Bailouts a thing of the past, huh? More presents for AIG! Via Yves at Naked Capitalism:

First from Bloomberg, “AIG Has $4.1 Billion Charge on Insufficient Reserves“:

American International Group Inc. said higher-than-forecast claims costs cut fourth-quarter profit by $4.1 billion, and $2 billion previously designated to repay its bailout will be used to bolster the property-casualty unit.

The insurer reached an agreement with the U.S. Treasury Department permitting the company to keep $2 billion of proceeds from the sale of Star Life Insurance Co. and Edison Life Insurance Co., New York-based AIG said today in a statement. Funds will be used by Chartis for losses tied to coverage including workers’ compensation and asbestos liability.

The troubling part is “keep”. Unless the Treasury got some form of consideration back from AIG, this sure looks like a gift.

We see similar ambiguous language at the Journal:

American International Group Inc. said it will book a $4.1 billion charge when it reports results for the fourth quarter, as it adds to reserves at its Chartis property and casualty insurance unit….

AIG also said Wednesday that it signed a letter of agreement with the U.S. Treasury to retain $2 billion of the proceeds from the sale of AIG Star Life Insurance Co. and AIG Edison Life Insurance Co. to support Chartis’ capital.

Now with AIG, a mere two billion must look like mere rounding error, but again, pray tell exactly how this reversal of the TARP payback is being accounted for? We’ve had so much sleight of hand with AIG that nothing would surprise me. And with the Congressional Oversight Panel about to go out of business, any pushback is almost certain to be limited.

American General is owned by AIG, which so far has taken $134 billion in federal bailout money. (As you'll remember, they also gave $165 million in bonuses to the same geniuses in the business unit that helped crash the economy.)

Yet when it comes to paying out life insurance policies for much less than the controversial bonuses they gave, they're suddenly very thrifty indeed:

American General Life Insurance Co. markets its policies as protection for "the hopes and dreams of American families" — a promise Ian Weissberger took to heart during his losing battle with Lou Gehrig's disease.

But after the Cathedral City mortgage broker died in 2005, American General cancelled his life insurance policy and refused to pay his widow the $250,000 benefit.

The Weissbergers' premiums were paid up. There was no foul play suspected. There was no question Sheila Weissberger was the widow and sole beneficiary. And Ian's illness was diagnosed months after he took out the policy.

The problem, the insurer told Sheila Weissberger, was that Ian's application for coverage was incomplete.

American General concluded that he had failed to disclose conditions, including bipolar disorder and pulmonary disease, that, according to his doctors, he did not have.

For the company, which collected $2.3 billion in premiums last year, the amount at issue was minute. But it was no small matter for Sheila, 62, who reached a confidential financial settlement with American General earlier this year.

"I lost my house. I lost everything," she said in an interview. "It was very, very devastating."

Continue reading »

The news surrounding the pending congressional ethics trial of Rep. Charles Rangel (D-NY) is all quite confusing. Despite reports that he has reached a settlement in the case, the House Ethics committee moved forward with his trial.

According to Reuters:

People familiar with the talks say representatives of New York Democrat Charles Rangel and lawyers for the House ethics committee have reached a plea deal in his ethics case. However, committee members have not agreed to the settlement.

It was not immediately clear how many of the 13 charges of ethical violations Rangel agreed to accept.

The committee did meet, and the charges against Rep. Rangel were read. A full copy can be read here (PDF). There are some eyebrow-raising charges, including a failure to report $600,000 of income on his congressional disclosure statements, along with rental income from a Dominican Republic property he purchased in 2005.

This sequence on pages 11-12 got my attention:

78. In April 2008, Respondent met with CCNY officials and AIG officials (the "AIG meeting"), including Edward "Ned" Cloonan, a federally-registered lobbyist, regarding the Rangel Center. The briefing memo prepared for Respondent by CCNY stated the objective of the meeting was to "close $10M gift for the Rangel Center to create AIG Hall."

79. At the AIG meeting, a potential donation to the Rangel Center was discussed. AIG raised concerns about a potential donation, including the potential headline risk. Respondent asked AIG, at least twice, what was necessary to get this done.

Seriously? AIG? In 2008? As the ethics report points out, AIG lobbied members of the House of Representatives on income tax issues, free trade issues and treaty issues. As head of the Ways and Means Committee, Rangel stepped way out of line when he undertook dealings with Verizon, AIG, Nabors Industries and others. That should be enough right there.

