Wah! Wah! Wah! And More Semtex from AIGFP

The WaPo is out with a story about how the remaining people at AIGFP are being unfairly lumped in with the banksters who broke the world economy.

A solitary flat-screen television hangs on the back wall of the trading floor inside the headquarters of AIG Financial Products here. Wednesday afternoon, the most-talked-about employees in America huddled around it to find out just how despised they have become. 

[snip]

A sense of fear hung in the room — the palpable, unsettling kind that flashes across people’s eyes. But there was anger, too. No one would express it publicly, of course. Who wants to hear a wealthy financier complain? And yet, within those walls off Danbury Road lies a deep sense of betrayal — first by their former colleagues, now by their elected leaders.

The handful of souls who championed the firm’s now-infamous credit-default swaps are, by nearly every account, long since departed. Those left behind to clean up the mess, the majority of whom never lost a dime for AIG, now feel they have been sold out by their Congress and their president.

In it, Gerry Pasciucco contradicts the story Edward Liddy told yesterday, denying that the remaining AIGFP employees were irreplaceable.

"They are replaceable," Pasciucco acknowledges. "If we were running a long-term business, we could probably replace them over time, not all at the same time." 

Yet in the middle of this big sob story about how maligned these poor quants and their secretaries are, they return to the threats they issued in the white paper demanding the bonuses.

"Nobody is going to give it back and then stay," said one of the firm’s employees. "If they give back the money, then they will walk. And they will walk into the arms of AIG’s counterparties." 

Let’s see, aside from the fact that these guys’ contracts undoubtedly have confidentiality agreements–making such cooperation with counterparties a gross breach of contract–assuming their counterparties actually did anything with this information, they’d all be breaking the law. 

Don’t get me wrong–I believe Liddy when he says the US government stands to be exposed to the tune of $1.6 trillion if this happens. I believe this threat is real. 

But make no mistake. The kind of people who would threaten to do this are threatening to bring down the global finance system. Again. This is little or no different from what the CDS traders did when they got AIGFP into the crapper back in 2007. 

Some guy, anonymously, just sent a note to the American people via the WaPo saying, "I’ve got a ticking nuclear weapon I’ll defuse only if you pay me a million dollars. What are you going to do about it?"

What are we going to do about it?

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82 replies
  1. SaltinWound says:

    I’m all for finding ways to rescind these bonuses but the idea that we could make these people maintain confidentiality because of their contracts, while at the same time we’re breaking contracts with them, seems shaky to me.

  2. JimWhite says:

    Funny that WaPoo should profile the folks in the US office of AIGFP when it was the London office where the real damage was done. Just more misdirection.

  3. SaltinWound says:

    I don’t know what Dodd means when he says Treasury insisted he strip provisions about curtailing bonuses. Obama wasn’t going to veto it. What does insisted mean, in this context?

  4. phred says:

    The handful of souls who championed the firm’s now-infamous credit-default swaps are, by nearly every account, long since departed. Those left behind to clean up the mess, the majority of whom never lost a dime for AIG, now feel they have been sold out by their Congress and their president.

    It is stunning to me how glib everyone seems to be about the “handful” of people responsible for the CDS fiasco. Now that they have left AIG, I want to know who they are, where they went, are they being investigated for fraud, and who their counterparts in other companies are. I want details. All this hand-wavy “we’ve unwound $1 trillion” and “it’s just a few bad apples” (that one sounds familiar doesn’t it?) is all just blowing smoke. The entire system is rotten and as far as I know is still poised to collapse, but we’re not supposed to look behind the curtain, we’re just supposed to accept their word at face value. They have gambled away their right to the benefit of the doubt. Who is investigating all of this? How broad is the investigation? How soon will we get some real answers?

      • phred says:

        Yep. There seems to be a concerted effort to throw money at the problem and pretend that that is the solution in and of itself. Until Congress or DoJ announces a wide-ranging probe of the various pieces of the deregulation malfeasance puzzle, I will remain convinced that they are simply trying to keep a lot of people out of jail at the public’s expense.

    • selise says:

      i bet it’s much bigger than keeping some people out of jail – just a guess, but it sure looks to me that they are trying to protect a corrupt system (because it is in their interest to do so) and would be quite willing to throw people (of course the lowest, least connected and least responsible) under the bus if need be. i hope the scape goating doesn’t distract from getting real answers from a real investigation.

      aig looks so dirty in so many ways.

