FedUpUSA

Archive for January 25th, 2010

Oh, So The Fed *DID* Hide Documents?

Posted by Karl Denninger

Fed E-Mail to Geithner Cites Bank Benefit From AIG

Jan. 25 (Bloomberg) — Timothy F. Geithner, who has denied that the financial condition of American International Group Inc.’s bank counterparties was a consideration in structuring the insurer’s bailout, was told by a senior colleague that the rescue was a way to remove “uncertainty” for the firms.

Buying mortgage-linked assets from banks was better “from a financial-stability perspective” than other plans to shield AIG from losses on contracts guaranteeing the bonds, Margaret McConnell, then a Federal Reserve Bank of New York vice president, wrote in an e-mail to Geithner on Oct. 22, 2008. Geithner, now Treasury secretary, led the New York Fed at the time of AIG’s rescue and McConnell’s e-mail.

The special inspector general of Treasury’s Troubled Asset Relief Program wrote in a 2009 report that Geithner said the New York Fed didn’t weigh the financial status of banks, including Goldman Sachs Group Inc., when deciding to fully reimburse them for $62.1 billion of devalued assets. U.S. Representative Darrell Issa, the ranking member of the House oversight panel that called Geithner to testify this week, has described the rescue of New York-based AIG as a “backdoor bailout” of banks.

The New York Fed weighed two other options for stanching losses tied to AIG’s credit-default swaps in the weeks after the September 2008 rescue, the inspector general, Neil Barofsky, said in the Nov. 17, 2009, report. One included asking counterparties to cancel their swaps and selling the underlying assets for an investment in a vehicle that would assume ownership of the securities. Another was for a Fed-backed vehicle to take over AIG’s responsibility of backing the assets.

‘Considerably More Uncertainty’

The first alternative was deemed too time-consuming and the second made regulators uncomfortable because it would give them “long-term credit relationships with supervised institutions,” Barofsky said in the report.

Paying banks through a Fed-funded facility known as Maiden Lane III made sense, McConnell wrote in the Oct. 22 e-mail to Geithner, “because it seems to remove considerably more uncertainty for the firms and arguably for the system.”

Andrew Williams, a Treasury Department spokesman, said “the creation of Maiden Lane III to help stabilize AIG and the financial markets was prudent, and it is highly likely that the Fed will get back every dollar it committed to Maiden Lane III with interest and, quite likely, a profit.” Jack Gutt, spokesman for the New York Fed, declined to comment on the e- mail.

‘All Too Clear’

The value of securities and cash held in Maiden Lane III climbed 4.5 percent to $23.5 billion in the three months ended Sept. 30, according to a New York Fed report.

Geithner agreed to testify at a House oversight panel hearing scheduled for Jan. 27 after e-mails released by Issa indicated the New York Fed asked AIG to limit what the public knew about the bank payments.

“It has become all too clear that the New York Fed was more interested in protecting the interests of Wall Street instead of Main Street,” said Issa, a California Republican, in a statement.

The McConnell e-mail obtained by Bloomberg News is part of 250,000 pages of documents the New York Fed provided to the House Oversight and Government Reform Committee after the panel issued a subpoena this month asking for e-mails, phone logs and other documents tied to AIG’s rescue, which swelled to $182.3 billion.

“Questions have been raised as to whether the Federal Reserve intentionally structured the AIG counterparty payments to benefit AIG’s counterparties,” Barofsky wrote. “Geithner and the New York Fed’s general counsel deny that this was a relevant consideration for the AIG transactions.”

Barofsky, who agreed to testify this week, wrote in November that the rescue “provided AIG’s counterparties with tens of billions of dollars they likely would have not otherwise received.”

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

NUCLEAR: Did Goldman Offer To Tear Up AIG CDS?

Posted by Karl Denninger

Oh oh.

Remember, Blankfein testified in front of the FCIC at 10:12 AM on 1/13 that he never got a request to take less than 100 cents on the dollar for AIG credit default swap contracts.

