Guest Post: Mother of All Stealth Scams?

Submitted by Leo Kolivakis, publisher of Pension Pulse.


Earlier this week, Michael Hudson wrote an excellent comment in counterpunch, The Real AIG Conspiracy:

It may seem odd, but the public outrage against $135 million in AIG bonuses is a godsend to Wall Street, AIG scoundrels included. How can the media be so preoccupied with the discovery that there is self-serving greed to be found in the financial sector? Every TV channel and every newspaper in the country, from right to left, have made these bonuses the lead story over the past two days.

What is wrong with this picture? Is there not something over-inflated about the outrage led most vociferously by Senator Charles Schumer and Rep. Barney Frank, the two leading shills for the bank giveaways over the past year? And does Pres. Obama perhaps find it convenient that finally, at long last, he has been able to criticize something that he believes Wall Street has done wrong?

Even the Wall Street Journal has gotten into the act. The government’s takeover of AIG, it pointed out, “uses the firm as a conduit to bail out other institutions.” So much more greed is involved than just that of AIG employees. The firm owed much more to other players – abroad as well as on Wall Street – than the assets it had. That is what drove it to insolvency. And popular opposition has been rising to how Obama and McCain could have banded together to support the bailout that, in retrospect, amounts to trillions and trillions of dollars thrown down the drain. Not really down the drain at all, of course – but given to financial speculators on the winning “smart” side of AIG’s bad financial gambles.

“The Washington crowd wants to focus on bonuses because it aims public anger on private actors,” the Journal accused in a March 17 editorial. But instead of explaining that the shift is away from Wall Street grabbers of a thousand times the amount of bonuses being contested, it blames its usual all-purpose bete noire: Congress. Where the right and left differ is just whom the public should be directing its anger at!

Here’s the problem with all the hoopla over the $135 million in AIG bonuses: This sum is only less than 0.1 per cent – one thousandth – of the $183 BILLION that the U.S. Treasury gave to AIG as a “pass-through” to its counterparties. This sum, over a thousand times the magnitude of the bonuses on which public attention is conveniently being focused by Wall Street promoters, did not stay with AIG. For over six months, the public media and Congressmen have been trying to find out just where this money DID go. Bloomberg brought a lawsuit to find out. Only to be met with a wall of silence.

Until finally, on Sunday night, March 15, the government finally released the details. They were indeed highly embarrassing. The largest recipient turned out to be just what earlier financial reports had rumored: Paulson’s own firm, Goldman Sachs, headed the list. It was owed $13 billion in counterparty claims. Here’s the picture that’s emerging. Last September, Treasury Secretary Paulson, from Goldman Sachs, drew up a terse 3-page memo outlining his bailout proposal. The plan specified that whatever he and other Treasury officials did (thus including his subordinates, also from Goldman Sachs), could not be challenged legally or undone, much less prosecuted. This condition enraged Congress, which rejected the bailout in its first incarnation.

It now looks as if Paulson had good reason to put in a fatal legal clause blocking any clawback of funds given by the Treasury to AIG’s counterparties. This is where public outrage should be focused.

Instead, the leading Congressional shepherds of the bailout legislation – along with Obama, who came out in his final, Friday night presidential debate with McCain strongly in favor of the bailout in Paulson’s awful “short” version – have been highlighting the AIG executives receiving bonuses, not the company’s counterparties.

There are two questions that one always must ask when a political operation is being launched. First, qui bonowho benefits? And second, why now? In my experience, timing almost always is the key to figuring out the dynamics at work.

Regarding qui bono, what does Sen. Schumer, Rep. Frank, Pres. Obama and other Wall Street sponsors gain from this public outcry? For starters, it depicts them as hard taskmasters of the banking and financial sector, not its lobbyists scurrying to execute one giveaway after another. So the AIG kerfuffle has muddied the water about where their political loyalties really lie. It enables them to strike a misleading pose – and hence to pose as “honest brokers” next time they dishonestly give away the next few trillion dollars to their major sponsors and campaign contributors.

Regarding the timing, I think I have answered that above. The uproar about AIG bonuses has effectively distracted attention from the AIG counterparties who received the $183 billion in Treasury giveaways. The “final” sum to be given to its counterparties has been rumored to be $250 billion, do Sen. Schumer, Rep. Frank and Pres. Obama still have a lot more work to do for Wall Street in the coming year or so.

To succeed in this work – while mitigating the public outrage already rising against the bad bailouts – they need to strike precisely the pose that they’re striking now. It is an exercise in deception.

The moral should be: The larger the crocodile tears shed over giving bonuses to AIG individuals (who seem to be largely on the healthy, bona fide insurance side of AIG’s business, not its hedge-fund Ponzi-scheme racket), the more they will distract public attention from the $180 billion giveaway, and the better they can position themselves to give away yet more government money (Treasury bonds and Federal Reserve deposits) to their favorite financial charities.

Let’s go after the REAL money given to AIG – the $183 billion! I realize that this has already been paid out, and we can’t get it back from the counterparties who knew that Alan Greenspan and George Bush and Hank Paulson were steering the U.S. economy off a real estate cliff, a derivatives cliff and a balance-of-payments cliff all wrapped up into one by betting against collateralized debt obligations (CDOs) and insuring these casino bets with AIG. That money has been siphoned off from the Treasury fair and square, by putting their own proxies in the key government slots, the better to serve them.

So let’s go after them altogether. Sen. Schumer said to the AIG bonus recipients that the I.R.S. can go after them and get the money back one way or another. And it can indeed go after the $183-billion bailout recipients. All it has to do is re-instate the estate tax and raise the marginal income and wealth-tax rates to the (already reduced) Clinton-era levels.

The money can be recovered. And that’s just what Mr. Schumer, Mr. Frank and others don’t want to see the public discussing. That’s why they’ve diverted attention onto this trivia. It’s the time-honored way to get people not to talk about the big picture and what’s really important.

In response to the above article, Paul Craig Roberts asks, Was the Bailout Itself a Scam?:

Professor Michael Hudson (CounterPunch, March 18) is correct that the orchestrated outrage over the $165 million AIG bonuses is a diversion from the thousand times greater theft from taxpayers of the approximately $200 billion “bailout” of AIG. Nevertheless, it is a diversion that serves an important purpose. It has taught an inattentive American public that the elites run the government in their own private interests.

Americans are angry that AIG executives are paying themselves millions of dollars in bonuses after having cost the taxpayers an exorbitant sum. Senator Charles Grassley put a proper face on the anger when he suggested that the AIG executives “follow the Japanese example and resign or go commit suicide.”

Yet, Obama’s White House economist, Larry Summers, on whose watch as Treasury Secretary in the Clinton administration financial deregulation got out of control, invoked the “sanctity of contracts” in defense of the AIG bonuses.

