The AIG Scam (and Other Financial Misdeeds)

Punishment for the 99% and Not the 1%

2011-12-10T15:37:00.000-08:00

Patrick Meighan, describing arrests at the OccupyLA protest:

As we sat there, encircled, a separate team of LAPD officers used knives to slice open every personal tent in the park. They forcibly removed anyone sleeping inside, and then yanked out and destroyed any personal property inside those tents, scattering the contents across the park. They then did the same with the communal property of the Occupy LA movement. For example, I watched as the LAPD destroyed a pop-up canopy tent that, until that moment, had been serving as Occupy LA’s First Aid and Wellness tent, in which volunteer health professionals gave free medical care to absolutely anyone who requested it. As it happens, my family had personally contributed that exact canopy tent to Occupy LA, at a cost of several hundred of my family’s dollars. As I watched, the LAPD sliced that canopy tent to shreds, broke the telescoping poles into pieces and scattered the detritus across the park. Note that these were the objects described in subsequent mainstream press reports as “30 tons of garbage” that was “abandoned” by Occupy LA: personal property forcibly stolen from us, destroyed in front of our eyes and then left for maintenance workers to dispose of while we were sent to prison.

When the LAPD finally began arresting those of us interlocked around the symbolic tent, we were all ordered by the LAPD to unlink from each other (in order to facilitate the arrests). Each seated, nonviolent protester beside me who refused to cooperate by unlinking his arms had the following done to him: an LAPD officer would forcibly extend the protestor’s legs, grab his left foot, twist it all the way around and then stomp his boot on the insole, pinning the protestor’s left foot to the pavement, twisted backwards. Then the LAPD officer would grab the protestor’s right foot and twist it all the way the other direction until the non-violent protestor, in incredible agony, would shriek in pain and unlink from his neighbor.

It was horrible to watch, and apparently designed to terrorize the rest of us. At least I was sufficiently terrorized. I unlinked my arms voluntarily and informed the LAPD officers that I would go peacefully and cooperatively. I stood as instructed, and then I had my arms wrenched behind my back, and an officer hyperextended my wrists into my inner arms. It was super violent, it hurt really really bad, and he was doing it on purpose. When I involuntarily recoiled from the pain, the LAPD officer threw me face-first to the pavement. He had my hands behind my back, so I landed right on my face. The officer dropped with his knee on my back and ground my face into the pavement. It really, really hurt and my face started bleeding and I was very scared. I begged for mercy and I promised that I was honestly not resisting and would not resist.

My hands were then zipcuffed very tightly behind my back, where they turned blue. I am now suffering nerve damage in my right thumb and palm.

I was put on a paddywagon with other nonviolent protestors and taken to a parking garage in Parker Center. They forced us to kneel on the hard pavement of that parking garage for seven straight hours with our hands still tightly zipcuffed behind our backs. Some began to pass out. One man rolled to the ground and vomited for a long, long time before falling unconscious. The LAPD officers watched and did nothing.

At 9 a.m. we were finally taken from the pavement into the station to be processed. The charge was sitting in the park after the police said not to. It’s a misdemeanor. Almost always, for a misdemeanor, the police just give you a ticket and let you go. It costs you a couple hundred dollars. Apparently, that’s what happened with most every other misdemeanor arrest in LA that day.

With us Occupy LA protestors, however, they set bail at $5,000 and booked us into jail. Almost none of the protesters could afford to bail themselves out. I’m lucky and I could afford it, except the LAPD spent all day refusing to actually *accept* the bail they set. If you were an accused murderer or a rapist in LAPD custody that day, you could bail yourself right out and be back on the street, no problem. But if you were a nonviolent Occupy LA protestor with bail money in hand, you were held long into the following morning, with absolutely no access to a lawyer.

I spent most of my day and night crammed into an eight-man jail cell, along with sixteen other Occupy LA protesters. My sleeping spot was on the floor next to the toilet.

Finally, at 2:30 the next morning, after twenty-five hours in custody, I was released on bail. But there were at least 200 Occupy LA protestors who couldn’t afford the bail. The LAPD chose to keep those peaceful, non-violent protesters in prison for two full days… the absolute legal maximum that the LAPD is allowed to detain someone on misdemeanor charges.

snip

Now let’s talk about a man who was not arrested last Wednesday. He is former Citigroup CEO Charles Prince. Under Charles Prince, Citigroup was guilty of massive, coordinated securities fraud.

Citigroup spent years intentionally buying up every bad mortgage loan it could find, creating bad securities out of those bad loans and then selling shares in those bad securities to duped investors. And then they sometimes secretly bet *against* their *own* bad securities to make even more money. For one such bad Citigroup security, Citigroup executives were internally calling it, quote, “a collection of dogshit”. To investors, however, they called it, quote, “an attractive investment rigorously selected by an independent investment adviser”.

This is fraud, and it’s a felony, and the Charles Princes of the world spent several years doing it again and again: knowingly writing bad mortgages, and then packaging them into fraudulent securities which they then sold to suckers and then repeating the process. This is a big part of why your property values went up so fast. But then the bubble burst, and that’s why our economy is now shattered for a generation, and it’s also why your home is now underwater. Or at least mine is.

Anyway, if your retirement fund lost a decade’s-worth of gains overnight, this is why.

If your son’s middle school has added furlough days because the school district can’t afford to keep its doors open for a full school year, this is why.

If your daughter has come out of college with a degree only to discover that there are no jobs for her, this is why.

But back to Charles Prince. For his four years of in charge of massive, repeated fraud at Citigroup, he received fifty-three million dollars in salary and also received another ninety-four million dollars in stock holdings. What Charles Prince has *not* received is a pair of zipcuffs. The nerves in his thumb are fine. No cop has thrown Charles Prince into the pavement, face-first. Each and every peaceful, nonviolent Occupy LA protester arrested last week has has spent more time sleeping on a jail floor than every single Charles Prince on Wall Street, combined.

The Absurd Zombie Lie About the Economy Right-Wingers Desperately Cling To -- And Why It's Totally Wrong

2011-12-08T18:00:00.000-08:00

Joshua Holland:

Wall Street turned a few million home-loans into what Warren Buffet called "economic weapons of mass destruction," cratered the global economy and then, when the bubble burst, turned around and insisted on a massive bailout courtesy of the American tax-payer.

That rightly infuriated most Americans, but it has nonetheless become something of an article of faith among conservatives that Wall Street bears little blame for the Great Recession. The dominant narrative on the right today is that "big government" is ultimately responsible for the crash. In the words of one of Andrew Breitbart's bloggers, Democratic lawmakers like Barney Frank and Chris Dodd “brought down the banking industry by forcing banks to give loans to people who couldn’t afford them.”

That such a ludicrous claim could gain such wide traction is a testament to the intellectual debasement of modern conservative discourse. No bank was ever “forced” – or coerced or incentivized by the government in any way – to make a bad loan.

But the claim falls apart even before one digs into the particulars, for the simple reason that people's mortgages didn't bring down the banking system in the first place.

The entire subprime mortgage market was worth only $1.4 trillion in the fall of 2007, and that includes loans that were up-to-date. As former Goldman Sachs trader Nomi Prins noted in her book, It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street, the federal government could have bought up every single residential mortgage in the country – good, bad and in between – and it would have cost a trillion less than the bailouts.

Short of that, notes Prins, if the crisis were really about people buying McMansions that they couldn't afford, “we could have solved it much more cheaply in a couple of days in late 2008, by simply providing borrowers with additional capital to reduce their loan principals. It would have cost about 3 percent of what the entire bailout wound up costing, with comparatively similar risk.”

What brought down the global economy was as much as $140 trillion worth of financial gimmickery built on top of the mortgage industry. It was the alphabet soup of the credit meltdown – the CDOs, default swaps and other derivitaves that made less than a trillion dollars of foreclosed loans into an economic weapon of mass destruction that would cost the American economy alone $14 trillion in lost wealth.

Deregulation

A fair criticism of the government's role is that it didn't “meddle” in the free market sufficiently to protect borrowers, investors and the public – that $140 trillion house of cards was built in an environment created by decades of deregulation. But that situation is also the fault of Wall Street rather than an indication of the perfidy of "big government." It was bought at great cost by the banking lobby (and as powerful chairs of congressional banking committees, the right's bogeymen, Barney Frank and Chris Dodd, are two of the financial industry's top recipients).

snip

The reality is that no bank has ever been “forced to comply with government mandates about mortgage lending” – it's a bald-faced lie.

There are no “government mandates,” and there never were. In order to qualify for government-backed deposit insurance—a benefit that banks aren’t forced to accept but enjoy having—the Community Reinvestment Act – and similar measures designed to prevent discrimination in lending (to qualified individuals) – only encourage banks to lend in all of the areas where they do business. And Section 802 (b) of the Act stresses that all loans must be “consistent with safe and sound operations”—it’s the opposite of requiring that lenders write risky mortgages.

There are no penalties for noncompliance with CRA guidelines. The only “stick” hanging over banks that fail to meet those standards is that their refusal might be taken into account by regulators when they want to open new branches or merge with other financial institutions. What’s more, there are no defined standards for CRA compliance, and within the banking community, the loose guidelines are considered to be somewhat of a joke.

As Sheila Blair, the chairwoman of the FDIC, asked in a December 2008 speech, “Where in the CRA does it say: make loans to people who can’t afford to repay? Nowhere! And the fact is, the lending practices that are causing problems today were driven by a desire for market share and revenue growth...pure and simple.”

snip

The most important point here is that the bankers knew they were playing with fire. The Los Angeles Times reported, “Before Washington Mutual collapsed in the largest bank failure in U.S. history, its executives knowingly created a ‘mortgage time bomb’ by making subprime loans they knew were likely to go bad and then packaging them into risky securities.”

According to the Wall Street Journal, U.S. prosecutors are, as of this writing, investigating whether Morgan Stanley misled investors about mortgage-derivatives deals it helped design and sometimes bet against.” And the Securities and Exchange Commission charged Goldman Sachs with “defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.”

They needed some help laundering the risk out of those shaky loans, and they got it. According to a Senate investigation concluded earlier this year S&P and Moody's, the two dominant ratings agencies, “issued the AAA ratings that made ... mortgage backed securities ... seem like safe investments, helped build an active market for those securities, and then, beginning in July 2007, downgraded the vast majority of those AAA ratings to junk status.” And when they did so, it “precipitated the collapse of the [mortgage-backed securities] markets and, perhaps more than any other single event, triggered the financial crisis (PDF)."

According to the Senate investigation, in the years leading up to crash, “warnings about the massive problems in the mortgage industry” — including internal warnings from their own analysts — had been ignored because of “the inherent conflict of interest arising from the system used to pay for credit ratings.” The big “rating agencies were paid by the Wall Street firms” that were making a fortune selling that glossed-up garbage to credulous investors. This, again, was Wall Street's doing rather than a result of some public policy passed by Congress.

This isn't about ideology; it's about pushing back on some notably dangerous historical revisionism. Because there is one thing that’s as sure as death and taxes: Big Finance’s lobbyists will continue to resist calls to re-regulate the financial sector. And absent effective regulation of the financial markets, we can expect to continue to suffer through an endless series of booms and busts, while the fat cats of Wall Street continue to get fatter.

Fed Doled Out 16 TRILLION to Banks (Shut Down the Federal Reserve)

2011-12-06T04:26:00.000-08:00

What you are about to read should absolutely astound you. During the last financial crisis, the Federal Reserve secretly conducted the biggest bailout in the history of the world, and the Fed fought in court for several years to keep it a secret. Do you remember the TARP bailout? The American people were absolutely outraged that the federal government spent 700 billion dollars bailing out the "too big to fail" banks. Well, that bailout was pocket change compared to what the Federal Reserve did. As you will see documented below, the Federal Reserve actually handed more than 16 trillion dollars in nearly interest-free money to the "too big to fail" banks between 2007 and 2010. So have you heard about this on the nightly news? Probably not. Lately Bloomberg has been reporting on some of this, but even they are not giving people the whole picture. The American people need to be told about this 16 trillion dollar bailout, because it is a perfect example of why the Federal Reserve needs to be shut down. The Federal Reserve has been actively picking "winners" and "losers" in the financial system, and it turns out that the "friends" of the Fed always get bailed out and always end up among the "winners". This is not how a free market system is supposed to work.

According to the limited GAO audit of the Federal Reserve that was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the grand total of all the secret bailouts conducted by the Federal Reserve during the last financial crisis comes to a whopping $16.1 trillion.

That is an astonishing amount of money.

Keep in mind that the GDP of the United States for the entire year of 2010 was only 14.58 trillion dollars.

The total U.S. national debt is only a bit above 15 trillion dollars right now.

So 16 trillion dollars is an almost inconceivable amount of money.

But some other dollar figures have been thrown around lately regarding these secret Federal Reserve bailouts. Let's take a look at them and see what they mean.

$1.2 Trillion

A recent Bloomberg article made the following statement....

The $1.2 trillion peak on Dec. 5, 2008 -- the combined outstanding balance under the seven programs tallied by Bloomberg -- was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.

The $1.2 trillion figure represents the peak outstanding balance on these loans, not the total amount of all the loans. On December 5, 2008 the "too big to fail" banks owed this much money to the Federal Reserve. Many of them could not pay these short-term loans back right away and had to keep rolling them over time after time. Each time a short-term loan got rolled over that represented a new loan.

$7.7 Trillion

Bloomberg is reporting that the Federal Reserve had made a total of $7.77 trillion in financial commitments to the big banks by the end of March 2009....

Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.

But as mentioned above, a one-time limited GAO audit of the Federal Reserve that was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act covered an even broader time period and revealed even more bailout loans.

According to the GAO audit, $16.1 trillion in secret loans were made by the Federal Reserve between December 1, 2007 and July 21, 2010. The following list of firms and the amount of money that they received was taken directly from page 131 of the GAO audit report....

Citigroup - $2.513 trillion
Morgan Stanley - $2.041 trillion
Merrill Lynch - $1.949 trillion
Bank of America - $1.344 trillion
Barclays PLC - $868 billion
Bear Sterns - $853 billion
Goldman Sachs - $814 billion
Royal Bank of Scotland - $541 billion
JP Morgan Chase - $391 billion
Deutsche Bank - $354 billion
UBS - $287 billion
Credit Suisse - $262 billion
Lehman Brothers - $183 billion
Bank of Scotland - $181 billion
BNP Paribas - $175 billion
Wells Fargo - $159 billion
Dexia - $159 billion
Wachovia - $142 billion
Dresdner Bank - $135 billion
Societe Generale - $124 billion
"All Other Borrowers" - $2.639 trillion

This report was made available to all the members of Congress, but most of them have been totally silent about it. One of the only members of Congress that has said something has been U.S. Senator Bernie Sanders.

The following is an excerpt from a statement about this audit that was taken from the official website of Senator Sanders....

"As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world"

So where is everyone else?

Why aren't leading Republicans and leading Democrats crying bloody murder over this report?

This scandal should have been front page news for months when it was revealed.

But it wasn't.

And Guess what?

Not only did the Federal Reserve give 16.1 trillion dollars in nearly interest-free loans to the "too big to fail" banks, the Fed also paid them over 600 million dollars to help run the emergency lending program. According to the GAO, the Federal Reserve shelled out an astounding $659.4 million in "fees" to the very financial institutions which caused the financial crisis in the first place.

In addition, it turns out that trillions of dollars of this bailout money actually went overseas. According to the GAO audit, approximately $3.08 trillion went to foreign banks in Europe and in Asia.

So why were our dollars being used to bail out foreign banks while tens of millions of American families were deeply suffering?

That is a very good question.

Also, it is important to remember that many of these bailout loans were made at below market interest rates, and this enabled many of these financial institutions to rake in huge profits.

According to a recent Bloomberg article, the big banks brought in an estimated $13 billion by taking advantage of the Fed’s below-market rates....

While the Fed’s last-resort lending programs generally charge above-market interest rates to deter routine borrowing, that practice sometimes flipped during the crisis. On Oct. 20, 2008, for example, the central bank agreed to make $113.3 billion of 28-day loans through its Term Auction Facility at a rate of 1.1 percent, according to a press release at the time.

The rate was less than a third of the 3.8 percent that banks were charging each other to make one-month loans on that day. Bank of America and Wachovia Corp. each got $15 billion of the 1.1 percent TAF loans, followed by Royal Bank of Scotland’s RBS Citizens NA unit with $10 billion, Fed data show.

So once the financial crisis was over, were adjustments made to the financial system to make sure that this type of thing would never happen again?

Of course not.

Today, the "too big to fail" banks are larger than ever. The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011.

So now they are more "too big to fail" than ever.

But this is what happens when we allow unelected central bank bureaucrats to run our financial system.

Most Americans do not realize this, but the truth is that the Federal Reserve is not part of the government. In fact, it is about as "federal" as Federal Express is. The Federal Reserve has admitted that they are a privately owned institution in court many times, and you can see video of a Federal Reserve employee admitting that the Federal Reserve is privately owned right here.

