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Geithner’s dubious AIG cover up

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By Edward Harrison of Credit Writedowns

Let me add a few words to Yves’ last post because I don’t think she was explicit enough about what’s going on here. This was looting and a cover-up plain and simple.

A quick review: Damaging e-mails have revealed that Treasury Secretary Timothy Geithner urged AIG to withhold crucial information about the deterioration of its financial condition in the lead up to its demise.  This will put further political pressure on Geithner, who has already been exposed for his dubious role in the Lehman Brothers bankruptcy.

Bloomberg leads into the story saying:

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.

These were not e-mails revealed willingly, but rather as a result of oversight and investigation. At issue is whether the 100 cents on the dollar payments by AIG to its credit default swap counterparties were a backdoor bailout.  Most market watchers believe that AIG counterparties would have received significantly less on the free market, exposing them to tens of billions in losses instead of taxpayers (see CW story from March 2009 on this issue). So, in a very real sense, many believe taxpayers were defrauded by the government’s handling of the AIG affair.  This latest revelation only adds to that belief.

Moreover, in regards to Tim Geithner personally, this revelation is extremely damaging. Not only did he, Paulson and Bernanke mishandle the Lehman bankruptcy which triggered the panic central to the financial crisis, but he has now been personally implicated in withholding – covering up, if you will – vital evidence on the looting of taxpayers to the benefit of financial companies, some of whom are not even domestic institutions. (See my definition of terms.) You have to see this in a negative light.

I would be remiss if I didn’t remind you that he had direct oversight responsibilities for money center banks as president of the Federal Reserve Bank of New York.  In the past, in testimony before Congress he has denied that he was, in fact, responsible for these institutions, saying “I’m not a regulator.”

I’ve never been a regulator, for better or worse. And I think you’re right to say that we have to be very skeptical that regulation can solve all of these problems. We have parts of our system that are overwhelmed by regulation.

Overwhelmed by regulation! It wasn’t the absence of regulation that was the problem, it was despite the presence of regulation you’ve got huge risks that build up.

This is just nonsense. Jo Becker and Gretchen Morgenson put it this way in April:

An examination of Mr. Geithner’s five years as president of the New York Fed, an era of unbridled and ultimately disastrous risk-taking by the financial industry, shows that he forged unusually close relationships with executives of Wall Street’s giant financial institutions.

His actions, as a regulator and later a bailout king, often aligned with the industry’s interests and desires, according to interviews with financiers, regulators and analysts and a review of Federal Reserve records.

In a pair of recent interviews and an exchange of e-mail messages, Mr. Geithner defended his record, saying that from very early on, he was “a consistently dark voice about the potential risks ahead, and a principal source of initiatives designed to make the system stronger” before the markets started to collapse.

Mr. Geithner said his actions in the bailout were motivated solely by a desire to help businesses and consumers. But in a financial crisis, he added, “the government has to take risk, and we are going to be doing things which ultimately — in order to get the credit flowing again — are going to benefit the institutions that are at the core of the problem.”

He was on the job when these firms levered up and took reckless risks that endangered our financial system. For him to absolve himself of responsibility is a disgrace. And to add insult to injury, we now learn that he urged a systemically important company to withhold evidence of his looting of taxpayers.

Tim Geithner must go.

Source

Geithner’s New York Fed Told AIG to Limit Swaps Disclosure – Bloomberg

Geithner, Member and Overseer of Finance Club – NY Times

See also Is Geithner Up to the Task? by Andrew Ross Sorkin. It explains the doubts about Geithner in November of 2008 when he was selected as Treasury Secretary. These doubts were based in large part on his mishandling of the financial crisis and led the New York Times editorial board to write a lengthy Op-Ed in December 2008 titled “Questions for Mr. Geithner” before his confirmation. If you haven’t seen this, read it.

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward

68 comments

  1. steve

    In truth, I think the whole situation is ridiculous and I can’t imagine how anyone who actually takes the time to look at what has happened in the last few years can not see that there is a conflict of interest. It really makes it hit home as to who our politicians really work for.

