WHISTLEBLOWER SUITS IDENTIFIES FRAUD IN AIG BAILOUT: FOLLOW THE MONEY, NOT THE PAPER

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

EDITOR’S ANALYSIS: Don’t get intimidated. This is actually very simple. The Federal Reserve window and other “facilities” were made available to the tune of $7 TRILLION dollars (half of the debt ceiling in its current form) in order to ease the liquidity problem. The belief was that by saving these institutions credit would start flowing. Quite the opposite resulted, as Banks consolidated their gains from the biggest economic scam in world history.

As the suit says, Wall Street firms went to the Fed window and gave them  assets in exchange for money. The problem is that the assets were “impaired” (i.e., fraudulent). They were worthless pieces of paper that were never reviewed by anyone until now. The pools were never filled with assets because no paperwork was ever generated on the actual loans. The paperwork that WAS generated was fake describing a transaction that never took place. And then they even failed to transfer the fake paperwork because each time you use fake paperwork in a new transaction it is another crime or civil violation subjecting you to all kinds of liability.

THE POOLS WERE EMPTY. SO ANY BOND ISSUED BY THE POOL WAS WORTHLESS. THAT IS WHAT WAS USED TO CHEAT THE AMERICAN TAXPAYER AND THE SCAM IS CONTINUING WITH FORECLOSURES ON FAKE PAPERWORK OF A FICTITIOUS TRANSACTION. Where people are confused is that a loan DID get funded, but the loan described in the closing papers did NOT occur. FOLLOW THE MONEY TRAIL. NOT THE DOCUMENT TRAIL. If you follow the money, you win, if you follow the paper, they might win.

Claiming Fraud in A.I.G. Bailout, Whistle-Blower Lawsuit Names 3 Companies

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The first known whistle-blower lawsuit to assert that the taxpayers were defrauded when the federal government bailed out the American International Group was unsealed on Friday, joining a number of suits seeking to settle the score on losses related to the financial crisis of 2008.

The lawsuit, filed by a pair of veteran political activists from the La Jolla area of San Diego, asserts that A.I.G. and two large banks engaged in a variety of fraudulent and speculative transactions, running up losses well into the billions of dollars. Then the three institutions persuaded the Federal Reserve Bank of New York to bail them out by giving A.I.G. two rescue loans, which were used to unwind hundreds of failed trades.

The loans were improper, the lawsuit says, because the Fed made them without getting a pledge of high-quality collateral from A.I.G., as required by law.

“To cover losses of those engaged in fraudulent financial transactions is an authority not yet given to the Fed board,” said the plaintiffs, Derek and Nancy Casady, in their complaint, filed in Federal District Court for the Southern District of California.

The lawsuit names A.I.G., Goldman Sachs and Deutsche Bank as defendants, but not the Fed.

Senior Fed officials have stated repeatedly that they had to take unusual steps in 2008 because the global financial system was close to breaking down. The Casadys’ lawyer, Michael J. Aguirre, argued that even so, the Fed was required to comply with its own governing statutes. He said that when the Fed bailed out a nonbank, it was required to secure the loan with the same liquid, high-quality collateral it required when lending to a troubled bank.

A spokesman for A.I.G., Mark Herr, said the Casadys’ lawsuit was “devoid of merit” and said Mr. Aguirre appeared to be recycling old and discredited legal theories.

Separately, A.I.G. is now among the companies turning to the courts in hopes of recovering losses from 2008, and seeking restitution from some banks.

A spokesman for Goldman Sachs said he was not familiar with the Casadys’ lawsuit and could not comment on it. A spokeswoman for Deutsche Bank declined to comment.

The litigation shines a critical light on the Federal Reserve’s on-again-off-again power to bail out nonbanking institutions like Wall Street firms and insurance companies. The Fed first got that authority during the Great Depression, but Congress revoked it in 1958. And then, as the legal walls between banking and other financial services began to fall in the 1990s, Congress once again gave the Fed the power to make emergency loans to nonbanks.

The relevant language is contained in a single, murky sentence inserted in a bill passed the day before Thanksgiving in 1991, as members of Congress were rushing to catch their flights home. Former Senator Christopher Dodd added it at the request of Goldman Sachs and other Wall Street firms, which were still stinging from a major market crash in 1987 and eager to empower the Fed to step in if a similar problem happened again.

The Casadys’ lawsuit says the resulting law needs judicial review because it went flying through Congress with little debate and now appears to be feeding high-risk behavior. Investors in nonbanks now expect that the Fed will open a safety net to catch them, should they falter, the suit contends.

“Congress did not show a legislative intent to convert the Federal Reserve into a bank for bailing out failed speculators,” the complaint asserts.

The suit was filed under the False Claims Act, a federal law that permits private citizens to sue on behalf of government agencies if they believe they have knowledge of a fraud. The law gives people a chance to try to recover money for the government and, by extension, the taxpayers. Plaintiffs who succeed typically get a percentage.

Although the bailout of A.I.G. took place over many months and involved a total commitment of $182 billion, the lawsuit focuses on just part of it — two emergency loans, totaling about $44 billion, made at the end of October 2008. The money was used to settle trades involving two big blocks of complex, mortgage-linked securities, some of which were underwritten by Goldman Sachs and Deutsche Bank, and guaranteed by A.I.G.

When A.I.G. went into a free fall in 2008, the Fed extended the two loans to buy up the troubled securities and put them into two special-purpose vehicles, Maiden Lane II and Maiden Lane III, for holding until the turmoil subsided. Earlier this year, the Fed allowed some of the impaired assets to be sold to undisclosed purchasers.