The Federal Reserve is an out of control monster that is throwing around trillions of dollars whenever it wants to. Nobody should be allowed to do this. Nobody should be allowed to give bailouts to banks and corporations without the express permission of the U.S. Congress and the president of the United States.

This is a point that I made in my article yesterday. The Federal Reserve decided this week that it is going to provide "liquidity support" to Europe. If the American people do not like this move, that is just too bad. We do not get a say in the matter.

Are you starting to understand why I keep pushing the idea that it is time to shut down the Federal Reserve?

Please share this information about the secret 16 trillion dollar Federal Reserve bailout with your family and your friends.

If we can get enough people to wake up, perhaps there is still time to change the direction that this country is headed.

Defiant Judge Stops Obama From Selling Immunity To Wall Street

2011-12-06T04:22:00.000-08:00

A good thing:

In an audacious move against Citigroup, the SEC, and the practice of "selling immunity", a Federal Judge in a NY District Court abruptly put the brakes on a settlement agreement proposed between the Obama Administration and another giant Wall Street firm accused of betting against their own investors.

Judge Jed Rakoff sent a message today to Wall Street and the Securities Exchange Commission that may send shockwaves through the financial world, refusing to approve a $285 million dollar payout to drop an investigation against Citigroup for defrauding investors without admitting any guilt.

Business Insider's haunting pullquote is a somber reminder of a core message of the Occupy movement. : "Judge Rakoff: Truth is Confined to Secretive, Fearful Whispers"

You might recall last year Goldman Sachs paid a $535 million dollar settlement "without admitting guilt" in a case brought by investors claiming fraud in a somewhat similar collateralized debt obligation scam. Goldman squirmed by, conceding they had provided 'incomplete information' but in this case, Citigroup had profited more blatantly at the expense of their clients.

With prosecutions for bank fraud today at a twenty year low, the Occupy movement has widely decried the questionable glad-handing between Wall Street titans and federal officials who are supposed to keep them honest. On his way out in 2008, President Bush issued a DOJ directive that encouraged the practice of "deferred prosecutions" which gave DOJ and SEC desk jockeys incredible latitude to craft immunity deals in secret in exchange for millions in fines and promises to be better.

But you might be disgusted to learn that the fines paid out to the government were at times equal to the payments made to legal firms, enriched by banks as grants of immunity prevented victimized investors from seeking further damages.

Rakoff's stand is consequential because any finding of guilt at last empowers the little-guy investor to bring civil suits.

Matt Taibbi on this story.

The Big Lie -- Wall Street Style

2011-11-06T19:16:00.000-08:00

What caused the financial crisis? The Big Lie goes viral.

By Barry Ritholtz, Nov. 5 (Washington Post)

I have a fairly simple approach to investing: Start with data and objective evidence to determine the dominant elements driving the market action right now. Figure out what objective reality is beneath all of the noise. Use that information to try to make intelligent investing decisions.

But then, I’m an investor focused on preserving capital and managing risk. I’m not out to win the next election or drive the debate. For those who are, facts and data matter much less than a narrative that supports their interests.

One group has been especially vocal about shaping a new narrative of the credit crisis and economic collapse: those whose bad judgment and failed philosophy helped cause the crisis.

Rather than admit the error of their ways — Repent! — these people are engaged in an active campaign to rewrite history. They are not, of course, exonerated in doing so. And beyond that, they damage the process of repairing what was broken. They muddy the waters when it comes to holding guilty parties responsible. They prevent measures from being put into place to prevent another crisis.

Here is the surprising takeaway: They are winning. Thanks to the endless repetition of the Big Lie.

A Big Lie is so colossal that no one would believe that someone could have the impudence to distort the truth so infamously. There are many examples: Claims that Earth is not warming, or that evolution is not the best thesis we have for how humans developed. Those opposed to stimulus spending have gone so far as to claim that the infrastructure of the United States is just fine, Grade A (not D, as the we discussed last month), and needs little repair.

Wall Street has its own version: Its Big Lie is that banks and investment houses are merely victims of the crash. You see, the entire boom and bust was caused by misguided government policies. It was not irresponsible lending or derivative or excess leverage or misguided compensation packages, but rather long-standing housing policies that were at fault.

Indeed, the arguments these folks make fail to withstand even casual scrutiny. But that has not stopped people who should know better from repeating them.

The Big Lie made a surprise appearance Tuesday when New York Mayor Michael Bloomberg, responding to a question about Occupy Wall Street, stunned observers by exonerating Wall Street: “It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp.”

What made his comments so stunning is that he built Bloomberg Data Services on the notion that data are what matter most to investors. The terminals are found on nearly 400,000 trading desks around the world, at a cost of $1,500 a month. (Do the math — that’s over half a billion dollars a month.) Perhaps the fact that Wall Street was the source of his vast wealth biased him. But the key principle of the business that made the mayor a billionaire is that fund managers, economists, researchers and traders should ignore the squishy narrative and, instead, focus on facts. Yet he ignored his own principles to repeat statements he should have known were false.

Why are people trying to rewrite the history of the crisis? Some are simply trying to save face. Interest groups who advocate for deregulation of the finance sector would prefer that deregulation not receive any blame for the crisis.

Some stand to profit from the status quo: Banks present a systemic risk to the economy, and reducing that risk by lowering their leverage and increasing capital requirements also lowers profitability. Others are hired guns, doing the bidding of bosses on Wall Street.

They all suffer cognitive dissonance — the intellectual crisis that occurs when a failed belief system or philosophy is confronted with proof of its implausibility.

And what about those facts? To be clear, no single issue was the cause. Our economy is a complex and intricate system. What caused the crisis? Look:

1) Fed Chair Alan Greenspan dropped rates to 1 percent — levels not seen for half a century — and kept them there for an unprecedentedly long period. This caused a spiral in anything priced in dollars (i.e., oil, gold) or credit (i.e., housing) or liquidity driven (i.e., stocks).

2) Low rates meant asset managers could no longer get decent yields from municipal bonds or Treasurys. Instead, they turned to high-yield mortgage-backed securities. Nearly all of them failed to do adequate due diligence before buying them, did not understand these instruments or the risk involved. They violated one of the most important rules of investing: Know what you own.

3) Fund managers made this error because they relied on the credit ratings agencies — Moody’s, S&P and Fitch. They had placed an AAA rating on these junk securities, claiming they were as safe as U.S. Treasurys.

4) Derivatives had become a uniquely unregulated financial instrument. They are exempt from all oversight, counter-party disclosure, exchange listing requirements, state insurance supervision and, most important, reserve requirements. This allowed AIG to write $3 trillion in derivatives while reserving precisely zero dollars against future claims.

5) The Securities and Exchange Commission changed the leverage rules for just five Wall Street banks in 2004. The “Bear Stearns exemption” replaced the 1977 net capitalization rule’s 12-to-1 leverage limit. In its place, it allowed unlimited leverage for Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns. These banks ramped leverage to 20-, 30-, even 40-to-1. Extreme leverage leaves very little room for error.

6) Wall Street’s compensation system was skewed toward short-term performance. It gives traders lots of upside and none of the downside. This creates incentives to take excessive risks.

7) The demand for higher-yielding paper led Wall Street to begin bundling mortgages. The highest yielding were subprime mortgages. This market was dominated by non-bank originators exempt from most regulations. The Fed could have supervised them, but Greenspan did not.

8) These mortgage originators’ lend-to-sell-to-securitizers model had them holding mortgages for a very short period. This allowed them to get creative with underwriting standards, abdicating traditional lending metrics such as income, credit rating, debt-service history and loan-to-value.

9) “Innovative” mortgage products were developed to reach more subprime borrowers. These include 2/28 adjustable-rate mortgages, interest-only loans, piggy-bank mortgages (simultaneous underlying mortgage and home-equity lines) and the notorious negative amortization loans (borrower’s indebtedness goes up each month). These mortgages defaulted in vastly disproportionate numbers to traditional 30-year fixed mortgages.

10) To keep up with these newfangled originators, traditional banks developed automated underwriting systems. The software was gamed by employees paid on loan volume, not quality.

11) Glass-Steagall legislation, which kept Wall Street and Main Street banks walled off from each other, was repealed in 1998. This allowed FDIC-insured banks, whose deposits were guaranteed by the government, to engage in highly risky business. It also allowed the banks to bulk up, becoming bigger, more complex and unwieldy.

12) Many states had anti-predatory lending laws on their books (along with lower defaults and foreclosure rates). In 2004, the Office of the Comptroller of the Currency federally preempted state laws regulating mortgage credit and national banks. Following this change, national lenders sold increasingly risky loan products in those states. Shortly after, their default and foreclosure rates skyrocketed.

Bloomberg was partially correct: Congress did radically deregulate the financial sector, doing away with many of the protections that had worked for decades. Congress allowed Wall Street to self-regulate, and the Fed the turned a blind eye to bank abuses.

The previous Big Lie — the discredited belief that free markets require no adult supervision — is the reason people have created a new false narrative.

Now it’s time for the Big Truth.

Occupy Wall Street Still Going Strong

2011-11-06T15:39:00.000-08:00

Interesting story on the role of anarchist and anthropologist David Graeber in organizing the protests.

Veterans March For Occupy Wall Street — And It's Like Nothing You've Ever Seen Before

Teachers, auto workers, nurses and more have had their chance to show their support for the ideals of the Occupy movement.

Today, veterans had their turn.

There is no perfect way to describe what it looked like, we can only say that their demonstration was serious and somber unlike any other.

This was not a party with music and cheering, their signs were not funny either, this was a true march in protest. After all, these men and women are soldiers.

As they made their way to Zuccotti Park, the feeling was tense. People who watched from their offices did not smile or laugh, they stared and whispered quietly to each other.

And then the veterans took the human microphone. Like their steps, their voices rang in perfect time. The occupiers stood in silence, only opening their mouths to repeat what the soldiers said.

When one Navy veteran addressed Zuccotti Park he put it very simply: "If you continue to assemble in peace and solidarity, justice will come to pass. We are the 99%."

Money for Nothing, Risk for Free

2011-10-27T05:10:00.001-07:00

Our insanely disgusting banking system:

Ordinary people have to borrow their money at market rates. Lloyd Blankfein and Jamie Dimon get billions of dollars for free, from the Federal Reserve. They borrow at zero and lend the same money back to the government at two or three percent, a valuable public service otherwise known as "standing in the middle and taking a gigantic cut when the government decides to lend money to itself."

Or the banks borrow billions at zero and lend mortgages to us at four percent, or credit cards at twenty or twenty-five percent. This is essentially an official government license to be rich, handed out at the expense of prudent ordinary citizens, who now no longer receive much interest on their CDs or other saved income. It is virtually impossible to not make money in banking when you have unlimited access to free money, especially when the government keeps buying its own cash back from you at market rates.

Your average chimpanzee couldn't fuck up that business plan, which makes it all the more incredible that most of the too-big-to-fail banks are nonetheless still functionally insolvent, and dependent upon bailouts and phony accounting to stay above water. Where do the protesters go to sign up for their interest-free billion-dollar loans?

CREDIT AMNESTY. If you or I miss a $7 payment on a Gap card or, heaven forbid, a mortgage payment, you can forget about the great computer in the sky ever overlooking your mistake. But serial financial fuckups like Citigroup and Bank of America overextended themselves by the hundreds of billions and pumped trillions of dollars of deadly leverage into the system -- and got rewarded with things like the Temporary Liquidity Guarantee Program, an FDIC plan that allowed irresponsible banks to borrow against the government's credit rating.

This is equivalent to a trust fund teenager who trashes six consecutive off-campus apartments and gets rewarded by having Daddy co-sign his next lease. The banks needed programs like TLGP because without them, the market rightly would have started charging more to lend to these idiots. Apparently, though, we can’t trust the free market when it comes to Bank of America, Goldman, Sachs, Citigroup, etc.

In a larger sense, the TBTF banks all have the implicit guarantee of the federal government, so investors know it's relatively safe to lend to them -- which means it's now cheaper for them to borrow money than it is for, say, a responsible regional bank that didn't jack its debt-to-equity levels above 35-1 before the crash and didn't dabble in toxic mortgages. In other words, the TBTF banks got better credit for being less responsible. Click on freecreditscore.com to see if you got the same deal.

STUPIDITY INSURANCE. Defenders of the banks like to talk a lot about how we shouldn't feel sorry for people who've been foreclosed upon, because it's they're own fault for borrowing more than they can pay back, buying more house than they can afford, etc. And critics of OWS have assailed protesters for complaining about things like foreclosure by claiming these folks want “something for nothing.”

This is ironic because, as one of the Rolling Stone editors put it last week, “something for nothing is Wall Street’s official policy." In fact, getting bailed out for bad investment decisions has been de rigeur on Wall Street not just since 2008, but for decades.

Time after time, when big banks screw up and make irresponsible bets that blow up in their faces, they've scored bailouts. It doesn't matter whether it was the Mexican currency bailout of 1994 (when the state bailed out speculators who gambled on the peso) or the IMF/World Bank bailout of Russia in 1998 (a bailout of speculators in the "emerging markets") or the Long-Term Capital Management Bailout of the same year (in which the rescue of investors in a harebrained hedge-fund trading scheme was deemed a matter of international urgency by the Federal Reserve), Wall Street has long grown accustomed to getting bailed out for its mistakes.

The 2008 crash, of course, birthed a whole generation of new bailout schemes. Banks placed billions in bets with AIG and should have lost their shirts when the firm went under -- AIG went under, after all, in large part because of all the huge mortgage bets the banks laid with the firm -- but instead got the state to pony up $180 billion or so to rescue the banks from their own bad decisions.

BOA Tries to Hook US Taxpayers for $75 TRILLION of Their Gambling Debts

2011-10-25T05:11:00.000-07:00

SEVENTY-FIVE TRILLION.

The combined wealth of the US is less than that.

Fucking insanity, is what it is.

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position. (snip)

Bank of America’s holding company -- the parent of both the retail bank and the Merrill Lynch securities unit -- held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

More Police Brutality at OWS

2011-10-18T07:51:00.000-07:00

More thuggery here:

By now, my cell phone video of two Citibank costumers being forcibly arrested outside the LaGuardia Place branch in New York City on October 15th 2011 has been seen by almost a million people.

As the person who unwittingly shot the video of the incident, I though it might be useful to respond to some of the media attention it has been getting.

A few friends and I attended a rally of college students, high school students, teachers, professors in Washington Square Park, which was connected to the ongoing Occupy Wall Street protests in lower Manhattan – and now around the country and around the world.

After the rally, I went into a nearby coffee shop and when I returned to the park I heard that a few dozen people had decided to head over to the local Citibank branch to talk about their student debt and close their accounts. I thought one of my friends might be among them so I walked the few blocks to the bank.

As I arrived I saw Citi Bank security guards locking the doors to the bank.

Contrary to the City Bank PR statement, the cops were not yet on the scene when Citi Bank officials chose to lock the doors to the branch– effectively kidnapping those inside.

Since I could see my friends were still inside the bank, I took out my blackberry and began recording through the window.

As I filmed an undercover, plain clothes police officer approached a women standing next to me outside the window. He accused her of having been inside the bank and said she had to come with him. As you can see on the video she repeats over and over, “I’m a customer,” and she holds up her Citibank check book. Though it’s not audible on the video, she also told him that she was just trying to close her account.

As my voice in the video will testify I was shocked and shaken by what happened next. The women, and the man standing next to her, were dragged inside the bank through a side door and arrested allow with 22 other people who were locked inside.

I watched in horror from the sidewalk as police dragged each person out one by one and loaded them into a line of paddy wagons. I could see that a few people were bleeding from their wrists where the police zip ties were cutting them.

I did not know the woman or man being arrested by the undercover cop in my video, but I desperately wanted to find them to give them the video to help with their court cases.

Today, I went down to Central Booking in Manhattan for the arraignments of the 24 people arrested. They were in jail for almost 30 hours. Most were charged with disorderly conduct, but a few have more serious charges–including trespassing and resisting arrest.

After waiting four hours in the courtroom they were finally released, along with my other friends. Their hands and wrists were cut up from the roughness of the police and zip ties. Everyone who was in jail was tired, hungry, and mentally and emotionally exhausted from spending the night in a cell–but no one was deterred from participating in the Occupy movement.

I asked my friends what had happened inside and they told me that they had all agreed they would leave the bank when asked. That no one had had any interest in being arrested that day. They all had thought, as citizens and as Citibank customers, they would be given a chance to leave the branch before action was taken against them. Sadly they were wrong.

I’m an underemployed recent college graduate with a degree in economics (of all things) and like many in my generation I have over $50,000 in student loans. I’m currently working as a babysitter to try and pay the bills.

This is why I organize with Occupy Wall Street. Because I am part of the 99%–and if you’re reading this, there’s a 99% chance that you are too! The most beautiful thing about the Occupy Movement is that we can create, on a small scale, a version of the society in which we would like to live. A society with free education and health care–where democracy is participatory and real and our social relationships are founded on community, mutual aid, equality, respect, and solidarity.

