Cover-up revelations keep coming about Timothy Geithner's secret assistance to AIG. The latest show that he urged AIG not to disclose how it would be shoveling money to Goldman Sachs and other large financial institutions by paying off its credit default swaps at par value instead of much less.
More than $60 billion changed hands that shouldn't have if Geithner had played hard ball. Therefore, the charge is that Geithner should be bounced because he was protecting the banks' interests ahead of the public interest. He may also have protecting himself during his confirmation hearings.
Ok, string him up. But what about recapturing the loot?
Before we pull the rope, let's take a closer look at this outrageous scam. During the bubble years, AIG conducted an extremely lucrative business guaranteeing all kinds of derivatives based on risky debt. They couldn't call it insurance because insurance products are regulated --- meaning you need to have reserves to back them up, which they didn't. So these toxic assets insurance polices instead got the fancy name "credit default swaps," which were not and still are not regulated. (Take a bow Phil Gramm, Robert Rubin, Bill Clinton and Alan Greenspan.)
This was the mother of all profit making businesses for AIG because in many of these deals AIG didn't have to put up any collateral as long as AIG was AAA-rated. The counter-parties (i.e. Goldman Sachs, JP Morgan Chase...) figured AIG was good for it. So AIG raked in fees for insuring toxic assets and didn't have to put up anything in return. Free money!
AIG figured the best hedge and the most money could be made by insuring more and more of this risky stuff. This was thought to disperse the risk broadly since all of the junk debt couldn't possibly fail at the same time, could it? They "insured" over $450 billion worth. (For the sordid details and comic relief, please see The Looting of America )
Then, the unthinkable happened. The assets tanked and AIG had to pay up on its policies, but couldn't. It was about to fold. Had AIG gone under it may have pulled with it hundreds of other financial institutions around the world that were relying on its insurance. The government stepped in to bail them all out. (AIG now spreads the fiction that this was just one rogue operation over in England in an otherwise safe and sound empire. But the big boys at the top of AIG all knew the credit default swap operation was a delectable source of enormous profits and shared in the booty... and they're not giving back any of the ill-gotten gains.)
We can argue some other time about whether or not some kind of bailout was necessary or what we should have gotten in return. The point here is that big fat financial houses like Goldman Sachs would have received pennies on the dollar for their AIG-backed credit default swaps had AIG gone into bankruptcy court. Instead, Goldman and others received par value and that money is now funding their mammoth profits and bonuses. (Spewing more corporate fiction, Goldman Sachs and JP Morgan Chase say they had been carefully hedged and would not have suffered from an AIG bankruptcy. Baloney. If AIG had gone under without a Federal rescue, those big banks would have gone down too or teetered on the edge.)
Here is precisely where free-market capitalism metastasizes into the billionaire bailout society. Goldman Sachs believed they had adequately covered $12.9 billion of its toxic assets by purchasing insurance from AIG. In fact, they believed those toxic assets plus the insurance made them as good as gold and part of their capital base.
In effect Goldman had placed two kinds of bets. First they bet on the toxic assets which were extremely lucrative, but risky. Then they bet that AIG could successfully insure them against losses on that first bet. They lost both bets. Too bad. That's capitalism....or used to be.
For losing their bet with AIG, Goldman Sachs should have only received about 20 cents on a dollar in a bankruptcy court. Instead, we bailed out AIG to prevent bankruptcy and Geithner et al pressured AIG to give Goldman Sachs 100 cents on the dollar. As a result, Goldman Sachs suffered no negative consequences at all from betting and losing. That's not capitalism. That's our new billionaire bailout society, where we, the taxpayers, pay off the bad bets. And the super-wealthy get more wealthy even when they lose their bets.
Think about it. Goldman Sachs alone got $12.9 billion - found money. Ka-Ching--right into its bonus pool. (OK, let's be fair. In bankruptcy they may have received $2.58 billion so the net windfall was $10.32 billion, which is about what it would cost to hire 172,000 teachers for one year.)
By all means, let's fire Geithner, and Summers too while we're at it. But if we really want to see some semblance of justice, we should slap a 90 percent windfall profits tax on all Wall Street firms. No matter how you cut it, they're all on welfare and their profits stem directly from our largesse. (Even those banks that have paid back TARP are, right this very minute, at the federal trough sucking up trillions of dollars of federal liquidity programs and asset guarantees.)