    1. Ishmael

      So, Geitner leaves Treasury and guess what he takes a job with one of the bailout banks. Guess what kind of salary he will get. Paid the bribe after he leaves office.

  2. Cullpepper

    What the hell?

    Shouldn’t uh, someone be prosecuting Geitner for fraud?

    Even the Thunderdome had rules. This is just farcical.

  3. Greg

    Barrack Obama put it best when speaking of AIG when he stated that the problem is that they didn’t do anything technically illegal. While I would agree that Geithner shouldn’t have been offered his current job to begin with, the lack of attention to these and other actions on Capitol Hill is an indicator that the rot may extend well into the roots. To anybody who has been paying attention for the past few decades, this statement seems quaint, because like an overgrown tree, rotten roots have uplifted the sidewalks all over D.C. Nobody is doing anything technically illegal. Considering all the deregulation, that isn’t surprising. For those whose responsibilities are to make and enforce laws and regulations, they must think and act beyond the question of law, they must question whether any given action is in the best long-term interest of the nation.

    1. john newman

      Well said, the crime now is what is legal. An inevitable eventuality when you establish equivalency between money and political speech (thank you SCOTUS). The political system only works when citizens make it work, they may be libertarian Texas nut-cases (but then most of my family is libertarian Texas nut-cases) but GOOOH (google it) does have a plan to through out ALL of the House of Representatives this year. It would create a new form of gridlock, but it would be a start!

    2. Tao Jonesing

      Greg,

      I’m sorry, but nobody has enough information with which to conclude that nothing illegal was done by Geithner or the Fed here. For example, what if Geithner shorted AIG stock with the information he received and suppressed? Can insider trading be illegal?

      All we know is that Geithner and the Fed went through some pains to cover things up and were unsuccessful. Given the tenor of what has been revealed, it certainly seems that somebody felt that they had done something that needed to be covered up. More digging is required, and when it is finally done, my money is that we will find crimes.

      Now is not the time to shrug your shoulders and assume nothing illegal occurred. To do so would only perpetuate the cover up.

      1. Greg

        Tao Jonesing, despite our politicians’ actions, I still believe in due process. I don’t like Geithner; I don’t trust him. But I’m not going to assume his guilt. I’ll assume his innocence, but enough questionable activity has come to light to warrant a full investigation. The mindset would not be to go on a quest to find anything that sticks to Geithner, but to analyze where our system is failing and develop regulation that better protects the nation as a whole from reckless behavior. I fully support corporations working within the law to maximize their profits; that is the basis of a free-market system. It is the responsibility of government to set limits where actions have the potential to cause others damages, and this includes indirect damages toward investors. Corporations and individuals should pay the penalties where law has been violated, but I suspect that many of the actions we would discover would not clearly be in violation. You may be correct that laws were broken, but at this point the most I can openly argue is that they are trying to cover up simply opportunistic behavior that used holes in our regulation to take advantage of people.

    3. WLosey

      Gee, without all of the regulation there would be less need for bribes and pay-off’s. Banks and insurance companies are notorious for paying for regulations that favor their market position while keeping their prices high and their taxes low (this is actually part of our health insurance problem). Why do you think Congress keeps adding tax code. We currently have 70,000 lines of unreadable tax code. That’s certainly not capitalism or free enterprise. It is flat out government corruption.

      1. colinc

        Well said, WLosey! However, it is not just the government that is corrupt (maybe stupid, too), its this whole goddamned nation and beyond! In my experience, fewer than 1% seem to have _any_ understanding of “honesty” or “honor,” let alone “integrity.” Just read Greg’s comment (immediately above) and one has to conclude he’d follow Bernie Madoff into hell as long as he was getting his “cut.” Ethics, honesty and legality be damned as long as they can make a profit. Why should they care how much damage they cause to who cares how many other people. When China and Russia figure out how the USA and its corporate titans are screwing them through similar deceits, we’ll all get a once in a lifetime spectacle!

