As CIT goes bankrupt and Treasury Secretary Geithner warns today that the "damage caused by this crisis" will "take some time" to repair, a key Wall Street player has managed to weather the storm at the expense of an unwary, drenched public.
"All men are equal," E.M. Forster wrote a century ago, "all men, that is to say, who possess umbrellas." An old saying puts it more tartly: "The rain falls equally on the just and the unjust, but more on the just because the unjust have stolen their umbrellas."
According to the McClatchy Newspapers, Goldman Sachs spent years cornering the umbrella market:
In 2006 and 2007, they "peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
"Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.
"Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk."
Pension funds, insurance companies, labor unions and financial institutions have been hit with large losses as a five-month McClatchy investigation finds that "Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws."
Meanwhile, after raking in more than $23 billion of taxpayer money (most of it funneled from the AIG bailout), Goldman is repaying the $10 billion it received directly to escape federal limits on $20 billion in bonuses it wants to pay executives from more than $50 billion in expected revenue this year.
In these rainy days for the American economy, there is one place on Wall Street where everybody is staying very dry.
Showing posts with label AIG. Show all posts
Showing posts with label AIG. Show all posts
Sunday, November 01, 2009
Thursday, July 09, 2009
Spitzer as AIG Culprit
When a commission probes the economic meltdown, Michael Lewis' Vanity Fair piece "The Man Who Crashed the World" will serve as a rough draft of what went wrong at AIG and started the financial landslide.
In chronicling how the company built a tower of risk that tumbled around Wall Street's ears, Lewis in passing reveals the role of Eliot Spitzer, then New York Attorney General, in enabling it all.
Lewis' close questioning of "the silent, shell-shocked traders of the AIG Financial Products unit...finds that the story may have a villain, whose reign of terror over 400 employees brought the company, the US economy, and the global financial system to their knees"--Joe Cassano, a hard-charging but relatively unsophisticated former back-room operator who drove credit default swaps to perilous heights.
When he got the job in 2001, Cassano was a pale imitation of the despotic CEO Hank Greenberg, who built AIG into an insurance powerhouse over 37 years, earning a AAA credit rating for prudence to go along with his aggressive tactics.
AIG FP’s employees, Lewis writes, "suspect that the only reason Greenberg promoted Cassano was that he saw in him a pale imitation of his own tyrannical self and felt he could control him. 'So long as Greenberg was there, it worked,' says one trader, 'because he watched everything Joe did.'"
But then in 2005 along came Spitzer, in his own relentless drive to build the reputation that led to his election as New York governor, to hound Greenberg out of AIG while treating Warren Buffet, whose General Re subsidiary was involved in the same questionable deals, with extreme deference.
After that, Lewis reports, "as one trader puts it, 'the new guys running AIG had no idea.' They thought the money machine ran on its own, and Cassano did nothing to discourage the view. By 2005, AIG FP was indeed, in effect, his company."
In building his own reputation as a white knight, Eliot Spitzer, later forced to resign for failings of his own, seems to have been instrumental in starting the avalanche that threatened to bury us all.
In chronicling how the company built a tower of risk that tumbled around Wall Street's ears, Lewis in passing reveals the role of Eliot Spitzer, then New York Attorney General, in enabling it all.
Lewis' close questioning of "the silent, shell-shocked traders of the AIG Financial Products unit...finds that the story may have a villain, whose reign of terror over 400 employees brought the company, the US economy, and the global financial system to their knees"--Joe Cassano, a hard-charging but relatively unsophisticated former back-room operator who drove credit default swaps to perilous heights.
When he got the job in 2001, Cassano was a pale imitation of the despotic CEO Hank Greenberg, who built AIG into an insurance powerhouse over 37 years, earning a AAA credit rating for prudence to go along with his aggressive tactics.
AIG FP’s employees, Lewis writes, "suspect that the only reason Greenberg promoted Cassano was that he saw in him a pale imitation of his own tyrannical self and felt he could control him. 'So long as Greenberg was there, it worked,' says one trader, 'because he watched everything Joe did.'"
But then in 2005 along came Spitzer, in his own relentless drive to build the reputation that led to his election as New York governor, to hound Greenberg out of AIG while treating Warren Buffet, whose General Re subsidiary was involved in the same questionable deals, with extreme deference.
After that, Lewis reports, "as one trader puts it, 'the new guys running AIG had no idea.' They thought the money machine ran on its own, and Cassano did nothing to discourage the view. By 2005, AIG FP was indeed, in effect, his company."
In building his own reputation as a white knight, Eliot Spitzer, later forced to resign for failings of his own, seems to have been instrumental in starting the avalanche that threatened to bury us all.
