Saturday, January 9, 2010

AIG More Upfront Than Geithner's NY Federal Reserve?? Subtitle: Time for Geithner to Go??

Hugh Son of Bloomberg has an excellent story which was revealed on the internet Thursday.  Around late 2008, when Timothy Geithner was the leader of the Federal Reserve Bank of New York (here on in this post referred to as NYFRB), the NYFRB told (subtly ordered??) American International Group Inc. (AIG) to withhold details about the insurer's payments to their counterparties from the public.  This little nugget of information was revealed in e-mails between AIG and it's regulator (NYFRB).  AIG payed its counterparties Goldman Sachs, Societe Generale SA, and others 100 cents on the dollar for credit default swaps they bought from AIG.  The NYFRB had that 100 cents on the dollar reference crossed out and the language excluded when it was made public Christmas Eve of 2008*.  This new info. came from e-mails obtained by Darrel Issa (pronounced Eye-suh), a U.S. Congressman from Southern California.

Credit default swaps work similar to insurance, so that is why AIG owed the counterparties a large amount of money after they purchased the credit default swaps (CDS) from AIG.

From Hugh Son's article:
"Secretary Geithner played no role in these decisions," Meg Reilly, a Treasury spokeswoman, said in an e-mail. "He was recused from working on issues involving specific companies, including AIG," after his nomination to Treasury Secretary on Nov. 24, 2008. "Geithner began to insulate himself weeks earlier in anticipation of his nomination," she said in a separate statement.

Uh-huh. Ya.

Before Issa requested the e-mails another story in Bloomberg had reported the NYFRB had ordered AIG not to negotiate for discounts to settle the swaps.  That decision to pay the banks (including coincidentally Goldman Sachs) cost AIG---and hence taxpayers---$13 billion, calculated from using the discount AIG was originally asking for.

E-mails seem to divulge the NYFRB pressed AIG to keep details out of the public's site and the public's conscious.

Well, why would the U.S. taxpayer want to know about that?? What's $13 Billion between old friends??

Hugh Son's article goes on to say (I'm paraphrasing) that the Dec 24, 2008 filing was privately challenged by the Securities and Exchange Commission (SEC), the agency which enforces laws that make sure public corporations are disclosing information as required (I guess the SEC didn't want to embarrass anybody too much, at that point AIG's reputation being so stellar).  The SEC sent a letter to AIG's then CEO Gordon Liddy telling him they needed to provide a Schedule A, listing collateral for the swaps and the counterparties.  The Schedule A was unveiled to the public 5 months later.

Hugh Son's article goes on to give many very cute and humorous quotes from NYFRB lawyers (if you need a laugh be sure to read).  Also according to e-mails written by AIG lawyer Kathleen Shannon, NYFRB suggested AIG avoid mentioning synthetic CDOs in one of the public filings.

From Hugh Son's story (A letter from an AIG lawyer to an NYFRB lawyer):
The filing "reflects your client's desire that there be no mention of synthetics in connection with this transaction,"  Shannon wrote to Davis Poke on Dec. 2, 2008.  "They will not be mentioned at all."

For those who can't understand lawyer speak "Your client's"=NYFRB's.  There are also many quotes in the lawyers' e-mails which seem to strongly suggest the NYFRB wanted to keep details about Maiden Lane a secret as long as possible.  Again, from Hugh Son's story:

"Do you think it might be feasible to hold off on the Maiden Lane III 8K and press release until next week?" Brett Philips a New York Fed lawyer wrote in an e-mail that day.  "The thinking is that the Maiden Lane III closing will be a less transparent event, and it might be better to narrow the gap between AIG's announcement and the New York Fed's publication of term sheet summaries."

AIG's lawyer Kathleen Shannon responds in e-mail:
"Given the significance of the transaction, AIG would be best served by filing tomorrow," Shannon wrote.  "We will of course be guided by your counsel." The Maiden Lane agreement/document was posted Dec. 2, 2008.

More quotes from the lawyers..... on and on.....  Did you feel confused which lawyer represented the regulator and which one represented the company??---or was it just me??  Isn't it the regulator that usually wants information out in the public ASAP?????  Here it is the AIG lawyer who seems to be pushing for public disclosure.

It seems New York Federal Reserve Bank's new policy is all corrupt activities are only on a need to know basis now.

Let's see here: Geithner lied about his taxes, there were rumors Geithner wanted Sheila Bair (a heroine in this mess) fired, now we have this.  3 strikes and.....    

*It's interesting to note the same stunt was pulled on 2009 Christmas Eve, when the U.S. Treasury (Geithner's new home) announced they were paying unlimited amounts on Fannie Mae and Freddie Mac losses and paying their CEOs $6 million apiece.   I guess Geithner has his own special ways to mark the traditional day of celebrating Jesus Christ's Birthday.

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