AIG Issues $100 Million In Bonuses

February 3, 2010

NY Times

By Mary Williams Walsh and Sewell Chan

The American International Group has agreed to cut employee bonuses by $20 million and will distribute about $100 million on Wednesday, according to people with knowledge of the negotiations.

But the reductions may not be enough to appease the company’s critics, who do not accept the company’s argument that it has to honor contracts established before its government bailout.

“A.I.G. has taxpayers over a barrel,” said Senator Charles E. Grassley, an Iowa Republican, in a statement on Tuesday night. “The Obama administration has been outmaneuvered. And the closed-door negotiations just add to the skepticism that the taxpayers will ever get the upper hand.”

A.I.G. first promised the retention bonuses to keep people working at its financial products unit, which traded in the derivatives that imploded in September 2008, leading to the biggest government bailout in history.

The contracts, which were established in December 2007, were intended to keep people from leaving the company and called for the bonuses to be paid in regular installments to more than 400 employees in the unit. The final payment, which was for about $198 million, was due in mid-March, but was accelerated to Wednesday as part of the agreement to reduce its size.

Fearing a firestorm like the one last spring, A.I.G. had been working with the Treasury’s special master for compensation, Kenneth R. Feinberg, on a compromise that would allow it to keep its promise in part, without offending taxpayers.

The agreement calls for employees who still work for the financial products unit to accept 10 percent cutbacks, while employees who have left the company must take 20 percent cuts. Those employees are still entitled to their bonuses under the contract, which adheres to the scheduled payments even if people have lost their jobs. The financial products unit has shed almost 200 people as it has wound down A.I.G.’s derivatives business.

A.I.G. has told all the affected people that if they do not accept the reduced amounts, they will get no bonus at all, according to a person with knowledge of the agreement.

But some people have not agreed to the cutbacks and are insisting on the entire amounts. People with knowledge of the negotiations said that a vast majority of those still employed at A.I.G. had accepted the cuts, but only about a third of the former employees had done so.

The holdouts seem determined to make A.I.G. pay the full contractual amounts, knowing they can make a reasonably good case under law, because A.I.G.’s own lawyers have previously issued an opinion that the contracts are binding. If they succeed, A.I.G. would have to pay them more money at some point in the future, and might even have to pay penalties for breaking its employment contracts.

So, while it appeared on Tuesday that A.I.G. and the Treasury had cut the bonus payment to just half of the $198 million that was scheduled for March, the total amount remains unclear. The company acknowledged Tuesday night that it had cut the original amount by $20 million, but did not confirm that the final payment would be $100 million.

In a previous exchange regarding the bonuses, Mr. Feinberg wrote to Senator Grassley on Jan. 15 saying that the contracted amounts were “grandfathered payments.” He said they were not covered by the new rules he administers curbing executive bonuses at bailed-out companies.

“My staff and I have insisted that employees should have their overall current compensation reduced to take into account the fact of these grandfathered payments,” Mr. Feinberg said.

The last time A.I.G. paid a round of retention bonuses, worth $168 million, it caused such an uproar that some employees received death threats, according to its chief at the time, Edward Liddy.

To mollify the public, employees agreed to pay back roughly $45 million to the taxpayer-owned company.

The complaints subsided, but last October, the special inspector general for the Troubled Asset Relief Program, Neil M. Barofsky, audited the program and reported that only $19 million of the total due back had been received.

People involved in the recent negotiations said that in the broad deal that has been negotiated, people will still have to pay back their bonuses, as previously pledged. However, the amounts they forgo in the final payout will be considered a way of making good on their pledges.

The government has extended roughly $182 billion in total to A.I.G., although the assistance has taken many forms and the company has not used that whole amount. It is selling some of its units to help repay the debt.

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U.S. To Investigate AIG’s Payout to Partners

January 26, 2010

The Wall Street Journal

by Michael R. Crittenden and John D. McKinnon

A U.S. government investigator is opening a probe into disclosures made as part of the government’s rescue of American International Group Inc. when the company’s trading partners were paid billions in November 2008.

Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program, plans to tell a U.S. House panel Wednesday that he is investigating whether there was any “misconduct relating to the disclosure or lack thereof” surrounding the deals, in which banks who had traded with the giant insurer got paid in full on $62 billion in bets on soured mortgage securities.

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SEC Works With AIG To Hide Bailout

January 14, 2010

Infowars.com

By Kurt Nimmo

Earlier today House representative Edolphus Towns subpoenaed documents related to the so-called “backdoor bailout” of AIG, including documents from Timothy Geithner, the former New York Fed chief and current Treasury secretary. The House Oversight and Government Reform Committee is looking for information on payments made to AIG counterparties, including Goldman Sachs, Morgan Stanley, Barclays, Bank of America, Deutsche Bank, and Societe Generale. The subpoena “specifically requests all documents surrounding the decision to pay AIG’s counterparties 100 cents on the dollar,” according to AFP.

It looks like Towns and his committee may only get part of the story. They will have to wait until 2018 to get the rest.

In May, well before Geithner was on the hot seat, the Securities and Exchange Commission approved a request by AIG to keep secret an exhibit to a year-old regulatory filing that includes some of the details on the most criminal aspect of the AIG bailout — the funneling of billions of dollars to the above mentioned culprits, particularly Goldman Sachs.

The SEC said the exhibit “qualifies as confidential commercial or financial information” and is off limits to Congress and the American people. The 2018 expiration date will fall on the tenth anniversary of the Federal Reserve of New York’s decision to provide “emergency financing” to an entity set up to specifically acquire some $60 billion in collateralized debt obligations from 16 banks in the United States and Europe.

The SEC ruling is yet another indication the banksters have a lot to hide and will go to unusual lengths to prevent the American people from learning the sordid details of their criminal activities.

In March of 2009, the socialist senator from Vermont, Bernie Sanders, demanded Federal Reserve mob boss Ben Bernanke reveal who received $2.2 trillion dollars in taxpayer money (or rather taxpayer debt obligation). Bernanke refused to answer. Bernanke said revealing who received the money would risk “stigmatizing banks and discouraging them from borrowing from the central bank.” Sanders abruptly cut Bernanke off. “Isn’t that too bad,” Sanders said. “They took the money but they don’t want to be public about the fact that they received it.”

“As we have previously reported, the destination of trillions in bailout funds remains hidden after the Fed refused to disclose where it had gone despite a lawsuit filed by Bloomberg,” Paul Joseph Watson wrote for Prison Planet on July 22.

Bloomberg filed a lawsuit under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs. On December 8, 2009, the Fed said it is permitted to withhold internal memos as well as information about trade secrets and commercial information.

As noted by Reuters, the AIG to SEC request to hide details of the massive and unprecedented bailout received scant attention in the corporate media when it was announced in May. “But it could spark controversy now following the release last week of 14-month-old emails that reveal that some at the New York Fed had discussions with AIG officials about how much information should be disclosed to the public about the Maiden Lane III transaction.”

Maiden Lane III is a Federal Reserve scheme to facilitate the merger of the Bear Stearns Companies and JPMorgan Chase. The New York Fed also used Maiden Lane III to acquire assets of Bear Stearns.

In November, Special Inspector General Neil Barofsky said “New York Fed didn’t have the backbone to stand up to Wall Street, didn’t understand its capacity to protect taxpayers, and didn’t appreciate that its responsibility was to taxpayers,” according to former prosecutor Eliot Spitzer. “Geithner and the Fed have proffered a series of spurious reasons for their willingness to pay AIG’s counterparties — the leading Wall Street banks — in full while demanding concessions from every other entity with whom the Treasury or the Fed dealt.”

In fact, the Federal Reserve, as a cartel for the international bankers, knew precisely what it was doing — it was paying off its buddies on Wall Street for their casino derivatives losses. The scam also provides an additional mechanism for crashing and burning the U.S. economy and ushering Americans into globalist serfdom.

