Tuesday, November 17, 2009

News About Collapse Still Incomplete

Today I have a couple articles about the collapse of our financial markets.  The information is still trickling in.

aig The Federal Reserve's haste in bailing out AIG last year forced the US government to come up with tens of billions of dollars more for the insurance giant's counterparties, auditors said.

"The logo of the American International Group (AIG) outside their office in the lower Manhattan area of New York. The Federal Reserve's haste in bailing out AIG last year forced the US government to come up with tens of billions of dollars more for the insurance giant's counterparties, auditors said."

A report to be released Tuesday by special inspector general Neil Barofsky, who is overseeing spending of the 700-billion-dollar Troubled Asset Relief Program, said the central bank was forced to act quickly with AIG on the verge of a meltdown that some believed would have crippled the financial system.

Acting through the Federal Reserve Bank of New York, the central bank had to pull together a loan of 85 billion dollars for AIG on September 16, 2008, after a private bank consortium rejected a new credit line of 75 billion dollars, the report said.

"In a rush to take action quickly, the (Fed) did not craft its own terms and instead simply adopted in substantial part the economic terms of a draft term sheet under consideration by a consortium of private banks," Barofsky wrote.

The high interest rate in the loan weakened AIG further, he said, and the bailout reduced any leverage in negotiating "haircuts" with AIG counterparties -- banks and others that had obtained credit default swaps, a form of insurance for their mortgage securities, through AIG.

In finance, a haircut is a percentage subtracted from the par value of assets used as collateral.

The government's AIG bailout eventually reached over 170 billion dollars, including 62.1 billion dollars that was "effectively transferred" by the government to various banks at 100 percent of face value, the inspector general said.

The report said questions had been raised about whether this was a "backdoor bailout" of banks.

Although the intent to bail out banks was not clear, the report said the effect of the actions was "that tens of billions of dollars of government money was funneled inexorably and directly to AIG's counterparties."

The report said Fed officials believe these funds will eventually be repaid from the underlying mortgage assets, but that "it is difficult to assess the true costs of the Federal Reserve's actions until there is more clarity as to AIG's ability to repay all of its assistance from the government."

The counterparty payments were not initially disclosed but in March AIG revealed the amounts paid to major banks... [emphasis added]

Inserted from <Alternet>

TARP was supposed to purchase troubled assets.  Instead Tim Geithner and Larry Summers manipulated the program into socialism for the rich.  We’re just beginning to get an understanding of this now, and I’m pleased to say that we’re finally about to do some serious investigation.

dollar-plunges In a recent Nation cover story, William Greider decried the lack of attention being paid by the media to the Financial Crisis Inquiry Commission (FCIC) charged with investigating the causes of the financial meltdown.

"The press has moved on. Financial crisis was last year's story," he wrote. But "how can Washington reform the financial system when we still don't know what happened?"

On Friday, FCIC Chairman Phil Angelides was in DC to deliver a keynote address at a New America Foundation conference on financial reforms, jobs, housing and the dollar. Economists, policy-makers, activists and some press were in attendance, but coverage was once again scant, even though there are encouraging signs that the commission is now ready to kick into high gear.

Angelides told the audience that the ten-member bipartisan Commission will "examine the causes of the financial crisis, writing the official history of what brought our financial and economic system to its knees." Throughout next week the FCIC will announce senior staff positions. Expect hearings "all throughout next year," and subpoena power to be used to compel testimony and access documents when necessary. Where criminal conduct is suspected, referrals will be made to the Department of Justice or appropriate state attorney general.

"This accounting is desperately needed," said Angelides. "The fact is that late in 1929, people were throwing themselves out of windows on Wall Street. This year they're lining up for bonuses. There has been no serious self-examination on Wall Street of what has occurred and what should be in the future."

The hope of progressives is that the FCIC will meet the high bar set by the 1930s Pecora Commission, whose investigation exposed Wall Street corruption and helped galvanize public support for New Deal reforms like the Glass-Steagall Act, the repeal of which is considered a contributor to the financial collapse... [emphasis added]

Inserted from <The Nation>

This is coming about a year late.  It should have begun while Crawford Caligula was still in office, because two major reforms are desperately needed.  The first is legislating that too big to fail is too big to exist.  The second id putting banksters behind bars.


Suzan said...

Thank you for continuing to cover this massively important issue.

It's not a mystery. Only a temporary unknown which better have criminal penalties attached to criminal behavior when this is finally exposed in the long-expected audit.

We know lots about Timmy's and Larry's already.

And it won't be hard to get the money back from Goldman (Government?) Sachs, Morgan Stanley, et al.

We know where they live.

Thanks again!


"how can Washington reform the financial system when we still don't know what happened?"

TomCat said...

Thanks Suzan. I agree that we know quite a bit already. I covered more in an article today. The issue is so complex that trying to understand it can boggle the mind.