But the Obama administration does not regard other contracts as sacred. Specifically: labor unions had to agree to give-backs in order for the auto companies to obtain federal help; CNN reports that “Veterans Affairs Secretary Eric Shinseki confirmed Tuesday [March 10] that the Obama administration is considering a controversial plan to make veterans pay for treatment of service-related injuries with private insurance”; the Washington Post reports that the Obama team has set its sights on downsizing Social Security and Medicare.

According to the Post, Obama said that “it is impossible to separate the country’s financial ills from the long-term need to rein in health-care costs, stabilize Social Security and prevent the Medicare program from bankrupting the government.”

After Washington’s trillion dollar bank bailouts and trillion dollar gratuitous wars for the sake of the military industry’s profits and Israeli territorial expansion, there is no money for Social Security and Medicare.

The US government breaks its contracts with US citizens on a daily basis, but AIG’s bonus contracts are sacrosanct. The Social Security contract was broken when the government decided to tax 85% of the benefits. It was broken again when the Clinton administration rigged the inflation measure in order to beat retirees out of their cost-of-living adjustments. To have any real Medicare coverage, a person has to give up part of his Social Security check to pay Medicare Part B premium and then take out a private supplemental policy. The true cost of Medicare to beneficiaries is about $6,000 annually in premiums, plus deductibles and the Medicare tax if the person is still earning.

Treasury Secretary Geithner, the fox in charge of the hen house, has resolved the problem for us. He is going to withhold $165 million (the amount of the AIG bonuses) from the next taxpayer payment to AIG of $30,000 million. If someone handed you $30,000 dollars, would you mind if they held back $165?

PR flaks have rechristened the bonus payments “retention payments” necessary if AIG is to retain crucial employees. This lie was shot down by New York Attorney General Andrew Cuomo, who informed the House Committee on Financial Services that the payments went to members of AIG’s Financial Products subsidiary, “the unit of AIG that was principally responsible for the firm’s meltdown.” As for retention, Cuomo pointed out that ”numerous individuals who received large ‘retention’ bonuses are no longer at the firm” .

Eliot Spitzer, the former New York Governor who was set-up in a sex scandal to prevent him investigating Wall Street’s financial gangsterism, pointed out on March 17 that the real scandal is the billions of taxpayer dollars paid to the counterparties of AIG’s financial deals. These payments, Spitzer writes, are “a way to hide an enormous second round of cash to the same group that had received TARP money already.”

Goldman Sachs, for example, had already received a taxpayer cash infusion of $25 billion and was sitting on more than $100 billion in cash when the Wall Street firm received another $13 billion via the AIG bailout.

Moreover, in my opinion, most of the billions of dollars in AIG counter-party payments were unnecessary. They represent gravy paid to firms that had made risk-free bets, the non-payment of which constituted no threat to financial solvency.

Spitzer identifies a conflict of interest that could possibly be criminal self-dealing. According to reports, the AIG bailout decision involved Bush Treasury Secretary Henry Paulson, formerly of Goldman Sachs, Goldman Sachs CEO Lloyd Blankfein, Fed Chairman Ben Bernanke, and Timothy Geithner, former New York Federal Reserve president and currently Secretary of the Treasury. No doubt the incestuous relationships are the reason the original bailout deal had no oversight or transparency.

The Bush/Obama bailouts require serious investigation. Were these bailouts necessary, or were they a scam, like “weapons of mass destruction,” used to advance a private agenda behind a wall of fear? Recently I heard Harvard Law professor Elizabeth Warren, a member of a congressional bailout oversight panel, say on NPR that the US has far too many banks. Out of the financial crisis, she said, should come consolidation with the financial sector consisting of a few mega-banks. Was the whole point of the bailout to supply taxpayer money for a program of financial concentration?

I am not sure about the final argument Mr. Roberts is trying to make. In Canada, we have six major banks and we did not see anywhere near the shenanigans that we saw down south. The banks do get criticized for keeping their fees high, but they are better regulated here than in the United States and their leverage ratios never reached dangerous levels.

Mr. Roberts is correct that the bailouts benefited AIG’s counterparties, especially Goldman Sachs. Let’s not forget that Hank Paulson, the former Treasury Secretary, was also the chairman and CEO of Goldman Sachs before landing the top economic post in the Bush administration.

But the Mother of all scams happened way before AIG, GM, Citigroup and others received bailout funds. That’s right, now that the alternative investment bubble has popped, the end of the great pension con job has exposed the pension Ponzi scheme that dwarfs the Madoff scam.

For years, Goldman Sachs and other investment banks, hedge funds, private equity funds and real estate funds received billions in fees from pension funds chasing “alpha”. The marketing ploys were sophisticated as they kept touting “absolute returns that are not correlated to stocks and bonds”.

The investment banks and private funds made a killing in fees but the for the most part, pensions got suckered into believing the garbage pension consultants were feeding them, exposing them to some serious downside risk. And don’t kid yourself, the collective actions of pensions funds shoving billions of dollars into alternative investments contributed to this systemic crisis we are now living.

So why did senior pension fund managers allocate so aggressively into alternative investments? One big reason, which I have repeatedly stated in this blog is that they could muck around with the benchmarks in these investments, allowing them to reap huge bonuses based on bogus benchmarks.

As if this wasn’t bad enough, late this week we learned that big-name private equity and hedge funds are at the center of criminal charges filed against associates of former New York Comptroller Alan Hevesi, although none of those firms is charged with wrongdoing in the current indictment:

Named in the complaint are, among others, private equity giant Carlyle Group, a hedge fund and a private equity fund run by Art Samberg’s Pequot Capital Management, the HFV multi-strategy (subscription required)

One of those associates to Mr. Hevesi, a political consultant called Hank Morris, was arrested this week on charges of kickbacks:

First the background: We already knew that certain investment companies looking to do business placing funds for the state pension system paid scads of money in fees to firms connected to political consultant Hank Morris.

Morris’ political consulting clients have included U.S. Sen. Charles Schumer and, at one time, Tom DiNapoli, who subsequently became comptroller.

But Morris’ closest political tie was to Comptroller Alan Hevesi, the Democrat ousted from statewide office for misusing state resources, to which he pleaded to avoid jail time. The state comptroller is the sole trustee of the state pension funds.

And the news: Morris, escorted after his arrest, who was never on the official state payroll, was indicted in a case brought by Attorney General Andrew Cuomo and tens of millions of dollars in those fees now officially have been called kickbacks.

Morris, 55, faces a 123-count grand jury indictment. He was arraigned in State Supreme Court, Manhattan, where he pleaded not guilty and was released on the condition he’d post $1 million bail.

