I’m only starting to dig into the AIG bailout trial by reading the transcripts and related exhibits. That means I am behind where the trial is now. However, that gives me the advantage of contrasting what is in the documents with the media reporting to date. And what is really striking is the near silence on the core argument in this case.
There’s nothing like seeing the good guys score a goal. We have two this evening. One is a win by David Sirota, whose reporting on San Francisco’s plan to shift up to 15% of retiree funds into hedge funds appears to have led to a climbdown by the city. Sirota uncovered an unreported conflict of interest by the consultant recommending the change, who also operates a hedge fund of funds. Admittedly, CalPERS’ recent announcement that it was exiting hedge funds entirely also put pressure on the city to reverse course.
But Gretchen Morgenson collected an even bigger scalp in the form of Blackstone halting a practice that she highlighted in a May article: that of taking “termination fees” when portfolio companies are sold. However, as we discuss later, as positive as this move appears, this is almost certainly Blackstone throwing a big, visible bone to investors in the hope of deterring an SEC enforcement action.
As we said in our companion post today on the AIG bailout trial, former AIG CEO Hank Greenberg may have a case after all. Mind you, we are not fans of Greenberg. But far too much of what happened during the crisis has been swept under the rug, in the interest of preserving the officialdom-flattering story that the way the bailouts were handled was necessary, or at least reasonable, and any errors were good faith mistakes, resulting from the enormity of the deluge.
Needless to say, the picture that emerges from the Greenberg camp, as presented in the “Corrected Plaintiff’s Proposed Findings of Fact,” filed in Federal Court on August 22, is radically different. I strongly urge readers, particularly those with transaction experience, to read the document, attached at the end, in full. It makes a surprisingly credible and detailed case that AIG’s board was muscled into a rescue that was punitive, when that was neither necessary nor warranted. And the tactics used to corner the board were remarkably heavy-handed.
Bill Black gives one of his best recaps ever of the “too big to jail” syndrome on Bill Moyers. For readers who missed the story, Black gave critical testimony in a Federal prosecution of small fry mortgage fraudsters. He helped persuaded the jury that in fact no fraud took place because the banks were willing to underwrite any predatory, poorly underwritten loan in the runup to the crisis. Black savages the posture of the Department of Justice in this case and in general.
If nothing else, the legal slugfest over whether the US government did former AIG CEO Hank Greenberg a dirty by imposing tough terms on the failed insurer and giving the kid gloves treatment to the teetering-on-the-brink banks who were certain to be engulfed by an AIG collapse will be highly entertaining. Ben Bernanke, Hank Greenberg, and Timothy Geithner are all scheduled to go on the stand next week, to be grilled by America’s top trial lawyer, David Boies.
Yves here. We are delighted to welcome two world-recognized tax experts as writers on our site. They also happen to fall in the minority that believes that paying taxes is the price of civilization. And to top it off, they write in a layperson-friendly yet technically accurate manner.
Iceland demonstrates that prosecuting banksters does not hurt, and likely aids in real economy recovery from a financial crisis. But since when has the US been run as if making the real economy work was of paramount concern?
Yves here. Martin Khor focuses on the alarm created by the ruling against Argentina that allowed a Paul Singer’s NML, a vulture fund with a small position in Argentina’s bonds, to vitiate a hard-fought bond restructuring. The particularly ugly part that don’t get the attention warranted is that it is widely believed that Singer took a much larger position in credit default swaps, meaning he was seeking to create and betting on an Argentine default. And another ugly wrinkle is the role of private law in these processes. ISDA, a private organization, determines what is an event of default for credit default swaps.
Singer was on the committee that voted whether Argentina was in default (recall it had made payment under the restructuring to the trustee, Bank of New York, but BONY was barred by the court from remitting payment to the bondholders). This gave him a direct say in an event in which he had a large economic interest. And that was no lucky accident.
Yves here. Please note that Don’t Start from Here: We Need a Banking Revolution has been released in the UK and was scheduled for publication in the US in early September but apparently is not yet for sale. I hope readers will keep an eye out for it, because it appears to fill a void, that of describing in high-level accurate terms why the banking system no longer works for society at large, how post-crisis banking reforms missed the mark, and what measures need to be put in place.
A remarkable (in a bad way) New York Times op-ed shows that Roger Cohen is so deep in the banksters’ pockets that he cannot see that he is a leader in the movement to ensure that no bankster will ever “pay for his sins.”
Yves here. A new ruling by the European Union Court of Justice is tantamount to shutting the gate door after the horses are in the next county. Nevertheless, it’s a striking if not well publicized indictment of US casualness about lobbing charges against countries on its enemies list.
I strongly suggest you read Georgetown law professor Adam Levitin’s new post on why he believes Apple’s newly announced Apple Pay service puts Apple under the CFPB’s jurisdiction but virtue of having made itself a regulated financial institution. And Levitin means all of Apple’s consumer services, not just Apple Pay. He believes that Apple is […]
I am returning to my series of articles about the pathologies that have caused the Department of Justice (DOJ) to suffer a strategic failure in prosecuting the banksters that led the three fraud epidemics that caused the financial crisis and the Great Recession. I have been inspired by Tom Frank’s column in Salon covering our successful defense of a mortgage fraud case in Sacramento. This column addresses the single most offensive thing I learned in the course of that case. Under U.S. Attorney Ben Wagner’s leadership the Eastern District of California has begun targeting immigrants of Russian descent for mortgage fraud prosecutions.