If you believe that what is happening in this country is wrong, if you believe that as a society we can do better than this, then find an Occupy event in your city or town! And remember to bring your cell phone or video camera – you might just need it!

– Meaghan Linick, Brooklyn NY

One Month of Occupy Wall Street

2011-10-18T07:10:00.000-07:00

Olbermann on 10/17/11:

Global protests:

Matt Taibbi: Why Occupy Wall Street Is Bigger Than Left vs. Right

The reality is that Occupy Wall Street and the millions of middle Americans who make up the Tea Party are natural allies and should be on the same page about most of the key issues, and that's a story our media won't want to or know how to handle.

Take, for instance, the matter of the Too-Big-To-Fail banks, which people like me and Barry Ritholz have focused on as something that could be a key issue for OWS. These gigantic institutions have put millions of ordinary people out of their homes thanks to a massive fraud scheme for which they were not punished, owing to their enormous influence with government and their capture of the regulators.

This is an issue for the traditional "left" because it's a classic instance of overweening corporate power -- but it's an issue for the traditional "right" because these same institutions are also the biggest welfare bums of all time, de facto wards of the state who sucked trillions of dollars of public treasure from the pockets of patriotic taxpayers from coast to coast.

Both traditional constituencies want these companies off the public teat and back swimming on their own in the cruel seas of the free market, where they will inevitably be drowned in their corruption and greed, if they don't reform immediately. This is a major implicit complaint of the OWS protests and it should absolutely strike a nerve with Tea Partiers, many of whom were talking about some of the same things when they burst onto the scene a few years ago.

The banks know this. They know they have no "natural" constituency among voters, which is why they spend such fantastic amounts of energy courting the mainstream press and such huge sums lobbying politicians on both sides of the aisle.

The only way the Goldmans and Citis and Bank of Americas can survive is if they can suck up popular political support indirectly, either by latching onto such vague right-populist concepts as "limited government" and "free-market capitalism" (ironic, because none of them would survive ten minutes without the federal government's bailouts and other protections) or, alternatively, by presenting themselves as society's bulwark against communism, lefty extremism, Noam Chomsky, etc.

All of which is a roundabout way of saying one thing: beware of provocateurs on both sides of the aisle. This movement is going to attract many Breitbarts, of both the left and right variety. They're going to try to identify fake leaders, draw phony battle lines, and then herd everybody back into the same left-right cage matches of old. Whenever that happens, we just have to remember not to fall for the trap. When someone says this or that person speaks for OWS, don't believe it. This thing is bigger than one or two or a few people, and it isn't part of the same old story.

Bank of America earned billions of dollars in profits last quarter, even as banking officials expressed concern recently about the effects of new regulations on their bottom line.

The largest bank by assets reported third quarter gains of $6.2 billion, compared to a $7.3 billion loss during the same quarter last year. The boost in profits came largely from an accounting gain and the pre-tax benefits from the sale of its stake in a Chinese bank.

The increase in profits comes after Bank of America roiled customers by announcing that it will start charging customers $5 per month to use their debit cards for purchases in 2012. Shortly after the bank announced the fee, Bank of America CEO Brian Moynihan defended it, saying that the bank "has a right to make a profit."

Jeffrey Sachs:

The Wall Street elite seems completely befuddled by the Occupy Wall Street movement. The demonstrators are called "unsophisticated," or misguided, or much worse (mobs, communists, and more). Here's a short note to the titans of Wall Street to help them understand what's happening.

Let me start with the Wall Street Journal, which seems to be the most confused of all. In its Friday edition, the Journal editorial board couldn't understand why the protestors would want to protest JP Morgan and hedge fund manager John Paulson. The Journal also couldn't understand why the protesters were failing to champion something as wonderful as the Keystone Pipeline, which the Journal assures us would create many jobs.

The Journal can be forgiven for this basic confusion. It must be hard work to channel Rupert Murdoch's cynicism, greed, and ideology every day, so here are some answers so that the editorial board doesn't have to knock itself out with fresh research.

The protesters are annoyed with JP Morgan because it, like its fellow institutions on the street, helped to bring the world economy to its knees through unprincipled and illegal actions. The Journal editorial board apparently missed the news carried in the Journal's own business pages that JP Morgan recently paid $153.6 million in fines for violating securities laws in the lead-up to the 2008 financial collapse. JP Morgan, like other Wall Street institutions, connived with hedge funds to peddle toxic assets to unsuspecting investors, allowing the hedge funds to make a killing at the expense of their "mark," and the world economy.

The protestors are not enamored of Mr. Paulson either, since he played this role together with Goldman Sachs. Paulson made a fortune by teaming up with Goldman to bundle failed mortgages, which Goldman then peddled to its customers, in this case some unsuspecting German banks. Paulson shorted these assets and thereby profited as the bank's investments collapsed. For this little maneuver, Goldman paid $560 million to the SEC in fines. Of course this is a small amount compared to the profits that Goldman reaped for years playing in toxic assets. On Wall Street, misbehavior pays, at least up until now.

Mr. Paulson actually made some extraordinary statements in the New York Times on Friday (hard even to believe the nonsensical quotations are correct, but there they are, in the paper of record). He too expressed befuddlement about the protests against his business dealings. Didn't the protestors know that he had created 100 high-paying jobs in NYC? 100?

What the protestors do know is that Mr. Paulson's success in shorting toxic assets bundled for gullible investors has netted him billions. In 2007, he reportedly took home $3.7 billion by betting against the U.S. mortgage market. And the protestors can also do their arithmetic. Paulson's take home pay was enough to cover not just 100 jobs at $50,000 per year but rather approximately 70,000 jobs at $50,000 per year. Nice try, Mr. Paulson, but the people in Liberty Plaza don't think your hedge-fund play is really worth the compensation of 70,000 people. Nor do they understand why hedge fund managers pay a top tax rate of 15% on their hedge-fund earnings.

The Journal, Paulson, and others who accuse the protestors of being "unsophisticated," somehow have forgotten a basic point. It's not just Paulson, or Goldman, or JP Morgan that parlayed their unethical behavior into vast fortunes at the expense of hapless investors. Just name a big name on Wall Street in the past decade, scratch the surface, and uncover a financial scandal. Bank of America, Goldman, JP Morgan, AIG, Merrill Lynch, Countrywide Financial, Lehman Brothers are only the start of the list.

Maybe the Journal forgot to mention this because it itself is enmeshed in a series of scandals, ranging from hacking phones in the U.K. that has created a full-fledged crisis for its parent News Corporation, to last week's resignation of the European publisher. Murdoch is not just running an organization of corporate propaganda, but a criminal enterprise, at least in the U.K.

The protestors are not envious of wealth, but sick of corporate lies, cheating, and unethical behavior. They are sick of corporate lobbying that led to the reckless deregulation of financial markets; they are sick of Wall Street and the Wall Street Journal asking for trillions of dollars of near-zero-interest loans and bailout money for the banks, but then fighting against unemployment insurance and health coverage for those drowning in the wake of the financial crisis; they are sick of absurdly low tax rates for hedge-fund managers; they are sick of Rupert Murdoch and his henchman David Koch trying to peddle the Canada-to-Gulf Keystone oil pipeline as an honest and environmentally sound business deal, when in fact it would unleash one of the world's dirtiest and most destructive energy sources, Canada's oil sands, so that Koch can profit while the world suffers. And they are sick of learning how many Republican politicians - the most recent news is about Herman Cain - are doing the bidding of the Koch brothers.

Here, then, Wall Street and Big Oil, is what it comes down to. The protesters are no longer giving you a free ride, in which you can set the regulations, set your mega-pay, hide your money in tax havens, enjoy sweet tax rates at the hands of ever-willing politicians, and await your bailouts as needed. The days of lawlessness and greed are coming to an end. Just as the Gilded Age turned into the Progressive Era, just as the Roaring Twenties and its excesses turned into the New Deal, be sure that the era of mega-greed is going to turn into an era of renewed accountability, lawfulness, modest compensation, honest taxation, and government by the people rather than by the banks.

That, in short, is why Wall Street is filled with protesters and why you should wake up, respect the law rather than try to write it, and pay your taxes to a government that is ruled by people rather than by corporate power.

Jon Stewart joins in the comentary.

Top Ten Reasons to Protest Wall Street:

2011-10-04T08:42:00.000-07:00

10) they drank champagne while they watched people protest that they crashed the economy
9) they got record bonuses after they crashed the economy
8) they made record profits after crashing of the economy
7) they got bailed out after they crashed the economy
6) they supported planet-raping industries, while they crashed the economy
5) they didn't care about American jobs while they crashed the economy
4) all they cared about was making money, and they crashed the economy
3) they BOUGHT OFF our politicians, and they crashed the economy
2) no one has gone to jail, after they crashed the economy
1) they freaking crashed the economy

And I would include the Federal Reserve as part of this indictment.

Are the Wall Street Protests the Start of a Revolution?

2011-10-04T08:40:00.000-07:00

Something seems to be happening that is beyond the normal script-- something real. I've no idea where this is headed but it seems to have some promise. I had hoped for a major protest against the disgusting wars of the American empire, but the anti-banker protests have some of that effect-- they are against the evil status quo, and the bankers promote the wars as much as anyone. I find it interesting that people ARE finally getting upset about the "banksters", and how that the idea of a banking system out of control has some real resonance among lots of people willing to get off their butt and protest...

I am curious how much Anonymous has to do with this, and how much influence they actually have.

But certainly, there is something happening here...

Total Global Economic Meltdown Still on Schedule

2011-10-04T08:38:00.000-07:00

Not clear if this guy really meant to spill the beans, but there it is:

More on Rastani:

London (CNN) -- Alessio Rastani went on a UK news channel on Monday to discuss where stock markets were heading. By Tuesday he was an Internet sensation.

Was it that he said, as someone who bets against markets rising, that he "goes to bed every night dreaming of a recession?" Was it that he said investment bank Goldman Sachs ruled the world and not governments? Or was it that bloggers started to ask if he was just a "fake trader" who duped the media?

Take your pick. But Rastani caused a stir by saying what many people think those in the markets think anyway -- it's OK to make money out of falling markets and there is no reason not to prepare for that.

He certainly thinks the markets will crash again and people should be prepared for that, and that the average person should take steps now to protect their assets, or be prepared to lose their investments.

There is nothing wrong with giving that kind of advice, if that is what you think will happen. It's just unlikely you would hear that from an established player from a bank that is looking for clients.

Still, it was worth hearing more from Rastani and to find out if he really believes what he said, if he understood the stir around him and whether he is in fact a trader.

CNN brought him in, and I asked him all that.

Firstly, Rastani is an amateur trader using his own money (as a "hobby", he has told other media) and he's not registered with the Financial Services Authority to trade other people's money. He doesn't claim otherwise, but there was a feeling after his first interview that he was some sort of suit from the City or Wall Street giving sage advice to his clients.

He does or can have other clients though. His website calls him a speaker and trainer of others who want to trade.

In my interview, Rastani said he does trade being prepared for a recession, but that as a "human being you don't want it. As a trader you think differently. You're going to have volatile... conditions to make money in that market."

He also said he was a religious man. He was also clearly nervous about the whole affair and was undecided for an hour to whether he should actually sit on our set for the interview. He said no a few times, before we sat down.

"The question is, why are they paying attention to this?" he asked. "In my opinion somebody out there doesn't want my voice to be heard and they want to attack me and damage me."

He talked of the 'Big Boys' being desperate to keep people like him from talking about the coming economic storm.

He admits there may be a book in the works, but one that focuses on traders whom he admires.

When I asked him if he was for real, he said he would not say things about the markets he did not truly believe. When I asked him if he is a member of the so-called "Yes-Men" who have faked TV interviews in the past, he would not say yes or no. "Let people believe what they want to," he said.

To my mind, he should have been touted up front as a guy who has strong opinions on the markets, but certainly not as a 'trader' or "investment adviser" in the classic sense. That does not make his view any more or less valid but, with that preamble, I don't think it would have gone viral.

Civil War Erupts On Wall Street?

2011-09-04T11:42:00.000-07:00

Finally, after trillions in fraudulent activity, trillions in bailouts, trillions in printed money, billions in political bribing and billions in bonuses, the criminal cartel members on Wall Street are beginning to get what they deserve. As the Eurozone is coming apart at the seams and as the US economy grinds to a halt, the financial elite are starting to turn on each other. The lawsuits are piling up fast. Here’s an extensive roundup:
As I reported last week:

Collapse Roundup #5: Goliath On The Ropes, Big Banks Getting Hit Hard, It’s A “Bloodbath” As Wall Street’s Crimes Blow Up In Their Face

Time to put your Big Bank shorts on! Get ready for a run… The chickens are coming home to roost… The Global Banking Cartel’s crimes are being exposed left & right… Prepare for Shock & Awe…

Well, well… here’s your Shock & Awe:

First up, this shockingly huge $196 billion lawsuit just filed against 17 major banks on behalf of Fannie Mae and Freddie Mac. Bank of America is severely exposed in this lawsuit. As the parent company of Countrywide and Merrill Lynch they are on the hook for $57.4 billion. JP Morgan is next in the line of fire with $33 billion. And many death spiraling European banks are facing billions in losses as well.

FHA Files a $196 Billion Lawsuit Against 17 Banks

The Federal Housing Finance Agency (FHFA), as conservator for Fannie Mae and Freddie Mac (the Enterprises), today filed lawsuits against 17 financial institutions, certain of their officers and various unaffiliated lead underwriters. The suits allege violations of federal securities laws and common law in the sale of residential private-label mortgage-backed securities (PLS) to the Enterprises.

Complaints have been filed against the following lead defendants, in alphabetical order:

1. Ally Financial Inc. f/k/a GMAC, LLC – $6 billion
2. Bank of America Corporation – $6 billion
3. Barclays Bank PLC – $4.9 billion
4. Citigroup, Inc. – $3.5 billion
5. Countrywide Financial Corporation -$26.6 billion
6. Credit Suisse Holdings (USA), Inc. – $14.1 billion
7. Deutsche Bank AG – $14.2 billion
8. First Horizon National Corporation – $883 million
9. General Electric Company – $549 million
10. Goldman Sachs & Co. – $11.1 billion
11. HSBC North America Holdings, Inc. – $6.2 billion
12. JPMorgan Chase & Co. – $33 billion
13. Merrill Lynch & Co. / First Franklin Financial Corp. – $24.8 billion
14. Morgan Stanley – $10.6 billion
15. Nomura Holding America Inc. – $2 billion
16. The Royal Bank of Scotland Group PLC – $30.4 billion
17. Société Générale – $1.3 billion

These complaints were filed in federal or state court in New York or the federal court in Connecticut. The complaints seek damages and civil penalties under the Securities Act of 1933, similar in content to the complaint FHFA filed against UBS Americas, Inc. on July 27, 2011. In addition, each complaint seeks compensatory damages for negligent misrepresentation. Certain complaints also allege state securities law violations or common law fraud. [read full FHFA release]
You can read the suits filed against each individual bank here.

SEC Helps Banks Cover Up Their Misdeeds

2011-09-04T11:40:00.000-07:00

For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – "18,000 ... including Madoff," as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.
Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency's records – "including case files relating to preliminary investigations" – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term "Orwellian," devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or "Matters Under Inquiry" – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission's internal website. "After you have closed a MUI that has not become an investigation," the site advised staffers, "you should dispose of any documents obtained in connection with the MUI."

Many of the destroyed files involved companies and individuals who would later play prominent roles in the economic meltdown of 2008. Two MUIs involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.

The widespread destruction of records was brought to the attention of Congress in July, when an SEC attorney named Darcy Flynn decided to blow the whistle. According to Flynn, who was responsible for helping to manage the commission's records, the SEC has been destroying records of preliminary investigations since at least 1993. After he alerted NARA to the problem, Flynn reports, senior staff at the SEC scrambled to hide the commission's improprieties.

Goldman Sachs Lied to Congress and Needs to be Indicted

2011-05-28T05:20:00.000-07:00

Matt Taibbi lays out the case.

Lloyd Blankfein went to Washington and testified under oath that Goldman Sachs didn't make a massive short bet and didn't bet against its clients. The Levin report proves that Goldman spent the whole summer of 2007 riding a "big short" and took a multibillion-dollar bet against its clients, a bet that incidentally made them enormous profits. Are we all missing something? Is there some different and higher standard of triple- and quadruple-lying that applies to bank CEOs but not to baseball players?

This issue is bigger than what Goldman executives did or did not say under oath. The Levin report catalogs dozens of instances of business practices that are objectively shocking, no matter how any high-priced lawyer chooses to interpret them: gambling billions on the misfortune of your own clients, gouging customers on prices millions of dollars at a time, keeping customers trapped in bad investments even as they begged the bank to sell, plus myriad deceptions of the "failure to disclose" variety, in which customers were pitched investment deals without ever being told they were designed to help Goldman "clean" its bad inventory. For years, the soundness of America's financial system has been based on the proposition that it's a crime to lie in a prospectus or a sales brochure. But the Levin report reveals a bank gone way beyond such pathetic little boundaries; the collective picture resembles a financial version of The Jungle, a portrait of corporate sociopathy that makes you never want to go near a sausage again.