In addition, Morris has a co-defendant: David Loglisci, who was the top investment officer of the pension fund, charged with official misconduct, falsifying records and fraud. He’s out on $350,000 bail.

Nobody is surprised. After nearly two years of suspense and speculation, the charges are public and the matter is in court. Cuomo indicates that there is more to come.

Morris has deep Long Island ties. He was raised in Westbury and worked on campaigns for former Suffolk County Executive Patrick Halpin, Long Island Power Authority Chairman Richard Kessel, and Bruce Nyman, now an aide to Nassau County Executive Tom Suozzi.

In 2001, Morris advised DiNapoli, then a state assemblyman from Great Neck, in his failed primary for county executive against Suozzi.

According to the Times of London, the kickback deals included the Carlyle Group:

Two men allegedly pocketed $30 million in kickbacks for steering investments by the $122 billion New York state pension fund to managers including Carlyle Group, one of the world’s biggest private equity firms.

David Loglisci, former chief investment officer to the pension fund, and Henry Morris, a so-called fund-finder, were charged with 123 criminal counts including bribery, money laundering, grand larceny and securities fraud.

The Securities and Exchange Commission (SEC) brought a parallel series of civil complaints alleging securities fraud against the men, who have pled not guilty to all charges against them.

Other senior State officials are expected to face charges over their involved in the scam.

The arrests were the culmination of a two-year joint investigation by the SEC and Andrew Cuomo, the New York Attorney General who is winning plaudits for his determination to expose fraud on Wall Street.

“Over one million New Yorkers and their families who are the beneficiaries of this fund deserve to have their hard-earned retirement accounts kept free from politically-driven investments and personal agendas,” Mr Cuomo said yesterday.

“Mixing politics, self-dealing, kickbacks and billions in taxpayer funds is nothing short of the perfect public integrity storm.”

If convicted, Mr Morris faces 340 years in prison and Mr Loglisci 193 years.

Allegations in the colourful case include Mr Loglisci’s use of the giant pension fund’s power to induce a private equity boss to invest $100,000 in a low budget film called Chooch produced by Mr Loglisci’s brother. Another private equity investor was allegedly induced to arrange a contract to distribute a DVD of the movie.

Meanwhile, Mr Morris is accused of paying thousands of dollars in rent for a luxury Manhattan apartment inhabited by a girlfriend of an unnamed official close to the pension fund.

Between 2004 and 2007 Mr Logisci, a former banker, was chief investment officer at the office of State Comptroller Alan Hevesi’s office. Mr Hevesi was the sole administrator of the state’s pension fund, which is the third biggest in the country. Between 2003 and 2006, investment houses including Carlyle innocently paid Mr Morris and his companies to find investors keen to entrust money to their funds.

Mr Morris pretended that he was attracting the New York State pension fund to these funds, charging the investment specialists millions of dollars in “placement fees”.

Mr Cuomo said that Carlyle alone paid Mr Morris more than $13 million in return for attracting $730 million in investments from the pension fund.

The Attorney General alleges that Mr Morris paid off Mr Loglisci and other high-level Government officials with thousands of dollars worth of gifts and favours in return for steering the State pension fund to investors that secured his fund-finding services.

More than 20 investments made by the fund were corrupted by their actions, Mr Cuomo said.

Mr Morris’s attorney said that the fund made at least hundreds of billions of dollars from the investments introduced to it by Mr Morris. “There was no fraud and no corruption,” William Schwartz, the fund-finder’s attorney said.

Mr Hevesi resigned in 2007 after pleading guilty in a separate case to charges that he misused state drivers to chauffeur his ill wife.

Caryle said that it had fully co-operated with Mr Cuomo’s investigation, of which it was not a target.

I have already written about organized crime infiltrating public pension funds and about preventing fraud at public pension funds.

Let me be crystal clear so that the FBI, RCMP and all other police bodies finally wake up and smell the coffee. This case is not an exception. There are more scams going on at public pension funds involving kickbacks from private funds to pension officers and to pension consultants.

Last month, the FBI arrested men linked to $339 million of frozen Iowa pension money:

Two investment managers linked to $339 million in frozen assets of the Iowa Public Employees’ Retirement System were arrested today by the FBI on securities fraud charges, federal authorities said.

Paul Greenwood, 61, of North Salem, N.Y., and Stephen Walsh, 64, of Sands Point, N.Y., were taken into custody and were expected to appear in Manhattan Federal Court this afternoon. Court papers identified Greenwood and Walsh as the owners of Greenwich, Conn.-based WG Trading Co. LP and Westridge Capital Management Inc., based in Santa Barbara, Calif.

Donna Mueller, IPERS’s chief executive officer, issued a statement today saying she was encouraged by the arrests.

“This is an indication that regulators moved quickly to address suspicions and are acting on our behalf,” Mueller said.

The arrests come days after the Iowa Public Employees’ Retirement System reported that $339 million in Iowa pension funds have been frozen following the suspension of Greenwood and Walsh’s trading privileges by the National Futures Association, which had been attempting to audit WG Trading.

The Iowa pension fund has terminated its contract with Westridge Capital Management and is seeking a return of its assets. Westridge had completed transactions through WG Trading

From at least 1996 through February 2009, Greenwood and Walsh ran a fraudulent commodities trading and investment advisory scheme using WG Trading Company, said Lev Dassin, acting U.S. attorney for the Southern District of New York. They promised to invest the money in a program called “enhanced stock indexing,” which they said was a conservative trading strategy that had outperformed the results of the S&P 500 Index for more than 10 years.

Several institutional investors, including charitable and university foundations, retirement and pension plans – invested more than $668 million through WG Trading Investors, receiving in exchange promissory notes that the defendants claimed would pay interest at a rate equal to the investment returns earned by the enhanced stock indexing strategy.

“Contrary to their representations to their investors, Greenwood and Walsh misappropriated the majority of the investor funds. According to a complaint, they covered up the theft by manufacturing promissory notes to present the appearance that investors’ money had been loaned to them.

These promissory notes totaled about $293 million for Greenwood and about $261 million for Walsh, authorities said.

More than $161 million was allegedly used for Walsh and Greenwood’s personal expenses, including purchasing rare books, horses, Steiff teddy bears costing as much as $80,000, and a $3 million residence for Walsh’s ex-wife, federal officials said.

Efforts are ongoing to account for and locate investors’ funds, authorities said.

The New York Daily News reported today that Greenwood and Walsh were part of a “Gang of Four” that owned the New York Islanders’ hockey team during some bleak years in the early 1990s, following a string of Stanley Cup championships a decade earlier.

