The banking gears of housing – Bank of America sells mortgage servicing rights on large loan pool to Fannie Mae.  400,000 loans shifted to Fannie Mae with $73 billion in unpaid principal.

Things just seem to get more perplexing with the housing market.  Back in August the Wall Street Journal discussed a deal between Fannie Mae and Bank of America.  The deal is odd even for the current banking system we have in place.  It was reported that Fannie Mae purchased the servicing rights to 400,000 loans for the grand total of $500 million.  Why would this be an issue you may ask?  Well first, Fannie Mae being a GSE does not specifically service mortgages so buying a pool of loans with unpaid principal of $73 billion seems out of place.  It also makes you wonder why a bank that has faced some troubles during the financial crisis would unload so many loans back to the government.  This concern clearly does not go unnoticed and a Representative from the housing battered state of California sent a letter to the Federal Housing Finance Agency (FHFA) asking for more details on the deal.

The letter from Representative Darrell Issa

Source:  Oversight Committee

In the letter, it is noted that the bank decided to sell the portfolio for a loss because the value of the loans were expected to deteriorate even further:

“The loans have a 13% delinquency rate, and more than half of the loans are in troubled U.S. real estate markets.”

Is this another form of bailout going on here?  Why would the bank sell such a large loan portfolio back to Fannie Mae which is now under conservatorship?  The pool of mortgages are already showing an unusually high default rate.  The housing market is unlikely to bounce back soon and to the contrary, is already showing signs of a further correction ahead.

Read the rest at My Budget 360

Representative Darrell Issa (R-CA)

This can’t be true…. can it?

Has Rep. Darrell Issa (R-CA) turned the House Oversight Committee into a bank lobbying firm with the power to subpoena and pressure government regulators? ThinkProgress has found that a Goldman Sachs vice president changed his name, then later went to work for Issa to coordinate his effort to thwart regulations that affect Goldman Sachs’ bottom line.

In July, Issa sent a letter to top government regulators demanding that they back off and provide more justification for new margin requirements for financial firms dealing in derivatives. A standard practice on Capitol Hill is to end a letter to a government agency with contact information for the congressional staffer responsible for working on the issue for the committee. In most cases, the contact staffer is the one who actually writes such letters. With this in mind, it is important to note that the Issa letter ended with contact information for Peter Haller, a staffer hired this year to work for Issa on the Oversight Committee.

Ok, so who is this guy?  Just a staffer, right?  Uh……

Haller, as he is now known, went by the name Peter Simonyi until three years ago. Simonyi adopted his mother’s maiden name Haller in 2008 shortly after leaving Goldman Sachs as a vice president of the bank’s commodity compliance group. In a few short years, Haller went from being in charge of dealing with regulators for Goldman Sachs to working for Congress in a position where he made official demands from regulators overseeing his old firm.

You’re joking right?

Oh, maybe you’re not.

Where’s my pitchfork and torch – or more importantly, where’s yours?

This nation deserves an all-on economic and political collapse.  I don’t want to see one, as I know that what comes from it will be horrifying, but we have no argument at a moral, ethical or for that matter Biblical level for avoiding it any longer.

PS: For those who think this is some sort of smear job by ThinkProgress click that link above on “adopted”.  That’s a saved copy of the web site from the law firm that publicly discloses the name change and guy’s CV.  He didn’t even try to hide it – as of this morning, the same content is there.  Yes, I looked.

When it comes to the financial crisis and scams, it is a critical yet exquisitely simple question.  Folks in Washington and on Wall Street for that matter a lot in the media, would have you believe that the answer is complicated; difficult to figure out. But history shows us otherwise.

During the savings and loans scandals of the 1980s and ’90s, half of the country’s savings and loan associations went bust, the government stepping into to the of $79 billion and thousands ended up behind bars.  Between 1990 and 1995, 1,852 officials were prosecuted.  More than half of them jailed. On top of that, more than 2,500 bankers were sent to the slammer. 

Now, fast forward to any of the financial crimes against the American people in the past decade.  In 2003 Freddy Mac was caught by a billion. In 2006, AIG caught in the accounting scandal that indirectly lead to its 2008 demise. Any executives arrested for that?  Nope.