Geithner and crew at the Treasury, at the Federal Reserve, and in the offices of Goldman Sachs and the other criminal bankster organizations need to be arrested immediately. Only through the process of discovery during prosecution will we learn the grim details of the largest financial crime in history and be able to punish the criminals responsible.

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Geithner Told AIG To Withhold Details About Bailout

January 08, 2010

Bloomberg

By Hugh Son

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.”

Geithner Had ‘No Role’

“Secretary Geithner played no role in these decisions,” Meg Reilly, a Treasury spokeswoman, said in an e-mail. “He was recused from working on issues involving specific companies, including AIG,” after his nomination for Treasury secretary on Nov. 24, 2008. Geithner “began to insulate himself weeks earlier in anticipation of his nomination,” she said in a separate statement.

Geithner, who was tapped by President Barack Obama, took the Treasury job in January, 2009. Mark Herr, a spokesman for New York-based AIG, declined to comment.

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.

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How Goldman Sachs Made Tens of Billions of Dollars From Economic Collapse

January 4, 2010

TheEconomicCollapseBlog.com

Investment banking giant Goldman Sachs has become perhaps the most prominent symbol for everything that is wrong with the U.S. financial system, but most Americans cannot even begin to explain what they do or how they have made tens of billions of dollars from the economic collapse of America.  The truth is that what Goldman Sachs did was fairly simple, and there may not have even been anything “illegal” about it (although they are now being investigated by the SEC among others).

The following is how Goldman Sachs made tens of billions of dollars from the economic collapse of America in four easy steps…. 

Step 1: Sell mortgage-related securities that are absolute junk to trusting clients at vastly overinflated prices.

Step 2: Bet against those same mortgage-related securities and make massive bets against the U.S. housing market so that your firm will make massive profits when the U.S. economy collapses.

Step 3: Have ex-Goldman executives in key positions of power in the U.S. government so that bailout money can be funneled to entities such as AIG that Goldman has made these bets with so that they can get paid after they win their bets.  

Step 4: Collect the profits – Goldman Sachs is having their “most successful year” and will end up reporting approximately $50 billion in revenue for 2009.

So is it right for the biggest fish on Wall Street to make tens of billions of dollars by betting that the U.S. housing market will collapse?

You see, when you are talking about a financial giant the size of Goldman Sachs, the line between “betting that something will happen” and “making something happen” gets blurred very quickly.

Not that Goldman Sachs was the only one betting against the housing market.

According to the New York Times, firms like Deutsche Bank and Morgan Stanley also created mortgage-related securities and then bet that they would fail…..

Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc.

But certainly Goldman Sachs was the most prominent financial player involved in this type of activity.

In fact, without mentioning specifics, Goldman has even admitted publicly to wrongdoing.  On November 17th, 2008 Goldman Sachs CEO Lloyd Blankfein even issued a public apology….

“We participated in things that were clearly wrong and have reason to regret.”

But complicated financial transactions are something that most Americans simply do not understand, so the public outrage towards Goldman Sachs and others has been somewhat limited.  But that does not change the very serious nature of the activities that Goldman was involved in….

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” Sylvain Raynes, an expert in structured finance at R & R Consulting in New York, recently told The New York Times. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

But the sad thing is that many Americans do not even understand what Goldman Sachs is.  Goldman Sachs was founded in 1869 and has forged a reputation as one of the elite financial institutions in the entire world.  They only hire “the best and the brightest” and Ivy League graduates flock to the firm.  Of the five major investment banks that dominated Wall Street before the crash, only Goldman Sachs and Morgan Stanley have survived.  Merrill Lynch and Bear Stearns were severely damaged by the crash and ended up being purchased by retail banks and Lehman Brothers ended up folding.

There are persistent rumors that Goldman played a major role in the collapse of Bear Stearns and that ex-Goldman CEO Hank Paulson could have done much more to bail out Lehman Brothers, but perhaps nobody will ever know the full truth.  All we do know is that at the end of the crash several of Goldman’s competitors were destroyed and Goldman found itself in a more dominant position than ever.

