Obama at a Turning Point with Wall Street Bailouts
Click to viewSource: The Young Turks
I. Uygur selected quotes
"When you see Barack Obama's talk, he talks the talk perfectly well. I love what he said there. If you've been paying close attention, that's exactly what I've been saying on the show for weeks now. So, as I heard it, it was music to my ears. But the question is when are you going to do it? And, do you really get it? It's one thing to say it, it's another thing to get it. To understand it and to execute it. And does your Treasury Secretary understand it?"
"Right now, we're at an important turning point. Either Obama is going to say, 'Okay, I get it. The problem with Wall St. is these executives don't give a damn about the banks, they don't give a damn about the shareholders, they certainly don't give a damn about the taxpayers. They're not accountable for anything at all. So they're going to keep taking our money as long as we keep giving it to them. So we're going to stop giving them the money. And instead, we're going to take over and do x, y, and z.'"
"He talked about having a resolution trust that would go on and take these companies and start running them as the FDIC would if a bank failed. Now, wait a minute, we're starting to get to solutions that are exactly right, in my opinion."
"Going forward, in the next days, weeks, months ahead, will Geithner and Summers actually change? Will they continue to protect the banks and the bankers and not the American taxpayer or the economy overall? If they don't shift on those goals and priorities, as President Obama has indicated here, they have to go; they have to be fired. We're going to judge them based on their actions, and not just their words."
II. From Jon Ward, White House reporter, The Washington Times, "The Potentially Larger AIG Problem":The political hue and cry over the millions in bonuses for AIG execs has hit fever pitch but there are major questions about what AIG has done with far larger portions of the federal bailout money it's received over the past year than the $165 million in bonuses given to derivatives traders. AIG disclosed on Sunday night that it has given over $100 billion-more than half of the $173 billion in federal dollars-to other financial institutions and state municipalities.
The Wall Street Journal this morning characterized this as money-laundering by the U.S. government to surreptitiously give aid to foreign-based financial institutions, such as Societe General, the France-based European financial services company, which has received $11.9 billion from AIG since last September.
“Given that the government has never defined 'systemic risk,' we're also starting to wonder exactly which system American taxpayers are paying to protect. It's not capitalism, in which risk-takers suffer the consequences of bad decisions. And in some cases it's not even American. The U.S. government is now in the business of distributing foreign aid to offshore financiers, laundered through a once-great American company,” the Journal wrote.
“The politicians also prefer to talk about AIG's latest bonus payments because they deflect attention from Washington's failure to supervise AIG,” the editorial said.
Jim Rickards, a very knowledgeable financial expert who currently works at Omnis Inc., explained that there is a straightforward economic reason for all this money flowing through AIG to other institutions, but added that this is a huge political problem for the government.
AIG, Rickards said in an e-mail, "had trades with counterparties (Goldman, Deutsche Bank and many others) which, over time, produced paper profits for the counterparties and paper losses for AIG as market prices moved against AIG. In that situation, it is customary (and contractually required) for the losing side (AIG) to pay the winning side (Goldman, others) the amount of the paper profits in cash."
"This protects the counterparty against the possibility that AIG might not be around to perform when the trade is finally closed out at maturity. The name for this is a 'margin call' with margin being the name for AIG's paper losses which have to be made good," Rickards said. "So, when the U.S. gave AIG money, the money went right out the door to meet margin calls."
"AIG was not much more that a conduit for government money which really went to the counterparties. So, in effect, the U.S. was not just bailing out AIG, it was bailing out the counterparties. Many were foreign banks which is part of the outrage," he said. You can see the whole list of companies that have taken AIG money, and how much, by clicking here. And there are questions about why Goldman Sachs, the investment bank that has employed past Treasury Secretaries such as Henry Paulson (Bush) and Robert Rubin (Clinton), has received about $13 billion after saying last fall that it didn't need any help.
Steve Clemons at The New America Foundation alleges a serious problem for Paulson and Rubin, but I'm not sure exactly what the allegation is. Or rather in the case of Clemons' allegation that Paulson knew last fall that Goldman was in bigger trouble than it was saying, I don't see any hard evidence for this.
“Rubin and Paulson have had major conflicts of interest that make Tim Geithner's tax manipulations while an IMF employee look pathetically insignficant. Tom Daschle's rides in a town car, Killifer's failure to pay taxes on domestic help, and others who have avoided government because of the very high hurdles Obama has set for those who join his team simply pale in comparison to what we have learned about Bob Rubin's ties to Citibank, Goldman and the Treasury; Hank Paulson to both Treasury and Goldman -- and which have implications as well for their chief acolytes Lawrence Summers and Timothy Geithner,” Clemons writes.
“AIG and Goldman both lied about their positions last September. And Hank Paulson and other major financial elites involved in the AIG bailout knew it also,” he says.
Sam Jones at The Financial Times has his eye on this as well.
Source: The Washington Times
III. From Eliot Spitzer's "The Real AIG Scandal": "Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties* getting paid back in full, to the tune of tens of billions of taxpayer dollars?"
[*counterparties - AIG's trading partners (Goldman Sachs, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, etc.)]
"So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already."
"Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, and aren't they sitting on more than $100 billion in cash? Haven't we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn't they have accepted a discount, and couldn't they have agreed to certain conditions before the AIG dollars-that is, our dollars-flowed? The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation."
Source: Slate
Spitzer goes on to ask several questions. Among them (paraphrased): What was discussed at the meeting that preceded the first decision in September to grant AIG $80 billion in TARP funds? Now Treasury Secretary Timothy Geithner, Then Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke, and Goldman Sachs CEO Lloyd Blankfein were all there at the meeting. And what did they all know about how the bailout money would be used to funnel money to Goldman Sachs and the other AIG counterparties (trading partners)?