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PRESIDENT BARACK HUSSEIN OBAMATHE ECONOMYThis is the insanity that Obama is creating a national debt that is greater that the world's GDP. OBAMA MUST BE STOPPED BEFORE HE DESTROYS THE FUTURE OF AMERICA!!! SECOND FEEDING AT TROUGH: AIG Bailout for $40 Billion (Sep 2008)The first bailout was in for $85 billion. This was the start of the feeding at the trough.On September 16, 2008, AIG suffered a liquidity crisis following the downgrade of its credit rating. Industry practice had allowed triple AAA rated firms to enter swaps without putting up any margin. The moment it lost its rating, the company could not sustain its positions and thus needed liquidity. The London unit of the world's largest insurer (by assets) sold credit protection Credit default swaps (CDS) on collateralized debt obligations (CDOs) that had declined in value. The United States Federal Reserve loaned money to AIG at AIG's request, to prevent the company's collapse, in order for AIG to meet its obligations to post additional collateral to credit default swap trading partners. The Federal Reserve announced the creation of a secured credit facility of up to US$85 billion, secured by the assets of AIG subsidiaries, in exchange for warrants for a 79.9% equity stake, the right to suspend dividends to previously issued common and preferred stock. AIG announced the same day that its board accepted the terms of the Federal Reserve Bank's rescue package and secured credit faciity.This was the largest government bailout of a private company in U.S. history, though smaller than the bailout of Fannie Mae and Freddie Mac a week earlier. (Source: Wikipedia.) In a bid to save financial markets and the economy from further turmoil, the U.S. government agreed Tuesday to provide an $85 billion US emergency loan to rescue the huge insurer AIG. The Federal Reserve said in a statement it determined that a disorderly failure of American International Group could hurt the already delicate financial markets and the economy. It also could "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said. "The President supports the agreement announced this evening by the Federal Reserve," said White House spokesman Tony Fratto. "These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy." Treasury Secretary Henry Paulson said the administration was working closely with the Fed, the Securities and Exchange Commission and other government regulators to "enhance the stability and orderliness of our financial markets and minimize the disruption to our economy.""I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect taxpayers," Paulson said in a statement.On October 9, 2008, the company borrowed an additional $37.8 billion via a second secured asset credit facility created by the Federal Reserve Bank of New York. From mid September till early November, AIG's credit-default spreads were steadily rising, implying the company was heading for default. On November 10, 2008, the U.S. Treasury announced it would purchase $40 billion in newly issued AIG senior preferred stock, under the authority of the Emergency Economic Stabilization Act's Troubled Asset Relief Program. The Federal Reserve Bank of New York (FRBNY) announced that it would modify the September 16th secured credit facility; the Treasury investment would permit a reduction in its size from $85 billion to $60 billion, and that the FRBNY would extend the life of the facility from three to five years, and change the interest rate from 8.5% plus the three-month London interbank offered rate (LIBOR) for the total credit facility, to 3% plus LIBOR for funds drawn down, and 0.75% plus LIBOR for funds not drawn, and that AIG would create two off- balance-sheet Limited Liability Companies (LLC) to hold AIG assets: one will act as an AIG Residential Mortgage-Backed Securities Facility and the second to act as an AIG Collateralized Debt Obligations Facility. Federal officials said the $40 billion investment would ultimately permit the government to reduce the total exposure to AIG exposure to $112 billion from $152 billion. (Source: Wikipedia.) American International Group's (AIG) $40 billion investment by the Treasury Department fell under the Systemically Significant Failing Institutions Program. December 2008Insurance Giant Offers Top Employees "Retention Payments" To Keep Them (Dec 2008) Insurance giant AIG was given $152 billion in bailout money by the federal government since nearly collapsing in September. Now the company is planning to take millions of that money and hand it over to employees in a program that sounds a lot like bonuses. AIG's new CEO is only taking a single dollar for his compensation this year and the top 60 executives won't be getting bonuses. But that hasn't stopped AIG from finding a creative way to keep some of their top employees in what they're calling "retention payments," reports CBS News correspondent Priya David.To some it seems like business-as-usual end-of-the-year bonuses. On Wednesday, lawmakers grilled Assistant Treasury Secretary Neel Kashkari about AIG's bonus plan. Rep. Donald Manzullo, R-Ill., asked if a $3 million bonus was too much. "It is excessive for a failing institution, yes," said Kashkari. But so far, no one's stopping AIG from paying millions to some employees in its new retention program. The company has told 168 employees they'll receive between $92,500 and $4 million per individual if they stay with the company for one year. That angers some on Capitol Hill. "These so-called retention payments are nothing less than bonuses," Rep. Elijah E. Cummings, D-Md., told CBS News. He sent letters to AIG, demanding details of the retention program. "No one is indispensable, particularly when you've got tens of thousands of people being laid off from Wall Street and financial firms every day," Cummings said. Nicholas Ashooh, AIG's senior vice president of communication, acknowledges that the perception of his company has taken a hit. "Oh, it's terrible, it's terrible," he told CBS News. Ashooh said the retention program does not include anyone in the firm's financial products business, the tiny arm of the company that torpedoed AIG with its high-risk, bad loans. "We know that this is not a popular thing. A lot of people just won't accept it, but if you think about it, it's a calculated decision to keep businesses intact so that we can sell them and pay back taxpayers what we owe them," he said. Whatever you call it, it's still money in the pocket of AIG managers. "It's very unfortunate, but a culture of entitlement has emerged among Wall Street executives," said Peter Morici, a University of Maryland economist. "They're paid far too much money and they're trying to find ways around the rules." Even though there are more layoffs every month, AIG says its top talent is being recruited to rival companies. In fact, the company says two of its top people just left this week, despite being offered big retention payments. AIG says it needs its best people to keep its healthy businesses profitable until it can sell them and the company plans to sell 65 percent of its businesses to repay its federal loan and get back on track. (Source: CBS News.) March 2009THIRD FEEDING AT TROUGH: AIG to Receive Additional $30 Billion in Federal Assistance (Mar 2009) American International Group Inc. will receive up to an additional $30 billion in federal assistance as part of the latest revamp of its government bailout, according to people familiar with the matter. The new funding is intended to support AIG as it absorbs $60 billion in quarterly losses and operational and competitive upheaval. Under the plan, the insurer will repay much of the $40 billion it owes the Federal Reserve loan with equity stakes in two AIG units overseas -- Asia-based American International Assurance Co. and American Life Insurance Co, which operates in 50 countries.Repayment was originally supposed to be in cash with interest. In addition, AIG will securitize $5-$10 billion in debt, backed with life insurance assets, to further reduce its debt burden. Following these moves, the $60 billion Federal Reserve credit facility AIG received in November will be reduced to $25 billion. AIG has already drawn down $40 billion of those funds. The plan reflects the deepening exposure of the U.S. taxpayer to the embattled insurer. The assets AIG is transferring to the government in lieu of cash repayment are difficult to value. A recent auction for AIA, for example, failed to draw any bids. The goal of the original AIG rescue in September was to achieve repayment within two years. The latest version will likely leave the U.S. government entangled with AIG for years to come. AIG's board was meeting Sunday afternoon (1 Mar) to vote on the plan and was expected to give its approval. Major credit rating agencies have already signed off on the deal. Without the support of the credit rating agencies, AIG would have faced crippling cuts to its ratings. The downgrades would likely have forced it to post billions in collateral on an array of financial contracts. It would have also triggered the termination of many corporate insurance policies, costing AIG billions more. (Source: WSJ.)  