From the Big Picture's Marion Maneker, this pointed response to Uncle Hank Greenberg's congressional appearance yesterday:

There seems to be a sad pattern developing among the formerly august financial figures of the passing generation. We’ve seen Alan Greenspan and Robert Rubin twist themselves into verbal pretzels in order to deny any responsibility for the current state of the financial system. Now, Maurice “Hank” Greenberg joins the fraternity of former titans unwilling to accept that they were present at the creation of our current destruction. From today’s Wall Street Journal we have this gem:

“I don’t feel any responsibility at all” for AIG’s problems, Mr. Greenberg said in the interview. “How can I be responsible for something that occurred when I’m not there?”

Mr. Greenberg remains a major shareholder in AIG, though the value of his holdings has declined by hundreds of millions of dollars since the start of 2008. Mr. Greenberg, who also controls a company that is AIG’s largest private shareholder, played down the impact of the stock’s slide on him personally.

“Of course, I lost considerable net worth,” said Mr. Greenberg, who also heads another firm, C.V. Starr & Co. “But I’m working. My life is not materially changed.”

Nice to hear that Greenberg hasn’t been inconvenienced. And it would be comforting to accept his version of events where the only problem with AIG was the lack of his steady hand on the tiller. See, this what you get for chasing him out of office and giving the job to a back-bencher like Martin Sullivan.

But Noam Scheiber does an excellent job of explaining two facets of Greenberg’s culpability. The first is that Greenberg presided over the growth and metamorphosis of AIG-FP into the dangerous threat that it would become after he left. It was Greenberg, after all, who put the infamous Cassano in charge of the division knowing that he required exceptional oversight.

But the second line of responsibility is more indirect. Cassano went off the rails when AIG lost its triple A credit rating eventually racking up huge bets on subprime mortgages to replace the easy money he was making exploiting AIG’s ratings arbitrage. One of the reasons Cassano was able to get so far off the reservation was that AIG’s management was pre-occupied with putting out the fires created by Greenberg’s aggressive actions, the ones that led to Spitzer’s pressure for Greenberg to step down. Here’s Scheiber:

Continue reading »

You got to know when to hold 'em, know when to fold 'em...

Just beautiful. The same gamblers who steered AIG into the ditch are still there - with the same jobs! Nothing succeeds quite like failure in the financial services industry, huh?

Inside American International Group Inc., a group of top executives called the Credit Risk Committee oversaw some of the company's biggest bets, such as the insurer's foray into credit-default swaps.

But even after a $173 billion government bailout, this group, which reviewed and approved risk-taking decisions, remains largely unchanged. At least five of the 10 committee members have served for years, according to internal company documents. Some served as far back as 2003 and 2004, the documents show.

Even amid change at AIG, much of the company's day-to-day infrastructure remains in place. Many of the high-level AIG executives who approved the insurer's risk-taking before the company's near collapse still are at their posts.

Among the longtime risk-committee members are Robert Lewis, AIG's chief risk officer since 2004; Kevin McGinn, chief credit officer and chairman of the committee; Win Neuger, chief executive of AIG Investments; William Dooley, head of AIG's financial-services division, which includes the financial-products unit that sold the credit-default swaps; and Barbara-Ann Livanou, director of financial institutions in the credit-risk-management department.

AIG said in a statement: "AIG is committed to strong risk management....Recently, consistent with the terms of the U.S. Treasury's preferred investment in AIG, the company has clarified the authority regarding the board's now-named Finance and Risk Committee. The committee, among other things, reports to and assists the board in overseeing and reviewing information regarding AIG's enterprise risk management."

I wonder if these are some of the same people who got those fabulous retention bonuses?

DOWNLOAD (75)

PLAY (100)

In Eliot Spitzer's first interview since he resigned as New York's governor, he tells Fareed Zakaria that the problem with Wall St. isn't the individuals involved, but a culture that sought greater and greater returns without taking any of the risk. He also says he hopes Barney Frank will look more closely into the payments to Goldman Sachs via the AIG bailout funds:

FAREED ZAKARIA: So, do you think that the problems that AIG got into later on stem from some of the same practices that you were trying to get at?