If the surging Tea Party really believed in its anti-bailout rhetoric, they'd be screaming for a windfall profits tax. But instead they so hate government and taxes that they'd rather let the biggest bankers in the world take our money and laugh all the way to the bank....in the Cayman Islands.
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.
Follow Les Leopold on Twitter: www.twitter.com/les_leopold
David Fiderer: Debunking the Bogus Story About Tim Geithner and the AIG "Coverup"
Raymond J. Learsy: Wall Street Triage: Was Lehman Sacrificed So That AIG Had To Be Bailed Out?
Robert Kuttner: The Case Against Bernanke
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I agree with almost everything you write, Les, but really. . . "This was the mother of all profit making businesses for AIG because in many of these deals AIG didn't have to put up any collateral as long as AIG was AAA-rated. The counter-parties (i.e. Goldman Sachs, JP Morgan Chase...) figured AIG was good for it. So AIG raked in fees for insuring toxic assets and didn't have to put up anything in return. Free money!" Les, I left that little sentence out there dangling on its own for a reason. No one "thought" AIG was good for it and most people know that GS knew that, too, which is why they bet against them and made money coming and going. Don't try to make sense of it, just call it what it is: a criminal scam between all parties. Collusion, Usury, Robbery, Theft, whatever you wanna call it.
Tim Geithner got the job as Treasury Secretary precisely because he handed so much tax-payer money over to big Wall Street firms. It would be strange for him to be removed for doing what Obama and Wall Street wanted him to do.
I doubt Congress will agree to this tax. Congress is controlled by the banksters. We may have to march into their mansions and headquarters and expropriate them by force.
The only way we are going to see that stolen bailout money again is if we take it back by applying massive pressure to the government with massive protests or national strikes. The presidency and both houses of Congress (and maybe even the Supreme Court) have been in the hands of the banksters for decades. We cannot trust the current government. We cannot trust the democrats and the republicans.
here is where all the taxpayer money went.....SEE if you can find it.... http://dailybail.com/home/there-are-no-words-to-describe-the-following-part-ii.html
If the Teabaggers believed in no bailouts, they would go for clawing the money back, but the fact is that the Teabaggers don't believe in what they claim. However, it is time that much of the money be clawed back. If Obama couldn't get the bill passed to do this, then USE HOLDER. There had to be fraud and known fraud in this stuff. After all, Goldman was selling those derivatives as highly-rated vehicles to investors, while essentially, take a short position by buying the coverage from AIG and betting on their failure. They also represented them to AIG as being solid. There has to be enough evidence to PROVE CONSPIRACY in those actions, and those of other institutions, and they were organized, SO USE RICO. Holder can do that and SHOULD do that. The institutions can either pay back 80% of the AIG money, or even 90% and in a timely manner, and get a slap on the wrist and some mighty big fines, or GO TO JAIL FOR THE EXECS AND BREAKUP OF THE FIRMS THEMSELVES. Of course, Obama and Holder seem to have little stomach for this, but if Obama wants a second term and wants to avoid a loss of seats, as in big time losses, this fall, then this would be WILDLY POPULAR AMONG THE VOTERS IN THIS COUNTRY AND THE PEOPLE WHO HAVE BEEN HARMED BY THE ACTIONS OF THESE GOONS.
Banks write mortgage loans to borrowers that meet the "qualifications" required for a government loan guarrantee all the time. A poor business decision to follow government guarrantee requirments perhaps, but no conspiricy. Those mortgage loans are bundled into mortgage-backed securities, and sold to Wall street investment companies all the time too. No conspiricy there, either. AIG was in the business of "guarranteeing" the profitability of those government guarranteed mortgage-backed securities. No conspiracy there. For Wall Street to construct a complicated derivatives market based on a guarranteed profit may have been a risky business decision, but assuming risk is not a conspiracy. The conspiracy happened when ACORN, and "progressives" in YOUR GOVERNMENT forced the banks to loan money according to their demands for "economic justice" (Carter's CRA), instead of proven loan qualifications, and then put taxpayers on the hook by guarranteeing those mortgages with the "full faith and credit" of the United States. When those borrowers defaulted, the mortgage holder foreclosed, and the value of the house next-door to the foreclosed property plummeted. Wall Street lost money when the derivatives market collapsed, and made claims against AIG's guarrantee of profitability. AIG lost money on their guarrantees of profitability, and made claims against Uncle Sam's guarrantee of the borrower. Honest homeowners lost, Wall Street lost, AIG lost, taxpayers lost, and "progressives" got re-elected by denying their part in any of it.