AIG takes $62B hit (Mar 2009) Wall Street was braced for fresh punishment Monday with the benchmark Dow Jones plunging below 7,000 points straight off the opening bell after U.S. insurance giant AIG revealed monumental quarterly losses of $62 billion. AIG's quarterly losses amounted to some $460,000 per minute. AIG's announcement came hours after the U.S. government announced a $30 billion lifeline for the ailing company on top of $150 billion it has already received in bailout funding. AIG, which had 74 million customers at the end of 2007, received government funding totaling $123 billion in September when bad mortgage debts left it on the brink of collapse. That sum was increased to $150 billion in November when the government revised its bailout package. AIG shares have lost 99 percent of their value in the past 12 months. In a statement issued Sunday, the U.S. Treasury Department said the $30 billion in extra funding for AIG would "help stabilize the company, and in doing so help stabilize the financial system." Despite AIG's results -- the largest quarterly loss in corporate history, amounting to around $460,000 per minute -- analyst Robert Haines of CreditSights said letting the insurer fail was not an option because of the consequences for the wider financial system. "The government really does not have the option of letting AIG totally blow up," Haines told CNNMoney.com. "The counterparties on most of the book are (European) banks that would be hammered if the U.S. walked away. Hopefully, the third bailout will be the charm." Aside from AIG's problems, a slew of U.S. economic data due to be released this week -- including reports on housing, bank rescue efforts and the labor market -- is expected to provide further evidence of a deepening malaise at the heart of the world's largest economy. But Commerce Department figures provided some respite from the grim news with consumer spending for January rising by 0.6 percent after declining for six consecutive months. The report also showed that personal income rose 0.4% in January, following a decline of 0.2% in the previous month. (Source: CNN Business.) Top U.S., European Banks Got $50 Billion in AIG Aid (Mar 2009) The beneficiaries of the government's bailout of American International Group Inc. include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant. Among those institutions are Goldman Sachs Group Inc. and Germany's Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008, according to a confidential document and people familiar with the matter. Covered Counterparties Some banks that were paid by AIG after it was bailed out by the government
Other banks that received large payouts from AIG late last year include Merrill Lynch, now part of Bank of America Corp., and French bank Société Générale SA. More than a dozen firms with smaller exposures to AIG also received payouts, including Morgan Stanley, Royal Bank of Scotland Group PLC and HSBC Holdings PLC, according to the confidential document. The names of all of AIG's derivative counterparties and the money they have received from taxpayers still isn't known, but The Wall Street Journal has identified some of them and is publishing others here for the first time. Lawmakers Want Names The AIG bailout has become a political hot potato as the risk of losses to U.S. taxpayers rises. This past week, legislators demanded that the Federal Reserve disclose names of financial firms that have received money from AIG, which Fed officials have described as too systemically important in the financial system to be allowed to fail. In a Senate Banking Committee hearing in Washington on Thursday, Fed Vice Chairman Donald Kohn declined to identify AIG's trading partners. He said doing so would make people wary of doing business with AIG. But Mr. Kohn told lawmakers he would take their requests to his colleagues. The Fed, through a new committee led by Mr. Kohn to discuss transparency concerns, is now weighing whether to disclose more details about the AIG transactions. The Fed rescued AIG in September with an $85 billion credit line when investment losses and collateral demands from banks threatened to send the firm into bankruptcy court. A bankruptcy filing would have caused losses and problems for financial institutions and policyholders globally that were relying on AIG to insure them against losses. Since September, the government has had to extend more aid to AIG as its woes have deepened; the rescue package now has swelled to more than $173 billion. The government's rescue of AIG helped prevent its counterparties from incurring immediate losses on mortgage-backed securities and other assets they had insured through AIG. The bailout provided AIG with cash to pay the banks collateral on the money-losing trades; it also bought out underlying mortgage-linked securities, many of which are currently worth less than half their original value. Banks and other financial companies were trading partners of AIG's financial-products unit, which operated more like a Wall Street trading firm than a conservative insurer. This AIG unit sold credit-default swaps, which acted like insurance on complex securities backed by mortgages. When the securities plunged in value last year, AIG was forced to post billions of dollars in collateral to counterparties to back up its promises to insure them against losses. More Problems Now, other problems are popping up for AIG. The insurer generated a sizable business helping European banks lower the amount of regulatory capital required to cushion against losses on pools of assets such as mortgages and corporate debt. It did this by writing swaps that effectively insured those assets. Values of some of those assets are declining, too, forcing AIG to also post collateral against those positions. And if the portfolios incur losses, AIG will have to compensate the banks. AIG had seen this business as a relatively safe bet for the company and its investors. The structures were designed to allow European banks to shuck aside high capital costs. A change in capital rules has meant that the AIG protection no longer meets regulatory requirements. The concern has been that if AIG defaulted, banks that made use of the insurer's business to reduce their regulatory capital, most of which were headquartered in Europe, would have been forced to bring $300 billion of assets back onto their balance sheets, according to a Merrill report. (Source: WSJ.) AIG said it would fail if it didn't get Bailout (Mar 2009) An AIG report to the Treasury Department last month warned that if the government didn't come to its rescue again, its collapse would trigger a "chain reaction of enormous proportion" that would "potentially bankrupt or bring down the entire system" and make it impossible for AIG to repay the billions it already owed the U.S. government. A draft report, obtained by ABC News, and marked "strictly confidential," said, "the failure of AIG would cause turmoil in the US economy and global markets, and have multiple and potentially catastrophic unforeseen consequences." Four days later, AIG was given $30 billion in federal aid on top of the $130 billion it had already received. (Source: ABC News.) American International Group is giving its executives tens of millions of dollars in new bonuses even though it received a taxpayer bailout of more than $170 billion dollars. AIG is paying out the executive bonuses to meet a Sunday deadline, but the troubled insurance giant has agreed to administration requests to restrain future payments.  A.I.G. Planning Huge Bonuses After $170 Billion Bailout (Mar 2009) Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them. Here is the loophole, from the section of the stimulus package that deals with compensation rules for TARP recipients:The payments to A.I.G.'s financial products unit are in addition to $121 million in previously scheduled bonuses for the company's senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance. SITE NOTE: Obama has attempted to smother a populist brushfire with his empty threats to AIG about the bonuses. The problem is that the feds can NOT legally force AIG to break their contracts with their traders and deny the bonuses. Immediately there was talk of a "one-time tax" on bonuses paid to employees of TARP recipients to sidestep the legal issue of breach of contract. The more public anger continued to grow. People stated that it would drive away talented managers, but the public countered with, "If they were so talented, how come the company is in such a mess?" Then it was reported that the Treasury had sent out the checks, but it turns out many of the recipients weren't even U.S. citizens.The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the government's efforts to prop up Wall Street. Past bonuses already have prompted President Obama and Congress to impose tough rules on corporate executive compensation at firms bailed out with taxpayer money. A.I.G., nearly 80 percent of which is now owned by the government, defended its bonuses, arguing that they were promised last year before the crisis and cannot be legally canceled. In a letter