AIG Complaining About Terms of Takeover

They just don’t get it. The party is over and this is never going to be the same. AIG stood on a street corner like a hooker selling default swap insurance as though they were apples. Only they had no apples — or assets to be more specific, to back them up. Bears Stearns did the same thing and so did dozens of other players on Wall Street — selling credit default swaps to each other and booking it as income, which would thereby raise the value of their stock, which would upon sale of the stock by the company or its officers net tidy fortunes. That left all the “little guys” holding the bag. And they didn’t care.

The problem was and is that all this paper was “toilet paper” as Rick Wagner said in an interview with The New York Times. And this is just the beginning of the mess. The response to Mr. Greenberg, along with an indictment (in my opinion), should be shut up and get out of the way. Nothing can change the reality that the paper was toxic waste from top to bottom — from mortgage backed securities, through insurance, credit default swaps, cross collateralization, overcollateralization and undisclosed table funded loans with monstrous undisclosed fees paid and actively hidden from the investor who put up the money and the “borrower” who got part of that money in exchange for a signature which made the “borrower” actually an “issuer” (of securities) is a massive PONZI scheme involving the sale of unrelated securities using blatently false pretenses, lies and deception. From the looks of things the only people who actually lost money on this deal are the homeowners who are now left with less than zero (“under water”) and some of the investors who have not (yet) been bailed out.

But go ahead and blame the borrower if you like. Whether you do or not, this mess is not going to get cleaned up until the policy solution is rooted in reality. The reality is that both the mortgage backed securities and the “loan” papers were oversold using vastly inflated prices. The current foreclosure plan basically consists of this pitch: “Hi! I’ve got this $200,000 house and I want you to buy it, but I’ll give you really good mortgage terms! I’m sure you’ll agree that this is a great deal because you are already in the house and have your stuff in it. Wait! Where are you going? No, don’t do that! Don’t drop the keys on the counter. What’s that you say? I can’t do that, I’m not double jointed.” Good luck.

Reality 101: In the end, nobody is going to buy that deal except a few saps. In reality people are going to look at a rental or an owner financed house which gives them a payment of 1/2 what the new modification would cost and allows them to build equity through savings or amortizationinstead of reducing negative equity in the hope of getting to zero. Listen up guys, people are not as stupid as you want and need them to be in this situation. This kind of deal worked a few years ago when nobody was looking. People are wide awake now and they get it.

Greenberg attacks US over AIG

By Francesco Guerrera and Chrystia Freeland in New York

Published: March 8 2009 23:30 | Last updated: March 8 2009 23:30

Hank Greenberg, the former chief executive of AIG, has accused the US government of bungling the insurer’s rescue by imposing a high-interest loan and forcing the repayment of $30bn-plus to banks and partners.

In a video interview with the Financial Times, Mr Greenberg, who led AIG for 38 years before being ousted in 2005 during a probe of its accounting practices, suggested the US authorities’ actions made the company’s break-up inevitable.

“You’re not going to see an AIG – AIG will be gone, it will be broken up into many pieces,” he said days after the company, which is 80 per cent owned by the government, received its third bail-out in five months.

AIG and government officials reject Mr Greenberg’s accusations and say his criticisms stem from his status as one of AIG’s largest shareholders and his legal wrangles with the company.

Mr Greenberg is believed to have suffered million-dollar paper losses from the collapse of AIG’s share price.

He has been involved in a legal case with AIG, which is challenging his right to hold part of his stake.

Mr Greenberg attacked the government’s decision last November to pay out more than $30bn to institutions that had purchased AIG’s insurance on mortgage-backed securities.

He argued that although the value of those collateralised debt obligations had fallen sharply – and AIG had suffered big losses on them – the counterparties, which are believed to include Goldman Sachs, Deutsche Bank and other Wall Street names, had the full value of their investments returned.

“Christmas came early for many of them. It was a gift,” Mr Greenberg said.

Asked whether he thought shareholders and taxpayers were unfairly subsidising the company’s counterparties, he replied: “I think that is one thing.”

Federal Reserve officials have said the repayment of the CDOs was vital to avoid disruption in credit markets.

Mr Greenberg criticised the interest rate of 850 basis points over the London interbank offered rate on the $85bn loan in the government’s first rescue.

“If you think that is a way to save a company, then we have a disagreement,” he said.

“That’s a way to liquidate a company, not to save a company.”

Fed officials said the loan’s original terms were the ones AIG had offered investors in its attempt to raise funds and avoid a collapse in September.

4 Responses

  1. Neil, we are responding to
    your suggestion of mediation
    between the lender and
    consumers of these bad, toxic
    loans, we do not want
    mediation, we want our
    property as we deserver for
    Lehman AND Citis acts of
    fraud in filing a sham
    foreclosure, the idea sucks!