Thursday, April 16, 2009
Banks/Treasury Mating Dance
Wall Street and Washington are not known for subtleties, but bailout discourse is getting to be like the dialogue in a Jane Austen novel with coy hints, convoluted language and hidden meanings in every line.
In "a delicate balancing act," we are told, "The administration has decided to reveal some sensitive details of the stress tests now being completed" to offset rumors about some of the weakest institutions.
This breach of etiquette is prompted by recent declarations of some impoverished but proud banks that they are actually making money again and will pay back or decline future government charity.
Translation: Banks want the money but only without being told how to pay not only top executives but, as one returner of bailout cash puts it, "our best sales people, our best relationship bankers."
If Obama is Mr. Darcy in all this folderol, Goldman Sachs is turning out to be his Elizabeth Bennet, pridefully announcing plans to disdain further help: “We just think that operating our business without the government capital would be an easier thing to do. We’d be under less scrutiny, and under less pressure."
But Goldman's newfound haughtiness can't cover the fact that it has been kept afloat by billions of never-to-be-returned Federal Reserve money paying off AIG obligations at face value rather than deep discounts, as the Wall Street Journal observes:
"The point is that Goldman and other banks can't have it both ways. If they want taxpayers to save them, then they have to take fewer risks and become smaller. Either that, or we need a new financial resolution or bankruptcy process that lets these companies fail while protecting the larger banking system."
Meanwhile, the plots keep thickening and, unlike Jane Austen's works, are not guaranteed to have happy endings.
In "a delicate balancing act," we are told, "The administration has decided to reveal some sensitive details of the stress tests now being completed" to offset rumors about some of the weakest institutions.
This breach of etiquette is prompted by recent declarations of some impoverished but proud banks that they are actually making money again and will pay back or decline future government charity.
Translation: Banks want the money but only without being told how to pay not only top executives but, as one returner of bailout cash puts it, "our best sales people, our best relationship bankers."
If Obama is Mr. Darcy in all this folderol, Goldman Sachs is turning out to be his Elizabeth Bennet, pridefully announcing plans to disdain further help: “We just think that operating our business without the government capital would be an easier thing to do. We’d be under less scrutiny, and under less pressure."
But Goldman's newfound haughtiness can't cover the fact that it has been kept afloat by billions of never-to-be-returned Federal Reserve money paying off AIG obligations at face value rather than deep discounts, as the Wall Street Journal observes:
"The point is that Goldman and other banks can't have it both ways. If they want taxpayers to save them, then they have to take fewer risks and become smaller. Either that, or we need a new financial resolution or bankruptcy process that lets these companies fail while protecting the larger banking system."
Meanwhile, the plots keep thickening and, unlike Jane Austen's works, are not guaranteed to have happy endings.
Friday, March 20, 2009
Bailout Rage: Tale of Two Cities
The epicenters of the national economic crisis are showing a curious journalistic inversion in covering the news. The New York Times, at the heart of the financial industry, seems focused on reporting popular rage as the Washington Post, home of posturing politicians, is making more of a sustained effort to keep the issues in perspective.
This conclusion, admittedly impressionistic but based on close reading of the papers over the past months, is reflected in today's issues.
The Times features "Scorn Trails A.I.G. Executives, Even in Their Driveways" and "Connecticut Senator Draws Voters’ Ire for His Bonus Role," which highlight the blame game, while the Post offers "In New Dilemma, Banks Cite Two Paths to Disaster," a balanced report on the tension inherent in government supervision, and business columnist Steven Pearlstein's "Let's Put Down the Pitchforks":
"At the end of the day, the thing to get outraged about is not the $440 million in bonuses at AIG or the $10 million that Citigroup is spending to redesign its shrunken executive suite...almost insignificant compared with the real outrage: the hundreds of billion dollars of taxpayer funds that have been put at risk to keep AIG and Citi from failing and taking the whole financial system down with them. Let's keep our attention on the elephant rather than the pimples on its behind."
My conclusion, not buttressed by statistics, may be unfair to the Times, but I have seen nothing comparable there to the long takeout last month and a previous three-part series in the Post about the origins and history of the AIG debacle.
As the US Congress spends precious time playing gotcha on a minuscule issue in the nation's crisis, it would be helpful if the newspaper of record devoted more of its attention to what really matters.
This conclusion, admittedly impressionistic but based on close reading of the papers over the past months, is reflected in today's issues.
The Times features "Scorn Trails A.I.G. Executives, Even in Their Driveways" and "Connecticut Senator Draws Voters’ Ire for His Bonus Role," which highlight the blame game, while the Post offers "In New Dilemma, Banks Cite Two Paths to Disaster," a balanced report on the tension inherent in government supervision, and business columnist Steven Pearlstein's "Let's Put Down the Pitchforks":
"At the end of the day, the thing to get outraged about is not the $440 million in bonuses at AIG or the $10 million that Citigroup is spending to redesign its shrunken executive suite...almost insignificant compared with the real outrage: the hundreds of billion dollars of taxpayer funds that have been put at risk to keep AIG and Citi from failing and taking the whole financial system down with them. Let's keep our attention on the elephant rather than the pimples on its behind."