SPITZER: They stemmed from an effort from the very top to gin up returns whenever, wherever possible, and to push the boundaries in a way that would garner returns almost regardless of risk. And so, to the extent that there is a discussion, did this begin before or after the tenure of Hank Greenberg, it's unambiguous -- unambiguous that the structures and the flaws and the policies began while he was there. That is why the board that he had controlled with an iron fist asked him to leave. It was their decision -- not my decision, their decision -- to ask him to step down, something that was then and is now very unusual.

He has invoked the Fifth Amendment, which, of course, is his right to do. But he was asked to leave by his own board, because they saw the flaws and the problems that have since multiplied and created this monster that can bring down the financial system.

Back then I said to people, AIG is at the center of the web. The financial tentacles of this company stretched to every major investment bank. The web between AIG and Goldman Sachs is something that should be pursued.

And as I have written...

ZAKARIA: Meaning what? Meaning that a lot of the money that we the taxpayers gave AIG has ended up being paid to Goldman Sachs...

SPITZER: Precisely. And...

ZAKARIA: ... and other companies.

SPITZER: The so-called counterparties to these very sophisticated financial transactions.

When AIG initially received $80 billion -- a decision that was the consequence of a very brief meeting of the president of the New York Fed, the secretary of the Treasury, perhaps Chairman Bernanke and arguably, some reports say, the chairman of Goldman Sachs -- $80 billion, virtually all of it flowed out to counterparties, $12.9 billion to Goldman Sachs.

Why did that happen? What questions were asked? Why did we need to pay 100 cents on the dollar on those transactions, if we had to pay anything? What would have happened to the financial system, had it not been paid?

These are the questions that should be pursued. Look, bonus is a real issue. It touches us viscerally. The real money and the real structural issue is the dynamic between AIG and the counterparties.

Continue reading »

There's a lot of anger out in America over the AIG bonuses, if you have been paying attention. This is not a blip on the screen; it's serious, and people are seriously pissed off about it.

That's not surprising. Talking heads tell us that it's not all that big a deal in the long run, but they miss the symbolism of it all. Wall Streeters say they're getting afraid to get back in the market because we are watching them now, but that just tells us how cheap their tin ear is when it comes to this.

On a political level they should tread very carefully. They have been taking the Randian approach to their lives and don't care about society -- just about making money for themselves. For years they promoted the idea that John Q. Public should be investing his hard-earned money on Wall Street so he could have a nice retirement -- and just as blithely assured us that deregulation would just make more money for us all, rather than putting everything at risk, as is now manifestly the case. The public feels it has been suckered by Wall Street elites -- whose "Who, us?" response is not helping.

As Digby states quite clearly:

They didn't believe they were being immoral. And we can blame our chain-smoking, Dexi-popping, overstimulated cougar philosopher Ayn Rand for taking one of the seven deadly sins and calling it a moral system.

The moral purpose of a man’s life is the achievement of his own happiness. This does not mean that he is indifferent to all men, that human life is of no value to him and that he has no reason to help others in an emergency. But it does mean that he does not subordinate his life to the welfare of others, that he doaes not sacrifice himself to their needs, that the relief of their suffering is not his primary concern, that any help he gives is an exception, not a rule, an act of generosity, not of moral duty, that it is marginal and incidental—as disasters are marginal and incidental in the course of human existence—and that values, not disasters, are the goal, the first concern and the motive power of his life. The Virtue of Selfishness --- Ayn Rand.

Alan Greenspan admitted that for forty years he had believed Wall Street actually operated that way --- and that that meant that they were incapable of making decisions that would endanger the entire system. After all, they were rational beings doing the most exalted work one can do --- make money for themselves. Each one of the people involved in the CDS scheme were rationally making money for themselves and fulfilling their duty to themselves to make as much money as they could. They were being entirely rational and, therefore, extremely virtuous.

