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lquadland10 (< 20)

Aig from March. No transparency I say Treason



October 12, 2009 – Comments (4) | RELATED TICKERS: SLV , AUY , BX

More Lowdown on AIG 03.05.09 -- 7:58PM By Josh Marshall

We don't know who AIG's counter parties were, i.e., who got the money. And the folks at the Fed and the Treasury aren't saying. But there are a lot of snippets and shreds of information out there that do allow us to get a decent picture of who some of the major beneficiaries are. Zack Roth has the details in this piece today at TPMmuckraker.

And then there's this from a close observer of the AIG matter ...

Josh, your reporting on the AIG credit default swap/counterparties issue has been spot-on. But to understand what happened there, you have to understand the Fed's "Maiden Lane" vehicles and how it's used them to avoid what Congress intended with TARP, which was the real story that came out of Dodd's hearing on the AIG mess today. And the roots of it go back to the Bear Stearns rescue last year.

By law, the Fed isn't allowed to buy assets -- it can only lend, as lender of last resort. That was a problem for the Bear Stearns bailout, because JP Morgan said it would only buy Bear if someone else assumed responsibility for the bad stuff. Fed came up with this idea to start a shadow company, called a special purpose vehicle (SPVs were how Enron operated, creating "Chewco" and the like named after Chewbacca - the New York Fed called their SPV "Maiden Lane LLC" for name of the street the NY Fed is located on in southern Manhattan). The deal then was JP Morgan put $1 billion into Maiden Lane, the Fed put $29 billion in cash into it. Maiden Lane paid Bear Stearns $30 billion, which went straight back to JP Morgan as this deal happened simultaneously to JP's purchase of Bear. So Morgan got $30 billion in cash ($29 billion net) and the Fed got stuck owning the bad stuff, but was legally only making a loan to Maiden Lane, who was the legal owner (Maiden Lane was incorporated not in NYC, but in Delaware to avoid paying taxes). By the Fed's own accounting - which is very different from a real company's accounting - Maiden Lane has lost $5 billion between its creation and today.

The same problem happened in AIG, but this time there was no buyer. In Sept, the Fed bought AIG (80%) in exchange for an $85 bill loan. By Oct, it was clear AIG was still dying, so the Fed lent it another $40 billion. This $40 billion was restructured in November when the Treasury put in $40 billion of TARP funds, which was needed to bail out the Fed's loan which had by this time gone bad. But essentially AIG had 2 problems: it had lent out safe securities with real values and used that money to buy no good mortgage backed securities -- this was called 'Secured Lending Facility' which was done right under the nose of the state insurance commissioners. It was in the hole $20 billion. The other problem was the bad insurance that AIG's financial products company had written on other people's bad  mortgage backed securities - the credit default swaps (CDS). When the bad mortgages that AIG insured went bad, the insurance had to pay-up -- but because it wasn't called insurance, but rather derivatives, AIG hadn't reserved any money against it. This had lost about $25 billion.

The Fed lent each Maiden Lane $20 billion and $25 billion and then Maiden Lane paid off the investors that had either lent AIG the money to buy the bad mortgage backed securities (ML II) and those who had the bad mortgages and the corresponding insurance (ML III). To avUsing the loophole it had learned during Bear Stearns, the Fed set up two new companies: Maiden Lane II and Maiden Lane III. Two dealt with the secured lending and Three the bad credit default swaps. oid booking a loss on the Fed's balance sheet, because the Fed had some legal problems if either of these Maiden Lanes lost money, and because of a reporting requirement that Dodd had put into TARP which actually required the Fed to report to the Congress and the public about the cost to taxpayers from ML I, the Fed did some creative accounting. They still paid all of the investors off at full value (par), so that they didn't lose anything. But they booked the loss on AIG's balance sheet and kept Maiden Lane clean. This is the hidden story behind how AIG went from losing $38 billion during the first 9 months of 2008 to losing $61 billion in the 4th quarter.

This was all exposed at today's hearing. And despite repeated requests from Senators on both sides - Dodd, Shelby, Corker, Warner - the Fed is still refusing to say who it bailed out through Maiden Lane II and III.


So by law the FED can't own bank's and car companies and Insurance CO.  they got creative and bought the country with our money that congress lent them. The bail out bill did say to buy toxic assets.The next day they bought the banks.Hummmmmm I am thinking TREASON here. Ops silly me. They are not part of the government. No one can tell them what to do. But they are American Citizens are they not. So Treason it is. 

4 Comments – Post Your Own

#1) On October 13, 2009 at 5:03 AM, stockrevealer (40.27) wrote:

nice. I think as time passes we 'll find out more corrpution and stupid decisions have been made behind closed door.

As a South American I am always suspiscious about governments who keep things in secret "for our own good."

Transparency is a must and the Bush government has closed the doors on transparency with all their stupid policies. I really hope Bush goes to hell for ruining the lives of sooooo many people.

Even ancient Greek knew that the government that thinks is smarter than its citizen is a corrupt, failed state.

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#2) On October 13, 2009 at 8:19 AM, lquadland10 (< 20) wrote:

I concur. Good quote.

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#3) On October 13, 2009 at 9:36 AM, russiangambit (28.86) wrote:

+1 rec for stockrevealer comment. It has been exactly my expeirence too - a government that has things to hide is always doing so in its own corrupt interest, and not in the interests of the people.

I also felt how with Bush administration all government offices turned suspicious and unfirendly. The free spirit of the country as poisonedc with hate and fear in the last several years. I was  hoping with Obama that will get reversed, but it is only getting worse. 

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#4) On October 13, 2009 at 1:36 PM, leohaas (29.47) wrote:

Unfortunately for you, treason is the only crime strictly defined in the US Constitution:

"Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort. No Person shall be convicted of Treason unless on the Testimony of two Witnesses to the same overt Act, or on Confession in open Court."

You can argue the FED has broken the law, but not that the FED is a "Person". Even if you'd make it personal by charging the individuals in the FED, their law braking is neither an act of War nor equivalent to giving Aid and Comfort to our Enemies.

I wish it were different, because I strongly believe Cheney should have been brought up on Treason charges for lying us into the Iraq war...

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