On Cuomo’s Forays Against Financial Chicanery at the Big End of Town

Since I haven’t put together a detailed timeline, I run the risk of having the sequence wrong and therefore being at risk of putting foot in mouth and chewing too.

But from where I sit, the only person in the US who seems to be doing anything meaningful to try to contain the looting of the taxpayer is Andrew Cuomo. And that is a pretty sad commentary on Congress.

Yes, we’ve had Congressional hearings galore on various controversies du jour. They’ve made for the occasional worthy You Tube clip, little more. The format of these hearing is designed for them to be mere theater. Too short, too superficial, strict time constraints on the time allotted to each questioner.

And worst of all, too much tolerance for intransigence by witnesses. For instance, John invoked the Fifth Amendment in refusing to answer certain questions about Bank of America’s bonus payments. But the issue was not self incrimination, but that he deemed the information to be confidential. Thain got a lecture, but was not threatened with contempt of Congress charges. In fairness, Thain may not have been testifying pursuant to a subpoena, so that option may not have been available. However, contempt of Congress is a criminal offense.

Although the lack of contempt of Congress sabre-rattling is what has caught my attention, it symbolizes how toothless Congress has become. Lyndon Johnson would be spinning in his grave if he could see the shenanigans now. When witnesses start ducking questions, they are seldom pinned with the Senator or Representative acting as if they are in charge.

Readers can probably suggest more gername clips, but this one shows a representative who knows the terrain and more important, keeps the witness on a tight leash (for instance, cutting off irrelevant responses). Perhaps there are some inquiries on the financial crisis where the Congressman has been this crisp and in charge of the exchange (and apologize in advance if I missed them, reader pointers here encouraged), but much of what I have seen is too much deference to witnesses who don’t deserve it, or cheap point scoring by Congressmen while only landing glancing blows on the big issues.

When I was in Caracas for a couple of days of meetings, the president of the local subsidiary invoked a turn of phrase that I suspect is a local saying: “They are getting in front of a mob and trying to pretend it is a parade.” I sense a bit more of that than is desirable. For instance, the New York Times tonight depicts both Congress and Cuomo as trying to get to the bottom of whether the AIG collateral payments were warranted, particularly at the scale they were made. But if the reports are correct, it is Cuomo who is issuing subpoenas, which is the real investigative work. Am I wrong in seeing Congress as merely riding on his coattails?

And that raises another issue. One or two day hearings are grossly inadequate venues to get to the bottom of anything. The US needs a full bore major investigation, ideally on the scale of the Pecora Commission. Those took nearly a full two years of hearings, including testimony of pretty much everyone who counted in the world of high finance. These half way measures instead create the illusion that Something Has Been Done at the expense of making real inroads.

From the New York Times:

Members of Congress and the New York State attorney general demanded detailed information Thursday on how tens of billions of taxpayer dollars flowed through the American International Group during its crisis last fall and ended up in the coffers of several dozen big banks, shielding them from losses.

The new inquiries shine a spotlight on a question that is exponentially bigger, in dollars, than the $165 million in bonuses that A.I.G. paid out this month, but which has been overshadowed until now by the uproar over the bonuses.

“We would like to know if the A.I.G. counterparty payments, as made, were in the best interests of the taxpayers who provided the funding,” said Representative Elijah E. Cummings, Democrat of Maryland, in a letter to Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program. The letter was also signed by 26 other members of the House, all of them Democrats.

The representatives asked Mr. Barofsky to find out who had made the decision to shield A.I.G.’s trading partners from any losses during last fall’s crisis, and what factors had shaped the decision.

Their letter mentioned that Mr. Barofsky’s office had been created to investigate the uses of TARP money, and that A.I.G., the biggest recipient of government aid in recent months, was among the largest recipients of money from the TARP.

Yves here. Note setting the TARP inspector general onto the matter is an alternative route to Congress having its own investigation. However, Cuomo announced his subpoenas on the question of whether AIG counterparties were improperly compensated on Thursday. While a full court press is welcome, Congress has been exercised about AIG much longer than Cuomo has been on the case. Why weren’t tougher questions asked earlier?

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28 comments

  1. Frank Ruscica

    Clayton Christensen, a Harvard Business School professor who originated the canonical Model of Disruptive Innovation:

    “[Industry] regulations ultimately change *in reaction to* the innovators’ success in those markets.” [1]

    Enter this Facebook group:

    NYC’s $3M Angel Fund: Invest in start-ups that, en route to becoming a bank, provide people with new and improved ways to customize education, and to showcase and earn money from expertise (i.e., ways to become (more) creditworthy).

    http://www.facebook.com/group.php?gid=56315044445

    Adapted from a biz plan praised by analysts at Microsoft, Amazon.com and top VC.