Will there be a trial? I'm guessing here, but I think the deal may involve a public release and reading of the charges, and his admission to the understatements of income on his disclosure statements. Ultimately, the charges are damning enough on their face to disgrace him. After all, if the Democrats want to point the finger at Newt Gingrich, Dick Armey, et al, then Charlie Rangel surely must also be a target, particularly with the evidence against him.

Charlie Rangel is 80 years old. He's been in Congress since 1971. At some point, his desire for a "legacy" outweighed any sense of ethics he had. So much of these charges center around his apparent need to have the Rangel Center become reality that he used his stationery, his station and evidently traded his soul for it. It's not a day to celebrate, but I am glad to see it coming to light.

If Democrats are smart, they'll point to the fact that at least they're cleaning out the rotten apples, whereas the Republicans double down and let the Vitters and Ensigns rot in the barrel along with everything else. It's about the best outcome there is, given that Charlie Rangel really doesn't have much of a defense for these charges.

Oh dear God, I hate admitting it when anyone over at the Corner is right about something but... AAAAAAAARRRRRRRRGGGGGHHHH... Nicole Gelinas is right:

The financial system's failures made themselves obvious starting in 2007 in part because legislators and regulators thought that they could conjure up on command not only wisdom and competence but omniscience.

In the years leading up to the financial crisis, regulators allowed financial firms such as AIG to create derivatives that evaded the old-fashioned limits on borrowing and trading. The people in charge figured that the financial guys had figured out every angle and made these things perfectly safe.

Regulators, too, allowed banks to borrow far more than old-fashioned rules would have allowed on mortgage-related securities and other instruments rated AAA — because competent people had determined that such securities could never fail.

Finally, regulators allowed people to buy houses with no money down — even though we learned in the 1920s that it's not a good idea to let people borrow limitlessly to speculate that the price of something will continue to rise.

The lesson to be learned here is that we need borrowing and trading rules that apply to everyone and everything for those times when bankers, regulators, and tens of millions of ordinary Americans aren't right.

The bill offers no evidence that anyone in Congress has learned this lesson.

The essential problem with the financial reform package the Democrats have put together is that it relies far too much on the discrepancy of regulators and not enough on hard law. So instead of breaking up banks whose assets exceed a certain level of GDP, we have merely given regulators the ability to break up banks if and when they pose grave risks to the economy. As anyone who has followed the wacky hijinks of our government during the Bush years knows, regulators often suck, especially when they're sleeping with the people they're supposed to be regulating.

So here's how it's going to play out: At some point in the future, we will have a Republican president who will appoint Levi Johnston to head up the SEC or Treasury or the Fed. Levi will have all kinds of powers at his disposal, whether it's breaking up big banks, raising interest rates to curtail asset bubbles or enforcing strict leverage requirements. But instead of utilizing any of the vast powers at his disposal, Levi smokes dope and pleasures himself while watching porn all day long. Five days after taking office, the economy crashes again and Levi is trotted out in front of the cameras to tell us that "nobody could have predicted" this sort of thing would ever happen.

This is the sort of thing that happens when you put your faith in the competence of regulators rather than creating hard law. A real financial reform package would have held the banks to strict leverage requirements, would have forced them to stop prop trading if they wanted to retain access to the Fed's discount window and would have broken up the largest financial institutions. Instead we have a large complex nightmare that is riddled with loopholes that will allow the banks to behave just as irresponsibly as they've done in the past.

So take comfort, America. The only thing now saving us from another financial crisis is the wisdom and competence of Federal Reserve Chairman Levi Johnston. Huzzah!

Robert Reich says the feds need to take over:

It's time for the federal government to put BP under temporary receivership, which gives the government authority to take over BP's operations in the Gulf of Mexico until the gusher is stopped. This is the only way the public will know what's going on, be confident enough resources are being put to stopping the gusher, ensure BP's strategy is correct, know the government has enough clout to force BP to use a different one if necessary, and be sure the president is ultimately in charge.

If the government can take over giant global insurer AIG and the auto giant General Motors and replace their CEOs, in order to keep them financially solvent, it should be able to put BP's north American operations into temporary receivership in order to stop one of the worst environmental disasters in U.S. history.

The Obama administration keeps saying BP is in charge because BP has the equipment and expertise necessary to do what's necessary. But under temporary receivership, BP would continue to have the equipment and expertise. The only difference: the firm would unambiguously be working in the public's interest. As it is now, BP continues to be responsible primarily to its shareholders, not to the American public. As a result, the public continues to worry that a private for-profit corporation is responsible for stopping a public tragedy.

[...] Expressing grave concerns is not enough. The President needs legal authority to order BP to protect the United States.