Last week, the University of Pittsburgh and Carnegie Mellon University sued Westridge Capital Management, seeking the return of $114 million.

The U.S. Commodity Futures Trading Commission said today it is seeking a restraining order freezing the defendant’s assets and preserving records.

Stephen Obie, the CFTC’s acting director of enforcement issued a statement: “The coordinated acts of multiple federal regulators resulted in uncovering and ending this egregious fraud. Defendants treated investor money – some of which came from a public pension fund – as their own piggy bank to lavish themselves with expensive gifts. The public can rest assured that their nation’s commodity futures regulator is pursuing every avenue to locate and eliminate crooked commodity professionals.”

[Note: Click this link to watch video of a discussion between IPERS CEO Donna Mueller, IPERS board chairman David Creighton and Register reporter William Petroski about the status of IPERS.]

Hedgefund.net reported that Wilshire Associates and Mercer were two of the advisers who recommended to clients that they invest with Westridge Capital Management:

Wilshire Associates was an investment advisor to the Iowa Public Employees’ Retirement System, which put $339 million into Westridge, according to a statement from the pension fund. A spokeswoman for Wilshire had not responded to e-mailed questions by press time.

California’s Sacramento County Employees’ Retirement (SCERS) system had about $52 million in Westridge, although it had managed to pull $5 million out before the arrests, the pension fund said in a statement. Mercer was the outside investment consultant for SCERS. A spokesman for Mercer said the firm has a policy of not commenting on individual client accounts.

Another firm recommending Westridge to clients was Cambridge Associates, however, a spokeswoman for the firm said that out of its 900 clients only one private client had a small investment in Westridge.

Besides the public pension funds, Carnegie Mellon University and the University of Pittsburgh have sued Westridge over money they invested in the fund. Carnegie Mellon alleged in court documents that it invested more than $49 million, while the University of Pittsburgh claimed it invested more than $65 million.

The case against WG Trading was sparked by a lawsuit against hedge fund manager Mark Bloom, who was also arrested Feb. 25. Bloom was charged fraud. Prosecutors claimed Bloom put money from his funds-of-funds firm North Hills into a fraudulent hedge fund as well as using the money to line his own pockets.

The Alexander Dawson Foundation, which supports schools in Nevada and Colorado, sued Bloom in New York state court in early December claiming that it had entrusted $13.5 million to Bloom, but that the money manager had only given it back some of its money. The foundation claimed it was out more than $8.5 million because of the fraud, according to court documents.

When the National Futures Association got wind of the lawsuit it started to investigate, according to a Bloomberg report. The investigation led it to WG Trading, where Bloom had once worked.

When Bloom and WG Trading principals Greenwood and Walsh didn’t cooperate, the NFA notified authorities. The FBI got involved and the three men were charged and arrested.

Attorneys representing Greenwood and Walsh in the criminal case could not be immediately reached for comment. Bloom did not return a call left at his home by HedgeFund.net. Bloom’s attorney said he had no comment.

The Chicago Tribune reports on yet another pension probe where millions were invested with DV Urban Realty Partners, a firm with ties to Chicago mayor Richard Daley:

City Hall’s inspector general has begun investigating how at least three city pension funds came to make investments with a firm co-owned by a nephew of Mayor Richard Daley, the Tribune has learned.

The office of Inspector General David Hoffman has subpoenaed records from the pension funds dealing with their investments of tens of millions of dollars in DV Urban Realty Partners, a real estate investment firm formed by a top Daley ally, Allison Davis, and Daley nephew Robert Vanecko.

The inspector general requested records on those investments from the funds for municipal employees, police and laborers, according to a source. The pension funds have paid the investment group hundreds of thousands of dollars in management or consulting fees.

Hoffman’s investigators are seeking details on the property DV Urban Realty acquired using the pension funds’ money, according to a subpoena obtained by the Tribune.

The inspector general’s office also subpoenaed information that the pension funds’ trustees reviewed before investing with DV Urban Realty, suggesting investigators are trying to learn how the decisions were made and whether they were influenced by Vanecko’s relationship with the mayor, the source said.

Davis and Vanecko could not be reached. Hoffman declined to comment.

Davis and Vanecko began DV Urban Realty to do development projects in neglected areas.

Vanecko’s city business ties were an issue in late 2007, when it was reported that he and Daley’s son, Patrick, had obtained a stake in a sewer business that had contracts with the city. The company failed to disclose Daley and Vanecko’s ownership interest in economic disclosure statements filed with the city, as required by city ordinance.

Police pension fund executive director John Gallagher said that DV Urban Realty so far had drawn $5 million on the fund’s original $15 million commitment; as of the end of last year, that $5 million investment was valued at $3.5 million. He declined further comment.

Terrance Stefanski, executive director of the Municipal Employees’ Annuity and Benefit Fund, declined to comment, as did Fred Heiss, general counsel of the Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund. The two declined to disclose how much the funds had committed to DV Urban Realty. The Municipal Employees’ pension paid $225,000 in management fees in 2007.

The city teachers’ pension fund paid more than $300,000 in management fees to DV Urban Realty in 2007, the fund’s annual report states. But it’s unclear if the inspector general subpoenaed its records. Kevin Huber, the fund’s executive director, could not be reached.

All these cases prove to me that public (and private) pension funds should be subjected to rigorous independent forensic fraud examinations by certified fraud examiners (CFEs). I have witnessed shady activities at public pension funds and I am telling you, it is very easy for senior pension fund managers to enrich themselves by recommending to invest millions in a fund or in some investment product or even a back office or risk system. Trust nobody, including those with fancy degrees and industry accreditation, and audit everything down to the last penny!

And don’t forget my other warning, the Madoff mayhem was the tip of the iceberg. There have been others since then, including the case of Allen Stanford, another scumbag billionaire.

Yes folks, this scam has been happening all along, building up over many years. It involved alternative investments, allowing private funds to collect exorbitant fees and senior pension fund managers to collect huge bonuses based on bogus benchmarks.

Worse still, some pension fund managers and pension consultants criminally profited from these investments by accepting kickbacks from investment managers. So while you’re focused AIG and all the other smoke and mirrors, the Mother of all stealth scams is happening right under your noses using your pension contributions.

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48 comments

  1. DocG

    Amen. All I’d like to add is that there are names behind the firms you mention. Billions are not simply going to firms like Goldman Sachs, but the people running them, investing in them, working for them and otherwise profiting from their immoral trades. If Cuomo is going after the names of the red herring million dollar babies, then who is going after the names of the billion dollar babies? Who are these people and why are they able to hide behind impersonal company names like Goldman Sachs, Merrill Lynch, etc.?
    http://amoleintheground.blogspot.com/

  2. Anonymous

    This is an excellent post with great passion. I feel however, that it is far too long and while this is called for on occasion-I have noted it numerous times with guest post. Just a suggestion.

