Bloomberg: Geithner’s Fed Told AIG to Limit Swaps Disclosure

In a sane world Tim Geithner’s tax troubles would have kept him from being confirmed as Treasury Secretary. Unfortunately, we don’t live sane and those tax troubles pale in comparison to what we’re learning about the Geithner led Federal Reserve Bank of New York’s role in the AIG bailout:

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.” President Barack Obama selected Geithner as Treasury secretary, a post he took last year.

One would think, given these revelations, that Secretary Geithner would be cleaning out his desk now, but this administration’s commitment to transparency, and honest government I wouldn’t hold my breath…As Jim Geraghty notes:

AIG’s liquidity crisis hits in September 2008. The Federal Reserve comes in to rescue them with a credit line of $85 billion, and the big, powerful banks received full cash for their credit-default swaps. But because that aspect of the rescue would be a giant p.r. headache, suggesting that the taxpayer was stepping in to make sure Goldman Sachs and the others didn’t lose anything in their deal, Geithner and his team chose to simply not disclose it to the public.

Bottom line Congressional Democrats and the media have invested a fair amount of time in demonizing AIG and its management and criticizing their bonuses. What we’re slowly learning though is that the problem wasn’t AIG, it was the sneaky and underhanded way that  Geithner and the Federal Reserve Bank of New York decided to cover their tracks by using AIG as a money-laundering device to bailout politically-connected private institutions.

WSJ: Geithner Under Fire Amid Frustration on Economy

Normally I’d say the calls for Treasury Secretary Tim Geithner’s resignation were just hot air but given the recent disclosures about his role in AIG bailout while President of the New York Federal Reserve Bank, I suspect this is more than just normal political blustering:

Snowballing frustration about the economy burst into a political fracas Thursday, with several lawmakers calling on Treasury Secretary Timothy Geithner to resign over angst about unemployment and Wall Street bailouts.

The criticism came largely from House Republicans, who have long been critics of the Treasury secretary. Mr. Geithner’s job status doesn’t appear to be in serious jeopardy and several Democrats at a congressional hearing leapt to his defense.

But joining the anti-Geithner chorus in increasing numbers are more liberal Democrats who say the White House’s economic policies haven’t done enough to boost job growth. The degree of venom aimed at Mr. Geithner is also unusual, as was his willingness to fire back.

During a Joint Economic Committee hearing on Capitol Hill, Rep. Kevin Brady (R., Texas) told Mr. Geithner “the public has lost all confidence in your ability to do the job.”

Mr. Geithner traded barbs with the Republicans, occasionally raising his voice to the point of shouting. “What I can’t take responsibility is for the legacy of crises you’ve bequeathed this country,” he told Mr. Brady.

Rep. Peter DeFazio (D., Ore.) a vocal liberal who called on Mr. Geithner to resign this week, said in an interview that the Treasury secretary’s policies are too closely geared to Wall Street. “Quite frankly, all the gambling on Wall Street is doing nothing to put people back to work in America and rebuild our economy,” he said.

I’m not sure the President can save Sec. Geithner this time, frankly given his tax troubles he never should have never been confirmed as Treasury Secretary in the first place,  but that’s an aside. What’s happening here is the effects of 10.2 percent unemployment and the election results in New Jersey and Virginia are starting to take hold.

Democrat’s on Capitol Hill are starting to worry about the 2010 mid-terms and are trying distance themselves from the White House’s economic policies. Second Republican’s are no longer scared of the White House… At least not so far as the economy is concerned. If they were they wouldn’t be calling for Sec. Geithner’s resignation, particularly to his face.

You can read the full the Special Inspector General’s report on on the AIG bailout Special Inspector General here (PDF).

Related

• Geithner under fire over AIG payments – Financial Times
• Pressure mounts for Geithner to resign – Washington Times
• Liberal Democrat Calls For Geithner’s Resignation – The Public Record

Is More Spending the Answer to Our Economic Problems?

I mentioned last week that the Government and Federal Reserve had spent, lent or committed $12.8 trillion, here’s video from stopspendingourfuture.org that helps put that in perspective:

In short, we have spent more bailouts than we did on World War 2!

Let the Exodus Begin…

Jake DeSantis may have been the most public buts he’s not the only one at AIG Finacial Products who’s cleaning out his desk:

NEW YORK (Reuters) – Several more employees are leaving the controversial financial products unit that brought American International Group Inc to its knees last year, according to a person with knowledge of developments there.

The resignations are in addition to the “handful” of senior AIG Financial Products executives who have already given notice, said the person, who could not quantify the total number of departures.