Upton Sinclair's narrative shocked the nation into a painful realization about the pervasive filth and corruption behind America's veneer of smart, robust efficiency. But Carl Levin's very similar tale probably will not. The fact that this evidence comes from a U.S. senator's office, and not the FBI or the SEC, is itself an element in the worsening tale of lawlessness and despotism that sparked a global economic meltdown. "Why should Carl Levin be the one who needs to do this?" asks Spitzer. "Where's the SEC? Where are any of the regulatory bodies?"

This isn't just a matter of a few seedy guys stealing a few bucks. This is America: Corporate stealing is practically the national pastime, and Goldman Sachs is far from the only company to get away with doing it. But the prominence of this bank and the high-profile nature of its confrontation with a powerful Senate committee makes this a political story as well. If the Justice Department fails to give the American people a chance to judge this case — if Goldman skates without so much as a trial — it will confirm once and for all the embarrassing truth: that the law in America is subjective, and crime is defined not by what you did, but by who you are.

Wachovia Bank laundered billions of dollars from Mexico's murderous drug gangs

2011-05-01T11:34:00.000-07:00

On 10 April 2006, a DC-9 jet landed in the port city of Ciudad del Carmen, on the Gulf of Mexico, as the sun was setting. Mexican soldiers, waiting to intercept it, found 128 cases packed with 5.7 tons of cocaine, valued at $100m. But something else – more important and far-reaching – was discovered in the paper trail behind the purchase of the plane by the Sinaloa narco-trafficking cartel.

During a 22-month investigation by agents from the US Drug Enforcement Administration, the Internal Revenue Service and others, it emerged that the cocaine smugglers had bought the plane with money they had laundered through one of the biggest banks in the United States: Wachovia, now part of the giant Wells Fargo.

The authorities uncovered billions of dollars in wire transfers, traveller's cheques and cash shipments through Mexican exchanges into Wachovia accounts. Wachovia was put under immediate investigation for failing to maintain an effective anti-money laundering programme. Of special significance was that the period concerned began in 2004, which coincided with the first escalation of violence along the US-Mexico border that ignited the current drugs war.

Criminal proceedings were brought against Wachovia, though not against any individual, but the case never came to court. In March 2010, Wachovia settled the biggest action brought under the US bank secrecy act, through the US district court in Miami. Now that the year's "deferred prosecution" has expired, the bank is in effect in the clear. It paid federal authorities $110m in forfeiture, for allowing transactions later proved to be connected to drug smuggling, and incurred a $50m fine for failing to monitor cash used to ship 22 tons of cocaine.

More shocking, and more important, the bank was sanctioned for failing to apply the proper anti-laundering strictures to the transfer of $378.4bn – a sum equivalent to one-third of Mexico's gross national product – into dollar accounts from so-called casas de cambio (CDCs) in Mexico, currency exchange houses with which the bank did business.

"Wachovia's blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations," said Jeffrey Sloman, the federal prosecutor. Yet the total fine was less than 2% of the bank's $12.3bn profit for 2009. On 24 March 2010, Wells Fargo stock traded at $30.86 – up 1% on the week of the court settlement.

The conclusion to the case was only the tip of an iceberg, demonstrating the role of the "legal" banking sector in swilling hundreds of billions of dollars – the blood money from the murderous drug trade in Mexico and other places in the world – around their global operations, now bailed out by the taxpayer.

Naked Short Selling-- Why Aren't People in Jail?

2011-02-27T19:31:00.001-08:00

This video is a year and a half old, but a new topic to me. This is crazy (see Taibbi about 15 min in)-- it's frigging blatant fraud:

About a year ago, Goldman Sachs was fined about half a million dollars for naked short selling but no one went to jail.

In a nice moment of synchronicity, as I was typing this, I just saw "Inside Job" win the best documentary award at the Oscars, and the director came up and said how three years after the huge financial scandal (what the movie was about)-- no one has gone to jail!

Why Isn't Wall Street in Jail?

2011-02-21T05:32:00.000-08:00

The Taibbi Rolling Stone piece--

"You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street," says a former congressional aide. "That's all it would take. Just once."

But that hasn't happened. Because the entire system set up to monitor and regulate Wall Street is fucked up....

Here's how regulation of Wall Street is supposed to work. To begin with, there's a semigigantic list of public and quasi-public agencies ostensibly keeping their eyes on the economy, a dense alphabet soup of banking, insurance, S&L, securities and commodities regulators like the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), as well as supposedly "self-regulating organizations" like the New York Stock Exchange. All of these outfits, by law, can at least begin the process of catching and investigating financial criminals, though none of them has prosecutorial power.

The major federal agency on the Wall Street beat is the Securities and Exchange Commission. The SEC watches for violations like insider trading, and also deals with so-called "disclosure violations" — i.e., making sure that all the financial information that publicly traded companies are required to make public actually jibes with reality. But the SEC doesn't have prosecutorial power either, so in practice, when it looks like someone needs to go to jail, they refer the case to the Justice Department. And since the vast majority of crimes in the financial services industry take place in Lower Manhattan, cases referred by the SEC often end up in the U.S. Attorney's Office for the Southern District of New York. Thus, the two top cops on Wall Street are generally considered to be that U.S. attorney — a job that has been held by thunderous prosecutorial personae like Robert Morgenthau and Rudy Giuliani — and the SEC's director of enforcement.

The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can't balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC's army of 1,100 number-crunching investigators to make their cases. In theory, it's a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.

That's the way it's supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who's in office or which party's in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.

The systematic lack of regulation has left even the country's top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. "I think you've got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street," he says.

The key problem seems to be a revolving door between the SEC and Wall Street that insures payoffs before prosecution. In other words, the system is deeply corrupted.

Mozilo Not Charged because Too Many Wrongdoers

2011-02-21T05:29:00.000-08:00

Federal prosecutors have shelved a criminal investigation of Angelo R. Mozilo after determining that his actions in the mortgage meltdown — which led to $67.5-million settlement against him — did not amount to criminal wrongdoing.

Perhaps the most insightful comment in LAT’s coverage of Mozilo’s escape of any liability is this:

Columbia University law professor John Coffee said mortgage cases like Mozilo’s were muddied by the numerous parties involved, unlike Enron and other “cook the books” cases in which executives were convicted.

Countrywide’s model was to make or buy mortgages only to sell them off immediately to Fannie Mae or Wall Street as fodder for securities.

Given that model, Coffee said, blame could be assigned to an entire chain of players: mortgage brokers who falsified applications; investment bankers who concocted complex and “opaque” mortgage bonds; rating firms that provided high ratings on the bonds but said they were lied to; and institutional investors that relied on dubious ratings because the securities carried above-market interest while promising to be risk-free.

“All share responsibility, but none are culpable enough by themselves to compare with [Enron's] Ken Lay, Jeff Skilling or the WorldCom CEO,” Coffee said.

I guess we could write a new corollary to the line, “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” If you commit massive amounts of fraud by yourself, even George Bush’s DOJ will indict you; but if everyone in an industry conspires to commit the same kind of fraud, Barack Obama’s DOJ won’t charge anyone.

"How Goldman Killed A.I.G."-- and the World Economy

2011-02-21T05:22:00.000-08:00

Goldman Sachs is the direct cause of the financial meltdown?

The conventional wisdom has it that the final report of the Financial Crisis Inquiry Commission was a low-budget flop, hopelessly riven by internal political disputes and dissension among the commission’s 10 members. As usual, the conventional wisdom is completely wrong. Actually, the report — and the online archive of testimony, interviews and documents that are now available — is a treasure trove of invaluable information about the causes and consequences of the Great Recession.

For instance, on the exceptionally important but little understood role played by the increasingly lower prices Goldman Sachs placed on the complex mortgage securities on its balance sheet — which helped determine the fate of many of its shakier Wall Street brethren — the commission report, on page 237, is crystalline:

As the crisis unfolded Goldman marked mortgage-related securities at prices that were significantly lower than those of other companies. Goldman knew that those lower marks might hurt those other companies — including some clients — because they could require marking down those assets and similar assets. In addition, Goldman’s marks would get picked up by competitors in dealer surveys. As a result, Goldman’s marks could contribute to other companies recording “mark-to-market” losses: that is, the reported value of their assets could fall and their earnings would decline.

The first victims of Goldman’s decision in May 2007 to begin communicating its lower marks to the rest of the marketplace were the two Bear Stearns hedge funds that were heavily invested in complex and squirrelly mortgage securities. Although Goldman disputes the charge, the lower marks caused the two hedge funds to recalculate the funds’ net asset value, known in the business as N.A.V., and to re-issue to investors in June 2007 a far lower N.A.V. — down 19 percent, rather than down 6 percent. All hell broke loose. Soon enough, the funds’ investors were blocked from withdrawing their money, and by July the funds filed for bankruptcy and were soon liquidated. Investors lost much of the $1.5 billion they had invested. The liquidation of the two hedge funds led to the collapse of Bear Stearns nine months later.

Goldman Sachs Got Billions from AIG for Its Own Account

2011-02-07T11:02:00.000-08:00

Goldman Sachs collected $2.9 billion from the American International Group as payout on a speculative trade it placed for the benefit of its own account, receiving the bulk of those funds after AIG received an enormous taxpayer rescue, according to the final report of an investigative panel appointed by Congress.

The fact that a significant slice of the proceeds secured by Goldman through the AIG bailout landed in its own account--as opposed to those of its clients or business partners-- has not been previously disclosed. These details about the workings of the controversial AIG bailout, which eventually swelled to $182 billion, are among the more eye-catching revelations in the report to be released Thursday by the bipartisan Financial Crisis Inquiry Commission.

The details underscore the degree to which Goldman--the most profitable securities firm in Wall Street history--benefited directly from the massive emergency bailout of the nation's financial system, a deal crafted on the watch of then-Treasury Secretary Henry Paulson, who had previously headed the bank.

"If these allegations are correct, it appears to have been a direct transfer of wealth from the Treasury to Goldman's shareholders," said Joshua Rosner, a bond analyst and managing director at independent research consultancy Graham Fisher & Co., after he was read the relevant section of the report. "The AIG counterparty bailout, which was spun as necessary to protect the public, seems to have protected the institution at the expense of the public."

Goldman and AIG both declined to comment.Goldman Sachs collected $2.9 billion from the American International Group as payout on a speculative trade it placed for the benefit of its own account, receiving the bulk of those funds after AIG received an enormous taxpayer rescue, according to the final report of an investigative panel appointed by Congress.

The fact that a significant slice of the proceeds secured by Goldman through the AIG bailout landed in its own account--as opposed to those of its clients or business partners-- has not been previously disclosed. These details about the workings of the controversial AIG bailout, which eventually swelled to $182 billion, are among the more eye-catching revelations in the report to be released Thursday by the bipartisan Financial Crisis Inquiry Commission.

The details underscore the degree to which Goldman--the most profitable securities firm in Wall Street history--benefited directly from the massive emergency bailout of the nation's financial system, a deal crafted on the watch of then-Treasury Secretary Henry Paulson, who had previously headed the bank.

"If these allegations are correct, it appears to have been a direct transfer of wealth from the Treasury to Goldman's shareholders," said Joshua Rosner, a bond analyst and managing director at independent research consultancy Graham Fisher & Co., after he was read the relevant section of the report. "The AIG counterparty bailout, which was spun as necessary to protect the public, seems to have protected the institution at the expense of the public."

Goldman and AIG both declined to comment.

Max Kaiser, Max Kaiser, Max Kaiser

2011-01-03T08:14:00.000-08:00

Biggest Scam In World History Exposed - Are The Federal Reserve’s Crimes Too Big To Comprehend?

2011-01-03T08:11:00.000-08:00

Short answer-- yes. This long piece goes over the gruesome details, but ultimately the real meaning of this is really really vague to me:

We were finally granted the honor and privilege of finding out the specifics, a limited one-time Federal Reserve view, of a secret taxpayer funded “backdoor bailout” by a small group of unelected bankers. This data release reveals “emergency lending programs” that doled out $12.3 TRILLION in taxpayer money - $3.3 trillion in liquidity, $9 trillion in “other financial arrangements.”

Wait, what? Did you say $12.3 TRILLION tax dollars were thrown around in secrecy by unelected bankers… and Congress didn’t know any of the details?

Yes. The Founding Fathers are rolling over in their graves. The original copy of the Constitution spontaneously burst into flames. The ghost of Tom Paine went running, stark raving mad screaming through the halls of Congress.

The Federal Reserve was secretly throwing around our money in unprecedented fashion, and it wasn’t just to the usual suspects like Goldman Sachs, JP Morgan, Citigroup, Bank of America, etc.; it was to the entire Global Banking Cartel. To central banks throughout the world: Australia, Denmark, Japan, Mexico, Norway, South Korea, Sweden, Switzerland, England… To the Fed’s foreign primary dealers like Credit Suisse (Switzerland), Deutsche Bank (Germany), Royal Bank of Scotland (U.K.), Barclays (U.K.), BNP Paribas (France)… All their Ponzi players were “gifted.” All the Racketeer Influenced and Corrupt Organizations got their cut.

Talk about the ransacking and burning of Rome! Sayonara American middle class…

If you still had any question as to whether or not the United States is now the world’s preeminent banana republic, the final verdict was just delivered and the decision was unanimous. The ayes have it.

Any fairytale notions that we are living in a nation built on the rule of law and of the global economy being based on free market principles has now been exposed as just that, a fairytale. This moment is equivalent to everyone in Vatican City being told, by the Pope, that God is dead.

I’ve been arguing for years that the market is rigged and that the major Wall Street firms are elaborate Ponzi schemes, as have many other people who built their beliefs on rational thought, reasoned logic and evidence. We already came to this conclusion by doing the research and connecting the dots. But now, even our strongest skeptics and the most ardent Wall Street supporters have it all laid out in front of them, on FEDERAL RESERVE SPREADSHEETS.

Even the Financial Times, which named Lloyd Blankfein its 2009 person of the year, reacted by reporting this: “The initial reactions were shock at the breadth of lending, particularly to foreign firms. But the details paint a bleaker and even more disturbing picture.”

"A Secretive Banking Elite Rules Trading in Derivatives"

2011-01-03T06:16:00.000-08:00

Craziness:

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk.

In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.

Mortgages: Multiple Scams, Obvious Fraud by Wall Street

2010-10-20T03:55:00.001-07:00

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?

NYTimes Alters and Sugar Coats AIG Repayment News

2010-10-02T11:42:00.000-07:00

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.

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

2010-07-16T04:26:00.000-07:00

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.

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

2010-06-30T14:28:00.000-07:00

Figure in A.I.G. Crisis Testifies
By LOUISE STORY
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...

2010-06-30T14:18:00.000-07:00

By LOUISE STORY and GRETCHEN MORGENSON

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.
(snip)

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.

FinReg Summary

2010-06-26T07:36:00.001-07:00

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.

AIG Rejects Lower Bid to Sell Off Asia Unit

2010-06-01T06:24:00.000-07:00

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.

Cassano Gets Off

2010-05-22T15:40:00.000-07:00

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.

The Case Against Robert Rubin

2010-05-02T11:45:00.000-07:00

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.

Goldman Sachs Fraud Case Watch

2010-04-24T07:39:00.000-07:00

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.

SEC Takes on Goldman Sachs!

2010-04-17T09:19:00.000-07:00

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.

No criminal charges seen in AIG's collapse

2010-04-03T17:47:00.000-07:00

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.

Mainstream Media Sweeps Lehman Scam Under the Rug

2010-03-21T07:26:00.000-07:00

Blogs are the place to go for the real scoop.

Lehman Brothers Collapse Scam-- Geithner Up to His Neck

2010-03-21T07:23:00.000-07:00

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.

AIG to Pay $100 Million in Bonuses

2010-02-03T03:51:00.000-08:00

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.

Who Got Bailed Out by the AIG Bailout?

2010-01-27T17:14:00.000-08:00

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.

Very Suspicious Behavior from the Fed Regarding AIG Transactions

2010-01-25T17:31:00.000-08:00

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.

Geithner’s Fed Told AIG to Limit Swaps Disclosure

2010-01-09T06:25:00.000-08:00

Outrageous:

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.”

AIG executive resigns over pay limits

2010-01-05T06:23:00.000-08:00

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.

AIG Scam New Customers by Using a Fake Name

2009-12-11T17:47:00.000-08:00

Just months after dropping the telltale “A.I.G.” from its sales brochures, the company has leapfrogged its competitors and reclaimed a title it held for many years before its bailout — the top seller of fixed annuities to bank customers.