The President is not legally in charge. As long as BP is not under the direct control of the government he has no direct line of authority, and responsibility is totally confused. For example, listen for the "we" and "they" pronouns that were used by Carol Browner in response to a question on NBC's "Meet the Press" Sunday (emphasis added): "We're now going to move into a situation where they're going to attempt to control the oil that's coming out, move it to a vessel, take it onshore ....We always knew that the relief well was the permanent way to close this .... Now we move to the third option, which is to contain it. If [the new cap on the relief well is] a snug fit, then there could be very, very little oil. If they're not able to get as snug a fit, then there could be more. We're going to hope for the best and prepare for the worst."

When you get pronoun confusion like this, you can bet on confusion -- both inside the Administration and among the public. There is no good reason why "they" are in charge of an operation of which "we" are hoping for the best and preparing for the worst.

The president should temporarily take over BP's Gulf operations. We have a national emergency on our hands. No president would allow a nuclear reactor owned by a private for-profit company to melt down in the United States while remaining under the direct control of that company. The meltdown in the Gulf is the environmental equivalent.

Good to know that they're not limiting their investigation to Goldman Sachs, because this is a systemic problem and crooked Wall Street practices need to be ripped out by the roots. Not that I'm all that hopeful, because these charges are notoriously hard to prove, but you never know:

The SEC's case against Goldman Friday has exposed an open secret on Wall Street: As the housing market began to wobble a few years back, some big financial firms designed products aimed at allowing key clients, such as hedge funds, to bet on a sharp housing downturn.

Among the firms that created mortgage deals that soon went sour were Deutsche Bank AG, UBS AG and Merrill Lynch & Co., now owned by Bank of America Corp. It isn't known what deals the SEC is investigating.

Further cases could hinge on whether the SEC sees what it considers misrepresentation, and not just questions such as whether a deal favored one client over another. A critical part of the SEC's case against Goldman is that the firm allegedly misled investors by not notifying them of the role of hedge-fund investor John Paulson—who was dubious of the housing boom—in selecting what went into the mortgage deal Goldman sold. Goldman said it fully disclosed the investments and didn't need to reveal the Paulson connection.

[...] Soured mortgage investments helped trigger the near-collapse of American International Group Inc., which had insured at least $1 billion of bond deals issued by Wall Street firms in 2005 that reflected hedge funds' input, according to documents reviewed by The Wall Street Journal and people familiar with the matter. Taxpayers had to foot the bill for AIG's rescue.

Ultimately, the problems landed at American doorsteps. Losers in the mess included, for instance, a county in Washington state.

On Friday, SEC enforcement director Robert Khuzami said the agency will look closely at mortgage deals similar to the Goldman one that is the focus of the SEC action.

This is pretty interesting, don't you think? It pains me that wacky Darrell Issa is the one who gets to point the finger, but oh well:

Jan. 7 (Bloomberg) -- The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.” President Barack Obama selected Geithner as Treasury secretary, a post he took last year.

Issa requested the e-mails from AIG Chief Executive Officer Robert Benmosche in October after Bloomberg News reported that the New York Fed ordered the crippled insurer not to negotiate for discounts in settling the swaps. The decision to pay the banks in full may have cost AIG, and thus taxpayers, at least $13 billion, based on the discount the insurer was seeking.

The e-mail exchanges between AIG and the New York Fed over the insurer’s disclosure of the transactions show that the regulator pressed the company to keep details out of the public eye. Issa’s comments add to criticism from Republican lawmakers, including Senator Chuck Grassley of Iowa and Representative Roy Blunt of Missouri, who wrote letters in the past two months demanding information from Geithner, 48, about the costs of the AIG bailout.

A month ago, I was reading one of those websites where people post their modest wishes and ask readers for help. One man in particular struck me: He'd lost his job, his wife was working to keep the family afloat and his wish was for someone to replace his wife's single ratty bra. He'd scraped together $10 and they bought a new one from Walmart, but it didn't really fit and hurt her to wear it.

He talked about how awful it was, to not even be able to afford this for his wife. I remember reading it and thinking how very little so many people in this country have, and how much we take for granted.

Now, compare and contrast that story with this one:

NEW YORK, Dec 30 (Reuters) - A top executive at American International Group Inc (AIG.N) has resigned because of pay curbs imposed by the Obama Administration's pay czar, the insurer said on Wednesday.

Anastasia Kelly, AIG's vice chairman for legal, human resources, corporate affairs and corporate communications, resigned effective Dec. 30 for "good reason" and is eligible for severance pay under the terms of the company's executive severance plan, the insurer said.

