MonkeyBusinessBlog

Were You Born an Ass-H*le or Did You Work On It Your Whole Life?

Bloomberg News has a story out this morning AIG CEO Benmosche Can't Use Corporate Jet For Personal Use.

American International Group Inc. Chief Executive Officer Robert Benmosche was rebuffed by the insurer’s board after saying he should be allowed personal use of the bailed-out company’s aircraft, according to two people familiar with the matter.

This guy is straight from central casting no?  It is almost like Osama Bin Laden said, 

"We need to provoke the American public into starting a violent revolution.  We need an ass-h*le and not just any ass-h*le mind you, but an ass-h*le of such gigantic proportions that he will stand out from the rest.  Once we find him we must put him atop the one corporation whose very existence is a personal affront to every American.  I met this fat one while I was wintering in the Adriatic a few years ago, Benmouse or Benmush..something like that. Find him and proceed."

Now, running a close second to Beanmush (thank you Banzai Bill, that will be his name from now on on this blog) is Morgan Stanley's John Mack.  Check this out;

Morgan Stanley CEO John Mack agreed to start reimbursing the company for his personal use of corporate aircraft, the bank said in March. The executive’s personal flights cost the company $368,675 last year, according to a filing.

His company was going out of business and he was spending $368k using the corporate jet for personal use.

My Oh My What a Wonderful Day!

Today is a MARVELOUS day!  Today I am officially 100% long cash!  Expensive New York real estate gone, cold hard cash in my pocket.  I am flitting around town depositing cash in the bank and the brokerage accounts as we speak!  I will be buying gold and silver and I will be doubling up my shorts on Lennar (11.18), Toll Brothers (18.86) and Wells Fargo (24.02)! Am I down on those trades?  Yes I am.  How do I feel about it?  Great!  Now I get to sell more at higher prices.

In other news, here's a question.  Why is Robert Benmosche still employed at AIG?  In the last two weeks, from his villa on the coast of the Adriatic, he has given the finger, numerous times, to the United States Government, the New York Attorney General and the American public at large.  Lets review what this ass-monkey has done.  

•  Upon taking a guaranteed $7 million to become AIG's CEO, Benmosche decided to go on vacation....his second day on the job!
• From this vacation on the Adriatic, he addressed AIG employees, telling them that AIGs problems were caused by...us.  Additionally, he told Treasury to stick it with regard to liquidating AIG assets in a timely manner and said if the government was in such a hurry to get out of AIG they shouldn't have gotten involved in the first place!
• Somehow, after not getting publicly dismissed by Tim Geithner or President Obama, yesterday Benmosche went on this little tirade AIG Chief Benmosche Says Cuomo "Unbelievably Wrong on Bonuses" 
• Check out this quote! “The worst thing that will ever happen to him is when he and I meet in the room and I close the door,” Benmosche said of Cuomo during the August meeting. “I ain’t going to meet with him with anybody else in the room. I won’t tell you what I’ll say to him, but I will tell you, there won’t be a nice word.” WTF? Maybe Geithner is a pussy, but Andy Cuomo, while not the sharpest knife in the drawer, never came off as the kind of guy who would let an outrageous statement like that go unpunished.  Benmosche should be getting a dead fish in the mail soon.
• Now today we have this AIG's Benmosche Wants to Halve Wall Street IPO Fees.
• Personally, I find nothing wrong about a CEO saying that he wants to pay less in underwriting fees. Here's what tough-guy had to say, “I went into one presentation, and they said, ‘Well, the investment banking deal will be in the range of 2 percent and 2.5 percent,” Benmosche said when asked about fees in an Aug. 11 staff meeting, according to a record obtained by Bloomberg. “I said, ‘How about 1 percent?’ So then everybody’s face turned red, and I said, ‘So change it.’ So we’re talking about 1 percent, not 2 percent to 2.5 percent.” However, the only reason Benmosche is able to sound so tough (aside from his delusional sense of self) is because he knows he has Uncle Sam behind him to lean on the investment banks.  The same government that he has such contempt for is the only real weight (besides his gut) that he has.
• This guy needs to go promptly.  It's a freaking embarrassment.  Insurance CEOs.  Here's some news about most insurance CEOs.  In the financial world they are referred to as "Slow Moving Deer". They get picked off so often they might as well save everyone a lot of time and effort and just mail a few $ billion to the Street every year.  Former head of Met Life? BFD.

Finally, Richie is back from his weekend in Vegas.  We were able to capture some rare footage!

Time to Fire AIG's New Chief..... Today

Submitted for your observation.  These are quotes from the new head of AIG Robert Benmosche, the guy who after getting a $7 million first year pay package decided to go on vacation his second day on the job. Here are quotes from Benmosche's speech to employees as reported by Bloomberg News Benmosche Tells AIG Workers He'll Rebuild Workers Before Sales.

I don’t liquidate things, I build them,” Benmosche said during an Aug. 4 town hall-style meeting for employees, according to a recording obtained by Bloomberg. “When we get the fair value for those businesses, that’s when we’re going to sell them; it’s not going to be before.”

“I had the luxury to say to the government, I’m not going to rush to do this,” Benmosche said. “I’m appalled at how much pressure has been put on all of you to just sell it no matter what, because the Fed wants out, or the Treasury wants out. If they want out in a hurry, they shouldn’t have come in in the first place.”

I want to make sure we all get paid competitively,” he said. “If you shoot the lights out in a given year, we should have enough flexibility to give you a big increase.”

“It’s time the people in Congress stopped talking about you as the problem, because you’re the solution,” he said. “It’s not your fault, it’s their fault, it’s the regulators’ fault.”

Ok, this is easy.  This is a complete layup for Tim Geithner.  In fact, it is a complete layup for President Obama.  They should publicly fire this gavone TODAY on national television.  TOO-F**KING-DAY!!

AIG Keeps the Laughs Going While FHA Keeps the Subprime Loans Flowing!

Last post from me today.  I am taking the family to New Yankee Stadium!  If at some point the money supply dips sharply around 1PM, don't be alarmed. It's just me using my debit card to buy the kids lunch and souvenirs!

What's funnier than this Benmosche Said to Start AIG Tenure With Croatian Trip.  

Robert Benmosche, the chief executive officer ofAmerican International Group Inc., plans to spend part of his first month leading the insurer in Croatia on vacation, according to two people familiar with the situation.

Benmosche, 65, who started yesterday as CEO and president of the bailed-out company, will leave for about two weeks, according to one of the people, who declined to be identified because the plans were private. Mark Herr, an AIG spokesman, said the New York-based firm wouldn’t comment on CEO travel.

“It’s probably not a propitious time for an incoming CEO to begin with a vacation,” said Steven Seiden, president of New York-based executive recruitment firm Seiden Krieger Associates. Seiden said that while the absence won’t hurt the company’s financial position, “from a public relations standpoint it’s probably not the wisest thing to do.”

Benmosche bought a Croatian villa, with 8,000 square feet of living space located along the Adriatic Coast, after visiting Dubrovnik in 1999, according to a 2004 Forbes magazine article. He paid about $1 million for the property, which was built in 1934 for the king of Yugoslavia’s treasurer and included four buildings and 150 feet of waterfront, the magazine said.

“It’s breathtaking -- you couldn’t find anything like this anywhere else,” Benmosche told Forbes. “I’m an hour’s flight to most places in Europe and a ferry ride across the Adriatic to Italy.”

People, I ask you.  Could anybody possibly make this sh*t up?  What were the choices?

1. Another Goldman Sachs Board member or,
2. A tone-deaf Ass-h*le. 

Also, a vital report from the field from our good buddy and real estate mogul Fletch.  Remember yesterday the WSJ The Next Fannie Mae. FHA and GNMA are Becoming $1 trillion Subprime Guarantors.  Fletch reports that the FHA is the only game in town.  His real estate empire sold a property yesterday with the buyer heavily FHA subsidized, ZERO money down!  