People buying the annuities in bank branches may be surprised to know they are signing up with A.I.G. The contracts are being offered under the names of two subsidiaries, Western National Life and First SunAmerica. Until last June, they carried the name of A.I.G. Annuity.

The booming annuity sales are a bright spot for American International Group, which must raise cash to pay back the federal government.

But some competitors and consumer advocates are questioning A.I.G.’s comeback, saying its ability to keep drawing federal money is giving it an unfair advantage just a year after its government rescue.

Often sold as alternatives to certificates of deposit, fixed annuities are insurance contracts that guarantee a set rate of return, unlike variable annuities, whose returns may track the ups and downs of the markets.

The people who buy them in banks tend to be looking for something safe, but which pays more than a certificate of deposit. Fixed annuity contracts usually run for many years, and even before A.I.G.’s bailout last year, its customers began to have qualms about tying up their money with a company whose future was uncertain.

"Fresh Pay Skirmish Erupts at AIG"

2009-12-08T08:15:00.000-08:00

Cry me a river...

Five high-ranking executives at American International Group Inc. said last week they were prepared to quit if their compensation is cut significantly by the insurer's government overseers, according to people familiar with the matter.

The threat is the latest in the running fracas between AIG and the government's compensation czar, Kenneth Feinberg, who is charged with setting pay limits for top executives at companies receiving the most federal bailout money.

The AIG executives who notified the company they were prepared to resign include its general counsel, Anastasia Kelly, and the heads of some of its largest insurance businesses.

AIG Posts Profit of $455 Million

2009-11-07T07:10:00.000-08:00

Bailed out insurance giant AIG on Friday announced a profit of 455 million dollars in the third quarter, a massive turnaround from a 24.4 billion dollar loss in the same period last year.

The earnings from group, the largest recipient of US government aid during the financial crisis, were better than expectations.

Excluding special items, the profit was 2.85 dollars per share, compared with a market forecast of 1.98 dollars per share.

It was the second consecutive quarterly profit for American International Group after the prior quarter's earnings of 1.8 billion dollars.

"Our results reflect continued stabilization in performance and market trends," said AIG president and chief executive Robert Benmosche.

"AIG employees are working to preserve the strength of our insurance businesses in a challenging market by working closely with our distribution partners, with third quarter 2009 showing signs of stabilization."

AIG was the largest single recipient of US bailouts with the government pumping more than 170 billion dollars into the firm to keep it afloat and taking a controlling stake in the group in the process.

Once the world's biggest insurer, AIG was on the brink of bankruptcy in September 2008 when the government offered a financial lifeline in exchange for an 80 percent stake in the company.

The company was in trouble after backing trillions of dollars in risky financial products amid a US home mortgage meltdown that triggered a global financial crisis.

The latest quarterly figures showed revenues fell 11.8 percent to 26 billion dollars as AIG sold off some or wound down of its operations.

AIG said it "continues to make progress on its disposition plan," having entered into agreements to sell or completed the sale of operations and assets to generate a total of 5.6 billion dollars.

A government report in September showed AIG still owed nearly 121 billion dollars in taxpayer aid.

The Government Accountability Office, an investigative arm of Congress, said the ultimate success of AIG?s restructuring and repayment efforts remains "uncertain."

Can we get some of our money back now? Though clearly they have a long way to go to pay it all back.

Goldman Sachs: Pure Evil

2009-11-01T08:51:00.000-08:00

Somebody fucking needs to go to jail:

WASHINGTON — In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.

"The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," said Laurence Kotlikoff, a Boston University economics professor who's proposed a massive overhaul of the nation's banks. "This is fraud and should be prosecuted."

The House of Representatives Latest Attempt to Reform Banking (Derivatives)

2009-10-29T08:54:00.000-07:00

It mostly shows how evil and corrupt they are.

"AIG Shares at it Again. Up 33%"

2009-08-22T13:26:00.000-07:00

The retail investors seem hot and bothered over AIG shares today. They’re up more than 33% just after noon. AIG has been on a tear since Aug. 5, when its shares jumped 63%. Volume surged by 1600%, to 134.9 million from the prior day’s 7.9 million. (No typo.) We still don’t know exactly what stoked flood of interest, although the conventional wisdom was that a short-squeeze and retail-led pile on ahead of AIG’s earnings got it going. Since AIG’s Aug. 4 closing low, the government-controlled insurer is up about 150% just before noon today.

There was a little news on the company that might explain some of the renewed attention to the shares. For instance, AIG named a couple executives for its U.S.-based life insurance and retirement services businesses. But that was part of an ongoing leadership reshuffle, and it hardly seems important enough to drive the shares up to where they are.

The only other thing we can find is a Bloomberg interview with AIG’s recently named CEO Robert Benmosche. The money quote: “We believe we will be able to pay back the government and we hope we will be able to do something for our shareholders as well.” Not exactly a hugely reassuring comment for shareholders.

Just one note of contrarian context on the AIG share surge. A 150% move in a couple weeks seems impressive. But don’t forget that the company’s stock underwent a 1-for-20 reverse split in early July. Applying that algebra to AIG’s shares at their recent peak in September 2008 would have made one share worth $455.20. From that perspective, AIG long-term stock chart is still decidedly ski jump-shaped, with shares having lost roughly 93% of their value.

A Very Reasonable Proposal from the NYTimes

2009-08-13T06:16:00.000-07:00

Fearing the whole financial system could collapse, the government loaned A.I.G. $85 billion, which it used to pay off more than a dozen big banks that were on the other side of those derivatives trades.

The banks may have needed the money, but they certainly didn’t deserve it. They knew or should have known the risks they were taking when they did business with the highflying A.I.G. But they were paid up anyway because it was believed that widespread failures would be costlier to the economy than the cost of the bailout.

Goldman Sachs got $12.9 billion. Deutsche Bank got $11.8 billion. Bank of America got $5.2 billion, Morgan Stanley $1.2 billion and JPMorgan Chase $400 million, and so on. Since then, the government’s commitment to A.I.G. has swelled to $173 billion.

Now, to try to repay some of the bailout money, A.I.G., which is nearly 80 percent owned by the government, is selling off some units and planning initial public offerings in others. And according to a recent analysis by The Wall Street Journal, several of the banks that were paid off in the first go-round, together with lawyers and accountants, could collect close to $1 billion in advisory and underwriting fees to move those efforts along. (snip)

It seems safe to say that a reasonable person would find that galling. When it comes to A.I.G., the big banks have clearly already got theirs. Now they get more? A.I.G. must be restructured for taxpayers to have a shot at recouping some of the bailout billions.

Jail for AIG executives would be better, and the govt taking over AIG's assets completely-- but, this is better than the status quo.

The Outrageous Never-Ending Goldman-Sachs Scams

2009-08-13T06:15:00.000-07:00

High Frequency Trading:

... large brokers and funds can buy and sell a stock for the same price and still make 0.5 cents. Do that a million times a day and the money adds up. Or maybe do it 8 billion times. It requires powerful computers, complicity of the exchanges (because the exchanges get paid a lot), and highly proximate computer connections. Literally, the need for speed is so important that to play this game you have to have your servers physically at the exchange. Across the river in New Jersey is too slow. Forget Texas or California. This is a game played out in microseconds.

More on Goldman-Sachs and HFT here.

Scamming TARP and other outrageousness:

“During the week of the AIG bailout alone, Mr. Paulson and [Goldman Sachs CEO Lloyd] Blankfein spoke two dozen times … far more frequently than Mr. Paulson did with other Wall Street executives,” the Times reports.

The revelation is sure to fuel further claims that the $700-billion Troubled Assets Relief Program, or TARP, passed by Congress last fall with the support of both major presidential candidates, Barack Obama and John McCain, was “gamed” by Paulson in order to help out his colleagues at Goldman — and preserve his own reputation, which he made as the bank’s CEO.

Paulson spoke with Goldman’s CEO in an official capacity a total of 26 times before the treasury secretary was granted an “ethics waiver” that allowed him to be in far closer contact with his former employer than would have otherwise been allowed, Reuters notes.

In the five days after Paulson received his “waiver,” on Sept. 16, 2008, he spoke with Goldman’s Blankfein another 24 times.

But Paulson may have done more than help his former employer get bailed out of bad debts — he may have helped orchestrate the demise of his former employer’s competitors.

“Indeed, Mr. Paulson helped decide the fates of a variety of financial companies, including two longtime Goldman rivals, Bear Stearns and Lehman Brothers, before his ethics waivers were granted,” the Times writes.

Greenberg Fined

2009-08-09T15:35:00.000-07:00

The former top executive of embattled insurance giant AIG, Maurice “Hank” Greenberg, agreed to pay 15 million dollars to settle accounting fraud charges, US authorities said Thursday.

The Securities and Exchange Commission said Greenberg, chairman and chief executive at AIG before its spectacular meltdown, will pay disgorgement and penalties to settle a probe into “numerous improper accounting transactions that inflated AIG’s reported financial results between 2000 and 2005.”

The company’s former chief financial officer Howard Smith meanwhile will pay 1.5 million dollars to settle related charges, the SEC said in a statement.

The SEC said it filed the charges and settlement in US District Court for the Southern District of New York.

Greenberg, 84, had led the American International Group for four decades before he was ousted amid an accounting probe in March 2005, ahead of the near collapse of the insurance behemoth during a global financial crisis stemming from a US home mortgage meltdown.

It was taken over by the US government last year in a massive 170-billion-dollar bailout.

The SEC alleged that Greenberg and Smith were responsible for “material misstatements that enabled AIG to create the false impression that the company consistently met or exceeded key earnings and growth targets.”

The SEC had charged AIG in 2006 with securities fraud and improper accounting, and the company had settled the charges by paying disgorgement of 700 million dollars and a penalty of 100 million dollars, among other remedies.

“Without admitting or denying the SEC’s allegations,” Greenberg and Smith had consented to a judgment directing them to pay the penalties, the SEC said.

The Fed: A Never-Ending Rip-Off Conducted in Secrecy

2009-07-28T08:39:00.000-07:00

Eliot Spitzer: Federal Reserve is ‘a Ponzi scheme, an inside job’:

The Federal Reserve — the quasi-autonomous body that controls the US’s money supply — is a “Ponzi scheme” that created “bubble after bubble” in the US economy and needs to be held accountable for its actions, says Eliot Spitzer, the former governor and attorney-general of New York.

The war being waged on the TARP watchdog's independence:

Neil Barofsky, the chief watchdog over the $700 billion TARP bank bailout program, is one of those rare creatures in Washington: he takes very seriously his responsibilities of independent oversight and accountability. (snip) But ever since he was appointed to head the oversight office created by Congress when it enacted TARP -- an office designed to ensure transparency and accountability at the Treasury Department and in the banking industry -- he has repeatedly clashed with Obama's Treasury officials over their lack of transparency in how the trillions of dollars in TARP-related funds are being sent to and used by the banking industry. (snip) Last week, he issued a report documenting that the actual amount of taxpayer money theoretically put at risk in the bank bailout -- once Federal Reserve, FDIC and other programs are counted -- is $23.7 trillion, not the widely cited figure of $700 billion, a report that prompted attacks from the White House and Treasury on his credibility. Separately, Barofsky has continuously disputed White House claims that it's impossible to account for what has been done by banks with the TARP funds. (snip)

Most significant of all, and obviously due to Barofsky's truly independent oversight efforts, the Obama administration is now attempting to induce the Justice Department to issue a ruling that Barofsky's office is not independent at all -- but rather, is subject to, and under the supervision of, the authority of Treasury Secretary Tim Geithner. By design, such a ruling would completely gut Barofsky's ability to compel transparency and exercise real oversight over how Treasury is administering TARP, since it would make him subordinate to one of the very officials whose actions Congress wanted him to oversee: the Treasury Secretary's.

The Insider's Vew on AIG-FP: Joseph Cassano as the Bogeyman

2009-07-09T04:17:00.000-07:00

Long piece in Vanity Fair by Michael Lewis "The Man Who Crashed the World"-- the title refers to Joseph Cassano.

What’s interesting is their point of view on the event closest to the center of the financial crisis. For while they disagreed on this and that, they all were fairly certain that if it hadn’t been for A.I.G. F.P. the subprime-mortgage machine might never have been built, and the financial crisis might never have happened.

snip

In a financial system that was rapidly generating complicated risks, A.I.G. F.P. became a huge swallower of those risks. In the early days it must have seemed as if it was being paid to insure against events extremely unlikely to occur—how likely was it that all sorts of companies and banks all over the globe would go bust at the same time? Its success bred imitators: Zurich Re F.P., Swiss Re F.P., Credit Suisse F.P., Gen Re F.P. All of these places were central to what happened in the last two decades; without them the new risks being created would have had no place to hide, but would have remained in full view of bank regulators. All of these places have been washed away by the general nausea now felt in the presence of complicated financial risks, but there was a moment when their existence seemed cartographically necessary to the financial world. And A.I.G. F.P. was the model for them all.

snip

...the people who worked at A.I.G. F.P. got rich. Exactly how rich is hard to say, but there are plenty of hints. One is that a company lawyer—a mere lawyer!—took home a $25 million bonus at the end of one year. Another is that in 2005, when Howard Sosin and his wife divorced, she received more than $40 million of an estate valued at $168 million—and Sosin had left A.I.G. in 1993, receiving $182 million from the company! He had been replaced that year as C.E.O. by a gentler soul named Tom Savage, who had allowed Hank Greenberg to take some of the sugar out of F.P., but even then the small band of traders had, arguably, a sweeter deal than any money managers in the world. The typical hedge fund kept 20 percent of profits; the traders at A.I.G. F.P. kept 30 to 35 percent. The typical hedge fund or private-equity fund has to schlep around and raise money all the time, and post collateral with big Wall Street firms for all the trades they do. The traders at A.I.G. F.P. had essentially unlimited capital on tap from the parent company, along with the AAA rating, rent-free. For the people who worked there, A.I.G. F.P. was a financial miracle. They were required to leave 50 percent of their bonuses in the company, but they were happy to do so; many of them, viewing it as the best way to grow their own savings, invested far more than the minimum back in the company. When it collapsed, the employees lost more than $500 million of their own money.

How and why their miracle became a catastrophe, A.I.G. F.P.’s traders say, is a complicated story, but it begins simply: with a change in the way decisions were made, brought about by a change in its leadership. At the end of 2001 its second C.E.O., Tom Savage, retired, and his former deputy, Joe Cassano, was elevated. Savage is a trained mathematician who understood the models used by A.I.G. traders to price the risk they were running—and thus ensure that they were fairly paid for it. He enjoyed debates about both the models and the merits of A.I.G. F.P.’s various trades. Cassano knew a lot less math and had much less interest in debate.

snip

Across A.I.G. F.P. the view of the boss was remarkably consistent: a guy with a crude feel for financial risk but a real talent for bullying people who doubted him. “A.I.G. F.P. became a dictatorship,” says one London trader. “Joe would bully people around. He’d humiliate them and then try to make it up to them by giving them huge amounts of money.”

snip

Even by the standards of Wall Street villains, whose character flaws wind up being exaggerated to fit the crime, Cassano was a cartoon despot.

Oddly, he was as likely to direct his anger at profitable traders as at unprofitable ones—and what caused him to become angry was the faintest whiff of insurrection.

snip

Who put a man like Joe Cassano in charge of such an enterprise as A.I.G. F.P.? The simple answer is Hank Greenberg, the C.E.O. of A.I.G.; the more complicated one is A.I.G. F.P.’s board, consisting of many smart people, including Harvard economist Martin Feldstein. “Tom Savage proposed Joe to replace him,” says Greenberg, “and we had no reason to think he wasn’t able to do the job.”

A.I.G. F.P.’s employees for their part suspect that the only reason Greenberg promoted Cassano was that he saw in him a pale imitation of his own tyrannical self and felt he could control him. “So long as Greenberg was there, it worked,” says one trader, “because he watched everything Joe did.

snip

...the guy who had the most invested in A.I.G. F.P. was Joe Cassano. Cassano had been paid $38 million in 2007, but left $36.75 million of that inside the firm. His financial interest in A.I.G. F.P. struck those who worked for him as secondary to his psychological investment: the firm was, by all accounts, Cassano’s sole source of self-worth, its success his lone status symbol. He wore crappy clothes, drove a crappy car, and spent all of his time at the office. He had made huge piles of money ($280 million!), but so far as anyone could tell he didn’t spend any of it. “Joe wasn’t a trader and now he wasn’t a risktaker, in his personal life,” says one of the traders. “With the money he didn’t have in the company he bought Treasury bonds.” He had no children, no obvious social ambition; his status concerns seemed limited to his place in the global financial order. He entertained a notion of himself as the street-smart guy who had triumphed over his social betters—which of course implied that he wasn’t quite sure that he had. “Joe had Goldman envy,” one trader tells me—which was strange, as Cassano’s brother and sister both worked for Goldman Sachs. “His whole life was F.P.,” another trader says. “Without F.P. he had nothing.” That was another reason, in addition to fear, that the highly educated, highly intelligent people who worked for Joe Cassano were slow to question whatever he was doing: he was the last person, they assumed, who would blow the place up.

snip

...Wall Street firms packaging the loans into bonds had found someone to insure against what turned out to be the rather high risk that they’d go bad: Joe Cassano.

