Tag: Treasury

And now we’re over a decade of oh so many lessons not learned and in not one but two theaters of with a third front being bombed and invaded right next door to one of the two and joined with NATO in bombing another that the previous administration had brought the leader of back into the fold after years of calling him a terrorists supporter and supporting terrorists criminal acts!

Warren Buffet gave a prophetic pronouncement back in 2003 about the Derivatives market, seeing the exponential dangers of this “paper-thin” type of investment.

Buffet did not mince words. He called them “financial weapons of mass destruction“:

Buffett warns on investment ‘time bomb’

BBC – 4 March, 2003

The derivatives market has exploded in recent years, with investment banks selling billions of dollars worth of these investments to clients as a way to off-load or manage market risk.

But Mr Buffett argues that such highly complex financial instruments are time bombs and “financial weapons of mass destruction” that could harm not only their buyers and sellers, but the whole economic system.

[…]

Some derivatives contracts, Mr Buffett says, appear to have been devised by “madmen”.  […]

http://news.bbc.co.uk/2/hi/bus…

The Full Story Of How Tim Geithner Secretly Bailed Out Wall Street And Screwed The Taxpayer Last Fall

Henry Blodget,

Oct. 28, 2009,

The Business Insider

When the historians finally finish sorting through the appalling decisions that have been made in the past two years, this one will probably be at the top of the heap.

Last fall, as AIG began to realize how screwed it was, it started negotiating with the counterparties to all the credit default swaps it had written.  One of the AIG’s goals was to persuade these counterparties–including Goldman Sachs–to accept buyouts discounts of as much as $0.40 cents on the dollar.

These sorts of negotiations are exactly what should happen when a company gets in trouble.  It goes to its creditors and says, look, we can’t pay you everything, so here’s your choice: Take something, or take your chances in banktuptcy court.  (And, in this case, this wouldn’t have been much of a choice, given the standing of CDS holders in the liquidation line).

But then Tim Geithner, head of the New York Fed, stepped in. 

A few weeks later, the counterparties–all of whom voluntarily did business with AIG and understood the risks–were bailed out at par: 100 cents on the dollar. 

Thus began the most nauseating giveaway in the history of the country.

Bloomberg has the whole sickening story:

By Sept. 16, 2008, AIG, once the world’s largest insurer, was running out of cash, and the U.S. government stepped in with a rescue plan. The Federal Reserve Bank of New York, the regional Fed office with special responsibility for Wall Street [run by Tim Geithner], opened an $85 billion credit line for New York-based AIG. That bought it 77.9 percent of AIG and effective control of the insurer.

The government’s commitment to AIG through credit facilities and investments would eventually add up to $182.3 billion.

Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps — insurance-like contracts that backed soured collateralized-debt obligations…

Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public…

The New York Fed’s decision to pay the banks in full cost AIG — and thus American taxpayers — at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III.

Read the whole story (and then marvel about how Tim Geithner is now Treasury Secretary) >

FRONTLINE INVESTIGATES THE ROOTS OF THE FINANCIAL CRISIS

FRONTLINE Presents

The Warning

Tuesday, October 20, 2009, at 9 P.M. ET on PBS

In the devastating aftermath of the economic meltdown, FRONTLINE sifts through the ashes for clues about why it happened and examines critical moments when it might have gone much differently.

In The Warning, airing Tuesday, Oct. 20, 2009, at 9 P.M. ET on PBS (check local listings), veteran FRONTLINE producer Michael Kirk (Inside the Meltdown, Breaking the Bank) unearths the hidden history of the nation’s worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multi-trillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.

http://www.pbs.org/wgbh/pages/…

Elizabeth Warren was appointed chair of a newly created Congressional Oversight Panel (COP), which is charged with keeping tabs on the $700 billion bailout of the financial sector – including Troubled Assets Relief Program (TARP).