to Mr. Geithner, Edward M. Liddy, the government-appointed chairman of A.I.G., said at least some bonuses were needed to keep the most skilled executives. "We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury," he wrote Mr. Geithner on Saturday. Still, Mr. Liddy seemed stung by his talk with Mr. Geithner, calling their conversation last Wednesday "a difficult one for me" and noting that he receives no bonus himself. "Needless to say, in the current circumstances," Mr. Liddy wrote, "I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them." An A.I.G. spokeswoman said Saturday that the company had no comment beyond the letter. The bonuses were first reported by The Washington Post. The senior government official, who was not authorized to speak on the record, said the administration was outraged. "It is unacceptable for Wall Street firms receiving government assistance to hand out million-dollar bonuses, while hard-working Americans bear the burden of this economic crisis," the official said. Of all the financial institutions that have been propped up by taxpayer dollars, none has received more money than A.I.G. and none has infuriated lawmakers more with practices that policy makers have called reckless. The bonuses will be paid to executives at A.I.G.'s financial products division, the unit that wrote trillions of dollars' worth of credit-default swaps that protected investors from defaults on bonds backed in many cases by subprime mortgages. The bonus plan covers 400 employees, and the bonuses range from as little as $1,000 to as much as $6.5 million. Seven executives at the financial products unit were entitled to receive more than $3 million in bonuses. Mr. Liddy, whom Federal Reserve and Treasury officials recruited after A.I.G. faltered last September and received its first round of bailout money, said the bonuses and "retention pay" had been agreed to in early 2008 and were for the most part legally required. The company told the Treasury that there were two categories of bonus payments, with the first to be given to senior executives. The administration official said Mr. Geithner had told A.I.G. to revise them to protect taxpayer dollars and tie future payments to performance. The second group of bonuses covers some 2008 retention payments from contracts entered into before government involvement in A.I.G. Indeed, in his letter to Mr. Geithner, Mr. Liddy wrote that he had shown the details of the $450 million bonus pool to outside lawyers and been told that A.I.G. had no choice but to follow through with the payment schedule. The administration official said the Treasury Department did its own legal analysis and concluded that those contracts could not be broken. The official noted that even a provision recently pushed through Congress by Senator Christopher J. Dodd, a Connecticut Democrat, had an exemption for such bonus agreements already in place. But the official said the administration will force A.I.G. to eventually repay the cost of the bonuses to the taxpayers as part of the agreement with the firm, which is being restructured. Senator Chris Dodd (D-Conn.) on Monday night (17 Mar) floated the idea of taxing American International Group (AIG: 0.9768, 0.1967, 25.21%) bonus recipients so the government could recoup the $450 million the company is paying to employees in its financial products unit. Within hours, the idea spread to both houses of Congress, with lawmakers proposing an AIG bonus tax.A.I.G. did cut other bonuses, Mr. Liddy explained, but those were part of the compensation for people who dealt in other parts of the company and had no direct involvement with the derivatives. Mr. Liddy wrote that A.I.G. hoped to reduce its retention bonuses for 2009 by 30 percent. He said the top 25 executives at the financial products division had also agreed to reduce their salary for the rest of 2009 to $1. Ever since it was bailed out by the government last fall, A.I.G. has been defending itself against accusations that it was richly compensating people who caused one of the biggest financial crises in American history. A.I.G.'s main business is insurance, but the financial products unit sold hundreds of billions of dollars' worth of derivatives, the notorious credit-default swaps that nearly toppled the entire company last fall. A.I.G. had set up a special bonus pool for the financial products unit early in 2008, before the company's near collapse, when problems stemming from the mortgage crisis were becoming clear and there were concerns that some of the best-informed derivatives specialists might leave. It locked in a total amount, $450 million, for the financial products unit and prepared to pay it in a series of installments, to encourage people to stay. Only part of the payments had been made by last fall, when A.I.G. nearly collapsed. In documents provided to the Treasury, A.I.G. said it was required to pay about $165 million in bonuses on or before Sunday. That is in addition to $55 million in December. Under a deal reached last week, A.I.G. agreed that the top 50 executives would get half of the $9.6 million they were supposed to get by March 15. The second half of their bonuses would be paid out in two installments in July and in September. To get those payments, Treasury officials said, A.I.G. would have to show that it had made progress toward its goal of selling off business units and repaying the government. The financial products unit is now being painstakingly wound down. (Source: NY Times.) President Obama has announced the creation of a new website which he says will enable the public to monitor how effectively the US state spends and distributes his proposed $825bn stimulus package. The president said the site, www.recovery.gov, would be part of his plan to create a more transparent administration. Visitors to the site today see a message asking them to, "Check back after the passage of the American Recovery and Reinvestment Act to see how and where your tax dollars are spent". . . . "An oversight board will routinely update this site as part of an unprecedented effort to root out waste, inefficiency and unnecessary spending in our government." But the President said he hoped the American public would be convinced that his administration would be accountable for one of the largest spending programmes in US history. (Source: Times UK.) Obama Knew About AIG Bonuses Day Before They Were Paid (Mar 2009) President Obama was informed about the $165 million in bonuses due to employees of the American Insurance Group the day before they were paid out last week (12 Mar), the White House disclosed late Tuesday (17 Mar). Obama has expressed outrage that the company, which has received about $170 billion in government bailout money, proceeded to pay out the bonuses. He said the idea of a company rescued with taxpayer money awarding bonuses runs counter to "our values." The timeline released Tuesday (17 Mar) marked the first time the White House has acknowledged when the president was told about the bonuses, which have prompted calls from Congress for the administration to recover the money. Obama's press secretary, Robert Gibbs, has said the president has ordered White House and Treasury Department lawyers to find ways to block the bonuses, which were paid out Friday (13 Mar) under contracts signed last year. The president did not publicly express anger over the bonuses until after they were disclosed Sunday (15 Mar) in The Washington Post. (Source: Washington Post.) (SITE NOTE: The bottom line is that Obama did NOT think the AIG was a big deal along with Axelrod. However, when the bonus package was publicized Obama was forced to vent outrage -- and Sen Dodd cried outrage as well. Then it was discovered that Dodd wrote the amendment stuffed into Obama's Stimulus Package -- and then Dodd turned on Obama saying that the White House and Treasury folks changed his amendment. The truth became muddled but both Obama and Dodd are in the middle of it. Now Obama is on the road in America setting up more people with his great oratory skills to give a smoke screen to the truth. Dodd and the White House authorized the bonuses figuring the American people would be too stupid to notice -- and the liberal media would not pursue the matter in their abeyance to the master. In fact, they almost got away with it. Obama's credibility as President is rapidly being eroded.) Geithner Aides Worked With AIG for Months on Bonuses (Mar 2009) Since the fall, senior aides to Timothy Geithner have closely dealt with American International Group Inc. on compensation issues including bonuses, both from his time as president of the Federal Reserve Bank of New York and as Treasury secretary. The extent of their involvement, which wasn't widely known, raises fresh questions about whether Mr. Geithner could have known earlier about AIG's $165 million in bonus payments. When the bonuses sparked a political firestorm last week, Mr. Geithner said he learned about their full scope in early March, just days before they were paid. Mr. Geithner and Federal Reserve Chairman Ben Bernanke will be grilled by Congress on Tuesday (24 Mar) in a hearing that is likely to focus heavily