My conclusion, not buttressed by statistics, may be unfair to the Times, but I have seen nothing comparable there to the long takeout last month and a previous three-part series in the Post about the origins and history of the AIG debacle.
As the US Congress spends precious time playing gotcha on a minuscule issue in the nation's crisis, it would be helpful if the newspaper of record devoted more of its attention to what really matters.
Wednesday, March 18, 2009
Bailout Rocky Horror Shows
The 1930s are back today, featuring remakes of the scary movies that entranced Americans during the Great Depression.
With the political landscape looking a mob scene from "Frankenstein," Ruth Marcus of the Washington Post asks, "Could we put down the pitchforks for just a moment and have a reasonable discussion about the bonuses at American International Group?"
At another screen of the nail-biters' multiplex, Maureen Dowd is egging on the villagers by invoking "Dracula": "What President Obama should have said to the blood-sucking bums at A.I.G., many of them foreigners who were working at the louche London unit, was quite simple: 'We stopped the checks. They’re immoral. If you want Americans’ hard-earned cash as a reward for burning up their jobs, homes and savings, sue me.'"
Meanwhile on Capitol Hill, Barney Frank is directing a remake of "The Invisible Man," demanding that AIG name names so his colleagues won't be flailing at thin air as they chase the bonus takers with Sen. Charles Grassley, who seems to have wandered in from some Japanese slasher flick, demanding that they quit or commit hari kari.
With taxpayers in dire need of distraction from the real world and the President on a trip to the West Coast, ticket sales should be brisk.
With the political landscape looking a mob scene from "Frankenstein," Ruth Marcus of the Washington Post asks, "Could we put down the pitchforks for just a moment and have a reasonable discussion about the bonuses at American International Group?"
At another screen of the nail-biters' multiplex, Maureen Dowd is egging on the villagers by invoking "Dracula": "What President Obama should have said to the blood-sucking bums at A.I.G., many of them foreigners who were working at the louche London unit, was quite simple: 'We stopped the checks. They’re immoral. If you want Americans’ hard-earned cash as a reward for burning up their jobs, homes and savings, sue me.'"
Meanwhile on Capitol Hill, Barney Frank is directing a remake of "The Invisible Man," demanding that AIG name names so his colleagues won't be flailing at thin air as they chase the bonus takers with Sen. Charles Grassley, who seems to have wandered in from some Japanese slasher flick, demanding that they quit or commit hari kari.
With taxpayers in dire need of distraction from the real world and the President on a trip to the West Coast, ticket sales should be brisk.
Monday, March 16, 2009
Bailout Roulette
Connoisseurs of irony may relish this round trip of millions of taxpayer dollars--from the Federal Reserve to AIG to UBS and back to the US Treasury.
Under pressure from Congress and the public, AIG yesterday released names of financial institutions that benefited from the Federal Reserve’s decision last fall to bail out the giant insurer. Among them was the Swiss Bank UBS, which got $5 billion.
Last month, UBS had to pay $780 million to settle federal charges of helping customers defraud the IRS with offshore accounts. As part of the deal, UBS agreed to cooperate with a summons by the Justice Department to turn over names of account holders under the threat that the bank's executives could be indicted if UBS failed to do so.
So here we have bailout money spinning from the US government to a too-big-to-fail financial giant that blew billions to a crooked Swiss bank that help rich Americans cheat on their taxes and now has to give some of it back in fines for doing so.
Amid all this wheeling and dealing among incompetents and thieves, there is a little extra touch that one of the UBS executives who could be hauled into court is John McCain's campaign economic adviser, former Sen. Phil Gramm, a vice chairman of UBS who recently told Wall Street Journal readers that it wasn't the deregulation he sponsored that started the mortgage meltdown.
The money just keeps going round and round and, as croupiers like to say, where it stops nobody knows.
Under pressure from Congress and the public, AIG yesterday released names of financial institutions that benefited from the Federal Reserve’s decision last fall to bail out the giant insurer. Among them was the Swiss Bank UBS, which got $5 billion.
Last month, UBS had to pay $780 million to settle federal charges of helping customers defraud the IRS with offshore accounts. As part of the deal, UBS agreed to cooperate with a summons by the Justice Department to turn over names of account holders under the threat that the bank's executives could be indicted if UBS failed to do so.
So here we have bailout money spinning from the US government to a too-big-to-fail financial giant that blew billions to a crooked Swiss bank that help rich Americans cheat on their taxes and now has to give some of it back in fines for doing so.