    [1] See page 386 of The Innovator’s Prescription, a 2009 book by Christensen et al.

  2. Anonymous

    I'd like this rule to apply to myself not just corporations.

    See, I want to buy a car, but I'm nearly broke & my credit is terrible!
    I do have a large collection of Beanie Babies though (bought em at the height of their popularity, maxed-out the card, so uh, cash a little light now, go figure), and although the Beanie Baby craze (bubble) is over, they are going to be worth a TON in the future.. Like, 1000 bucks each, TRUST me.

    So anyway, I'll just mark-to-market them, and… voila! Look, I'm not broke anymore, I have thooooousands of dollars.

    Oh shoot, the electric company wants $50 this week….. man, well uh, those babies are only worth $1 today, but uh.. I got it! I'll use my hot looking portfolio — thanks m2marketing ;) — to get a LOAN, and pay the bills that way!

    Oh man, this is gonna work out great. I'll just keep borrowing money until that Beanie Baby craze kicks back in…… any day now.

  3. Anonymous

    Me (Anon @ 2:38) – Comment was meant for a different thread… still works though. M2M was part of the scam.

  4. Independent Accountant

    YS:
    Congress need not do anything more than pass another law. This one prohibits the Fed, a creature of Congress, from lending money, discounting paper, or in any way regulating or supporting insurance companies and their holding companies. After Obama signs it, tell Zimbabwe Ben (ZB) the law is intended to make him stop giving AIG, among others, anything more. Ask him if he understands it is now a felony for the Fed to do anything for AIG on the floor of Congress with ZB under “hot lights”. Great guerilla theater. Congress can even bring the other Fed governors in and ask them if each understands any more AIG bailouts will bring his indictment? The peasants with pitchforks outside will lap it up. Once AIG files bankruptcy, let the bankruptcy court sort out the mess. We’ll see how quickly Goldman and the other AIG counterparties are made to disgorge their ill-gotten gains since September. Who knows? Our current useless SDNY US attorney, Lev Dassin might get off his incompetent, corrupt rear end, develop some political ambition, decide to follow Thomas Dewey, and indict some big name miscreants. I won’t hold my breath.

  5. Anonymous

    The financial space shuttle has blown up in a fiery conflagration. Yet not a single commission has been appointed to study the cause o the engineered disaster. And now we are to trust Morton Thiokol to make everything right?

    (By the way, we’ve poured more money into the black hole that is AIG than into the entire space shuttle program.)

  6. Delicious

    It reminds me of the Roman Senate, which still kept the form of government going for centuries after true power had gone elsewhere.

  7. Jojo

    Well one thing we DON’T need is a 2year long investigation! What we DO need are investigations in real-time that are designed to be completed quickly and don’t turn into just another postmortem whose only value is as a historical footnote.

  8. tom a taxpayer

    It only takes one Attorney General or one prosecutor to make a world of difference. It only takes one Cuomo or prosecutor (State or Federal) to investigate just one crime, and follow the money, and the crimes, and bring down the entire criminal enterprise using a Racketeer Influenced and Corrupt Organizations Act (RICO) prosecution. This is a target rich environment, and the criminal activities (fraud, Ponzi schemes, blackmail, looting of treasury, cover-ups, etc.) are continuing today. So the investigation and prosecution can begin anywhere, with Countrywide and the mortgage industry or the appraisers or Freddie and Fannie or Citi and the big banksters or with Goldman Sachs and other Wall Street investment banks and brokerages or rating agencies or AIG or with federal co-conspirators at U.S. Treasury, SEC, OTS, and the Federal Reserve and with Hank “the mole” Paulson, Ben “the bag man” Bernanke, Tim “the patsy” Geithner, or the members of Congress who took money to facilitate the criminal enterprise.

    It takes only one Cuomo or prosecutor to bring down the entire mob that raped and pillaged the mortgage industry, ruined the housing market, destroyed the credit system, endangered municipal financing, pension funds, and the banking system, sent the economy into a downward spiral, endangered the world financial system, and now extort the U.S. and the world to pay them billions in ransom or face the destruction of the world financial system and economy.