The truth is that Goldman is a financial shark and they do not apologize for it.

An article in Rolling Stone recently put it this way….

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

So how did Goldman Sachs prosper so greatly in an environment that destroyed their competitors?

The following is an extended breakdown of just how Goldman Sachs was able to reap tens of billions of dollars in profits from the collapse of the U.S. housing market….

Step 1: Sell mortgage-related securities that are absolute junk to trusting clients at vastly overinflated prices.

In late 2006, Goldman Sachs made some fundamental changes in the way that they were approaching the U.S. housing market.  According to a McClatchy report, Goldman spokesman Michael DuVally said that the firm decided at that time to reduce its mortgage risks by selling off subprime mortgage-related securities and by purchasing credit-default swaps to hedge against a serious downturn in the U.S. housing market.

The key moment came in December 2006.  After “10 straight days of losses” in Goldman’s mortgage business, Chief Financial Officer David Viniar called a meeting of key Goldman personnel.

Vanity Fair described the results of that meeting this way…

To continue reading this report, click here.

Outgoing AIG Counsel To Get Several Million Dollar Severance

December 29, 2009

Wall Street Journal

By Serena Ng and Joann S. Lublin

American International Group Inc. is preparing to pay its outgoing general counsel Anastasia Kelly several million dollars in severance after she resigned over federal pay curbs, according to people familiar with the matter.

AIG determined that its top in-house lawyer was entitled to the money under the company’s severance plan, whose terms say certain executives can resign and collect severance if their pay is reduced significantly, the people said. The move comes amid recent scrutiny of Ms. Kelly’s actions in a December pay dispute involving her and four other senior executives. AIG’s board engaged an outside law firm, Orrick, Herrington & Sutcliffe LLP, this month to review Ms. Kelly’s actions after she advised other executives on what they could do to protect their rights to collect severance benefits. Ms. Kelly also helped them arrange for outside counsel, a spokesman for her has previously said.

The executives notified the insurer on Dec. 1 that they were prepared to resign and collect severance benefits if their pay was cut significantly by the U.S. pay czar, who was reviewing pay packages for a group of 75 AIG executives at the time. The four others, who work at AIG’s insurance and financial-services units, later withdrew their notices, leaving only Ms. Kelly’s outstanding. She subsequently told the company she would resign, according to a person familiar with the matter.

The law firm’s investigation looked into whether Ms. Kelly performed her duties properly as the firm’s general counsel and as an executive who would be affected by the pay czar’s determinations, according to people familiar with the matter. The attorneys gave the AIG board’s compensation committee a verbal report earlier this month, people familiar with the matter said.

One person familiar with the report said the law firm’s findings “can be interpreted in a number of ways.” The committee concluded Ms. Kelly’s conduct shouldn’t prevent her from receiving severance, people familiar with the matter said.

The severance plan was put in place before the government bailed out AIG last year. Earlier this month, U.S. pay czar Kenneth Feinberg capped annual cash salaries for most executives at $500,000, and Ms. Kelly’s pay stood to be reduced significantly, say people familiar with the matter. Ms. Kelly has been at AIG since 2006 and was appointed vice chairman this year. The company is expected to name a new general counsel soon.

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AIG CEO Takes $10.5 Million Dollar Compensation Package

November 25, 2009

CNN Money

By Ben Rooney

After balking at government imposed pay restrictions, American International Group’s chief executive Robert Benmosche has officially agreed to a non-compete contract that could total $10.5 million, the company announced Tuesday.

Benmosche, who was named CEO in August, had expressed frustration with the constraints placed on AIG by the government after the global insurance company was bailed out last year.

He reportedly threatened to quit his post in board meetings earlier this month, before issuing a statement saying he is “totally committed” to staying on as CEO.

AIG spokesman Mark Herr said Benmosche agreed to a “non-compete” contract and that he is “committed to staying” at AIG.

Benmosche is one of several high-level executives at seven private companies under the purview of the Obama administration’s “pay czar” Kenneth Feinberg.

