Tag Archives: AIG

Overwhelm The System

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Geithner Accused Of Incompetence Over His Role In AIG Bailout

The US treasury secretary Timothy Geithner was accused of incompetence, obfuscation and of making “lame excuses” during a furious hearing on Capitol Hill over the government’s contentious bailout of the sprawling insurer AIG.

In an unusually ill-tempered confrontation, members of Congress from both parties rounded on Geithner over a decision to use taxpayers’ money to pay out the full $62bn owed by AIG to banks such as Goldman SachsMerrill LynchBarclays and RBS. Geithner described the AIG bailout, which cost a total of $182bn, as a “tragic choice” at the height of the global financial crisis in September 2008 but said that at the time, there was a risk of “utter collapse” of the US economy.

“For the first time in 80 years, the United States risked a complete collapse of our financial system,” said Geithner. “Americans were starting to question the safety of their money in the nation’s banks, and a growing sense of panic was producing the classic signs of a generalised run.”

Several members of the House oversight committee demanded Geithner’s resignation, accusing him of selling US taxpayers short by failing to force AIG‘s counterparties to take “haircuts”.

“It stinks to high heaven, what happened here,” said Stephen Lynch, a ­Democratic congressman. “I don’t like the obfuscation.”

The committee’s chairman, Edolphus Towns, a fellow Democrat, blasted the government’s handling of AIG: “Taxpayers were propping up the hollow shell of AIG by stuffing it with money, and the rest of Wall Street looted the corpse.”

At the time of the bail-out, Geithner was chairman of the New York Federal Reserve, which played a key role in rescuing AIG. He said the alternative to refunding AIG’s counterparties would have been bankruptcy of AIG, causing an evaporation of confidence leading to “millions more job losses”, factory closures and a possible economic “catastrophe”.

And he denied being part of a “cover-up” in which the government initially hid the identity of the banks receiving AIG funds, saying he withdrew from participating in decisions from late 2008 in preparation for taking office in the Obama administration.

But a Republican, John Mica, accused Geithner of providing “lame excuses” and said: “You were either incompetent in your job or you were not doing your job.”

The biggest counterparty receiving money from AIG was Goldman Sachs. Visibly rattled, Geithner was obliged to confirm to the committee that his chief of staff, Mark Patterson, is a former Goldman Sachs banker, as is Geithner’s predecessor at the treasury, Henry Paulson. But he angrily defended those involved, describing them as “people of enormous integrity and experience, operating under exceptional circumstances with no precedent”.

During the hearing, Geithner was pressed over his views on Wall Street pay. He described the growth of bankers’ bonuses at the height of the boom as a “terrible catastrophe”.

“It came amid a wave of a huge increase in income inequality in the US over decades,” said Geithner. “In the financial industry, it was much worse and helped encourage a level of risk-taking that brought the financial system to the edge of collapse.”


Secret Banking Cabal Emerges From AIG Shadows

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Who Was Paid Off In The AIG Bailout

A key question at the heart of the controversial bailout of AIG is just how much money the government lost. The Federal Reserve and Treasury Department have worked to keep that number secret and to conceal who was on the winning end.

An unredacted document obtained by the Huffington Post list the damage in detail. Goldman Sachs alone, for instance, got $14 billion in government money for assets worth $6 billion at the time — a de facto $8 billion subsidy, courtesy of taxpayers.

The list was produced as part of a congressional investigation led by the House Oversight and Government Reform Committee into the federal bailout of AIG.

The Federal Reserve Bank of New York, then led by now-Treasury Secretary Tim Geithner, purchased a slew of souring assets from the world’s biggest banks for 100 cents on the dollar in November and December 2008. A scathing report by a government watchdog held Geithner responsible for the overpayments.

The New York Fed initially pressured AIG to keep the list hidden from investors, regulators and the public. When it was eventually filed with the Securities and Exchange Commission, the SEC allowed the Fed and AIG to keep the details secret. A heavily-redacted version was made public last March.

The document is part of 250,000 pages of internal documents on the AIG deliberations subpoenaed by the oversight committee. It lists the toxic mortgage bonds that banks insured through AIG.

Those insurance contracts, called credit default swaps, are what the New York Fed ultimately took off AIG’s books, paying the banks 100 cents on the dollar for toxic mortgage bonds — home mortgages that were bundled together and securitized. The banks could never have gotten anywhere near such a generous deal on the open market, so the move served essentially as a direct subsidy to those banks from taxpayers.