Last year, Goldman Sachs caught defrauding investors with bogus mortgages. No jail time. And as for the grand-daddy of them all, the crisis that cost us trillions, so far, nada. If it wasn’t true, you wouldn’t believe it, but there it is and for some of that research, we are indebted to our friend, Matt Taibbi, who explores this in his new article. With that said, there may be a bit of hopeful news today for those of you who believe in justice and fairness. The new chair of the House Oversight Committee, Darrell Issa, has issued his first subpoena. It orders Bank of America to hand over documents about a home loan program called Countrywide VIP.  The committee investigating whether Countrywide used sweetheart mortgages in order to buy key friends; maybe a bank regulator, maybe the chair of the Senate Banking Committee.  People in the government with power, getting special deals on financing for luxury homes. kind of sounds like Bahrain, right?  Not really. joining us now, Republican Congressman from California, Darrell Issa.

Visit msnbc.com for breaking news, world news, and news about the economy

GOP Stuffs Shoe In Mouth: Issa

Posted by Karl Denninger

Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs

Feb. 23 (Bloomberg) — When a congressional panel convened a hearing on the government rescue of American International Group Inc. in January, the public scolding of Treasury Secretary Timothy F. Geithner got the most attention.

Lawmakers said the former head of the New York Federal Reserve Bank had presided over a backdoor bailout of Wall Street firms and a coverup. Geithner countered that he had acted properly to avert the collapse of the financial system.

A potentially more important development slipped by with less notice, Bloomberg Markets reports in its April issue. Representative Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform, placed into the hearing record a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.

These were the deals that pushed the insurer to the brink of insolvency — and were eventually paid in full at taxpayer expense. The New York Fed, which secretly engineered the bailout, prevented the full publication of the document for more than a year, even when AIG wanted it released.

That lack of disclosure shows how the government has obstructed a proper accounting of what went wrong in the financial crisis, author and former investment banker William Cohan says. “This secrecy is one more example of how the whole bailout has been done in such a slithering manner,” says Cohan, who wrote “House of Cards” (Doubleday, 2009), about the unraveling of Bear Stearns Cos. “There’s been no accountability.”

CDOs Identified

The document Issa made public cuts to the heart of the controversy over the September 2008 AIG rescue by identifying specific securities, known as collateralized-debt obligations, that had been insured with the company. The banks holding the credit-default swaps, a type of derivative, collected collateral as the insurer was downgraded and the CDOs tumbled in value.

The public can now see for the first time how poorly the securities performed, with losses exceeding 75 percent of their notional value in some cases. Compounding this, the document and Bloomberg data demonstrate that the banks that bought the swaps from AIG are mostly the same firms that underwrote the CDOs in the first place.

The banks should have to explain how they managed to buy protection from AIG primarily on securities that fell so sharply in value, says Daniel Calacci, a former swaps trader and marketer who’s now a structured-finance consultant in Warren, New Jersey. In some cases, banks also owned mortgage lenders, and they should be challenged to explain whether they gained any insider knowledge about the quality of the loans bundled into the CDOs, he says.

‘Too Uncanny’

“It’s almost too uncanny,” Calacci says. “If these banks had insight into the underlying loans because they had relationships with banks, originators or servicers, that’s at the least unethical.”

The identification of securities in the document, known as Schedule A, and data compiled by Bloomberg show that Goldman Sachs underwrote $17.2 billion of the $62.1 billion in CDOs that AIG insured — more than any other investment bank. Merrill Lynch & Co., now part of Bank of America Corp., created $13.2 billion of the CDOs, and Deutsche Bank AG underwrote $9.5 billion.

These tallies suggest a possible reason why the New York Fed kept so much under wraps, Professor James Cox of Duke University School of Law says: “They may have been trying to shield Goldman — for Goldman’s sake or out of macro concerns that another investment bank would be at risk.”

Poor Performers

Goldman Sachs spokesman Michael DuVally declined to comment.

Schedule A also makes possible a more complete examination of why AIG collapsed. Joseph Cassano, the former president of the AIG Financial Products unit that sold the swaps, said on a December 2007 conference call that his firm pulled back from selling swaps on U.S. subprime residential CDOs in late 2005. The list shows that the $21.2 billion in CDOs minted after 2005, mostly based on prime and commercial mortgages, performed as badly as or worse than the earlier subprime vintages.

A lawyer for Cassano declined to comment.