        1. Greg

          colinc, it’s easy to get rousted up into banging a pot and making a lot of noise without any real thought about reality such as saying everybody and everything is corrupt. Ok, what do you mean by corrupt? Do you mean they aren’t following the rules? What rules? Law?

          Your statement about Bernie Madoff is silly because reality shows I didn’t follow Madoff. I wouldn’t blindly invest money like the people he scammed. Most importantly, Madoff is a completely different story because he obviously violated laws as a court found.

          You have a right to be upset. I’m upset. But I don’t blame everybody. If you play a game with someone, tell them the rules, then accuse them of cheating because they won by following the rules, you don’t have a strong argument. The problem in my opinion is not corporations but those who set the rule or are supposed to set the rules.

          Corporations, or individuals in general, work in their own interests, even altruists. It is up to government to established rules or laws to protect us from each other and ourselves in some cases. Our current problems, in my opinion, are because of a lack of proper regulation. Governments should not be telling business how to run their companies, but they should be setting limits to their actions. This is where our government has failed miserably.

          So while I would agree that many companies took advantage of others, the real fault lies in a government that allows this possibility. Now, while I believe companies should attempt to maximize their profitability, I would also state that many of the actions of late by many of these companies have been short sighted. They’ve helped to further gut the middle class which is the bulk of consumers, and they will feel this effect negatively in the years to come as our economies establish new equilibrium points.

          Besides the government, the public also shares a responsibility by over-consumption beyond their means. Also, there has been a drastic shift in blind investing since the 1980′s where every so-called financial guru recommended pooling assets in funds managed by people whose only goal is to increase value (and thus enabled to crooks like Madoff). So if you have any sort of retirement asset in such a fund and you criticize a company for maximizing profits, well then, your a hypocrite and contributing to that problem. The result of these blind investments has put pressure on corporations to simply think about profits instead of production. The results has been the U.S. has shifted away from a production economy both in physicality and financial focus. This is dangerous to the stability and growth of our economy, and the security as a nation state.

          Fixing the problem will require politicians creating fair regulation that focuses on setting limits on behavior, and a shift in the public mentality about investing. We need to return to investing in building or creating something rather than simply for blind profit. Once those two things happen, corporations and business in general will fall in line.

      1. Uhhh Yeah

        Oh STFU, Cynthia. Put anything you can on the black President just to get his ass out of office? You are freaking pathetic. I’m willing to bet you spell Nigeria with an extra “G”. Coward.

        1. Doug Terpstra

          Your charge is out of line. Nothing Cynthia said has the slightest racist tinge; her comment is fair.

  4. Mannwich

    And the looting will continue until the citizens en masses make it stop. If your Geithner and his ilk, why stop when nobody is making you stop?

  5. LeeAnne

    …the day Congress gave Hank Paulson a free pass and exemption from the ‘rule of law’ is the day constitutional law protecting the citizens of this country ended.

    If we’re not arguing for a return to laws as they existed before the Supreme Court/Bush coupe d’tet of 2000 we going around in impotent circles.

  6. DealGuy

    AIG came to the government on bended knee, with hat in hand. Now that they have received the TARP funds, employees are making salary demands and demands for severance. Given that some are “key employees”, it appears AIG has the government “a lil bit pregnant”. If a group of inner city kids from Brooklyn can figure it out then why can’t adults? To learn more go here: http://clicky.me/DonMagicJuan

  7. Brick

    The New york Fed encouraged AIG to violate SEC regulations.It should have been the SEC which investigated but since it did not nor does it seem likely to, both ought to be investigated.
    It would be rather interesting to see what the FBI was investigating in New York back in 2008 that it seems it was persuaded to walk away from by the administration. We know it started an investigation into AIG, Lehman and others but we have heard nothing since.

