I applaud this choice but I want to make sure we are clear that there are major questions about giving “back-door bailouts” to Goldman Sachs and a few foreign banks by giving 100 cents on the dollar for credit-default swaps AIG held. Other counter-parties did take a discount or “haircut” on those debt insurance contracts so there is some explaining to do on those decisions.
To this point both Treasury and the Federal Reserve do not see any problem with their choices on this matter and the amount of U.S. tax payer money they used to bailout this insurance company. Honestly, the financial products division did not need to be bailout out, their normal insurance operations where is separate subsidiaries so even if that company failed they would still be able to make good on their other obligations. The reality is that major investment banks and foreign banks did not do proper due diligence on the ability of AIG to make good on this insurance in the event of a economic downturn and they should of been made to pay in a true free market system.
Bloomberg, New York - Federal Reserve Chairman Ben S. Bernanke said the central bank would welcome a “full review” of its aid to American International Group Inc. by congressional auditors and make all necessary records and personnel available to them.
What a bombshell! Now we know the fix was in, Treasury did not even bother to offer a discount to AIG’s counter-parties. So it was a de facto bailout of Goldman Sachs among other firms and foreign banks visa-vi the U.S. taxpayer. What is even better about this bailout is that is didn’t fall under TARP restrictions, didn’t need to be paid back and Goldman will be paying huge bonuses this year with the taxpayers money.
Also, unlike the commercial banks, I doubt we would of went over the edge if they failed. Yes, investment banks are important and they make markets but we would of been able to survive without bailing them out. That’s capitalism, winner succeed and losers fail. I think Mr. Geithner will have some explaining to do if not having to resign over the fallout.
Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein testified that he was never asked by U.S. regulators to accept a discount on investment contracts his firm had with American International Group Inc.
Reuters, New York - U.S. prosecutors are preparing to impanel a grand jury to consider indicting the former head of American International Group Inc’s AIG Financial Products unit for securities fraud, the Wall Street Journal reported.
The Department of Justice and the Securities and Exchange Commission have been investigating whether Joseph Cassano overstated the value of mortgage-related contracts and failed to disclose material facts about them to AIG’s outside auditor, the paper said, citing people familiar with the matter.
July 20 (Reuters) – The Federal Reserve Bank of New York has guaranteed Morgan Stanley a global coordinator’s role in any initial public offering (IPO) of American International Group units, documents made public on the New York Fed website show.
According to the documents, Morgan Stanley will earn percentage fees from the NY Fed if AIG sells any of its businesses, in addition to an initial $4 million payment as an advisory fee and $2.5 million per quarter.
Hopefully we will see our justice system starting working soon and many of this actors in this huge fraud put on the the American (and others) people. I am really surprised we have not seen the proverbial “witch-hunt” happened, its pretty obvious that crimes were committed and many people were complacent.
Instead we are worried about millions in bonuses (what about the trillions in secret loans from the Fed?) or booting GM’s CEO when we have not removed one bank or insurance CEO when they have losses that amount to ten times what these automakers have. In defence of the Big 3, at least they are providing jobs and we are making something compared to the shenanigans these banks are pulling. Please Mr. Cuomo, set the precedent we need so these does not happen again, soon.
News (NY Times):
Attorney General Andrew M. Cuomo of New York said Thursday afternoon that he was widening his investigation of the American International Group to examine whether its trading counterparties improperly received billions of dollars in government money from the troubled insurer.