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Archive for the ‘Merrill Lynch’ Category

From NEW YORK (CNNMoney.com)

– The Federal Reserve made $9 trillion in overnight loans to major banks and Wall Street firms during the financial crisis, according to newly revealed data released Wednesday.

Well, except for the public was told that this would be limited to $700 Billion, remember?

Sen. Bernie Sanders, the Vermont independent who had authored the provision of the financial reform law that required Wednesday’s disclosure, called the data that was released incredible and jaw-dropping.

“The $700 billion Wall Street bailout turned out to be pocket change compared to trillions and trillions of dollars in near zero interest loans and other financial arrangements that the Federal Reserve doled out to every major financial institution,” Sanders said.

I’d call it more than ‘jawdropping’ – I’d call it theft.

There’s a New AIG Story. I Was an AIG Exec. Here’s the Deal.

Richard (RJ) Eskow - Consultant, Writer, Policy Analyst

It’s looking like the SEC/Goldman Sachs lawsuit could open up a whole new can of worms — one that Tim Geithner and some bank executives aren’t likely to be very happy about. The story’s about AIG and I used to work there so, as much as I like to stay out of the story, a little personal background is in order. We’ll do the story first and then get to the personal stuff.

The story is this: As almost everyone knows by now, the SEC filed a suit against Goldman over a program called Abacus. The suit alleges that Goldman didn’t tell Abacus investors that the bonds they were essentially insuring were being picked by a firm (Paulson) which was betting that they’d fail. Remember that Twilight Zone episode called “To Serve Man,” where the aliens promised to help everybody but were really just getting ready to eat them? In this story the investors are the humans and Goldman’s execs are the aliens.

The slide show Goldman used to pitch Abacus is pretty damning. It starts with so many pages of fine-print “disclaimers” and “risk factors” that it seems like a Viagra ad (“call your doctor if …”). There’s a lot in there about well-respected (but at best gullible) ACA, this firm that Goldman claimed was picking the bonds. About half of the 66 slides sing ACA’s praises, but there’s no mention of Paulson. There are long descriptions of ACA’s capabilities, their “internal” and “external data sources,” and their “defensive trading” designed to “minimize real market value exposure.”

To serve man. “It’s a cookbook!”

Here’s where it gets uncomfortable for Geithner and some executives. Remember all that criticism of the taxpayer-funded AIG bailout, and how under Tim Geithner’s direction (he was running the New York Fed then) AIG paid 100 cents on the dollar to Goldman and other “counterparties” for its debts? It turns out that AIG insured seven Abacus deals, and the debts they were ordered to pay may have included payoffs on some of these deals. It turns out that AIG reportedly wanted to pay 60 cents on the dollar, but Geither’s New York Fed directed them to pay the full amount.

AIG paid $13 billion from its bailout to Goldman at Geithner’s direction. And now, as the Wall Street Journal reports, the SEC “is investigating whether other mortgage deals arranged by some of Wall Street’s biggest firms may have crossed the line into misleading investors.” And, while “It isn’t known what deals the SEC is investigating,” the Journal adds that “among the firms that created mortgage deals that soon went sour were Deutsche Bank AG, UBS AG and Merrill Lynch & Co., now owned by Bank of America Corp.”

Who were some of the other counterparties paid by AIG under Geithner’s direction? Deutsche Bank, UBS, Merrill Lynch, and Bank of America. This is already a big story, and it could get much bigger. None of those firms can be happy today, knowing that they’re being drawn into the firestorm surrounding Goldman Sachs. And Geithner can’t be happy that his handling of AIG is once again in the news. He took a beating for it back then (including from right-leaning Forbes, the self-described “capitalist tool”), and the NY Fed’s eventual defense of its own actions was ineffectual. Among other things, it claimed that the counterparties’ “contractual rights were well-protected.”

Not if they lied, they weren’t. Nobody has a “well-protected right” to enforce contracts made under false pretenses. It looks now as if the New York Fed didn’t try hard enough.

It’s not as if people weren’t objecting at the time. Eliot Spitzer was all over the issue. Former AIG CEO Hank Greenberg, who had been forced out by Spitzer, wrote that “the federal government is using AIG as a conduit to pump massive sums to the counterparties of AIG’s credit default swaps.” Spitzer, along with William Black and Frank Portnoy, had a very reasonable request: Release AIG’s emails from that period so we can get to the bottom of the situation. That’s a good idea today, too – no matter who it might make uncomfortable.

Now AIG is considering a lawsuit to get some of that money back from Goldman. Two members of Congress want to collect the money, too. Good idea. If it embarrasses some people in high places, there’s a solution for that too: They can push for aggressive derivatives reform, which is something Geithner’s reportedly been resisting up to now. None of us can change our past actions, but we can all vow to do better in the future.