    1. jo

      Are you kidding? They were too busy investigating every possible loose end about Elliot Spitzer. Investigate ANY man with wealth and power – 4 out of 5 will have had some kind of sexual indiscretion. Put the FBI on it for months on end (Spitzer was extremely cautious about it) until finally, he can be busted in public. Once busted, ensure that

      1. “NO MAJOR MEDIA MAY MENTION SPITZER OUTSIDE THE CONTEXT OF THE SEX SCANDAL”
      2. “NO MEDIA TO MENTION THAT SPITZER WAS COMING AFTER WALL ST VIA CONSTITUTIONAL AND TRADE POWERS OF THE STATE OF NY.

  8. fresno dan

    “Let me add a few words to Yves’ last post because I don’t think she was explicit enough…”

    OK, let’s be explicit – Geithner is the Anti-Christ.

    I fully expect the next revelation (no pun intended) to be that Geithner has cloven hooves, a tail, and horns.
    SERIOUSLY.
    Really. I am not being sarcastic about the media, or that this is much ado about nothing. Geithner is the Devil!!!

  9. Blurtman

    @Ed Harrison,

    Well said, Ed. Silence from Obama and Holder can only confirm what many believe re: the sad state of this country.

    Ed, Mark Pittman broke this story on September 29, 2008. Did you quickly pick up on it on your blog?

    Same question for Yves.

    1. Yves Smith

      The book was due in Sept 29 and I was up 36 hours straight and could barely type towards the end. I made it clear at the time I was not going to be posting for a few days.

      In general, it is not reasonable to expect bloggers, who do NOT do this for living, to read every news story. It isn’t possible. We do the best we can.

          1. Blurtman

            The September Naked Capitalism link yuou provided illustrates that you missed the story entirely, even though it was staring you in the face. The story was/is that the US taxpayer was bailing out the investment banks through AIG.

            You reported that the AIG balouts illustrated how under capitalized the EU banks were. Zzzzzzz……

            Not quite the nose for news there, Ed.

  10. Fraud Guy

    11 dimensional chess.

    Perhaps it is being played this way to show explicitly that the system is corrupt and needs to be remade. That’s the paranoic explanation for the combination of kleptocracy and availability of the data.

  11. avrymann

    Oh Come On! Geithner knows exactly what he is doing. On one of his first TV interviews after being appointed Treasury secretary a reporter started by saying that there were a lot of people who said that he was a bad choice and should be removed from office. His answer, “They may get their chance, but not yet”. He is fulfilling his mandate from Wall Street. He knows he may be removed from office, but he will have accomplished his mission in the meantime, only to retire to a high paying job on Wall Street. There will be no prosecutions as there is no law at that level.

  12. KFritz

    This story is good news. If the drumbeat from it gets loud enough, Turbo Tim is gone as Sec Treasury. Hopefully, Larry Summers will be flushed out along with him. Bernanke will be weakened also, and might also be swept out to sea. Getting rid of the lot in this context could empower Obama to appoint some folks who could begin our actual, necessary financial housekeeping.

    May this good luck happen to us all, every one.

    1. MichaelC

      I agree.
      Was there ever any doubt in anyones mind that Giethner is the callow tool of the bigger players.
      The question that’s puzzled me from BS implosion till today, is Whose puppet is he?, Is he Rubin’s, Summers’,Paulson’s, Bernanke’s, all of them?
      My fantasy solution is Obama kicks him out, appoints Volker as T sec,(neutering the Rubinites) sends Summers back to academia, and replaces Bernanke (After all, Ben was Timmy’s boss when the Q was drafted. )

      If that’s actually Tim’s handwriting on the drafts of the Q (posted at ZH)he shouldn’t have a snowball’s chance of keeping his job so the time is ideal for a purge.

      I have a tiny hope that if Obama dreams of a two term presidency, he still has an opportunity to proceed with a purge and spin the first year as filled with rookie mistakes. I know its delusional and its more a thought experiment than a faint hope, but I’m exhausted by equally delusional conspiracy theoriess and need to consider that there is a way out of this mess.

      1. KFritz

        You’ll notice I’m writing a day later. You’re correct–there is no drumbeat. I hoped that the story has legs and still do.
        It may not.

