.

The document is part of 250,000 pages of internal documents on the AIG deliberations subpoenaed by the oversight committee. It lists the toxic mortgage bonds that banks insured through AIG.

Those insurance contracts, called credit default swaps, are what the New York Fed ultimately took off AIG's books, paying the banks 100 cents on the dollar for toxic mortgage bonds -- home mortgages that were bundled together and securitized. The banks could never have gotten anywhere near such a generous deal on the open market, so the move served essentially as a direct subsidy to those banks from taxpayers.

Up until now, taxpayers had no way to know exactly what they owned. They knew they owned a certain amount of assets, but none of the details: which bundles of mortgages it purchased from AIG; how the banks were valuing those mortgages; how much collateral they had demanded from AIG on those securities; or which bank bundled those mortgages into securities.

Rep. Darrell Issa of California, the top ranking Republican on the oversight committee, told HuffPost that he was not persuaded by government and Fed arguments that the transactions should be kept secret.

"Just because the government happens to own the bonds, which means--by the way, they don't have to be sold at all until they are worth what we want them to be worth--that somehow they have to be kept a secret," Issa said during a break in the today's AIG oversight hearing, where Treasury Secretary Tim Geithner testified about his role in the bailout as then-head of the New York Fed.

Issa said that the public had a right to see the document. "I mean, think about it: What the government owns it can keep as long as it wants. It would be like saying you can't appraise federal land. Why? It is one of those things that's outrageous. We know we paid a hundred percent for them. We know who got the money. This document shows who ultimately were the beneficiaries. And we believe since that they've asked to have it locked up until 2018 - and nobody today defended that--that it's time to release that," Issa said.

"The way the AIG bailout was engineered was to specifically benefit Goldman Sachs and its trading partners," said Janet Tavakoli, a Chicago-based derivatives expert and founder of Tavakoli Structured Finance. "Goldman's past and present officers used crony capitalism to put their own interests ahead of the public.

"The suppression of the details of the [credit default swap] trades protected Goldman Sachs and its trading partners," said Tavakoli, who's examined Goldman's credit default swap arrangements with AIG. "The $182 billion bailout overall kept AIG alive, and its trading partners, including Goldman Sachs, benefited from the funds made available to the securities lending transactions and other subsequent trading transactions."

Goldman's bonds -- now owned by taxpayers -- are presently worth just 75 cents on the dollar, according to the influential financial blog Zero Hedge.

Monday, January 25, 2010

Very Suspicious Behavior from the Fed Regarding AIG Transactions

Bloomberg reports the lengths to which the Fed has gone to try to keep the details of Maiden Lane III, the entity created to buy drecky CDOs from AIG counterparties who received 100% credit default swap payouts.

Get a load of this, the Fed was arguing that info IN THE PUBLIC DOMAIN should be treated as confidential! The Ministry of Truth in action:

After media reports that month named some of AIG’s counterparties, AIG executives wrote a draft of a letter to the SEC saying that it intended to withdraw its January request for confidential treatment. Later that March, the New York Fed sent edited versions of another request for confidentiality and provided arguments to help AIG make the case. The SEC granted confidential treatment in May of 2009.

This whole affair puts the Fed in a bad light indeed. The article details how the AIG, pushed by the Fed, made four efforts with the SEC to get information regarding the AIG payouts and Maiden Lane III purchases redacted. AIG seems reluctant, and the SEC, to its credit, did not roll over (although one can argue it in the end conceded too much ground).

And the arguments made by the Fed are rubbish:

On March 5, 2009, Fed Vice Chairman Donald Kohn testified before Congress that disclosure of the counterparties’ names would harm the insurer’s ability to do business. That month, AIG executives told regulators they had no objection to disclosing counterparty names

Yves here. So let’s be clear, the Fed lied to Congress. If there was the potential for this disclosure to damage AIG, they’d be the first to be keen for any excuse to preserve confidentiality.

Saturday, January 9, 2010

Geithner’s Fed Told AIG to Limit Swaps Disclosure

The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.”

Tuesday, January 5, 2010

AIG executive resigns over pay limits

Good riddance:
NEW YORK, Dec 30 (Reuters) - A top executive at American International Group Inc (AIG.N) has resigned because of pay curbs imposed by the Obama Administration's pay czar, the insurer said on Wednesday.

Anastasia Kelly, AIG's vice chairman for legal, human resources, corporate affairs and corporate communications, resigned effective Dec. 30 for "good reason" and is eligible for severance pay under the terms of the company's executive severance plan, the insurer said.

Kelly stands to be paid about $2.8 million in severance, according to a source familiar with the matter.

Kelly's resignation comes after Kenneth Feinberg, who is charged with monitoring pay levels at companies that received taxpayer funds, imposed pay caps for AIG's top executives.

Earlier this month, Feinberg set the compensation structures for the 26th through 100th highest-paid employees at four firms, including AIG, limiting most cash salaries to $500,000.

Feinberg also granted less than a dozen special exemptions from the cash salary cap, including several AIG executives, after being urged to do so by Federal Reserve and Treasury officials.