In October, Feinberg unveiled a series of drastic pay cuts for 136 top executives at seven of the nation’s biggest bailed-out companies, including AIG (AIG, Fortune 500), Citigroup (C, Fortune 500), and Bank of America (BAC, Fortune 500).

AIG received a $182 billion lifeline from the government last year as the credit crisis forced the company to the brink of collapse. In exchange, the government took an 80% ownership stake in the company.

Despite ongoing criticism of the company’s compensation practices, Benmosche successfully negotiated the largest award of any CEO under the government’s new curbs on executive pay.

In a press release, AIG said it will implement Benmosche’s previously announced compensation agreement, which includes a $3 million base salary and $4 million in AIG common stock.

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Fed Under Fire as Public Anger Mounts

November 23, 2009

My Way

By Tom Raum

Suddenly the Federal Reserve is everybody’s punching bag.

Strip the Fed of its bank regulation powers, some in Congress are demanding. Get probing audits of its behind-the-scenes operations, others say.

The chairman of the Federal Reserve Board is always fair game for criticism and second-guessing, usually over interest rate actions. But this year the criticism is much broader as Congress responds to widespread public anger that the Fed bailed out Wall Street but not ordinary Americans, and with unemployment in double digits.

Former Fed Chairman William McChesney Martin Jr. famously said that the central bank’s job was to yank away the punchbowl just when everybody is starting to party. And while Fed Chairman Ben Bernanke has signaled the Fed will keep interest rates low for now, a round of higher rates inevitably will come.

The Fed finds itself both the punchbowl keeper and the punching bag. Imagine the outcry when it does begin to crank up rates – perhaps just ahead of next year’s midterm elections.

Fireworks seem likely at Senate confirmation hearings early next month on President Barack Obama’s nomination of Bernanke to a second four-year term as chairman.

Many economists and Fed watchers say congressional efforts to rein in the Fed’s powers could interfere with the central bank’s ability to help guide the fragile economy to recovery.

The Fed’s very independence and its unique ability among U.S. institutions to create money out of thin air enabled it to act quickly to stabilize the nation’s financial system after it froze up last September after the bankruptcy of the Lehman Brothers investment house, Fed backers say.

“It might have been the Fed’s finest moment when it had to jump into the market,” said David M. Jones, a former Fed economist and president of DMJ Advisors, a Denver-based consulting firm. “We still have to wait to see how effective the Fed is in its exit strategy and whether it can keep inflation in check. But this badgering by Congress, even if there is populist sentiment, is inappropriate.”

The Fed’s aggressive intervention also set the stage for the current criticism. Many lawmakers question whether the Fed’s money machine has mainly benefited financial markets and not the broader economy. Lawmakers are also peeved that the central bank acted without congressional involvement when it brokered the 2008 sale of failed investment bank Bear Stearns and engineered the rescue of insurer American International Group.

Bernanke, first appointed by President George W. Bush, has worked closely with both Treasury Secretary Timothy Geithner and Bush Treasury Secretary Henry Paulson in confronting the worst financial crisis in decades. Geithner also has gotten his share of congressional wrath, mainly for his administering of the $700 billion bank bailout fund.

“In the past, the Federal Reserve was held in very high esteem,” said Rep. Ron Paul, R-Texas, a libertarian who twice ran quixotic presidential campaigns and remains a darling of skeptics of Washington. Now, it’s “the source of our problem,” suggests Paul, author of the best-seller “End the Fed.”

Usually an outlier, Paul suddenly has found an army of at least 307 House colleagues and 30 senators marching behind his legislation to subject the Fed to intense scrutiny by Congress’ Government Accountability Office. The House Financial Services Committee endorsed Paul’s approach 43-26 last week over objections from its chairman, Rep. Barney Frank, D-Mass.

The bill would authorize Congress to audit not only the Fed’s lending programs but its basic decisions to set monetary policy by raising or lowering interest rates. Paul has been introducing a version every year since the early 1980s, but this is the first time it has garnered any serious attention.