How we doin??  Think about this the next "Pending Home Sales" or "Existing Home Sales" number comes out.

Ok, off to get fleeced at the Stadium.  At least they're winning!

  

Shocking News: NY Fed and Treasury Knew About AIG Bonuses Last September!

The Washington Post is out with a story today Officials Knew of AIG Bonuses Months Before Firestorm.  We've been talking about this since January on the blog.  When the NY Fed and Treasury started communicating with AIG last September they would have had to INTENTIONALLY miss nearly $600 million of bonus guarantees that had to be on the books as a future operating expense.  The cruel joke here is that up until last September, no one at the NY Fed or the U.S. Treasury Department knew much of anything about AIG.  Here's a great quote from an AIG executive;

"They really didn't know us at all," said one AIG executive, who was not authorized to speak publicly. "We had a real education process with them. They were asking us questions on a gazillion different issues."

Of course Tim Geithner, first the President of the NY Fed and now the Secretary of the Treasury claims that he had only a vague idea of the bonuses up until March 2009, when the sh*tstorm broke and the last shred of patience the American people had with the "Wall Street Bailout" issue was destroyed.  First of all, if Geithner could have done either of his two jobs competently, we wouldn't be wasting energy on this bonus issue.  And to be clear, when I say competence, I'm just talking about the bonus issue.  I gave up a long time ago that this guy had any idea what was going on right under his nose when he was President of the NYFED.  Secondly, I am noticing a strong pattern on the part of Geithner as well as Bernanke (Ken Lewis and Merrill Lynch)  when it comes to telling us when they first knew of a problem.  This has been going on back to last March when Bear Stearns went down.  What am I talking about?  Here's something we wrote last year that I'm sure a lot of you are familiar with. "Hi Fellas, What are You All Talking About?"

I don't know about you but if I'm interviewing someone for a job and it gets disclosed that;

1. They cheated on their taxes
2. Did a real crappy job at their last gig
3. Has a problem with credibility around what they knew and when they knew it

That person doesn't get the job...and if they're already in the job......THEY'RE FI-YAD!

What's really funny, in a sick perverted way, is the other story that caught my eye this morning was this from the WSJ U.S. Eyes Bank Pay Overhaul.  These guys, the Administration and Congress, can't even figure out how to recapitalize or regulate the industry, and even if they did know how, they don't have the manpower to do it.  I'm not weighing in on whether compensation schemes should fall under some sort of regulation, I'm just saying, fix the real problems that are choking the life out of our economy first.  Spending energy and allocating precious resources toward regulating banker pay is like fixing the car a patient just had a terrible accident in while the patient bleeds out on the sidewalk.  Leave the political red meat alone until the major crisis is fixed and you have the resources. 

And finally, with regard to this compensation issue, the Administration and Congress should address the MANY short comings our elected officials have demonstrated in this crisis.  If Congress wants to regulate banker pay, financial institutions should be restricted from making ANY donations (monetary or otherwise) to elected officials AND nobody from government should be allowed to work in a financial institution for many years after they leave government and visa-versa.  Clean up your own backyard first and,  "Let he who is without sin cast the first stone."

AIG Only Loses $5 Billion....More Green Shoots!!

 From Bloomberg News.  Submitted without comment;

American International Group Inc, the insurer saved from collapse by the U.S. may report tomorrow that its first-quarter loss was about $5 billion, said a person familiar with the matter.

The result is an improvement from the record $61.7 billion fourth-quarter loss that New York-based AIG posted in March, said the person, who declined to be identified because the company is scheduled to report tomorrow after the close of trading on the New York Stock Exchange.

"Top of The Mornin'!!"

It's a splendid morning here in New York and I hope it as equally splendid wherever you are as well!  The lead off story here is that six of our largest nineteen banks have failed the Treasury Department "stress test".  Considering that the "adverse case" scenario was not exactly adverse,  (If I could lock in an economic scenario that had unemployment peaking at a little over 10% and economic growth positive in 2010 I'd call you done in a New York minute) a 68% "pass rate doesn't sound so good.  Secretary of Treasury Tim Geithner continues to say that "a vast" majority of our banks have more than enough capital to survive the storm.  All I can say to that is "vast" is a very relative term.  If you are running for President, getting 68% of the vote is a "vast" majority.  Only 68% of the nation's top banks adequately capitalized?  To quote Dillon Panther coach Eric Taylor, "That ain't gonna git 'er done."

Now some may say that the nation's largest banks are not representative of the nation's medium size and small size banks.  I know this is true.  However, the combination of escalating unemployment and contraction of the economy, kicked off by the largest banks, will, or will soon, issue a vicious wallop on the rest of the banking system.  If you notice, just about every Friday afternoon, when thoughts turn to beer, the FDIC announces the closing of another 3-5 banks.  The banking system and the economy are sewn together from the top of their heads to the bottom of their feet.  Right now, and for the foreseeable future, the economy sucks and is getting suckier.  Hence, banks will continue to take it on the chin and capital will bleed.  Check out this latest take on commercial mortgages, an area of intense exposure for our banks, big and small Commercial Mortgages at Risk of Default Five Times Higher in a Year.   Hi-Ya!  Banks need capital, a lot of capital, and I don't know where it is going to come from with the "vast majority" of bank balance sheets as clear as mud. Both the Obama and Bush Administrations have spent that last six months dicking around and with every passing day, companies are failing for lack of credit, employees are laid off, mortgages and credit cards go unpaid, commercial leases are backed out of and it goes on and on.  The government has no more "boots on the ground" with regard to skilled examiners and supervisory agents, than it did at this time last year.  President Obama wants to create jobs?  Come to New York and say to the thousands of unemployed or under employed financial professionals, "Uncle Sam wants YOU!"

Ah, what else struck my eye this morning?  Here it is!  AIG Acts to Avoid Default Risk  

AIGhas moved to stave off the risk of default on $234bn of derivatives by persuading a senior executive at its troubled financial products division to rescind his resignation and remain with the stricken insurer to unwind the complex trades.

AIG insiders said James Shephard, the deputy chief executive of Paris-based Banque AIG, had decided to stay on as the unit’s chief less than a month after resigning in the midst of the political furore over the insurer’s bonuses.

Mr Shephard’s U-turn, which could be announced on Wednesday, is likely to deter several European banks that bought the derivatives from taking legal action to force AIG to repay them, according to people familiar with the situation.

 

The "complex trades"........ooooh scary!!  They need the deputy chief executive to figure out the trades?  Deputy Chief Executives usually don't know diddly about individual trades.....unless there's a lot of funny business in the "trades".  How about somebody give a 30,000 foot explanation about what these trades are.  I worked on a exotic derivative desk (granted I only ran the risk reports and got coffee) and I know what REAL complex trades are.  I have a funny feeling that THESE "complex" trades have a lot to do with moving money around to different entities, on-shore, off-shore etc, etc to pump up somebody's capital position and play hide the salami with various institutions risk and capital position.  Those are the kinds of trades the bosses know all about and they DON'T want some outsider to see them.  More from FT;

 

The move should also avoid a showdown between US regulators, which control AIG after bailing it out, and their French counterparts. French banking regulators had threatened to appoint their own manager of Banque AIG, which is part of the insurer’s financial products unit, after Mauro Gabriele, the unit’s chief executive, and Mr Shephard announced their departures in late March.

Mr Gabriele has not changed his mind but will remain with Banque AIG for a while to ensure an orderly transition, according to people familiar with the matter.AIG has maintained the departures of the two executives did not affect the status of its derivatives book. But legal experts said the appointment of an external manager chosen by the French authorities could have triggered a default on the derivatives because it could have constituted a change in control of the contract. That would have meant AIG having to repay the European banks before the contracts came due.

A default would have also forced the banks, which bought the products to lower the amount of regulatory capital they need to hold against certain assets, to buy new derivatives or raise equity.

A confidential AIG document estimates that banks such as Royal Bank of Scotland, Banco Santander and BNP Paribasmight have to raise some $10bn if the financial unit collapsed.