As details of the coverup emerge, so does anger at the perceived conflicts. Philip Angelides, chairman of the Financial Crisis Inquiry Commission, at a hearing held by his panel on Jan. 13, questioned how banks could underwrite poisonous securities and then bet against them. “It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars,” he said.

‘Part of the Coverup’

Janet Tavakoli, founder of Tavakoli Structured Finance Inc., a Chicago-based consulting firm, says the New York Fed’s secrecy has helped hide who’s responsible for the worst of the disaster. “The suppression of the details in the list of counterparties was part of the coverup,” she says.

E-mails between Fed and AIG officials that Issa released in January show that the efforts to keep Schedule A under wraps came from the New York Fed. Revelation of the messages contributed to the heated atmosphere at the House hearing.

“What date did you know there was a coverup?” Republican Congressman Brian Bilbray of California demanded of Geithner. Lawmakers used the word coverup more than a dozen times as they peppered Geithner with questions.

Geithner said that he wasn’t involved in matters of disclosure and that his former colleagues did the best they could. In a Jan. 19 statement, the New York Fed said, “AIG at all times remained responsible for complying with its disclosure requirements under the securities laws.”

The government has committed more than $182 billion to AIG and owns almost 80 percent of the company.

Document Withheld

In late November 2008, the insurer was planning to include Schedule A in a regulatory filing — until a lawyer for the Fed said it wasn’t necessary, according to the e-mails. The document was an attachment to the agreement between AIG and Maiden Lane III, the fund that the Fed established in November 2008 to hold the CDOs after the swap contracts were settled.

AIG paid its counter­parties — the banks — the full value of the contracts, after accounting for any collateral that had been posted, and took the devalued CDOs in exchange. As requested by the New York Fed, AIG kept the bank names out of the Dec. 24 filing and edited out a sentence that said they got full payment.

The New York Fed’s January 2010 statement said the sentence was deleted because AIG technically paid slightly less than 100 cents on the dollar.

Paid in Full

Before the New York Fed ordered AIG to pay the banks in full, the company was trying to negotiate to pay off the credit- default swaps at a discount or “haircut.”

By March 2009, responding to a request from Christopher Dodd, chairman of the Senate Committee on Banking, Housing and Urban Affairs, AIG released the names of the counterparty banks. In a filing later that month, AIG included Schedule A, showing bank names while withholding all identification of the underlying CDOs and the amounts of collateral each bank had collected. The document had more than 800 redactions.

In May 2009, AIG again filed Schedule A, this time with about 400 redactions. It revealed that Paris-based Societe Generale got the biggest payout from AIG, or $16.5 billion, followed by Goldman Sachs, which got $14 billion, and then Deutsche Bank and Merrill Lynch. It still kept secret the CDOs’ identification and information that would show performance.

‘Right to Know’

“This is something that belongs in the public domain because it was done with public money,” Issa says. “The public has the right to know what was done with their money and who benefited from it.” Now, thanks to Issa, the list is out, and specific information about AIG’s unraveling can be learned from it.

At the Jan. 27 hearing, the New York Fed was still arguing that the contents of Schedule A shouldn’t be fully disclosed. Thomas Baxter, the New York Fed’s general counsel, testified that divulging the names of the CDOs could erode their value: “We will be hurt because traders in the market will know what we’re holding.”

Tavakoli calls that wrong. With many CDOs, providing more information to the market will give the manager a greater chance of fetching a realistic price, she says.

Jack Gutt, a spokesman for the New York Fed, declined to comment, as did AIG’s Mark Herr.

Bad to Worse

Tavakoli also says that the poor performance of the underlying securities (which are actually specific slices or tranches of CDOs) shows they were toxic in the first place and were probably replenished with bundles of mortgages that were particularly troubled. Managers who oversee CDOs after they are created have discretion in choosing the mortgage bonds used to replenish them.

“The original CDO deals were bad enough,” Tavakoli says. “For some that allow reinvesting or substitution, any reasonable professional would ask why these assets were being traded into the portfolio. The Schedule A shows that we should be investigating these deals.”

Among the CDOs on Schedule A with notional values of more than $1 billion, the worst performer was a tranche identified as Davis Square Funding Ltd.’s DVSQ 2006-6A CP. It was held by Societe Generale, underwritten by Goldman Sachs and managed by TCW Group Inc., a Los Angeles-based unit of SocGen, according to Bloomberg data. It lost 77.7 percent of its value — though it isn’t in default and continues to pay.