Senate Banking Committee Chairman Chris Dodd, D-Conn., who will preside over Bernanke’s confirmation hearings, has proposed legislation that would strip the Fed of its bank-regulation authority and give the Senate a role in selecting the 12 regional Federal Reserve bank presidents.

Dodd says his measure would return the Fed to its core mission of setting monetary policy, claiming it proved itself “an abysmal failure” by not cracking down on risky lending practices that led to the financial meltdown.

Dodd is in an extremely tight battle for re-election, even though he has served in Congress for 35 years.

“I don’t think it ever hurts to have a member of Congress stand up and denounce the Fed. There is a lot of anger out there, and this is basically a therapeutic gesture,” said Ross Baker, a political scientist at Rutgers University.

Still, Baker said, it probably isn’t wise to tamper with the formula that makes the Fed “very much an anomaly in American government. It’s independent, it has to be. You don’t want the Fed to be under the control of the president. And it kind of sits out there – not in the executive branch, not in the legislative branch, not in the judicial branch. Sort of its own little element in the separation-of-powers constellation.”

While the Fed is subject to some congressional oversight, its decisions don’t have to be ratified by the president or Congress. Fed officials are not paid with money appropriated by Congress.

Should Bernanke be worried?

“Not only should be worried, he’s clearly ratcheted up his game in terms of his communications with Congress,” said Norman Ornstein, a senior fellow at the American Enterprise Institute.

Ornstein said the Fed bashing this time is different from before, with “a broader base of support. And it’s coming from people who in the past would not have hit the Fed. There’s a lot of populist anger out there – on the left, in the center and on the right. And politicians are responsive to that.”

—

EDITOR’S NOTE: Tom Raum covers economics and politics for The Associated Press.

(This version CORRECTS to show that Ron Paul twice ran for president, as Libertarian Party candidate in 1988 and in 2008 as a Republican seeking the party nomination.)

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6 Congress Members Demand Audit of AIG Payments

November 19, 2009

Infowars

The Honorable Barney
Chairman, House Financial Services Committee
2129 Rayburn House Office Building
Washington, DC 20515

The Honorable Christopher Dodd
Chairman, Senate Committee on Banking, Housing, & Urban Affairs
534 Dirksen Senate Office Building
Washington, DC 20510

Dear Chairman Frank and Chairman Dodd:

In light of Tuesday’s report released by the Special Inspector General for the Troubled Assets Relief Program, Neil Barofsky – Factors Affecting Efforts to Limit Payments to AIG Counterparties – we write to request your assistance in addressing major issues displayed prominently in the report.

On March 25, 2009, I requested, joined by 26 fellow members of Congress, that Mr. Barofsky investigate the events surrounding AIG’s payments to Goldman Sachs, Merrill Lynch, Societe Generale and other firms to settle certain open derivative transactions.

As a result of the findings in the report, there should be a comprehensive Congressional review of the Federal Reserve System and an exploration of possible changes in its governance model. More immediately, a complete and public audit of the system should be made part of the regulatory reform bills currently moving through your committees.

The following issues illustrate a set of circumstances that grant tremendous power to a body that is subject to minimal accountability, thus giving rise to my request.

First, Mr. Barofsky cites the unwillingness on the part of officials at the Federal Reserve Bank of New York (FRBNY) to negotiate “haircuts” with AIG counterparties. FRBNY has argued that it was acting as an AIG creditor, not as a regulator. I believe it is intellectually disingenuous to separate these roles in this case, [1] and frankly, how effective a regulator can the Federal Reserve be if it is unwilling to strive for good public policy through its regulatory powers?

Second, there is an inherent conflict in the manner in which regional reserve branch presidents are selected – in that representatives of the member banks select the regional president. It seems counterproductive, yet the banking system has provided case after case of regulated entities selecting their own regulator.

Third, the Federal Reserve has continually resisted efforts to engage in discussion on structural and governance reform at the System. Most recently, Bloomberg reported yesterday that the Federal Reserve has rejected a White House request that [the Federal Reserve] conduct a public review of its structure and operations.

