Thursday, January 07, 2010

Uncle Sam Backstopped Derivatives, Geithner Hid Fact from AIG's SEC Filings

I wrote Congressman Mike Conaway in September 2008, concerned about the securities Uncle Sam would back. My letter stated:

I would like to see a list of "mortgage related security" products our federal government plans to prop up. If credit derivatives are on the list, I'm going to be angry. Buying distressed hard assets is one things, buying highly leveraged wagers is plain wrong.
While Rep. Conaway responded to my letter. As usual, he did not answer my question. Today's news indicated Uncle Sam backed credit derivatives. Bloomberg reported:

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 New York Fed was headed by Tim Geithner, now Treasury Secretary. The story pointed to financial innovation, the kind the taxpayer should not be backing:

(According to e-mails) the New York Fed suggested that AIG refrain in a filing from mentioning so-called synthetic collateralized debt obligations, which bundled derivative contracts rather than actual loans.
The filing “reflects your client’s desire that there be no mention of the synthetics in connection with this transaction,” Shannon wrote to Davis Polk on Dec. 2, 2008. “They will not be mentioned at all.”
The NY Fed blames "lawyers" for non-reporting in SEC filings. Lawyer shopping is a common practice for executives.

Bailout leaders clearly wanted SCDO's out of the limelight.  Lawyers provided the legal cover. Only Tim Geithner can say which leaders helped with the decision. Hank Paulson? Stephen Friedman, buyer of Goldman Sachs stock in the midst of the crisis?

Congressman Darrell Issa obtained the revealing e-mails. Maybe Rep. Issa can help with my Hurricane Katrina questions. Fran Townsend and Andy Card's e-mails are in the millions of "recovered" Bush e-mails. Can Rep. Issa get correspondence from LifeCare Hospitals and The Carlyle Group during and after Katrina? One can always hope.

Update 1-18-10: Geithner, Paulson & Friedman have been asked to testify before a Congressional committee.

No comments: