Neil Barofsky: Geithner Hides Taxpayer Losses on AIG

“The American people have a right for full and complete disclosure about their investment in A.I.G.,” Mr. Barofsky said, “and the U.S. government has an obligation, when they’re describing potential losses, to give complete information.”

“If a private company filed information with the government that was just as misleading and disingenuous as what Treasury has done here, you’d better believe there would be calls for an investigation from the S.E.C. and others,” said Representative Darrell Issa, the senior Republican on the House Committee on Oversight and Government Reform. He called the Treasury’s October report on A.I.G. “blatant manipulation.”

Editor’s Comment: Barofsky, inspector general, has it right and this is the tip of the iceberg. The accounting confabulations of the financial world are bleeding over into government reports. It leads us further away from reality and closer to economic collapse. In order to preserve the financial interests of managers on Wall Street and political capital in the coming elections, the administration has side-stepped the truth.

The truth is worse than anything you can imagine. The finance world is awash in more than 12 times the total currency authorized by all the world governments combined. Some part of that, perhaps the majority of it, might cancel out in “wash” trades, but a large part of it must meet a day of reckoning that everyone “in the know” is avoiding. They just kick the can down the road in the hope that something will happen to change this. Maybe they hope that inflation, if it gets bad enough, will offset the boated world markets in today’s dollars. Whatever it is, they are wrong.

All of this is avoidable if we hold their feet to the fire. If the mortgages are no good, then so be it. Let the chips fall where they may. We’ll clean up the mess once we know how big it is. If the mega banks must fall, let them. They are only consuming what little capital we have left and applying it in ways that benefit themselves in foreign investments. If we let anonymous donors including foreign investors control our elections, we might just as well admit that we have achieved the dubious status of a banana republic.

October 26, 2010

Treasury Hid A.I.G. Loss, Report Says

By MARY WILLIAMS WALSH

The United States Treasury concealed $40 billion in likely taxpayer losses on the bailout of the American International Group earlier this month, when it abandoned its usual method for valuing investments, according to a report by the special inspector general for the Troubled Asset Relief Program.

“In our view, this is a significant failure in their transparency,” said Neil M. Barofsky, the inspector general, in an interview on Monday.

In early October, the Treasury issued a report predicting that the taxpayers would ultimately lose just $5 billion on their investment in A.I.G., a remarkable outcome, since the insurance company was extended $182 billion in taxpayer money in the early months of its rescue. The prediction of a modest loss, widely reported as A.I.G., the Federal Reserve and the Treasury rushed to complete an exit plan, contrasted with an earlier prediction by the Treasury that the taxpayers would lose $45 billion.

“The American people have a right for full and complete disclosure about their investment in A.I.G.,” Mr. Barofsky said, “and the U.S. government has an obligation, when they’re describing potential losses, to give complete information.”

An official of the Treasury disputed Mr. Barofsky’s conclusions, saying the department appropriately used different methods for different purposes. He said the smaller loss was a projection of future events, and the larger one was the result of an audit, which includes only realized gains and losses.

The Treasury will include more information about A.I.G. when it issues its own audited financial statement in November. Because those numbers must pass an auditor’s scrutiny, the loss it reports is likely to grow once again, to more than $5 billion.

Members of Congress who have been critical of the federal bailouts jumped on Monday to commend the special inspector general and challenge the varying numbers.

“If a private company filed information with the government that was just as misleading and disingenuous as what Treasury has done here, you’d better believe there would be calls for an investigation from the S.E.C. and others,” said Representative Darrell Issa, the senior Republican on the House Committee on Oversight and Government Reform. He called the Treasury’s October report on A.I.G. “blatant manipulation.”

Senator Charles E. Grassley of Iowa, the senior Republican on the Finance Committee, said he thought “administration officials are trying so hard to put a positive spin on program losses that they played fast and loose with the numbers.” He said it reminded him of “misleading” claims that General Motors had paid back its rescue loans with interest ahead of schedule.

Mr. Barofsky said he had written to the Treasury secretary, Timothy F. Geithner, in mid-October, after widespread reports in the news media about the possibility that the Treasury could wind down its position in A.I.G. with just a $5 billion loss. He recommended that the Treasury correct the October report, perhaps by adding a footnote saying the methodology for calculating its losses had changed.

The Treasury declined. It sent back a letter saying its methodology for calculating losses had not really changed, although its assumptions had. For instance, it based the values of several future transactions on the current price of A.I.G.’s common stock. The letter, signed by Timothy G. Massad, the acting assistant secretary for financial stability, said this reflected the fact that a crucial component of its exit strategy would be the exchange of preferred for common stock.

Mr. Barofsky said the government failed to account for the volatility of A.I.G.’s common stock. A relatively small portion of the company is publicly traded, and that portion will be soon diluted further. The government now has a 79 percent stake, which will rise to about 92 percent, in the form of common stock, under the exit plan.

It is not clear whether the Treasury will be able to sell so much stock without making the price fall. Mr. Barofsky said the Treasury’s projection also assumed that all the other steps for the federal government to withdraw from A.I.G. would go smoothly.

8 Responses

  1. wikileaks

  2. They HANG folks in other countries for the scams that have been perpetrated upon Americans by the government corrupt officials. When are we going to wake up and get MAD as HELL and not take it anymore? They shove *#@#t down our throat every day and we do nothing. Geitner’s dad went to school with Obama’s mother. They are all “progressives” in the scam together to make us a “one world” society where we are slaves to the elite. WAKE UP.

  3. Pennymac purchased nearly ALL of the troubled asset debt from AIG in July of 2009 at pennies on the dollar… in a deal that was passed through a couple of trusts before it landed at Pennymac. MORE incest in the Fed… REMEMBER: AIG recieved FULL VALUE in their bailout from the FED, then turned around and sold it for less than HALF of that to Pennymac, which is backed by BLACKROCK, who is the ADVISOR TO THE FED on what to do with their money….

    {{{HELLO}}}
    Does anyone else find this troubling?

  4. Neil Barofsky for President!!!
    Stan
    Racine, WI.

  5. “If the mega banks must fall, let them.”

    Well said Neil!

    Canceling the securitized mortgages would be cheaper than the $24 Trillion ‘bailout’ of these fraudulent banks over the last two years.

    As well as Executive Orders by governors reversing securitized bank foreclosures for last ____ months or so for fraud & nullity. The title companies knew, so now they can kick in.

    Let’s rebuild a real economy on real, consistent, non-inflationary money and effort, with a roof still over all our heads.

    This is America’s 2nd chance for freedom!

  6. My belief is that collusion was born when we allowed corporations to buy our politicians….so it has been going on for quite some time. Now, it appears they just don’t care to hide it.

  7. Karen Pooley,
    Was the “blatant collusion with Wall Street and our U.S. government” there before the current administration or did it arrive with Obama?

  8. We can only assume that because of this blatant misinformation, that it appears we now have blatant collusion with Wall Street and our U.S. government.

    Nice….is this the change we expected?

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