Now there is confusion among the masters of the universe. They don't understand why they should not continue to be rewarded today for their virtuous behavior. It feels as if their whole moral system is askew, they are being unfairly condemned, the "parasites" are taking over. It is not their livelihoods or their reputations or their industry that is under threat. It's their religion. That's why they are fighting so hard.

They are fighting back without a hint of apprehension that America has had enough of them. It is shocking that they would be this frakkin' stupid, but they are. And Digby then asks:

Speaking of geniuses, why in the world can't these people get that they are making things worse and just STFU? It's nuts.

Because they can't stop it. They have to be weaned off it like drugs. They can't kick the habit of milking the system for all it's worth without giving a damn about you and me. Since Bush came into office, executive salaries have gone through the roof while the average American suffers.

On Meet the Press, Erin Burnett actually said this:

MS. BURNETT: The average executive in this country of a publicly traded company, not just Wall Street, makes 400 times the average worker. And that has been a dramatic shift over the past two decades. That is something that is causing some of the anger here. In a sense it's been building, and this is the moment where it breaks.

Ya think? And these f*&kers flaunt it in our faces.

The House moved on that anger. Scott Lemieux writes:

Using taxation to claw back benefits may or may not be good public policy. But it is plainly within the constitutional authority of Congress as it has been understood for many decades.

Congress does serve the people, right? Americans don't mind people making money, boatloads of it, but not when it has threatened the infrastructure of the country. They did this willingly. The talking heads tell us that the bonuses weren't all that big a deal in the long run, but they miss the symbolism of it all.

The heads say that Wall Steeters are getting afraid to get back in the market because we are watching them now. Too bad. Let them throw their hissy fit. Wall Street better wake up because the anger many Americans feel will not dissipate anytime soon.

Can you say "chutzpah"? I knew you could!

While the American International Group comes under fire from Congress over executive bonuses, it is quietly fighting the federal government for the return of $306 million in tax payments, some related to deals that were conducted through offshore tax havens.

A.I.G. sued the government last month in a bid to force it to return the payments, which stemmed in large part from its use of aggressive tax deals, some involving entities controlled by the company’s financial products unit in the Cayman Islands, Ireland, the Dutch Antilles and other offshore havens.

A.I.G. is effectively suing its majority owner, the government, which has an 80 percent stake and has poured nearly $200 billion into the insurer in a bid to avert its collapse and avoid troubling the global financial markets. The company is in effect asking for even more money, in the form of tax refunds. The suit also suggests that A.I.G. is spending taxpayer money to pursue its case, something it is legally entitled to do. Its initial claim was denied by the Internal Revenue Service last year.

DOWNLOAD (27)

PLAY (65)

After all the weekend uproar over the millions in bonuses, AIG decided to come clean on how their our bailout money was spent:

AIG and the Federal Reserve have been pressured for months by some members of Congress to reveal the names of the banks and other institutions that were paid after the company -- teetering on the brink of failure because of plummeting investments -- received an $85-billion loan from the Fed in September.

AIG's downward spiral was accelerated by losses related to its huge business of insuring high-risk mortgage securities against default, via complex agreements known as credit default swaps. As the housing meltdown worsened last year, AIG's guarantees, which the company had sold to major banks and brokerages in the U.S. and abroad, came back to haunt it.

The federal rescue of the insurer has since doubled in size, and U.S. taxpayers now own 80% of the company.

The company said it shelled out nearly $100 billion in the final few months of the year to satisfy some of the contracts it had outstanding under credit default swaps and other insurance and investment agreements.

The beneficiaries included major foreign banks such as Germany's Deutsche Bank and France's Societe Generale, as well as U.S. titans Goldman Sachs Group and Merrill Lynch & Co.

U.S. municipalities, including some in California, also benefited as AIG settled up payments due under guaranteed investment agreements, under which states, cities and other municipalities temporarily park funds raised from bond sales. California entities received a total of about $1 billion.

Now go read Jane. And Marcy, too!

Dave N: Obama chimed in this morning:

President Barack Obama said Monday the government will try to block millions of dollars in bonuses for American International Group Inc. executives, calling the payments "an outrage to the taxpayers" who bailed out the giant insurer.