on AIG. The flap has prompted lawmakers to seek curbs on an array of bonuses, tested the Obama administration and undermined Mr. Geithner's standing as he attempts to implement measures to stabilize the financial system. Treasury officials say the department's staff kept Mr. Geithner in the dark until March 10. "Secretary Geithner, who has been actively engaged in shaping and executing the president's broad economic agenda, takes full responsibility for not being aware of these programs" before that date, Treasury spokesman Isaac Baker said Sunday in a written response to questions. This account of how Mr. Geithner and his aides were apprised of the AIG bonuses was based on interviews with government officials, lawmakers and congressional testimony. As New York Fed president, Mr. Geithner was central to AIG's initial $85 billion bailout in September, which was carried out in a tumultuous four-day period. After Edward Liddy took over as AIG chief executive, the company hired consultants to look at its payment plans around the world. One of Mr. Geithner's top bank supervisors at the New York Fed, Sarah Dahlgren, became the government's lead overseer of AIG. She sat in on AIG board meetings, joined at times by other top Fed staffers, and also participated in compensation-committee meetings. It isn't clear whether the issue rose to the board level until this month. AIG received an expanded government rescue in October and another in November, bringing the total to about $150 billion, including $40 billion in Treasury funds. In early November, the Fed, outside auditor Ernst & Young and AIG officials began examining through a committee the bonuses set to be paid to AIG's financial-products division, including those that sparked last week's furor. The committee concluded that the bonuses, which were in contracts signed before the government takeover, couldn't be legally blocked, according to a person familiar with the matter. The Obama administration has since agreed with that legal interpretation. AIG cited the retention plan in a public filing in early November, and Fed officials were aware AIG planned to pay $55 million in bonuses to financial-products employees the next month. Mr. Geithner remained involved in major AIG matters, seeking updates from Ms. Dahlgren and other top Fed staffers. He recused himself from dealing with aid to specific companies around the time of his Nov. 24 nomination as Treasury secretary. Fed officials declined to make Ms. Dahlgren available to comment on the bonus issue. Lawmakers were also scrutinizing AIG's operations. Some raised the matter of the AIG bonuses at a hearing in December where they grilled Neel Kashkari, a Bush Treasury official who remains at the department. In late January, news outlets reported that AIG planned a total of $450 million in bonuses to help retain employees winding down the complex trades in the unit at the heart of the company's collapse. In the weeks that followed, Mr. Liddy and other AIG officials briefed some lawmakers about the retention payments and other aspects of the AIG rescue. On Feb. 28, as government officials worked on a fourth AIG bailout, the New York Federal Reserve Bank emailed Stephen Albrecht, a Treasury lawyer, laying out the AIG bonus issues and promising further detail, according to two people familiar with the email. Mr. Albrecht did not return a call seeking comment. It was an intense weekend, as Treasury and Fed officials frantically prepared to close the AIG deal. "When we heard there was this executive compensation thing floating out there, we thought, 'We'll deal with this later,'" said one Treasury official. On March 2, AIG announced both record losses and $30 billion in fresh Treasury aid. The following day, Mr. Geithner appeared at a hearing of the House Ways and Means Committee. Rep. Joseph Crowley, a New York Democrat, asked the secretary about more than $160 million in bonuses that AIG would be paying to financial-products employees "in the coming weeks." Treasury officials say the AIG problem didn't register with Mr. Geithner at the hearing amid the other issues he faced. Mr. Baker, the Treasury spokesman, acknowledged that information about the financial-products bonuses was "in the public arena...for many months." But, he said, it wasn't until March 10 -- five days before the big batch of retention payments were due -- that department staff spelled out the situation for the secretary. The following day, March 11, Mr. Geithner, alert to the potential political fallout, called Mr. Liddy to protest the bonus payouts. At a congressional hearing last week, Mr. Liddy described the call as "open and frank." According to Mr. Liddy's sworn testimony from that hearing, Mr. Geithner indicated on the call that he had learned about the bonus "situation about a week" earlier. A Treasury spokeswoman said Mr. Liddy was "wrong." An AIG spokeswoman said the CEO was passing on his impression from the conversation. "If that impression was incorrect, he certainly defers to the Treasury secretary," she said. Over the weekend, administration officials contended the uproar wouldn't derail their efforts. President Barack Obama and a pair of Republican senators -- Judd Gregg of New Hampshire and Charles Grassley of Iowa, the top Republican on the Finance Committee -- disagreed with those calling for Mr. Geithner's resignation. "I think Geithner is going to survive this -- I think he has the trust of the president," Rep. Elijah Cummings (D., Md.), an Obama ally and early critic of AIG's bonuses, said in an interview. But "he has to put a very high-powered microscope on AIG," he added. (Source: WSJ.) House passes bill taxing AIG and other bonuses (Mar 2009) Acting with lightning speed, the Democratic-led House has approved a bill to slap punishing taxes on big employee bonuses from firms bailed out by taxpayers. The vote was 328-93. Said House Speaker Nancy Pelosi: "We want our money back and we want our money back now for the taxpayers." Republicans called it a legally questionable ploy to paper over Obama administration missteps. Democrats pressed for quick action Thursday (19 Mar) on a bill to slap punishing taxes on big employee bonuses from firms bailed out by taxpayers. Republicans called it a legally questionable ploy to paper over Obama administration missteps. "The American people demand protection and that's what we're doing today," said Rep. Charles Rangel, D-N.Y., chairman of the tax-writing House Ways and Means Committee. But Minority Leader John Boehner, R-Ohio, called the bill "a political circus" diverting attention from why the administration hadn't done more to block the bonuses before they were paid. The bonuses, totaling $165 million, were paid to employees of troubled insurer American International Group over the weekend, including to traders in the unit that nearly brought about the company's collapse. Democratic leaders rushed the bill to the floor under a procedure that requires a two-thirds majority for passage. The numerous Republican complaints about the measure during Thursday's debate raised questions on whether it would pass. "The Democratic bill brought to the floor today is constitutionally questionable," said Rep. Mike Pence, R-Ind. "It's obviously a transparent attempt to divert attention away from the truth that Democrats in Congress and this administration made these bonus payments possible." The bill would levy a 90 percent tax on bonuses paid to employees with family incomes above $250,000 at companies that have received at least $5 billion in government bailout money. "We figured that the local and state governments would take care of the other 10 percent," said Rangel. Rangel said the bill would apply to mortgage giants Fannie Mae and Freddie Mac, among others, while excluding community banks and other smaller companies that have received less bailout money. (SITE NOTE: Why??? Just because a small bank President gets a $500,000 bonus versus a million dollar bonus for a big bank, the money still came from the same kitty. But then we must remember that Maxine Waters example of protecting the small bank her husband was involved in.) A tax expert said there is plenty of precedent for levying punitive taxes on behavior that lawmakers find objectionable. Robert Willens, a corporate tax lawyer in New York, cited the steep excise taxes levied on money paid to firms to keep them from launching hostile takeover bids, known as "greenmail." "You can write very narrowly tailored laws," Willens said. "And they can do it for bonuses already paid." House Democratic leaders unveiled the bill Wednesday (18 Mar) as the head of embattled American International Group Inc., which has received $182 billion in bailout money, testified about $165 million in bonuses paid out in the past week to about 400 employees in its Financial Products unit. Edward Liddy, who was brought in last year by the government to run AIG, told a House subcommittee that the company was contractually obligated to pay the bonuses but that some of the recipients have begun returning all or part of them. Liddy said that on Tuesday, he had "asked those who have received retention payments in excess