Amid all this wheeling and dealing among incompetents and thieves, there is a little extra touch that one of the UBS executives who could be hauled into court is John McCain's campaign economic adviser, former Sen. Phil Gramm, a vice chairman of UBS who recently told Wall Street Journal readers that it wasn't the deregulation he sponsored that started the mortgage meltdown.
The money just keeps going round and round and, as croupiers like to say, where it stops nobody knows.
Tuesday, February 24, 2009
Meaning of the Stock Market Hissy Fit
As the nation's banks face their "stress test" by the Treasury this week, the stock markets are having the equivalent of a heart attack with indexes falling to lows unseen in this century.
What can Barack Obama possibly say tonight that would stop the cratering of values in the entire economy? The major banks, the automakers, the insurance giant AIG have all swallowed billions of taxpayer money and are now begging for more.
It's the President's mission to reassure the country that everything will be all right--eventually. But eventually keeps receding, and there is no sign that politics-as-usual is being put aside to deal with the magnitude of the emergency.
If anything, the stock market may be sending a message that its greatest advocates are still not getting. Those Republicans who are still prattling about free markets are not hearing what the biggest market of all is trying to tell them: This problem is too big for any other entity but government and, the longer it takes for everyone to agree on that, the worse it's going to get.
What can Barack Obama possibly say tonight that would stop the cratering of values in the entire economy? The major banks, the automakers, the insurance giant AIG have all swallowed billions of taxpayer money and are now begging for more.
It's the President's mission to reassure the country that everything will be all right--eventually. But eventually keeps receding, and there is no sign that politics-as-usual is being put aside to deal with the magnitude of the emergency.
If anything, the stock market may be sending a message that its greatest advocates are still not getting. Those Republicans who are still prattling about free markets are not hearing what the biggest market of all is trying to tell them: This problem is too big for any other entity but government and, the longer it takes for everyone to agree on that, the worse it's going to get.
Tuesday, November 11, 2008
The Bailout as Bay of Pigs
It took JFK three months to stumble over the no-win Cuban invasion he inherited in 1961, but Barack Obama is in a deeper mess as he makes his first visit to the Oval Office more than two months before taking over.
The Bush Administration is fumbling the financial bailout in ways that make CIA planning for the Bay of Pigs look brilliant, and this time the new president won't have the option of pulling back and starting all over.
First results from takeovers of Fannie Mae and AIG show huge losses, reflecting a failure to stop the bleeding, and according to the Washington Post, "underscore the government's difficulty in intervening in private markets in a way that both protects taxpayers and ensures that the rescue efforts succeed...a cautionary tale at a time when Washington is debating whether to extend the federal umbrella to Detroit automakers and other beleaguered firms."
After interest rates on the original handouts proved too high to keep AIG from drowning in debt, the government agreed yesterday to offer a stronger lifeline with a new $152 billion loan on easier terms.
Fannie Mae executives are warning that their bailout funds "may prove insufficient" to allow the company to pay off loans or "continue to fulfill our mission of providing liquidity to the mortgage market at appropriate levels."
Meanwhile, Bloomberg News is suing under the Freedom of Information Act to force the Federal Reserve to identify the recipients of almost $2 trillion of emergency loans from American taxpayers and the troubled assets the central bank is accepting as collateral.
Even before he takes office, President Obama may find himself asking the question that plagued Casey Stengel when he took over the hapless New York Mets, "Can't anybody here play this game?"
The Bush Administration is fumbling the financial bailout in ways that make CIA planning for the Bay of Pigs look brilliant, and this time the new president won't have the option of pulling back and starting all over.
First results from takeovers of Fannie Mae and AIG show huge losses, reflecting a failure to stop the bleeding, and according to the Washington Post, "underscore the government's difficulty in intervening in private markets in a way that both protects taxpayers and ensures that the rescue efforts succeed...a cautionary tale at a time when Washington is debating whether to extend the federal umbrella to Detroit automakers and other beleaguered firms."
After interest rates on the original handouts proved too high to keep AIG from drowning in debt, the government agreed yesterday to offer a stronger lifeline with a new $152 billion loan on easier terms.
Fannie Mae executives are warning that their bailout funds "may prove insufficient" to allow the company to pay off loans or "continue to fulfill our mission of providing liquidity to the mortgage market at appropriate levels."
Meanwhile, Bloomberg News is suing under the Freedom of Information Act to force the Federal Reserve to identify the recipients of almost $2 trillion of emergency loans from American taxpayers and the troubled assets the central bank is accepting as collateral.
Even before he takes office, President Obama may find himself asking the question that plagued Casey Stengel when he took over the hapless New York Mets, "Can't anybody here play this game?"
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