Despite a request from the administration that provided ample opportunity for the Federal Reserve to have input into its own reforms, the central bank has simply refused. It is because of this attitude that I argue that real financial regulatory reform cannot occur without an examination into the structure of this entity.

Fourth, and most importantly, the Federal Reserve has shown a repeated unwillingness to accept efforts to improve transparency for the System.

As we are reminded in the report, it was only through your persistence, Chairman Dodd, that we were finally able to grasp the nature and extent of the counterparty payments. Despite repeated objections by the Federal Reserve System that the release of this information would have a detrimental effect on the health of AIG, their counterparties, and the markets, we now have the requested information, and the markets continue to function. As Mr. Barofsky stated – “the sky did not fall”.

As I and so many others have stated since the bailout first began – transparency must be the hallmark of any use of government funds.

Concluding, we respectfully request that for the reasons enunciated herein, that a Congressional examination of the governance structure at the Federal Reserve be undertaken, and also that the regulatory reform bills moving through your committees include a complete and public audit of the Federal Reserve System. The actions requested would shine much needed-light on this creature of Congress.

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World Currencies to Join in Race to the Bottom

October 26, 2009

The International Forecaster

The G-20 finance ministers meet in Scotland on November 6th and 7th, and they will all be bleating about the fall in the dollar. France started this week, and the others will follow. Their currencies are rising in value and they do not like it.

We expect other nations to follow, Mexico and Brazil in imposing a 2% tax on incoming funds and others will print their currencies and buy dollars to reduce the value of their currencies and at the same time buy US Treasuries that are decreasing in value. That will neutralize any benefit from the exercise. In addition, they will all scream for a strong dollar policy. By the time the meeting begins the dollar should be between 71 and 72 on the USDX, the dollar index. The weaker dollar means dollar debt will be cheaper to pay back. The big question is how long will it take for the dollar to fall to 40 to 55?

We are often asked how does today compare with the 1930s in tax revenue and government spending? In 1930-31 tax revenue fell almost 53%. It increased 250% in 1932 and tripled in 1938. Yet, growth during the 30s went nowhere. In spite of an increase of 45% in government spending during those years by 1940 GDP had not returned to the levels of 1930. In 1939 unemployment was still 17.2% and in 1940, 16.4%. This is the same monetary policy being used today that was used during the 1930s. Keynesian monetization that does not work. The only reason the depression did not continue is that FDR arranged another war, otherwise the depression could have continued indefinitely. The debt bubble of the 1920s only lasted seven years. Our present debt bubble actually began in 1978, was purged in 1982-83 and began again in 1986. It was killed in 1989 and resurrected in 1994. The bubble of 2000-2001 was replaced by our current real estate bubble in 2003, which is now in the process of deflating. The privately owned Federal Reserve engineered all this.

The current fiasco was accompanied by a shortfall in tax collections to government spending from 2003 to 2007. 2008 held its own due to cooking the books and 2009 fell almost 18%. Unless further tax increases are implemented you can expect 2009 to fall short as well. Thus, if taxes are not increased the American economy will collapse. This is harsh and tax increases will come at just the wrong time. It can in part by temporarily covered by hyperinflation, but that would be a transitory solution. 62.8% of foreign reserves are in US dollars, so as the dollar depreciates foreign debt decreases. The flip side is that there is major imported inflation, particularly in the cost of goods and services.

Present government stimulation is not going to work. It didn’t work in the 1930s and Japan has found out to its dismay that since 1992 it didn’t work for them either. Why should it work in America? The debt that has been so wantonly created is still going to be there and if taxes are not raised or costs cut, it will be even larger.

Our government, Wall Street and many Americans are basing their future on stimulation and recovery and it isn’t going to happen. This supposedly is how government is going to generate its tax revenue. All we can say is good luck.

At the G-20 and G-7 we hear about an exit strategy. A strategy that doesn’t exist. Others may raise taxes but we can assure you the US and UK will be the last to do so. They are currencies in disparate trouble. The dollar will find its real value somewhere between 40 & 55 on the USDX. The dollar will become a third world currency and as a result gold will climb to $2,500 to $3,000.