SocGen spokesman James Galvin and TCW spokeswoman Erin Freeman declined to comment.

Documentation Needed

Ed Grebeck, CEO of Tempus Advisors, a global debt market strategy firm in Stamford, Connecticut, agrees that more digging is necessary. “You need all the documentation and more than that, all the e-mails,” he says. “That would allow us to understand what went wrong and how to fix it going forward.”

Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, who delivered a report on the AIG bailout in November, says he’s not finished. He has begun a probe of why his office wasn’t provided all of the 250,000 pages of documents, including e-mails and phone logs, that Issa’s committee received from the New York Fed.

Schedule A provides some answers — and raises questions that need to be tackled to avoid the next expensive bailout.

To contact the reporter on this story: Richard Teitelbaum in New York at rteitelbaum1@bloomberg.net

Secret Banking Cabal Emerges From AIG Shadows

Jan. 29 (Bloomberg) — The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.

Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.

We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system — apart from the matter of AIG’s bailout — deserves further congressional scrutiny.

The New York Fed is in the hot seat for its decision in November 2008 to buy out, for about $30 billion, insurance contracts AIG sold on toxic debt securities to banks, including Goldman Sachs Group Inc., Merrill Lynch & Co., Societe Generale and Deutsche Bank AG, among others. That decision, critics say, amounted to a back-door bailout for the banks, which received 100 cents on the dollar for contracts that would have been worth far less had AIG been allowed to fail.

That move came a few weeks after the Federal Reserve and Treasury Department propped up AIG in the wake of Lehman Brothers Holdings Inc.’s own mid-September bankruptcy filing.

Saving the System

Treasury Secretary Timothy Geithner was head of the New York Fed at the time of the AIG moves. He maintained during Wednesday’s hearing that the New York bank had to buy the insurance contracts, known as credit default swaps, to keep AIG from failing, which would have threatened the financial system.

The hearing before the House Committee on Oversight and Government Reform also focused on what many in Congress believe was the New York Fed’s subsequent attempt to cover up buyout details and who benefited.

By pursuing this line of inquiry, the hearing revealed some of the inner workings of the New York Fed and the outsized role it plays in banking. This insight is especially valuable given that the New York Fed is a quasi-governmental institution that isn’t subject to citizen intrusions such as freedom of information requests, unlike the Federal Reserve.

This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed’s bailout programs. It’s as though the New York Fed was a black-ops outfit for the nation’s central bank.

Geithner’s Bosses

The New York Fed is one of 12 Federal Reserve Banks that operate under the supervision of the Federal Reserve’s board of governors, chaired by Ben Bernanke. Member-bank presidents are appointed by nine-member boards, who themselves are appointed largely by other bankers.

As Representative Marcy Kaptur told Geithner at the hearing: “A lot of people think that the president of the New York Fed works for the U.S. government. But in fact you work for the private banks that elected you.”

And yet the New York Fed played an integral role in the government’s bailout of banks, often receiving surprisingly free rein to act as it saw fit.

Consider AIG. Let’s take Geithner at his word that a failure to resolve the insurer’s default swaps would have led to financial Armageddon. Given the stakes, you might think Geithner would have coordinated actions with then-Treasury Secretary Henry Paulson. Yet Paulson testified that he wasn’t in the loop.

“I had no involvement at all, in the payment to the counterparties, no involvement whatsoever,” Paulson said.

Bernanke’s Denials

Fed Chairman Bernanke also wasn’t involved. In a written response to questions from Representative Darrell Issa, Bernanke said he “was not directly involved in the negotiations” with AIG’s counterparty banks.

You have to wonder then who really was in charge of our nation’s financial future if AIG posed as grave a threat as Geithner claimed.

Questions about the New York Fed’s accountability grew after Geithner on Nov. 24, 2008, was named by then-President- elect Barack Obama to be Treasury Secretary. Geither said he recused himself from the bank’s day-to-day activities, even though he never actually signed a formal letter of recusal.

That left issues related to disclosures about the deal in the hands of the bank’s lawyers and staff, rather than a top executive. Those staffers didn’t want details of the swaps purchase to become public.

New York Fed staff and outside lawyers from Davis Polk & Wardell edited AIG communications to investors and intervened with the Securities and Exchange Commission to shield details about the buyout transactions, according to a report by Issa.

