Helping Homeowners In Michigan
Archive for the ‘SIGTARP’ Category
Two Sets Of Books: A Felony For Everyone But Timmy
October 26th, 2010 | 
Author:
“While SIGTARP offers no opinion on the appropriateness or accuracy of the valuation contained in the Retrospective, we believe that the Retrospective fails to meet basic transparency standards by failing to disclose: (1) that the new lower estimate followed a change in the methodology that Treasury had previously used to calculate expected losses on its AIG investment; and (2) that Treasury would be required by its auditors to use the older, and presumably less favorable, methodology in the official audited financial statements.“
Oh really Turbo? Let me put this one in English for you.
In the civilian world it is illegal to present one set of books to your investors, and another to the IRS. That’s called tax fraud and, if you’re a publicly-traded company, securities fraud. It exposes you to a nice date with Bubba at the Graybar Motel, and it should.
But government does this sort of thing all the time. It also allows firms it controls to do this. Remember the infamous “GM” claims that “it had paid back all of the taxpayer money”? Well sure, technically – but they did so by borrowing other money – from the taxpayers! Only in Government is taking a $20 from your left pocket and putting it in your right pocket “paying off a loan.”
In the rest of the world we call this what it is: A scam.
Then there’s the view on HAMP. Treasury argues that every single modification (including trials) is a success, making the claim that “every single person who is in a temporary modification is getting a significant benefit.”
This is a bald lie. For those who are in temporary modifications but either fall out of the program or fail to qualify for permanent reductions, for any reason whatsoever, the entire amount they do not pay during the modification period is then past-due and payable, and worse, subject to late fees and charges.
In states and/or circumstances where there is a possibility of deficiency judgments delaying the inevitable loss of the home means that the homeowner will be exposed to a larger deficiency judgment than would otherwise be the case. This is not a benefit, it is a government-operated scam.
Barofsky makes his case well in these 300+ pages, and while the detail-level material is good reading, it is dry. The point – and the take-away – is that Treasury, contrary to their claims, has become part of the financial system asset-stripping schemes of Wall Street, and is now actively helping the banks screw the American people.
If Geithner had any sense of honor, he would commit Seppuku. If Obama had any sense of propriety or concern for the American People, he would fire Geithner this morning.
Clearly, neither is the case.
Posted in Banks, Corruption, Economic Crisis, Economy, Financial System, Fraud, Government, SIGTARP, Timothy Geithner, Treasury Department | 
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Geithner May Be CRIMINALLY Charged?
Geithner May Be CRIMINALLY Charged?
Posted by Karl Denninger
The TARP watchdog has also criticized Treasury Secretary Timothy F. Geithner in reports and in congressional testimony for his handling of the process by which insurance giant American International Group Inc. was saved from insolvency in 2008, when Geithner was head of the Federal Reserve Bank of New York.
The secrecy that enveloped the deal was unwarranted, Barofsky says, adding that his probe of an alleged New York Fed coverup in the AIG case could result in criminal or civil charges.
I have written extensively on this matter over the last 18 months and, in my opinion, such an outcome falls under the category of “it’s about damn time!”
Then there’s this:
Barofsky, a former federal prosecutor who was once the target of a kidnapping plot by Colombian drug traffickers, says he’s also looking into possible insider trading connected to TARP. He says his agency would want to know if bankers bought stock in their companies before it was made public that their institutions would get TARP money, for example.
“There was a time when, if you got that word the stock price would go up, and if you were to trade on that information prior to the public announcement, that would be classic insider trading,” Barofsky says.
That ought to be easy. Just subpoena yourself some trading records along with the emails and communications of bank executives. Bingo – I bet you find dozens of instances there.
“There’s a reason there are Tea Partiers out there, and when you look at it, anger at the bailout is one of the first things they talk about,” says Barofsky, referring to the anti- Obama political movement. “This Treasury Department and the previous Treasury Department bear some of the responsibility for not being straightforward with the American people.”
The Tea Partiers (and the American people generally) are angry because of the rampant looting of the American public and taxpayer that has taken place over the last three years.
These institutions should have all been dismantled. If it was deemed to be “necessary” to keep the firms in existence then break ‘em up, fire the entire executive suite and instead of six firms give us sixty – break each into 10 pieces. Even better, split off their depository functions and sell them to community and regional banks that did not participate in the Wall Street games!
It appears that Barofsky is looking into the issues raised by my previous Ticker on Goldman and the synthetic CDO issue as well:
“It is securities fraud if you take securities and package them and knowingly pass them off with phony labels,” she says.
Barofsky says investigations related to the underwriting and sale of CDOs are ongoing.