——————————————–
I can’t write about AIG without disclosing the fact that I used to be an executive there. Not that I’ve been hiding it — I’ve mentioned it in interviews and elsewhere — but I didn’t cover the last AIG crisis so I never had to address the conflict of interest issue directly. Now I do, so here’s the deal:

I worked for a health care company that was acquired by AIG, and wound up staying there for about seven years. I was well-liked at AIG, and I liked working there. I wasn’t involved with financial products. I worked in risk management and property/casualty, focusing on workers’ compensation and health issues. Then I became President of an AIG subsidiary and joint venture that did international health projects and some investment work. I never worked directly for Hank Greenberg, although I had several meetings with him and was the target of his well-known interrogative wrath at least once.

I was still working on Wall Street, though not at AIG, when “quants” became trendy and financial products really began taking off. (We had an all-Wall Street rock and roll band in those days. I still wonder what became of the keyboard player from Merrill Lynch.) Regarding financial products: Some of us thought we saw thunderclouds forming, but everyone told us that these guys knew what they were doing. It turned out there were thunderclouds.

There’s a lot more to the story than that, but for now I’ll just say that my opinion of AIG is this: It was a good company when I worked there. Many people found the aggressive culture hard to handle, but I didn’t. (God knows what that says about me.) It had some real flaws – it was notoriously slow to pay claims, for example. Still, I had many friends there, some of whom caught undeserved flack for what the financial products people did. AIG contained many different companies, but it appears that the 200 employees of the financial products group operated by a completely different set of rules.

The insurance and risk management operations were essentially sound and well-run, and from everything I know they still are. Nobody got rich from bonuses — certainly not me. And the sooner those sound businesses can get out from under the wreckage wrought by the financial products group and its enablers, the better off everybody will be — including the American taxpayer.

Richard (RJ) Eskow, a consultant and writer, is a Senior Fellow with the Campaign for America’s Future. This post was produced as part of the Curbing Wall Street project. Richard blogs at:

No Middle Class Health Tax
A Night Light

So, Mr. Bernanke – who is lying?!

New Merrill Lynch Disclosure Shines A Perjurious Light On Ben Bernanke’s Sworn Testimony; JP “Fed Lite” Morgan Also Dabbled In Repo 105-type Scams

Submitted by Tyler Durden

It seems it was just yesterday that Bernanke was on the edge of committing perjury and lying that the Federal Reserve of New York knew nothing about Lehman’s “more peculiar” off balance sheet transactions. Oh wait, it was: as a reminder in his cross by Scott Garrett, the New Jersey representative asked the Fed Head whether the “Fed was aware of the Repo 105 and the accounting irregularities going on?” Bernanke answers “No – they were hidden.” Oops. Because a story just released by the Financial Times seems to indicate otherwise, and unless Merrill Lynch is lying out of their derriere, Mr. Bernanke should be immediately investigated for potential perjury before the American people. “Securities and Exchange Commission and Federal Reserve officials were warned by [Merrill Lynch] that Lehman Brothers was incorrectly calculating a key measure of its financial health months before its collapse in 2008…In the account given by the Merrill officials, the SEC, the lead regulator, and the New York Federal Reserve were given warnings about Lehman’s balance sheet calculations as far back as March 2008.”  Amusingly, the sole purpose why Merrill would rat out Lehman is to make its own disastrous situation more agreeable, as often happens when the rats realize the sinking of the ship is inevitable. Well, unlike Merrill, whose liquidity situation was equally as disastrous on the weekend of September 14th, which found a pressed suitor in the form of BofA (and its Fed/Goldman-puppet CEO Ken Lewis), Lehman was not quite so lucky (one wonders why). Yet the bigger issue is why does the Fed keep on lying to the American public without any trace of consequence? When will someone finally wake up and sue the Federal Reserve (and we don’t mean FOIA), or at least slap a racketeering lawsuit on “those people?” Oh yeah, the market is up, American Idol is on TV, G-Pap has done all that was needed to (not) be bailed out, so all shall be well. This is better known as “if the other Ponzi dude was thrown in jail, you must acquit” defense.

Further troubling evidence from the FT that the FRBNY may be nothing more than a sinister cabal of Wall Street-acquired criminals:

Former Merrill Lynch officials said they contacted regulators about the way Lehman measured its liquidity position for competitive reasons. The Merrill officials said they were coming under pressure from their trading partners and investors, who feared that Merrill was less ­liquid than Lehman.

The warnings take on a special significance after last week’s report by Anton Valukas, the Lehman bankruptcy court examiner, who found that Lehman had used questionable financing tools to flatter its balance sheet before its September 2008 collapse.

The findings raise questions over what federal regulators knew about Lehman’s accounting and when they knew it. In the account given by the Merrill officials, the SEC, the lead regulator, and the New York Federal Reserve were given warnings about Lehman’s balance sheet calculations as far back as March 2008.

Former and current Fed officials say even in the competitive world of Wall Street, it is un­usual for rival bankers to relay such concerns to the Fed.

The Fed is currently scouring thru its emails, but unfortunately has no confirmation that any exchange like the one mentioned above has ever occurred:

The New York Fed said it were unable to verify that the conversation with Merrill Lynch bankers took place.