Hmm.  With regard to RBS and Banco Santander and BNP, to quote from the classic movie "Boogie Nights", "That sounds like a Y.P. not an M.P."  Translated, that's Your Problem, not My Problem!  Lets have a look at these "complex" transactions before we pay to retain anybody.  Lets look at these "complex" transactions to see if any laws were broken.

  

DOJ Weighing Criminal Charges Against AIG Financial Product's Cassano.

From CBSNews.com AIG's Fall: Bad Business or Criminal Acts?  

(CBS)  A $5 million Connecticut mansion. A $4 million London townhouse. A $7 million English estate. The houses are owned by three men CBS News has learned are now the subjects of a Justice Department criminal investigation into how AIG crumbled.

Sources say investigators are digging into whether Joseph Cassano, the former head of London-based AIG Financial Products, and two of his top deputies - Andrew Forster, an executive vice president, and Thomas Athan, a managing director - committed securities fraud and other federal crimes, reports CBS News chief investigative correspondent Armen Keteyian.  

Now, the Justice Department is going to look at whether the Cassano gang committed securities fraud with misleading statements surrounding the groups earnings.  To me, this is like New York City 1977 when the NYPD nailed "Son of Sam" David Berkowitz on unpaid parking tickets.  What they really should look into, as long as they are there, is whether or not AIG Financial Products has been a criminal enterprise for the last decade or so.  And when I say criminal enterprise I'm talking BILLIONS UPON BILLIONS of potentially fraudulent activities that mistated the earnings and reserve levels of some of our biggest insurance groups.  We have talked about this before but read this again from The Institutional Risk Analyst AIG: Before Credit Default Swaps There Was Reinsurance.  

Upon reading IRA's piece, which I haven't seen anyone rebut, including old man Greenberg (We'll get to him in a minute), I wrote this;

Wow.  One of our readers sent us this yesterday from The Institutional Risk Analyst AIG: Before CDS There Was Reinsurance.  I have to tell you I feel like an idiot.  I never put two and two together like IRA does.  Back when we first started this blog (December 2007), back when it was a green on black ALL CAPS start-up, I wrote a little parody on the defense strategy of General Reinsurance (Gen Re) former CEO Ronald Ferguson.  Ferguson and some of his lieutenants were going on trial for illegal transactions that they did with AIG back in 2000-1.  The transactions were sham reinsurance deals where AIG would reinsure risk on Gen Re's books, Gen Re would pass money to AIG as a large"fee" for this reinsurance, which would go to inflate AIG's reserves and then a secret "side letter" was written that essentially said AIG wouldn't actually be on the hook for any of the risk they had reinsured (dizzy yet?).  For this service AIG would pay Gen Re $5 million.  These transactions were housed in the quaintly named "Loss Portfolio Transaction" Book. 

It was important for AIG to inflate its reserve levels because the market (I'd say regulators but that would be kind of silly) was begining to question AIG's falling reserve levels.  Analysts say that if AIG and not performed these sham transactions, the company would have shown three consecutive quarters of declining reserves.  IRA shows that AIG was really smoke and mirrors a lot earlier than 2007.  The discovery of these transactions got Hank Greenberg bounced from AIG.  Gen Re's CEO's defense was that he had the full support of HIS boss, Warren Buffett.  This claim could not be proven at Ferguson's trial and he was convicted and sent to the clink for two years.  For fun, back in early 2008, I wrote a little fantasy conversation that Ferguson and WEB would have had if Ferguson's allegations were correct;

Ferguson: “So chief, we have this great idea. AIG is going to reinsure us on $500 million of policies and we pay AIG a fee of $500mm.  But don’t worry, see AIG is going to pay us back with an above market rate of interest and in return we aren’t going to hold AIG accountable for any of the risk they “reinsure for us.”  So AIG gets to overstate their reserve position by $500mm and we get FIVE MILLION DOLLARS!!” 

Buffet:  “Hmm, that’s intriguing Fergie…let me think, my $200 billion empire and 50 years of impeccable credibility on the one hand and a unimaginative scam to help my dear friend Greenberg over at AIG for the princely sum of $5 million on the other.….That sounds about the right risk reward relationship…make the deal…but see if you can get him to $5.5mm just for giggles.”

Anyway, the claim that IRA makes, which makes a lot of sense to me considering all the phony "reinsurance deals AIG was running with side letters nullifying the economic risk of the transaction, is that as the law started getting wise to these reinsurance scams, AIG just shifted the game over to Credit Default Swaps.  In fact, according to IRA the CDS king of AIG, Joe Cassano was a big player in these "Loss Portfolio Transactions."  It was all a big shell game with AIG running the table with more- than-willing partners, to inflate each others capital and/or reserve levels. 

Why does this potentially make AIG's CDS contracts invalid and illegal and hence, not enforceable? From IRA's piece;

The key point is that neither the public, the Fed nor the Treasury seem to understand is that the CDS contracts written by AIG with these various non-insurers around the world were shams - with no correlation between "fees" paid and the risk assumed. These were not valid contracts as Fed Chairman Ben Bernanke, Treasury Secretary Geithner and Economic policy guru Larry Summers claim, but rather acts of criminal fraud meant to manipulate the capital positions and earnings of financial companies around the world.

Indeed, our sources as well as press reports suggest that the CDS contracts written by AIG may have included side letters, often in the form of emails rather than formal letters, that essentially violated the ISDA agreements and show that the true, economic reality of these contracts was fraud plain and simple. Unfortunately, by not moving to seize AIG immediately last year when the scandal broke, the Fed and Treasury may have given the AIG managers time to destroy much of the evidence of criminal wrongdoing.

If this is even half true then we are just getting warmed up.

If I were Hank Greenberg, I would be real scared right now and I certainly wouldn't be running my mouth to Becky Quick and the other nice young man at CNBC every third morning of the week.  This, as our dear friend Carl Sabatino would say, "Kacka-Lacka" started a looooooong time before Hank got tossed out of the building in 2005.  So if I were Hank, I'd be wiring my money off to a place that DOJ can't get to it and then I'd be...........leaving!

Hey, Hank Greenberg Is Going to be on CNBC....AGAIN!! Semi-Live Blogging!

Hank Greenberg, former emperor of AIG is going to be on CNBC.....AGAIN!  Good Lord, Greenberg is becoming the TV financial news equivalent of "South-Side Johnny and the Asbury Jukes!".   For those too young to remember, South-Side Johnny was a band that came out of Asbury Park New Jersey the same time as Bruce Springsteen.  South-Side was good, but they were no E-Street band.  Therefore, EVERY weekend you would hear about South-Side Johnny playing at a local venue until you got sick of hearing it! 

He's on right now, saying the same crap about how we destroyed AIG and it was all Marty Sullivan's fault.  I dare ANY of these bobble heads on CNBC to ask Hank about why he was pushed out of AIG in 2005!  Hank will say that Eliot Spitzer was on a witch-hunt, etc, etc.  I dare any of these weaklings to bring up the reinsurance scams that AIG was running for decades, scams in which people went to jail, all done under Hank Greenberg's leadership.  Yesterday we wrote about The Institutional Risk Analyst's searing  AIG: Before CDS There Was Reinsurance.  What say ye to that Hank?  How you managed to stay out of jail is probably due to the actions of your nemesis, Eliot Spitzer.  Spitzer was so hungry for glory that nobody went to jail in his inquiries.  They reached a settlement, paid a fine and moved on.  

Hank is going on right now about how, "I didn't destroy the company, THEY did."  Joe Cassano?  "You can't just blame Cassano, where was the CEO?"  Hank, you put Cassano in action.  Before CDS, he was doing reinsurance deals that were designed to deceitfully inflate AIG's earnings, reserves and capital...along with the counterparties on these transactions.  That was going on long before you left the building Hank.  Oh, now he takes a shot at mark-to-market accounting.  Sure Hank, it's all crazy mark-to-market accounting's fault too.  I say, "Fair-value accounting is the last refuge of the financial scoundrel!"  That goes for Steve Forbes too, who also seems to be on CNBC just about every day.  He's like a parrot, "SQUAWK..mark-to-market bad...SQUAWK...fair-value good...SQUAWK!"