  2. The Real AIG Conspiracy

    by Prof. Michael Hudson

    Global Research, March 18, 2009

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    It may seem odd, but the public outrage against $135 million in AIG bonuses is a godsend to Wall Street, AID scoundrels included. How can the media be so preoccupied with the discovery that there is self-serving greed to be found in the financial sector? Every TV channel and every newspaper in the country, from right to left, have made these bonuses the lead story over the past two days.

    What is wrong with this picture? Is there not something over-inflated about the outrage led most vociferously by Senator Charles Schumer and Rep. Barney Frank, the two leading shills for the bank giveaways over the past year? And does Pres. Obama perhaps find it convenient that finally, at long last, he has been able to criticize something that he believes Wall Street has done wrong? Even the Wall Street Journal has gotten into the act. The government’s takeover of AIG, it pointed out, “uses the firm as a conduit to bail out other institutions.” So much more greed is involved than just that of AIG employees. The firm owed much more to other players – abroad as well as on Wall Street – than the assets it had. That is what drove it to insolvency. And popular opposition has been rising to how Mr. Obama and Mr. McCain could have banded together to support the bailout that, in retrospect, amounts to trillions and trillions of dollars thrown “down the drain.” Not really down the drain at all, of course – but given to financial speculators on the winning “smart” side of AIG’s bad financial gambles.

    “The Washington crowd wants to focus on bonuses because it aims public anger on private actors,” it accused in a March 17 editorial. But instead of explaining that the shift is away from Wall Street grabbers of a thousand times the amount of bonuses being contested, it blames its usual all-purpose bete noire: Congress. Where the right and left differ is just whom the public should be directing its anger at!

    Here’s the problem with all the hoopla over the $135 million in AIG bonuses: This sum is only less than 0.1% – one thousandth – of the $183 BILLION that the U.S. Treasury gave to AIG as a “pass-through” to its counterparties. This sum, over a thousand times the magnitude of the bonuses on which public attention is conveniently being focused by Wall Street promoters, did not stay with AIG. For over six months, the public media and Congressmen have been trying to find out just where this money DID go. Bloomberg brought a lawsuit to find out. Only to be met with a wall of silence.

    Until finally, on Sunday night, March 15, the government finally released the details. They were indeed highly embarrassing. The largest recipient turned out to be just what earlier financial reporters had said was rumored: Mr. Paulson’s own firm, Goldman Sachs, headed the list. It was owed $13 billion in counterparty claims. So here’s the picture that’s emerging. Last September, Treasury Secretary Paulson, from Goldman Sachs, drew up a terse 3-page memo outlining his bailout proposal. The plan specified that whatever he and other Treasury officials did (thus including his subordinates, also from Goldman Sachs), could not be challenged legally or undone, much less prosecuted. This condition enraged Congress, which rejected the bailout in its first incarnation.

    It now looks as if Mr. Paulson had good reason to put in a fatal legal clause blocking any clawback of funds given by the Treasury to AIG’s counterparties. This is where public outrage should be focused.

    Instead, the leading Congressional shepherds of the bailout legislation – along with Mr. Obama, who came out in his final, Friday night presidential debate with Sen. McCain strongly in favor of the bailout in Mr. Paulson’s awful “short” version – have been posing as conspicuously as possible for the media to cover a deflected target – the AIG executives receiving bonuses, not the company’s counterparties.

    There are two questions that one always must ask when a political operation is being launched. First, qui bono? Who benefits? And second, why now? In my experience, timing almost always is the key to figuring out the dynamics at work.

    Regarding qui bono, what does Sen. Schumer, Rep. Frank, Pres. Obama and other Wall Street sponsors gain from this public outcry? For starters, it depicts them as hard taskmasters of the banking and financial sector, not its lobbyists carrying water for one giveaway after another. So the AIG kafuffle has muddied the water about where their political loyalties really lie. It enables them to strike a misleading pose – and hence to pose as “honest brokers” next time they dishonestly give away the next few trillion dollars to their major sponsors and campaign contributors.

    Regarding the timing, I think I have answered that above. Talking about AIG bonuses has effectively distracted attention from the AIG counterparties who received the $183 billion in Treasury giveaways. The “final” sum to be given to its counterparties has been rumored to be $250 billion, do Sen. Schumer, Rep. Frank and Pres. Obama still have a lot more work to do for Wall Street in the coming year or so.

    To succeed in this work – while mitigating the public outrage already rising against the bad bailouts – they need to strike precisely the pose that they’re striking now. It is an exercise in deception.

    The moral should be: The wetter the crocodile tears shed over giving bonuses to AIG individuals (who seem to be largely on the healthy, bona fide insurance side of AIG’s business, not its hedge-fund Ponzi-scheme racket), the more they will distract public attention from the $180 billion giveaway, and the better they can position themselves to give away yet more government money (Treasury bonds and Federal Reserve deposits) to their favorite financial charities.

