Black People : Geithner told AIG, to shut up about bailout scam

Discussion in 'Black People Open Forum' started by Ankhur, Jan 7, 2010.

  1. Ankhur

    Ankhur Well-Known Member MEMBER

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    Jan. 7 (Bloomberg) -- The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

    AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

    The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

    “It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.”

    ‘Officially Recused’

    Geithner was “officially recused from matters dealing with specific companies” at the New York Fed after his nomination for Treasury Secretary on Nov. 24, 2008, and “began to insulate himself weeks earlier in anticipation of his nomination,” said Meg Reilly, a Treasury spokeswoman. Geithner, who was tapped by President Barack Obama, took the Treasury job January, 2009. Mark Herr, a spokesman for New York-based AIG, declined to comment.

    Issa requested the e-mails from AIG Chief Executive Officer Robert Benmosche in October after Bloomberg News reported that the New York Fed ordered the crippled insurer not to negotiate for discounts in settling the swaps. The decision to pay the banks in full may have cost AIG, and thus taxpayers, at least $13 billion, based on the discount the insurer was seeking.

    The e-mail exchanges between AIG and the New York Fed over the insurer’s disclosure of the transactions show that the regulator pressed the company to keep details out of the public eye. Issa’s comments add to criticism from Republican lawmakers, including Senator Chuck Grassley of Iowa and Representative Roy Blunt of Missouri, who wrote letters in the past two months demanding information from Geithner, 48, about the costs of the AIG bailout.

    E-mail ‘Troubling’

    Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said the e-mail exchanges were “troubling” and that he supports holding congressional hearings to review them.

    AIG’s Dec. 24, 2008, filing was challenged privately by the U.S. Securities and Exchange Commission, which polices the adequacy of disclosures by publicly traded firms. The agency said in a letter to then-CEO Edward Liddy six days later that AIG should provide a Schedule A, which lists collateral postings for the swaps and names the bank counterparties that purchased them from the company. The Schedule A was disclosed about five months later in a filing.

    Securities Lawyers

    “Our position has always been that if AIG’s securities lawyers determine that AIG is legally obligated to make a particular filing or disclosure, then that is what AIG must do,” Thomas Baxter, general counsel for the New York Fed, said in a statement. He said it was appropriate for the New York Fed, as party to deals outlined in the filings, “to provide comments on a number of issues, including disclosures, with the understanding that the final decision rested with AIG’s securities counsel.”

    Kathleen Shannon, an AIG deputy general counsel, wrote to the insurer’s executives in a March 12, 2009, e-mail about the conflicting demands from the New York Fed and SEC.

    “In order to make only the disclosure that the Fed wants us to make,” Shannon wrote, “we need to have a reasonable basis for believing and arguing to the SEC that the information we are seeking to protect is not already publicly available.”

    Deutsche Bank

    Under pressure from lawmakers, AIG disclosed the names of the counterparties, which included Deutsche Bank AG and Merrill Lynch & Co., on March 15. The disclosure said AIG made more than $27 billion in payments without identifying the securities tied to the swaps or listing the value of individual purchases by each bank, details the Fed wanted to keep out, according to the March 12 e-mail from AIG’s Shannon.

    Earlier that month, Fed Vice Chairman Donald Kohn testified to Congress that disclosure of the counterparties would harm AIG’s ability to do business. The insurer agreed to turn over a stake of almost 80 percent in connection to its bailout.

    The e-mails span five months starting in November 2008 and include requests from the New York Fed to withhold documents and delay disclosures. The correspondence includes e-mails between AIG’s Shannon and attorneys at the New York Fed and its law firm, Davis Polk & Wardwell LLP. Tom Orewyler, a spokesman for Davis Polk in New York, declined to comment as did Shannon.

    According to Shannon’s e-mails obtained by Issa, the New York Fed suggested that AIG refrain in a filing from mentioning so-called synthetic collateralized debt obligations, which bundled derivative contracts rather than actual loans.

    ‘No Mention of the Synthetics’

    The filing “reflects your client’s desire that there be no mention of the synthetics in connection with this transaction,” Shannon wrote to Davis Polk on Dec. 2, 2008. “They will not be mentioned at all.”

    AIG had about $9.8 billion of swaps protecting the synthetic holdings as of September 2008, the company said on Dec. 10, 2008. Goldman Sachs said in a press release last month that it was among banks that had losses on synthetic CDOs.

