Posts Tagged ‘aig’

Prosecution of fraud… cont.

May 23, 2010

In an earlier post, I wondered what might be the rationale for investigating and, eventually, prosecuting entities that, with government tacit consent and collusion, are clearly at the heart of the current crisis and have obviously not acted in the best interest of society at large. As I had no answers then, I still have no answers today. Except that today we know that no criminal charges will be brought against any AIG executives… ??? …

I would like to say this was a foregone conclusion for it is unrealistic to expect the chief enabler to investigate and prosecute its own gang. AIG now being a ward of the state, it is unrealistic to expect the state to indict itself.

So, is it all a dog-and-pony show? Is it just a way to throw the seething masses a bone? It certainly looks that way. Not that we are surprised of course but it is disconcerting nonetheless and I doubt it will serve to assuage the anger that is mounting at street level.

Here is another take from Naked Capitalism with more detail and more in depth information on indirect though equally suspect relationships as well as a good point I was not aware of concerning “secondary liability”.

http://www.nakedcapitalism.com/2010/05/no-criminal-charges-against-aig-execs.html

You cant’ make this stuff up…

February 3, 2010

… I have to wonder where the pitchforks are…

Truly I am stunned. The people cannot be anymore supine than they have been for the past two years. What will it take?

http://news.yahoo.com/s/ap/20100203/ap_on_bi_ge/us_aig_bonuses

American International Group Inc. is set to pay out about $100 million in a fresh round of bonuses to employees of its financial products division, the unit whose risky bets helped sink the company leading to a $180 billion government bailout, according to reports published Tuesday.”

More main stream media catching-up

January 31, 2010

It is said that “Men go mad in herds but come to their senses one by one” and so it is that the main stream media may be slowly coming to its senses… maybe…

This is no surprise here of course.

http://www.businessweek.com/news/2010-01-28/secret-banking-cabal-emerges-from-aig-shadows-david-reilly.html

Excerpts:

As Representative Marcy Kaptur told Geithner at the hearing: “A lot of people think that the president of the New York Fed works for the U.S. government. But in fact you work for the private banks that elected you.”

And yet the New York Fed played an integral role in the government’s bailout of banks, often receiving surprisingly free rein to act as it saw fit.

Consider AIG. Let’s take Geithner at his word that a failure to resolve the insurer’s default swaps would have led to financial Armageddon. Given the stakes, you might think Geithner would have coordinated actions with then-Treasury Secretary Henry Paulson. Yet Paulson testified that he wasn’t in the loop.

“I had no involvement at all, in the payment to the counterparties, no involvement whatsoever,” Paulson said.


Bernanke’s Denials


Fed Chairman Bernanke also wasn’t involved. In a written response to questions from Representative Darrell Issa, Bernanke said he “was not directly involved in the negotiations” with AIG’s counterparty banks.

You have to wonder then who really was in charge of our nation’s financial future if AIG posed as grave a threat as Geithner claimed.


“Later, when it became clear information would be disclosed, New York Fed legal group staffer James Bergin e-mailed colleagues saying: “I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals — too many counterparties, too many lawyers and advisors, too many people from AIG — to keep a determined Congress from the information.”

Think of the enormity of that statement. A staffer at a body with little public accountability and that exists to serve bankers is lamenting the inability to keep Congress in the dark.

This belies the culture of secrecy obviously pervasive within the New York Fed. Committee Chairman Edolphus Towns noted during the hearing that the bank initially refused to disclose even the names of other banks that benefited from its actions, arguing this information would somehow harm AIG.”

High Frequency Trading and mark to model rules

August 25, 2009

This is the clearest explanation of HFT I’ve come across.

http://market-ticker.org/archives/1366-The-Lie-Of-High-Frequency-Trading-Liquidity.html

As far as Mark to Model accounting rules are concerned, we have already established that it is fraud; legal and government sanctioned but fraud nonetheless.

Some of you are asking how either practice is fraud and, more importantly why.

HFT is fraud in the same way a company buying its own common stock in the open market by taking advantage of low interest rates is fraud. That is, it gives investors the appearance of liquidity thus interest in a stock. Interest in a stock and liquidity are two fundamental signals used by investors to make investment decisions. When Goldman Sachs engages in HFT in a particular stock and/or the CEO of a company takes a loan in the company name and buys his company’s own stock, the collusion of just two actors and a computer program creates the impression that entire swathes of investors are interested in a particular stock. This induces other investors to take positions on false premises. As investors buy the stock, the perpetrators of HFT earn money on the spread whilst the CEO earns money on stock options.

