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Politics : Politics for Pros- moderated -- Ignore unavailable to you. Want to Upgrade?

To: Neeka who wrote (296796)	3/17/2009 1:54:48 PM
From: carranza2	3 Recommendations Read Replies (1) \| Respond to of 793955

Yeah, I agree that was pretty accusatory. But the rear view mirror gives us some spectacular hints. The AIG bailout, all $165-170 billion worth of it, took place during the W administration. Its architect was probably Paulson more than anyone else. My beef with the way it was done is that no one took the time to challenge the validity of the need for the cash to the extent it involved CDS obligations which neither AIG nor the government were fighting as uncollectible. AIG and the government simply rolled over. Cash was infused into AIG (which is now in Goldman's and Deutsche Bank's and others' coffers) to pay off on obligations whose validity is supremely suspect. Was it bad judgment or done by connivance? I have a great deal of difficulty believing that no one knew that the obligations were subject to challenge. After all, some of the most allegedly brilliant legal minds worked on the issue. In my view, the use of such exorbitant amounts of taxpayer money required a concerted legal attack on the validity of the instruments on which payments were made. Instead, the bailouts were done speedily and without much thought to the consequences. Bad judgment? I doubt it. Everyone involved probably knew that the derivatives could be subjected to a substantial challenge. The unanswered question, absent bad judgment, is why weren't they challenged? Why weren't suits filed in states where there are friendly commissioners of insurance to have these derivatives declared the illegal issuance of insurance? I don't know the precise answer to this question. I do know, however, that the question itself is not being asked and that it is an important one. I think that the basis for a huge scandal may very well exist because if it turns out that much of the cash used was wasted on paying off an uncollectible debt, then the whole basis of these derivatives being a potential systemic threat to the economy disappears or is subtantially minimized. In other words, if 80% of the CDS notional value of $20-30 trillion is not collectible, then the systemic threat may have been a lot less and the amount of the bailouts may have been substantially reduced. Congress and the president were, however, buffaloed into acting quickly and rapidly because the sky was falling down and we were risking death and destruction if the bailouts didn't take place. No one bothered to reflect or challenge the prevailing mind set.

To: Neeka who wrote (296796)	3/17/2009 5:34:58 PM
From: carranza2	2 Recommendations Read Replies (3) \| Respond to of 793955

More on the subject for your reading pleasure. Hat tip to Sea Otter: slate.com The Real AIG Scandal It's not the bonuses. It's that AIG's counterparties are getting paid back in full. By Eliot Spitzer Posted Tuesday, March 17, 2009, at 10:41 AM ET Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars? For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already. It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG's counterparties are justified with an appeal to the sanctity of contract. If AIG's contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse. But wait a moment, aren't we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won't be laid off. Why can't Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, and aren't they sitting on more than $100 billion in cash? Haven't we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn't they have accepted a discount, and couldn't they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed? The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation. So here are several questions that should be answered, in public, under oath, to clear the air: What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant? Was it already known who the counterparties were and what the exposure was for each of the counterparties? What did Goldman, and all the other counterparties, know about AIG's financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn't they bear a percentage of the risk of failure of their own counterparty? What is the deeper relationship between Goldman and AIG? Didn't they almost merge a few years ago but did not because Goldman couldn't get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG's business model was not to pay on insurance it had issued. Why weren't the counterparties immediately and fully disclosed? Failure to answer these questions will feed the populist rage that is metastasizing very quickly. And it will raise basic questions about the competence of those who are supposedly guiding this economic policy. Eliot Spitzer is the former governor of the state of New York.