"In the last six months, AIG has received substantial sums from the U.S. Treasury. I've asked Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole," Obama said.

... In his remarks, he said AIG _ which has benefited from more than $170 billion in federal rescue funding and is 80 percent owned by taxpayers _ is a company in distress due to "recklessness and greed."

"Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?" the president said.

Josh Marshall has it exactly right:

We're collectively taking our country's future in our hands, spending vast sums of money to keep these companies from suffering the consequences of their own folly and (in many cases) criminality. And in return we're receiving cavalier dictates about pay-outs and bonuses from executives who by any reasonable measure work for us -- dictates we promptly accede to. There's a beggars can't be choosers problem there. And the disconnect is so mighty that it fuels the impression that the whole enterprise is not what it seems, not what we've been told, that in addition to picking up the tab we're being played for fools.

At this point, it's time to start demanding that heads roll.

UPDATE: The WSJ now says it's $450 million in bonuses.

Yes, I get the argument. Derivatives are complex, and maybe we can't wait for someone new to get up to speed. But what this really boils down to is extortion. They're claiming they can't legally breach the contract? I thought that's what bankruptcy is for! They think we'll knuckle under to blackmail from the same geniuses who got us into this mess?

Insurance giant American International Group will award hundreds of millions of dollars in employee bonuses and retention pay despite a confrontation Wednesday between the chief executive and Treasury Secretary Timothy F. Geithner.

But the company agreed to revise some executive payments after what AIG's leader, Edward M. Liddy, called a "difficult" conversation.

The bonuses and other payments have been exasperating government officials, who have committed $170 billion to keep the company afloat -- far more than has been offered to any other financial firm.

The issue came to a head when Geithner called Liddy and told him the payments were unacceptable and had to be renegotiated, said an administration official who was not authorized to comment on the Geithner conversation.

In a letter to Geithner yesterday, Liddy agreed to restructure some of the payments. But Liddy said he had "grave concerns" about the impact on the firm's ability to retain talented staff "if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."

Lawyers at both the Treasury Department and AIG have concluded that the firm would risk a lawsuit if it scrapped the retention payments at the AIG Financial Products subsidiary, whose troublesome derivative trading nearly sank AIG. The company promised before the government started bailing out the firm in September that employees would be awarded more than $400 million in retention pay this year and next.

"I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them," Liddy wrote.

At the same time, the company said in documents provided to the Treasury, any steps that encourage specialists at AIG Financial Products to leave could open the U.S. government to further risk because of the hazards still posed by the $1.6 trillion portfolio of complex derivatives those employees are working to dispose.

DOWNLOAD (37)

PLAY (74)

Well, it just gets more and more interesting as it unravels, doesn't it? Seems to me we shouldn't allow companies to get big enough to pose a "systemic risk" - a term that's now synonymous with "Uncle Sugar to the rescue":

An AIG report to the Treasury Department last month warned that if the government didn't come to its rescue again, its collapse would trigger a "chain reaction of enormous proportion" that would "potentially bankrupt or bring down the entire system" and make it impossible for AIG to repay the billions it already owed the U.S. government.

I believe the correct term here is "extortion."

A draft report, obtained by ABC News, and marked "strictly confidential," said, "the failure of AIG would cause turmoil in the US economy and global markets, and have multiple and potentially catastrophic unforeseen consequences."

The draft was dated Feb. 26. On March 2, the Treasury Department and the Federal Reserve system announced that AIG, which lost $61.7 billion in the fourth quarter of 2008, would receive $30 billion in new government help.

AIG warns in its report of the "systemic risk" that a potential collapse posed. It describes a "systemic risk" as one that "could potentially bankrupt or bring down the entire system or market."

The company said, "What happens to AIG has the potential to trigger a cascading set of further failures, which cannot be stopped except by extraordinary means."

[...] The Treasury Department told ABC News it would have no comment on the report, and the White House referred questions to the Treasury Department.

Oh, and as Jane Hamsher points out, Timothy Geithner had a little something to do with the AIG mess back when he was the NYC Fed chairman. Hmmm.