Memo to Andrew Ross Sorkin: if you are going to try to discredit someone, it’s more effective if you are less obvious about it.
Having missed out on gang attack on Neil Barofsky on the CNBC show Squawk Box (where Sorkin normally acts as co-host) that prompted a general take-down of CNBC’s reporting bias by Columbia Journalism Review, Sorkin apparently decided to get his own digs in. His latest article, “Plot Twist in the A.I.G. Bailout: It Actually Worked” is a unabashed effort at a twofer: a recitation of pet Administration talking points (the piece starts with a quote from the White House) and an attack on a high profile critic.
I’ll be doing a longer form treatment later on the recent, clearly Administration-driven “the TARP worked” PR campaign. As far as the Sorkin contribution to this initiative is concerned, it’s an example of how the Treasury and bank defenders will try all sorts of creative accounting and will conveniently ignore their own past work to pass off Big Lies deemed to be important.
Sorkin (and one has to assume the Administration) is now trying a new angle on “the TARP made money” canard by arguing that the way to look at the investment is by treating the Fed/Treasury “investment” jointly, as opposed to looking at the TARP (Treasury program) in isolation. That is just another exercise in three card monte. If you are going to include Fed actions, you need to look at them in aggregate, and not cherry pick the ones that suit your case. The Fed’s apparent recouping of its “investment” in garbage barges like Maiden Lane 2 and 3 results from its extraordinary interventions to goose the prices of financial assets, including the alphabet soup of special facilities during the crisis, ZIRP, and QE and QE2. These represent a considerable transfer of wealth away from savers to financial institutions, by design. The most colorful account of how this worked comes from Steve Waldman:
Suppose my kid’s meth habit got the best of him. He’s needs to come up with $100K quick or his dealer’s gonna whack him. But he’s a good kid, really! Coulda happened to anyone. So I “lend” him the money, even though he has no visible means of support and the sketchiest loan sharks in town wouldn’t give him the time of day. Now I believe in bootstraps and hard work, individualism and self-reliance. So I tell my son. “Son, you are going to pay me back every penny of that loan. You are going to work it off. I have arranged with one of my golf buddies, a guy who owes me a favor or three, a job that pays $200K a year. You’d better show up every day at 9 a.m. and sit behind that desk, and get me back my money!” And he does! After a year, he’s made me whole. What a good kid.
No bail out, right? He paid me back every penny! Worked it off!
Bullshit. The opportunity I provided him, the $200K job that he would not have received without my intercession, was a huge grant. On the open market, if I were to accept bribes from the highest bidder to wangle the job from my friend, that opportunity would be worth more than the $100K advanced. I paid my son’s loan with my own money. I just obscured the cash flows, so my son and I can pretend and sustain our mutual self-regard and our righteous disdain for the moochers and the hippies and the riff-raff.
In the Sorkin article, the article revolves around a MEGO (My Eyes Glaze Over) inducing argument of which share price for AIG is the right one to use for determining whether the government got the dough it put at risk in TARP back (never mind the point that Waldman, your truly, and numerous others have made: that merely paying the money back is also a big gimmie, given that the banks wrecked the global economy and no private party would have given them funds at anything other than extremely tough terms when the financiers were on death’s door). Barofsky contends that the price is over $43 a share (above the Treasury’s latest sales price of $32.50) while Sorkin repeats Treasury’s claim that the price (by throwing in the Fed’s three card monte “profits”) is really $28.73.
But buried in the article, Sorkin concedes Barofsky’s position: “Mr. Barofsky is technically correct that if you isolate the original cost to TARP for its investment in A.I.G., $43.53 a share is the break-even number.”
And Sorkin has a convenient episode of amnesia, that his own previous work proves that the Treasury number he flogs in this article is also too low.
In a February article, “Bending the Tax Code, and Lifting A.I.G.’s Profit,” Sorkin described how AIG was allowed to retain $26.2 billion of net operating losses that should have been wiped out as a part of the rescue of the company as well as an additional $9 billion of “unrealized loss on investments.” That increased AIG’s fourth quarter and hence fiscal year earnings by a remarkable $17.7 billion, which dwarfs the mere $1.6 billion its operations produced that quarter. And the article includes this juicy bit:
Analysts at Bank of America and JPMorgan Chase last year estimated that the tax benefits from the losses propped up A.I.G. stock by $5 to $6 a share. Its shares closed at $28.66 on Monday, just shy of the $29 mark that the government says it needs to sell its shares to break even.
So get this: the government break even figure, which it has calculated down to the penny per share, excludes $35 billion of what Sorkin in February called “a tax benefit, er, gift, from the United States government” that goosed the stock price by at least $5. Reverse that out and even using the government’s remarkably aggressive view of the matter, the AIG bailout was and remains a turkey.