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.