Making Money Coming And Going

You'll lack surprise when you discover that Edward Liddy, the head of AIG installed after the company imploded, owns a large stake in Goldman Sachs, which has been bailed out by AIG counter-party payments.

Edward M. Liddy, the dollar-a-year chief executive leading the American International Group since its bailout last fall, still owns a significant stake in Goldman Sachs, one of the insurer’s trading partners that was made whole by the government bailout of A.I.G.

Mr. Liddy earned most of his holdings in Goldman, worth more than $3 million total, as compensation for serving on the bank’s board and its audit committee until he stepped down in September to take the job at A.I.G. He moved to A.I.G. at the request of Henry M. Paulson Jr., then the Treasury secretary and a former Goldman director.

I think this has to be the end of Mr. Liddy. When your alibi is that the $3 million is “a small percentage of his total net worth,” you're really grasping at straws. No really, that's his alibi, check the link.

The 100% pass-through of AIG counter-party payments to Goldman and other banks is absolutely insidious, maybe the worst part of this whole thing. This is why Goldman and these other banks can self-righteously claim to be renouncing government help while accepting it through pass-throughs and separate federal aid programs. They'd rather get their payoffs in black bags than in public, that's all they're whining about.

I don't necessarily think that Liddy is only making Goldman whole because of his financial stake; it's more that he's a bankster helping out his other bankster pals. It's the culture of coziness between elites that must be stopped.

Have we completely lost of sense of what is and is not a conflict of interest? Have we really built a system in which greed fully overshadows responsibility? Is it not time for a complete rethink of what constitutes acceptable executive behavior?

One of our country’s leading corporate attorneys made a telling point to me on Wednesday night, “the only way to control executive behavior is to criminalize it,” i.e., civil penalties do not change behavior - the prospect of jail time has to be on the table. His broader point was that antitrust action can make a difference in today’s world, but only if this includes potential criminal charges [...]

Let me be very clear on my position vis-a-vis AIG-Goldman and the broader Washington-Wall Street Corridor. I’m not saying that anyone has broken any laws, but rather that laws need to be changed. I’m not even saying that there have been transgressions against the prevailing code of ethics for executives and politicians - although surely we agree that this code needs to be dragged, kicking and screaming, into the 21st century.

I’m just saying that we have a problem - ultimately, with the belief system that underpins how big finance behaves - and we need to fix it.

...more AIG hilarity: Jake DeSantis, who "resigned" in a letter picked up by the New York Times, still works for the company. What a bunch of WATBs who want to rule the universe in secret like the good old days instead of under public scrutiny.

Goldman Will Shut It Down

As exasperated as I am with Congress, they do seem to know how to investigate, if they don't always get the follow-through right. And they seem to be looking in the right places. For instance, Elijah Cummings wants to know about the counter-party payments from AIG:

He's currently circulating (and I have obtained) a letter to colleagues, seeking their support for a TARP inspector general investigation into every aspect of the payments AIG made, with government money, to counterparties whose risky investments it had insured.

"Goldman Sachs claimed in September that they had no material exposure to AIG; however, after AIG released the counterparty information on March 15, we found out that Goldman Sachs received almost $13 billion in counterparty payments.

The Special Inspector General for the Troubled Assets Relief Program was created to ensure that transparency and accountability stay firmly rooted in the government's efforts to revive and sustain the American economy. This letter proposes that the Special Inspector General examine the nature of the counterparty payments - including the recipients, the process by which they were made whole, and the justification, if any, for that level of payment."

In addition, investigators for the House Oversight Committee are delving into Joseph Cassano, the former head of the AIG Financial Products unit and essentially Patient Zero of the global financial crisis.

Investigators for the House Oversight committee intend to interview Cassano about his role in the firm's collapse, and have already contacted his lawyer, a committee staffer told TPMmuckraker.

As CEO of AIG Financial Products, Cassano, based in the unit's London office, was the prime mover behind the credit default swaps, whose implosion brought the firm to its knees. He stepped down in March 2008, signing a $1 million-a-month "consulting" contract with the firm. (The contract was canceled last September.)

Federal investigators, as well as Britain's Serious Fraud Office, are also probing AIGFP. The Feds are reportedly focused in particular on whether Cassano and then-AIG CEO Martin Sullivan made false or misleading pubic statements about the company's potential exposure to losses on its credit default swaps. A December 2007 shareholder presentation the two men made is said to be of special interest.

