Oversight Committee AIG Hearing Highlights

The House Committee on Oversight and Government Reform is holding a hearing today, The Federal Bail Out of AIG.

All prepared statements are at the above link. The hearing has testimony from:

  • Treasury Secretary Timothy Geithner
  • Former Treasury Secretary Mr. Henry Paulson
  • SIGTARP Inspector General Mr. Neil Barofsky
  • Executive VP and NY Fed General Council Mr. Thomas Baxter
  • Senior VP and AIG CFO Mr. Elias Habayeb
  • Former NY Fed Chairman of Board of Governers Mr. Stephen Friedman

I'm still swimming through mountains of documents and tons of verbiage, but I will sum up what I do not know so far.

Firstly, it seems that when it comes to figuring out who precisely gave the go ahead for the 100% AIG counterparty payouts, magically top officials were not involved.

Amazing isn't it? We're talking billions of dollars of free money and no top official around.

Tim Geithner:

I had no role in making decisions regarding what to disclose about the specific financial terms of Maiden Lane II and Maiden Lane III, and payments to AIGs counterparties.

Ben Bernanke:

I was not directly involved in the negotiations with the counterparties. These negotiations were handled primarily by the staff of the: FRBNY on behalf of the Federal Reserve. I participated in and supported the Board’s final action to authorize lending to ML III for the purpose of purchasing the CDOs in order to remove an enormous obstacle to AIG’s financial stability and thereby help prevent a disorderly failure of AIG during troubled economic times.

Stephen Friedman:

I was not involved in the initial decision to bail out AIG, the decision to repay AIG counterparties at par, or the decision to not publicly disclose the counterparties' names. I did not ratify those decisions; and I do not know who made those decisions.

Then, we have Habayeb claiming:

Even if AIG Financial Products or AIG had declared bankruptcy, it was my understanding that counterparties would keep the AIG Financial Products collateral to date. [Counterparties] would keep the [credit default obligations] bonds and [counterparties] they could make a claim [in bankruptcy court] against AIG Financial products.

The text in brackets is mine, to make the quote a little more clear as to what Habayeb is referring. So, what does Habayeb mean because the New York Federal Reserve allowed counter parties to keep the AIG FP payouts made up to that date in addition to the new payouts? So what they keep the underlying bonds, who wants toxic sludge? Then a claim in bankruptcy court is assuredly not a 100% payout from a bankruptcy judge. Also, why couldn't AIG FP be separated out into a structured bankruptcy, similarly to GM....why is it ok for an auto maker to do a pre-arranged bankruptcy and not a gambling hall casino, money from fiction, derivatives manufacturer like AIG FP?

From AIG alone, the U.S. taxpayer losses are projected at $30 billion dollars. Some upside huh.

When discussing Maiden Lane III, the assumptions are that the CDOs would eventually increase in value. I will update the truth of this statement in a later post. I am unaware of any serious upside for the U.S. taxpayer at this time.

Former Treasury Secretary Hank Paulson testified that the United States would have had a 25% unemployment rate if AIG had not been bailed out. To date, I have yet to find definitive proof of such fear mongering claims.

Had AIG failed I believe we would have seen a complete collapse of our financial system, and unemployment easily could have risen to the 25% level reached in the Great Depression.

Remember, the total bail out of AIG is $182 billion dollars.

I'm digging for this definitive analysis and frankly it's over 1 year later, therefore some serious forensic accounting could be done, on Economic Armageddon claims. Firstly, why would AIG proper even need to be affected by separating out AIG FP and just this derivative domino pile?

Secondly, if this story does anything, one would think we would see iron clad, no loophole derivatives reform as the first action by this administration. Right now we have nothing and the House Bill has 4 major loopholes to exempt over 80% of these types of structured financial products from regulatory oversight.

Thirdly, some of the AIG counterparties are foreign banks. What does indirectly paying off French, Swiss and German banks or not have to do with the U.S. unemployment rate or short term loans to U.S. businesses for payroll purposes?

SIGTARP Inspector General Barofsky's testimony is almost a rehash of their reports but this paragraph truly caught my eye:

Third, additional documents and facts have come to light that have caused SIGTARP to initiate an investigation to review the extent of the Federal Reserve’s cooperation with SIGTARP during the course of the audit.