The Casadys say the Fed erred in making the loans, because it needed a pledge of high-quality collateral from A.I.G. and instead got a big portfolio of impaired assets.

13 Responses

  1. LOL, good one Tony.

  2. I don’t care what party Obama is a member of. He not only should not be re-elected to a second term, he should be removed from office!!

    Under Bush, Mukasey knew about the perjury and forgery in Federal BK Courts. As AG he needed to inform Bush, and also take substantive action. No action was taken. Bush and Mukasey should have both been removed from office.

    Presently we are faced with the same behavior from Holder and Obama. Perjury and forgery in Fed BK Courts, of which they are aware, yet no action is being taken by the AG, or the President. Both of them should be removed from office.

    When your job is to prevent crime, to prosecute criminals, to protect citizens, and you knowingly refuse to do your job there simply isn’t an alternative – Holder and Obama need to be removed from office.

  3. here’s how the dem & repub candidates from last presidential election would look if they wore sponsor patches similar to NASCAR drivers:

    http://tawebster.wordpress.com/2011/04/17/buy-a-congressman-for-1-4-million-a-senator-for-10-million-or-all-members-of-congress-for-a-mere-1-6-billion/

  4. To CTR: What in God’s name makes you think a Republican will do anything for you at all? Remember, they are trying to get rid of Medicare. What’s next? Social Security? Another round of George Bush? The entire government has been co-opted by the big money interest: big pharma, big agri, big banks, big munitions manufacturing and the Federal Reserve. Burmese8@yahoo.com

  5. UNDER THE CURRENT ADMINISTRATION, DOING THE RIGHT THING IS A CONFLICT OF INTEREST!

  6. Obama, in my opinion, is taking cover just like the past administration but unfortunately, at the end of the Bush Administration, Obama had a supreme opportunity to “weigh all sides as he is so famous for saying, considering everyone’s point of view, so he says, before he makes a decision to do something.

    Well, I guess he decided that the mega banks were correct in what they were doing to this economy because his actions have resulted in “O” against the banks, while he let the Congress run interference with their Financial Reform Act which was designed by of all people – Dodd and Frank. Oh my goodness.

    Obama had a chance to do something, but as usual, simply allowed for a rework in 2009 of the Bush July 2007 ploy to make the American people thing the administration was doing something for them.

    Instead – it was a tool to be used to buy time for the banks to do what they have been doing for the past 5 years. – And we all know what that was.

    I certainly do not want to become political on this site but, if we don’t try to call it the way we see it, then our responses cannot be scrutinized properly.

    What is so very shameful is that we have no congressman addressing specifically this foreclosure history about the true motives of what is going on.

    There should be no Goldman Sachs employees, GE employees, etc. in the President’s staff. Does that no tell us why the banks have been able to carry on. Everytime I think about that $500 million that Goldman Sachs had to settle up for makes me sick – besides they factor in the potential cost for the risky deals from day one. They were not worried by any means – and what do the people do, the stockholders and the investors – they just keep on doing business with them.

    I just don’t get it. Until something more is known, the people should withhold their business interst and that is just the way it is. Think about it, if a company continues to do business with a foreign company knowing that they are not supposed to and we continue doing business with them, what does that say about us.

    Sorry to get on the bank wagon. It is an emotional thing knowing that we continue to stand by and lose our country Of course they are not worried.

  7. To Louise: I hope to God that Obama doesn’t see a second term! When are you going to wake up and see that he’s one of them, as was Bush. Both sides. It keeps going back and forth between all the cronies. Why are we still in these wars, and even more wars, Guantanamo is still operating. Nothing being done on the housing crisis, the economy in shambles, and you want more of the same? WAKE UP. If he was going to hang the banks out to dry, why wait until a second term? What’s he been doing for the last 2 years–NOTHING!!

  8. AIG is just as guilty of scam mortgages. I’ve seen a lot of articles, indicating that they are also victims because they insured this mess. Our mortgage company is American General, which is part of AIG. They were going just as strong in the securitized mortgages themselves, although not as big a company as some of the others. On the other side of them, they are an insurance company insuring their buddies, like Goldman Sachs. I have a FOIA that talks about how their “financial products” hurt them so severely, leading them to the bailout. The “financial products” include American General and the fraudulent loans they also made. We have sent them QWRs and fought them in court for over a year and a half. Their attorneys keep lying and saying that they never securitized anything, and they still own the mortgages, even though it is like an 800 lb. gorilla in the room with the FOIA, stating how they had to turn over their “assets” to the Federal Reserve of New York. They didn’t address anything in court, only pushed as hard as they could for arbitration. The judge was going for their argument, until we slapped him with a conflict of interest suit on himself. Then he just simply chose to not rule on anything at all.

  9. So, if someone is threatening foreclosure on me, how do I prove to the judge that my “pool” is empty?????

  10. And the retirement funds that bought these purported AAA-rated securities (e.g.: CalPERS, CalSTRS, et al., found in all the States, viz.: Wisconsin) were equally cheated; but it seems that, instead of going to the bankers that put the pools of garbage MBS’s together which was the actual source of the fraud, it is easier to screw taxpayer for a bailout because there is no one to represent and protect them.

  11. Where is wikileaks when you need them?

  12. I hope that when Obama gets into his second term that these banks will be hung out to dry along with the Federal Reserve. The U.S. cannot continue to make believe the mega banks had nothing to do with the “recession.” They did have everything to do with it. Burmese8@yahoo.com

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