of $100,000 or more to return at least half of those payments." Some have "already stepped forward and returned 100 percent," he added. In the Senate, the top two members of the Finance Committee on Tuesday announced a bill that would impose a 35 percent excise tax on the companies paying the bonuses and a 35 percent excise tax on the employees receiving them. The taxes would apply to all companies receiving government bailout money, but they are clearly geared toward AIG. President Barack Obama, who took office just under two months ago, told reporters Wednesday that his administration was not responsible for a lack of federal supervision of AIG that preceded the company's demise. But Obama added, "The buck stops with me." (Source: .) (SITE NOTE: The buck does stop with Obama -- and Dodd. Dodd put in the amendment and the Obama administration rewrote it. Yes, the buck does stop on Obama's desk. It's where the blame belongs. According to news reports, "Congressional Democrats took aim at the Obama administration Wednesday, blaming the president's economic team for creating a loophole that allowed AIG to pay its employees millions of dollars in bonuses and then not doing enough to stop the bonuses when it could. And their warp-speed effort to get the money back made it clear that congressional Democrats don't think the White House is moving fast enough to solve the problem now." (Politico.) House bonus bill is buried by the Senate -- White House Backs Off (Mar 2009) President Obama and Senate Democrats have buried a bill passed last week by the House that would have heavily taxed executive bonuses at bailed-out firms. Despite the public outcry over $165 million in bonuses awarded at troubled insurer AIG, Senate Majority Leader Harry Reid (D-Nev.) showed little inclination Monday (23 Mar) to bring the explosive issue to the floor this week or next. Instead, Reid is likely to delay action on executive compensation until late April, after the Senate returns from a two-week recess starting April 4. The lack of enthusiasm to expedite the bonus legislation comes after Obama said over the weekend that he didn't think it was a good idea for Congress to target individuals with tax proposals. "As a general proposition, I think you certainly don't want to use the tax code … to punish people," Obama said in the interview with "60 Minutes" that aired Sunday. Reacting to a frenzy of media coverage, the House last week passed a measure that would levy a 90 percent tax on bonuses received this year by executives at AIG and other companies collecting more than $5 billion in federal aid. Senate Finance Committee Chairman Max Baucus (D-Mont.) last week introduced a less stringent proposal that would impose a 35 percent tax on bonuses. Both employers giving bonuses and executives who receive them would pay. But even this modified proposal is being placed on the backburner. Reid told colleagues that they would spend this week instead debating legislation to promote national service and volunteering, a process that could last well into the weekend. The Senate leader has reserved next week for budget legislation. Prominent liberal scholars have also criticized the House proposal. Lawrence Tribe, a Harvard law professor who advised Obama's presidential campaign, said the plan could be unconstitutional. More than a dozen Senate Democrats have kept their distance from an effort to pressure executives at AIG to return their bonuses. (Source: The Hill.) Bernanke: White House lawyers 'blocked move to withhold AIG bonuses' (Mar 2009) Ben Bernanke, the chairman of the US Federal Reserve, told a congressional hearing yesterday that he had opposed the paying of massive bonuses to troubled insurance giant AIG but was overruled by government lawyers, writes Chris Stephen. The US government saved AIG from collapse by pumping $170 billion (£115 million) into the firm, but then saw 73 top executives collect bonuses of $165 million. These bonus payments, given to the very executives blamed for nearly bringing the company down, have now become a lightning rod for ordinary Americans furious at the reckless bankers. Mr Bernanke said the AIG bonus contracts had been signed before the government bailed out the company, and warned that refusal to pay them might have resulted in the government being sued. "Legal action could have thus had the perverse effect of doubling or tripling the financial benefits to the AIG Financial Products employees," he said. Mr Bernanke, testifying to Congress along with Timothy Geithner, the treasury secretary, asked for new powers to oversee banks and ensure no repeat of the reckless speculation that led to last year's meltdown. He made no comment on a bill passed last week by Congress, which has yet to be publicly backed by President Barack Obama, that would tax away 90 per cent of the value of those bonuses. But it seems pressure of another kind may see many of those bonuses returned. Last week, Andrew Cuomo, the New York prosecutor, said he was planning to name the executives receiving these lavish bonuses. But yesterday, he said that, as nine of the ten getting the biggest sums of $3 million had agreed to give them back, it would "not be in the public interest" to now name them. Mr Cuomo said he hoped to recoup about half the bonus payments, or $80 million, voluntarily. (SITE NOTE: A lot of this is political theatrics. 15 of 20 AIG top executives have returned their bonuses in their entirety. Actually this whole fiasco appears to us like another of Obama's (or his handlers) nefarious tricks to grab more power. First he lends the companies money (with the help of all the Democrats) as the conservatives are yelling "Hell NO!!!" Then Obama sends his paid agitators from ACORN out to stone the AIG houses to create the illusion of public discontent. Sensing the hysteria both Republicans and Democrats in the House form a lynch mob. Then with the sense of urgency he wants the Senate to pass the bill. If it passes, the White House will have the tool to invade private companies and literally become the "owner" in the sense that it can fire/hire and do anything it wants. To hell with contracts -- like pension funds, health care benefits or anything it sees fit. This is the natural extension if you give the government power to void contracts (meaning the bonuses). But suddenly Obama's lawyers say -- "Hold on. There are CONTRACT issues involved -- so back off." Obama calls off his dogs of war in the Senate and the bill quietly dies. He hasn't lost any face over this matter. He would have big time as the AIG attorneys were going to attack the government over the Contract issue. But we believe that Obama will try again. He is a backstabber and he will try it again -- we know it.) AIG, meanwhile, is still feeling the heat; demonstrators are picketing the homes of some executives, death threats have been phoned into its offices, and the company has even taken down its name from its base close to Wall Street. (SITE NOTE: AIG is to change their name to AIU. The picketing of the homes was revealed to being done by the ACORN group closely linked to Obama.) April 2009Beyond AIG: A bill to let Big Government set your salary (Apr 2009) It was nearly two weeks ago that the House of Representatives, acting in a near-frenzy after the disclosure of bonuses paid to executives of AIG, passed a bill that would impose a 90 percent retroactive tax on those bonuses. Despite the overwhelming 328-93 vote, support for the measure began to collapse almost immediately. Within days, the Obama White House backed away from it, as did the Senate Democratic leadership. The bill stalled, and the populist storm that spawned it seemed to pass.But now, in a little-noticed move, the House Financial Services Committee, led by chairman Barney Frank, has approved a measure that would, in some key ways, go beyond the most draconian features of the original AIG bill. The new legislation, the "Pay for Performance Act of 2009," would impose government controls on the pay of all employees -- not just top executives -- of companies that have received a capital investment from the U.S. government. It would, like the tax measure, be retroactive, changing the terms of compensation agreements already in place. And it would give Treasury Secretary Timothy Geithner extraordinary power to determine the pay of thousands of employees of American companies. The purpose of the legislation is to "prohibit unreasonable and excessive compensation and compensation not based on performance standards," according to the bill's language. That includes regular pay, bonuses -- everything -- paid to employees of companies in whom the government has a capital stake, including those that have received funds through the Troubled Assets Relief Program, or TARP, as well as Fannie Mae and Freddie Mac. The measure is not limited just to those firms that received the largest sums of money, or just to the top 25 or 50 executives of those companies. It applies to all employees of all companies involved, for as long as the government is invested. And it would not only apply going forward, but also retroactively to existing contracts and pay arrangements