Warren however, has had some “Trouble” getting straight forward answers … as she explained to the Boston Globe:

Has Treasury Secretary, Timothy Geithner, done a good job so far?  Kinda, I wouldn’t give him a gold star or anything.  In fact, I’d say he’s done a mediocre job.  Did he know about the whole bonus thing at AIG?  And what about how the situation that went down with Lehman Brothers?  Bottom line, is the GOP push to have Geithner removed legit?  I say no.

If you’re anything like me and I suspect like most of us, you know about the scandal surrounding AIG’s bonus payouts to the same company employees in their London operation that were at the center of the Credit Default Swap scheming that triggered the current global financial meltdown, but also like me you’re probably no economist nor expert in financial matters and are having a difficult time wrapping your head around what, exactly is going on, how we got here, and why our economy seems to be collapsing.

Sharona Coutts is a law graduate and an honors graduate from Columbia Journalism School’s investigative seminar and now writes for ProPublica, an independent, non-profit newsroom in Manhattan that produces investigative journalism and describes themslves as “producing journalism that shines a light on exploitation of the weak by the strong and on the failures of those with power to vindicate the trust placed in them”.

Sharona has put together a very good Q&A piece that helps in understanding what exactly is going on with AIG. She has also produced a very good related piece: Timeline: AIG and Their Bonuses that she quotes in the Q&A article reproduced here.

AIG’s Bonus Blow-Up: The Essential Q&A

by Sharona Coutts, ProPublica – March 18, 2009 5:12 pm EDT

Monday marked six months to the day since AIG’s first bailout, but it wasn’t until news of executive bonuses over the weekend that public fury truly focused on the hemorrhaging insurer.

President Obama told Americans he was “choked up with anger” over bonus payments to executives at AIG’s Financial Products office whose bad bets pushed the company to the brink of collapse. The administration is worried about public anger turning against it, not just the company.

In some respects, the sudden anger is mystifying. After all, there’s nothing new about the bonuses except that a portion of them – $165 million – were actually paid on Friday. Contracts instigating the bonuses were made a year ago, and they’ve regularly been in the news in recent months.

And the amount involved is dwarfed by the tens of billions that flowed to banks and hedge funds.

AIG’s plan to pay bonuses have been public knowledge for more than a year. Why is this blowing up now?

 

According to Rep. Paul Kanjorski (D) (PA-11), in mid-September of 2008, the United States of America came just three hours away from the collapse of the entire economy. In a span of 2 hours, $550 billion was drawn out of money market accounts in an electronic run on the banks.

Rep. Kanjorski: “It would have been the end of our economic system and our political system as we know it.”

Kanjorski’s bombshell begins to detonate at roughly 2:10 into the video.

Partial transcript below the fold.

cross posted from The Dream Antilles

Dear Sir:

This evening while I was reading the proposed “bailout bill,” I realized that there was a terrible omission in the document.  Specifically, you forgot to try to collect any funds for the bail out from the very people responsible for the mess.  I’m not talking about the firms they’ve looted.  I’m talking about the people who have taken money from the firms and made those funds their personal property.  And, I see, you are going to require me and my family, who didn’t participate at all in the financial feeding frenzy that led to the crash depression problem, to pick up the tab.  And that the tab is a whopper.

I find it real hard to believe I am the only one this happened to. So please read. if it does not apply to you, and you have no comment, then please go ahead and enjoy the novelty of the problem. It’s long, but it’s fun, unless it’s you,

To preface, because it is now apparent that I owe these guys no Courtesy, the following has been sent for review to :

a/ My family and friends.

b/ The local paper.

c/ The local grapevine.

d/ Representative Defazio.

e/ Representative Conyers, via his blog.

f/ Senator Wyden

g/ You.

But it has not yet been sent to the Department of Education, because they won’t give me their email, and my printer is kaput. Tuesday the Library is open. Then I will burn two copies, one for the bad guys, the other for the local Senior and Disabled Services Office. This gives some time to change the letter, make it better. And that is why I am asking for input.

Thanks all, and with no further ado, on with the show !

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