Up until now, taxpayers had no way to know exactly what they owned. They knew they owned a certain amount of assets, but none of the details: which bundles of mortgages it purchased from AIG; how the banks were valuing those mortgages; how much collateral they had demanded from AIG on those securities; or which bank bundled those mortgages into securities.

Rep. Darrell Issa of California, the top ranking Republican on the oversight committee, told HuffPost that he was not persuaded by government and Fed arguments that the transactions should be kept secret.

“Just because the government happens to own the bonds, which means–by the way, they don’t have to be sold at all until they are worth what we want them to be worth — that somehow they have to be kept a secret,” Issa said during a break in the today’s AIG oversight hearing, where Treasury Secretary Tim Geithner testified about his role in the bailout as then-head of the New York Fed.

The troubled insurer tried to publicly disclose these details in December 2008 before being thwarted by the Geithner-led New York Fed. A month later Geithner left to head the Treasury Department.

Issa said that the public had a right to see the document. “I mean, think about it: What the government owns it can keep as long as it wants. It would be like saying you can’t appraise federal land. Why? It is one of those things that’s outrageous. We know we paid a hundred percent for them. We know who got the money. This document shows who ultimately were the beneficiaries. And we believe since that they’ve asked to have it locked up until 2018 — and nobody today defended that — that it’s time to release that,” Issa said.

A government audit this month found that as of Sept. 30, 2009, the Treasury Department was expecting a $30 billion loss on its TARP-related AIG investment. The value of the securities could ultimately rise, though.

“The way the AIG bailout was engineered was to specifically benefit Goldman Sachs and its trading partners,” said Janet Tavakoli, a Chicago-based derivatives expert and founder of Tavakoli Structured Finance. “Goldman’s past and present officers used crony capitalism to put their own interests ahead of the public.”

The nation’s fifth-largest bank by assets ultimately got $14 billion through what members of Congress are calling a “backdoor bailout” of the world’s biggest banks.

“The suppression of the details of the [credit default swap] trades protected Goldman Sachs and its trading partners,” said Tavakoli, who’s examined Goldman’s credit default swap arrangements with AIG. “The $182 billion bailout overall kept AIG alive, and its trading partners, including Goldman Sachs, benefited from the funds made available to the securities lending transactions and other subsequent trading transactions.”

At the time the document was prepared, Goldman’s $14 billion in souring derivatives had a market value of just $6 billion. Goldman had more than $8 billion in collateral from AIG to protect it from losses, meaning it was still about $6 billion short.

But more than $2 billion of those collateral payments came from AIG after it was bailed out on Sept. 16 of that year, according to a Nov. 2008 presentation prepared for the New York Fed that was released this week. So that $2 billion was made possible partly due to taxpayer assistance.

Combined with the $6 billion deficit it faced in the face value of those securities, Goldman Sachs ultimately received about $8 billion from taxpayers via AIG. Goldman posted a $1.3 billion profit for 2008.

Despite the Fed’s protestations that full disclosure would harm AIG — and thus the taxpayer — the financial blog Naked Capitalism has largely pieced together many of the key details using public sources — and traders who were interested in buying the bonds from the government would easily have access to the rest.

HuffPost published the unredacted document at 2:47 p.m. ET. One minute earlier AIG shares were trading at about $24.59. It closed the day at $24.91.

The document also includes detailed information about the transactions involved. The document, a Schedule A Shortfall Agreement, can be viewed here.


America Bordering On Communism

Investor extraordinaire Jim Rogers has harsh words for the government’s interventionist economic policy.

That policy, which he dates back to the Bush administration, verges on communism, he told Moneynews’s Dan Mangru in an interview.

“America now owns the car industry. America owns the mortgage industry. America owns a lot of the insurance industry,” Rogers said.

“Karl Marx must be somewhere standing up in his grave cheering.” And why is that? “America has become a socialist and maybe even communist nation in many ways,” Rogers said.

In Asia, by contrast, “they’re not doing that. In Asia, they’re getting rid of state and government ownership,” he said.

As for stimulus, Rogers said that President Bush approved two packages, President Obama one, and now there’s talk of a fourth.

“The first stimulus didn’t work. The second stimulus didn’t work. The third stimulus hasn’t worked,” he said.

“They’ve been doing the wrong thing for over two years. Nothing has worked. I don’t know why they think this is going to work. This is going to make things worse, too.”

Rogers said that Japan implemented a huge stimulus in the 1990s. “It didn’t work in Japan, and Japan was a creditor nation… It’s not going to work for us, either.”