    2. Claire

      What drumbeat? The story isn’t even “above the fold” on any of the major papers’ online editions–NYtimes, WaPo, FT…

      I guess that may change, but for now it seems to be a non-story, along with just about everything else that happened during this period of insanity.

      1. mcnet

        I’m feeling a bit curmudgeonly, so I preemptively apologize to most readers (and the host) of this blog.

        It’s not so hard to portray this as an ‘above the fold’ story.
        As far as I’ve seen Taibbi is the only one who has managed to make this story comprehensible to any and all with half a brain. I’m fustrated the blogs are doomed to remain insular till they acquire Taibbi’s skill. How hard is it for a respected blogger to write an article that reduces the complexities of synthetic CDS to the basics. “GS buys insurance from (unsuspecting)investors (your 401k bond fund, perhaps?)against a collapse in Real Estate. Do you want to be on the other side of that trade? Gretchen M at the NYT, has the monopoly, but she’s not up to the task.

        The hosts are blind to their own insularity, and need a hunility check.

        I’m sorry to say, that Yves’ (I believe unintended/unconcious/lacking self awareness)throw away biographical reference, that she had worked at GS ‘in the day’ when they were more selective (non Ivy need not apply/ so self congradulatory I reched and almost swore off this site)speaks volumes about blog coverage (and blog comment participation) than any of us are willing to acknowledge.It was off-putting in a visceral way to me (I know this business from the inside for a long time).
        I love this blog and others like it, but since I clawed my way into this business (25 years ago, when it was possible), attained a seat at the table to witness and understand many of the issues/products central to the crisis from a non Ivy backgroud, I know all the arcana is comprehensible and explicable to that mass of intelligent, educated, but non insider finance folk yearning for a cogent explanation.

        No need to dumb down. Any blog that explains things more precisely and cogently than the WSJ or the FT will blow them out of the water.

        These guys (Geither, Summers, Bernanke, etc) need to go. They will go when most people can be persuaded that these people are more incompetant than crimminal. This and comparable sites can help make that happen.

        1. Claire

          Well, FWIW, I have no formal financial background whatsoever, and I can make sense of Yves’ blog just fine. I view the difference between the blogs’ coverage and that of the papers as just more proof that the blogs *will* blow msm out of the water. It’s just a matter of time, but it seems pretty inevitable.

          For now, though, I think most people still get their information from the msm, and the msm isn’t treating this as a big deal (yet).

  13. Capital Munch

    Why on earth is Obama appointing National City Bank’s longtime SVP for mortgage lending and risk management head of GNMA? At best, ignorant morons must be running this appointments and policy process. At worst, they are not ignorant, but malicious.

    http://www.housingwire.com/2010/01/07/obama-nominates-national-city-svp-for-ginnie-mae-president/

    Theodore “Ted” Tozer began serving as senior vice president at National City Mortgage in 1989. The company is now a subsidiary of PNC Financial Services Group. In that role, Tozer’s been responsible for pricing, hedging, loan delivery, loan sales, and new product design. He’s also served in various roles at BancOhio Mortage Company and BancOhio National Bank.

    In announcing Tozer and two other nominations, Obama said, “It gives me great confidence that such dedicated and skilled individuals have decided to join my administration as we work to address the many challenges American families are facing. I look forward to working with them in the coming months and years.”

  14. Seal

    Timmy is just the boob fall guy – Paulson, Greenberg, and Blankfein are the ones who belong in jail!

  15. avrymann

    Geithner may fall, but Larry Summers is waiting in the wings. Welcome to change that is unbelievable.

  16. AP

    The simple fact that Geithner still has his job speaks volumes about the very root of the problem in this country.

    1. NotTimothyGeithner

      I’m sick of this civilized shit. Lets bring back the gallows for these traitorous assholes.

  17. Hugh

    “Timmy is just the boob fall guy”

    Yes, but it is important to remember that Geithner has made a very successful career out of being a boob and failing upward.