Thank God, he's done.  Just in time for another 654,000 jobless claims.  Ooof.

Institutional Risk Analyst Asks: Are AIG's Credit Default Swaps Valid and Legal Contracts?

Wow.  One of our readers sent us this yesterday from The Institutional Risk Analytics AIG: Before CDS There Was Reinsurance.  I have to tell you I feel like an idiot.  I never put two and two together like IRA does.  Back when we first started this blog (December 2007), back when it was a green on black ALL CAPS start-up, I wrote a little parody on the defense strategy of General Reinsurance (Gen Re) former CEO Ronald Ferguson.  Ferguson and some of his lieutenants were going on trial for illegal transactions that they did with AIG back in 2000-1.  The transactions were sham reinsurance deals where AIG would reinsure risk on Gen Re's books, Gen Re would pass money to AIG as a large"fee" for this reinsurance, which would go to inflate AIG's reserves and then a secret "side letter" was written that essentially said AIG wouldn't actually be on the hook for any of the risk they had reinsured (dizzy yet?).  For this service AIG would pay Gen Re $5 million.  These transactions were housed in the quaintly named "Loss Portfolio Transaction" Book. 

It was important for AIG to inflate its reserve levels because the market (I'd say regulators but that would be kind of silly) was begining to question AIG's falling reserve levels.  Analysts say that if AIG and not performed these sham transactions, the company would have shown three consecutive quarters of declining reserves.  IRA shows that AIG was really smoke and mirrors a lot earlier than 2007.  The discovery of these transactions got Hank Greenberg bounced from AIG.  Gen Re's CEO's defense was that he had the full support of HIS boss, Warren Buffett.  This claim could not be proven at Ferguson's trial and he was convicted and sent to the clink for two years.  For fun, back in early 2008, I wrote a little fantasy conversation that Ferguson and WEB would have had if Ferguson's allegations were correct;

Ferguson: “So chief, we have this great idea. AIG is going to reinsure us on $500 million of policies and we pay AIG a fee of $500mm.  But don’t worry, see AIG is going to pay us back with an above market rate of interest and in return we aren’t going to hold AIG accountable for any of the risk they “reinsure for us.”  So AIG gets to overstate their reserve position by $500mm and we get FIVE MILLION DOLLARS!!” 

Buffet:  “Hmm, that’s intriguing Fergie…let me think, my $200 billion empire and 50 years of impeccable credibility on the one hand and a unimaginative scam to help my dear friend Greenberg over at AIG for the princely sum of $5 million on the other.….That sounds about the right risk reward relationship…make the deal…but see if you can get him to $5.5mm just for giggles.”

Anyway, the claim that IRA makes, which makes a lot of sense to me considering all the phony "reinsurance deals AIG was running with side letters nullifying the economic risk of the transaction, is that as the law started getting wise to these reinsurance scams, AIG just shifted the game over to Credit Default Swaps.  In fact, according to IRA the CDS king of AIG, Joe Cassano was a big player in these "Loss Portfolio Transactions."  It was all a big shell game with AIG running the table with more- than-willing partners, to inflate each others capital and/or reserve levels. 

Why does this potentially make AIG's CDS contracts invalid and illegal and hence, not enforceable? From IRA's piece;

The key point is that neither the public, the Fed nor the Treasury seem to understand is that the CDS contracts written by AIG with these various non-insurers around the world were shams - with no correlation between "fees" paid and the risk assumed. These were not valid contracts as Fed Chairman Ben Bernanke, Treasury Secretary Geithner and Economic policy guru Larry Summers claim, but rather acts of criminal fraud meant to manipulate the capital positions and earnings of financial companies around the world.

Indeed, our sources as well as press reports suggest that the CDS contracts written by AIG may have included side letters, often in the form of emails rather than formal letters, that essentially violated the ISDA agreements and show that the true, economic reality of these contracts was fraud plain and simple. Unfortunately, by not moving to seize AIG immediately last year when the scandal broke, the Fed and Treasury may have given the AIG managers time to destroy much of the evidence of criminal wrongdoing.

If this is even half true then we are just getting warmed up.

Goldman Slept Comfortably

As I am sure you saw yesterday, AIG's Bank Payments Probed By TARP Inspector, Mr. Neal Barofsky, special inspector general for TARP is auditing the AIG bailout and the subsequent funneling of TARP money to AIG CDS counterparties, of whom Goldman Sachs was the biggest recipient.  The fact that collateral was posted on CDS, CDOs were purchased at par and securities lending counterparties were made whole, dollar for dollar, has begun to chaff a few butts.  Personally, my butt is so chaffed by this that I have completely discontinued my Goldman Superheroes cartoon series, until we come out with the book of course (which is coming by the way).

Anywhoo, in response to this "probe", Goldman CEO Lloyd Blankfein said yesterday,

“We spent over $100 million protecting our shareholders against a default by AIG,” Blankfein said in Washington. “So at the end of the day, we were sleeping very comfortably from a credit risk point of view with AIG.”

Lloyd, Lloyd, Lloyd, you've grown complacent haven't you?  The problem that you are going to face now is people are starting to wake up to this farce.  Sure you spent $100 million by buying credit protection on AIG.  That's not the point.  The point is, would any of that protection be worth ANYTHING if AIG failed?  If AIG went down would you have been able to collect from the counterparties who sold you protection on AIG?  I'm going to say........no.  In 2008 Goldman was essentially allowed to win and win.  They had Uncle Sammy make sure that the protection AIG sold against Goldman's CDO book held up AND the CDS they bought on AIG, probably in late 2007, skyrocketed in value as AIG went from AAA to doggie poop.  

This ain't stochastic calculus folks.  It's addition and common sense. Goldman cleaned our clocks on this one. 

Elijah Cummings Steps Up to the Plate!

Well!  Somebody obviously didn't get the memo!  Congressman Elijah Cummings wants to probe why the bailout money we lent to AIG went to collateral calls from Wall Street firms such as Goldman Sachs.  He also wants to know why we decided to take AIG's counterparties out at par on the assets underlying CDO credit default swaps.  We're sorry Congressman but Goldman CFO David Viniar has already cleared this item up for us.  He told us categorically that Goldman's exposure to AIG was immaterial.  Isn't that enough?  I mean he said it in the New York Times for Pete's sake (who is Pete by the way?) so it has to be true!

We here at Monkey Biz say "God speed Elijah Cummings!"  But instead of the usual circus show trials that they have in Congress, just let Mr. Viniar tell you, with supporting documentation how Goldman managed to hedge their CDO exposure by purchasing credit default swaps from AIG and then how Goldman was able to "sterilize" this exposure to AIG.  Let him show you who provided Goldman protection on AIG and then bring in an independent party to determine the probability that whoever provided Goldman with that protection could have survived an AIG default.  Should be simple no?

Geithner et al Don't Even Know What They Bungled

You ever have a fight with your spouse or significant other that ends up something like this;

Tim: "I'm sorry.  I don't know what I did wrong, but whatever it was I'm sorry for it."

Mary: "That's the problem Tim, you don't even know what you did wrong!  Now I'm even angrier!  You are not sleeping here tonight!"

This is what is going on right now with our ding-a-ling Treasury Secretary Tim Geithner and the American public.  Mr. Geithner and whoever he reports to (rumored to be a late-night TV star) have managed to completely underestimate or outright ignore the public outrage over TARP recipient company's bonuses.  How it was humanly possible to miss this is beyond me.  The man must live in a bubble.  Maybe he does.  Here's something from the New York Times about the AIG bonus program Many in Government Knew Weeks Ago About Huge AIG Bonus Program.