Kelly stands to be paid about $2.8 million in severance, according to a source familiar with the matter.

Kelly's resignation comes after Kenneth Feinberg, who is charged with monitoring pay levels at companies that received taxpayer funds, imposed pay caps for AIG's top executives.

Earlier this month, Feinberg set the compensation structures for the 26th through 100th highest-paid employees at four firms, including AIG, limiting most cash salaries to $500,000.

Feinberg also granted less than a dozen special exemptions from the cash salary cap, including several AIG executives, after being urged to do so by Federal Reserve and Treasury officials.

Kelly met frequently with Feinberg to discuss pay issues as he prepared to rule on compensation at companies that received extraordinary taxpayer bailouts.

She was among five executives reported by The Wall Street Journal to have notified the insurer that they were prepared to resign and collect severance benefits if their pay was cut sharply by Feinberg. Chief Executive Robert Benmosche separately also had considered quitting because of the pay constraints, the Journal has reported.

Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University, said no AIG employee was irreplaceable.

"We have been duped into thinking that these AIG employees have some kind of secret code that no other employee could discover if they were hired to replace them and therefore they are able to basically hold the company ransom," Hurley said.

Spitzer, along with Frank Partnoy, a professor of law at the University of San Diego, and William Black, a professor of economics and law at the University of Missouri, make the case in today's Times for releasing all the AIG emails before they're lost forever - and we never really know what happened to trigger their crash. Obviously, it serves the nation to know:

We end this extraordinary financial year with news that the Treasury is in discussions with American International Group about selling the taxpayers’ 80 percent ownership stake in that company. The government recently permitted several banks to break free of its potential oversight by repaying loans made during the rescue. But with respect to A.I.G., the Treasury should not move so fast. There is one job left to do.

A.I.G. was at the center of the web of bad business judgments, opaque financial derivatives, failed economics and questionable political relationships that set off the economic cataclysm of the past two years. When A.I.G.’s financial products division collapsed — ultimately requiring a federal bailout of $180 billion — those who had been prospering from A.I.G.’s schemes scurried for taxpayer cover. Yet, more than a year after the rescue began, crucial questions remain unanswered. Who knew what, and when? Who benefited, and by exactly how much? Would A.I.G.’s counterparties have failed without taxpayer support?

The three of us, as experienced investigators and prosecutors of financial fraud, cannot answer these questions now. But we know where the answers are. They are in the trove of e-mail messages still backed up on A.I.G. servers, as well as in the key internal accounting documents and financial models generated by A.I.G. during the past decade. Before releasing its regulatory clutches, the government should insist that the company immediately make these materials public. By putting the evidence online, the government could establish a new form of “open source” investigation.

Once the documents are available for everyone to inspect, a thousand journalistic flowers can bloom, as reporters, victims and angry citizens have a chance to piece together the story. In past cases of financial fraud — from the complex swaps that Bankers Trust sold to Procter & Gamble in the early 1990s to the I.P.O. kickback schemes of the late 1990s to the fall of Enron — e-mail messages and internal documents became the central exhibits in our collective understanding of what happened, and why.

So far, prosecutors and regulators have been unable to build such evidence into anything resembling a persuasive case against any financial institution. Most recently, a jury acquitted Bear Stearns employees of fraud related to the collapse of the subprime mortgage market, in part because available e-mail messages suggested the employees had done nothing wrong.

Perhaps A.I.G.’s employees would also be judged not guilty. But we would like to see the record to find out. As fraud investigators, we would like to examine the trading patterns of A.I.G.’s financial products division, and its communications with Goldman Sachs and other bank counterparties who benefited from the bailout. We would like to understand whether the leaders of A.I.G. understood that they were approaching a financial Armageddon, and whether they alerted their counterparties, regulators and shareholders to the impending calamity.

TBogg: The beatings will continue until morale improves

skippy the bush kangaroo: How Goldman Sachs bet on America failing

The Bobblespeak Translations: Face the Nation with Joe Lieberman

field negro: Pastor, please don't shoot, you might hit the usher

ANNALS OF JOURNALISM: California AG Brown illegally taped reporters...Not a news organization...Jon Stewart breaks it down...Inside Iraq...Media failure compounds the financial failure...NPR gets it wrong...Sometimes, opinion kills...Moonie Times reaches out to Tea Partiers...Shielding reporters and bloggers...Short on facts...Phony AP fact check...Fred Hiatt's strange argument...Early Glenn Beck footage located...Budding journos