The NY Fed + AIG + the SEC = The Crime of the Century

If ever there was an appropriate use for this...
(thanks to TRB and Fund My Mutual Fund for the reminder)

Editor's note: For those of you without the attention span to get through this or like Caleb who think I tend to "run long", let me sum this up for you in as few words as possible: the emperor has no clothes and we kind of busted them. Now what? Who the hell knows. That's why you have to read it.)


A U.S. bailout watchdog has launched two new investigations into the New York Federal Reserve Bank's actions on insurer AIG's (AIG.N) disclosure of payments to banks after its 2008 rescue, excerpts of prepared congressional testimony showed on Monday.

Neil Barofsky, the special inspector general of the Treasury's $700 billion Troubled Asset Relief Program, said he would launch a probe into whether there was any misconduct relating to public disclosure of the $62.1 billion paid to retire credit default swaps with banks.

Barofsky announced the investigation in excerpts of prepared testimony to the U.S. House of Representatives Oversight and Government Reform Committee. The excerpts were obtained by Reuters. [yay! SIGTARP is back! Now with 45% more cojones!]

Barofsky is among witnesses due to testify on the AIG matter before the panel on Wednesday.

Also appearing at the hearing will be U.S. Treasury Secretary Timothy Geithner, who ran the New York Fed at the time of the American International Group bailout in 2008, and Thomas Baxter, the New York Fed's general counsel.

Barofsky said he would also launch a second probe into the New York Fed's level of cooperation with a prior audit conducted by his office into the AIG payments to U.S. and foreign-owned banks.

Remember when all those emails circulated surrounding Fedgate proving that Federal Reserve officials knew Merrill Lynch was a mess but forced Bank of America to take them anyway? Need I rehash "scary and ugly"? I think not. And what happened with that? Not a fucking thing.

(Quick refresher:
Merrill Lynch was also melting down, however. "Merrill is really scary and ugly," wrote Mac Alfriend, senior vice president of banking supervision and regulation at the Richmond Fed. Bank of America's headquarters in Charlotte, N.C. is in the Richmond Fed's district.)

What will happen with this?

Not a fucking thing.

Indictments or it didn't happen, stop pretending to be hard on crime. The regulators are on it, what kind of sick joke is this? Oh, sorry, the SEC was totally in on it, I must have misheard the statement when I thought they said they would be preventing (not participating) in financial crime.


Email disclosures by AIG, responding to subpoenas from the House Oversight Committee, have revealed that the New York Federal Reserve requested that information about the AIG bailout be kept secret as if it were connected to national security.
U.S. securities regulators originally treated the New York Federal Reserve’s bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security, according to emails obtained by Reuters.

The request to keep the details secret were made by the New York Federal Reserve — a regulator that helped orchestrate the bailout — and by the giant insurer itself, according to the emails.

The emails from early last year reveal that officials at the New York Fed were only comfortable with AIG submitting a critical bailout-related document to the U.S. Securities and Exchange Commission after getting assurances from the regulatory agency that “special security procedures” would be used to handle the document.
As Ryan Grim notes, these are basically unprecedented steps to keep secret the details of the AIG deal with counter-parties. The emails tell a story of strictly enforced secrecy and massive PR efforts to get securities regulators and Congress to stand down on disclosure. It paints a picture of the Federal Reserve as evading not only the oversight responsibilities of Congress, but any effort to offer insight into their activities whatsoever. And the SEC eventually agreed to the request:

The SEC, according to an email sent by a New York Fed lawyer on January 13, 2009, agreed to limit the number of SEC employees who would review the document to just two and keep the document locked in a safe while the SEC considered AIG’s confidentiality request.

I'm ill just reading that. Someone email the DoJ. Tweet that shit. Something.

Business Week:

American International Group Inc., the bailed-out insurer, included the word “redacted” more than 1,000 times in regulatory filings tied to agreements for paying banks that bought credit-default swaps from the company.

The insurer, asked by the Federal Reserve Bank of New York to limit disclosure, excluded a list of banks and collateral postings from a pair of 2008 filings, and then sought confidential treatment for the document in 2009 before making redacted versions available to the public.

The House Oversight and Government Reform Committee has ordered the New York Fed to turn over e-mails and phone logs from Timothy F. Geithner tied to AIG’s rescue in 2008, when he led the regulator. Lawmakers have criticized AIG’s rescue, which swelled to $182.3 billion, as a “backdoor bailout” of banks including Goldman Sachs Group Inc., and Geithner, now Treasury secretary, agreed to testify before the panel.

Business Week also has the timeline:

Dec. 2, 2008: AIG submits a regulatory filing detailing the terms of the Maiden Lane III agreement.

The filing contains a so-called shortfall agreement between Maiden Lane III and AIG listing terms of payments should the vehicle need more funds. The accord refers to Schedule A, the document listing counterparties, collateral postings and market declines on the derivative contracts. The Schedule A isn’t included.