A Treasury spokesman, Isaac Baker, said in a statement on Thursday night, “Although Congressman Crowley raised the issue of the bonuses two weeks ago, Secretary Geithner was not aware of the timing or full extent of the contractual retention payments or the other bonus programs until his staff brought them to his attention on March 10.”

Mr. Baker said that after Mr. Geithner had been briefed on the bonuses, he called Edward M. Liddy, the chief executive of A.I.G., and “insisted that they be renegotiated and restructured, in light of the extraordinary assistance being provided by taxpayers.”

Mr. Baker added that Mr. Geithner “takes full responsibility for not being aware of these programs before last week.”

Idiot. 

These bonuses to the AIG Financial Products Group first came to light in January!  In fact I remember writing a piece on it AIG Takes Another Collective Dump on Our Front Lawns.  Moreover, it you had ANYTHING to do with the AIG bailout (September, November, December, March....take your pick!) the company's financial statements had to show some sort of deferred liability for these contractually obligated payouts that AIG says were approved in early 2008.  If the company did not record this giant liability in 2008 then aren't they in trouble with the SEC?

Anyway, what the White House and Geithner do not seem to understand is they have completely screwed the pooch with regard to getting the additional hundreds of billions of capital to our capital starved banking system.  The American public was already outraged over TARP money going into bonus pools.  The political will of the window lickers we call "Congressmen" was already shaky on this incredibly hard sell.  Now?  Forget about it.  The fact that Senator's like Chris Dodd, that paragon of virtue who has fed at the Wall Street trough since I can remember (as well as being a member of the "Friends of Angelo" club that granted cut rate loans and services from Countrywide) had a big hand in this latest mess just further undermines the critical mission.  We have a Chairman of the Senate Banking Committee and a Secretary of the Treasury that, at best, are grabastic morons (thank you R. Lee Ermey!) and at worst, deceitful cover up artists.  I'm going to go for one of each. 

Geithner - Grabastic Moron

Dodd - Deceitful Cover up Artist

 When this process first started back in September 2008, the only Senator who has correctly gaged the rage of the American people, and bluntly questioned the competence of those responsible for carrying out the "Financial Stability" mission has been Senator Jim Bunning.  Up until a few weeks ago, a lot of folks laughed at Senator Bunning.  I don't hear too many people laughing anymore.  It's time for Geithner to go and it's time for Senator Dodd to step aside as Banking Committee Chairman.

Ahhhhh, Memories....

Tell me if this story sounds familiar to what probably went on in the AIG Financial Products Group back in late 2007 or early 2008.

When I first got a front office job (meaning trading and sales) I worked for a particularly heinous woman.  To be fair to this "person", she was the one who plucked me out of the middle-office to work on the trading desk so I kind of owed her......and she made sure that I always remembered that!  Anyway, she covered a lot of hedge funds.  One day one of the real sharp hedge fund came to us and said;

"We just did this exotic option structure with J.P. Morgan where we will buy from you a one time payout (for the sake of the story lets say $50 million, back when that was a lot of money!) if in the next five years the S&P 500 goes below 500 and 3m Libor sets above 6%.  This trade works for us as it hedges some long term macro risk exposure we have in our book.  Would you be interested in showing us a level where you would sell that option structure?"

Of course as a sales person, my boss said, "Absolutely!"  She then ran around the desk to our brilliant yet troubled equity derivative trader and gave him the terms of the trade she wanted priced.  The trader looked at her and said,

"No way.  These guys are killers and you can definitely get killed pricing and hedging this crap.  Tell them to go to Goldman or Lehman."

My boss, being the team player that she was, ran directly into the big bosses office and said something like;

"When you hired me and told me to bring in all my great hedge fund relationships, you promised me that we were gonna be big leaguers!  The equity derivative desk is a big bunch of minor league pussies!  The first time I bring them a real trade from MY CLIENTS they won't do it!" 

Now, the sound of this woman's voice when she got going could pretty much make another human being do just about anything to just make her stop, which is what the big boss did.  He went out and told the trader to price the trade.  Without going into any more detail, the trade got priced in a couple of days (one risk management lesson should be any trade that takes more than one day to price probably shouldn't get done!).  The equity derivative desk had to borrow a model from the London desk to deal with the Libor part of the trade.  Finally, the trade gets priced, checked and checked again.  Finally, the desk said to make no money (we call that break even) we would charge $3 million.  Because of the risk involved, we would offer the structure to the hedge fund at $6 million.

Armed with that offer my boss got on the phone and said, "Based on where the S&P is right now, with Libor here, we would offer you that option at $6.25 million."  The hedge fund said thank you and told my boss would call back in a few.  As my boss and the trader paced nervously (and I don't think my boss told the trader she put an extra $250,000 it the trade) visions of millions danced in their heads.  Finally the hedge fund called back.  "Hi, we can do that there at $6.25 million...are we done?"  "Yes you are done!"  Now my boss and the trader are happily dancing around, she's sweetly telling me to put a term sheet together when the phone rings again.  It's the hedge fund;

"Hi, would you guys be interested in upsizing that trade, we'd like to double it if you care?"

At that moment I swear you could have heard a pin drop until the trader yelled something like "Holy F**K!!!"  He realized that something must be wrong for them to come back so quickly, especially after they told us that once they did that size they were done (its important for traders to know if a big customer has done his full size on a big trade and it's nice for the hedge fund to tell the truth).  Sure as shyt, the trading desk realizes that they didn't calibrate one of the volatility curves properly (yes, Buffett is right, these are financial weapons of mass destruction!) and we should have charged around $10 million to break even, not $6.25 (which we though had $3.25 million of profit and reserves in it).  So suddenly the trading desk realizes that they have lost $3.75 million AND they will have to hedge this contraption for the next five years, with no reserves put aside.  My boss, again being the team player, runs into the big bosses office and blames the trading desk for everything.

The trader thinks fast and then he goes into the big bosses office.  While I was not in the office, my sources for what was said are solid.  The trader said;

"Listen, I didn't want to do this trade in the first place.  You let her bully you into doing this trade, I had to use a model I didn't create and now I'm down $3.75 million (which again, back then, was a lot of money!).  It's April and I'm not going to work for the next eight months just to have my bonus crushed by this trade.  I have a real complicated book out there and a pretty young group of traders who don't know where all the bodies are buried.  Guarantee my bonus right now or I leave today!"

And the big boss guaranteed the bonus and at the time, it was probably the wise move because that trader made sure that no one had a complete picture of his book, which was big and scary.  I bet you anything that these bonuses that are going to AIG Financial Products Group were guaranteed under a very similar threat.  "Guarantee us all $x million or we leave today."  Nice world isn't it?

Pondering AIG Bonuses

Why are these bonuses AIG insists it must pay, coming as such a shock to those who are presiding over this increasingly embarrassing and maddening situation?  AIG states the latest $165 million of bonuses (that from everything I've read were paid yesterday March 15, 2009) were contractually agreed upon in early 2008.  AIG asserts that these bonuses were agreed to months before AIG came hat in hand to the government.  Shouldn't anyone who inspected AIG's books have known that this payout was coming?

If I am right, and correct me if I am wrong, wouldn't AIG have had to record some sort of deferred liability on their books when these contracts were made valid?  I know that we have made great leaps in making hundreds of millions of dollars seem like a rounding error these days, but $165 million line item is a pretty big one no?  If we have been essentially 80% owners of this company since last September you would think that this liability, along with the remaining $285 million that was slated to be paid to AIG Financial Product Group folks, would have shown up at least as a footnote to the financial statements?  Did we read the financial statements?  If we did, then the Fed and Treasury should have been actively pursuing ways to head this problem off at the pass months ago right?

This is just another example of a government in way over its head.  They really need some help.

What the Hell....Lets Make it "Family Guy" Day Here at Monkey Biz!

Here's a clip that really captures the Bernanke/Geithner/Summers relationship with AIG.  Tom Tucker represents Ben, Timmy and Larry (Barney Frank and President Obama for that matter) and AIG is played by Peter Griffin.  Unfortunately, we haven't gotten to the actual spanking part yet!