    Michael Hudson is a frequent contributor to Global Research. Global Research Articles by Michael Hudson

  3. Any thoughts on whether the AIG bonuses are “silence money?” Could this be why it was just so gosh darn hard to stop them from being paid out? Since it’s quite possible AIGFP was involved in fraud with CDS’s; this potential fraud could involve counterparties including “lenders” (PNC Financial in 2004 moving assets off its balance sheets) and other entities all “insuring” the very same default events. Could be very embarrasing for some. Josh Marshal at Talking Points Memo has been focused on this lately: http://tpmmuckraker.talkingpointsmemo.com/2009/03/did_cassano_and_aig_commit_fraud.php?ref=fp1

  4. The TALF: Bernanke’s Witness Protection Program

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    Mike Whitney
    Information Clearing House
    March 17, 2009

    Fed chief Ben Bernanke’s new funding facility is a real doozy. In fact, if the Term Asset-Backed Loan Facility or TALF, which is set to launch on Thursday, doesn’t convince the American people that it’s time to take a wrecking ball to the Central Bank and start over, than nothing will. Bernanke and his co-conspirator at Treasury, Timothy Geithner, are planning to revive the shadow banking system by dumping $2 trillion into the same over-leveraged, derivatives-based garbage that blew up the financial system in the first place. All the blabbering about a “good bank-bad bank” remedy appears to have been a diversion. This is how Bloomberg sums it up:
    featured stories The TALF: Bernankes Witness Protection Program
    Bernanke

    Bernanke at the CFR on March 17, 2009.

    “Geithner’s program has three main elements: Injecting fresh government capital into some of the country’s biggest financial institutions; establishing a public-private partnership to handle as much as $1 trillion of banks’ bad assets; and starting a credit facility with the Federal Reserve of as much as $1 trillion to promote lending to consumers and businesses.

    The Treasury hopes to unfreeze credit markets by providing new incentives to banks and investors to resume trading in mortgage securities and other troubled assets. U.S. regulators are conducting a new series of examinations to make sure banks have enough capital to accept losses when selling these assets, while also planning to provide government financing to the investors who might buy them.” (Bloomberg News)

    That’s right; $1 trillion for Bernanke’s TALF and another trillion for Geithner’s so called “Public-Private Partnership”. That’s $2 trillion down a derivatives sinkhole just to preserve the illusion that the banks are still solvent. Bernanke has decided to shrug off the advice of nearly every reputable economist in the country, most of whom are pushing for a government takeover of the failing banks (nationalization), just to toss his shifty banking buddies a lifeline. It doesn’t seem to bother him that the public till has already been looted and that his action will leave the next generation of Americans bobbing in a pool of red ink.

    Last week, investors backed away from Bernanke’s TALF, even though the Fed promised to provide up to 95 percent of the funding (through low interest loans) to investors willing to buy distressed assets backed by student loans, car loans and credit card debt. The potential investors “objected to the level of scrutiny that dealers would have over their books, arguing that the dealers’ rules attached too many strings. Dealers were saying they take plenty of risk to facilitate the program and need to be protected in situations where the collateral or the client made mistakes or wound up ineligible.” (Wall Street Journal”)

    This is how crazy it’s gotten. Why shouldn’t the Fed have the right to look at the books and see if these financial institutions are solvent or not? Should they just take their word for it?

    But that’s only half the story. When the WSJ says that dealers need to “be protected in situations where the collateral or the client made mistakes or wound up ineligible”, what they mean to say is that they expect the Fed to make up for any losses on securities which are explicitly banned from the program. This is no small matter, since the Fed cannot legally buy any asset that is less than triple A, and yet, everyone knows the TALF will end up being a dumping ground for all kinds of toxic waste.

    So who will pay when financial institutions sell double A or lower securities that they KNOW are ineligible for the program? As it stands now, the taxpayer, because the Fed caved in to industry pressure. In other words, the interests of the people who put up a measly 5 percent of the original investment will take precedent over those who put up 95 percent. This is the kind of sleazy dealmaking that is going on behind the scenes of this bailout fiasco. The Fed is so desperate to launch its facility and keep these Wall Street scamsters and bank extortionists in business, they’re willing to underwrite the fraudulent sale of rotten securities. It’s outrageous!

    But there’s even more to this swindle than that–much more. According to the Wall Street Journal:

    “Wall Street dealers, including J P Morgan Chase & Co. and Barclays PLC’s Barclays Capital, have created vehicles to participate in the TALF that would allow investors in the program to circumvent many of the restrictions laid out by the Fed. The vehicles resemble collateralized debt obligations, or CDOs, and use some of the financial engineering that was partially responsible for the collapse of the credit markets. The Fed, eager to get what it hopes will be a $1 trillion program up and running, has blessed the vehicles because they open the TALF up to a much larger group of investors.” (TALF is reworked after investors balk, Liz Rappaport, Wall Street Journal)

    Great. More CDOs. Just what we need.

    Keep in mind that the Fed’s funding is in the form of “non recourse loans” already, which means that if the dealers decide to walk away, the losses are transferred to the taxpayers balance sheet, no questions asked. But even that is not good enough for the Wall Street crooksters. They want to create a whole new security buffer-zone for themselves by dredging up the Frankenstein of structured debt-instruments–the notorious CDO–so they can “circumvent” the rules and plead innocent when B grade garbage is sold through the TALF. This isn’t a financial rescue plan, it’s a witness protection program for self acknowledged con artists and snake oil salesmen.

    Again, the Wall Street Journal:

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    “Under the new proposal, a bank such as Barclays or J.P. Morgan would set up a trust to buy securities with money borrowed from the Fed. The trust would then sell investors securities in the trust. Those securities would give returns similar to the TALF loan, but without the strings attached….The dealers say they could create markets for these derivative securities to trade.

    The Fed’s culpability in this boondoggle is undeniable. Bernanke and his wily friend at Treasury have given their full support to a plan that does nothing but move trillions of dollars of toxic waste from one balance sheet to another while foisting the liability onto the American taxpayer. And don’t be misled by the term “trust” in the Journal’s report. In this instance, “trust” refers to an Enron-type, off-balance sheets Structured Investment Vehicle (SIV) which is designed to keep investors in the dark about the real condition of the financial institutions that run them. SIV’s are the banks sausage-making units which hold hundreds of billions of dollars of undercapitalized complex securities, like mortgage-backed securities (MBS) and collateralized debt obligations (CDO). These are the same debt-instruments which greased the skids for the current downward death-spiral.

    Wall Street Journal:

    “The vehicles also would make it easier for investors that aren’t eligible for TALF loans to buy into the program, like investors that are restricted by their investment guidelines from using borrowed money to buy securities. Smaller hedge funds that can’t vie for large allocations of deals could also buy in through these vehicles.”

    “Sure, what the heck. Why worry about “eligibility” or “restrictions”? We don’t need a financial rescue plan that isolates the toxic waste and writes down the losses. We don’t need to protect the taxpayer or the depositor. We’ll just keep asset prices in the stratoshpere for a while longer by adding a little more helium and pretending that private institutions really want this mortgage-backed sludge. That way, we can keep the public from knowing what’s really going on.” This seems to be the general line of reasoning at the Fed and Treasury.

    Wall Street Journal:

    “Some investors have raised concerns, however, noting that the structure puts these dealers at an advantage in bidding and influencing the price of new offerings. They also say the derivative securities present old and familiar problems, such as keeping the end holder of the risk of the TALF securities several steps away from the pricing of that risk.”

    The economy is sliding headlong into another Great Depression because of the mispricing of risk, the sale of complex and unregulated derivatives, the vast and unsustainable use of leverage, and shadowy and fraudulent off-balance sheets operations. When the TALF is launched on Thursday, all of these same activities will be reignited with the explicit blessing of the Central Bank. It is a reckless, wacky plan to keep the banks in private hands and to keep asset prices inflated beyond their true market value.

    Bernanke and Geithner are moving ahead with their plan despite the clearly articulated guidelines set out by the world’s finance ministers and central bankers who convened over the weekend in Sussex, England. Number 7 of the G-20’s Communiqué reads:

    “We have also agreed to: regulatory oversight, including registration, of all Credit Rating Agencies whose ratings are used for regulatory purposes, and compliance with the International Organization of Securities Commissions (IOSCO) code; full transparency of exposures to off-balance sheet vehicles; the need for improvements in accounting standards, including for provisioning and valuation uncertainty; greater standardization and resilience of credit derivatives markets; the FSF’s sound practice principles for compensation; and the relevant international bodies identify non-cooperative jurisdictions and to develop a tool box of effective counter measure.”

    It couldn’t be much clearer than that. But don’t expect “compliance” from Geithner or Bernanke. They have no intention of reworking their plans to meet the demands of the G-20. No way. Multilateralism and cooperation might sound great in speeches, but it’s not what drives policy.

    The TALF and the “Public-Private Partnership” are another slap in the face of the international community. They violate the spirit and the letter of the G-20 communique. It will be interesting to see if foreign holders of US Treasurys endure this latest insult in silence or if there’s a sudden stampede for the exits. There’s a sense that the world is getting fed up with the Fed’s financial chicanery and would like to chart a different course. Enough is enough.

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