Spitzer Is Back!: "The Real AIG Scandal"

Eliot Spitzer was the watchdog of Wall St.

Last spring he wrote an article in the Washington Post critical of the deregulation of the finical sector and warning of the impending economic doom that was about to go down. The same week he was arrested for solicitation of prostitution with evidence gathered under the auspices of the Patriot Act. He was forced to resign as Governor of New York.

The fact is, it was well known in certain circles that he had his "proclivities" for close to ten years. People knew. But no one said anything until he began to sound the alarm about corruption on Walls Street. He was taken down.

Beyond Sleazy Details and Moral-Come-Uppance: Why Spitzer Matters

Love him or hate him, no one can say he wasn't an advocate for the people, standing up against systemic corporate greed and corruption countless times during his tenure as the NY Attorney General.

Here is his take on AIG:

www.thebigmoney.com...

The Real AIG Scandal

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

By Eliot Spitzer
Posted Tuesday, March 17, 2009 - 11:01am

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.

It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG's counterparties are justified with an appeal to the sanctity of contract. If AIG's contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse.

It's all just a big shell game or ponzi scheme. Wall St. and Washington are colluding to divest taxpayers of our money in order to cover their losses. Private profit. Public Loss.

AIG needs to go down.

What monies are left from the Bail-out need to be rescinded. No further bail-outs should be allowed for any company that doesn't manufacture a tangible product in the U.S. made by American workers.

An independent prosecutor needs to be appointed to investigate the entire fiasco from 2007 to date.

Geithner and Bernanke need to go and Spitzer needs to polish up his resume'.

[edit on 18/3/2009 by kosmicjack]

Here are questions that Spitzer suggests need to be answered:

From the link above:

What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?

Was it already known who the counterparties were and what the exposure was for each of the counterparties?

What did Goldman, and all the other counterparties, know about AIG's financial condition at the time they executed the swaps or other contracts?
Had they done adequate due diligence to see whether they were buying real protection? And why shouldn't they bear a percentage of the risk of failure of their own counterparty?

What is the deeper relationship between Goldman and AIG? Didn't they almost merge a few years ago but did not because Goldman couldn't get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG's business model was not to pay on insurance it had issued.
Why weren't the counterparties immediately and fully disclosed?

Good find Jack! Star and Flag.

It has been known to me for awhile of the corruption that has been going on with these bailouts. Just makes me so angry these people are getting away with it!

Star 4 U!

Nice thread post!!!

We've been following this as well on...

The Official "up-to-the-minute Market Data" thread
www.abovetopsecret.com...

I was just commenting that MSM is asleep at the wheel on this topic...

...won't touch it...worthless...

Just now on MSNBC the Morning Joe ensemble was discussing AIG and Obama Press Secretary Robert Gibbs' less than stellar responses to White House reporters about who knew what and when.

MSNBC White House correspondent Chuck Todd made the comment that he "knew" Gibbs would not try to mislead about the subject. When pressed by Scarborough about how he knew that, Todd replied "Because I've dealt with him for 10 years and he has never lied to me."

Well Chuck, I suggest you go have coffee with Scott McClellan. I also suggest you take a refresher course on your journalistic responsibilities. If you can't be objective about the facts, ask the hard questions, demand answers and investigate the truth - then you seriously need to go back to being a political analyst and resign from your position as Chief White House Correspondent.

This type of elitist, insider, chummy behavior is exactly how we got into this mess - both in Washington and on Wall St. Is everyone so desperate to keep their hob-nob status and big pay check that they would trade their integrity? I guess so.

I say Todd needs to stand up, remember what his job is and ask the Administration the questions posed by Spitzer.





[edit on 18/3/2009 by kosmicjack]

reply to post by kosmicjack


Nice post KJ. I am not sure if you remember or not, but I have made some comments on the motivation of the political assassination of Elliot Spitzer in the past. From the sounds of things, he was trying to highlight what was going on before everything went down the toilet and TPTB weren't having any of it.

I am glad to see him back in the spotlight trying to do what is right. Given the gravity of the situation we are all in now, I am pretty sure people will be able to see beyond his scandal and actually hear the message that he is trying to get out there.

This type of elitist, insider, chummy behavior is exactly how we got into this mess

Now, on one hand you are right but on the other... we have always been in this mess. The problem now is just that the whole world is on to the scam that was played on us all. They are trying desperately to hide behind the curtain (while stealing as much money as they can) but I think the damage has been done. Unless there is a MAJOR distraction in the near future, the elaborate ponzi scheme that we used to call an economy will no longer work. So in my mind, "this mess" is our current economic system and we have always been in it. We have always been the pawns of the financial industry.