    My understanding of the AIG affair is that Goldman essentially shorted subprime through it and then forced via collateral calls AIG to the point of collapse. On September 13-14, 2008 when the AIG bailout was being thrashed out, Blankfein was at the table as vulture to protect its swaps but also as suppliant because if AIG defaulted, GS was dead. That Paulson had Blankfein there at all just screams to the collusion that was going on. So the AIG deal was decided that weekend and GS’s swaps and existence were saved, with the details about the swaps to be worked out.

    Concurrently, the decision was made to let Lehman hit the wall which it did on Monday the 15th. But the people who run our financial system both within and outside government are not simply criminal but criminally stupid. Lehman going splat would have taken out GS despite the just completed effort with AIG to save it. The AIG deal was rushed to conclusion and announced the day after on the 16th. Clearly this was an attempt to shore up markets (but also GS). It wasn’t enough for GS and it was forced to convert to a bankholding company (which it was anything but). The move however allowed it access to credit lines through the FED and FDIC and this is what definitively saved it.

    But the swaps through AIG were still out there. Although no longer needed to rescue the company, money is money and bonuses must be paid. The negotiations concerning these are what went on in November. Of course, other banks had action through AIG and wanted resolution of their swaps. But it is hard to see GS not driving the boat. I mean it not the Eurobanks was at that table back in September. And GS had Paulson at Treasury, Liddy (a GS board member) at AIG, and naturally Geithner at the NY Fed.

    Yves and others here have written about how the demands from the French regulators were a pretext for payment in full on the swaps. But it was a very convenient one and it allowed the folding of GS’s swaps in with the others. Geithner’s attempt to hide it fits a pattern of inside deals at the time which benefited banksters but, which while undisclosed, were supposed to shore up confidence in the financial system. Don’t ask me to explain how such secretive actions could ever be construed as confidence building. It gives me a headache when I try to understand it. But there it is. I think the key test is whether such deals and the secrecy that surrounded them could ever reasonably considered to have served a public interest. I think that while they filled many private interests the public interest never occurred to those involved at all, except as a convenient pretext for looting and facilitating looting.

    1. marc fleury

      hmmmm….

      While all of you are busy tarring and feathering TG instead of looking at your own guilt and greed (of course real-estate didn’t go down in YOUR neighborhood), I would still like to understand what the hell went on and with numbers.

      What is contradictory in the above analysis is that if you read the “abacus” coverage done here in the past days it says clearly that GS was short the subprime in a speculative way. The eurobanks were out the bonds (they had bought), but GS was 6:1 the bond. In other words, a bankrupt AIG was just a “too bad” for GS, they bet they won but blew up the bank, too bad. Here is your wager back and please fuck off.

      There are two mutually exclusive options:

      1/ GS was just speculating, its blow up was just a result of short term roll-over money market drying up. Borrow short to lend long was the Achilles heel of the IB system. This is unrelated to AIG. It is plausible.

      2/ GS was not speculating. This by the way would explain the 100% payout: GS was an intermediary in the larger pool of subprime, had paid its counterparty was indeed in the red as a result and could not take anything but the 100% value to restore its reserves. This is also consistent with using the french as a deflector.

      The more I read about this, the more I believe 2/ was really the dominant theme. This means that abacus and other synthetic CDO’s of the late crop was not the whole story and GS was indeed hedged neutral throughout the process.

      In the 2/ case there is little that was illegal and most of the chess moves were “forced” and not “malice”. AIG was going under GS was going under. We all saw what LB going under did, do we really want to know what the world would look like with all IBs gone?

      The only thing that should be made illegal here is the naked CDS betting, which was packaged as synthetic CDOs allowing the long end of the deal to be marketed as AAA securities.

      The rest is name calling and finger pointing.

      1. Hugh

        “GS was not speculating”

        And pigs fly south for the winter. Speculation is all GS does. It fulfills no useful or worthwhile function either in markets or in our society, but engages in many wealth destroying, market distorting activities.

        Having Goldman alumni and pals at all the key points on this deal, Goldman wins a big bet where it should have taken a huge loss, just a coincidence, nope, nothing to see here, don’t believe your lying eyes, move along. Amazing.