of institutions that have already received funds. In addition, the bill gives Geithner the authority to decide what pay is "unreasonable" or "excessive." And it directs the Treasury Department to come up with a method to evaluate "the performance of the individual executive or employee to whom the payment relates." The bill passed the Financial Services Committee last week, 38 to 22, on a nearly party-line vote. (All Democrats voted for it, and all Republicans, with the exception of Reps. Ed Royce of California and Walter Jones of North Carolina, voted against it.) The legislation is expected to come before the full House for a vote this week, and, just like the AIG bill, its scope and retroactivity trouble a number of Republicans. "It's just a bad reaction to what has been going on with AIG," Rep. Scott Garrett of New Jersey, a committee member, told me. Garrett is particularly concerned with the new powers that would be given to the Treasury Secretary, who just last week proposed giving the government extensive new regulatory authority. "This is a growing concern, that the powers of the Treasury in this area, along with what Geithner was looking for last week, are mind boggling," Garrett said. Rep. Alan Grayson, the Florida Democrat who wrote the bill, told me its basic message is "you should not get rich off public money, and you should not get rich off of abject failure." Grayson expects the bill to pass the House, and as we talked, he framed the issue in a way to suggest that virtuous lawmakers will vote for it, while corrupt lawmakers will vote against it. "This bill will show which Republicans are so much on the take from the financial services industry that they're willing to actually bless compensation that has no bearing on performance and is excessive and unreasonable," Grayson said. "We'll find out who are the people who understand that the public's money needs to be protected, and who are the people who simply want to suck up to their patrons on Wall Street." After the AIG bonus tax bill was passed, some members of the House privately expressed regret for having supported it and were quietly relieved when the White House and Senate leadership sent it to an unceremonious death. But populist rage did not die with it, and now the House is preparing to do it all again. (Source: Washington Examiner: Byron York.) May 2009AIG's Liddy to step down when new executives found (May 2009) American International Group Inc. on Thursday (21 May) said the chairman and chief executive hand-picked to lead the company when it was rescued by the government last fall will step down. The company also said its board agreed with a recommendation from Edward M. Liddy, who took over the insurer in September, to separate the chairman and CEO roles. Liddy, in an interview, said splitting the roles reflects not only the evolving standard for public companies, but practical matters as the giant insurance company moves to split off businesses and restructure. "It's not just corporate governance, it has to do with the work load going forward," he said.AIG will be splitting off as many as three companies, Liddy explained, and the chairman will have to pick leadership for each. It will also be up to the chairman to help bring six new independent directors up to speed after they are elected at the company's annual shareholder meeting June 30. Meanwhile, "being CEO of this organization is already a 24/7 job," Liddy said. "When both those individuals are found, I will be able to return to retirement," he said. Noting that it is likely to take three or more years to turn the company around, he added, "I don't want to be doing this when I'm 67." Liddy, now 63, retired as CEO of Allstate Corp. last year. He was named chairman and chief executive of AIG on Sept. 18, in connection with the federal bailout. Treasury Secretary Timothy Geithner praised Liddy's public service. "In accepting the stewardship of AIG at the request of the U.S. government, Mr. Liddy took on one of the most challenging jobs in the American financial system today," Geithner said. "He shouldered this burden out of a strong sense of duty and patriotism, and I am grateful for his hard work and service."Geithner said the Treasury Department looks forward to continuing to work with Liddy as the new board searches for successors. The plan to split the chairman and CEO roles comes as AIG's corporate governance practices continue to receive intense scrutiny, after it paid out millions in bonuses despite a huge bailout from taxpayers. AIG has received $182.5 billion in financial support from the government since September. As part of the loan package, the government has also taken a roughly 80 percent stake in the huge insurance company. Liddy, who agreed to run the company for an annual salary of $1, refused an equity grant he was expected to receive as compensation. According to a proxy filing with the Securities and Exchange Commission, Liddy received no bonus, stock-based compensation or other direct compensation from AIG last year He did receive about $460,500 worth of perquisites, notably an apartment in New York City paid for by AIG (Liddy lives in Chicago). He also received compensation for travel between New York and Chicago, financial, tax and legal planning and tax-related payments. The tax payments were made to avoid having Liddy end up paying to work at AIG, the filing said. The proxy also contains a proposal for a reverse stock split of the company's outstanding common stock at a ratio of 1 for 20. Liddy said the move was intended to improve the position of AIG's beaten down stock. AIG shares, which traded over $100 earlier in the decade and were near $70 when the financial crisis began in late 2007, closed Thursday trading up 2 cents at $1.80. "When you have a stock that's trading at $1.80, it's not a good thing," Liddy said. Shrinking the number of outstanding shares will protect the company's listing on the New York Stock Exchange, he noted. AIG was devastated not by its traditional insurance operations, but by its financial products business, which underwrote risky credit derivatives contracts known as credit default swaps. The swaps are essentially insurance contracts protecting an investor against default on an underlying investment, such as mortgage-backed securities. Rising defaults in the investments that AIG's contracts were insuring led to worries that the company would not be able to cover all of its obligations and that the ripple effects would touch off a new, even more intense phase of the credit crisis. That's when the government stepped in, fearing that without its help, AIG's collapse would cripple financial markets in the U.S. and around the world. The company said the search for new leadership will include participation by both the reconstituted board and the trustees of the AIG Credit Facility Trust, which was established to represent government interests in the company. (Source: AP.) July 2009AIG: The Looting Continues (Jul 2009) No wonder The Fed was threatening Congress when asked about audits - it might expose the underlying realities of something like this: European banks including Societe Generale SA and BNP Paribas SA hold almost $200 billion in guarantees sold by New York-based AIG allowing the lenders to reduce the capital required for loss reserves. The firms may keep the contracts to hedge against declining assets rather than canceling them as AIG said it expects the banks to do, according to David Havens, managing director at investment bank Hexagon Securities LLC.$200 billion dollars for foreign banks that we, the taxpayer, have now backstopped through The Fed with zero oversight or approval by Congress? These aren't even American businesses! The average weighted length of the European swaps protecting residential loans is more than 25 years, while the span tied to corporate loans is about 6 years, AIG said in a regulatory filing. Contracts covering corporate loans in the Netherlands extend almost 45 years, and the swaps on mortgages in Denmark, France and Germany mature in more than 30 years. So now we, the American Taxpayer, are backstopping mortgages in Netherlands, Denmark, France and Germany? Remember this? Now you know why, and what The Fed and Treasury have done - in black and white. You have been robbed America, and now they intend to steal $200 billion more - to bail out not Americans but foreigners. Tell me again why we're doing this, and why people aren't in prison? Jason: I strongly believe that by 2013 the Federal Reserve will be audited and the numbers hidden across the globe in such way will be revealed. The amount will not be in the hundreds of billions US taxpayers are shackled to in the form of debt issuance from the Fed, but measured in the trillions. This was the biggest heist in global history. The American people will then have a painful choice. Service the debt in an environment of continued deterioration of there quality of life or default. Default will create serious geopolitical consequences and large scale military misadventure. In the end, I believe after it is all said and done, the American citizenship as well as other nations will demand Nuremberg