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.
Wednesday, January 27, 2010
Monday, January 25, 2010
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
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
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.