You betcha it is.
Posted in Banks, Corruption, Economic Crisis, Economy, Financial System, Fraud, Neil Barofsky, SIGTARP, Timothy Geithner |
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US Banks Face Insider Trading Probe
US Banks Face Insider Trading Probe
By Tom Braithwaite in Washington
Neil Barofsky, the special inspector-general overseeing the US government’s financial rescue efforts, is to probe allegations of insider trading among bank executives and their associates.
Eight of the largest banks in the US received between $2bn and $25bn in October 2008 under a programme to prop up the financial system led by Hank Paulson, then Treasury secretary.
Dozens more institutions followed and Mr Barofsky, who examines the troubled asset relief programme, is looking into whether information improperly made its way to trading rooms during a feverish period in which the government and banks were frequently exchanging information.
“We have pending investigations looking into that – typically into insider trading,” he said. “Once upon a time getting Tarp funds actually meant your stock price would go up and we are looking at specific trading around Tarp announcements by insiders or looking at potential tips from insiders.”
Sig-Tarp, the office of the special inspector-general, published its quarterly report to Congress on Sunday, criticising the capital investments in banks as having failed to stimulate lending.
“Part of the problem is, when the Tarp funds were extended . . . although there was this public disclosure that the purpose of these programmes was to increase lending, very little, if anything, was done to encourage or direct lending,” said Mr Barofsky.
The Treasury is celebrating faster than expected Tarp repayments from the financial sector; it now expects relatively small losses, with some elements generating big profits.
While Mr Barofsky acknowledges this, he said there remained substantial problems with the struc-ture of the public-private investment programme, which is designed to encourage investors to buy troubled assets from banks to clean their balance sheets and stimulate lending.
He said there should be walls between fund managers taking part in PPIP, which co-invests government funds with those of the private sector, and managers at the same firm buying and selling similar securities.
An example of suspicious activity at an unnamed firm showed a manager selling a security from a non-PPIP fund and then buying it back at a slightly higher price with a taxpayer-supported PPIP fund minutes later.
“The rules are insufficient,” said Mr Barofsky. He said even if the behaviour, which Sig-Tarp is investigating, was found to be within the rules “it still creates this credibility issue, this reputational damage, this appearance of fund managers gaming the system”.
The Treasury said it had identified the suspicious behaviour and brought it to the attention of Sig-Tarp, showing that the system was transparent.
In another example of the sometimes fractious relationship with Treasury, Herb Allison, the Treasury’s head of Tarp, said that Ken Feinberg, the so-called pay tsar, had initiated contact with the New York Federal Reserve to discuss pay at AIG long before Sig-Tarp had made the recommendation in a previous report.
Much of Sig-Tarp’s new report is given over to an examination of the housing market and the multitude of government schemes designed to support lending and help homeowners avoid foreclosure.
“The government has done more than simply support the mortgage market,” the report said. “In many ways it has become the mortgage market with the taxpayer shouldering the risk that had once been borne by the private investor.”
Mr Barofsky added: “All of the things that were broken in the housing market and the different roles that different private players have played, some of what we recognise now . . . actually contributed to the bubble and to the ensuing crisis are really being replicated by government actors.”
His latest report said Tarp was entering a transition as financial aid for banks including Bank of America and Wells Fargo & Co was recouped.
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Posted in Banks, Corruption, Economic Crisis, Economy, Financial System, Neil Barofsky, SIGTARP |
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Is The Fed Facing Margin Calls From European Banks?
by Marla Singer and Geoffrey Batt
Buried in the depths of page 26 of the Office of the Special Inspector General for the Troubled Asset Relief Program’s (SIGTARP’s) November 17, 2009 report “Factors Affecting Efforts to Limit Payments to AIG Counterparties” hidden in footnotes 33 and 34 is something of a mystery. It might be the beginning of an interconnected financial chain involving Dubai, the Federal Reserve, AIG, Basel I, Eastern Europe and even Switzerland and which, even if it doesn’t worry you, probably should. Or it might be nothing at all.
Consider first “footnote 33,” that reads as follows:
The first Basel Accord, known as Basel I, was issued in 1988; it focused on the capital adequacy of financial institutions. The capital adequacy risk—the risk that a financial institution will be hurt by an unexpected loss—categorizes the assets of financial institution into five risk categories (0 percent, 10 percent, 20 percent, 50 percent, and 100 percent). Banks that operate internationally are required to have a risk weight of 8 percent or less….