style trials for a few dozen men. (Source: Burning Platform.) October 2009Watchdog: Geithner "Ultimately Responsible" for AIG Bonus Fiasco (Oct 2009) Congressional lawmakers today expressed concern that another AIG bonus fiasco could soon unfold, on the heels of a new watchdog report criticizing the Treasury Department for failing to oversee pay plans at AIG before the bailed-out company dished out $168 million in retention payments in March."It was a failure of oversight by Treasury" that led to the spring's bonus fiasco, watchdog Neil Barofsky told the House Oversight and Government Reform Committee this morning, a failure for which he said Treasury Secretary Tim Geithner was ultimately responsible. Treasury essentially abdicated its oversight duties of AIG's compensation structures to the Federal Reserve Bank of New York, which was "a recipe for disastrous consequences," said Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program. Ultimately, Geithner did not learn about the bonuses until March 10, three days before they were paid out, despite running the Treasury Department since January and, before that, the Federal Reserve Bank of New York, where officials knew about the payments last November. At that time, both parties agreed that there was no legal grounds to stop the payments, a correct determination, according to Barofsky. After hearing the watchdog's testimony, the panel's ranking GOP member, Rep. Darrell Issa of California, called for Geithner to come before the committee in an effort to get him to "make a change in direction" at Treasury. "We have a Secretary of the Treasury who failed to know what he should have known, failed to do what he should have done, and has failed to give us transparency," Issa said. "We're hearing that, one, we're not getting transparency and, two, even if we get transparency, if we can't trust the judgment and decisions of the Treasury, then, in fact, we're not going to get the outcome the American people expect us to get. And we're going to continue to have non-essential people paid huge bonuses in many cases that are unnecessary with taxpayer dollars." "It's unbelievable that this could happen in our country," Rep. Marcy Kaptur, D-Ohio, said. It could happen again, in March, when AIG is due to pay out another $198 million in retention payments. Another AIG Bonus Fiasco Ahead? "We have history repeating itself," the panel's chairman, Rep. Edolphus Towns, D-N.Y., said. "It just doesn't seem right that the people who caused this tragedy should be so richly rewarded." But, as Barofsky, a former assistant U.S. attorney from New York, stated in his new audit released Tuesday, the Obama administration's pay czar Ken Feinberg is now trying to reduce AIG's 2010 payments. "Mr. Feinberg is encouraging them to renegotiate," Barofsky said. "There's an opportunity that's here because of advance knowledge that really didn't exist last time," he noted. In two weeks, Feinberg will testify before the same House panel, Towns said today. Feinberg is expected to release his findings on executive compensation at seven firms receiving "exceptional assistance" -– including AIG -– later this month. (Source: ABC News.) Gone, gone, gone (Oct 2009) At BofA and AIG close to a majority of the top executives whose salaries were to be cut have already left. Nuff said. "There's no question people have left because of uncertainty of our ability to pay," said an executive at one of the affected firms. "It's a highly competitive market out there." At Bank of America, for instance, only 14 of the 25 highly paid executives remained by the time Feinberg announced his decision. Under his plan, compensation for the most highly paid employees at the bank would be a maximum of $9.9 million. The bank had sought permission to pay as much as $21 million, according to Treasury Department documents. At American International Group, only 13 people of the top 25 were still on hand for Feinberg's decision.(Source: Marginal Revolution.) The Full Story Of How Tim Geithner Secretly Bailed Out Wall Street And Screwed The Taxpayer Last Fall (Oct 2009) When the historians finally finish sorting through the appalling decisions that have been made in the past two years, this one will probably be at the top of the heap. Last fall, as AIG began to realize how screwed it was, it started negotiating with the counterparties to all the credit default swaps it had written. One of the AIG's goals was to persuade these counterparties--including Goldman Sachs--to accept buyouts discounts of as much as $0.40 cents on the dollar. These sorts of negotiations are exactly what should happen when a company gets in trouble. It goes to its creditors and says, look, we can't pay you everything, so here's your choice: Take something, or take your chances in banktuptcy court. (And, in this case, this wouldn't have been much of a choice, given the standing of CDS holders in the liquidation line). But then Tim Geithner, head of the New York Fed, stepped in. A few weeks later, the counterparties--all of whom voluntarily did business with AIG and understood the risks--were bailed out at par: 100 cents on the dollar. Thus began the most nauseating giveaway in the history of the country. Bloomberg has the whole sickening story: By Sept. 16, 2008, AIG, once the world’s largest insurer, was running out of cash, and the U.S. government stepped in with a rescue plan. The Federal Reserve Bank of New York, the regional Fed office with special responsibility for Wall Street [run by Tim Geithner], opened an $85 billion credit line for New York-based AIG. That bought it 77.9 percent of AIG and effective control of the insurer.(Source: Business Insider.)
November 2009AIG Bailout Not Only Bailed Out Goldman, But Goldman's International Bank Client List (Nov 2009) A much clearer picture is developing of what went on during the middle of the financial crisis, when AIG was bailed out by the government and Goldman Sachs ended up receiving 100 cents on the dollar from AIG on various instruments.The clearer picture is the result of Janet Tavakoli's provocative article, Goldman’s Lies of Omission. In the article, she claims that GS CFO David Viniar lied when he said GS's exposure to AIG would be insignificant. A anonymous Goldman apologist who writes at Economics of Contempt responded to Tavakoli's article, calling the article part of a, "ridiculous conspiracy about Goldman and AIG [that] just won't die."As you will see by the end of this post, the GS apologist does not only not prove his point, but he sets up the opportunity for an observer to point out that the conspiracy was much grander. The commenter points out that not only was GS bailed out, but so was GS's international bank client list. The GS apologist essentially says that GS had insurance with AIG that cost $10 billion, but that GS had collateral against that cost of $7.5 billion (and it hedged away the other $2.5 billion in risk by buying CDS insurance against an AIG failure). Thus, the GS apologist says they would have gotten their $10 billion back to buy insurance somewhere else. Of course, at such time the markets would have been in a panic and there is no way GS would have been able to get the same insurance for $10 billion, if at all. As a number of commenters to the post point out, it would be like trying to buy fire insurance for your house while the house is on fire. So this pretty much blows the "Goldman is a saint" anonymous blogger out of the water. But there is a comment at the Economics of Contempt post that I find fascinating: GS sold a product to the European commercial banks, that enabled them to meet BASELII reserve requirements. It was, is essence, a piece of US mortgage paper, supported by an AIG insurance policy wrapped with a AAA-rating. At AIG's failure, French banks would have become severely capital constrained. Christine Legarde personally called Paulson to ask that AIG be saved. The reputational risk to GS of near-bankrupting all of Europe's major banks would have been devastating. Read the list of banks who received $ 10s of billions from the FED. Its the GS client list.I'm not sure that anyone else has put this piece of the puzzle together in such a clear fashion: European banks would have been destroyed by an AIG bankruptcy because of a product sold by Goldman Sachs. The Fed money that went to European banks, through the AIG bailout, was Goldman's international banker client list! In other words, the AIG bailout that benefited Goldman was much greater than the billions that went directly to Goldman. A large chunk of the rest of the tens of billions went to Goldman's international bank clients. Here's WSJ initial report on who received government AIG bailout money, indeed a huge chunk went to European banks: Goldman Sachs Deutsche Bank Merrill Lynch Société Générale Calyon Barclays Rabobank Danske HSBC Royal Bank of Scotland Banco Santander Morgan Stanley Wachovia A quick call to a friend, who is in a position to know such things ,tells me that, off the top of his head, the international banks do all sound like important GS clients. So here is the new expanded conspiracy theory: Without a bailout of Goldman international bank clients that were sold the drek by Goldman, Goldman would have lost all international credibility and business. The bailout, on the other hand, has strengthened Goldman's hand internationally. International banks dealing with Goldman know that when push comes to shove Goldman can get them all bailed out. In other words, the Goldman bailout was even of much greater benefit to Goldman than most have already suspected. (Source: Economic Policy Journal.)  