Eliot Spitzer: The real scandal at AIG is the not the bonuses. It’s the payments to counterparties. + The feds must investigate

Dandelion Salad

By Eliot Spitzer
Slate Magazine
Tuesday, March 17, 2009, at 10:41 AM ET

It’s not the bonuses. It’s that AIG’s counterparties are getting paid back in full.

Everybody is rushing to condemn AIG’s bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG’s counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman’s collapse, they feared a systemic failure could be triggered by AIG’s inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG’s trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

[…]

via The real scandal at AIG is the not the bonuses. It’s the payments to counterparties. – By Eliot Spitzer – Slate Magazine

***

The feds must investigate AIG’s fishy $12.9 billion payment to Goldman.

By Eliot Spitzer
Slate Magazine
Sunday, March 22, 2009, at 9:42 AM ET

The transfer of $12.9 billion from AIG to Goldman looks fishier and fishier.

The AIG scandal is getting ever-more disturbing. Goldman Sachs’ public conference call explaining its trading relationship and exposure with AIG established once again that Goldman knows how to protect itself. According to Goldman, even if AIG had failed, Goldman’s losses would have been minimal.

How did Goldman protect itself? Sensing AIG’s weakening capital position through 2006 and 2007, Goldman demanded more collateral from AIG and covered outstanding risk with instruments from other firms.

But this raises two critical questions. The first is why did $12.9 billion of taxpayer money go from AIG to Goldman? What risk—systemic or otherwise—was being covered? If Goldman wasn’t going to suffer severe losses, why are taxpayers paying them off at 100 cents on the dollar? As I wrote earlier in the week, the real AIG scandal is that the company’s trading partners are getting fully paid rather than taking a haircut.

[…]

via The feds must investigate AIG’s fishy $12.9 billion payment to Goldman. – By Eliot Spitzer – Slate Magazine

see

An American Outrage: Bernie, AIG, and Us by Rosemary and Walter Brasch

The Big Takeover by Matt Taibbi

Was the Bailout Itself a Scam? By Paul Craig Roberts

Bernanke’s Hammer by Cameron Salisbury

Bernanke’s Witness Protection Program By Mike Whitney

The Economy Sucks and or Collapse 2

5 thoughts on “Eliot Spitzer: The real scandal at AIG is the not the bonuses. It’s the payments to counterparties. + The feds must investigate

  1. Pingback: Eliot Spitzer: Geithner, Bernanke “Complicit” in Financial Crisis and Should Go « Dandelion Salad

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  3. The idea of former New York Governor and Attorney General Eliot Spitzer criticizing the AIG bailout and bonus in a recent column for SLATE is ironic: Spitzer is responsible for the economic condition of the company for which they need a bailout.

    In fact, Spitzer’s crackdown on Wall Street caused the firms to increase leverage because he took away the ability for them to make money in research and underwriting, and they looked for other ways to make money-like securitizing subprime mortgages.

    In fact, if Spitzer hadn’t removed Maurice “Hank” Greenberg from AIG, the company would never have crashed. Greenberg was a much more conservative investor and had tighter risk management rules that were suspended by the company only after Spitzer drove Greenberg out over charges that proved bogus in the courts.

    The billion dollar investment in credit default swaps which were not hedged brought the company and the economy down. This insurance was written only after Greenberg was forced out and never would have been written under Greenberg’s risk management rules. Thus, Eliot Spitzer is partially responsible for the current economic crisis, not some Boy Scout crying an early warning.

    This is so typical of his reign as Attorney General where he blackmailed companies by press release, threatening to destroy your company’s value unless you pled to infractions you hadn’t actually committed. Most saw the futility of winning in court after Spitzer had destroyed their company so they settled. When cases actually went to trial most were dismissed or those Spitzer apprehended were acquitted.

    Spitzer’s assault on the New York Stock Exchange’s Ken Grasso, Ken Langone and Greenberg, while not also pursuing NYSE board member Carl McCall for fear of offending key African American political leaders, stands out as the kind of perverted justice Spitzer pursued. Spitzer made base-less charges against Greenberg, drove him from the company and set the stage for AIGs collapse.

  4. Pingback: Judgment Day for Geithner By Mike Whitney « Dandelion Salad

  5. Pingback: Spitzer: Regulatory System Was Structurally Flawed But You Can’t Legislate Judgement « Dandelion Salad

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