So, how does that affect little old you? Let me assure you this is not a victimless crime.

You don’t have to be an investor to get screwed. If you are a tax paying citizen; if you live in a house or an apartment; you are getting screwed regardless of whether you invest in the stock market or not.

You see, like most people, you probably pay taxes that you hope will be invested in public services like road networks, refuse collection and disposal, firefighting or bridge building. Probably you also pay some type of insurance and contribute to some type of pension fund. The money you pay goes into funds that are managed by fund managers. However, fund managers do not get paid a salary if they do not deploy these sums.

And here is the kicker – if a government decrees that a company is allowed to disregard accounting rules pertaining to their true financial position, this company can maintain an investment grade rating by Fitch, Moody’s or Standard and Poors for example. If also the same government allows Goldman Sachs to make use of their proprietary computer program to artificially inflate trading volume in the stock then the illusion is complete.

A highly liquid investment grade company is all fund managers needs to know to invest the cash they receive from you and me. This is because if the investment subsequently goes up in smoke the investment manager’s ass is covered both by the investment grade rating of the company and by the trading volume of the company stock that indicated that large pools of investors had an interest in this particular company.

Let’s take a look at what is happening today.

In the fall of 2008 we had a number of the largest financial institutions in the world go to the brink of bankruptcy. As some of them fell over, governments stepped in and arbitrarily handed over public funds to “stabilize” these banks because, ostensibly, they were critical to propping up the world’s financial system. However, other than an almost total lack of transparency on how these emergency funds were distributed and to which companies, some observers postulated that the funds appropriated were not nearly enough to clean up the problems. Indeed, in the USA with two successive administrations, funds of 1.4Trillion were appropriated and guarantees for several more Trillions were made amounting to something in the range of 12 to 14 Trillion Dollars of cash and guarantees. Not bad.

However, considering the Bank of International Settlements assessment of outstanding derivatives, 14Trillion is a drop in the ocean. Heck! 50Trillion wouldn’t even begin to measure up.

So what, you may ask, was the solution?

The “solution” is nothing of the sort. What our governments are doing is tapping you twice and telling you that you’ve only been tapped once. Our governments’ aim is to buy time.

In the first round governments gave public funds to banks – sometimes repeatedly (i.e. AIG). This is the round government tells you that you are being tapped.

In the second round, governments collude to make the banks appear solvent so that fund managers could safely hand over your insurance and pension funds. This is the round government is not telling you that you are being tapped.

Incredible?

What might be incredible in this whole boondoggle? The sheer sums we are talking about? Is it the notion that governments will not act against the interest of the people? Is it the notion that banks cannot go bankrupt because they are banks?

What is so incredible about what is clearly and blatantly happening and that is obviously and unmistakably against the interest of the people?

Please tell me what you find incredible in this whole thing and when you do, please explain how you can reconcile the numbers in a manner that is not leading us into a world war.

Deflation, deflation, deflation…

August 1, 2009

… leading to… revolution or world war…

http://www.bloomberg.com/apps/news?pid=20601087&sid=aBevuxMdwyDU

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aM5.JQngUK44

http://finance.yahoo.com/banking-budgeting/article/107445/after-rescue-new-weakness-seen-at-aig.html?sec=topStories&pos=5&asset=&ccode=

Excellent news and terrifying news….

April 6, 2009

Jesse’s Cafe Americanis reports some excellent news regarding some much needed rationality, humility and honesty. If only this would happen we’d be half way through to recovery:

http://www.guardian.co.uk/business/2009/apr/05/useconomy-regulators

Karl Denninger on the other hand reports worrisome news and developments regarding constitutional rights as well as some good news in terms of the main stream press coming to terms with reality… albeit too late…

http://market-ticker.denninger.net/archives/935-The-Constitution-Dies-To-Thunderous-Applause.html

http://market-ticker.denninger.net/archives/934-Under-Fire-The-Federal-Government.html

Denninger on AIG

April 1, 2009

Other than in offering tags that are intimately related to the subject matter, I couldn’t possibly improve on this post by Karl Denninger

http://market-ticker.denninger.net/archives/916-Yoo-Hoo!-Yes,-Mr.-Cop-Over-THERE!-AIG.html

Public private investment program PPIP

March 31, 2009

The Bloomberg article linked below is not strictly about the PPIP but it is intimately related. I’ve read a number of explanations of this boondoggle and when I try to explain it to people I know, I see them glaze over. I’d like to take another crack at it because when approved, this program is the get-out-of-jail-free card for all those that have speculated and amassed fortunes over the past twenty years and now that things are going against them, they are passing the buck unto you and me.