  3. Anonymous

    The mother of all stealth scams is Geithner’s new plan. He wants to let banks swap garbage assets with each other and call it an auction so the Fed / FDIC can give grants to the banks in the form of non-recourse loans for 1 to 10 times the value of the trash assets.

    Before each bank has old junk assets, after each bank new junk assets, plus cash worth 1 to 10 times as much as the junk and a non-recourse loan secured by the junk. Effectively, the government buys the trash at inflated prices through an auction to make it appear that the banks are acting like arm’s legnth buyers when they are incented to massively overbid for other people’s trash, so other banks will massively overbid for theirs.

    Get on the phones people. Having the Fed / FDIC make grants is illegal, and calling grants loans doesn’t change the fact that they are loans and so illegal. Geithner has no authority to do this. If he does it, Congress should impeach him.

  4. lineup32

    Pubic outrage is just beginning and the AIG bonus was a quick reminder to the political mob that the general population is getting edgy.
    Main street is giving up its bottled water and other designer lifestyle options with tent city their likely
    new home not exactly the change team Obama or the Democrats wanted to run on in next years election cycle.

  5. Anonymous

    The mother of all stealth scams is Geithner’s new plan. He wants to let banks swap garbage assets with each other and call it an auction so the Fed / FDIC can give grants to the banks in the form of non-recourse loans for 1 to 10 times the value of the trash assets.

    ——-

    The banks don’t even need to swap assets with each other. Geithner will let each bank form subsidiaries to buy assets from the banks with financing from the Fed / FDIC. Obviously, the banks will massively overpay because they are paying themselves with Fed / FDIC money.

    This is illegal and unethical. Geithner is appropriatating public funds without legal authority by in substance giving banks grants and labelling them as “loans”.

  6. DownSouth

    I agree with practically everything you say with one exception. I don’t see Obama, Schumer and Frank emerging from this thing unscathed.

    One of my best friends was chairman of the communications department at Trinity University and something he once said has always stuck with me, and that is that “the public has a way of knowing.” Or as Daniel Yankelovich put it in Coming to Public Judgment: “There is a persisting structure to American opinion that belies the picture of a populace helpless before the ‘engineers of consent.'”

    The fact that, as I pointed out in the previous post, Obama’s approval ratings were already falling even before this past week, which can only be described as disastrous for him, and that recent polls show Senator Dodd to be in political hot water, also before the events of this past week, seems to indicate that the public is figuring out pretty damned quickly that these guys are not working for them.

  7. Anonymous

    Fantastic post, not too long at all!

    I urge all readers to forward it to all media and DEMAND publication.

    Great work!

    Invest in rope!

    i on the ball patriot

  8. Anonymous

    So, Elliot Spitzer was set up in a sex scandal by bankers, Wall Street, Iluminati and the Little Sisters of the Poor. I didn’t know that.

  9. Anonymous

    if you keep posting the truth
    then ‘the powers that be’
    will have no choice
    but to shut down the internet
    :)

  10. Anonymous

    repeating the word greed is like repeating Saddam Hussein caused 9/11. It is a very effective meme, a lie that should be corrected to FRAUD every time.

    Dismantling the laws protecting investors by corporate/government appoaratchiks is fraud -criminal fraud. Turning the reigns of government over to Goldman Sachs executives and minions is criminal. Destroying the people and burning up the dollar is criminal etc etc etc

    LeeAnne

  11. Anonymous

    Maybe it is time to start protesting again. I have been trying to come up with a pithy phrase to put on my sign and have come to the conclusion that I can probably leave it like it was when I first used it in early September, 2008 NO BAILOUTS

    I think people will continue to understand the sentiment.

    NO BAILOUTS Make it a mantra folks. Repeat it like a drumbeat until it is deafening. We must stop this madness for humanity’s sake.

    psychohistorian

  12. William

    Dismantling the laws protecting investors by corporate/government appoaratchiks is fraud -criminal fraud. Turning the reigns of government over to Goldman Sachs executives and minions is criminal.

  13. dmg555

    Before the internet and the economic blog, many of us would never get the excellent reporting of the guest blog today. Some of us perhaps having investment banking contacts in the past might might have known something of the abuses, fraud and theft but the thousands of people reading this blog today would rarely get access to what i am going to call “enhanced information”. Now at least we have sites like this,..and hopefully the mass exposure that the internet provides, will help ferret out the obsessive abuses we are uncovering by the day.

  14. killben

    Writing and commenting about it is not going to get the dumb suckers (tax-payers) anywhere ….

    The dumb suckers (tax-payers) have to march in droves to white house and protest against bailouts!!

    Second across the country the dumb suckers (tax-payers) have to raise the banner of tax-revolt!!!

    At the least that may for a while turn them into vociferous suckers!

    Go for the whitehouse jugular. Let these bailout bandits from whitehouse and wall street call it by any name, appear to act in tax-payers interest etc.. DO NOT BELIEVE THEM .. JUST FOCUS ON GETTING THE DUMB SUCKERS (TAX PAYERS) OUT OF THE BAILOUT TRAIN …

  15. GregG

    I'm not sure that the bonuses vs. bailout needs to be viewed as a bait & switch. I think to Joe Public, it doesn't really matter how the bailout money goes to the financial sector — you either believe that government is doing it with the best of intentions or not (and I’m in the not camp). That it flows through AIG to counter-parties really doesn’t matter if you don’t believe that it should be flowing in the first place.

  16. DanyBoy

    MUST! READ!

    Almost too good to be true realtime confirmation of the limitless perfidy that still pervades Wall Street:

    AIG Sues Countrywide for Misrepresenting Mortgages (Update1)

    http://www.bloomberg.com/apps/news?pid=20601087&sid=asyt57Oy8jYI&refer=home

    By Edvard Pettersson

    March 19 (Bloomberg) — An American International Group Inc. unit sued Countrywide Financial Corp., accusing the mortgage lender of misrepresenting the underwriting standards of loans the AIG subsidiary insured.

    “As a result of the unprecedented number of defaults in the mortgage loans, United Guaranty has already paid out insurance claims totaling over $30 million and is exposed to additional claims of several hundred million dollars more,” AIG’s United Guaranty Mortgage Indemnity Co. said today in a complaint filed in federal court in Los Angeles.

    Countrywide, bought last year by Bank of America Corp., sought insurance for the subprime mortgage loans to increase the credit ratings of mortgage-backed securities in which the loans were bundled, according to the complaint. Countrywide falsely claimed the loans were originated in strict compliance with its underwriting standards, the AIG unit said.

