FomerNY NY Gov. Eliot Spijtzer: The Actual Scandal is that AIG's Counterparties are Getting Padk Back in Full
insurer
Date: Fri, 20 Mar 2009 12:36:51 +0000
An article by former NY Governor Eliot Spitzer at the end on how the real scandal is that AIG's counterparties are getting paid back in full.
According to various distinguished sources including the Bank for International Settlements (BIS) in Basel, Switzerland -- the central bankers' bank -- the amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 TrillionThere are 1,144 trillion dollars in terms of outstanding derivatives, global Gross Domestic Product (GDP), real estate, world stock and bond markets coupled with unknown unknowns or "Black Swans":
The population of the whole planet is about 6 billion people. So the derivatives market alone represents about USD 190,000 per person on the
Derivatives are securities whose value depends mathematically on the underlying value of other basic securities and associated risks. Derivatives have exploded in use over the past two decades. We cannot even properly define many classes of derivatives because they are highly complex instruments and come in many shapes, sizes, colours and flavours and display different characteristics under different market conditions.
"It is well that people do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." -- Henry Ford (1863-1947)
Author Bernard Lietaer, a former European central banker, writes in " <http://www.transact
<http://www.rumormil
http://www.rumormil
Connect the dots on the 9/11 Insurance swindle.
AIG was the insurance company that insured the Twin Towers SPECIFICALLY against terrorism about a month before 9/11 happened, and then paid off on the towers' collapses which were actually controlled demolitions with military grade explosives as reveal by the chemical analysis of BYU Physics Professor Steven Jones(watch the collapose videos is slow motion and you
will see massive beams being blown up and then flying across due to these massive explosions, some of these huge steel beams were thrusted into the walls of the American Express building and other surrounding buildings). Larry Silverstein received two awards of $3.6 billion each for his insurance policy on the Twin Towers. Silverstein had acquired the lease on the Twin
Towers a few months before 9/11 from the New York Port Authority (he was not the highest bidder). There was a friendly lawsuit between friends Larry Silverstein (who owned the lease on the Towers) and his buddy Maurice Greenberg, (CEO of AIG).
So it would seem that AIG is right in the middle of things. Anybody at T.O. care to spend a bit of time connecting THOSE dots?????
Matt Renner, Truthout: "As nationwide populist anger boils after the news that hundreds of millions of taxpayer dollars may be given to employees of the insurance-giant-
That "outrage" may be a peehole in the snow. What do you suppose folks would think of A.I.G. if they knew it was involved in 9/11?
Whistleblower Richard Andrew Grove, provides info about pre-9/11 malevolence in this audio, originally broadcast on the Maria Heller show. He names names and companies, and seems entirely authentic. The audio is about 2 hours long, but well worth the listen.
http://www.geminipr
And here's a transcript
http://www.rinf.
ranscript .
<http://www.truthout
A.I.G. Using "Suicide Strategy" to Push Bonuses
Tuesday 17 March 2009
by: Matt Renner, t r u t h o u t | Report
Washington, DC - As nationwide populist anger boils after the news that hundreds of millions of taxpayer dollars may be given to employees of the insurance-giant- turned-governmen t-liability American International Group (A.I.G.), President Obama promised to try to block what he described as an "outrage" Monday, but a group of former regulators said the administration must get even tougher with A.I.G.
"[A.I.G.] is a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances, it's hard to understandhow derivative traders at A.I.G. warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?" Obama said, adding, "I've asked [Treasury] Secretary Geithner to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole."
$165 million is set to be paid to executives of A.I.G.'s financial products division, the same people who made unregulated bets against the failure of major financial institutions and other companies. Losses on these bets are a major reason the company is failing, reporting a record-setting$60 billion loss last quarter.
Economics and law Professor William K. Black, a famous figure in the savings and loan crisis of the 1980s for his role as a senior regulator who fingered the then speaker of the House and "The Keating Five" for doing favors for bankers, has been a vocal critic of the bailout programs, which began during the Bush administration.