Well then what’s this that Zerohedge dug up?

As everybody knows, AIG got a huge government bailout in September 2008 to help make payments on derivatives contracts with banks, including Goldman. Yet in the previous month, Goldman approached AIG about “tearing up” its contracts, according to a November 2008 analysis by BlackRock, then an adviser to the New York Fed.

WHAT?

Oh yeah.  Here’s the link to the Zerohedge article, and the paper in question is right here:

Thanks and noted on the tear up stand down.

We should get back with Goldman.  I will talk with Bill.

Date: 10/31/2008 6:57 PM.

Which followed:

Also, I spoke to Manzari this morning.  He asked me to stand down on tearing up / unwinding CDS trades on the CDO portfolio.

That appears to be a smoking gun in that it documents that there was an active negotiation on “tearing up” – that is, unwinding CDS trades at less than 100 cents on the dollar and that negotiation was intentionally terminated.

Will we next be entertained by a discussion of what the word “is” means, or can we take the above at its obvious face value – that GOLDMAN ITSELF APPEARS TO HAVE OFFERED TO TEAR UP THE CDS ON AIG’S PORTFOLIO!

If there indeed was such an offer – as is all but stated here – and if indeed there was an order given to “stand down” on such negotiations then those persons responsible must be summoned to the dock and compelled to provide testimony, as it appears that one or more individuals who have already stated that no such negotiation was possible may have committed perjury, never mind dispensing more than $10 billion of taxpayer money to Goldman Sachs unnecessarily – at best.

US GOP Report: Fed Poses Threat To Principles Of Democracy

By Michael R. Crittenden, Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- The Federal?Reserve’s actions during the rescue of American International Group Inc. (AIG) have “serious implications for the continued health of democracy,” according to a GOP memo prepared for a Wednesday hearing featuring Treasury Secretary Timothy Geithner.

The report, prepared by staff for Rep. Darrell Issa (R., Calif.), calls the central?bank a “quasi-governmental agency, unaccountable to the American people.” The Fed’s actions during the AIG rescue, including the effort to withhold the names of the insurer’s counterparties, “demonstrates the threat that the Federal Reserve poses to basic principles of American democracy,” the report concludes.

The charged language could up the ante for a Wednesday hearing before the House Committee on Oversight and Government Reform. The panel is investigating the government’s rescue of AIG in the fall of 2008 at the height of the financial crisis, as well as the November 2008 decision to pay the insurer’s counterparties 100 cents on the dollars for securities tied to soured mortgage bets.

Documents uncovered by the panel show that officials at the Federal Reserve Bank of New York, which Geithner was then president of, had little confidence in their attempts to get the counterparties to accept less than 100% on payments they were owed.

“I don’t know why we even bothered to ask,” New York Fed General Counsel Thomas Baxter told committee investigators, according to the GOP report.

Lawmakers from both parties have also expressed outrage at what they view as an attempt by Fed officials in New York and Washington to withhold the names of AIG’s trading partners, which includes firms such as Goldman Sachs Group Inc. ( GS). The GOP report quotes a Nov. 24 email from Alejandro LaTorre in which the New York Fed assistant vice president asks “But can [AIG] make these docs public without our consent? Aren’t we parties to this and shouldn’t we have a say?”

The Treasury Department has insisted that Geithner had no say in the discussions dealing with disclosures, a response Baxter echoed in interviews with congressional investigators. The GOP report for Wednesday’s hearings make clear, however, that lawmakers are not satisfied with the answers they’ve received thus far.

“At a minimum, the cover-up of the details about AIG’s counterparty payments began on Secretary Geithner’s watch, and the culture of the [New York Fed] in which this behavior occurred reflected his leadership,” the report said.

-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; michael.crittenden@dowjones.com

  (END) Dow Jones Newswires
  01-25-102046ET
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