Newly released AIG emails further impugn Tim Geithner

What would you think about the Federal Reserve Bank of New York telling AIG to intentionally withheld from public scrutiny that AIG was paying 100 cents on the dollar for credit default swaps at the same time that AIG was crying for a bailout from the public, thereby hiding from the public that the public was functionally bailing out Goldman Sachs and other large banks? What would you think about the fact that Tim Geithner headed the New York Federal Reserve when this was going on? Eliot Spitzer, William K. Black and Frank Partnoy sum up the issue:

Today, a Bloomberg story revealed that under Timothy Geithner's leadership, the Federal Reserve Bank of New York told AIG to withhold details from the public about its payments to banks during the crisis. This information was discovered when emails between the company and the Fed were requested by representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.
Who owns AIG? The taxpayers own 80% of it. Therefore, AIG should release the emails. Who can and should make this decision?
The taxpayer's stake in AIG is held by the A.I.G. Credit Facility Trust, whose three trustees are Jill M. Considine, a former chairman of the Depository Trust Company and a former director of the Federal Reserve Bank of New York; Chester B. Feldberg, a former New York Fed official who was chairman of Barclays Americas from 2000 to 2008; and Douglas L. Foshee, chief executive of the El Paso Corporation and chairman of the Houston branch of the Federal Reserve Bank of Dallas. We call on these three officials (interestingly all former Fed officials) to immediately release the documents we request. The value of these documents, if it were ever in doubt, was certainly proved by today's revelations. Release the emails.
See also, this earlier post on a NYT op-ed by Spitzer, Black and Partnoy.

Continue ReadingNewly released AIG emails further impugn Tim Geithner

Will the federal government continue coddling AIG?

Fascinating Op-Ed in today's NYT, written by three former prosecutors (ELIOT SPITZER, FRANK PARTNOY and WILLIAM BLACK) who are demanding that AIG be forced to release voluminous emails in its possession that would allow the public to understand the economic meltdown that cost taxpayers hundreds of billions of dollars, including 180 billion dollars to AIG. I agree entirely. There is no reason for delay. It's time to turn AIG inside out, that much is clear. The only thing that is unclear is whether the politicians in Washington DC can muster up the courage to represent the taxpayers rather than the big banks. Here's an excerpt from the Op-Ed piece:

aig-emails

Continue ReadingWill the federal government continue coddling AIG?

AIG secured our (bleak) financial future

While looking through some older articles, I happened across a November 2005 edition of Natural Science. An AIG ad decorates the back cover. Note the AIG claim that "You can count on us." Also note the claim that "50 million customers know the strength and experience of the AIG companies can help secure your financial future." AIG ad - 2005 None of this fluff was technically untrue. It turned out to be true in terrible way that will rob Americans of tax revenue for decades to come. AIG has helped to secure a bleak financial future for most Americans, while securing a windfall for a well-connected group of elite executives. But perhaps this tragedy and this should-be-crime needs to be quantified to be appreciated. The AIG bailout followed AIG's calculated decisions to gamble in a dangerous way in search of obscene profits, rather than to be content with its honest business of selling insurance. Then, when the house of cards came crashing down, AIG somehow convinced our lawmakers to divert our precious tax dollars to preserve AIG, which responded by trying to pay out $165 million in bonuses to its employees for a job well done. How much federal tax money has gone to AIG to date? The latest count is $30 billion dollars. To put that in perspective, note that there are approximately 112,000,000 American households. If each American household were to each bear the same share of this $30B bailout of AIG, they would each pay more than $250. $250 is considerably more than the price of a Nintendo Wii. Can you imagine the outcry if Congress had approved buying a Wii for every household in America? What a horrific and irresponsible waste of money that would have been, especially when that money is desperately needed for education, infrastructure and alternative energy, to name only a few things. AIG is the poster boy of why we cannot have "too big to fail," yet it is not on President Obama's agenda to break up the big financial corporations that still sit there like huge ticking time bombs. It turns out that in the process of "saving" AIG, Treasury Secretary Tim Geithner (then acting as president of the New York Fed) hammered American taxpayers. If you Google "AIG criminal," you'll find almost nothing of note in recent months. Apparently, intentionally threatening the entire American economy in the pursuit of greed is not a criminal issue. Ruining the national economy is not as serious as stealing bread from a grocery store or smoking a joint.

Continue ReadingAIG secured our (bleak) financial future

On the continuing loss of the middle class

Eliot Spitzer discussed the economy of the United States with Amy Goodman of DemocracyNow. Has the economy recovered? No:

[W]e have a major crisis in this nation, and that crisis is jobs. That crisis is that we are seeing the elimination of the middle-class job foundation that permits most Americans to do better year after year after year. The reality is median family income has been stagnant for forty years, and the policies of what I call financialization, which is major banks trading assets back and forth, the Wall Street banks, such as Goldman, which is rightly a lightning rod right now for much of what’s going on, buying and selling, playing with tax dollars in proprietary trading—they make huge money, nothing is added to the economy, jobs are sent overseas. All of this going on simultaneously. That is what our economy has become. And Ben Bernanke and Tim Geithner were the architects of this.
Spitzer also commented on AIG and credit default swaps:
AIG was, to a great extent—their financial products division—a Ponzi scheme supposedly guaranteeing hundreds of billions of dollars of CDS collateral, credit default swaps, with no collateral behind it. That is part of what brought us down. But that is the system that the Fed was overseeing. They specifically rejected the effort back in ’94, ’95 to regulate this swamp. The derivatives, that are a quintessential Wall Street creation, have some small utility at an economic level, but became an enormous revenue stream for banks, and they were unregulated. People made a fortune. We taxpayers hold the bag.

Continue ReadingOn the continuing loss of the middle class

Nothing about our economic system has really been fixed, or even diagnosed, and time is running out.

According to SANDY B. LEWIS and WILLIAM D. COHAN, nothing about our economic system has really been fixed or even diagnosed, and time is running out. This is the theme of a powerfully and clearly written Op-ed piece in today's New York Times, entitled "The Economy Is Still at the Brink":

We’re concerned that nothing has really been fixed. We’re doubly concerned that people appear to feel the worst of the storm is over — and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March. But wishing for improvement and managing by the Dow’s swings are a fool’s game . . .The storm is not over, not by a long shot.

Lewis, who owns a brokerage house and Cohan, a Wall Street banker, succinctly present the problem and some solutions:

Six months ago, nobody believed that our banking system was well designed, functioning smoothly or properly regulated — so why then are we so desperately anxious to restore that model as the status quo? . . . Instead of hauling out the new drywall to cover up the existing studs, let’s seriously consider ripping down the entire structure, dynamiting the foundation and building a new system that rewards taking prudent risks, allocates capital where it is needed, allows all investors to get accurate and timely financial information and increases value to shareholders and creditors.

The authors lay out numerous areas of concern, many of them in the form of pointed questions. Why, indeed, haven't we taken steps to change the system? As Einstein once said, insanity is "doing the same thing over and over again and expecting different results." Lewis and Cohan urge President Obama to take these real steps, to get serious about the faux solution so far imposed (the massive injection of federal money in the absence of any systematic fix).

Instead of promising the imminent return of good times, why isn’t Mr. Obama talking more about the importance of living within our means and not spending money we don’t have on things we don’t need? . . . We are 139 days into his presidency, and while there is still plenty of hope that Mr. Obama will fulfill his mandate, his record on searching out the causes of the financial crisis has not been reassuring.

Lewis and Cohan's Op-ed is must-reading and disturbing reading.

Continue ReadingNothing about our economic system has really been fixed, or even diagnosed, and time is running out.