Secret AIG bailout docs leaked; Update: Bernanke on the hot seat
Eeenteresting. About a week ago, the SEC agree to cover-up bailout documents for AIG until 2018. The documents relate to the backroom bank bailout payments at top dollar to AIG counterparties — which know-nothing Tim Geithner was grilled about today on the Hill. The leak comes as Fed Chairman Ben Bernanke heads to the Hill himself to secure a second term.
Zero Hedge has the scoop on the secret documents and uploaded some of the data for open-source analysis:
…the critical question is: since there is not one security rated A, and in fact the median rating is a high C, and since we know that Soc Gen had parked its securities with the Fed in November 2008, just what standards does the Federal Reserve have when accepting securities in the discount window to lend against? And the implication is that Bernanke will allow any toxic crap to be eligible collateral, likely at par.
We will continue analyzing the other firms’ securities as well, and solicit reader input in ideas on how to steer this analysis.
Stay tuned.
***
Update: Bernanke sent a buck-passing letter in response to questions about the AIG backroom bank bailout payments. Dealbook posts the Bernanke document and reports:
In a letter to Representative Darrell Issa, the ranking Republican on the House Oversight and Government Reform Committee, Mr. Bernanke said he “was not directly involved in negotiations” over payments to A.I.G.’s trading partners to unwind tens of billions of dollars in credit default swaps. Instead, he said, these negotiations were handled primarily by the staff of the Federal Reserve Bank of New York. (Read Mr. Bernanke’s letter on the jump.)
Responding to questions from Mr. Issa, Mr. Bernanke said the financial conditions of A.I.G.’s counterparties “was not a factor in the decision regarding the amount paid to the counterparties or whether concessions should be sought from them.”
Mr. Bernanke also said he was not involved in discussions with the Securities and Exchange Commission last year about any disclosure issues involving A.I.G.
Hotline On Call has the whip count at 43-18:
Allies of Fed chair Ben Bernanke spent the weekend trolling for Senate support ahead of an expected reconfirmation vote this week, but Bernanke remains short of the votes he needs to win a second term, according to a Hotline OnCall tally.
Bernanke has public support from 43 senators, while 18 are publicly opposed to his reconfirmation. That leaves 39 senators uncommitted, and many have said they are concerned about Bernanke’s record during his first years in office.
The WH and Senate leaders have expressed confidence they will have the votes they need. Still, underscoring the trouble some members have with Bernanke’s renomination, even the top GOPer in the Senate, Mitch McConnell, has refused to disclose how he would vote.
What was supposed to be an easy confirmation became more difficult recently as populist anger has surged across the nation. It has even cost Bernanke a certain vote; Sen. Sherrod Brown (D-OH) voted for Bernanke when his nomination came before the Banking Committee, but Brown has said he is rethinking that vote.
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Categories: Subprime crisis,Tim Geithner
Nice Deb
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Now we’re talking.
I’m going to take a wild stab in the dark and predict that taxpayers have done Golden Sox a huge favor.
So far, everyone who was in charge is claiming innocence because they were too busy “saving the country”. Since the nameless scape goat seems to be the guy who managed day-to-day duties for Geithner at the NY Fed while Turbo Tax Tim recused himself, why doesn’t someone interview him? How does he like being the schmuck? Everyone seems to be scraping their shoes off on this guy’s face. Will he take the hit for the “team”? Or is he already back at work at Goldman Sachs?
This might be eeenteresting if I had any idea about what Zero Hedge was talking about or what I am supposed to be looking at.
ut oh…
We clearly need a more earthly explanation … And I bet that is why they make up all these coded terms in the first place
The Market Ticker points out another Geithner contradiction…
http://market-ticker.org/archives/1907-AIG,-Paulson-and-Geithner.html
To quote from that article…
Then Mr. Baxter’s turn comes and he says that Geithner signed off on paying AIG counterparties at par.
Didn’t Timmy claim he had no part in the negotiations with AIG and the determination of what to pay? I thought he did….. maybe I misheard, but I seem to remember that he has continually maintained that he had no part in the decision process and in fact recused himself……
Oh wait – here it is!
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.
Uhhhhhhh Turbotax Timmy? How do you explain that?
tarpon,
Not sure what to make of it, but I have no doubt that Mayan math is somehow involved.
Sounds like they did a CRA for the banks of the Fed.
The precis edition:
Goldman Sachs: “Hey, this stuff is worthless.”
Timmy: “Don’t worry, the taxpayers will buy it all from you at list price.”
What a remarkable coincidence the timing of these events would coincide.
Heh.
Uh, that was clear as mud…
But, have no fear. Bwaney Fwank will explain it all to us in good time. Of course, he will tell us it was Bush’s fault and we’ll end up on the hook for Geitner’s and Paulson’s friends…
Tim Geithner says, “When I stuck it into Turbo Tax it told me everything was alright! Would Turbo Tax lie?”
