The Obama Administration came into power a little over a month ago promising change. Three weeks ago his "new" Treasury Secretary promised complete transparency with regard to handing out taxpayer dollars in the name of financial stability. In fact he gave us a new website www.financialstability.gov. After hearing that the government plans on restructuring it's bailout of AIG, which includes promising another $30 billion in capital, I went to the site to see where my money is going. Here is what the site told me;
This site is coming soon.
On Tuesday, February 10th, Treasury Secretary Timothy Geithner outlined a comprehensive plan to restore stability to our financial system. In the address, Secretary Geithner discussed the Obama Administration’s strategy to strengthen our economy by getting credit flowing again to families and businesses, while imposing new measures and conditions to strengthen accountability, oversight and transparency in how taxpayer dollars are spent. And Secretary Geithner explained how the financial stability plan will be critical in supporting an effective and lasting economic recovery.
Hmmm. After reading that AIG still poses systemic risk to our financial system, after we gave them a package of loans, capital injections and asset purchases totaling $152 billion, I figured that Treasury would be kind enough to be "Transparent" with the details of this systemic risk. Nope, they just have the "coming soon" banner on the site. AIG was bailed out because they faced collateral calls on credit default swaps, and Lord knows what else swaps to counterparties, and had massive amounts of credit default swap protection written on them for institutions that hedged their "AIG Risk". AIG also needed about $37 billion to un-screw themselves from the cock-up (both technical terms) they made of their securities lending business (the business where they lent stock to short sellers, received cash and then invested that cash in AAA CDOs......which turned out to be a little more risky than the cash the borrowed from the short sellers).
Now we are told that AIG faces further downgrades from Larry, Curly and Moe, also known as the ratings companies, and these downgrades could trigger up to $10 billion more in collateral calls from unnamed financial institutions. I have a simple request that I think the American people should have too;
"Mr. President, please have your Treasury Secretary put on his new website who gets burned if AIG fails on it's various obligations? Additionally, tell us who wrote credit default protection on AIG and who did they write it for and who gets zapped if AIG falls?"
I know one of the problems here. The guy who is the new "webmaster" for www.financialstability.govused to be the President of the New York Fed. He has been intimately involved with this fiasco from the get go. Hell, it was the New York Fed who set up special purpose vehicles "Maiden Lane II" and "Maiden Lane III" to buy AIG's garbage that was supposed to end AIG's systemic risk! You think that he is going to get religion suddenly and tell us he was part and parcel to perhaps the most embarrassing chapter of this uber-embarrassing moment in our country's history? I'm going to say no to that. Perhaps when President Obama was bringing in change, he should have changed the main players in this financial debacle. Nope. One of his first moves was to nominate Mr. Geithner for Treasury Secretary. Congratulations Mr. President...with this AIG move this mess went from being President Bush and Hank Paulson's turd to yours and Mr. Geithner's.
Back to systemic risk. I have no doubt now that AIG still poses systemic risk. It could very well be that we need to put this additional $30 billion into them. However, it's damn time that people and institutions are held accountable, just like the President told us last week in his big speech. Geithner, Paulson and Bernanke gave AIG $152 billion, allowed them to continue to pay bonuses (remember the $405 million the 400 employees of AIG Financial Products got last month?), and most importantly relied on the prayer that Ed Liddy (AIG CEO) could restructure and sell pieces of AIG in the middle of "The Great Depression II" to pay us back. All I want to see on that fancy new website is;
- AIG derivative counterparty exposure. Who are the institutions getting bailed out by the government standing behind AIG's obligations. We should be given this information starting back in September 2008.
- Who gets torched on the CDS protection they wrote if AIG triggers an event of default.
- Who gets torched when those CDS writers fail.
- Estimates of exposure to bond holders should AIG fail.
- Effect on money markets should AIG fail.
Mr. President, it's time to start putting your money where your mouth is. Sending up a $3.6 trillion budget was easy. This stuff here is what tests a man's character. Take charge and demand the truth.
Eric Salzman for the Fed!
Posted by: | March 02, 2009 at 03:08 PM
BANZAI7 WORLDWIDE NEWS WATCH
March 2, 2009
WASHINGTON - The following is a joint statement was issued on Monday the Treasury and the Federal Reserve on American liquidation Group:
The U.S. Treasury Department and the Federal Reserve Board today announced yet another restructuring of the government's assistance to AIG in order to cover this intergalactic financial blackhole in a manner that yet again extorts the helpless US taxpayer. Specifically, the government's restructuring is designed to prop up this failed sorry excuse of a company while facilitating the orderly completion of the AIG global garage sale.
The company continues to face significant challenges, primarily driven by the rapid deterioration in the financial markets largely caused by its own reckless stupidity and the continued turbulence in the markets also caused by its own reckless stupidity. The additional resources will help stabilize the company until its next quarterly TARP fix, and in doing so further destabilizing the already destabilized financial system.
As significantly, the restructuring components of the government's assistance begin to separate the dogfood lines of AIG, as well as unravel the twisted opaque intestinal blockage constituting the company's finances. The long long long long-term solution for the company, its fleeing customers, the fleeced U.S. taxpayer, and the discombobulated global financial system is the rapid recombobulation and capitalist re-education of the firm. This will take a long long long long time and quite probably more and more and more government support, since markets are not going to stabilize or improve in the near near near term.
Given the doomsday risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government action will be extremely higher than government inaction. AIG provides insurance protection to more than 100,000 entities (god save their souls), including fledgling small businesses, insolvent municipalities, 401(cents) plans, and Fortune 50 cent companies who together employ over 100 million furious Americans. AIG has over 30 million policyholders in the U.S. and is a major source of layoff insurance for, among others, underpaid teachers and Madoff fleeced non-profit organizations (god save all of them). Most importantly the company also is a significant counterparty to Goldman Sachs, Goldman Sachs, a number of major European financial institutions as well as Goldman Sachs.
AIG operates in over 130 countries with over 400 dimwitted regulators and the company and its juggernaut of regulated and unregulated subsidiaries are subject to a plethora of impotent resolution frameworks across their broad and diverse operations without a single viable resolution mechanism. Within the few options available, the restructuring plan offers a multi-part approach which we hope and pray every night brings forward the ultimate resolution of the company, has received feeble acquiesence from key stakeholders and the seal of approval of the useless rating agencies that helped create this fiasco, and hopefully provides the possible protection for taxpayers in connection with this commitment of resources at this moment in time.
The steps announced today provide tangible evidence of the U.S. government's commitment to the baiout of AIG time and time again in the face of the certainty of further market dislocations and economic deterioration. Orderly restructuring is essential to AIG's repayment of the ransom it has received from U.S. taxpayers and to hopefully preserving financial stability. The U.S. government is committed to continuing to bail AIG to maintain its ability to generate more and more obligations as they come due.
Treasury has stated that public ownership of financial institutions is not a policy goal but a reality and, to the extent public ownership is an outcome of Treasury actions, as it has been with AIG, it will work to privatise government owned enterprises with those from the private sector to create a more business for unemployed bankers as soon as possible.
Posted by: williambanzai7 | March 02, 2009 at 09:34 AM