In an interview with Truthout, Professor Black said that A.I.G. is using a "suicide strategy" to hold the government hostage and keep the bailout funds flowing.
"A.I.G. is holding a gun to their own heads, saying 'unless you help us continue to have this incredible life in terms of bonuses, we're going to die and the taxpayers will be faced with a catastrophe, '" Professor Black said, adding "It's too bad Marxists don't believe in god. Otherwise they'd be thanking him for having sent A.I.G. down to earth to destroy capitalism."
Earlier on Monday, Professor Black joined three other notable annalists with deep industry, regulatory and academic experience in issuing a punishing statement calling for decisive action on A.I.G. and the ongoing bailout.
"A.I.G.'s decision to pay out at least $165 million in bonuses takes the bank bailout program's abuse of the public trust to a whole new level. This act simply cannot be allowed to stand. The only question is how to stop it," the statement said.
The plan to stop the bonuses would require bold action by government officials overseeing A.I.G., which is now 80 percent owned by the government after being given 173 billion taxpayer dollars to bail the company out.
The statement called on the Obama administration to reassert its leverage in the A.I.G. matter by ordering the US officials overseeing the company tostop bonus payments. Then, the government could split off A.I.G.'s derivatives unit - the riskiest part of the company, which brought about A.I.G.'s collapse - and threaten to allow it to go into bankruptcy if the executives don't clean up their act.
In other words, the statement advised the Obama administration to call A.I.G.'s bluff and see if they'll really pull the trigger.
In their defense, A.I.G. said that they are contractually obligated to pay the bonuses in question. Not paying these bonuses, the company said, would cause their executives to leave the company and could trigger a collapse at A.I.G., which could set off a collapse around the world.
Credit Default Swaps
The derivatives unit at A.I.G. trafficked heavily in financial products called credit-default swaps (CDSs). Originally devised as a type of insurance, CDSs morphed into an unregulated form of gambling akin to being able to take out fire insurance on a house you don't own and getting paid ifthe house burns. Because major financial institutions were betting on billion-dollar companies, and betting with each other on each other, their fates are bound together by these bets. If one company goes into bankruptcy, it could set off a string of default swaps and could fold the whole system in on itself.
Documents released by A.I.G. on Sunday show that $43 billion in taxpayers' money has been spent by A.I.G. to pay off financial bets to both US and international banks with a whopping $13 billion going to the politically connected Wall Street giant Goldman Sachs.
The documents directly contradict a statement made during a conference call with stock market annalists by Goldman Sachs chief financial officer David Viniar, who said that Goldman was only immaterially at risk if A.I.G. failed.
The CDS market has an approximate value of 50 trillion dollars worldwide. Critics charge that this massive, complicated and extremely murky market
continues to hover over the heads of the global financial system like the blade of a guillotine with the banks holding the executioners rope, daring the government to stop funding their bailouts.
CEO Resignation?
In their statement, the former insiders called for the resignation of A.I.G.'s new CEO Edward Liddy for not anticipating and alerting the TreasuryDepartment of the bonuses which started this firestorm.
"Right now, press reports suggest that the firm's top management waited until the last minute to inform the government of what was happening. A.I.G. CEO Edward Liddy, accordingly, should be asked to resign at once, for thesake of public confidence and to send a clear signal that gaming the system is unacceptable, " the statement said.
Liddy is a former member of the Goldman Sachs board of directors.
Obama seemed to defend Liddy in his remarks. "[Secretary Geithner is] working to resolve this matter with the new CEO, Edward Liddy - who, by the way, everybody needs to understand came on board after the contracts that led to these bonuses were agreed to last year." Obama said.
Obama added a warning to Liddy and others on Wall Street: "But I think Mr. Liddy and certainly everybody involved needs to understand this is not just a matter of dollars and cents. It's about our fundamental values. All across the country, there are people who are working hard and meeting their responsibilities every day, without the benefit of government bailouts or multi-million dollar bonuses ... All they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules. And that is an ethic that we have to demand."