    As part of a bailout that swelled to $182.3 billion, AIG and the Fed created Maiden Lane III, a taxpayer-funded facility designed to remove mortgage-linked swaps from the insurer’s books. Shannon told the New York Fed on Nov. 24, 2008, that AIG executives wanted to publicly disclose details about Maiden Lane the next day.

    “Do you think it might be feasible to hold off on the Maiden Lane III 8K and press release until next week?” Brett Phillips, a New York Fed lawyer wrote in an e-mail that day. “The thinking is that the Maiden Lane III closing will be a less transparent event, and it might be better to narrow the gap between AIG’s announcement and the New York Fed’s publication of term sheet summaries.”

    ‘Guided By Your Counsel’

    “Given the significance of the transaction, AIG would be best served by filing tomorrow,” Shannon wrote. “We will of course be guided by your counsel.” The document outlining the Maiden Lane agreement was posted on Dec. 2, 2008.

    In at least one instance, AIG pushed for documents to be disclosed and then released the information.

    “We believe that the agreements listed in the index (i.e., the Master Investment and Credit Agreement and the Shortfall Agreement) do not need to be filed,” Peter Bazos, a Davis Polk lawyer wrote on Nov. 25, 2008. “Please let us know your thoughts in this regard.”

    AIG’s Shannon replied that “the better practice and better disclosure in this complex area is to file the agreements currently rather than to delay.” The agreements were included in the Dec. 2 filing.

    full article;
    http://www.bloomberg.com/apps/news?pid=20601087&sid=aXIvW4igKV38#
     
  2. Ankhur

    Ankhur Well-Known Member MEMBER

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    From The Sunday Times January 10, 2010

    Hard questions for Tim Geithner
    Dominic Rushe: Wall Street
    THE $182.3 billion (€126.5 billion) bailout of AIG is getting more costly by the day for the Obama administration. New revelations last week cast the spotlight back on Tim Geithner, the Treasury secretary who played such a vital role in the credit crunch bailouts.

    For all the attacks on the bailouts from Obama’s opponents, it’s worth remembering that this is a situation he inherited and the money started flowing under George Bush junior. But Geithner was Hank Paulson’s batman under Bush — so if anyone deserves flak, it’s him.

    In late 2008, after helping to light the fire under the biggest destruction of wealth in living memory, AIG managed to fan the flames further when it was revealed the insurer paid a total of $62.1 billion to settle the contracts with investment banks, often paying 100c on the dollar.

    Average investors were left to burn but the bankers got their cash back in full. The news came after Uncle Sam had injected $85 billion of taxpayers’ cash into the teetering insurer. That handout has now grown to $182.3 billion.

    Now it appears that as the money started to roll, the Federal Reserve Bank of New York, then under Geithner, was urging AIG to limit disclosure on payments made to banks. Emails show AIG staff, soon to become social pariahs and the target of death threats, arguing for more disclosure only to be discouraged by officials.

    The messages were obtained by Darrell Issa, Republican representative of California and ranking member of the House oversight and government reform committee. “It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information to the Securities and Exchange Commission,” Issa said in an emailed statement.

    It’s not the first time the payments have been attacked. An earlier investigation by Neil Barofsky, the special inspector general for the bailout Troubled Asset Relief Program (Tarp), found that banks such as Goldman Sachs, Deutsche and others were paid top dollar for contracts then valued at a fraction of those prices. AIG was apparently attempting to negotiate cuts of up to 40% on some of these contracts.

    It’s for historians and economists to debate whether they would have been successful, and the consequences success would have had for the banking system as a whole.

    That the government didn’t seek to save the taxpayer any money looks pretty bad. Its defence will no doubt be that it didn’t have time.

    But the unarguable scandal at AIG is that the US taxpayer was made to pay the bill without being shown the cheque.

    New York Fed representatives have said Geithner was “recused [disqualified] from matters dealing with specific companies”, as he was preparing to be nominated as Treasury secretary in late 2008. But as the man with the plan, Geithner has a lot of questions to answer.

    On Friday, the top Democrat and House financial services chairman Barney Frank, the man who helped push through the Tarp, said he was “troubled” by the reports. He’s supporting a hearing on the revelations — just what Obama needs.

    But perhaps a full accounting is the only antidote for AIG’s toxic debt. It’s a scandal that nobody got one in the first place.

    http://business.timesonline.co.uk/tol/business/columnists/article6982585.ece
     
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