"They couldn't call it insurance because insurance products are regulated" It has been observed that when we discuss various matters, reference is often made to differing explanations of the actual words being exchanged. Thereby creating confusion in the indivduals involved. Similarly, the selection of certain words in preference to others can deliberately distort or else enhance a resulting interpretation. With this in mind, perhaps there is now need for a Rogue's rather than a Roget's Thesaurus. Wherein, duplicitous subterfuge is exposed. For example: Quantitative Easing, see Wheelbarrow Economics.
This proposal is insane, and would snuff out tens of millions of jobs.
No it would not. These institutions are not using the money to fund loans for small businesses or anything else. Claw the money back and use the money to fund LEGITIMATE small business and business financing to get things moving again. Use it carefully, and help create jobs with it. The banks have cut their staff to the bone, except for the wildly overcompensated execs and there wouldn't be other cuts they could make. Also, by making the issue an institution-wide things with all of them being involved, and the majority of institutions in the world got money from it, then who can the execs run to? Make it forceful, as in using criminal CONSPIRACY CHARGES AND RICO against them, no legislation is required, the PEOPLE OF THE COUNTRY WOULD WILDLY SUPPORT IT, and the money would be returned to the federal treasury, for lowering the deficit and legitimate lending. Besides, this would raise the spirits of the country as most would view it as finally getting some justice from these goons who caused this meltdown.
How do you figure?
Wall Street jobs might be lost. That would be a good thing. We need to reduce the size of the finance industry and start MANUFACTURING things again.
Those jobs can be recreated by using the windfall tax money to build other things like schools, roads, and green energy equipment.
Once the banks won their lawsuit against the United States of America, middle-class Americans would probably have to pay a penalty tax to cover the damage award.
I'm with you Les. And it seems most educated Americans see this logic. So how did this administration miss this and why does it continue to do so?
This administration and the previous one are both controlled by the banksters. We must remove them from the government.
Nelson, Theis administration doesn't miss anything, including bloggers threatening to hurt somebody in power or a facebook entry by a missing American, so what makes you think they missed this? Seriously, the answer to the second part of your question should be made obvious by this administration "standing by" Geithner. Clean House and Senate, vote third party and get a friggin woman in for President, please. Do anything, but get these thugs and bums out before they ruin us all.
I agree we have to get our money back. Stop Complaining and Start Action! We have to stop these crooks. We have to take back control of OUR money!!!!! This is a Standard way of Big Business and Government. We need to take control back. We need to use the system to defeat these robber barons. Take any money you have and move it to a LOCAL credit union or bank. Fill out a new W4 (at your place of employment if you are one of the lucky ones that still has a job) and claim 99 dependents so most of your tax money goes directly to you. This is all perfectly legal and if enough people will do this they have to take notice"¦"¦"¦"¦.
You are shooting a BB at a freight train with moving your checking and savings accounts. This money means nothing to the banks like Chase, Citi, BofA. As for claiming 99 dependents, you will have to do the accounting on this by April 15. There are plenty of people in jail who have tried to avoid paying taxes. The 3 people you don't want to tangle with is the I, the R and the S. They can slap a lien on your underwater property so if you do get a sale, they are right there with their hand out. They can garnish your wages put holds on your checking and savings accounts and just generally make your life miserable.
Great job digging thru the mud to elucidate the interested to the facts ! A windfall profits tax might be a good idea. I'd rather see a highly progressive personal income tax and inheritance tax with top rates of 90% for the highest incomes / inheritances. I think that, at the highest tax rate of 90%, $10 Million in the pocket of the first $100 Million of earnings still provides adequate incentive for an individual to reach for the next $100 Million. And it says something about us as a culture, that we are not worshippers of money (or are we?).
I agree completely,MG. Except I think we should take it much further. Regardless of the amount, if your income or inheritance is greater than mine, I think it's only "fair" that you should be taxed by whatever percentage rate it takes to make us "equal". Economic "justice" demands it! (P.S. We could just cut out the government middleman, and you could mail me a cheque for the difference.)