Investigations
The statement called for an "investigation of the validity of A.I.G.'s past accounting and securities disclosures and its executive compensation program by the Office of Thrift Supervision, the Securities and ExchangeCommission, and the FBI."
"I think that A.I.G. is simply one of the most obvious examples where their accounting was false. Fraudulent accounting at a publicly traded company is securities fraud and that's a felony," Professor Black told Truthout.
Professor Black is confident that a thorough investigation of A.I.G.'s books would reveal misdeeds. "Even though we effectively own the place, we have left it in the hands of the people who have every incentive to hide the past losses and to hide all the past accounting fraud that justified all their past bonuses. These people aren't at risk of simply losing their calendar year 2008 bonus. If this place were torn apart properly, they'd lose all their prior years bonuses as well."
Previous investigations of top management and accounting practices at A.I.G. have been swept under the rug with no criminal penalties.
In February 2005, A.I.G. agreed to pay $1.64 billion to resolve a lawsuit alleging the company used deceptive Enron-style accounting practices in order to mislead investors and government regulators.
Mark J. Novitsky, a corporate whistleblower and independent researcher, blames the Securities and Exchange Commission (SEC) for failing to enforce the Sarbanes-Oxley law, passed in the wake of the Enron and Worldcom accounting scandals, which was supposed to hold executives accountable for fraudulent accounting practices.
"What progress has been made since the enactment of Sarbanes-Oxley in 2002 that would leave people to believe the SEC is capable of detecting and preventing fraud and is willing to prosecute those who commit financial fraud?" Novitsky asked, adding, "It is obvious in hindsight, after the SEC failed to uncover massive fraud in cases like Bernie Madoff, Stanford Financial, Bear Sterns, Fannie Mae and A.I.G., the public was misled into believing that Sarbanes-Oxley was some kind of an answer. No question my personal experiences leads me to believe that the fox has most certainly been guarding the hen house."
Matt Renner is an editor and Washington reporter for Truthout. He can bereached at <http://us.mc01g.
Matt@truthout. org.
___________ _________ _________
There is a sense of no sustainability and lack of longevity in the "Invisible One Quadrillion Dollar Equation" of the derivatives market especially with attendant Black Swan variables causing multiple implosions amongst financial institutions and counterparties! The only way out, albeit painful, is via discretionary case-by-case government intervention on an unprecedented scale. Securing the savings and assets of ordinary citizens ought to be the number one concern in directing such policy.
Remember well the lessons of this new October crash: The money to make a better life, to serve the common good, has always been there. But it hasbeen kept from you by deceit, by dogma, by greed, and by the ambition of those who have sold their souls, and betrayed their brothers and sisters, their fellow human creatures, for the sake of privilege and power.
Slate Magazine
The Real AIG Scandal It's not the bonuses. It's that AIG's counterparties are getting paid back in full.
By Eliot Spitzer
Posted Tuesday, March 17, 2009, at 10:41 AM
Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?
For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman'
It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG's counterparties are justified with an appeal to the sanctity of contract. If AIG's contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse.
But wait a moment, aren't we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes-income taxes to sales taxes-to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won't be laid off. Why can't Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, andaren't they sitting on more than $100 billion in cash? Haven't we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn't they have accepted a discount, and couldn't they have agreed to certain conditions before the AIG dollars-that is, our dollars-flowed?
The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.
So here are several questions that should be answered, in public, under oath, to clear the air:
What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?
Was it already known who the counterparties were and what the exposure was for each of the counterparties?
What did Goldman, and all the other counterparties, know about AIG's financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn't they bear a percentage of the risk of failure of their own counterparty?
What is the deeper relationship between Goldman and AIG? Didn't they almost merge a few years ago but did not because Goldman couldn't get its armsaround the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG's business model was not to pay on insurance it had issued.
Why weren't the counterparties immediately and fully disclosed
Failure to answer these questions will feed the populist rage that is metastasizing very quickly. And it will raise basic questions about the competence of those who are supposedly guiding this economic policy.
Eliot Spitzer is the former governor of the state of New York.
Article URL: http://www.slate.