To date, AIG said the situation at the financial products unit remains “manageable,” despite the departures. But if too many employees quit, Chief Executive Edward Liddy has warned it could be disastrous for AIG and, ultimately, for U.S. taxpayers who are the insurer’s majority owners.

The financial products division incurred heavy mark-to- market losses on credit default swaps, a type of derivative that guarantees underlying debt against default, after the downturn in the U.S. housing market, leaving AIG so severely short of cash the U.S. government had to step in with a rescue that has since grown as large as $180 billion.

The credit default business was only a part of the financial products division, which is being shut down.

Employees there were promised retention payments more than a year ago, on condition they stayed long enough to wind down their areas of business, effectively working themselves out of a job.

But now some have changed their minds, fed up after 10 days of ridicule and scorn from lawmakers who broadly derided the bonuses, demonstrators picketing outside AIG offices and a threat by New York Attorney General Andrew Cuomo to publicly name anyone who did not return the bonuses.

Who can them they were promised retention bonuses  before  the government bailed out AIG and now they’re being crucified by the media and by politicians who are more interested in leading a lynch mob than governing intelligently.

Related

• AIG Fights a Fire at Its Paris Unit – Wall Street Journal
• Zeal for battle over bonuses waning in Washington – Associated Press

NYT: Dear A.I.G., I Quit!

I hope Barack Obama, Timothy Geithner, Nancy Pelosi, Barney Frank, Chris Dood, Andrew Cuomo, Richard Blumenthal and all the pundits who have lead the AIG lynch mob are happy now:

The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.

DEAR Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

In a sane world Jake DeSantis’s letter would shame those who have lead the charge to unfairly tar and feather the many good people at AIG… The sad reality is none them will even understand its significance.

Related

• Drive to Tax AIG Bonuses Slows – Wall Street Journal
• Resigned – Mark Steyn
• When they came for AIG – Powerline
• I Hope They Are Happy – Jennifer Rubin
• AIG Executive Resigns, Says Why – Red State
• Going Galt at AIG – Hot Air

Chris Dodd’s Wife Paid by AIG Subsidiary???

Chris Dodd had an Op Ed in “Dodd: Setting the record straight” in this morning’s News Times… Unfortunately, the piece doesn’t seem to be on their web site so I can’t link to it… Regardless the timing couldn’t have been worse since Sen. Dodd is likely to face new questions about his wife’s involvement with IPC Holdings, Ltd., a Bermuda-based company controlled by AIG:

No wonder Senator Christopher Dodd (D-Conn) went wobbly last week when asked about his February amendment ratifying hundreds of millions of dollars in bonuses to executives at insurance giant AIG. Dodd has been one of the company’s favorite recipients of campaign contributions. But it turns out that Senator Dodd’s wife has also benefited from past connections to AIG as well.

From 2001-2004, Jackie Clegg Dodd served as an “outside” director of IPC Holdings, Ltd., a Bermuda-based company controlled by AIG. IPC, which provides property casualty catastrophe insurance coverage, was formed in 1993 and currently has a market cap of $1.4 billion and trades on the NASDAQ under the ticker symbol IPCR. In 2001, in addition to a public offering of 15 million shares of stock that raised $380 million, IPC raised more than $109 million through a simultaneous private placement sale of 5.6 million shares of stock to AIG – giving AIG a 20% stake in IPC. (AIG sold its 13.397 million shares in IPC in August, 2006.)

To quote Ricky Ricardo “Somebody’s got some splainin’ to do.”

Related

• GOP sees signs of life in Northeast -Politico
• Cheap Political Theater- Human Events

Unintended Consequences: AIG Bonus Tax Could Have Painful Side Effects

Haste makes waste my grandmother used to say… When it comes to legislation haste often leads to unintended consequences. Take for example congresses rush to pass a 90 percent tax on the retention bonuses paid to executives at AIG (emphasis mine):

Lawmakers bellowed with outrage last week following revelations that AIG was paying millions in bonuses to employees at a rogue division based in suburban Connecticut.

But the bonus restrictions House members prescribed in response — a 90 percent tax on those bonuses — could have painful side effects for the subsidiaries of other bailed-out financial companies, including one located just a few miles away from the troubled AIG unit.

Phibro, a commodities trading company located in Westport, Conn., potentially could be hit with the 90 percent tax on bonuses since its parent company, Citigroup, has received $45 billion in bailout money.

Phibro, though, has not actually taken federal rescue funds and is considered a relatively stable and profitable subsidiary of Citigroup.

The subsidiary side effect is just one example of the complications the House-passed bill could create if such a measure clears the Senate and heads to President Obama’s desk.