    -Yet another outrageous example of looting uncovered! A real gem of a shell game that was played out over and over on a vast scale, too breathtakingly large for most politicians to be able to take in, let alone accept as real!

    Let us call it:

    "THE SCAM"

    Step 1): I make Bad Mortgage Loans (BMLs)using investor cash backed by assets (McMansions) inflated by a bubble of cheap money.
    Step 2): I sell loans (wash my hands of them) to big box banks (BBBs) that package them into CDO's and pass the hot potato on to pension funds, endowments, charities, state and local governments(securitization).
    Step 3): I make sure the borrower can't repay (too poor, too stupid, too dishonest, or if none of the above, place a time-bomb in the contract such as rates that reset or option ARMS). This is the Mutually Assured Self-Destruct strategy(MASD).
    Step 4): I Buy credit default swap "insurance" (CDSs) from AIG and "Go Short" my mortgages (lie and claim it's a "hedge")(This is the only significant up front cost of doing business, call it "bogus risk capital" (BRC)
    Step 5): I Collect mortgage origination fees up front from borrower
    Step 6) I Collect the spread or a fee when selling originated loans for packaging and securitization
    Step 7) I Collect default swap insurance Mega-Payment (Ka-Ching!)from AIG when the deals all self-destruct
    Step 8) I Go live La Vita Loca in Cabo!

  17. Anonymous

    just a quick note: it’s “cui bono” not ‘qui bono’. it’s from cicero in his prosecution of cataline, if i recall correctly.

    o/w fascinating post.

  18. Anonymous

    There’s another reason pension funds were so aggressive, because fund participants didn’t want to contribute the necessary funds to meet obligations. The only way to make it balance was to assume a high rate of return, and that meant plowing into riskier investments.

    You could say to regulate such contributions, but the biggest offenders were governments themselves. States, counties, and cities made some of the most aggressive assumptions, and don’t even get me started on the SS “trust fund”. You can’t tell corporations to follow rules you don’t follow yourself.

  19. Anonymous

    I agree that the block quotes are too long. I skipped most of their content and still picked up your argument at the end of the article.

  20. Anonymous

    bernandoo said…

    I was listening until your Spitzer comment. Then I saw your tin foil hat and walked away.

    Anyone who uses the words “tinfoil hat” in connection with this article is a moron (or one of the crooks).

  21. alex black

    Not only were naked people revealed when the tide went, but it looks like many of them were also wearing 18 inch strap-ons, screwing as many as they could in every orifice they could find. And all this time I thought it was just some long-nosed fish getting WAY too friendly with me…..

    I’ve been yelling at everyone I talk with to shut up already about the stupid AIG bonuses and realize that they’re a convenient distraction to keep our eyes off of the real criminal activity being perpetrated. And all I hear back is “Thank God Obama and Congress are taking strong action to get those bonuses back.” Maddening. And as usual, it’s Naked Capitialism that is one of the few places where people see what is for what it is. Thanks.

  22. Anonymous

    So, Elliot Spitzer was set up in a sex scandal by bankers, Wall Street, Iluminati and the Little Sisters of the Poor. I didn’t know that.

    Spitzer made some enemies. Not surprisingly he was also hypocritical. So they got even.

    People who use the words “illuminati” and “little sisters of the poor” fall into two categories, 1.) conspiracy theorists, 2.) people sympathetic to villany.

  23. Anonymous

    Mr. Kolivakis needs to take a deep breath and calm down. I’ve been in the pension industry for 20 years — as a plan sponsor, a consultant, and an investment manager. It has always been the case that a plan sponsor or two takes a bribe, or a manager cooks the books, and it is true now as well, but not really anything more than usual. There is no “mother of all stealth scams” going on.

    In general, investment consultants, with only a few exceptions, have been slow to push their pension fund clients (the story is different with endowments and foundations)into hedge funds and alternatives. Most pension funds have less than 5 or 10% of their assets in these areas, and much of that is managed by funds-of-funds. Wilshire and Mercer, two consultants mentioned in the screed, probably have put fewer client assets into hedge funds and private equity than most. I am not arguing that either the clients or the consultants have the slightest idea what they’re doing (for the most part I don’t think they do) — just that the dollar amounts aren’t large enough to compare to what is going on at AIG.

    If Mr. Kolivakis needs something pension-related to hyperventilate about, I suggest he look into the retirement and health benefits that have been promised to public fund participants over the past decade and how those obligations are now going to be met.

  24. Leo Kolivakis

    To the person that wrote the following:

    “There’s another reason pension funds were so aggressive, because fund participants didn’t want to contribute the necessary funds to meet obligations. The only way to make it balance was to assume a high rate of return, and that meant plowing into riskier investments.

    You could say to regulate such contributions, but the biggest offenders were governments themselves. States, counties, and cities made some of the most aggressive assumptions, and don’t even get me started on the SS “trust fund”. You can’t tell corporations to follow rules you don’t follow yourself.”

    You are absolutely correct. There is another factor underlying the pension problem. Public sector pension benefits became way too generous, raising the actuarial required rates of return to meet these future liabilities.

    Keep in mind that for public pension funds, the discount rate is based on government interest rates. As these rates fall because of the recession – and now quantitative easing- the future liabilities increase further aggravating pension deficits.

    For private pension plans, the discount rate is based on corporate spreads, which camouflages their real pension deficits.

    In both cases, the rationale for moving into alternative investments was that stocks were too volatile and bond yields were too low.

    So after the tech bubble, pension funds started to aggressively move into alternative investments like hedge funds, private equity, real estate, commodities, and some bought CDOs while others were dumb enough to sell CDS just like AIG!

    This became the largest Ponzi scheme ever. The only problem was that the major players were too enamored with the slick marketing to stop and notice it.

    Also, as I stated, in most of the large pension funds, especially here in Canada, it was in their interest to diversify away from stocks and bonds into alternatives where they can set bogus benchmarks and then collect huge bonuses.

    But for the most part, alternative investments ended up being full of hot air. They were over-leveraged beta plays charging exorbitant alpha fees. Only the best funds were able to provide true alpha and many of those funds also succumbed to systemic risk.

    Now that the music has stopped, pension fund managers are trying to recoup while private funds are busy trying to figure out how they can scam the system again.

    Keep an eye on Geithner’s new plan and the goodies it will provide to hedge funds, private equity and real estate funds.

    Once again, I thank all of you for your comments.

    Best regards,

    Leo Kolivakis
    Pension Pulse

  25. Leo Kolivakis

    To the pension industry expert who wrote the following:

    “Mr. Kolivakis needs to take a deep breath and calm down. I’ve been in the pension industry for 20 years — as a plan sponsor, a consultant, and an investment manager. It has always been the case that a plan sponsor or two takes a bribe, or a manager cooks the books, and it is true now as well, but not really anything more than usual. There is no “mother of all stealth scams” going on.