A.I.G. F.P. was already insuring these big, diversified, AAA-rated piles of consumer loans; to get it to insure subprime mortgages was only a matter of pouring more and more of the things into the amorphous, unexamined piles. They went from being 2 percent subprime mortgages to being 95 percent subprime mortgages. And yet no one at A.I.G. said anything about it—not C.E.O. Martin Sullivan, not Joe Cassano, not Al Frost, the guy in A.I.G. F.P.’s Connecticut office in charge of selling his firm’s credit-default-swap services to the big Wall Street firms. The deals, by all accounts, were simply rubber-stamped by Cassano and then again by A.I.G. brass—and, on the theory that this was just more of the same, no one paid them special attention. It’s hard to know what Joe Cassano thought and when he thought it, but the traders inside A.I.G. F.P. are certain that neither Cassano nor the four or five people overseen directly by him, who worked in the unit that made the trades, realized how completely these piles of consumer loans had become, almost exclusively, composed of subprime mortgages.

snip

The A.I.G. F.P. executives present were shocked by how little actual thought or analysis seemed to underpin the subprime-mortgage machine: it was simply a bet that U.S. home prices would never fall.

snip

What no one realized was that it was too late. A.I.G. F.P.’s willingness to assume the vast majority of the risk of all the subprime-mortgage bonds created in 2004 and 2005 had created a machine that depended for its fuel on subprime-mortgage loans. “I’m convinced that our input into the system led to a substantial portion of the increase in housing prices in the U.S. We facilitated a trillion dollars in mortgages,” says one trader. “Just us.” Every firm on Wall Street was making fantastic sums of money from this machine, but for the machine to keep running the Wall Street firms needed someone to take the risk.

snip

What no one realized is that Joe Cassano, in exchange for the privilege of selling credit-default swaps on subprime-mortgage bonds to Goldman Sachs and Merrill Lynch and all the rest, had agreed to change the traditional terms of trade between A.I.G. and Wall Street. In the beginning, A.I.G. F.P. had required its counter-parties simply to accept its AAA credit: it refused to post collateral. But in the case of the subprime-mortgage credit-default swaps, Cassano had agreed to several triggers, including A.I.G.’s losing its AAA credit rating, that would require the firm to post collateral. If the value of the underlying bonds fell, it would fork over cash, so that, for instance, Goldman Sachs would not need to be exposed for more than a day to A.I.G. Worse still, Goldman Sachs assigned the price to the underlying bonds—and thus could effectively demand as much collateral as it wanted. In the summer of 2007, the value of everything fell, but subprime fell fastest of all. The subsequent race by big Wall Street banks to obtain billions in collateral from A.I.G. was an upmarket version of a run on the bank. Goldman Sachs was the first to the door, with shockingly low prices for subprime-mortgage bonds—prices that Cassano wanted to dispute in court, but was prevented by A.I.G. from doing so when he was fired. A.I.G. couldn’t afford to pay Goldman off in March 2008, but that was O.K. The U.S. Treasury, led by the former head of Goldman Sachs, Hank Paulson, agreed to make good on A.I.G.’s gambling debts. One hundred cents on the dollar.

snip

Joe Cassano was the perfect man for these times—as responsible for a series of disastrous trades as a person in a big company can be. He discouraged the dissent of subordinates who understood them better than he did. He acted with the approval of A.I.G., but he also must have known that A.I.G. wasn’t able to evaluate his trades. Once he was persuaded to stop insuring subprime-mortgage bonds, the logical course of action was to reverse the deals he had already done. In 2006 he might have found a way to do this, if he had been willing to accept the costs involved, but he wasn’t. Had he been, the machine he helped to create would have kept running—by then it had a life of its own—and the losses would have simply wound up more concentrated inside the big banks. But he’d have saved his company....

And yet the A.I.G. F.P. traders left behind, much as they despise him personally, refuse to believe Cassano was engaged in any kind of fraud. The problem is that they knew him. And they believe that his crime was not mere legal fraudulence but the deeper kind: a need for subservience in others and an unwillingness to acknowledge his own weaknesses.

For what this is worth-- the insiders claim no fraud, just mismanagement. Surprise. Because if there was fraud, then they would be complicit too.

Obama Admin Has Plans to Make Large Financial Companies Easier to Dis-Assemble

2009-07-08T05:13:00.000-07:00

They are the biggest of the big — the Citigroups, the Goldman Sachses, the AIGs and other financial behemoths. The Obama administration doesn't want so many around anymore.

Financial regulations proposed by the president would result in leaner and simpler institutions that don't carry the weight of the system on their marble columns.

Around Washington and Wall Street they have come to be known as TBTF — too big to fail. It's not just size, though. These companies are so far-flung, so intertwined and so precariously leveraged that a single one's collapse can create systemwide tremors that imperil the finances of millions of Americans.

AIG Bailout Details

2009-07-05T05:21:00.000-07:00

AIG
Bailout: $69,835,000,000 Returned: $0

10.8% of all bailout funds committed.

94.1% of the Insurance Company industry bailout.

Homepage
Profile
SEC Filings
Google Finance

On four separate occasions, the government has offered aid to AIG to keep it from collapsing, rising from an initial $85 billion credit line from the Federal Reserve to what is now a combined $180 billion commitment between the Treasury ($69.84 billion) and Fed ($110 billion). The green number above only reflects Treasury's commitment, since those are taxpayer dollars.

As of June 17, the Treasury and the Fed have lent or invested a total of $122.5 billion in AIG. The Fed has extended $82.5 billion in aid to AIG, according to its June 17, 2009, balance sheet. And though the Treasury has committed up to $69.84 billion, only $40 billion of that has actually been invested.

Via.

While AIG Scammed, Goldman Sachs Scammed Worse

2009-06-28T06:17:00.000-07:00

Matt Taibbi, Rolling Stone Magazine, July 9-23, 2009:

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates.
(snip)

The bank's unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere - high gas prices, rising consumer-credit rates, halfeaten pension funds, mass layoffs, future taxes to payoff hailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense. Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth - pure profit for rich individuals.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch ofreally smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s - and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.

Market Crash-- a Controlled Demolition by Goldman Sachs?

2009-06-27T17:51:00.000-07:00

Max Kaiser:

AIG Now AIU

2009-06-21T18:55:00.000-07:00

A.I.G. is now named A.I.U., and has employed no fewer than four public relations firms, including one whose bipartisan roster of shills ranges from the former Hillary Clinton campaign strategist Mark Penn to the former Bush White House press secretary Dana Perino.

Taxpayers are paying for that P.R., having poured $170 billion-plus into A.I.G. But we still don’t have a transparent, detailed accounting of what was going down last fall when A.I.G. and its trading partners, including Goldman, snared that gargantuan cashtransfusion.

Update on AIU:

NEW YORK, June 24 (Reuters) - AIU Holdings, the property-casualty division of insurer AIG and one of the world's largest commercial insurers, has tapped Robert Schimek to be its first global chief financial officer, a role that includes preparing the company for a stake sale.

AIU Holdings, seeking to distance itself from troubled parent American International Group Inc, is taking steps toward greater independence, including rebranding itself and a sale of up to a 20 percent stake to outside investors through an initial public offering or private deal.

Schimek, in an interview with Reuters this week, said he plans to keep the company unified: "We will not break up AIU Holdings ... We are bringing it together under one roof as part of a worldwide U.S.-based property-casualty insurance company."

Schimek, 44, joined AIG's North American commercial insurance business in 2005 from accounting firm Deloitte & Touche LLP, where he helped prepare several large insurers for IPOs, including No. 1 U.S. life insurer MetLife Inc.

"Rob Schimek's extensive experience ... uniquely qualify him to successfully lead the financial operations of AIU Holdings and advance the organization's separation strategies," Kristian Moor, who was named president of AIU Holdings in March, said in a statement.

AIU Holdings comprises AIG's commercial property-casualty business in North America and its foreign general insurance, as well as a private client group.
AIU Holdings expects to retain its waterfront headquarters in lower Manhattan, and will most likely list its shares in New York.

While AIG posted losses of nearly $100 billion in 2008, AIU Holdings' businesses in North America turned an after-tax net profit of more than $2 billion. The unit received no capital injection from its parent company in 2008 or this year.
"The AIG situation, the U.S. economy, the U.S. credit markets, a real tough U.S. natural catastrophe season -- in the face of all those events, the North American operations still had statutory net income," said Schimek.

As parent company, AIG will receive the proceeds of any stake sale by AIU Holdings -- potentially in the neighborhood of $8 billion if a 20 percent stake is sold. The figure is based on AIU Holdings' $38 billion valuation under U.S. accounting rules at the end of 2008.

AIG could use the proceeds to help repay bailout funds to the U.S. government. The company nearly collapsed last year under rising collateral demands from customers that bought debt protection from AIG's financial products unit. Through a series of bailouts, the government committed up to $180 billion to AIG's rescue, including about $85 billion in loans.

1980's S&L Scandal a CIA Operation-- Is the AIG Scam Also a CIA Job?

2009-06-07T07:11:00.000-07:00

In the book "Defrauding America", Rodney Stich tells how the Savings and Loan crisis of the 1980s-- which was a huge deal at the time-- was essentially a CIA scam. Basically, after Congress cut back on CIA funding in the late '70s, due to Congressional investigations and scandals, the CIA sought out new sources of funds for covert operations. Thus, the CIA took advantage of the recent laws that deregulated thrifts/savings and loans, and essentially set up scams to steal billions of dollars from the government, via S&L CIA fronts and bogus real estate deals. Charles Keating, the biggest name of the scandal, had extensive CIA ties.

While this may seem like ancient history now, doesn't it seem likely that the current financial crisis was a CIA scam-- particularly given ties between AIG and the CIA?

More details on the CIA and the S&L crisis here and here.

Gunther Russbacher, the "former" CIA agent who is the basis for much of this information, has a very bizarre, interesting history (with various contradictory information). See here, here, here. Strikingly, there is nothing on Russbacher or Stich in Wikipedia, despite their importance in the conspiracy world.

Serious Evidence of Fraud

2009-05-29T03:21:00.000-07:00

As evidence of dishonesty, Whalen points to AIG’s occasional habit of using secret agreements to falsify financial statements — either its own or those of other companies. In 2005, a former senior executive at the insurer General Re pleaded guilty to a conspiracy to misstate AIG’s finances, after General Re paid $500m in premiums for AIG to reinsure a nonexistent $500m risk. The transaction was a sham; the only economic benefit to either party was the $5.2m fee paid by AIG for Gen Re’s help.
When the $500m in loss reserves were added to AIG’s balance sheet in 2000 and 2001, Greenberg was able to claim an increase in reserves, when in fact they had declined. “They’ll find ways to cook the books, won’t they?” John Houldsworth, the former executive, said in a recorded phone conversation with Elizabeth Monrad, his chief financial officer. She observed that “these deals are a little bit like morphine; it’s very hard to come off of them”.
(snip)
“The key point that neither the public, the Fed nor the Treasury seems to understand,” says Whalen, “is that the CDS contracts written by AIG were shams, with no correlation between fees paid and the risk assumed. These were not valid contracts but acts to manipulate the capital positions and earnings of financial companies around the world.”

The whole article, by Tim Rayment, is great, and should be read in its entirety.

Insanity

2009-05-28T20:46:00.000-07:00

America has an Office of Risk Assessment, set up in 2004 to co-ordinate risk management for the main regulator, the Securities and Exchange Commission (SEC). Jonathan Sokobin, its director, says it is charged with “understanding how financial markets are changing, to identify potential and existing risks at regulated and unregulated entities”. According to its website, it also helps to “anticipate, identify and manage risks, focusing on early identification of new or resurgent forms of fraud and illegal or questionable activities… across the corporate and financial sector”. By early 2008, this office was reduced to a staff of one. “When that gentleman would go home at night,” says Lynn Turner, the SEC’s former chief accountant, “he could turn the lights out. We had gotten down to just one person at the SEC responsible for identifying the risk at all the institutions.” The $596-trillion market in unregulated derivatives, including $58 trillion in credit-default swaps, was being watched by one person. That’s when he wasn’t looking at the rest of the corporate world, of course.

"Joseph Cassano: the man with the trillion-dollar price on his head"

2009-05-28T05:03:00.000-07:00

Can one man in London really be to blame for the collapse of capitalism?

(snip)

The official version is that Joseph Cassano, who occupies the stucco-fronted house near Harrods, brought down a safe and stable company — and by extension, the world — with incompetent gambles. “You’ve got a company, AIG, which used to be just a regular old insurance company,” Obama explained during a recent TV appearance. “Then they decided — some smart person decided — let’s put a hedge fund on top of the insurance comp-any, and let’s sell these derivative products to banks all around the world.” Ben Bernanke, the chairman of the Federal Reserve, adds: “This was a hedge fund, basically, that was attached to a large and stable insurance company.”

Cassano, who ran AIG’s financial-products division in London, “almost single-handedly is responsible for bringing AIG down and by reference the economy of this country”, says Jackie Speier, a US representative. “They basically took people’s hard-earned money, gambled it and lost everything. And he must be held accountable for the dereliction of his duty, and for the havoc he’s wrought on America. I don’t think the American people will be content, nor will I, until we hear the click of the handcuffs on his wrists.”

This account is as satisfying as it is easy to understand. It treats the blowing up of the world financial system like a global version of Barings, the bank that collapsed in 1995, with Cassano in the role of Nick Leeson. Operating from the fifth floor of a polished white stone building in Mayfair, Cassano’s unit sold billions of pounds of derivatives called credit-default swaps (CDS), allowing banks to buy risky debt without attracting the attention of regulators. AIG took the fees, but did not have the money to pay up if the loans went bad. By the time the music stopped, European banks had protected more than $300 billion of debt with this bogus “insurance”. And that is just one corner of a web of risk extending to over 1,500 big corporations, banks and hedge funds. In a 21-page paper known as the Mutually Assured Destruction memo, AIG claims that if the bailouts stop and the company is allowed to go bust, it will take the world with it. Cassano must have played with handcuffs as a child: he is the son of a Brooklyn cop. Now he waits for the fallout.

But the official version overlooks many things, including episodes of fraud at AIG that go back at least 15 years. It fails to explain why Public Enemy No 1 was allowed to leave the company on generous terms, with a retainer of $1m a month and up to $34m (£23m) in bonuses. And it does nothing to tell us why other big companies, whose profits looked as smooth and certain as AIG’s in the good times, are also fighting for survival.

TIME Magazine Fellates AIG CEO Liddy

2009-05-23T05:28:00.000-07:00

Liddy (made) an appearance to brief Congressmen on AIG's progress. He told them the one thing that accusers cannot stand to hear. Liddy was innocent of any of the charges they made against him, and that was a plain and simple fact. As he said at the time, "Six months ago I came out of retirement to help my country. At the government's request I've had the duty and extraordinary challenge of serving as chairman and chief executive officer of American International Group, or A.I.G."
The way that Liddy has been treated is bound to undermine whatever spirit of voluntarism exists among executives in the private sector who will be called on in the future to help the federal government when it has critical and particular needs.

Liddy should have concluded his March testimony and cross examination in front of the House Financial Services subcommittee by pulling a blank sheet of paper from his brief case, writing his resignation on it, and handing it to chairman Barney Frank. Liddy is too class an act to have done that. He at least waited until AIG has reached a more stable state and left without a word of anger.

Reality from FDL:

Time decides to boost its margins by entering the fiction arena. Douglas McIntyre writes:

Liddy came to the company at a time when it was close to being scuttled by losses from credit derivatives on its balance sheet. He came to work for $1.

Liddy's contract gave him stock in AIG that was never disclosed, and was eligible for a bonus in 2010.

He came to work for $1. He had only been in the job for a few months when AIG posted a loss of more than $61 billion for the last quarter of 2008.

Liddy had only been on the job a few days when he wrote a check to Goldman Sachs for $13 billion as an AIG counterparty, paying full value on credit default swaps for securities worth half that amount, when no default had yet occurred. He did not disclose to Congress that he personally had $3.3 million worth of Goldman stock. Under Liddy's tenure, Goldman stock went from $47 to $137 a share.

He was not involved with a single judgment that forced the company to its knees. He was simply a volunteer who took on an impossible job and was, in return, beaten like a red headed mule by Congress.

Reality detour: I was at the March hearing in question, and wrote at the time, "Edward Liddy comes to a subcommittee hearing to answer questions about AIG bonuses, is sworn in and testifying under oath, he answers questions by every single member of the subcommittee for hours, nobody on the subcommittee asks him how much money we're talking about, and he's not prepared to answer the question when someone finally does." With minor exception, it was a total hand job.

Liddy had committed one unpardonable sin, or at least that was the story that several members of Congress wanted to believe. He had agreed to previously planned bonuses for AIG employees who worked in the part of the company that had created many of the insurance firm's losses.