U.S. Rep. Jim Himes, D-Conn., who represents the district where Phibro is based, said the bill is “undoubtedly replete with unintended consequences” — the product of what he called “hasty work.”

~ ~ ~

But the Connecticut Democrat said he expects the Senate to work up an entirely different bill to address excessive bonuses. He said the House version was a “signal” to taxpayers that Congress is paying attention to the issue, but not a final product.

Excuse me??? With all due respect Congressman, we expect our elected leaders to act like adults. Not to run off half cocked and rush to pass a hastily crafted, unconstitutional Bill of Attainder to send a signal.

The last Grownup: John Kyl Puts the Breaks on Rush to Tax AIG Bonuses

We got into this mess because Congress and the administration rushed through the Stimulus bill without sufficient time for legislators to review and debate the bill. Now Congress is trying to compound one set of mistakes with another by rushing through a bill to tax the retention bonuses paid to AIG employees. Fortunately there’s at least one grownup left on capitol hill:

Sen. Jon Kyl, the Republicans’ vote counter, blocked Democratic efforts Thursday evening to bring up the Senate version of the tax bill to recoup most of the $165 million paid out by AIG last weekend and other bonuses in 2009. The House had swiftly approved its version of the bill earlier in the day.

By rushing, Kyl said, Democrats were letting populist outrage trump informed decision making in the Senate, which is supposed to be insulated from the pressures of public passion.

“I don’t believe that Congress should rush to pass yet another piece of hastily crafted legislation in this very toxic atmosphere, at least without understanding the facts and the potential unintended consequences,” Kyl said on the Senate floor. “Frankly, I think that’s how we got into the current mess.”

~ ~ ~

How to impose those taxes without running afoul of the Constitution or the law is a dispute that has Republicans urging a go-slow approach. Doing so, of course, would drag out the Democratic discomfort over administration missteps and provide plenty of time for the GOP and others to question Geithner’s performance.

Bravo Zulus for Senator Kyl, Congress needs to slow down, cool off and think this through before they pass a bill that has unintended consequences.

Related

• Countrywide sues AIG unit over its failure to cover loan losses – Los Angeles Times
• ‘Don’t wear anything that says AIG on it’: Under-fire insurer gives employees security tips as fury over bonuses grows – Daily Mail
• AIG bonus outrage has employees living in fear – Associated Press
• Banker fury over tax ‘witch-hunt’ – Financial Times
• Sanity: Kyl blocks bill on AIG bonuses to give Senate time to think things over – Hot Air
• An Adult Steps up and Takes Control – Wizbang
• Are We A Banana Republic? – Powerline

Damn the Constitution, Full Speed Ahead!

This is beyond priceless:

WASHINGTON — The House gave strong approval to legislation intended to recoup bonuses paid by American International Group Inc. and other recipients of federal aid, after a sharp-edged debate that dramatized populist outrage over the government’s sweeping efforts to prop up the nation’s financial system.

The legislation was rushed to the floor by Democratic leaders amid a storm of protest among rank-and-file lawmakers over AIG’s decision to pay bonuses to hundreds of current and former employees, while receiving more than $100 billion in taxpayer assistance. Approved on a 328-93 vote, the measure would impose a 90% surtax on the disputed payments, effective for bonuses made after Dec. 31, 2008.

The legislation would apply widely to payments by all institutions that have received at least $5 billion in taxpayer aid. The special levy would be in addition to existing income taxes, and would apply to bonuses received by individuals with at least $250,000 in adjusted gross income.

To recap… Congress committed an act of supreme legislative malpractice by passing a Bill that no one had to time read, much less digest or debate… and now they’re compounding that mistake by passing what amounts to an unconstitutional Bill of Attainder to cover their tracks.

Lovely,  just lovely… Damn the Constitution, full speed ahead!

Congressman McCotter Slams Stimulus “Yes” Voters for Protecting AIG Executive Bonuses

I’m about ready to make Rep. Thaddeus McCotter of Michigan my adopted Congressman:

“Facts are hard things to disprove.  Every single Democrat in this House that voted for that bill voted to approve and protect those AIG bonuses.  Every single Democrat in the Senate that voted for that stimulus bill, along with three Republican senators, voted to approve and protect those AIG bonuses.  The President of the United States signed into law the protection and the approval of those AIG bonuses that they find so repugnant, now that the American people know what was done.”

“If you are shocked, be shocked at the own members of your party or Administration that put (the amendment protecting bonuses) in, and be shocked that we will now pass a Bill of Attainder that is unconstitutional to try to cover our, shall we say, “tracks,” on this matter.”

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