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.