February 9, 2010

The Ever-Expanding Ponzi Scheme

The institutional collusion between mortgage lenders like Countrywide and “failed” insurance behemoth, AIG (which if you ask its well-compensated executives, has actually succeeded quite spectacularly–for them,) has never been a closely-guarded secret. After all, the whole housing bubble was one giant insurance scam designed by Wall Street and abetted by an unwitting American public. To say that “no one could have known” that lending vast amounts of money to people with no conceivable hope of ever paying it back might turn out badly, is quite simply, a lie. WE all knew what a mess they were making; how could the very people defining and manipulating the process NOT have “seen it coming?” Let alone made elaborate plans to profit from its inevitable collapse?

All those about–to-foreclose mortgages were backed by derivative (up to 27-1,) credit default swaps, and a whole lot of folks got obscenely rich for a couple of years by leveraging them against the ever-expanding Ponzi scheme unfolding in the housing, foreign exchange, and commodities markets.

And if the foundation of that scheme should start to crumble? Why, that’s why AIG was there to make them whole again. Mark-to-market. 100 cents on the dollar. At worst, they thought, that toxic exposure will be bought up by Credit Suisse, or spun off to Lehmans…. Then Lehman Brothers failed, and that’s when the banksters really went to town.

The big question these days seems to be “Why didn’t Geithner, knowing that AIG’s counter parties were at his mercy, at least try to negotiate with them before the government stepped in and guaranteed the losses?” When you’re holding all the cards, you don’t have to be Mr. Nice Guy. And having paddled in this pond for most of his career, surely Geithner knew that he was in a position to garner a better deal for those of us average Joes who would actually be paying for this bailout? Instead, he rolled over for his erstwhile masters at Goldman Sachs and the Federal Reserve. Why all the secrecy about who got what? Just who is this guy protecting?

We may be about to find out. Thanks to the dogged efforts of Congressman Darrell Issa (R-CA) of the House Committee for Oversight and Government Reform, AIG’s true function as an international money laundering fund may finally come to light—as will all those 100% payoffs to its numerous shadowy counterparty risks. Should Issa’s efforts be successful, expect to see some of those heretofore undisclosed “risks” turn out to be sovereign wealth funds, an oligarchy or two, the Forex investment fund of a large Asian manufacturing base, and such notable private parties as former senior members of a past presidential administration. Given some of these entities’ ties to private security concerns—who also profited directly or indirectly from the bailouts—it’s no wonder Geithner, Bernanke, Paulson et al have been stonewalling the Committee for so long.

The cat and mouse game between Issa and the Fed has been going on since Issa first questioned Hank Paulson’s sudden announcement—two weeks before Geithner tried to take over the problem of the credit default swaps—that money was being loaned to the nine largest US banks, whether they wanted it or not. On October 13, 2008, Paulson informed these banks that they must take $125 billion in government funds he was offering. No accountability required.

Around this time, Goldman Sachs, which received $85 billion in taxpayer subsidies, let it be known that they had adequately hedged their firm against counterparty risk. This counterparty risk was essentially a series of margin calls by a London-based AIG subsidiary that had been set up specifically to offload AIG’s toxic mortgage “assets” during the subprime meltdown. As demand for MBS’s declined, the margin calls increased and AIG was unable to come up with the collateral. Bail-out time.

What Goldman wasn’t telling people was that they had also purchased credit default swap insurance on AIG’s going under. The Fed, in buying up that paper as well, (at 100%,) essentially made good on both eventualities for GS—another $12.9 billion handout courtesy of the American Taxpayer.

This didn’t set well with a certain segment of the electorate, and Issa kept plugging away trying to get some answers about who might have had a hand in this chicanery, and who was trying so hard to keep it quiet. After all, firms which had received TARP funds had indirectly been funneled some $100 billion more through AIG counterparty payouts, receiving full value for their derivatives contracts—with taxpayers picking up the tab.

Recently, a series of incriminating emails from Ben Bernanke’s office surfaced, seemingly implicating the Fed chair in efforts to cram through the AIG bailout over his staff’s objections. More letters were exchanged with the good Congressman.

After counsel for the Fed informed Issa on January 8, 2010, that his questions about their handling of the AIG bailout “didn’t warrant (Geithner’s) attention,” Issa upped the ante. In a semi-open letter to Oversight Committee Chairman Edolphus Towns, Issa all-but called for Timothy Geithner’s head on a platter…with Bernanke’s served as a garnish (PDF). “I am writing to request that you issue a subpoena to the Federal Reserve for these documents as soon as possible.”

So far AIG has received in excess of $152,000,000,000 from once and future taxpayers, (more than the stimulus funds given all fifty United States combined) with no accountability to any of us. The parties responsible for this largesse have steadfastly refused to disclose to Congress where all that money ended up—and likely for good reason. Just as the 911 Commission Report was heavily redacted to hide all references to BushCheneys’ personal financial ties to Saudi Arabian oil interests, so likely are the Fed’s records of the TARP/EESA funds final destinations.

Now, I don’t know about you, but I’m certainly not seeing a lot of that money up here in my neck of the woods. And other than a few unnecessary highway patch-up gigs, I’m not seeing it anywhere in the county. Yet AIG just gave out another $100 million in bonuses, and has spent (presumably,) millions more to retain snotty attorneys to tell inquiring Congressmen to go pound sand.

Wouldn’t it be fun to turn on CSPAN one morning and hear our newly- subpoenaed officials saying, “Well, Darrell, we gave Citigroup $25 Billion and then they gave $8 billion of that to DubaiWorld…which as you may recall, recently defaulted (read: absconded with it,) sticking American taxpayers with Mr. Cheney’s rounding errors. Again.”

Or, “Well, Congressman, you remember that $132 billion in Kennedy bonds (documents accessible only by high-ranking US Treasury officials) that those two Japanese mobsters were caught trying to “smuggle” over the Italian-Swiss border two days before Tim Geithner arrived for the World Economic Summit in Beijing? Uh, me neither….”

Or, “You do realize, Mr. Issa, that AIG was basically comprised of the average Chinese citizen’s life savings, don’t you? And that those savings are pegged to the USD? That would be our Treasury?”

Or, “Ever heard of Takaful (sharia,) Insurance Plans? The fundamentalist Islamic AIG counter party? No? Good.”

Or, “So why shouldn’t Citibank be able to borrow from the Fed at a taxpayer-subsidized 0% and lend it back to them at 25% interest on their credit cards? It’s a free market….”

Given the delicate nature of some these inconvenient coincidences, Mr. Issa may be a long time picking away at the Fed’s ramparts. But like that other Grand Inquisitor, Henry Waxman (D-CA) he seems determined to get at the truth—no matter whose backyard it leads into.

A list of TARP fund recipients.

To egg Congressman Issa on.

by Allena Hansen




Bits Bucket For February 9, 2010

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