Family Guy Take on AIG's Latest Round of Bonuses

This is about the closest thing I could find that best expresses my feelings and what I would like to see happen regarding the latest "AIG Bonus Lightning Round".  Think of Stewie and Ruppert as us and "New Brian" as AIG.  (Only for Adults!)

"AIG Bonus Payments? Bailout Funds Used to Bailout U.S. and Foreign Banks???...Lets Go to WWW.FinancialStability.Gov !!

Wow!  So counterparties that received our money in the form of collateral postings, credit default swap tear ups (through the buying of the underlying securities), and return of cash from securities lending is finally out!  Also, we are dealing with the public schtupping that AIG is giving us in the form of $165 million in bonus payments, made yesterday, to employees in AIG's Financial Products Group because AIG was contractually obligated.  Anyway, upon hearing of this new transparency I rushed to www.financialstability.gov , Tim Geithner's cool, new website,  and here is what I found;

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

Damn, still nothing there!  Where did all this transparency come from then?  It came from AIG!! Here it is AIG Counterparty Release.  How heinous is this??!!  To cover the stink of these outrageous bonus payments AIG releases the document that drops the dime on all the counterparties, the biggest being Goldman Sachs, to take our minds off the bonus payments! 

I'm not going to get into the whole counterparty thing.  We have an "AIG" category on the blog that has us explaining the types of trades Goldman was doing with AIG (negative basis trades....great writeup from Richie here from back in September 2008 Investigation Coming For Goldman and AIG? It Should. ) as well as our repeated calls for the government to reveal to the public just who was getting bailed out when we bailed out AIG.  If anything, when you check out the numbers, they still look light.  Additionally, what also needs to be addressed is who helped firms like Goldman "hedge" their AIG exposure through credit default swaps on AIG?  If I AIG was allowed to fail, would those counterparties be able to pay?  If not, who would be wearing the loss?

Other thoughts that strike me on the bonus payments.  AIG and Treasury say that they are contractually obligated to pay these bonuses, as contracts were signed prior to the September, November, December and March bailouts of AIG.  Larry Summers, resident White House economic Over-Lord, says,

"Every legal step possible to limit those bonus payments is being taken by Secretary Geithner and by the Federal Reserve System.  However, the government cannot just abrogate contracts."

Really?  The government just can't abrogate contracts?  I thought it had an entire branch of government that specializes in abrogating contracts.....Congress!!  Don't believe me?  Ask anyone who owns a bond collateralized by a residential mortgage loan!

Lastly in my morning rant. On the last page of the AIG release, you can see that $43.7 billion of our money went to pay off counterparties involved in AIG's securities lending business.  All the big names are there, Barclays, DB, Goldman, BofA, BNP Paribas, etc.  If you remember, securities lending is the business where a company like AIG, who holds lots of stocks and bonds, lends those stocks and bonds out to short-sellers, gets cash as collateral and then invests that cash in a risk free security that earns the lender (AIG) a spread.  Unfortunately, the window lickers at AIG took that cash and invested in AAA rated CDOs.  Ooooops!  I'm just curious about something.  What securities were all those big names borrowing?  Granted, the short selling of stocks is used for a variety of reasons and strategies.  However, much of those strategies are total or partial bets against a companies equity (they could be long bonds, short equities, etc) .  I wonder who all those entities were shorting, since there was such a furor last summer and fall about bear raids on our banks.  How interesting it would be to see how many of the above mentioned banks proprietary trading desks were involved in direct bets against our banks.  Just curious.

AIG's "Top Secret Memo" Is Here!

The "Strictly Confidential Memo" that AIG produced at the end of February is available on-line.  Bail-Out or End of the World....You Choose! (Thank you to the Williambanzai7.blogspot for "unearthing this").

Wow!  Just a year ago AIG told us to sleep better at night because THEY were on the job.  Now?  "Save us or you will sleep.....forever!"  All that's left is for AIG to tell us that Nostradamus predicted their destruction and prophesied the only solution.  Something like this;

Century 8 – Quatrain 28

"The promises of default risk abated,
which after the fees were collected were thrown to those on the take
at the discovery that all is exhausted & dissipated by debt.
Pay the insurer or all will be wiped out"

 

www.foxnews.com  "The Strategy Room" today at 9AM (Me, not Nostradamus)

 

Those Crazy Bastards at AIG Are at it Again!

From Bloomberg News;

March 9 (Bloomberg) -- American International Group Inc. appealed for its fourth U.S. rescue by telling regulators the company’s collapse could cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers’ stake in the firm.

AIG needed immediate help from the Federal Reserve and Treasury to prevent a “catastrophic” collapsethat would be worse for markets than the demise last year of Lehman Brothers Holdings Inc., according to a 21-page draft AIG presentation dated Feb. 26, labeled as “strictly confidential” and circulated among federal and state regulators.

Strictly confidential eh?  AIG probably wanted to take out full page ads in all the major papers this morning, posting this "strictly confidential letter" and showing that annoying little kid (the one from the AIG commercials who is comforted back to sleep after learning the family is covered by AIG) blindfolded with a knife to his throat saying, "Do what they say...Do what they say!"  At the last minute however, their lawyers probably determined it was not a good idea to use TARP money for the ads when it could be used for the AIG Financial Products Group's "Spring Break" fiesta.

Here's what will happen according to the "strictly confidential" memo

• “What happens to AIG has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means,’’ said the presentation by New York- based AIG. “Insurance is the oxygen of the free enterprise system. Without the promise of protection against life’s adversities, the fundamentals of capitalism are undermined.’’
• European Banks that bought Credit Default swaps could be on the hook for $10 billion each.
• $19 trillion in U.S life insurance policies and annuities could be redeemed as customers lose faith in the industry.
• Money Market Mutual Funds will "break the buck" as AIG commercial paper defaults.
• The entire insurance industry around the world could collapse.
• Taxpayers 80% stake in AIG would be wiped out.
• Christmas around the world will be canceled for 2009 and 2010.

I've said it before and I'll say it again, between $60 billion in loans (that were restructured numerous times),  $40 billion in TARP capital and $52 billion in assets purchases (now residing at the NY Fed) to tear up CDS with unnamed counterparties and bailout AIG's perverted version of the securities lending business, if the problem still isn't fixed then some people have to answer some big questions.  First of all, back in September the Fed and Treasury put a sizable backstop behind the money market mutual funds to stop them from breaking the buck.  Bringing up that horrible specter is untrue.  Money will be lost but it will be U.S. taxpayer money...so we have that going for us.

With regard to all this other crap, if the collapse of the insurance industry is going to happen, it will happen whether AIG gets another bailout or not.  The insurance industry is the repository of $ trillions of structured garbage that they do not have to mark to market.  However, as real losses start coming in from things like commercial real estate and syndicated corporate loans and bonds, these assets will be impaired and losses will start flowing through the income statements.  A similar problem will occur as the ratings morons start down grading the bonds.

As far as counterparties getting paid off, if they are not American, let their respective countries pay for it.  If they are American, then they need to be identified and properly taken to task.  Additionally, if the actors that arranged the December bailout of AIG (not to be confused with the September or November bailout) managed to not head off this systemic risk after pumping in another $92 billion (the assets we bought to tear up the CDS and the TARP capital) then they have a date with our new hero, Senator Jim Bunning to answer for their ineptitude.

    

Today is Jim Bunning Day At Monkey Business!

In a little more than an hour from now we will get February employment numbers.  They most likely will be horrible and our express train into the abyss will continue to move along right on schedule.  Therefore, lets focus on something positive.  For six months we have been jumping up and down and demanding the following; 

1. 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.
2. Who gets torched on the CDS protection they wrote if AIG triggers an event of default.
3. Who gets torched when those CDS writers fail.
4. Estimates of exposure to bond holders should AIG fail.
5. Effect on money markets should AIG fail.