    In general, investment consultants, with only a few exceptions, have been slow to push their pension fund clients (the story is different with endowments and foundations)into hedge funds and alternatives. Most pension funds have less than 5 or 10% of their assets in these areas, and much of that is managed by funds-of-funds. Wilshire and Mercer, two consultants mentioned in the screed, probably have put fewer client assets into hedge funds and private equity than most. I am not arguing that either the clients or the consultants have the slightest idea what they’re doing (for the most part I don’t think they do) — just that the dollar amounts aren’t large enough to compare to what is going on at AIG.

    If Mr. Kolivakis needs something pension-related to hyperventilate about, I suggest he look into the retirement and health benefits that have been promised to public fund participants over the past decade and how those obligations are now going to be met.”

    I am very calm and I agree with you that in general, pension fund managers are ethical managers who rarely take bribes.

    But when it comes to public pension funds, we need to make sure that no monkey business is going on. That’s why I think independent fraud examinations by certified fraud examiners should be conducted at least once a year.

    As for your other statement, you are right that alternatives do not represent the bulk of the assets in pension funds, but pension funds have been increasing their allocations even after the latest debacle.

    And the true figure is actually closer to 20% when you count allocations to hedge funds, real estate and private equity. This amounts to billions of dollars.

    Pension consultants were very aggressive recommending a shift to alternative investments. I personally assisted numerous conferences where I saw their slick presentations claiming absolute returns that were not correlated to stocks and bonds.

    Well they forgot to mention the securitization bubble that was going on and the alternative investment bubble that fed off that bubble.

    You are correct that most of the clients and consultants didn’t have a clue about the underlying risks of these investments. they were just following Harvard, Yale and the larger pension fund peers.

    I personally saw examples of poor due diligence which typically involved no comprehensive investment, operational or risk management due diligence.

    As for the dollar amounts, the “stocks for the long-run mantra” and the alternative investment debacle cost global pension funds over 5 trillion dollars in 2008.

    The AIG bailout is a pittance compared to the bailouts that are going to be needed to shore up severely under-funded public pension funds.

    Now, let me take a deep breath and enjoy my weekend. When you feel comfortable, please sign off with your real name.

    Regards,

    Leo Kolivakis
    Pension Pulse

  26. K Ackermann

    I’m reading this awe.

    Great job putting this together and connecting the dots for an outsider to follow.

    It is critical that this country becomes Frenchified. The French would be burning their government to the ground right now.

    We are all in a union together, and right now it is time for the union to strike.

    We should do whatever it takes to cause a run on Citi. That would get the attention of the criminal banksters and the contemptable, corrupt government.

    The real goal should be Golden Sacks, and they should be told exactly what is going to happen to them.

    The banks think they might not have to pay back all the bailout money, but what they don’t realize is that the bailout money is only the tip of the iceberg. We not only want our money back, but 300 million people want to be compensated for any percieved loss incured by the gross negligence on the part of the banks and the government.

    The bondholders in those institutions are not going to get a haircut; the bondholders are going to get scalped when we simply empty the vaults and sweep the accounts right into the treasury.

    At a bare minimum, the members of our union (US) should wildcat the entire financial system to our maximum ability.

    This would include strongly, strongly discouraging companies from doing business with the big banks until further notice.

    I don’t know what it takes to get it started, but it is time to start.

  27. Anonymous

    Look, like I says yesterday in this blog, I’m gettin tired of your people here. Your bitching and moarning about me getting a few mil in bonus, is making me irate. Like I’m some kinds criminal or somethin. I ain’t no criminal.

    OK! Let me introduce myself. I am one of the recipients of a fat AIG bonus. Got that? I’m the AIG London top banana. The Big Cheese. The Big Wig. I am The Man. Capish? Comprende? Got that?

    I’m tired of being bashed on the head like I am some kinda criminal or dope pusher or somethin. I ain’t no criminal and I ain’t no coke jock either. I’m just a hard workin dude, and I sold your stupid subprime junk like gold. You should thank me for that. I put all your trailer trash in mansions and in BMW’s. I made your American dreams come true, your worthless pieces of shit. I am your benefactor. You owe me big time!

    And I can’t get my bonus now? Fuck you! I wanna my dough. I worked hard for it. I don’t give no shit if you borrow the dough from China, if you print it, or if you sell Hawaii. I just wanna my bread, bro! Got that?! Better get my fucking bonus, or else.

    Signed: A disgruntled British citizen working for AIG London in an a “shadow” leadership position called “Top Banana CEO”

    PS – you had better ain’t messin with my dough, bro!

    PPS – I want my bonus!

    PPPS – Fuck you!

    PPPPS — Suckers!…LOL

  28. Sukh Hayre

    Yves,

    If you’re Canadian, you make be proud to be a Canuck!

    Keep of the great work.

    Sukh

  29. Sukh Hayre

    My bad. Yves didn’t write this post.

    With a name like Yves, I declare her an honourary Canadian.

    Sukh

  30. seacoast_strat

    My head is spinning…all of this is just beyond belief. Great article detailing the rampant fraud, greed, and deception at every turn.

    This is insane.

  31. Anonymous

    I think you are absolutely right that Spitzer was taken out due to his meddling in what the Feds considered their domain. I don’t know if I’d call it a set-up though. Instead, I’d guess the “political powers opposing Spitzer” simply saved the dirt they had on Spitzer till they needed it. Spitzer was ready to take action against the monolines, boom, it’s bye bye Spitzer. Spitzer’s underlings sure seemed to understand the message because none of them jumped into Spitzer’s place to finish the job, did they?

    And yes too about the recent AIG bonus blow-up being a very smartly devised, premeditated plan. People are eating that baby food up, man. The plan is truly working for the behind-the-scenes manipulators now but I wonder where the collective consciousness will go next…

    I noticed Jullian Delasantellis at asiatimes.com asks the question at the end of his latest article
    ——-
    Julian writes:
    “I almost get the impression that, like a child with too many toys and who has become bored with his most recent one, the public is tiring of AIG rage. Will they now turn their focus to an actually important public issue?

    Doubtful.”

    ———-

  32. Jim T

    SOMEONE SHOULD LOOK INTO WHO WERE THE COUNTER PARTIES THAT GOT PAID FROM THE $139 BILLION LEHMAN WAS GIVEN BY JP MORGAN ON SEPTEMBER 15 2008 JUST AFTER LEHMAN FILED BANKRUPTCY. IT WAS ALL DONE ON THE QT, BUT JP MORGAN GAVE LEHMAN THE MONEY (NOT SURE WHO LEHMAN PAID) BUT JP MORGAN WAS REIMBURSED THE $139 BILLION BY THE NY FED.