        1. marc fleury

          hugh,

          again, if it was a bet then there was nothing to lose but a wager. This would have made a haircut palatable.

          If this was overall hedging or HF representation and the monies were disbursed then there was a loss to the value of the nominal.

          It has been discussed here in the context of the Abacus deals where clearly there was speculation via synthetic CDOs. It isn’t clear to me (yet) on the overall mass of deals. The 100% payout is worse in the case of speculation.

          Let’s get the facts before jumping to conclusions and if the facts point to speculation and 100% payout then you got a big fat smoking gun.

  18. Jim

    Bravo Hugh!

    “I think that while they filled many private interests the public interest never occurred to those involved at all, except as a convenient pretext for looting and facilitating looting.”

    This wonderful statement encapsulates one of the major reasons for the growing outrage in the country. This is apparently the way our elites really do think about us. I hope we can someday prove them wrong.

  19. geo

    If anyone had bothered to look at the crowdsourcing social website reddit they would have seen many people SCREAMING this back when Paulson was actually DOING IT.

    How can a bunch of regular people looking through normal public documents recognize a scheme for AIG to pay goldman insiders and find out all the players names in AIG and Goldman including tracing AIg troubles back to people who tanked Drexel Burnham Lambert when the prosecutors can’t?

    for example

    http://www.reddit.com/r/all//search?q=goldman+bush

    and

    http://www.reddit.com/r/all/search?q=sachs+bush&sort=relevance&t=all

    and

    http://www.reddit.com/r/reddit.com/comments/85pvi/lets_come_up_with_the_best_google_search_to_find/

  20. geo

    oh and buiy the way I don’t care about criminal trials which only lead to light “jail” time in a club fed until a republican (bush) appointed judge gets the appeal only to let the people off

    (which is why bush planted all those lifetime appointment judges permanently in the system anyway – to let people off when the appeals hit their desks).

    I care about GETTING THEM TO COUGH UP ALL THE MONEY THAT WENT TO GOLDMAN PARTNERS.

    vivzizi

    1. marc fleury

      Yes,

      if indeed GS was speculating 6:1 on the bonds then the gains only exist because the taxpayer saved AIG. AIG should have gone under and the casino should have said “sorry, we shouldn’t have taken your wager, here it is, we can’t pay the winnings”. 5:1 should be taken back.

      If that is indeed what happened! However the 100% payout for IB swaps with AIG is the fly in the ointment of this whole analysis. It either means massive corruption or a forced move (the IBs were out the money as intermediaries).

      Get to the bottom of WHY it was paid so, and you will get a lot more light shone on the mechanics and we can start assigning blame without the hysterics going on here.

      Do not assume malice where incompetence will do. Do not assume malice where back against the wall will do. Do not assume malice, period.

  21. DavosSherman

    Good read Ed!

    Why aren’t we more surprised? Well from a guy who signed a note indicating he knew his pay was income and that he would pay taxes on it and then didn’t….

  22. Doug Terpstra

    Great post, Edward.

    I just read your “Smoking Gun” memo at CreditWritedowns.com, with a legible, highlighted image of Geithner’s own incriminating scribbles. Ouch.

    I suppose calls for the orange jumpsuit and frog-march are premature, but I agree he must clearly explain himself or he must go. Tyler Durden at Zero Hedge calls for him to appear before a jury of his peers; the only problem is a fraternity of banksters is certain to acquit. It seems that with lobbyists literally occupying DC (in the military sense), crimes have been declared legal, and regulators’ and prosecutors’ guns are loaded with blanks.

  23. Michel Delving

    Ed,
    Can we cut to the chase here and ask why NY Fed did not want CUSIPs or Tranche names revealed? Thoughts? anyone?

  24. Jim in MN

    I figure that Geithner figured that he was saving the world–after all, Goldman IS the world for some people, and who knows, there could have been all kinds of icky and scary results if AIG puked in Goldman’s face.