That the New York Fed, a quasi-governmental body, was able to push around the SEC, an executive-branch agency, deserves a congressional hearing all by itself.

Later, when it became clear information would be disclosed, New York Fed legal group staffer James Bergin e-mailed colleagues saying: “I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals — too many counterparties, too many lawyers and advisors, too many people from AIG — to keep a determined Congress from the information.”

Think of the enormity of that statement. A staffer at a body with little public accountability and that exists to serve bankers is lamenting the inability to keep Congress in the dark.

This belies the culture of secrecy obviously pervasive within the New York Fed. Committee Chairman Edolphus Towns noted during the hearing that the bank initially refused to disclose even the names of other banks that benefited from its actions, arguing this information would somehow harm AIG.

‘Penchant for Secrecy’

“In fact, when the information was finally released, under pressure from Congress, nothing happened,” Towns said. “It had absolutely no effect on AIG’s business or financial condition. But it did have an effect on the credibility of the Federal Reserve, and it called into question the Fed’s penchant for secrecy.”

Now, I’m not saying Congress should be meddling in interest-rate decisions, or micro-managing bank regulation. Nor do I think we should all don tin-foil hats and start ranting about the Trilateral Commission.

Yet when unelected and unaccountable agencies pick banking winners while trying to end-run Congress, even as taxpayers are forced to lend, spend and guarantee about $8 trillion to prop up the financial system, our collective blood should boil.

(David Reilly is a Bloomberg News columnist. The opinions expressed are his own.)

Click on “Send Comment” in the sidebar display to send a letter to the editor.

To contact the writer of this column: David Reilly at dreilly14@bloomberg.net

Last Updated: January 28, 2010 21:00 EST

Oh, So The Fed *DID* Hide Documents?

Posted by Karl Denninger

Darrell Issa Seeks To Expand AIG Disclosure Inquiry To Ben Bernanke, Hank Paulson And Goldman’s Friedman

Submitted by Tyler Durden

It is about time someone asked for this: Darrell Issa has finally demanded that which is on everyone’s mind – the testimony of the kingpins of the bailout: Bernanke and Paulson.

Bernanke and Paulson should provide statements about the decision to fully reimburse New York-based AIG’s bank counterparties for $62.1 billion in derivatives and efforts to limit disclosure about the payments, Darrell Issa, ranking member of the House Oversight and Government Reform Committee, said today in a letter. Treasury and the Federal Reserve should be subpoenaed for documents tied to the rescue, Issa said.
“This committee’s investigation will not be complete until we gain the perspective of all the most senior government officials responsible for the AIG bailout,” Issa said in the letter to Edolphus Towns, the New York Democrat who is chairman of the panel. “The perspective of Ben Bernanke and Hank Paulson and documents in the possession of the Federal Reserve Board and the Treasury Department are necessary.”

We applaud Congressman Issa’s persistence in this matter. In addition to the above, the WSJ now reports that Goldman’s Stephen Friedman, who was chairman of the NY Fed at the time, has also been “invited.” Zero Hedge petitioned a week ago that Mr. Friedman should not be forgotten in the hustle and bustle to blame everything on Tim. We are happy that the former Goldman Board member will be willing and able to discuss any potential impropriety that may have arisen from selling CDS protection on AIG to fund the difference from the collateral margin to par (in essence making them whole and half) in a time when public disclosure on the government’s attachment to AIG was limited to a select few.

Obama: Time To Keep Your Promises

Posted by Karl Denninger

Do you want to have a Republican House – and possibly Senate – come November?

No?

Then you better put a stop to this crap.

The Fed is telling a bailout watchdog not to share documents requested as part of a House investigation into the bailout of failed insurance conglomerate American International Group Inc.

A letter from the special inspector general for the financial bailout to California Rep. Darrell Issa says, the Fed “has directed us not to provide you with the documents it has provided to us.”

Your own party is having none of this:

Jan. 12 (Bloomberg) — Edolphus Towns, chairman of the House Oversight and Government Reform Committee, said he will issue today a subpoena to the Federal Reserve Bank of New York for documents related to American International Group Inc.

“This subpoena will provide the Committee with documents that will shed light on how and why taxpayer dollars were used for a backdoor bailout,” Towns said in an e-mailed statement.