The G-20 let us know that they would be replacing the G-7 and G-8. This desperation of power to developing countries would expedite the transfer of wealth from Western nations in the third world via carbon taxation in order to lower standards to meet those of the lower tier countries. This is being done to force the first world to accept world government.

In his address to the conclave US Treasury Secretary Tim Geithner told attendees that the US was going to legislate sweeping changes to the financial system under the guise of creating greater protection for consumers and investors and to promote a more stable financial system that would relieve taxpayers of the burden of the financial crisis.

The members still want to complete the Doha trade talks that have been bogged down for four years. What the WTO is really trying to accomplish is extreme financial deregulation under the cover of trade agreements, which would undermine genuine regulation and would make the entire world a free trade zone to be further looted by transnational conglomerates. The force behind WTO deregulation is the EU and they are pushing the worst aspects of the plan.

The WTO has an agreement called the FSA, the Financial Services Agreement that explicitly applies to more than 100 countries and mandates major deregulation. Mr. Geithner worked on this plan during the Clinton administration, so his regulation statements are meant for public consumption only. Incidentally, the WTO-EU rules are virtually unknown to the US Congress.

Geithner was the one who closed the deregulation deal for the Clinton entourage as lead negotiator. He knows all about the existing agreements. He was directly instrumental in the destruction of Glass-Steagall. The whole new crowd in the Obama administration was responsible for setting up what has become the destruction of our financial system.

The present US course is to re-regulate and that is in direct opposition to what the WTO and the EU want. There will be quite a fight over this change of direction by the US, especially over the WTO, Understanding on Commitments in Financial Services, which is severe deregulation. The bottom line is Doha, the FSA, WTO and the EU have to be stopped. More deregulation is now politically unaccepted by Americans who have lost so many jobs. There obviously are two factions within the Illuminist structure fighting this out. In fact, the FSA was largely written by American Express and AIG. These are some of the inner workings behind the scenes that you never hear about. Things are never what they seem to be.

The Treasury will have major issuances next week. On Monday alone they will issue $116 billion in new notes and bills, 2, 5 & 7-year paper; plus another $30 billion in bills and $7 billion in TIFS. Tuesday will see $44 billion in 2-year notes. On the 28th, $41 billion in 5-year notes and on the 29th, $31 billion in 7-year notes. That totals $182 billion and that is disastrous.

Domestic investors are selling the rally in domestic stocks at an accelerating rate while continuing to invest overseas, and in the emerging bond bubble.

Don’t’ be deceived by Wall Street and Washington, the worst remains ahead for the economic and systemic-solvency crisis. There are no meaningful signs of business recovery, with the current depression likely to evolve into a great depression, in conjunction with the collapse of the value in the US dollar and a hyperinflation. Risks are high for these crisis’s to explode in the year ahead. The general outlook is not changed says economist John Williams.

Mortgage application fell for a second straight week with refinance loans decreasing 13.7%, the lowest since 9/11/09.

Barclays Capital hosted a private meeting yesterday with Goldman Sachs president Gary Cohn, CFO David Viniar and Global Sales and Treading co-heads David Heller and Harvey Schwartz.

How concerned are they about any new regulations on the financial industry? Not much. In a copy of the notes Barclay is putting out on the meeting, and obtained by EconomicPolicyJournal.com, Goldman told Barclay that it is educating the regulators.

Barclay advised that senior Goldman management are spending an, “exorbitant amount of time thinking about potential regulatory and policy outcomes and educating regulators and policymakers on the intricacies of financial markets.”

The only picture I can conjure up is Blankfein and company educating,
Gene Sperling (“Counselor” to Geithner) who last year took in $887,727 from Goldman

Lee Sachs (Geithner’s “right hand man”) who reported more than $3 million in salary and partnership income from the hedge fund Mariner Investment Group (started by Brace Young former Goldman partner) and Gary Gensler (Head of CFTC) former Goldman partner.

Click here for the full report.

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