The original paragraph that references the footnote reads thus:
As of September 30, 2009, AIG had $172 billion in exposure to swaps in its foreign regulatory capital portfolio. The portfolio contains swaps purchased by financial institutions, principally in Europe, to provide regulatory capital relief under Basel I. [note 33] AIGFP’s COO informed SIGTARP in July 2009 that they expect that most of these swaps will be terminated by the end of the first quarter 2010 as most financial institutions complete their transition to Basel II. Currently, financial institutions are required to hold a certain level of capital against their assets, and one way for a financial institution to reduce the amount of capital is to purchase swap protection on its assets. However, new requirements decrease the level of capital required for such assets and, in most cases, there will be limited capital benefit to holding on to the existing swaps. Nonetheless, AIG warned in a June 29, 2009, SEC filing that if credit markets deteriorate, the company may recognize unrealized losses in AIGFP’s regulatory capital credit default swap portfolio. [note 34] AIG could continue to be at risk if the swaps in its regulatory capital portfolio are not terminated by the end of first quarter 2010 as expected. (Emphasis added).
Taken together we read the thrust of this section to mean that a number of European banks, seeking to limit their regulatory capital requirements under Basel I (read: seeking to increase their leverage) bought swap protection on their assets from AIG. These obligations still sit with AIG and, in the event credit markets sink materially, AIG is likely to take losses on these instruments. Not just that but:
According to an AIG SEC filing, an ongoing concern for AIGFP is whether it will have to post more collateral if credit markets continue to deteriorate. The amount of future collateral postings is partly a function of AIG’s credit ratings, which may be affected by any further decline in AIG’s financial condition. (Emphasis added).
Simply put, AIG might also have to post more collateral. Moreover, though AIG initially expected most of these swaps to “be terminated by the end of the first quarter 2010 as most financial institutions complete their transition to Basel II,” we see from footnote 34 that:
Subsequent to the June filing, European regulators adjusted the implementation timing of Basel II, potentially affecting the holders of AIGFP’s regulatory capital swaps to hold beyond previously anticipated termination dates.
In other words, AIG is still on the hook- and hadn’t planned to be.
This raises a number of questions:
- If the European banks that bought swap protection from AIG are still relying on this protection to meet their capital requirements, and AIG might be unable to make good on the agreements, are these banks actually out of Basel I compliance as we type this?
- Are the banks still able to use swap protection to reduce their collateral requirements because of the implicit or explicit backing of AIG by the Federal Reserve?
- If this situation existed in September-November 2008, as it certainly appears to have, how exactly can the Federal Reserve claim in good faith that it lacked the leverage to negotiate with these banks from a position of strength? (One assumes that many of the same names collecting payment from AIG were also AIG swap protection buyers of the sort mentioned in the SIGTARP report). Failure to back up an insolvent AIG would have resulted in near-immediate Basel I non-compliance as the protection offered by these swaps, and on which these banks depended for their reduced capital requirements, evaporated- a near death sentence.
- Or had these banks somehow, and in the middle of the credit crisis, managed to boost their capital to levels that made the swaps unimportant?
- If so, why keep them on the books now, instead of unwinding them?
- Since it doesn’t seem likely that a teetering AIG could make good on these agreements without substantial assistance is the Fed is currently the ultimate backstop for AIG?
- Does this mean that the Fed is effectively underwriting these swap agreements?
- Will the Fed post collateral if deteriorating credit conditions at AIG (today’s -$11 billion news suddenly seems especially daunting if the potential insurance shortfall has an effect on credit ratings) or general credit market issues require it? Or are we missing something significant? By September 30, 2008 AIG had already posted $974 million in collateral for its “Foreign Regulatory Capital” portfolio.
- What if European banks are hit with more losses from, oh, we don’t know, say… Dubai? Deleveraging, risk reduction and credit tightening would have an effect on LIBOR, the Eurobond market and, of course, Eastern Europe. Might not that sort of contagion easily spread to, say, Switzerland, which enjoyed the other side of the carry trade for years by lending Swiss Franc like mad to any Eastern European mortgage borrower who could sign documents?
- Could it be that the Fed, once again, might have to bail out the world?
Or maybe we are just missing something obvious.
| Attachment | Size |
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| Factors_Affecting_Efforts_to_Limit_Payments_to_AIG_Counterparties.pdf | 2.2 MB |
Posted in AIG, American International Group, Banks, Carry Trade, Corruption, Counterparties, Credit Conditions, Credit Crisis, Decrease, Eastern Europe, Economy, Europe, Federal Reserve, Financial System, lending, Leverage, LIBOR, losses, Markets, mortgage, risk, SEC, SIGTARP, Swaps, Swiss Franc, Switzerland |
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