Finally, some members of Congress have gotten wise.  After six months of getting schtupped with our pants on, in broad daylight, in Macy's window, by AIG, their counterparties, and our own government, the voice of the American people is finally saying ENOUGH.  Here is Senator Jim Bunning to Fed Vice Chairman Donald Kohn yesterday; (From the New York Times Senators Ask Who Got Money From AIG)

WASHINGTON — Trying to draw a line in the sand, a Senate panel told the vice chairman of the Federal Reserve to identify all the parties made whole by the bailout of the American International Group or forget about coming back to ask Congress for more rescue money.

“You will get the biggest no you ever got,” Senator Jim Bunning, Republican of Kentucky, warned Donald L. Kohn, vice chairman of the Fed board of governors, in a hearing on Thursday. “I will hold up the bill.”

 

Here's what Don Kohn said in response;

 

"I would be very concerned that if we gave out the names, people wouldn't want to do business with AIG."

 

The questions I have are;

1. How f**king stupid does Alan Greenspan's errand boy Don Kohn think we are or;
2. How f**king stupid is Don Kohn?

Anyway, thank God we have somebody finally worthy to sink his teeth into these lying a-holes on the job.  Senator Jim Bunning, a man who pitched two no-hitters, AND finished FIRST in hit batsmen four consecutive time 1964-1967 (and this is in a National League with Don Drysdale and Bob Gibson!) is just the man to do the job.  Keep up the fight Senator.  We will be rooting for you!

      

Lets go USA!!!!

Pissed off At This AIG Infamnia Yet? Check This Out..

They are using our money to EMPLOY FOUR PUBLIC RELATIONS FIRMS! I guess that's one P.R. firm for each bailout iteration.  From our friends at BreakingViews.com

Dizzying PR binge

By Lauren Silva Laughlin

AIG PR:  American International Group is keeping the spin machine employed. The US insurance giant – which just received its fourth taxpayer bailout – has four public relations firms on its payroll. Private jets, golf days and lobbying are out for recipients of rescue funds. Some taxpayers and their representatives in Congress could see PR in the same category.

AIG has retained Kekst and Company, founded by Gershon Kekst, the lion of New York’s financial spindustry, to work on its asset sales. Sard Verbinnen – a longtime AIG adviser – helps the insurer present its earnings. And the company has Hill & Knowlton and Burson-Marsteller working the Washington crowd. It has its own in-house public relations team, too.

It is hard to know how much each firm is paid for its artfully crafted rhetoric. And AIG may legitimately need help talking to the crowds of journalists, regulators, legislators, and investors now that it is in crisis mode.

Whatever their price, though, the spinmeisters haven't necessarily managed to keep AIG’s bigwigs on message. During the firm’s conference call on Monday, chief restructuring officer Paula Reynolds unwisely quipped that it might be “better to go to jail” than have to deal with intricacies of securities laws as they apply to AIG's situation.

Read the full article  Dizzying PR Binge For AIG

 

 

Hank Greenberg Sues AIG For Securities Fraud!

From Bloomberg News;

By David Glovin

March 2 (Bloomberg) -- American International Group Inc., which reported the biggest loss by a publicly traded U.S. firm, was sued for securities fraud by former Chief Executive Officer Maurice “Hank” Greenberg. Greenberg filed his suit today in Manhattan federal court, saying the company’s “material misrepresentations and omissions” caused him to acquire AIG shares in his deferred compensation profit participation plan at an inflated valued.

The suit comes on the same day that AIG CEO Edward Liddysaid that Greenberg was partially to blame for the firm’s woes. Greenberg, 83, led AIG for almost 40 years before being forced to retire in 2005. The case is Greenberg v. AIG, 09-cv-1885, U.S. District Court, Southern District of New York (Manhattan).

You really can't make this stuff up!  I bet if you took Fydor Dostoevsky, Mark Twain, John Irving and Steven King, put them in a room and told them to come with a crazy saga like Greenberg and AIG...no way they could do it!  Greenberg got booted from AIG in 2005 because earlier in the decade AIG was caught red-handed artificially inflating it's reserves, in part by using derivatives and phony-baloney credit wraps with Gen-Re.  Along the way, Greenberg certainly helped build AIG Financial Products, the part of the company that wrote insurance on anything from residential mortgage defaults to Martian invasions.

After Greenberg got the boot, he still owned plenty of stock and I am sure was VERY happy with all the money AIG was making in 2005-2007.  He had to know that the Financial Products Group was the big "money maker".  Didn't he wonder how they could be" making" so much money?  I'm sure he got told, "Hank, it's like taking candy from babies.  We take our AAA rating, slap it on a bond that's AAA AND has an insurance wrap from a AAA rated mononline......and these dopes are paying us to write protection on the bonds!"  And Hank probably said something like, "Go with God my son and make me more money."

Then the shyt hits the fan in late 2007 and Greenberg starts criticizing CEO Marty Sullivan.  By 2008 when AIG is going toes up.....for the FIRST time....Hank is telling anyone that would listen that AIG is a "National Treasure" and breaking it up was like spray painting the Sistine Chapel!  Meanwhile, none of this was Hank's fault.  It was all that Marty Sullivan's fault. None of this stuff happened on his watch.  Riiiiiiiiiiiiiiiiiight.  Here is an example of where I will actually give credit for a CEO being way too smart and way too controlling...even after he got the boot.  Hank Greenberg had a damn good idea what was going on at AIG, just like Dick Nixon knew what was going on in his White House. 

And now the final act. We are at the point where probably even Hank can't believe AIG is down another $60 billion and suddenly "Our National Treasure" is actually a big pile of securities fraud!  Good luck with that Hank!

AIG Has Me Singing The Blues

I swear that seconds after I learned that AIG was getting bailed out, yet again, I thought of the great Howling Wolf (aka Chester Burnett) singing "How Many More Years?"! 

How many more years am I gonna let you dog me around?

How many more years can I let you dog me around?

I'd rather be dead...sleepin' six feet under the ground.

I'm gonna fall on my knees, I'm gonna raise up my right hand

I'm gonna fall on my knees and I'm gonna raise up my right hand

I'm through with you darlin'...and I want you to understand..

Howling Wolf is my blues hero AND he was the hero of my Rock n' Roll heroes "The Rolling Stones!  Check out this video as a young Brian Jones and Mick Jagger introduce Howling Wolf to sing AIG this little blues ballad. (Is it too early to start drinking?)

Banzai News Reports AIG Can Build Financial Atomic Bomb!

Just in from http://williambanzai7.blogspot.com !  (This guy is scaring me.  He may be funnier than me.  I have to up my game!)

BANZAI7 NEWS WATCH--AIG CAN BUILD A FINANCIAL ATOMIC BOMB

MARCH 1, 2009

WASHINGTON — The United States now believes that American International Group has amassed enough weapons grade credit default derivatives material that with further putrification could be used to build a financial atomic bomb (FAB), a spokesman for the Pentagon/Treasury Department FWMD joint task force declared Sunday.

The statement went further than previous, official judgments of the AIG FAB threat, and it essentially confirmed a new report by the United Nations FWMD watchdog agency, which found that AIG had enough derivative materials to build a global financial doomsday device. “We think they do, quite frankly,” the representative said on “State of the Union” on CNBC. “And AIG having a financial nuclear weapon, I’ve believed for a long time, is a very, very bad outcome for the US economy and for the world.”

 

 

AIG: New Administration....Same Old Bullsh*t?

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;

1. 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.
2. Who gets torched on the CDS protection they wrote if AIG triggers an event of default.
3. Who gets torched when those CDS writers fail.
4. Estimates of exposure to bond holders should AIG fail.
5. 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.

F**k AIG, F**k Their Counterparties and F**K The Whole Cavalry They Rode In On!

I think you know how we feel about this.

By Hugh Son and Zachary R. Mider

Feb. 26 (Bloomberg) -- American International Group Inc. may get a backstop from the U.S. to protect against further losses on credit-default swaps, according to a person familiar with the matter.