When in doubt deny, deny, deny. And what recourse do the American people have anyway? It’s not like the Fed is, you know, transparent, or willing to open its books to anyone, to demonstrate just how deep the criminal rabbit hole actually goes.

And also from the FT we learn that none other than JP Morgan was also using Repo 105 comparable transactions. At least Jamie Dimon’s firm not only was fully transparent about this gimmick, but it promptly ended the practice some time in 2005.

Unlike Lehman, which never disclosed the effects of its repo deals on the firm’s balance sheet, JPMorgan detailed the year-end values of its repo sales and purchases in annual reports beginning in 2001, after a new accounting rule was introduced.The practice ended in 2005 when the company merged with Bank One. “The transactions were done in very small amounts and were fully disclosed,” a spokesman said.

So let’s paraphrase the question for Mr. Bernanke – was the Fed at least aware of those disclosed SFAS 140 transactions? And also, for our own curiosity, can we get a roster of all the FRBNY people who are and have been supposed to oversee SFAS 140 implementations by various banks (hello Steven Manzari)?

What?   You mean it was all a Fed/Treasury/Too-Big-To-Fail Bank scam perpetrated on the American People?  Oh surely, that can’t be it.

For some reason Zero Hedge is prone to take a great deal of heat (both directly radiated and reflected) whenever we opine on the (rather obvious to us) prospect that interest rates might actually (quelle surprise) rise in this environment.  Today, rather than engage in “we told you so” gloating, or endure the repetitive pleadings of commentators that this or that Treasury auction was really a success if you just look a little deeper at the figures, we’ll just quote Bloomberg quoting other fixed income observers on today’s auction of two years, in an article “ambiguously” titled “U.S. 2-Year Yields Highest Since October After $44 Billion Sale.”

Treasury two-year note yields reached the highest levels since October as an investor class that includes foreign central banks bought the least of the debt in five months at today’s record-tying $44 billion auction.

Indirect bidders purchased 34.8 percent of the notes, the lowest amount since July, and below the average for the past 10 sales of 45 percent. Treasuries of all maturities have fallen 3.6 percent this year, according to Bank of America Merrill Lynch indexes. That would be the worst performance since at least 1978, when Merrill began collecting the data.

We aren’t really sure how this will be spun into a “good thing,”™ but we are sure that someone will find a way.  Back to you, CNBC.

Tomorrow at 10 am the House Oversight Committee will hold a hearing with SEC’s Robert Khuzami (oddly Mary Schapiro, together with Chris Cox, had been scheduled to appear initially, however “in a series of last minute negotiations, members settled on Khuzami”) to discuss what the SEC has already found to be a criminal transaction (and attempted to promptly bury under the rug if only if it weren’t for one Judge Jef Rakoff). Details of the hearing below:

Washington, DC – House Oversight and Government Reform Committee
Chairman Edolphus “Ed” Towns (D-NY) and Domestic Policy Subcommittee
Chairman Dennis Kucinich (D-OH) will convene a joint hearing entitled:
“Bank of America and Merrill Lynch: How Did a Private Deal Turn Into a
Federal Bailout?  Part V?”  The hearing will examine the events
surrounding Bank of America’s acquisition of Merrill Lynch and its
receipt of Federal financial assistance. 

The hearing will
take place at 10:00 a.m. on Friday, December 11, 2009 in room 2154
Rayburn House Office Building.  A webcast of the hearing will be
available on the Committee’s website: http://oversight.house.gov.

As for the actual hearing, Dow Jones presents this advance look of how Dennis Kucinich will approach the interrogation:

[Kucinich] plans to present Khuzami with a financial forecast
that had been prepared by Merrill Lynch a few weeks ahead of the December 2008
shareholder vote on the merger, according to subcommittee documents obtained
by Dow Jones.
The forecast omits projected losses from Merrill Lynch’s illiquid assets for
the month of December and underestimates by almost half the roughly $15
billion after-tax fourth quarter loss, the documents say.
Based on the subcommittee’s investigations, Kucinich says he believes Bank
of America executives were aware of the red flags raised by Merrill Lynch’s
forecast. But that didn’t stop them from presenting the document to their
lawyers at Wachtell, Lipton, Rosen & Katz.

Kucinich says Bank of America’s decision not to investigate the Merrill
Lynch document and notify shareholders of any change in expectations amounts
to “an egregious violation of securities laws.”

Referring specifically to the Merrill Lynch forecast, [BofA spokesman Lawrence] Di Rita said, “The
matter of Merrill’s projected fourth-quarter 2008 losses was considered
carefully and the decisions were made in good faith at a time of unprecedented
economic and market upheaval.”

And while committtee chairman Edolphus Towns is allegedly satisfied with BofA’s behavior in the last year, “since it paid the last of its $45 billion debt to taxpayers” even though it does not have the ready sources for this outflow, and even though the deal was merely a front to allow BofA traders to scalp exorbitant bonuses one last time before everything collapses, Judge Rakoff may not share Towns’ utter lack of interest with due process and punsihment of criminal behavior, especially where said criminal behavior has already been proven.