    SOMETHING REALLY WRONG WENT DOWN, BUT THE GOVERNMENT AND JP MORGAN KEPT IT QUIET AND NOBODY DARED TO QUESTION THEM ABOUT IT!

    AND WHAT IN THE HELL HAPPENED TO THE $89 BILLION SHORT FALL IN STOCKS HENRY PAULSON BOUGHT? WHY DOES $89 BILLION GO MISSING AND THAT ASHOLE DOES NOT HAVE TO EXPLAIN WHERE THE MONEY WENT?

    YOU DON’T ACCIDENTLY OVER PAY $89 BILLION DOLLARS. SOME BANK(S) OUT THERE GOT $89 BILLION FOR NOTHING!

    THESE PEOPLE NEED TO BE IN JAIL!

  33. Richard Kline

    So Leo K., I appreciate your effort in putting the pieces together here. I’d read the bulk of the two ported-in articles, but you give much more context. As for the length, personally I always find content useful, but for those who don’t the ‘scroll’ button is a universally available solution. Keep it up, sez I, and thanks for getting Yves’ back on these days.

  34. DownSouth

    After sleeping on it overnight, I wanted to add to my above comments because I didn’t want to imply a scintilla of discouragement to you and Yves for the important work that you do.

    When I quoted my friend as saying “the people have a way of knowing,” you and Yves play a key role in that process og knowing. As MIT prof W. Russell Neuman said: “What is important is that there are perhaps 5 percent (of the public) who are activists and news junkies who do pay close attention. If they see that something is seriously wrong in the country, they sound the alarm and then ordinary people start paying attention.”

    Also, even though the public anger over the AIG bonuses may be poorly informed and poorly aimed, it may nevertheless, through this messy but sometimes miraculous process called democratic politics, manage to somehow hit the right target.

    From CNN News this morning:

    …Geithner has been trying to nail down specifics of his plan to woo the private sector to buy bad assets from troubled banks and investment firms. The administration has high hopes that it will get a better reception than the last time Geithner broached the subject — and caused the stock markets to tank.

    Now the AIG flap threatens to derail those efforts, even before it’s fully understood. It’s clear that the Treasury wants to draw on the private sector to work with the government to figure out how much these assets are worth and clear them out.

    But private investors, saying that episodes like the legislation attacking the AIG bonuses show that the rules of the game can change at any time, are becoming increasingly skittish of taking taxpayer dollars.

    “Everyone is going to think twice about wanting government assistance,” said Charles Calomiris, a finance professor at Columbia University’s business school. “You know you’re going to have to deal with the fact that compensation to your middle managers is going to be micromanaged by [Rep.] Barney Frank, leading a mob with pitchforks.”

    http://money.cnn.com/2009/03/21/news/economy/aig_fallout/index.htm?postversion=2009032117

    You’ve got to love the spin the CNN writer puts on this, casting it as something negative that impedes Geithner and company in their efforts to “fix” the financial system.

    She also repeats this bit of sophistry:

    After surviving an onslaught of criticism during his confirmation hearings for failing to pay some taxes, Geithner has yet to put top deputies in place. Several applicants dropped out while facing heightened scrutiny in the screening process.

    “Because they’re not there, the Treasury ends up making sloppy mistakes, and that hurts them,” Gardner said.

    What a crock. That’s tantamount to blaming a ship that is being steered in the wrong direction on a lack of deck hands.

  35. Leo Kolivakis

    I just spent an hour listening to ABC’s This Week. The round table discussion featured George Will, Donna Brazile, Betsy Starks and Robert Reich.

    It was interesting to see how both George Will and Robert Reich agreed that bankruptcy of AIG is a better option than the hybrid approach.

    Mr. Will raised the issue of “who in their right mind would want to partner up with the federal government” after the AIG bonus fiasco.

    Donna Brazile said the financial system has gone out of control with all these “too big to fail firms”. Her new hero is Fed Chairman Ben Bernanke (sigh!).

    Ms. Stark said that letting AIG go under was not a real option because it would have meant the collapse of the global financial system.

    And therein lies the masterful “PR spin”. We need to save the banks first and then we can save the American taxpayers and consumers.

    The logic has been completely inverted to benefit the crooks on Wall Street and their mega hedge fund and private equity clients who provide them with huge fees.

    Finally, all this media attention on Geithner’s plan and the AIG bonuses is keeping everyone’s attention off the pension tsunami that will wreak havoc on public finances over the next decade and possible decades.

    Speaking of pension tsunami, I want to plug Jack Dean’s outstanding website which focuses exclusively on pension news:

    http://www.pensiontsunami.com/

    Stay tuned on the Geithner plan and I will continue to write my thoughts throughout the week.

    Regards,

    Leo Kolivakis
    Pension Pulse

  36. Anonymous

    just one point

    yes there was a lot of dishonesty and double-dealings

    but if AIG went – counterparty risk in the interbank system would have become such an issue, that bank runs would have become commonplace, and there was a very serious likelihood of total collapse within the financial system

    don’t get me wrong, i am not a fan of AIG – but the systemic risk and the collateral damage are huge relating to this counterparty

    also – the number of insurance funds that hold preferred stock or debt of banks as a disproportionate allocation of their ‘fixed-income’ portfolios are huge. Had we let AIG go down, first the interbank system would have stopped, then you would have had banks going bust, and then the knock-on effect on insurance players’ investment portfolios would have been enormous

    don’t underestimate the extent of the interlinkage within the financial system

    AIG was one of the biggest players in the CDS market – so were General Re, Swiss Re etc etc. If this market had a huge credit event due to counterparty risk, then it would have been financial armageddon.

  37. Anonymous

    @anon 4:49:

    “but if AIG went – counterparty risk in the interbank system would have become such an issue, that bank runs would have become commonplace, and there was a very serious likelihood of total collapse within the financial system”

    AH — but AIG is going to go eventually, right? This smoking pile of turd is doomed. So, are we really looking at a melt down? I see this claimed all the time in comments. I guess we’ll have a test of that bit of financial theory in due time.

    For my part, I entirely welcome the detonation of entire thing. That’s what they do with suspicious packages left on the bench at the train terminal, right? They might be a bomb, so contain them and blow them up.

  38. Anonymous

    i see a pattern here thats not good. what you want bet lehman went down so all the records would be destroyed on the dealings with the state of fla pension monies. and in case you didn’t know in a line from above 403b’s are how there making up the lost pension and benifits monies and in fl thats the property tax. shame on amendment 1 and what it’s fixing to do to the people of fl.

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