I know you didn’t solicit my advice, but I’m good at providing unsolicited advice in this regard.  I tried to warn John McCain prior to the election that his standing with the TARP/EESA “bailout nation” BS would cost him the election, and it did.

Most of The American People have no problem with anyone making an “unholy” amount of money provided they do so legally, without ripping anyone off. 

I know few people who object to a farmer who works his entire life to provide for himself and his family, manages his crops, makes a lot of money, socks it away, and retires to enjoy his last years in comfort.

I know few people who object to the American who invents something new and never-before seen, like an automobile, an operating system for a computer or a new gadget that everyone wants and buys, becoming rich as a consequence.

But nobody, except for the criminal banking cabal on Wall Street and their paid shills, finds it acceptable to sell worthless trash as “money good” securities to states, retirees, pension funds and ordinary people simply trying to guarantee that they have a decent retirement income, whether those securities are bonds and CDOs backed by mortgages made to people who the sellers of the money knew couldn’t pay or whether they’re Internet bubble companies that never had a snowball’s chance in Hell of being able to sell anywhere near enough product or service to cover their expenses.

Americans find it even more outrageous when, after doing the above, that very same criminal banking cabal got caught holding too much of their garbage and faced bankruptcy – so they forced the American people to bail them out while at the same time jacking up ordinary Americans’ interest rates on credit cards to 29.9%, imposing new and outrageous fees, and then paid out tens of billions of dollars in bonuses!

One very small piece of this scam is in fact AIG and the role of the NY Fed in both the “regulation” of the banks under its purview during the time that AIG was selling what later proved to be worthless credit default swaps to those institutions under its regulatory umbrella and, later, “negotiating” a back-door transfer of funds from the US Taxpayer to bail out those very same regulated firms that bought worthless “protection” for the purpose of claiming that their risky “assets” were in fact money good.

For the NY Fed to now claim that Tim Geithner knew nothing of the negotiations, public filings and transactions between AIG and these institutions, both prior to the blow up and after it happened, stretch credulity.  After all these institutions were specifically under the regulatory authority of the NY Fed in the years prior to this crisis and the NY Fed’s charter explicitly includes oversight and management of systemic risk posed by these firms to the banking system as a whole.

You, President Obama, ran on the platform and claim that you were coming to Washington to, in part, STOP THE LOOTING AND START PROSECUTING.

Well Mr. President, there’s a hell of a lot of looting that has taken place, and yet we’ve seen damn little prosecuting.

Millions of Americans have been dispossessed of their homes due to jobs lost in the economy during this mess, and there is no indication at all that the job problem is going to go away any time soon.  Indeed, we are now back where we were in 1983 in terms of the percentage of the population that is employed and contributing to the Federal Tax Base, yet the total debt outstanding in the US is, as a percentage of GDP, twice as high.

Every American invested in the public markets has just completed a “lost decade” in which they have in fact lost money over a 10 year time, and that’s without counting inflation.  These are not small losses – about 35% if you were in the S&P 500, 35% in the DOW and more than half in the Nasdaq 100.

Pension plans, both public and private, have been decimated.  Your core constituents, including organized labor of all stripes have taken it in the shorts as a direct and proximate consequence of the outrageous and pernicious fraud heaped upon the public debt and equity markets.

When you add all of this up Mr. President virtually every American has been touched by this mess.  Lower-income earners have lost their jobs, middle-income workers have lost jobs, homes and retirement security and upper-income earners have suffered all of the above plus in many cases had their nest eggs literally stolen by scammers like Madoff.

Yet thus far you have focused your prosecutorial attention on Madoff, Stanford and a handful of others – all of whom attacked “high wealth” people.

Here’s a hint Mr. President:

The rest of the nation is pissed off and tired of the excuses and lies, and we know who was responsible for all of the bogus securities and lending activity – and it wasn’t Madoff.

Fraud is against the law Mr. President.  It always has been.  You need no new laws, you have plenty of existing ones.

It is my belief that there are literally tens of thousands of people and hundreds of companies, including some very large public ones, you should have under investigation if not indictment right here and now. 

You can, right here and now, solve your flagging popularity problem.  You need only give a speech that is roughly this:

My Fellow Americans.

The last three decades have been marked by outrageous scams and frauds throughout our financial system.  This is not a partisan political issue and has consumed both Democrat and Republican administrations and Congresses alike.

As of today, that era has ended.