The federal guarantees may be included in New York-based AIG’s restructured bailout, which the company plans to disclose next week with fourth-quarter results, according to the person, who declined to be identified because the talks are private.

Regulators who saved AIG in September feared that a collapse of the insurer, which sold swaps to banks including Goldman Sachs Group Inc., would spread losses throughout the global financial system. In November the U.S. committed $30 billion to retire some of the contracts tied to subprime mortgages, while not addressing other swaps tied to corporate loans and European debt.

“Counterparties around the world continue to have significant exposure to AIG, and market conditions continue to be fragile and sensitive to the potential disorderly failure of AIG,” the Federal Reserve said in a report in November.

AIG provided protection on more than $300 billion of assets through credit derivatives as of Sept. 30. Credit-default swaps pay the buyer face value on their debt holdings in exchange for the underlying securities if the borrower fails to meet its obligations. It wasn’t immediately clear how many of the swaps would be backed by the U.S., and talks are continuing, the person said.

AIG has posted four straight quarterly losses on swaps tied to U.S. home loans.

AIG Shows Us The Way Down the Rat Hole

This morning AIG finally provides some value to American taxpayers and policy makers!  The simultaneous headlines of;

**GM Posts $9.6 Billion Loss as Wagoner Seeks More Government Cash.

**AIG Considers Break-Up in Bid to Stay Afloat.

We wrote this on December 10, 2008 when GM and Chrysler came for the first slug of our hard earned dough;

Imagine if you will the following scenario.

1. A company that can cause systemic destruction to the U.S. economy comes hat in hand to Washington.
2. The company tells Washington, "We have a huge cashflow problem.  We need an emergency loan of $85 billion in the next few days otherwise we will have to declare bankruptcy.
3. Washington assesses the risk and realizes that, as distasteful as it is, they have to make the loan.  However, they demand a very high rate of interest and demand an orderly repayment of the loan through an aggressive restructuring plan.
4. Washington lends the company the money, which is almost immediately spent to cover cashflow needs.
5. A few weeks later, the company comes back to Washington and says, "It's worse than we thought.  While we are trying to come up with a restructuring plan to pay you back, we need another $37 billion to plug another cashflow hole or we will have to declare bankruptcy."
6. Washington assesses the risk and now its worse.  Not only will the failure of the company cause great systemic risk, but now they have $85 billion of Washington's money......and it's gone!
7. Washington lends the company another $37 billion.
8. A few weeks later the company comes back to Washington and says, "We've been trying like the dickens to restructure and sell off assets, but the market is just terrible.  Also the rate that you are charging us on the $122 billion is so punitive that it's defeating the purpose of helping us with our cashflow.  Lastly, we need more cash or help to get out of these obligations that are draining more money from us.  We need to restructure our deal or we will have to declare bankruptcy."
9. Washington finds this even MORE distasteful.  However, now they are into the company for $122 billion, the money has been spent and bankruptcy still is not a viable option.  Washington restructures the deal that lowers the spread that the company must pay by sixty-five percent. Washington also reduces the principal of the loan and instead takes an equity position in the company.  Finally Washington pays the breakup costs for those obligations that are draining cash out of the troubled company.
10. Washington now sits, thumb inserted, while the company laughs at them.

Does any of this sound familiar?  It should because that is essentially what we did with AIG.  We gave them money, which they quickly spent, and then led us around by the nose.  Once we lent them the large sum of money we were hooked into that sinking ship in perpetuity.

You really think that when we give GM and Chrysler $15 billion to fund immediate cash needs, with the only collateral being their promise to come up with a real restructuring plan, that; 

1. They are going to come up with anything meaningful in three months when their problems are decades old?
2. If they fail we can clawback $15 billion that has already been spent?  With what cash are they going to pay us back with?

Those who do not heed the mistakes of the past are doomed to repeat them, especially if "the past" is happening right now in front of our eyes!

And now here we are!  AIG is essentially telling us that they can't repay our loans and they can't pay the 10% dividend on our preferred shares.  CEO Edward Liddy is all but handing us the keys to AIG.  This is clearly a "Ghost of Christmas Future" moment!  The ghost is telling us the more money we pour into GM the poorer we get....and the result will be what we tried to avoid in the first place....Bankruptcy and government ownership. 

AIG had to be saved because the stewards of our financial system were fat, drunk and stupid at the switch and failed to see the gigantic systemic risk bubble that AIG had become.  We said here earlier in the week, if they still pose some kind of systemic risk after all we have done....then some very, very senior people like the Secretary of the Treasury and the Chairman of the Federal Reserve need to fall on their swords.....NOW.

GM and Chrysler and soon, probably Ford will be a bottomless cup of need bigger than AIG.  Screw the politics.  Its time for bankruptcy with Treasury providing debtor in possession (DIP) financing (because there's no one else to do it). 

AIG. Nobody Wants to Hear it Anymore.

I think I can speak for a lot of people, maybe most people when I say, I don't want to hear about AIG's problems anymore.  Their systemic risk should be eliminated by now.  If it's not then current Secretary of the Treasury and former President of the New York Federal Reserve, Timothy Geithner should resign immediately.  This country, through $60 billion of loans, $40 billion of direct investments and $52 billion of asset purchases has squared AIG away with regard to causing a collapse of our banking system.  Mr. Geithner has been involved in the AIG fiasco every step of the way, including a failure to recognize just how much of a risk AIG posed to the money center banks and investment banks that his organization was supposed to be monitoring.  Maybe not regulating but certainly monitoring.  And if there's more systemic risk then I demand names of counterparties that will fall if AIG falls.

This sick game ends now.  The handouts and bailouts have to stop here.  Sure as sh*t come tomorrow morning Hank Greenberg will be on CNBC giving his "AIG is a national treasure speech."  Hand the old man the $152 billion bill and tell him to either pay it or shut up.  Get Mark Haines all liquored up tonight and then let him do the interview instead of some fawning talking bobble head.  AIG isn't converting anything to common.  They are going to sell themselves off brick by brick, in due haste and then get on an ice float and sail away to oblivion.  Guys like Greenberg will say, "Oh, you're losing $ billions liquidating into this market.  You're destroying these great businesses by letting valuable employees go."  It does more damage to this country at this point to let these assclowns keep leading us around by the nose, handing out bonuses to "valuable employees" while they pick our pockets.  Better to "lose" a few billion and save our self respect.  As far as the valuable employees go, it's all a crock of sh*t.  It's insurance.  It's finance.  It ain't that complicated.  I was good at my job in finance.  So were a lot of other guys.  We all got sent home over the course of a year and guess what?  Life went on and the places we worked at are still there....for the most part.  Maybe somebody doesn't do as good a job as you did, but in the grand scheme of things, the world still spins.  Unless your Sully the airline captain who landed the plane in the Hudson, you're expendable.  And that especially goes for high level finance executives.  Dime a dozen. Like spare parts to a kitchen faucet.

Time to torch AIG and get as much back as we can.  They are a national embarrassment and the rest of the world is watching.

AIG Leads the Way!

We are hearing that AIG is going to announce a SIXTY BILLION DOLLAR LOSS and they need more money!  This is astounding!  Honestly, when the Treasury and the Fed gave them $40 billion in TARP money and paid $52 billion to take them out of their CDO credit default swap exposure.....I figured except for a few odd billion we were done with that trainwreck.  I'm speechless.  Like Merrill Lynch, does AIG have a tanker tied up off shore that is holding all their toxic positions?  These suckers just keep on coming.  How the hell can we possibly lend them another dime?  They should be out of the systemic counterparty risk category right?  Uncle Sam already took care of that. If it's the money we already gave them that AIG is using as the hook for more of our dough...they should be told to stick it.  Time to cut our losses, which a lot of us said a long time ago.

Anyway, I have to go get a physical and now my blood pressure is through the roof!  I'll be back with details later.  Oh, let's keep this in front of us while we think about giving more money to GM and Chrysler.