AIG needs to return the $10 Billion dollars of ill-gotten profits. All the other TBTF giants also need to return their ill-gotten profits that they raided from our treasury and our savings accounts. "we should slap a 90 percent windfall profits tax on all Wall Street firms" Yes!!! Also slap a 90 percent windfall profits tax on all the high frequency day traders that are distorting our markets and producing no benefit for our economy. I support any and all "claw-back" efforts to make our economy whole again.
Great piece. I agree the money should be taken back. And what's particularly disturbing is the mockery this scam has made out of the American work ethic: Americans once knew that hard work would pay off. But the clear message from the AIG & bailout scam is that if you work hard, some company that has bought out your representatives will gamble with and take that money (& even the money of your unborn children). Same message from the health care industry: Drug and health care actors lobby government to overcharge us more than 2x the going rate. They also take money they haven't earned--soon to be 20% of the average American's paycheck---and are exempt from competition all other Americans must participate in to make a living. There seems to be a new third world-style corruption taking hold---not the American we all love & respect. Message received: Forget honest hard work. Your chances of becoming prosperous in the US is greater if you make a joke out of the rule of law & take what someone else has earned. Conservatives think taxing people lowers their incentive to work hard? Bailouts to banks & handouts to health interests are even worse. This road will soon obliterate worker motivation. Why bother working hard if some group with no work ethic can take your earnings? Americans already work more hours than anybody else in the world, with much shorter vacations & are also the most productive workers in the world. What's next? Slavery?
AIG, Fannie and Freddie are all worthless. If you do this, recapturing the loot, you will be destroying mainstream pensions and annuities (AIG) and low cost mortgages (Fannie and Freddie). Watch the GOP get re-elected. Messing with the financial system now, beyond regulations that are needed destroys confidence and everything that the Dems have accomplished for mainstream, both good and bad.
Eliminate the fed. The federal reserve is a private organization run by crooks and always has been since being taken over in 1913 from OUR government.
I'm a teabagger and I resent you and all liberals totally misrepresenting what we are fighting for: honesty and ethics in government, small business, lower taxes, heathcare reform (but NOT as it is now written), elimination of all porkbarrel spending, etc. JUST LIKE YOU!!!! Sure...a tax on windfall profits is something all Americans (including teabaggers) would support...but as long as Wall Street is controlling Geither, Summers, Frank and Dodd, our hands ...and yours.....are tied behind our backs. The Townhall meetings this summer were an attempt to show our outrage at the backroom politics used to write the Healthcare Reform proposal, the outrage at Wall Street and the government who were responsible for millions of us who lost billions in their 401K's and ira's; our homes, money put aside for our kid s college education.....gone....poof!!! Just like that!!!! 2010...any incumbent.....gone....poof!!!! just like that!!!
I'm unclear. Are you a teabagger or Tea Party adherent? Or both? Not that there's anything wrong with that...
Not all liberals feel that way. I admire anybody who takes the time to get off the couch and work toward whatever they believe in. And it's clear that liberals and conservatives have many more interest in common than those who don't think for themselves have been misled to think. The real problem is that many on both sides have walked right into the divide and conquer trap set for Americans by the media and others helping the demise of our country. And many others have believed the message that they are helpless to change their own government of the people. This division keeps many busy insulting each other and distracted so that they can't see how many of the same things we all want.. Most of all, division keeps Americans from putting aside their few differences and coming together in numbers to big for government to ignore to make real change. (And of course while we're busy blaming all the wrong people, the trucks are pulling up to the treasury, loading up and driving away) There are some out there--and on blogs--working to keep us divided. So take inflammatory, presumptuous, racist, generalizations and deliberate mis-characterizations with a big fat grain of salt. (For all we know the authors of this stuff are sitting in cubicles and collecting a paycheck from those fighting to maintain the status quo)
Then you are not a teabagger. First of all they flame you when you call them teabaggers. Second of all there was no outrage in the town halls about 401Ks or anything else except socialism and the socialist president who was going to take over health care and then march granny before the grim reaper council and decide if she lives or dies. So don't come trying to rewrite history. Everybody here saw the townhall meetings and outrage at Wall Street was not under discussion.
Oh really? What do you represent? To me it looked like a mish mash of racial bias, fearmongering and outright ignorance. Maybe you need some professional PR. Mobs with a disparate pile of handmade signs are not cutting it. Furthermore, you are so inflammatory and ill-prepared when pressed on any given issue. How do you think you will resonate? The granny killing schtick only goes so far you know.
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