The filing states that on Nov. 25, “ML III bought approximately $46.1 billion in par amount of Multi-Sector CDOs through a net payment to CDS counterparties of approximately $20.1 billion, and AIGFP terminated the related CDS with the same notional amount. The aggregate cost of the purchases and terminations was funded through approximately $15.1 billion of borrowings under the Senior Loan, the surrender by AIGFP of approximately $25.9 billion of collateral previously posted by AIGFP to CDS counterparties in respect of the terminated CDS and AIG’s equity investment in ML III of $5 billion.”

Dec. 21, 2008: AIG sends a draft of its regulatory filing detailing the purchase of additional CDOs to New York Fed lawyers. “Counterparties received 100 percent of the par value of the Multi-Sector CDOs sold and the related CDS have been terminated,” the draft says.

Dec. 23, 2008: The New York Fed sends AIG a marked-up version of the filing draft, crossing out the explanation of AIG paying 100 percent.

The New York Fed also crosses out a reference to an amendment of the company’s shortfall agreement and asks if including the amendment is “necessary or helpful?”

Dec. 24, 2008: AIG submits filing saying it retired another $16 billion in credit-default swaps after buying the underlying securities through Maiden Lane III, bringing the total collateralized debt obligations purchased to about $62 billion.

The filing omits the sentence that said “counterparties received 100 percent.”

The filing has the amendment to the shortfall agreement, which mentions Schedule A without including it.

Now the SEC knows it only gets one Bernie Madoff and this one is a whole hell of a lot bigger because it is our own Federal Reserve System working against us. Start with their indictments and work your way down, DoJ. You're welcome. I will even volunteer my own personal time to help you type up said indictments at 110 WPM, and I'm sure Skeptical CPA would volunteer to help perform the audits. Let's go, motherfuckers.

At the point that this whole deal crossed the SEC's desk, they should have seen something fishy and acted on it. Instead, they became accessory to the crime. Obvious? Yeah, pretty much if yours truly and her tattooed hipster ass can figure it out. It doesn't take an expert.

National security, LOL. Foreign central banks, LOL.

Keep taking it, America. When your ass starts getting sore, don't come crying to me, I tried to tell you all along.

Meanwhile, the guy who couldn't see the largest housing bubble in history (please do not miss the video of Bernanke in denial at that link from WCV) is fighting to get 4 more years at the Fed and getting all his Fed homies to go run PR for him all over the place. What does he know about the NY Fed and AIG? Let's make that a condition of his second term. Spill, you bastard.

I mean it's not like we even need Bernanke to admit any of it, is it obvious yet or do I have to keep putting links here?


American International Group Inc. submitted four rounds of regulatory filings in six months, with more than 1,000 redactions, as the Federal Reserve Bank of New York pressed the insurer to withhold data about bailout payments to banks.

The insurer made an initial filing on Dec. 2, 2008, about Maiden Lane III, the taxpayer-funded vehicle that bought assets from AIG’s trading partners. After the Securities and Exchange Commission asked for more information, AIG amended December filings three times. The last set of amendments, in May 2009, included more than 400 redactions, and the SEC granted the company permission to withhold the omitted data until 2018.

Naked Capitalism would like to know why the Fed is so desperate to keep Maiden Lane details secret and so would I. So? You want Bernanke, you give us Geithner and the NY Fed. Isn't that fair? We'll take stupid and blind (seriously, please don't miss the "retro" video of Bernanke) but evil and conniving has totally got to go.

We all saw what you did there, NY Fed.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Anonymous said...

Don’t sell yourself short. It takes a lot to sift through all this stuff and make heads and tails of it. I start reading some of this stuff and get lost in it to be honest. My gut just starts telling me “run the opposite direction”. For me, it’s more of a visceral response. I hate shit I don’t understand.

I once tried to get Keith Brand to post this back some years ago but was he trying to keep his comments section clean. This would have been about 2005 or so when he was running HousingPANIC. I told him that the economy as a whole appeared to be like a Lee Stone porno. The American public and it’s political institutions were represented by some comely little red head with a boat load of various piercings (use your imagination) and market forces were represented by the aforementioned Stone and interest rates were being played by Mr. Stone’s not insignificant “member”. Well, our red head does all the things that red heads do in a porno and gets Lee and his Stone going. Then, our heroine decides it would be adventurous to see what Mr. Stone is like going up the shit chute. He says in a “careful what you wish for tone” – ready? So, first it’s all fun and games but then Lee and his Stone decide they are really getting into it but our heroine appears to be having a change of heart on screen. Guess what – we got this started and now we’re going to have to ride it out. Mr. Market (Stone) is going to have his way with things one way or the other – he ain’t stoppin’ till he’s finished if you get my meaning. Our red headed heroine survives but I don’t think she walked right for a couple of weeks afterward.

Now, I’m going to go have a cigarette. This is pretty nasty so I won’t blame you if you delete it – I’ll still love you JDA.