Treasury Secretary Tim Geithner, former Federal Reserve Chairman Alan Greenspan and White House economic adviser Larry Summers “used to say to the Japanese: ‘You’re doing it wrong. This approach isn’t going to work,’” Rogers said. “We’re doing exactly the same thing.”

Rogers isn’t too happy with the massive monetary easing the Fed has engineered under Chairman Ben Bernanke, either.

“Printing money has been tried many times throughout history in many countries,” he said. “It has never worked in the long term; it has never worked in the medium-term. Occasionally, it has worked in the short term.”

Still, he says, “Printing money is going to lead to serious problems down the road.”

The amounts involved are staggering, Rogers said. “They’ve already injected huge amounts of money into the system. The Fed has more than tripled its balance sheet in the past year or so.”

The federal government “has increased its own debt by four, five, six times,” he said.

“We don’t know much, because they took over Fannie Mae, AIG and the rest of them who had huge debts, which we are now responsible for,” he said.

Rogers scoffs at the conventional wisdom of diversification. “If you are a successful investor, and if you’ve made a lot of money, then maybe you’ll think about diversification,” he said. “But if you want to make money, if you want to build a fortune, you don’t diversify. You find the right horses, you back those horses, and you watch those horses very carefully.”


AIG Bonuses Four Times Higher

The 2008 AIG bonus pool just keeps getting larger and larger.

In a response to detailed questions from Rep. Elijah Cummings (D-Md.), the company has offered a third assessment of exactly how much it paid out in bonuses last year.

And the new number, offered in a document submitted to Cummings on May 1, is the highest figure the company has disclosed to date.

AIG now says it paid out more than $454 million in bonuses to its employees for work performed in 2008.

That is nearly four times more than the company revealed in late March when asked by POLITICO to detail its total bonus payments. At that time, AIG spokesman Nick Ashooh said the firm paid about $120 million in 2008 bonuses to a pool of more than 6,000 employees.

The figure Ashooh offered was, in turn, substantially higher than company CEO Edward Liddy claimed days earlier in testimony before a House Financial Services Subcommittee. Asked how much AIG had paid in 2008 bonuses, Liddy responded: “I think it might have been in the range of $9 million.”

“I was shocked to see that the number has nearly quadrupled this time,” said Cummings.

To read the rest of this article go to http://news.yahoo.com/s/politico/20090505/pl_politico/22134

Bailed-Out AIG Pampers Execs While Denying, Delaying Claims of Contractors Injured in Iraq

Insurance giant AIG, the same company that rewarded its executives with millions in bonuses and spent hundreds of thousands of dollars on a spa retreat at an exclusive California resort and private jets, has been nickel and diming employees of private contractors injured in Iraq, with a pattern of denying and delaying their claims, a joint investigation between 20/20, the Los Angeles Times and the non-profit group ProPublica has found.

They analyzed some 30,000 claims filed by people working for American defense contractors overseas, covered by AIG under a federally-mandated program. Almost half – 43 percent – of the most serious cases were challenged by AIG, the analysis found, particularly those where claims were made for treatment of post traumatic stress disorder.

“It’s difficult for me to think it’s anything but a concentrated effort just to ignore these guys,” said Houston attorney Toby Cole, who represents many of the injured contractors. He said he’s never seen one insurance company treat so many people so badly.

“The pattern is to deny, to delay and to fight,” Cole said of AIG, which has been kept in business only because of $182 billion in taxpayer bailout money.

Private Contractors Fight Back Against AIG

“They (AIG) just threw me out on the street basically,” said Preston Wheeler, who was driving a truck for the KBR contracting firm when hise convoy was attacked by insurgents. He watched as fellow drivers were murdered and took bullets in his chest and arm.

Wheeler, who still has nightmares and flashbacks, said AIG didn’t believe him and tried to cut off his medical and disability benefits. After he retained an attorney and went to court, AIG agreed to reinstate his benefits, months after not giving him anything.

One of the bullets from the attack is still lodged in Wheeler’s underarm, but he says AIG won’t even respond to his request for a cat scan to see if he should have it removed. “It’s a foreign object,” Wheeler said. “It doesn’t belong in there, so it needs to come out.”

AIG Won’t Say How Much Money It’s Making

At a hearing last May, congressional investigators said AIG’s insurance business covering private contractors has been “extremely profitable” for the company.

AIG won’t disclose how much it’s making by handling what is essentially workmen’s compensation for contractors.