Watchdog: Gov't May Have Overpaid to Bail out AIG -- Officials mismanaged AIG bailouts, may have overpaid to stabilize company, watchdog says (Nov 2009) Officials handling the multibillion dollar bailout of insurance giant American International Group Inc. mismanaged an initial rescue attempt and may have overpaid other banks to wind down AIG's business relationships, a government watchdog says. The Federal Reserve Bank of New York — headed at the time by now-Treasury Secretary Timothy Geithner — paid AIG's business partners full face value for securities so they would cancel insurance contracts AIG had written in order to ease the firm's liquidity crunch. But at least one of those partner banks offered to canceled the contracts for less, according to a report Monday from Neil Barofsky, the Special Inspector General for the $700 billion financial bailout Congress approved last October. That means officials may have spent billions more than necessary to cancel debt insurance contracts with banks including Goldman Sachs Group Inc. and others, the report says. AIG, a financial services conglomerate that was the world's largest insurer, was considered so interconnected with other companies that its failure could upend the global financial system. As it teetered last fall, officials decided to save the company with billions of taxpayer dollars and government guarantees to prevent deepening the spreading financial crisis. After several bailouts, AIG now holds government commitments worth up to $180 billion — more than any other company. The Treasury Department owns nearly 80 percent of the company. Critics have long argued that AIG's trading partners should have been forced to take less than 100 percent of the value of their contracts with AIG. They note that the protection AIG offered — in the form of complex products called credit-default swaps — was unregulated and that AIG's trading partners knew the risks and should have to assume some losses. Officials, however, have said they feared that underpaying AIG's business partners would cause the company's credit to be downgraded, which also could have sparked AIG's collapse. The new report faults the New York Fed for decisions that "severely limited its ability to obtain concessions" from other banks. In particular, it says, officials refused to use their regulatory power over American banks like Goldman and Merrill Lynch, now part of Bank of America Corp., to force them to take concessions. A French regulator had refused to accept concessions from the Fed for $20.8 billion worth of securities held by Societe Generale and Calyon, and New York Fed officials did not want to treat the U.S. banks differently. But the report points out that American banks already were benefiting from the financial bailout — Goldman, for example, had recently received the Fed's OK to become a bank holding company as a way to boost assets — and all the banks receiving AIG rescue funds benefited from the billions the U.S. already spent on AIG. The New York Fed also weakened its bargaining position by refusing to threaten that AIG would go bankrupt after an initial $85 billion bailout proved too small to save the firm, the report says. Furthermore, negotiators led by Geithner told the banks that any concessions would be purely voluntary, the report says. The result, the report says, was a weak negotiating strategy with little chance of success in obtaining concessions from the banks. It says the initial bailout "was done with almost no independent consideration of the terms of the transaction or the impact that those terms might have on the future of AIG." The report says at least one bank, Germany-based UBS, told the New York Fed it would accept less than face value to cancel the contracts, as long as the other banks did so as well. The other banks refused to take less money "voluntarily," it says. As president of the New York Fed, Geithner signed off on many key decisions concerning AIG's bailouts — including the move to pay in full for securities held by other banks, the report says. Also involved were officials from Treasury and the Federal Reserve. The report says Geithner denied that officials intended to give other banks a "backdoor bailout." Yet it says decisions Geithner approved — "indeed, the very design" of AIG's rescue — meant that billions of taxpayer dollars were "funneled inexorably and directly" to other banks. It acknowledges that officials had good reasons to save AIG, and were appropriately reluctant to break contracts the company had with other companies. But it says those decisions "came with a cost — they led directly to a negotiating strategy that even ... Geithner acknowledged had little likelihood of success." In a joint response, the Fed and New York Fed argue that they acted to protect AIG's customers, whose insurance policies, annuities and retirement plans would have been threatened if the company failed — not just the banks with which AIG had business relationships. They defend the terms of the first bailout and the decision to pay off other banks. "Our negotiating strategy, including the decision to treat all counterparties equally, was not flawed or unreasonably limited," they wrote. In its response, Treasury emphasizes that the events "developed extremely quickly" and that officials did not intend to provide further assistance to AIG after the initial $85 billion bailout that the report says tied their hands. "This report overlooks the central lesson learned from the" AIG rescue, Treasury spokeswoman Meg Reilly said in a statement. "The lesson is that the federal government needs better tools to deal with the impending failure of a large institution" in times of crisis. She said the Obama administration's proposed overhaul of financial regulation would accomplish that goal. The new rules would give regulators the power to unwind large financial firms whose failures threaten the financial system. The process initially would be funded by taxpayers. Barofsky faults the Federal Reserve for refusing at first to reveal which banks had received billions of American taxpayer dollars supposedly intended to save AIG. The Fed released the banks' names and the amount of their payoffs only after lawmakers demanded greater transparency. Barofsky had earlier asserted that taxpayers are unlikely to recover the money spent rescuing AIG. Officials from Treasury and the Fed say they still hope the money will be repaid. (Source: ABC News: Associated Press.) Goldman was exposed to AIG losses: government report (Nov 2009) Goldman Sachs Group Inc (GS.N) could have suffered dramatic losses if the federal government had not intervened to prop up American International Group Inc (AIG.N), according to a government report. The report by the special inspector general for the government bailout program raises doubts about Goldman's previous claims that it was hedged against potential AIG losses. Last fall, as the financial services industry stood on the brink of collapse, the government stepped in with an unprecedented effort to rescue the system. AIG was among the companies that received billions of dollars from the U.S. Treasury's Troubled Asset Relief Program. If AIG had collapsed, it would have made it difficult for Goldman to liquidate its trading positions with AIG, even at discounts, the report said. It also would have put pressure on other counterparties that "might have made it difficult for Goldman Sachs to collect on the credit protection it had purchased against an AIG default." Finally, the report said, an AIG default would have forced Goldman Sachs to bear the risk of declines in the value of billions of dollars in collateralized debt obligations. A Goldman spokesman called the risks discussed in the report a "moot point." "Goldman Sachs has consistently said its exposure with AIG was collateralized and hedged and therefore we had no direct credit exposure," Goldman Spokesman Michael DuVally said. "Given the hedges, collateral, and government backing as a result of the bailout, the additional risks of declining market values in the event of an AIG default are a moot point." AIG has received pledges of up to $180 billion in taxpayer aid since last fall to help save it from collapse. It was revealed in March that Goldman received $12.9 billion in payments and collateral from AIG. David Viniar, Goldman's chief financial officer, in March told reporters that the Wall Street bank did nothing wrong when it accepted payments to close out trades with AIG. The full report can be viewed at: http://www.sigtarp.gov/reports/audit/2009/Factors_Affecting_Efforts_to_Limit_Payments_to_AIG_Counterparties.pdf (Source: Yahoo.)
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