The focus appears to be those counter-party payments from AIG, and how they made big international banks whole on their CDS bets. What worries me is that all roads lead to Goldman Sachs, which clearly has its tentacles around the Administration. Goldman vowed yesterday to return all the TARP money it received while neglecting to mention that they received even more government relief from AIG and other sources. And Goldman is a linchpin to the Geithner plan for toxic assets:

Tim Geithner suggested that Goldman Sachs could be one of five institutions helping to manage the public-private partnership program to buy up a bunch of toxic legacy assets from ailing banks.

Goldman has played a central role in this drama. As an institution, it's been extremely close to the Treasury department. And, as Josh noted, it's also about to pay off all of its TARP money (with the help, perhaps, of the other government money it received as an AIG counterparty) which will free it up to return to a status quo of paying enormous bonuses.

It's also, of course, one of the institutions that helped bring the financial system to its knees--it holds many of the toxic assets in question and may be well placed to bid them up and inflate their prices at auction. (How you manage the fund to rescue financial institutions with toxic assets while you yourself hold those same assets has yet to be sussed out by committee members.)

My point is that Goldman may be the eventual white whale for Congressional investigators, but the Treasury Department as currently structured will work overtime to shield them from any harm.

Sigh.

Why Not Anger?

Shorter everyone who presumes to speak for everyone: This rabble-rousing is sure making it harder to continue with our legalized theft!

I don't want to completely dismiss the pushback from those who find the public anger over the AIG bonus babies distasteful. Without question, the larger scandal concerns the counter-parties and the use of AIG as a conduit to reward multinational banks, especially because the company made the counter-parties whole instead of forcing them to take a haircut. Joe Nocera makes additional good points. But whines that people are angry about the wrong thing hardly obscures the fact that people ought to be angry, extremely angry, at the hash financial, political and media elites have made of our collective economic well-being.

This anti-anger consensus among our political elites is exactly wrong. The public rage we're finally seeing is long, long overdue, and appears to be the only force with both the ability and will to impose meaningful checks on continued kleptocratic pillaging and deep-seated corruption in virtually every branch of our establishment institutions. The worst possible thing that could happen now is for this collective rage to subside and for the public to return to its long-standing state of blissful ignorance over what the establishment is actually doing.

It makes perfect sense that those who are satisfied with the prevailing order -- because it rewards them in numerous ways -- are desperate to pacify public fury. Thus we find unanimous decrees that public calm (i.e., quiet) be restored. It's a universal dynamic that elites want to keep the masses in a state of silent, disengaged submission, all the better if the masses stay convinced that the elites have their best interests at heart and their welfare is therefore advanced by allowing elites -- the Experts -- to work in peace on our pressing problems, undisrupted and "undistracted" by the need to placate primitive public sentiments.

While that framework is arguably reasonable where the establishment class is competent, honest, and restrained, what we have had -- and have -- is exactly the opposite: a political class and financial elite that is rotted to the core and running amok. We've had far too little public rage given the magnitude of this rot, not an excess of rage. What has been missing more than anything else is this: fear on the part of the political and financial class of the public which they have been systematically defrauding and destroying.

Consider that AIG is currently suing the federal government, which owns the company, for the return of $306 million in tax overpayments. I don't see these same elites shaking their heads soberly at AIG for their "populist anger" at trying to get $300 million from the entity that handed them $185 billion. Oh yeah, and with the real amount of the bonus increasing (now it's $218 million), before long the amount in bonuses and the amount requested from the government in tax overpayments will be equal, I'm willing to bet.

I agree that the fact that populism moved the House to pass the admittedly crude excise tax bill represents a great hope that finally, politicians are more worried about the public perception than their standing among the elites (the Senate remains out of reach, but only for now). People understandably reject a government and an economy owned by elites, and desire a voice in their affairs again.

And that's the point: only this true, intense, and -- yes -- scary public rage can serve as a check on ongoing pilfering by the narrowed monied factions who control our Government for their own interests and who otherwise have no reason to stop. Who else is going to impose those checks? The bought-and-paid-for, incomparably subservient, impotent and inept Congress? The establishment-loyal, vapid political press? An executive branch run by the very people who are most vested in, dependent on, and loyal to the financial system that produced these disasters? Only a healthy fear of the populace -- exactly what has been missing -- can achieve that.

Now rage can lead to bad outcomes, but I struggle to see how it could be functionally worse than the society of the pwned in which we live currently.

Lucian Bebchuk and Dean Baker have more.