I really do worry about what they have in store to distract us so they can "get back to business".

Originally posted by Karlhungis Unless there is a MAJOR distraction in the near future, the elaborate ponzi scheme that we used to call an economy will no longer work...

I really do worry about what they have in store to distract us so they can "get back to business".

I totally agree Karl.

I don't see how the current system is sustainable. They know it too. I think they are divesting us of as many assets as they can before there is some sort of confrontation, contrived or otherwise. I think the bailouts were just a scam to get more. It was always going to fail, regardless of what measures were taken to stop it or slow it. I think they want the average citizen to be left with very few resources and no emotional energy to protest or rebel.

However, I tend to be bi-polar on this issue. I vacillate between wanting to fight the corruption, collusion and greed that has tainted the American dream in order to take back the more honorable aspects of free market capitalism and our way of life OR just wanting to burn the whole place down, damn the consequences and start over.

But at the very least, I want to expose the duplicitous liars and cheats - politicians and corporate cannibals - who were gaming both sides and lining their pockets so they won't be around to spoil whatever rises up out of the ashes.

Even more sickning than this 'backdoor' of capitalizing the 'primary-dealers' (20 elite banks)...is that this AIG saga can go on Indefinitely !

see: www.prudentbear.com...
'Subsidizing Failure' by Martin Hutchinson, 3-09-'09

...Of the capital injections into financial institutions, the most damaging of all, [...] , has been the $180 billion injected into the insurance company AIG.
Not only has this subsidized the continuation of AIG's financial products operation, about the most wealth-destructive participant in a highly wealth-destructive era on Wall Street, but it also has subsidized by some large fraction of $180 billion the wholly unsound credit default swaps business.
Had AIG been allowed to fail, the CDS market, the dangers of which I wrote about last week, would have been exposed as the destructive scam it is.
Those AIG counterparties who themselves survived would have fired their CDS dealers and redeployed resources into more productive – or at least, less destructive – operations.
As it is, the CDS market has been artificially endowed with a new lease of life, and will no doubt cause further even more expensive financial catastrophes down the road.

I put emphasis on the points relevant to this thread & my post within the tread...


See... next quarter... AIG will plead for another 10$-of-billion$...
which will again be back-doored to the likes of Goldman et al....

the bailout should include the AIG cessation of their exotic Swaps & other derivatives (AKA: gentlemen's bets debt instruments)...

we might wonder just what holdings does AIG have for which liability might become due in the future? we might wonder if there is also collusion
between the counter-parties in creating CDSwaps that are guaranteed to be losers to AIG, but are guaranteed to be paid by we taxpayers in this open-ended 'bail-out' process...

just a few 'what-ifs' to ponder...
thanks,

If anyone is following the hearings by the House Panel
on the testimony of AIG's CEO Mr Liddy.

(he was pressed into service as the CEO of AIG at the behest of the gov't
~coming out of retirement to the call of public-service~)


Mr Liddy (at 1:40pm EDT on TV) testified that a 'certain department' of AIG...
has the potential to be liable for more than $1.6 Trillion of what he called 'Stuff' !
(oil contracts, interest contracts, derivatives...etc)

so, the cat's out-of-the-bag... whats bankrupting AIG are the exotic/Toxic/
CDS's...
and the AIG accountans fully expect that another $1.6Trillion
will soon be 'owed' to other parties...

the 'bonuses' are on scale... as a gnat is to an elephant

because 'we the people' can fully expect to pay AIG CDS bets to the tune of another $1.6trillion to French & German banks(among others), & the dozen or so Primary-Dealers under the aegis of the FederalReserve here in the USA... and the half dozen or so State retirement funds which themselves dabbled in securities they should not have been
inmeshed with at all...derivatives, etc are not the in domain of Fudiciary Duty

As an example, imagine AIG made a deal with Goldman Sachs to make Goldman whole if Company X defaulted on its bond payments. In this arrangement, Goldman might hold bonds of Company X (and then again, it might not) against which it wanted downside protection via this contract with AIG. Now, after Lehman Brothers defaulted, in all likelihood the price of downside protection for Company X skyrocketed along with the Credit Default Swaps of all other companies. *That means any contractual settlement during the time frame of market dislocation was made at unrealistically high levels which no insurer would reasonably accept… that is, except AIG.* Goldman would be receiving money that it would not normally receive were it not for the fact that AIG was controlled by the Federal Reserve.

This is the crux of the issue. AIG was effectively nationalized. Thereafter _*it settled contractual arrangements which it was under no obligation to settle at prices which reflected an enormous premium due to dislocated markets.*_ Therefore, the company gave free money to its counterparties — all large international financial institutions. By the way, many of these institutions are not even American companies.