/sarc
Bombs away, standby for damage assessment…
Egads. “Too big to fail” does not begin to describe what these jokers are up to.
Wow, the corruption here is on a colossal scale…. The perpetrators ( whomever they are) have got to be prosecuted pronto, otherwise the credibility of the US Treasury and the entire government is brought into question. Lots of big shots have got to be sentenced to long terms in the Federal Pen. Start with Barney.
aloha guy: perfect analysis. but timmy only wanted to protect his future employment back at wall street, soooo a little vig from the taxpayer, what’s the harm?
You’re not allowed to look, remember?
This is further evidence that the economic situation is going to get much much worse as we go along here. If the rest of the world divests itself of the dollar (as it looks more likely every day), and the feds keep self funding the governments ever increasing debt, rapid/hyperinflation and economic collapse can’t be far behind.
Note to self, stock up on more food, reload more ammo.
Write your eps people- demand a full audit of the fed, treasury, and all communication from administration AND PRESIDENT.
Impeachable acts are surely hidden there in this “most transparent” administration.
That war REPS as in representatives. My original r was taxed by Geithner.
I don’t know about you, but it’s all Geek to me.
Geithner is this decade’s version of Sergeant Schultz. “I know nothing!”
Insurance-ese is kind of like D&D-ese. My brain slips out of gear once someone starts speaking it.
Now, ballistic trajectories, escape velocities, re-entry angles, etc., that’s entirely different.
The only reason this information is being withheld from the public is because it is so good that were it to get out, the world would go on bender celebrating how good things are and that might take down the global economy. You guys are so cynical.
I’m with you Hangfire. It’s like someone threw a Magnetic Poetry Kit for Insurance and Financing Schemes on the fridge and typed up whatever stuck.
What happens to dear timmy is he is found to have lied? I know, this whole bho team is not all that trustworhty. The sad fact is us taxpayers are on the hook for this and SOMEONE has had their wallets fattened. A guess on who?
L
Keep in mind that this only relates to the $160B Congress sent to AIG as a bailout separate from the $787B TARP bailout for which Paulson had appealed to Congress to be used to buy toxic assets from the banks. We learned today that he had no intention of doing this and had intended, even as he was lying to Congress, to distribute to the banks as a capital infusion which he did the day after Congress approved the funds. And this wasn’t the only lie exposed today.
It turns out that Goldman Sachs CEO Blankfein lied about not needing the bailout claiming that their exposure to AIG had been hedged. We found out today that he lied about that.
We also found out that Geithner lied about not being involved in the principal negotiations that forced AIG to pay Goldman and the French banks par value of their investments. Geithner was very circumloquitous in his answer when confronted with the damning e-mail. It was not about being involved but vague timing of who said what when and the time line was clearly incriminating.
We also found out today that the bankruptcy of AIG would not have collapsed the insurance industry nor the banking system as claimed by Bernanke/Paulson/Geithner. The CT insurance regulators were on record stating that they were prepared to seize the company and break it up without those dire consequences.
The more we learn, the more dire their characterizations of the situation they claim to have been facing. It’s not that they made mistakes but that they seem to have taken more care in obscuring the trail than they did keeping important people in Congress and elsewhere (the public e.g.) informed about what was going on. THAT is a big reason so many of these Congressmen are enraged. They were lied to.
At this point, I don’t see what further damage could be caused by airing the entire truth. What could be worse than what we are imagining as we watch these arrogant rats squirm?
What I read is that Bernake knew the stock was crap, at a “high-C” rating, even though the standard was supposed to be “A” or above.
Geithner and Bernake are both toast.
I guess they upset somebody, because the post in question is dead now.
Yup, the story is no longer there.
Hopefully it spread far and wide before the information police stepped in.
Isn’t there some website hosted outside the US which displays US classified documents? This would be up their ally.
Interpol?
Ok, the way I understood it was that the old Fed would only loan money to banks. When the Chicken Littles started running around, the Fed decided to loan money directly to the brokers and insurance companies, too.
The securities are usually written to pay….a $100 investment 5% a year simple interest over 5 years would have a par value of $125.
Investments are graded on the likelihood that the security will actually be viable at maturity. Grade A is best, grade C is mediocre. Because of the politics of the street, the grading is usually incredibly generous.
Investments trade below or above what their par value, based in part upon those ratings. So, you might be able to buy a mortgage backed security that would be worth $125 for $1 if the grade was bad. That’s trading below par.
If the investment was rock solid, because 5% is a decent rate of return these days, you might end up paying more for the security, reducing your actual rate of return. That’s trading above par.
Taking these securities to the Fed window and getting a loan using them as collateral at par means that the Fed didn’t care what the odds were that the security would actually reach maturity. If it said it was worth $125, then it was worth $125 in collateral.