    Using the Racketeer Influenced and Corrupt Organizations Act (RICO), it takes only one Cuomo or prosecutor (and a large staff) to arrest and prosecute the hundreds of criminals responsible for committing the greatest financial crimes in U.S. history.

    It takes only one Cuomo or prosecutor to take off the kid gloves, hit these criminals with the iron fist of justice, and become a national hero…a legend in our time.

  9. Richard Kline

    While I am, too, maddened by the pace of mega-theft perpetrated by the corporafacistic oligarchs on the public with the aid of The Powers That Be, Yves, I am not particularly put off by the slow official response to this as the tide of public opinion begins to weigh against it. Considering the Great Depression, it was on the order of four and a half years—Oct 29 to mid-33—before serious investigations and rectifications were pursued. To this point wer are only one and a half years in, give or take. Now contra that perspective, it was also three years in the GD before the major elections put a New Lot in the Congress and the White House. This time it was only a year plus . . . which _didn’t_ put a new lot in either place, just a different one. Obama has promised continuity, and to our misfortune has so far delivered exactly that: the steal goes on.

    My larger point, though, is that these things take time. Yes, we live in a 24-hour newscycle now, and everything is, supposedly, on fast forward. Yes, when Sweden had a crisis, it got down to real solutions in less time than we have already wasted on false ones—but they had no choice. They were a small country, and their currency was in implosion mode, which could only be partially salvaged by taking their busted bankers by the scruff and hiding their hides rather than hiding their asset-bare asses. It takes time for the weight of public opinion to tell.

    Am I discouraged that it takes a _state attorney-general_ to put some real knife into the questions at hand? Well, I see this as a good thing in its way, a half-full glass of cloudy water (but I’m thirsty). The American tradition is one of checks and balances, of multiple jurisdictions and many avenues of complaint and rectification. Congress of a certainty doesn’t yet want to fing out ANYTHING. I mean, they voted for the bankers to have an unlimited license to steal six months ago, and so are in a poor position to cavil at the method thereoff. So to me, it is good that someone, some any are using power of subpoena and criminal complaint to drag issues like the AIG pass-through in eleven-figure chunks into the mainstream media.

    Would I prefer a fast nationalization and quick indictment of the point men of theft class, so that the country can be righted with speed? Natch. But those aren’t the politicos we’ve got so we’ll have to intervene with the ones we have. We will be watching the tortuous transformation of The Crisis of Our Times _for years_. That’s bad, but it is what it is. Our leadership in this day is pathetic. How to make them move on this with more accuracy and alacrity? Cast more stones and shoes, and escalate the bang-for-buck ratio of said missles thereafter.

  10. DownSouth

    “Junk yard dog” might be a more appropriate metaphor–he barks a few times, creating the false impression that something has been done to impede the intruders, and then goes back to sleep so the robbers can steal with impunity.

    Also I wouldn’t be so quick to lionize Cuomo. These comments throw up a red flag:

    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….

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

    http://www.nakedcapitalism.com/2009_03_15_archive.html

    This begs the question: “Why wasn’t Carlyle a target?”

    Besides being a pretty good hand himself at playing junk yard dog, Cuomo’s no slouch at political theater either:

    His enthusiasm for the subpoena worries some in the legal community, not least a few prosecutors.

    “Evincing outrage is not a legal strategy, so it remains to be seen what he’s going to do with his information,” said Daniel C. Richman, a Columbia law professor and former prosecutor.

    Eliot Spitzer, his congenitally combative and competitive predecessor, not too subtly mocked Mr. Cuomo’s subpoena penchant this week.

    “Everybody is jumping up and down, serving subpoenas and beating their chest trying to be tougher than the next person,” Mr. Spitzer said on WNYC radio.

    http://www.nytimes.com/2009/03/21/nyregion/21cuomo.html?scp=2&sq=cuomo%20spitzer&st=cse

    The fact that Cuomo is the best we've got, and is being lauded as a crusader for the people, is a sad commentary on the moral shit hole into which this country has fallen.

  11. selise

    during the past 2 years i have watched scores of congressional hearings. naked capitalism is far too polite a blog for me to describe what i think of them.

    http://oxdown.firedoglake.com/diary/4404

    bottom line, there are 2 kinds of hearings: one with expert witnesses trying to inform congress members. these can be very useful (for example, i especially liked michael greenberger’s testimony last spring on oil market speculation and the role of the cftc).

    the other kind of hearing, the “oversight” hearings with gov or industry officials who are not trying to inform are almost uniformly a big joke. off the top of my head the only bit of good questioning i can think of was last november when kucinich and issa teamed up (i know, hell froze over that day) to grill kashkari:

    http://oxdown.firedoglake.com/diary/1744

    p.s. please forgive me for linking to my own diaries. i’m not much of a writer, but there is a bit more info there for anyone who is interested.