Who ended up footing the bill? American taxpayers.

On the back of recent outsized bonus revelations at AIG, those in the know about this are indignant. As a result, AIG has released a list of counterparties which Federal Reserve Vice Chairman Donald Kohn had originally refused to give.

Yes that is what it is...a bunch of rich dudes wanting their piece of the pie at the taxpayers expense. What a sorry excuse for representation we have. The trouble is if AIG went down, so would the credit ratings of all the other companies that were counting on AIG to be solvent. And of course all their stocks would tank etc..this is one big cover-up job and people are starting to take note.

I predict the stock market wont hold off the inevitable crash too much longer. Confidence is shaken, and with good reason. Better bail before it all becomes pennies to the dollar.

What about the bonus's for Fannie May executives?

Everyone is focused on AIG while forgetting if it weren't for Freddie and Fannie
none of this crap could have happened.

Originally posted by Skydancer
What about the bonus's for Fannie May executives?

Everyone is focused on AIG while forgetting if it weren't for Freddie and Fannie
none of this crap could have happened.

That's not true at all.

Plenty of the credit default swaps were written on corporate credit (bonds). Others were written on tranches mortgage-backed securities, but remember that there were plenty of them, created entirely by private-sector institutions, filled with loans from private-sector banks, no Fannie & Freddie at all.

F&F had problems---but their problem was their deregulation.

Their executives were envious of the private sector bankers who were making tons of money doing stupid things like subprime loans etc. F&F executives wanted to be paid like them, but previously those quaint things knows as "government regulation" prevented them from doing so.

F&F prevoiusly were very safe---as they were supposed to be---because of strict underwiting standards. That is, the normal 20% down, full documentation, credit score, and realistic loan to value limits.

If they hadn't wanted to emulate the private sector, they'd still be alive.

Really weird. I was just talking about Spitzer's political assassination the other day. Here's a good link:

www.gregpalast.com...

He was also fighting for States rights to regulate predatory lending which had been usurped by the Bush admin. when he was brought down.

If he did'nt have those pesky carnal hobbies to capitalize on, he probably would have just been assassinated..old school.

Star and Flag for you. I posted this on all the Spitzer threads including the ones I created. Spitzer got the raw end of the deal and he was booted on purpose. Now with this collapse its plain to see the ironies. People we need a revolution here and I make no bones about it. Im not talking an American style revolution Im talking more of a French Style revolution. Guillotines anyone?

reply to post by kosmicjack


Such an interesting twist! Reading this today, as I was looking for additions to my AIG Counterparties waiting for the fire sale theory....and see that Elliot was talking about that a while ago! He refers to AIG as the "flavor of the month"


I always knew there was a reason he got busted...besides the obvious that is. Too bad he had to have such a penchant for leading double life.
Just once...I want to see a guy like that stay clean. Maybe it just does not happen...

Thanks for such a great post!

[edit on 18-3-2009 by burntheships]

Spitzer???? What an odd connection.

This Great Recession could be The Great Dissolution, almost time to press the panic button. The federal government has no oversight over AIG, including bailout bonuses. Its nightmare was solely AIG’s own doing they should consider themselves incredibly lucky that they were so big that the Fed felt it has to intercede. We are now talking about big companies that survived the stock market crash of 1929. Lehman and AIG failing at the same time. What is it now a 43%, 58%, 65%, loss in our nest eggs? I guess so if we went back to December of 2007. Most of the smart money pulled out in October of 2007. These trillions sitting on the sidelines will hopefully steer us in the right direction. Smart money will only step in when there is a value on the assets. The up and down rally on stocks today over AIG is ridicules. One wrong word from Obama will cause more panic and bank runs. “Not seen since the Great depression”. How many times have we heard those words! I am still surprised to hear the Spitzer connection. Very interesting!

reply to post by burntheships


I aree this stuff is crazy. I had to read it 3 times to be sure that what I was reading was based on any facts. "Elliot Spitzer and AIG" what good bed fellows. It's an amazing post!

I think Spitzer went down either earlier the same week or maybe the week before Bear Sterns went down. I've always thought the timing on the Spitzer thing too "convenient". I don't think any type of criminal case was ever brought on Spitzer either, and that only raises my BS perceptor on the timing even more.

reply to post by kosmicjack


]
AIG is the center point of all the "fraud" that is going on, they can not let it fail, due to "What would come out".

The Fed, will continue pouring money into AIG.

Whenever political figures are taken down, as with Spitzer it shows, they are taken down from knowing too much and have info. that could bust something opened, so they have to be "discredited".

GOOD Find S and F.

I hope people actually listen to him.