Here is the skinny on PPIP.

You’ve heard that the major banks are in trouble due to their ownership of “toxic assets”

Toxic assets are assets that have lost most of their value.

Assets have lost most of their value because they cannot be sold.

Assets cannot be sold because nobody wants that type of asset at the price the banks are asking.

Banks are asking higher prices because if they sell at a lower price they would go bankrupt

– (it is a bit as if you were in debt to the bank but did not want to sell your house to cover your debt because at current prices, the amount of money you would get is not enough to cover your debt) –

Now

Although Western governments have given Trillions in cash to the banks and have underwritten the obligations of the worst offenders, the banks are still in trouble. The value of the toxic assets in question is truly gargantuan and most folk would have only come across similar figures when reading science fiction books.

Enter Geitner

What Geitner proposes and will most likely get approved is the following.

Suppose you are Citi Bank and you have $100 in toxic assets

Geitner proposes to induce private investors to buy these assets from the banks

Inducement will take the form of cash incentives

Private investors will pay $5

The Treasury will match the $5

The Fed Reserve will pony up $90

Presto! Citi gets $100 dollars and the private investor walks away with the toxic asset.

Here is the trick.

If toxic assets should appreciate one day, the private investor makes money and reimburses the Fed and the Treasury (other than repaying their participation, it is not clear if profits will be shared with the Treasury and the Fed i.e. you and me)

If toxic assets should bomb out one day, the private investor has lost $5 … but… if you are a keen observer, the Fed and the Treasury (i.e. you and me) lose $95

If you haven’t spotted the problem in this boondoggle here it is.

It is impossible to prevent Citi Bank from becoming the private investor and using the $90 of taxpayer money to buy the assets from themselves. All Citi needs to do is create a Special Investment Vehicle (SIV) and impersonate a private investor.

Suddenly, if you refer to the calculation above, if assets should one day appreciate, Citi makes out like a bandit

But if assets crater, Citi loses $5 whereas the taxpayer loses $90

Boondoggle?

Absolutely and it is about to be approved.

http://www.bloomberg.com/apps/news?pid=20601087&sid=armOzfkwtCA4&refer=home

AIG crisis could be the tip of an insurance iceberg

March 30, 2009

As I’ve pointed out in previous comments, the insurance industry bears watching. Insurance is the grease that ensures that global production and trade happen seamlessly. In the absence of insurance, one of the greatest problems we’d have to solve is agricultural production (food to you and me). This, at a time when stocks of grains are at multi-decades lows.

http://www.latimes.com/news/nationworld/nation/la-na-aig30-2009mar30,0,1747696.story

Fascism’s slow but inexorable march…

March 25, 2009

Obama admin. seeks powers to shut firms like AIG

http://www.reuters.com/article/marketsNews/idINN2435654320090324?rpc=44

Here is my beef. The Treasury and the Fed are seeking extended and extraordinay powers to short circuit the civic institutions that are supposed to scrutinize their actions. Now, I’ll grant you that civic institutions globally have spectacularly failed to live up to their fiduciary duty in the recent past. Nonetheless, this action is aimed to make it official and legal for unelected officials to side line civic institutions.

Now consider these statements from the article:

” The Obama administration on Tuesday mounted a full-scale push for government authority to shut down troubled institutions like insurer AIG (AIG.N) to avoid the need for future bailouts.” […] Geithner said the government needed the same types of tools to deal with failing non-bank institutions that it already has to deal with struggling banks. Under his proposal, the Treasury chief would determine whether emergency action was needed in consultation with the Fed and the relevant regulator.”
My problem with this request is as follows. The Treasury and the Fed acted unilaterally to give AIG $170Billions of public funds without so much as asking Congress but they want permission to shut the company down? We own 80% of the company and we are seeking permission to shut our own company down????

Of course that is not the case. What Treasury and the Fed are seeking are powers to shut down other companies as they see fit. This is a boondoggle by any other name; fascism by any other name. This is how the transfer of wealth takes place. Non performing assets are offloaded on the public’s balance sheet whereas performing assets are stripped off and end up on the balance sheet of the institutions that are yanking the strings that animate politicians.

Revolution, if not war, can’t be too far in the future… somewhere… at some point…

Got bullion?