To those who believe that blowing bubbles, making homes unaffordable for the common man in this country or driving stock prices to ridiculous levels based on hype and false claims is a means to become wealthy, your days of being able to strip the wealth of the common American have come to an end.

Those federally-chartered institutions that promote a “bubble economy” based on unreasonable and unsustainable levels of debt will find that this administration will do everything in our power to revoke those charters.  This includes but is not limited to The Federal Reserve.

To those who have ripped people off, including those who marketed and sold worthless securities, those who claimed to have “protection” against market events when they knew the person they bought from had no money to pay, or who worked together to make loans and sales to people through the use of various lies, such as falsely overstating incomes, you will soon be facing a jury of your peers.

I am today directing the FBI and Department of Justice to open and begin investigations, starting at the top. Each and every one of the large financial institutions in this country, including the banks, GSEs and their officials that operate under a federal charter or banking license will face a forensic audit.  We will identify and bring to justice all of those who have robbed this economy of its vitality and stolen your futures.  Where possible we will claw back every penny of these individuals and firms’ wealth so as to provide you with whatever compensation we can recover.  Those firms who have committed wrongdoing will be broken up and their officials barred from serving in the banking or securities industries in the future.

Our own administration and the people in it will be subject to this investigation, as will all members of Congress, the lobbying firms and interests that interact with our government.  There will be no sacred cows and no rocks that will be left unturned.

We will investigate homebuilders, realtors, appraisers and mortgage brokers.  We will look into the FHA, Ginnie Mae, Fannie Mae and Freddie Mac and determine exactly how all of these loss-producing loans came to be made.  Where we can identify persons or corporate procedures that led investors, firms or people to be misled, we will bring charges.

The days of theft and fraud from the American public, followed by demands to be bailed out when these scams and schemes reach the end of their rope, are over.  Civil and criminal penalties have and do exist for these offenses, and they will be enforced to the fullest extent of the law.  

All Americans deserve to be able to invest with confidence and rely on the statements and publications put forward to them.  Americans deserve to be told the truth.  When Americans are ripped off, they deserve justice.  Beginning today, every American will receive exactly that.

The days of the “Wild West” on Wall Street and K Street alike are over.

Thank you.

If you don’t, and soon, you will have a Republican Congress come November, and in 2012, you will be headed home to Chicago, where you can live in the bankrupt State of Illinois – bankrupted, in no small part, by the same fraud and rip-offs that have infested the rest of this nation.

You’ve had a year to survey the landscape.

It is now time to keep your promises.

We, the voters and citizens of this nation, are not asking any longer.

We’re now demanding you do so.

Geithner’s New York Fed Told AIG to Limit Swaps Disclosure

Jan. 7 (Bloomberg) — The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.” President Barack Obama selected Geithner as Treasury secretary, a post he took last year.

Bank Payments

Issa requested the e-mails from AIG Chief Executive Officer Robert Benmosche in October after Bloomberg News reported that the New York Fed ordered the crippled insurer not to negotiate for discounts in settling the swaps. The decision to pay the banks in full may have cost AIG, and thus taxpayers, at least $13 billion, based on the discount the insurer was seeking.

The e-mail exchanges between AIG and the New York Fed over the insurer’s disclosure of the transactions show that the regulator pressed the company to keep details out of the public eye. Issa’s comments add to criticism from Republican lawmakers, including Senator Chuck Grassley of Iowa and Representative Roy Blunt of Missouri, who wrote letters in the past two months demanding information from Geithner, 48, about the costs of the AIG bailout.

Securities Lawyers

AIG’s Dec. 24, 2008, filing was challenged privately by the U.S. Securities and Exchange Commission, which polices the adequacy of disclosures by publicly traded firms. The agency said in a letter to then-CEO Edward Liddy six days later that AIG should provide a Schedule A, which lists collateral postings for the swaps and names the bank counterparties that purchased them from the company. The Schedule A was disclosed about five months later in a filing.

“Our position has always been that if AIG’s securities lawyers determine that AIG is legally obligated to make a particular filing or disclosure, then that is what AIG must do,” said Jack Gutt, a spokesman for the New York Fed, in an e- mailed statement. Gutt said it was appropriate for the New York Fed, as party to deals outlined in the filings, “to provide comments on a number of issues, including disclosures, with the understanding that the final decision rested with AIG’s securities counsel.”