After refusing to answer Elijah Cummings' questions for months, Cummings asked that he be sworn in, and while under oath, Liddy admitted he'd personally signed 4500-4700 bonus contracts since taking over that had absolutely nothing to do with the Financial Products division.

Liddy was clear in making the point that AIG had a legal obligation to make the payments.

Liddy argued that the government had no right to ask for contracts to be rewritten in exchange for government assistance. Tell it to Chrysler. (Note: Liddy had no problem breaking contracts when he was at Allstate.)

He would have been better off to hold his tongue.

He would have been better off not taking his CEO testimony cues from Jeff Skilling.

The minute he gave an explanation for his actions, no matter how rational it was, his interrogators seized on it as another act of either bad faith or stupidity on his part.

Ed Liddy paid lobbyist Tommy Boggs and Burson Marsteller to shovel bullshit to easily duped people like Doug McIntyre, who ate it up and begged for more.

The members of House Financial Service subcommittee refused to let up on Liddy during the March session when he an appearance to brief Congressmen on AIG's progress. He told them the one thing that accusers cannot stand to hear. Liddy was innocent of any of the charges they made against him, and that was a plain and simple fact.

Here's Elijah Cummings questioning Liddy at that hearing. You decide if that's an adequate description of what happened:

And then there's the gratuitous sex scene:

Liddy should have concluded his March testimony and cross examination in front of the House Financial Services subcommittee by pulling a blank sheet of paper from his brief case, writing his resignation on it, and handing it to chairman Barney Frank.

That still wouldn't have spared him the part where AIG had to issue a press release saying Liddy didn't know what he was talking about during his testimony.

Liddy is too class an act to have done that. He at least waited until AIG has reached a more stable state and left without a word of anger.

AIG will make another round of bonus payments in July and then again in September, which were initiated and signed by Ed Liddy, which the WSJ estimates at $1 billion while Americans continue to shed jobs.

Why would Ed Liddy want to take another rasher of PR shit when he can hang out with guys like Doug McIntyre and Jake DeSantis and cry about the sad predicament of poor rich white bankers? (Update: while, as John Anderson reminds me, Elizabeth Warren gets ambushed by the financial press.)

AIG Screws Chrysler and Taxpayers

2009-05-07T20:21:00.000-07:00

The White House, auto executives and union representatives were all able to come to an agreement last week to keep Chrysler out of bankruptcy. But the car company's creditors -- Wall Street banks and hedge funds -- refused repeated compromises and drove the company under.

The refusal doomed a major American auto company to bankruptcy, but it may have been a smart business move for the lenders.

Many of the Wall Street firms holding Chrysler bonds may also own credit default swaps that they bought to hedge their bets. These swaps, which are essentially like an insurance policy on the bonds should Chrysler default, were likely mostly issued by AIG.

AIG, thanks to the government bailout, has paid off swaps in the past at 100 cents on the dollar. Under the deal they would have had to accept with Chrysler, the bondholders would have received as little as 30 cents on the dollar, for example.

Why take 30 or 35 cents on the dollar from Chrysler when you can get the whole buck from the American taxpayer?

"The basic story is very simple," says economist Dean Baker of the liberal-leaning Center for Economic and Policy Research. "If they hold credit default swaps on the bonds, they're totally happy with them defaulting."

In what would rank as one of the great scams of this financial crisis, government bailouts may be colliding. Wall Street may be raking in taxpayer dollars through AIG and returning the favor by driving the auto industry into bankruptcy.

AIG bonuses four times higher than reported

2009-05-07T20:19:00.000-07:00

The 2008 AIG bonus pool just keeps getting larger and larger.

In a response to detailed questions from Rep. Elijah Cummings (D-Md.), the company has offered a third assessment of exactly how much it paid out in bonuses last year.

And the new number, offered in a document submitted to Cummings on May 1, is the highest figure the company has disclosed to date.

AIG now says it paid out more than $454 million in bonuses to its employees for work performed in 2008.

That is nearly four times more than the company revealed in late March when asked by POLITICO to detail its total bonus payments. At that time, AIG spokesman Nick Ashooh said the firm paid about $120 million in 2008 bonuses to a pool of more than 6,000 employees.

The figure Ashooh offered was, in turn, substantially higher than company CEO Edward Liddy claimed days earlier in testimony before a House Financial Services Subcommittee. Asked how much AIG had paid in 2008 bonuses, Liddy responded: “I think it might have been in the range of $9 million.”

“I was shocked to see that the number has nearly quadrupled this time,” said Cummings. “I simply cannot fathom why this company continues to erode the trust of the public and the U.S. Congress, rather than being forthcoming about these issues from the start.”

AIG Subsidiary Rebrands Itself

2009-05-05T04:12:00.000-07:00

Funny:

"We are pleased to announce our decision to rebrand to a familiar name -- VALIC," begins a brochure titled, "Back to our roots" that was recently distributed to holders of policies with the Variable Life Insurance Company. Um, and guess what slightly more familiar name VALIC has decided to cast off? Yes, that would be everyone's favorite federally-funded money vortex the American International Group.

Possibly, and this is entirely idle speculation on our parts but, the fancy public relations firms the zombie insurer retained are known for running focus groups. Perhaps the feedback concluded that somehow the AIG name was a turnoff to people looking for a place to store their remaining life savings?

AIG Plans To Award Bonuses Even If Taken Over By US???

2009-05-04T13:01:00.000-07:00

Oy:

Even if the U.S. government were to entirely take over American International Group, company executives would still be able to collect bonuses at taxpayer expense, according to a letter from AIG CEO Ed Liddy to employees disclosed in the company's recent SEC report.

"As this special award is being made to a very select group of executives, I ask that you treat it as confidential," wrote Liddy. The letter is dated less than a week after the government first bailed the company out.

The letter assured the select group that "in the event the AIG entity that is your employer (the Company') experiences a Change in Control (e.g., consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the sale or other disposition of all or substantially all of the Company's assets to an entity that is not an affiliate of the Company), AIG guarantees the payment of the 2008 Special Cash Retention award on the dates and under the conditions specified above."

The United States is roughly a 79 percent owner of AIG, having pumped in some 170 billion in taxpayer dollars.

Elsewhere, the SEC filing reports that "AIG is working with the Department of the Treasury and NY Fed to establish a framework for further extending the period for earning retention awards and making them performance-based." (Now there's a crazy idea.)

Some of those in line to get bonuses have family in the right places, according to the filing. The daughter of top executive Edmund Tse, Ada K.H. Tse, is president and CEO of AIG Global Investment Corp. (Asia) Ltd. In 2008, she pocketed $400,000 in "retention awards" and $250,000 in a year-end bonus. She will be "eligible to receive an additional amount that has not yet been approved. Ms. Tse also will be eligible for retention payments in 2009 in the amount of approximately $600,000," reads the report.

Daniel Neuger is the son of another top executive, Win Neuger, and serves as "managing director of AIG Global Investment Corp. and AIG Global Asset Management Holdings Corp." He took in $75,000 in "retention awards" in 2008 and is on track for roughly $110,000 in 2009.

Liddy promised there was more to come. "I fully recognize the devastating loss of personal wealth you've suffered, and pledge to you my personal commitment to provide an opportunity for substantial wealth creation through a combination of cash and equity awards in the coming months and years," he wrote in the letter to employees outlining the bonus policy.

Banksters Control the US Govt

2009-04-30T09:12:00.000-07:00

Perhaps obvious, but worth re-iterating-- Greenwald,:

Sen. Dick Durbin, on a local Chicago radio station this week, blurted out an obvious truth about Congress that, despite being blindingly obvious, is rarely spoken: "And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place." The blunt acknowledgment that the same banks that caused the financial crisis "own" the U.S. Congress -- according to one of that institution's most powerful members -- demonstrates just how extreme this institutional corruption is.

The ownership of the federal government by banks and other large corporations is effectuated in literally countless ways, none more effective than the endless and increasingly sleazy overlap between government and corporate officials.

Special mention of Evan Bayh, for exceptional corruption with regard to banking, though of course there are many others...

"Eating Our Seed Corn"

2009-04-16T19:35:00.000-07:00

A good essay and lots of good comments.

AIG and Covert Operations

2009-04-13T07:01:00.001-07:00

The predecessor of AIG sowed destruction for the PTB:

They weren't just secret agents. They were secret insurance agents. These undercover underwriters gave their World War II spymasters access to a global industry that both bankrolled and, ultimately, helped bring down Adolf Hitler's Third Reich.

Is there any doubt they are still doing similar work?

Make Banks Boring

2009-04-11T05:14:00.000-07:00

Paul Krugman and Simon Johnson agree.

Wall Street Rules the Government

2009-04-06T05:19:00.000-07:00

Simon Johnson's essay in The Atlantic shows how the US is no better than a banana republic.

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests— financiers, in the case of the U.S.— played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies— lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership— had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. (snip)

The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.

The Wall Street–Washington Corridor

Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption— envelopes stuffed with $100 bills— is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital— a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.

One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup’s executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W.Bush. John Snow, Paulson’s predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets.

(snip)

Wall Street is a very seductive place, imbued with an air of power. Its executives truly believe that they control the levers that make the world go round. (snip)

A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspan’s pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: “The management of market risk and credit risk has become increasingly sophisticated. … Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”

Of course, this was mostly an illusion. Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t. AIG’s Financial Products division, for instance, made $2.5 billion in pretax profits in 2005, largely by selling underpriced insurance on complex, poorly understood securities. Often described as “picking up nickels in front of a steamroller,” this strategy is profitable in ordinary years, and catastrophic in bad ones. As of last fall, AIG had outstanding insurance on more than $400 billion in securities. To date, the U.S. government, in an effort to rescue the company, has committed about $180 billion in investments and loans to cover losses that AIG’s sophisticated risk modeling had said were virtually impossible.

(snip)
In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the country— and that the winners in the financial sector knew better what was good for America than did the career civil servants in Washington. Faith in free financial markets grew into conventional wisdom— trumpeted on the editorial pages of The Wall Street Journal and on the floor of Congress.

From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:

• insistence on free movement of capital across borders;

• the repeal of Depression-era regulations separating commercial and investment banking;

• a congressional ban on the regulation of credit-default swaps;

• major increases in the amount of leverage allowed to investment banks;

• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;

• an international agreement to allow banks to measure their own riskiness;

• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.

The mood that accompanied these measures in Washington seemed to swing between nonchalance and outright celebration: finance unleashed, it was thought, would continue to propel the economy to greater heights.

Larry Summers Should Be In Jail-- Not In a Position of Power

2009-04-06T05:10:00.000-07:00

Also Tim Geithner, Alan Greenspan and Robert Rubin should be in jail.

That's $135,000 paid by Goldman Sachs to Summers -- for a one-day visit. And the payment was made at a time -- in April, 2008 -- when everyone assumed that the next President would either be Barack Obama or Hillary Clinton and that Larry Summers would therefore become exactly what he now is: the most influential financial official in the U.S. Government (and the $45,000 Merrill Lynch payment came 8 days after Obama's election). Goldman would not be able to make a one-day $135,000 payment to Summers now that he is Obama's top economics adviser, but doing so a few months beforehand was obviously something about which neither parties felt any compunction. It's basically an advanced bribe. And it's paying off in spades. And none of it seemed to bother Obama in the slightest when he first strongly considered naming Summers as Treasury Secretary and then named him his top economics adviser instead (thereby avoiding the need for Senate confirmation), knowing that Summers would exert great influence in determining who benefited from the government's response to the financial crisis.

Last night, former Reagan-era S&L regulator and current University of Missouri Professor Bill Black was on Bill Moyers' Journal and detailed the magnitude of what he called the on-going massive fraud, the role Tim Geithner played in it before being promoted to Treasury Secretary (where he continues to abet it), and -- most amazingly of all -- the crusade led by Alan Greenspan, former Goldman CEO Robert Rubin (Geithner's mentor) and Larry Summers in the late 1990s to block the efforts of top regulators (especially Brooksley Born, head of the Commodities Futures Trading Commission) to regulate the exact financial derivatives market that became the principal cause of the global financial crisis. To get a sense for how deep and massive is the on-going fraud and the key role played in it by key Obama officials, I highly recommend watching that Black interview (it can be seen here and the transcript is here).

This article from Stanford Magazine -- an absolutely amazing read -- details how Summers, Rubin and Greenspan led the way in blocking any regulatory efforts of the derivatives market whatsoever on the ground that the financial industry and its lobbyists were objecting...

Motherfuckers.

Economist: US collapse driven by 'fraud,' Geithner covering up bank insolvency

2009-04-05T06:40:00.000-07:00

In an explosive interview on PBS' Bill Moyers Journal, William K. Black, a professor of economics and law with the University of Missouri, alleged that American banks and credit agencies conspired to create a system in which so-called "liars loans" could receive AAA ratings and zero oversight, amounting to a massive "fraud" at the epicenter of US finance.

But worse still, said Black, Timothy Geithner, President Barack Obama's Secretary of the Treasury, is currently engaged in a cover-up to keep the truth of America's financial insolvency from its citizens.

The interview, which aired Friday night, is carried on the Bill Moyers Journal Web site.

AIG: Not Just Screwing Tax Payers!

2009-04-05T06:39:00.000-07:00

To hear the folks at AIG describe it, it's in our interest to pay out all this money to their CDS counterparties and keep the bonus money flowing because -- in addition to not destroying the global banking system -- we've got to maintain the value of all the good parts of AIG that we're going to sell off and get our money back.

But there are disturbing reports emerging that outside of AIGFP, where everyone is getting paid out at full dollar value, at the tried and true subsidiaries they're stiffing people they owe money to and letting whole operations basically drive into the ditch.

Here's one example we've unearthed with AIG's real estate unit basically walking away from one of their ill-advised mega-deals for some sixteen thousand residential apartments. It makes this part of AIG look like the corporate equivalent of one of those trashed and abandoned subdivision homes now gone to seed because the owners have walked away from it when they couldn't pay the mortgage.

Whether this is representative of the rest of the company is not at all clear. But it suggests at a minimum that we -- as owners of the company -- need to be asking a lot more questions about just how this behemoth is being run.

Giant Ponzi Scheme

2009-04-03T04:56:00.000-07:00

In fact, our investigation suggests that by the time AIG had entered the CDS fray in a serious way more than five years ago, the firm was already doomed. No longer able to prop up its earnings using reinsurance because of growing scrutiny from state insurance regulators and federal law enforcement agencies, AIG’s foray into CDS was really the grand finale. AIG was a Ponzi scheme plain and simple, yet the Obama Administration still thinks of AIG as a real company that simply took excessive risks. No, to us what the fraud Bernard Madoff is to individual investors, AIG is to the global financial community.

As with the phony reinsurance contracts that AIG and other insurers wrote for decades, when AIG wrote hundreds of billions of dollars in CDS contracts, neither AIG nor the counterparties believed that the CDS would ever be paid. Indeed, one source with personal knowledge of the matter suggests that there may be emails and actual side letters between AIG and its counterparties that could prove conclusively that AIG never intended to pay out on any of its CDS contracts.

The significance of this for the US bailout of AIG is profound. If our surmise is correct, the position of Feb Chairman Ben Bernanke and Treasury Secretary Tim Geithner that the AIG credit default contracts are “valid legal contracts” is ridiculous and reveals a level of ignorance by the Fed and Treasury about the true goings on inside AIG and the reinsurance industry that is truly staggering.

AIG Stiffed Small U.S. Institutions, While Paying Off Foreign Banks in Full

2009-03-28T14:05:00.000-07:00

Rep. Spencer Bachus (R-AL) just raised a new objection to the AIG counterparty payments--specifically that while AIG used government money to pay off their CDS obligations dollar-for-dollar to major (sometimes foreign) financial institutions, it repaid smaller U.S. institutions that made secured loans to AIG subsidiaries at a rate of only about 20 to 30 cents on the dollar.

Video forthcoming, but Geithner had no immediate answer to the query, which, to amateur ears anyhow, sounds like an interesting one.

Did Cassano Shut Out AIG Risk Officers?

2009-03-28T05:44:00.000-07:00

By Zachary Roth - March 27, 2009, 1:38PM

Did AIG's entire risk management team fall down on the job? Or, like the firm's auditors, were they prevented from doing it?

Yesterday we told you about Bob Lewis, AIG's chief risk officer, who still has his job despite a rather obvious failure to ensure that the firm wasn't taking on an unmanageable level of risk.

But it looks like it's not just Lewis. The Wall Street Journal reports that several longtime members of AIG's Credit Risk Committee are also still in place. That committee, says the paper, was in charge of overseeing those disastrous credit default swaps.

At least five of the committee's ten members have served for several years. In addition to Lewis, the chief risk officer, they are:
- Kevin McGinn, chief credit officer and chairman of the committee
- Win Neuger, chief executive of AIG Investments;
- William Dooley, head of AIG's financial-services division, which includes the financial-products unit that sold the credit-default swaps, and...
- Barbara-Ann Livanou, director of financial institutions in the credit-risk-management department.