For example, in connection with the recent document productions to this Committee, documents have come to light that were not provided to the SIGTARP audit team during the course of the audit. FRBNY’s outside counsel has told SIGTARP that FRBNY will cooperate fully with SIGTARP’s investigation.

With respect to these investigations, it is SIGTARP's policy not to comment publicly on non-public, ongoing criminal or civil investigations, and thus we cannot comment further at this time, other than to note that these assertions do not at this time constitute a factual finding by SIGTARP. At the conclusion of the investigations, however, we anticipate that the details of our findings will be reported to Congress, as appropriate, either through formal court filings or in the form of Investigative Reports.

Whoa. What are they finding out at SIGTARP? Honestly, if this was some minor details, I sincerely doubt we would see such a strong and ominous language in official Congressional testimony. Looks like this one we will have to wait...

Instead of swimming through more useless denials of responsibility, plausibility (has anyone proved that if AIGFP (AIG Financial Products) was let to go bankrupt, this great Economic Armageddon truly would have happened?), I hope to update this post with specifics, with proving documents and with some raw numbers.

It's pretty clear this hearing is just another stonewall by our usual suspects although any video clip or event that is of significance will be updated into this post.

Attached is the actual schedule showing the actual payouts to counterparties by AIG. Reuters has the best overview on what schedule A means:

The new information also reveals that of the 178 tranches of CDOs that AIG insured, some 14% were on deals issued after 2005. That’s critical because in December 2007, former AIG Financial Products head Joseph Cassano had said AIG largely got out of the CDS business by the end of 2005.

The newly disclosed information also reveals that Goldman not only bought a lot of CDS from AIG to protect itself; the Wall Street firm also originated a good number of the CDOs that were in SocGen’s portfolio. Some of the Goldman deals in SocGen’s portfolio that AIG had insured includes CDOs with names like Adirondack 2005, Putnam Structured Product CDO 2002 and Davis Square Funding IV.

AttachmentSize
ScheduleA.pdf238.47 KB

Meta: 

Comments

Because Paris Hilton Wasn't Available

The voting public and viewing public are just not willing to look at the country's most serious issue - Financial Reforms (real ones).

I guess it bores them. I was screaming at the top of my lungs when Geithner and Paulson were lying through their teeth and people like Kanjorski weren't asking any questions.

Why can't terrorists break into that type of meeting and wipe their useless carcasses off the face of the planet? Where are all the psycho mailmen when you need them?

Where is our Danton? Where is our Robespierre?

You must have Javascript enabled to use this form.

So who was cutting the deals. Wait. Wait I know

ACORN. ACORN was the one who made the AIG deal. That damn ACORN they were everywhere.

Kidding aside - this is absolutely ridiculous. Geithner and Bernanke should lose their jobs.

RebelCapitalist.com - Financial Information for the Rest of Us.

You must have Javascript enabled to use this form.

no no it's that conservative kid

he's behind it! He's a criminal! He's doing Watergate II, OMG he's such a little shit, filming people without telling them.

That Pimp-mobile jackass! He's behind the CDS payouts!

You must have Javascript enabled to use this form.

more on maiden lane III

over at Naked Capitalism.

Now it appears NC is zeroing in on the real value of these CDOs, which I just generally refer to as toxic sludge but what is most interesting is they quote Moody's saying that 94% of these CDOs are worthless.

Recall all of this justification for all of this because the Fed, through Maiden Lane, is going to wait for the "upside" in the valuations of these CDOs they bought...

well, NC is zeroing in on them all being worthless, which as far as I know is the truth of the situation....

NC appears to be calculating out the above, attached schedule A from first principles, trying to verify what exactly is in that maiden lane III portfolio and just how badly did the U.S. taxpayer get screwed here.

You must have Javascript enabled to use this form.

great overview article on CDO-CDS 100% AIG payout

Yves Smith has done a very good job summarizing the details, why each one is important on the AIG scandal

Fed as Chump

We have similar information but don't have just one post summarizing everything and why the actual purchase of the underlying assets is just as bad, if not worse than the original payouts.

Well done!

You must have Javascript enabled to use this form.