    BUT

    If you commit illegal or unethical things for a higher purpose, the honorable thing is to accept responsibility and take your proper punishment.

    All the people involved in this should move on, cooperate with the authorities, and turn over their records to more effective, untarred successors.

  25. Justicia

    So the NY Fed counsels a public company not to disclose material information — a violation of the securities laws — just in time to prevent the inconvenient fact from being raised during Geithner’s confirmation that the Fed was complicit in the back door bailouts of Goldman et al.

    If there aren’t Congressional hearings into this outrage, then we truly have become a Banana Republic. Crony Capitalism Rules.

  26. Pitchfork Guy

    The fundamental problem is in any activity that allows an entity to take all the profit from an activity and sell exposure to the risk is going to be thwarted. The risk taking will escalate and Party A will keep winning and Party B will always lose…but get bailed out because they are important.

    Solution: Define acceptable financial activities (LT/ST Capital Gains/Dividends/Interest of buy and hold securities) and tax the profitability out of speculative derivatives of any kind or have strict financial minimums in order to engage in this.

    Wall Street wouldn’t like it. America’s best and brightest would have to do something else from the brain drain….maybe come up with a way to make cars, medicine or a product with some tangible value.

  27. Btok

    http://www.youtube.com/travinyle1/

    January 13, 2010

    Lindsey Graham held a town hall meeting tonight (1/12/10) at Clemson University near his hometown of Central SC. He had a lot of hometown supporters which was obvious.

    It lasted almost 2 hours. He gave the usual talking points about wanting to attack Iran.
    He claimed he was against cap and trade even though hes not. He talked about government spending being out of control depsite his votes to increase it. Graham said
    he would stand behind Obama and encourage him to attack Iran to keep them from creating a nuclear weapon and engaged in fear mongoring. He also said naked body
    scanners should be mandatory for everyone who wants to fly on a plane. Most of the crowd seemed to be in a trance by his spin and lies and BS. He said the Republican party needed to move to the center more. Many Ron Paul supporters were there and spoke out a lot. I hope to compile more footage of some of the other questions.
    I held my arm up for 2 straight hours to ask him a question. I was wearing a Live Free or Die Infowars Tshirt. Graham passed me by multiple times depite me being on the aisle in the 5th row.

    Even the folks all around me found it obvious that i was being avoided due to my camera and shirt. One man was thrown out who had a live free or die tshirt for yelling. Someone else spoke up about flight 253 being a false flag.

    Lindsey Graham is a globalists who is trying to climb the ladder of the new world order. He needs to be confronted at every oppurtunity.

    He ignored all of my questions about bankergate. Because he knows whats going on he helped to engineer it.
    Take a look at an Elite, liar and spinner of the Facts, in the wings!
    We’ve already got too much of this slime in Washington!

    For your information, Glen Beck is a deceiver, traitor, working to push the Elitist Republican Party Line into power stacked with Elitists! Re: Republican & Democrats = 1 Coin two sides of the same value!

    Vote for the Independents from the Tea Party those that will follow the Constitution, and make sure they have no ties to Elitist organizations! If you want America and you, to be free again!

    Look another Spin Doctor: http://www.youtube.com/watch?v=9SqB-H6DqO0&feature=player_embedded

  28. megos

    We must stop this, we the people, and we must have a very concrete, real plan to do just this. The monetary system, that is the Anglo Dutch Liberal monetary system is collapsing right in our faces. The AIG fiasco, loot, robbery, however you may call it is not the problem in itself, it’s just one of the paw prints of the giant “invisible” animal. We must stop the gambling debts that are sucking the life not only of the American people, but the people of the planet, all humans. Lyndon LaRouche, hihstorian, forecaster and strategist, is proposing his plan. Read more, inform yourself and get involved in this and all the other movements that are arising at this moment in our nation. We must stand up, organize, communicate without bringing any prejudice beforehand, that way we will all realize that we humans, are one big family.

    Investigate at http://www.larouchepac.com/

    Let us be united, the planet needs it.

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