Lewis and McGinn appear to be the most directly implicated here. It was Lewis' department, of course, that handled the company's "major risks," according to SEC filings looked at by the Journal. (A former AIG exec yesterday confirmed to TPMmuckraker that Lewis' role would have been to avoid letting AIG get into the exact position that brought it down.)

AIG's Chief Risk Officer Still Has A Job!

2009-03-28T05:41:00.000-07:00

It seems safe to say that if your job at AIG was to ensure that the company was managing its credit risks effectively, you failed.

Which is why it's interesting that the man who has had that post since at least 2000, Bob Lewis, still appears to have the job today.

An official list of AIG execs obtained by TPMmuckraker and created after CEO Ed Liddy took over last September shows Lewis as the firm's Chief Risk Officer and an executive vice president.

And a letter that looks to be from an employee of AIGFP's Paris office, obtained by the blog Clusterstock and posted earlier today, asserts:
By the way, the head of Risk Control for the whole of AIG, Bob Lewis, is still working in that role today.

Lewis may be one of the prime culprits of AIG's collapse. According to Robert Arvanitis, a former top AIG exec and a risk expert, what caused the firm's downfall was that, in addition to its credit default swaps, its investment division was heavily exposed to the sub-prime market, just like so many other banks were. When AIG's credit rating was downgraded, the Financial Products unit was forced to post more collateral to its counter-parties. But the investment division was unable to provide AIGFP with collateral in the amounts needed, because of its own sub-prime losses. It would have been Lewis' job, said Arvanitis, to have a global view of the company's risk exposure, and make sure it didn't get into that position.

Lewis himself would seem to agree. As Clusterstock notes, back in 2000 he told one trade magazine: "The CCO's ultimate responsibility is to see that credit risks are managed appropriately throughout the worldwide organization."

"Based on the results, I'd say he missed it by a wide mark," Arvanitis told TPMmuckraker, in what seems like an understatement.

"Did AIG explicitly lie about its bonuses?"

2009-03-28T05:36:00.000-07:00

Greenwald:

One of the bizarre aspects of Secretary Geithner's claims not to have known about AIG bonuses until recently is that these bonuses have been the subject of intense controversy for months. Numerous members of Congress, such as Rep. Elijah Cummings, have been pressuring AIG since at least November, in the form of numerous letters, for details on AIG's retention bonus plan (more on that in a minute).
But this December 11, 2008 article -- from CBS News -- contains what seems to be a rather significant statement from AIG about its bonus plan:

Insurance giant AIG was given $152 billion in bailout money by the federal government since nearly collapsing in September. Now the company is planning to take millions of that money and hand it over to employees in a program that sounds a lot like bonuses. . . .

But so far, no one's stopping AIG from paying millions to some employees in its new retention program. The company has told 168 employees they'll receive between $92,500 and $4 million per individual if they stay with the company for one year. . . .

Nicholas Ashooh, AIG's senior vice president of communication, acknowledges that the perception of his company has taken a hit.

"Oh, it's terrible, it's terrible," he told CBS News.

Ashooh said the retention program does not include anyone in the firm's financial products business, the tiny arm of the company that torpedoed AIG with its high-risk, bad loans.

That AIG was scheduled to make millions of dollars in bonus payments has been public knowledge for many months -- since well before Geithner pressured Chris Dodd to insert an exception into executive compensation limits for already-existing employment contracts. But what is so notable here is AIG's express denial that "the retention program does not include anyone in the firm's financial products business," given what we now know is the truth:

[AIG's CEO Edward] Liddy gave skeptical committee members what amounted to a tutorial in the practice of paying retention bonuses -- he did not call them that -- to executives.

He said the money was offered to executives in AIG's financial products section, where risky investments finally became the entire company's undoing.

And:

Retention pay was thrust into the executive-compensation debate with the disclosure by AIG that it paid $165 million to employees of its financial products division.

The unit made disastrous bets on securities known as credit-default swaps that ultimately led to billions in losses and necessitated a government bailout costing $170 billion to keep a failure of the company from bringing down the global financial system.

Assuming the CBS News story reported the comments of AIG's spokesperson accurately, this seems to be a rather flagrant case of AIG outright lying about what its retention bonus plan entailed.

"The sanctity of AIG's contracts"

2009-03-28T05:32:00.000-07:00

Apparently, the supreme sanctity of employment contracts applies only to some types of employees but not others. Either way, the Obama administration’s claim that nothing could be done about the AIG bonuses because AIG has solid, sacred contractual commitments to pay them is, for so many reasons, absurd on its face.

As any lawyer knows, there are few things more common – or easier -- than finding legal arguments that call into question the meaning and validity of contracts. Every day, commercial courts are filled with litigations between parties to seemingly clear-cut agreements. Particularly in circumstances as extreme as these, there are a litany of arguments and legal strategies that any lawyer would immediately recognize to bestow AIG with leverage either to be able to avoid these sleazy payments or force substantial concessions.

Since the contracts are secret and we’re apparently just supposed to rely on the claims of AIG and Treasury Department lawyers, it’s impossible to identify these arguments specifically. But there are almost certainly viable claims to be asserted that the contracts were induced via fraud or that the bonus-demanding executives themselves violated their contracts. Independently, it’s inconceivable that there aren’t substantial counterclaims that AIG could assert against any executives suing to obtain these bonuses, a threat which, by itself, provides substantial leverage to compel meaningful concessions. Many of these executives were, after all, the very ones responsible for the cataclysmic losses.

The only way a company like AIG throws up its hands from the start and announces that there is simply nothing to be done is if they are eager to make these payments. One might expect AIG to do so -- they haven't exactly proven themselves to be paragons of business ethics -- but the fact that Obama officials are also insisting that nothing can be done (even while symbolically and pointlessly pretending to join in the populist outrage over these publicly-funded "retention payments") is what is most notable here.

AIG-FP Employee Letter to NYTimes

2009-03-28T05:30:00.000-07:00

NYTimes Op-Ed:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.
After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials.

Oh the outrage-- that they are being unfairly persecuted. And I'm this guy was oh so innocent-- just a hard working trader screwed over by unscrupulous colleagues (riiight). But "dismantling the company"? Is that what he means? Though clearly they helped to dismantle the economy!

Further-- a good rant from Matt Taibbi on this same letter--

Like a lot of people, I read Wednesday's New York Times editorial by former AIG Financial Products employee Jake DeSantis, whose resignation letter basically asks us all to reconsider our anger toward the poor overworked employees of his unit.

DeSantis has a few major points. They include: 1) I had nothing to do with my boss Joe Cassano's toxic credit default swaps portfolio, and only a handful of people in our unit did; 2) I didn't even know anything about them; 3) I could have left AIG for a better job several times last year; 4) but I didn't, staying out of a sense of duty to my poor, beleaguered firm, only to find out in the end that; 5) I would be betrayed by AIG senior management, who promised we would be rewarded for staying, but then went back on their word when they folded in highly cowardly fashion in the face of an angry and stupid populist mob.

I have a few responses to those points. They are 1) Bullshit; 2) bullshit; 3) bullshit, plus of course; 4) bullshit. Lastly, there is 5) Boo-Fucking-Hoo. You dog.

AIGFP only had 377 employees. Those 400-odd folks received almost $3.5 billion in compensation in the last seven years, a very large part of that money coming from the sale of credit default protection. Doing the math, that averages out to over $9 million of compensation per person.

Ask yourself this question: If your company made that much money, and the boss of the unit made almost $280 million in just a few years, exactly how likely is it that you wouldn't know where that money was coming from?

Are we supposed to believe that Jake DeSantis knew nothing about Joe Cassano's CDS deals? If your boss and the top guys in your firm were all making a killing selling anything at all -- whether it was rubber kayaks, generic Levitra or credit default swaps -- you really wouldn't bother to find out what that thing they were selling was? You'd really just mind your own business, sit at your cubicle and put your faith in the guys up top to fill you in if there was something you needed to know?

Is the AIG Financial Products Head a Secret Communist?

2009-03-28T05:29:00.000-07:00

Hmmm-- this might explain some things.

AIG Bonuses: $33.6 Million for 52 People Who Have Left the Company

2009-03-28T05:27:00.000-07:00

You just can't make this stuff up (note the 33).

And....a mystery mole fought to keep the bonuses in the stimulus bill--

Who in the Obama Administration pushed to weaken a key anti-bonus provision in the stimulus bill last month? Sen. Chris Dodd, who wrote the provision -- and ultimately agreed to defang it -- isn't saying.

More outrage--

Goldman Sachs and a parade of major European banks, including Deutsche Bank , France's Societe Generale and the UK's Barclays , were major beneficiaries of more than $90 billion (64 billion pounds) of money paid out by AIG in the first three-and-a-half months after its bailout by the U.S. government last September.

The disclosure by AIG on Sunday is likely to trigger further criticism of why Goldman, with its many government links, and the European banks were funnelled such huge sums of U.S. taxpayer money after making bad bets on various securities, as well as strengthening the case of those who believe the whole bailout was botched.

And definitely-- Geithner needs to go (Treasury knew about AIG bonuses earlier than Geithner claims).

AIG Bonus Outrage

2009-03-28T05:26:00.000-07:00

Holy mother-fucking evil assholes:

Despite being bailed out with more than $170 billion from the Treasury and Federal Reserve, the American International Group is preparing to pay about $100 million in bonuses to executives in the same business unit that brought the company to the brink of collapse last year.

In case you are not outraged enough-- here's the story of how Summers and Geithner tried so very hard to limit the bonuses.

More on AIG in London

2009-03-28T05:24:00.000-07:00

AIG trail leads to London 'casino'

Since 1987 the American financier Joseph Cassano has divided his time between London and Connecticut, where AIG, the world’s largest insurance company, runs a subsidiary called AIG Financial Products.

For most of those 21 years life has been good for the bespectacled, intellectual-looking Cassano.

The Wall Street veteran rose to run his part of the insurer, AIG Financial Products. When in London he commuted from a company flat behind Harrods to his unit’s office at 1 Curzon Street in Mayfair’s hedge fund alley.

Cassano’s pay over the past eight years, according to US Congressional records, totalled $280m (£162m).

Then at the end of 2007 Cassano’s fortunes changed. The company’s accountants changed the basis on which they valued much of the collateral held by its units. Some half a trillion dollars worth of credit default swaps written by AIG Financial Products were marked down.

Credit default swaps, or CDSs, are quasi-insurance products bought by investors seeking protection against defaults on mortgage-backed securities and other credits.

In contrast to the remarkable profits it had tallied until 2007, the AIG subsidiary headed by Cassano began to report quarterly losses. The unit went from being star performer to vortex of a gathering nightmare.

On April 1 Cassano was nudged into retirement. In keeping with the bubble-time executive compensation practises established in the City and on Wall Street, however, the blow was softened. Cassano was allowed to continue using the company flat behind Harrods. He was given a consultancy and, according to former AIG chief executive Martin Sullivan, testifying to the US Congress, helped AIG unwind the rapidly devaluing CDSs held by AIG Financial Products. Cassano’s pay for this work was $1m a month for nine months.

(snip)

On September 16 the American insurer suffered a liquidity crisis following the downgrade of its credit rating. AIG had to beg the Federal Reserve Bank for an $85bn credit facility in return for giving up 80 per cent of its equity to the US government. This poured fuel on the fire ignited by the bankruptcy of Wall Street investment bank Lehman Brothers a day earlier.

A Sunday Telegraph investigation has determined, however, that there is a row brewing between the scores of regulators responsible for AIG’s activities in 130 countries. In the forefront of this row stands Britain’s financial regulator, the Financial Services Authority.

The operations of Cassano and his colleagues at 1 Curzon Street are attracting the attention of government officials in Washington, New York and Paris as well as London. Bumbling by the FSA, according to regulators in other countries, may have played an instrumental role in sparking the credit crunch that brought the global financial system to the brink of collapse.

This is already making political waves. Distancing himself and his government from the bad news, the Prime Minister Gordon Brown has repeatedly contended the financial crisis was made in the USA – where poor Americans in Rust Belt cities like Cleveland and Detroit fell behind on mortgage payments.

The reality has always been more complex. A financial chain links American sub-prime mortgages to the packagers and sellers of those mortgages in the City, as well as on Wall Street.

Now the role of AIG’s London office, and the FSA in overseeing what went on inside it may change all that.

(snip)

“We need an inquiry to establish what happened with the FSA’s regulation of AIG’s London operation,” Cable said.

Since AIG’s collapse in September, insurance regulators in various jurisdictions have played pass the parcel, each regulator seeking to distance itself from the CDS firm’s London business, according to politicians in Washington, such as the US Congress’s Waxman, as well as here.

The spectacle is reminiscent of the regulatory response to the collapse in the early 1990s of BCCI, a bank with operations in London, Luxembourg and the Middle East. BCCI regulators in its multiple jurisdictions, including London, dodged responsibility for not spotting BCCI’s $10bn fraud by blaming each other.

On Friday, Adair Turner, the FSA’s chairman, declined to answer questions about AIG’s London operation.

Meanwhile, people close to the City regulator explained that AIG Financial Products, the unit responsible for the insurer’s failure, fell outside its jurisdiction.

Under FSA rules, these people said, AIG Financial Products was deemed an “internal treasury operation” and, like the internal treasury operations of other companies, was not regulated.

But the FSA does have regulatory oversight responsibility for a number of AIG units in London, including a company called AIG FP Capital Management registered at 1 Curzon Street.

People close to the FSA said AIG FP Capital Management is a separate company from AIG Financial Products and is not involved in the business of creating credit default swaps.

There is little doubt, nevertheless, that US lawmakers consider London an epicentre of the AIG Financial Products disaster. During the hearing into the causes and effects of the AIG bail-out on October 7, the US House of Representatives Oversight Committee, led by Congressman Waxman, politicians pmentioned [sic] London a dozen times. California Congresswoman Jackie Speier referred to AIG’s Mayfair business as “the casino in London”.

Testimonies by former AIG chief executives Martin Sullivan and Robert Willumstad, along with a New York Times article on September 28, sketch the story of the AIG Financial Products unit in London.

It was originally staffed by executives, including Cassano, from defunct Wall Street investment bank Drexel Burnham Lambert. Drexel’s legendary junk bond king, Michael Milken, was investigated for insider trading in the 1980s and pleaded guilty to six charges.

(snip)

In contrast to standard practice, however, AIG Financial Products did not hedge its exposure to a possible fall in the CDS market. In a footnote to AIG’s 2007 accounts spotted by Forbes magazine, the company declared: “In most cases AIGFP does not hedge its exposures to credit default swaps it has written.”

Last November, when AIG’s accountants asked the insurer to change the way it valued CDS’s, the comparatively small base of capital on which AIG Financial Products had built a mountain of business became visible. This began the unravelling that led to AIG’s central role in sparking the global financial crisis.

To date, no British authorities have said anything about AIG. In the US, in contrast, there are multiple investigations. In addition to the October 7 Congressional hearing into AIG, the insurer’s London business is now under scrutiny by the Office of Thrift Supervision in Washington and the New York State Department of Insurance in Manhattan.

Last week New York State Attorney General Andrew Cuomo sent a letter to AIG informing the company it was under investigation for “irresponsible and damaging” expenditures, among other things, for executive compensation packages that were not cut even as AIG drew down on the Federal Reserve’s $85bn credit facility to keep itself afloat.

Although the FSA will not comment on AIG Financial Products, there are indications from America that it is belatedly looking into the unit’s operations.

“There have been meetings and conversations” between Washington’s Office of Thrift Supervision and the FSA,” said Janet French, a spokeswoman for the Washington agency.

A person close to the New York State Department of Insurance said: “You can be certain there have been talks with the FSA.”

I did a little bit of reading on the FSA. They seem innocuous enough-- seemingly civic-minded government regulators. But I suspect they are like the US FEC-- overworked, understaffed, and likely subject to political pressure over which companies to investigate and which to avoid. Plus there is this legal gray area of jurisdiction that sleazy international companies take advantage of that made the situation worse.

The AIG Scam

2009-03-28T05:22:00.000-07:00

Someone really needs to fucking go to jail.

Perhaps the most intriguing info is how the worst of the scamming was run out of LONDON:

To be sure, most of A.I.G. operated the way it always had, like a normal, regulated insurance company. (Its insurance divisions remain profitable today.) But one division, its “financial practices” unit in London, was filled with go-go financial wizards who devised new and clever ways of taking advantage of Wall Street’s insatiable appetite for mortgage-backed securities. Unlike many of the Wall Street investment banks, A.I.G. didn’t specialize in pooling subprime mortgages into securities. Instead, it sold credit-default swaps.

The article notes how integrally AIG was intertwined with the world-wide banking system, particularly in Europe. So some criminals in London basically ruined the world-wide financial system.

10.8%	of all bailout funds committed.
94.1%	of the Insurance Company industry bailout.