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Archive for the ‘Darrell Issa’ Category

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)