  12. Anonymous

    The problem with Cuomo is that he (a) has no respect for due process – anger is no excuse for threatening to make public the compensation of parties who are not guilty, in an effort to create a lynch mob atmosphere – and (b) is a total hypocrite (look at the Village Voice article how , as Housing Secretary, he encouraged Fannie and Freddie to go into subprime)

    I am worried that you’ve let your righteous anger trump any sense of fairness or justice. The terrorist attacks generated legitimate fear and outrage, and our policymakers exploited it to run roughshod over the rights of people whom they thought had no business hanging out in Afghanistan

  13. Terry

    Besides Congress hiding its unwillingness to do anything about the WS financial crisis behind a barrage of bullshit, even the new Administration's various so-called regulatory agencies aren't doing anything about it, except being rolled over (a la the FDIC's proposed role in the new TARP. Where are the FDIC, SEC, OTS, FRB (for crying out loud!), & others? Just sitting on their hands and watching the fraud continue.

    Kudos to Cuomo for leading the charge, even if he is vastly under-resourced for the task.

  14. Anonymous

    Yes congress has been totally absent on all the investigations (the real ones any way). But how about the Obama administration? What is the SEC, FBI, IRS etc (all under Obama’s domain) doing? No one will ever convince me that these banksters made billions on the way and now billions on the way down without breaking any laws. The fact that there are no Federal investigations speak volumes about the lack of integrity of both the presidency and the congress. BTW Obama made a comment about not to demonize our innovators and entrepreneurs when asked about bonuses. The people who caused this crises are neither innovators nor entrepreneurs so Mr. Obama needs to learn what is what.

  15. Anonymous

    it seems clear to me that Cuomo is keeping the heat on the AIG employees to distract from the real culprits.
    Cuomo is a huge political player who is seeking higher office, as he has been throughout his whole career. he sees the populist outrage and is using it for his own advantage and, in all likelihood, the advantage of his future benefactors in the white house.
    i am highly suspect of his motives, especially since he seems remarkably unconcerned about due process or other constitutional issues (abuse of prosecutorial power is a pretty big deal in my book – regardless of political affiliation – and a core constitutional and societal issue).

    since he is such a political operator, i have to wonder why he is hung up on the AIG employees rather than the people who put this whole quasi private mess together? after the company announced that their liabilities massively exceeded their assets, didn’t the real failures happen with the government? the fed and the treasury ignored existing bankruptcy laws and ventured into new territory by bailing out a non-bank to prevent a global meltdown. then they failed to provide any oversight or checks on their operations.
    had the company gone bankrupt, a trustee would be overseeing them with the clear purpose of resolving their debts and finding an equitable outcome for the creditors and policy holders.
    why did the fed, treasury and congress agree that this company had to remain private when they were insolvent? what did they expect would happen? and why are these investigations only happening after the bailout money has been disbursed to AIG counterparties?

    it all stinks, but i don’t think anyone should be surprised that AIG is looking like a mess. there was a well established legal process for what to do with companies like these and the government chose to ignore them and created a much bigger problem.

  16. Bob Falfa

    I have to agree with Anon(9:53), the motives of all actors have to be scrutinized. The hearings seem nothing more than a show to appease the masses and extract an ounce of flesh, but not too much – don’t want the benefactors to put their checkbooks away.

    As much as I despise oppressive government, deregulation has helped set the stage for this debacle. It’s also clear that ratings on any investment are not as accurate as the diamonds Spitzer’s whore was rated. As this blog has noted over the past couple of days: even now people are scamming the very systems meant to keep their corporations alive. I don’t begrudge the bonus recipients at AIG, they had a contract that congress knew (or should have known) was protected by bills the lawmakers were crafting and voting into law. If they cannot realize there will be unintended consequences in bills (most of which they don’t even read), they are too stupid to be in a position creating those laws (and possibly too stupid to breath).

    Whew, now I feel better. At least until the next outrage is revealed…or my 1st quarter 401k statement arrives, whichever comes first.