Mark Herr, a spokesman for New York-based AIG, declined to comment. Andrew Williams of the Treasury referred questions to the New York Fed.

Kathleen Shannon, an AIG deputy general counsel, wrote to the insurer’s executives in a March 12, 2009, e-mail about the conflicting demands from the New York Fed and SEC.

‘Reasonable Basis’

“In order to make only the disclosure that the Fed wants us to make,” Shannon wrote, “we need to have a reasonable basis for believing and arguing to the SEC that the information we are seeking to protect is not already publicly available.”

AIG disclosed the names of the counterparties, which included Deutsche Bank AG and Merrill Lynch & Co., on March 15. The disclosure said AIG made more than $27 billion in payments without identifying the securities tied to the swaps or listing the value of individual purchases by each bank, details the Fed wanted to keep out, according to the March 12 e-mail from AIG’s Shannon.

Earlier that month, Fed Vice Chairman Donald Kohn testified to Congress that disclosure of the counterparties would harm AIG’s ability to do business. The insurer agreed to turn over a stake of almost 80 percent in connection to its bailout.

‘No Mention of the Synthetics’

The e-mails span five months starting in November 2008 and include requests from the New York Fed to withhold documents and delay disclosures. The correspondence includes e-mails between AIG’s Shannon and attorneys at the New York Fed and its law firm, Davis Polk & Wardwell LLP. Tom Orewyler, a spokesman for Davis Polk in New York, declined to comment as did Shannon.

According to Shannon’s e-mails obtained by Issa, the New York Fed suggested that AIG refrain in a filing from mentioning so-called synthetic collateralized debt obligations, which bundled derivative contracts rather than actual loans.

The filing “reflects your client’s desire that there be no mention of the synthetics in connection with this transaction,” Shannon wrote to Davis Polk on Dec. 2, 2008. “They will not be mentioned at all.”

AIG had about $9.8 billion of swaps protecting the synthetic holdings as of September 2008, the company said on Dec. 10, 2008. Goldman Sachs said in a press release last month that it was among banks that had losses on synthetic CDOs.

As part of a bailout that swelled to $182.3 billion, AIG and the Fed created Maiden Lane III, a taxpayer-funded facility designed to remove mortgage-linked swaps from the insurer’s books. Shannon told the New York Fed on Nov. 24, 2008, that AIG executives wanted to publicly disclose details about Maiden Lane the next day.

‘Guided by Your Counsel’

“Do you think it might be feasible to hold off on the Maiden Lane III 8K and press release until next week?” Brett Phillips, a New York Fed lawyer wrote in an e-mail that day. “The thinking is that the Maiden Lane III closing will be a less transparent event, and it might be better to narrow the gap between AIG’s announcement and the New York Fed’s publication of term sheet summaries.”

“Given the significance of the transaction, AIG would be best served by filing tomorrow,” Shannon wrote. “We will of course be guided by your counsel.” The document outlining the Maiden Lane agreement was posted on Dec. 2, 2008.

In at least one instance, AIG pushed for documents to be disclosed and then released the information.

‘Better Disclosure’

“We believe that the agreements listed in the index (i.e., the Master Investment and Credit Agreement and the Shortfall Agreement) do not need to be filed,” Peter Bazos, a Davis Polk lawyer wrote on Nov. 25, 2008. “Please let us know your thoughts in this regard.”

AIG’s Shannon replied that “the better practice and better disclosure in this complex area is to file the agreements currently rather than to delay.” The agreements were included in the Dec. 2 filing.

More details of the negotiations over swaps payments emerged in November 2009 when Neil Barofsky, the special inspector in charge of policing the Troubled Asset Relief Program, assessed the Fed’s role in the bailout.

“Federal Reserve officials provided AIG’s counterparties with tens of billions of dollars they likely would have not otherwise received,” Barofsky wrote in a Nov. 17 report. “The default position, whenever government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with government funds.”

AIG’s first rescue was an $85 billion credit line from the New York Fed in September 2008. The bailout was expanded three times and is valued at $182.3 billion. That includes a $60 billion Fed credit line, an investment of as much as $69.8 billion from the Treasury and up to $52.5 billion for Maiden Lane facilities to buy mortgage-linked assets owned or backed by the company.

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

SEE THE ACTUAL E-MAILS HERE  (page 5 is particularly interesting)