"An arm of the Federal Reserve, then led by now-Treasury Secretary Timothy Geithner, told bailed-out insurance giant AIG to withhold key details from the public about overpayments that put billions of extra tax dollars in the coffers of major Wall Street firms, most notably Goldman Sachs." Huffington Post
Cover-up revelations keep coming about Timothy Geithner's secret assistance to AIG. The latest show that he urged AIG not to disclose how it would be shoveling money to Goldman Sachs and other large financial institutions by paying off its credit default swaps at par value instead of much less.
More than $60 billion changed hands that shouldn't have if Geithner had played hard ball. Therefore, the charge is that Geithner should be bounced because he was protecting the banks' interests ahead of the public interest. He may also have protecting himself during his confirmation hearings.
Ok, string him up. But what about recapturing the loot?
Before we pull the rope, let's take a closer look at this outrageous scam. During the bubble years, AIG conducted an extremely lucrative business guaranteeing all kinds of derivatives based on risky debt. They couldn't call it insurance because insurance products are regulated --- meaning you need to have reserves to back them up, which they didn't. So these toxic assets insurance polices instead got the fancy name "credit default swaps," which were not and still are not regulated. (Take a bow Phil Gramm, Robert Rubin, Bill Clinton and Alan Greenspan.)
This was the mother of all profit making businesses for AIG because in many of these deals AIG didn't have to put up any collateral as long as AIG was AAA-rated. The counter-parties (i.e. Goldman Sachs, JP Morgan Chase...) figured AIG was good for it. So AIG raked in fees for insuring toxic assets and didn't have to put up anything in return. Free money!
AIG figured the best hedge and the most money could be made by insuring more and more of this risky stuff. This was thought to disperse the risk broadly since all of the junk debt couldn't possibly fail at the same time, could it? They "insured" over $450 billion worth. (For the sordid details and comic relief, please see The Looting of America )
Then, the unthinkable happened. The assets tanked and AIG had to pay up on its policies, but couldn't. It was about to fold. Had AIG gone under it may have pulled with it hundreds of other financial institutions around the world that were relying on its insurance. The government stepped in to bail them all out. (AIG now spreads the fiction that this was just one rogue operation over in England in an otherwise safe and sound empire. But the big boys at the top of AIG all knew the credit default swap operation was a delectable source of enormous profits and shared in the booty... and they're not giving back any of the ill-gotten gains.)
We can argue some other time about whether or not some kind of bailout was necessary or what we should have gotten in return. The point here is that big fat financial houses like Goldman Sachs would have received pennies on the dollar for their AIG-backed credit default swaps had AIG gone into bankruptcy court. Instead, Goldman and others received par value and that money is now funding their mammoth profits and bonuses. (Spewing more corporate fiction, Goldman Sachs and JP Morgan Chase say they had been carefully hedged and would not have suffered from an AIG bankruptcy. Baloney. If AIG had gone under without a Federal rescue, those big banks would have gone down too or teetered on the edge.)
Here is precisely where free-market capitalism metastasizes into the billionaire bailout society. Goldman Sachs believed they had adequately covered $12.9 billion of its toxic assets by purchasing insurance from AIG. In fact, they believed those toxic assets plus the insurance made them as good as gold and part of their capital base.
In effect Goldman had placed two kinds of bets. First they bet on the toxic assets which were extremely lucrative, but risky. Then they bet that AIG could successfully insure them against losses on that first bet. They lost both bets. Too bad. That's capitalism....or used to be.
For losing their bet with AIG, Goldman Sachs should have only received about 20 cents on a dollar in a bankruptcy court. Instead, we bailed out AIG to prevent bankruptcy and Geithner et al pressured AIG to give Goldman Sachs 100 cents on the dollar. As a result, Goldman Sachs suffered no negative consequences at all from betting and losing. That's not capitalism. That's our new billionaire bailout society, where we, the taxpayers, pay off the bad bets. And the super-wealthy get more wealthy even when they lose their bets.
Think about it. Goldman Sachs alone got $12.9 billion - found money. Ka-Ching--right into its bonus pool. (OK, let's be fair. In bankruptcy they may have received $2.58 billion so the net windfall was $10.32 billion, which is about what it would cost to hire 172,000 teachers for one year.)