  17. Viv

    Who cares if Cuomo has political ambitions and motives, if that means he does the right thing and put the fraudsters behind bars than so be it.

    The FED can print all the money it wants, the treasury can spend all the money it wants (till bond market dislocation ofcourse) BUT you can’t rebuild the broken trust in the system.

    Why would I want to put any of my money in the stock market or invest it with a hedge fund or any of the major banks apart from a very liquid form of investment current account or short term t-bills.
    The same guys who pulled this heist are in charge of trying to save the system. I’m keeping my money away from these scoundrels until guys like Cuomo clean the system out.

  18. Anonymous

    Barofsky may be a more effective investigator than Cuomo (assuming this type of investigation is within his mandate) because he doesn’t need subpoenas to get the information.

  19. Anonymous

    imagine that – the press and an over-reaching prosecutor mis-identified one of their targets. oops! sorry about the death threats and the destruction of your reputation – you may now get back to your normal life.

    Uh… Oops! This Guy Actually Didn’t Get an AIG Bonus
    By LEANNE GENDREAU

    Updated 11:49 AM EDT, Fri, Mar 27, 2009

    Related Topics:Christopher Pohle

    Christopher Pohle, of New Canaan, was falsely identified as an AIG employee who received a retention bonus, State Representative John W. Hetherington, said in a news release Thursday.

    As AIG employees get disturbing threats from people ticked off about bonuses that came in the wake of the federal bailout, the state has thrown someone into the fire who did not belong there, a state representative says.

    The anger in the threats against AIG executives is palpable in threats that were obtained from Connecticut Attorney General Richard Blumenthal.

    Christopher Pohle, of New Canaan, was falsely identified as an AIG employee who received a retention bonus, State Representative John W. Hetherington, said in a news release Thursday. To be clear, everyone, he did not get a bonus.

    Pohle is demanding that the State of Connecticut, including the Attorney General and the legislature’s Banks Committee, apologize and issue a retraction.

    “Mr. Pohle has not been employed by AIG for over a year. He left AIG in January 2008. He did not receive a retention bonus and did not work with credit derivatives,” Hetherington said in the release.

    “Mr. Pohle was recklessly targeted, his reputation and good standing have been harmed and he and his family have been unfairly drawn into this situation.”

    Pohle’s name was among 13 people who were subpoenaed last week to testify during a Banks Committee hearing, according to several news reports.

    State officials obtained the names from media accounts about the bonuses, the Stamford Advocate reports.

    The only A.I.G. employee to testify Thursday was Stephen Blake, the head of human resources.

    Hetherington is calling upon the Banks committee and the Attorney General to do the “right and decent thing.”

    “Just say they were wrong, and express regret for making a mistake,” he said.

  20. Anonymous

    The reason CONgress hasn’t been more active is that they don’t want whats left of the Wall Street Gravy Train to blow up.

    Financial firms have traditionally been the top donators to re-election campaigns

    Don’t want to bite the hand that feeds you, and if its a deaths door, you do all you can to keep it alive.

  21. Anonymous

    Luv it… the new scarlet letter.

    The next move is to cut the police budgets in the zip codes where they live.

    The cooperation level will rise quickly.

  22. Anonymous

    I noticed sitting down to catch up on Yves postings that it seems the “war” in Afganistan is heating up. Imagine that.

    Along with blatant financial fascism we have ongoing imperialistic support endeavors that also serve as focus for stoking the hate mentality. It is never the US that is bad. It is always the other guy even though we have all the “guns”.

    We have allowed America to become a sickingly immoral country. If we are to retain any sort of respect in the world we need to stop being the biggest, meanest, shrewdest (to the point of perfidy), manipulative, arrogant and selfish bully on the block.

    How dare anyone suggest that anything but the US dollar be the Reserve Currency. They are saying this with a straight face while having committed to upwards of 10 trillion dollars being added to the money supply in the past 6 months.

    A morally vacuous banana republic with nukes.

    This is not the America they teach in school.

    psychohistorian

  23. Anonymous

    Did you REALLY post a video of Cynthia McKinney? Really? I had it on for about 5 seconds so I can’t be sure.

  24. Anonymous

    Sy Krass said…

    Did you REALLY post a video of Cynthia McKiney?

    Yeah, I was not really a fan of the previous administartion, but if future historians only have a record of the critics of George W Bush by which to judge our administration they will think we were a race of psychotic retards.
    HAHAHAHAHAHAHA!!!!!!!!

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