Which is nuts, because the whole liquidity issue stemmed from the fact that the mortgage backed securities has become absolutely worthless overnight.
Also, reading the zero hedge site…
A lot of those securities pay their dividends periodically over the life of the security. So if the simple interest vehicle I made up above paid annually, it would be worth $125 at issue, $120 in the second year, etc to a value of $105 in the 5th year.
That’s called the amoritized value.
The Fed was using calculating collateral using the original par value of the loan, and not accounting for any dividend payments already paid out.
So using my example, the bond may have been worth only $105 because dividends had been paid , but when calculating collateral, the Fed treated it as being worth the original $125.
Here’s another crucial question being asked the Fed by Congress and others since early this month: is the Fed buying S&P 500 futures during off-hours?.
Highly respected analyst Charles Biderman of TrimTabs started this in early January and Rep Alan Grayson picked up on it by questioning Federal Reserve General Counsel Scott Alvarez on January 11.
It is perfectly legal for the Fed to do this but how about some transparency? Between 60-80% of trading volume has been due to high frequency trading programs that are basically algorithm-based artificial intelligence programs that are not understood by anyone. They own nothing in the morning and own nothing when the market closes.
This volume cannot be explained away by the normal investors like institutional investors, mutual funds and so on. This has been a new phenomenon and represents another very important question that the Fed refuses to answer.
If true, the market rally of the past 10 months has been nothing more than the Fed re-inflating the stock market bubble while openly rigging the short-term Treasury Bond market.
Central planning is NOT how the hidden hand of capitalism performs its miracles. This is no different than what China is doing.
BTW, what Charles Biderman does is very similar to how Harry Markopolos busted Bernie Madoff. It took forever for Markopolos to get taken seriously too.
I get the sense someone doesn’t like Turbo Tax Timmy, so they leaked this today, conveniently after he “testified”.
How quickly will he be sending a letter of clarification?
I dunno. His picture here always reminds me of Beavis from Beavis and Butthead.
And around and around we go, when we lie, nobody knows.
OT: That was because at the very least, the SEC is not necessarily the most up to date with on-hand specialists who know something about derivatives trading as does Markopoulos. SEC leadership personnel are for the the most part attorneys who lack the necessary quantitative background to even understand the evidence Markopoulos presented.
Phil: You and Marco need to teach a class. Nice analysis but terrifying. We’re all like sheeep casually munching our way off the cliff.
These “Toxic” assets that were bought up has me thinking… Do you think these Outside interests had large investments in Fannie Mae and Freddie Mac??? It just kind of makes sense, a full circle leading back to our Corrupt Govt. and a very Large Private Bank.
Goldman Sachs has OWNED our Treasury Dept. for years.
Did anyone really expect they would take losses on the toxic assets they invented to sell to other people?
I believe, while important, that AIG and the rest are a smoke screen – AIG was bailed out along with a bevy of other institutions because of the Run on the Banks of Sept 18,2008. I firmly believe this was the beginning of TARP and everyone involved with signing on to it. On Oct. 3, 2008: Amid turmoil in the financial sector, President George W. Bush signs into law the Emergency Economic Stabilization Act of 2008, which establishes the $700 billion Troubled Asset Relief Program.
Something happened on Sept 18 that freaked out the Government and to this day nobody is talking.
The PRESSSSSIdent is hankering to help Obama find a scapegoat for the nation’s financial woes — right or wrong, Bernanke is the current target or distraction away from the Obamacrats failures to get the nation’s economy rolling. The reality of the Fed’s job is it’s basically all about measuring how productive the average worker bees across the nation will be within a time span and making sure there’s enough money in the system to make sure there’s not too much or too little available money. Ideally, with minimal regulations and restrictions, the interest rate might be 4 to 5 percent (something around the growth in GDP). However, increased regulations and burdens (like taxes) upon the private sector productivity create a need to decrease interest rates below “normal levels” so the flood of money that is needed for private sector productivity to move forward can hopefully reach the private sector so productivity can move forward. In summary, our economy really sucks because there are too many regulations and government burdens on private sector productive activity. These restrictions to private sector economic growth have gotten so bad that the Fed’s needs to be giving away money at interest rates nearing zero. Rest assured, the Fed doesn’t need to go that far — the Obamacrats are doing their best to toss around free money where-ever they think it can buy them votes or campaign contributions. The Fed’s task isn’t rocket science — Bernanke has done a decent job sorting this mess out without going so far as to mention that the core problem he is dealing with is directly related to inept Obamacrat policies (regulations and taxes). Saying this publicly would be the end of Bernanke’s tenure… Perhaps if he sees that coming, one might expect to hear him start to speak out on the truth of the mess the Obamacrat’s have created.