By all means, let's fire Geithner, and Summers too while we're at it. But if we really want to see some semblance of justice, we should slap a 90 percent windfall profits tax on all Wall Street firms. No matter how you cut it, they're all on welfare and their profits stem directly from our largesse. (Even those banks that have paid back TARP are, right this very minute, at the federal trough sucking up trillions of dollars of federal liquidity programs and asset guarantees.)
If the surging Tea Party really believed in its anti-bailout rhetoric, they'd be screaming for a windfall profits tax. But instead they so hate government and taxes that they'd rather let the biggest bankers in the world take our money and laugh all the way to the bank....in the Cayman Islands.
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.
Follow Les Leopold on Twitter: www.twitter.com/les_leopold
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Leopold: "If the surging Tea Party really believed in its anti-bailout rhetoric, they'd be screaming for a windfall profits tax. But instead they so hate government and taxes that they'd rather let the biggest bankers in the world take our money and laugh all the way to the bank"
Wait a minute... 'they'd rather let the biggest bankers in the world take our money'?? How does the Tea Party movement 'let the bankers' do anything?
Why does the Tea Party movement deserve any blame if Obama and the Democratic majority in Congress fail to implement a windfall profits tax? The Tea Party isn't in power, Obama is. The ball is entirely in the court of the majority party..
I've generally defended Geithner , and now Bernanke - since listening to Alice Rivlin and David Wessel on c-span. Every minute of it.
Bernanke and Geithner (I won't address Paulson) were faced with the circumstance of immediacy. They could indeed have paid less by going through bankruptcy , but you paint it as if it would have been timely. We'd still be litigating , Insurance companies would have failed. Investment banks would have failed. Banks - who were antsy about lending before , wouldn't at all , and more and more companies that depend on short term credit would have gone belly up , more people would have lost jobs , more people would have lost homes....
They did what needed to be done.
1. increased capital requirements
2. a smaller economy
3. more stringent lending requirements
4. low demand among credit worthy borrowers who can meet the more stringent lending requirements.
Of course, I want a one-million-dollar jumbo, no money down, interest only, no income documentation, no ID check, etc., and I'm hoping the outraged mob forces the banks to give me one.
INCEST;
BE A GOOD FAMILY MEMBER AND DON'T SPEAK UP.
Why hasn't Congress held formal investigations on Credit Default Swaps , toxic Mortgage Backed Securities , Collateralized Debt Obligations 's and the irreparable systemic destruction they did to America ? takeitbackday.org/
I posed the above question to Congressman Denny Rehberg (R) Montana in a public forum in Billings , Mt. this past Saturday night Jan 9,2010.
His response;"Speaker Pelosi won't let us talk about that"
Your book is eminently readable. I suggest we make it required reading in order to graduate HS.
We owe Pelosi nearly as much for this debacle as Paulson with his threats of Real Martial Law as Congressman Brad Sherman of California’s 27th congressional district told the House;
“Many of us were told in private conversations that if we voted against this bill on Monday that the sky would fall, the market would drop two or three thousand points the first day, another couple of thousand the second day, and a few members were even told that there would be martial law in America if we voted no.”
"This was the mother of all profit making businesses for AIG because in many of these deals AIG didn't have to put up any collateral as long as AIG was AAA-rated. The counter-parties (i.e. Goldman Sachs, JP Morgan Chase...)
figured AIG was good for it.
So AIG raked in fees for insuring toxic assets and didn't have to put up anything in return. Free money!"
Les, I left that little sentence out there dangling on its own for a reason. No one "thought" AIG was good for it and most people know that GS knew that, too, which is why they bet against them and made money coming and going.
Don't try to make sense of it, just call it what it is: a criminal scam between all parties. Collusion, Usury, Robbery, Theft, whatever you wanna call it.
"The banks wanted protection in case the housing market tanked. Many turned to Goldman, which effectively insured the securities against losses. Then, to cover its own potential losses, Goldman bought protection from AIG, in the form of credit-default swaps.
Goldman charged more than AIG for the protection, so it was able to pocket the difference, making millions while moving the default risks to AIG, according to people familiar with the trades. "
WSJ, December 12, 2009 - Goldman Sachs Fueled AIG Gambles
Goldman knew they were packaging and selling crap, which is why they had to wager on both sides of the coin, so that either way, they'd come up smelling like rosebuds.
They are all conmen and crooks.
http://dailybail.com/home/there-are-no-words-to-describe-the-following-part-ii.html