  5. Aeon says:

    A really significant revelation of how expendable the indispensable AIG-FP employees turn out to be (from a different story in today’s WaPo):

    The work of defusing the most dangerous bets placed by American International Group was largely concluded by December, according to documents and interviews, long before the company gave bonuses to employees it said it needed to retain to avoid a financial meltdown.

    By the end of December, the outstanding volume of the riskiest kind of bet, on highly complex derivatives, had been reduced to roughly $13 billion from $78 billion, according to the company’s financial filings. The Federal Reserve has since completed its planned purchases of assets from AIG’s trading partners.

    Two Financial Products executives said the hardest work has been completed and their focus has shifted to the resolution of a vast but less risky portfolio of bets on more straightforward financial instruments. One said most of those trades are protected against loss and have caused few problems.

    • phred says:

      Here’s a bit more from the WaPo article you linked. I hope someone can help explain this to me, because I really don’t understand the math. First there is this:

      The company in recent statements has credited Financial Products with making “substantial progress,” and a spokeswoman said yesterday that Liddy simply wanted to underscore the seriousness of the remaining challenge. The division began with bets valued at about $2.7 trillion, which it divided into 22 portfolios. The five riskiest portfolios are basically unwound, but AIG says the remaining portfolios still pose significant risks.

      Then later in the article they say this:

      At the end of 2007, the division had guarantees outstanding of about $78 billion. If enough borrowers defaulted and the investors lost money, AIG was on the hook.

      If we put those two numbers in bold into the same units ($2700b – $78b) we have $2622b or $2.622 trillion unaccounted for. Winding down $78b is a drop in the bucket. How do we get from there to the $1 t claimed by Liddy yesterday?

      Next, consider the other numbers that don’t add up. Apparently there is $78b that needed to be dealt with. However, according to the article “Through the end of December, the government and AIG had paid about $62.1 billion” and a bit later it mentions another “$22.4 billion in mortgage-related securities”. Last I checked, 62.1+22.4 = 84.5. That’s not 78.

      I’m not saying any of these numbers are wrong, but they don’t add up as presented, so if anyone could fill me in I would appreciate it. The real stumbling block for me though is the vast discrepancy between $2700b and $78b. It calls into question the last sentence of the article:

      AIG still can borrow money from the Fed to meet collateral calls from other trading partners, but the Fed’s work with the company is substantially complete.

      Even if we assume that $1t has magically disappeared off the books (all while paying the counterparties 100% of their “value”), they’ve still got $1.6t hanging around in the division that they acknowledge is going out of business. I don’t get it. How can the Fed’s work with AIG be “substantially complete”? I also thought that the WH has been letting everyone know that more money will be needed for the bailout. Why would that be if AIG is all squared away?

      I am neither an economist nor an accountant, so perhaps there is a perfectly reasonable explanation for all of this. If there is, I would be delighted to hear it : )

      • readerOfTeaLeaves says:

        This is only a guess, so take as such.
        If you have a CDO, then you’ve paid $1 on that contract, which is basically a ‘bet’ to gain $30 if certain things go belly-up.

        In order to gain the other $29 to insure your ‘return’, you have to ensure that whatever conditions you ‘bet against’ do, in fact, occur.

        Now the seller of the CDO is making a lot of $1 bets, on the assumption that they won’t have to pay out any more than 2 or 3 ‘collections’ of $29 each.

        But what if those ‘hedgers’ have gamed the system?
        What if they know how to sink companies (by naked short selling, and/or because they have inside info about supply problems, etc)?

        If they can ensure that whatever they paid you $1 to ‘insure against’ does in fact happen, they stand to be very, very rich. And it’s all legal, and unregulated.

        So it appears that their next step would be to go to a third party — a Goldman Sachs, or a BofA trading division — and either buy up shares of a company that they then ’short’ to make the price sink down to a level at which they can collect on their ‘bet’ with AIGFP.

        So it’s not a transaction between two parties.
        It’s that as a first step.
        Then a second step, in which the original buyer then manipulates their ‘bet’ or ‘hedge’ via a third party, like Goldman Sachs.

        Meanwhile, Goldman Sachs was playing the same game.

        So I think that what AIG is doing is making sure that those original $1 bets are being covered so that no one can claim the conditions are in place for them to get the other $29.

        Because yesterday, Liddy said there were still 22,000 of those puppies ‘out there’ somewhere.

        I’d say that this may be a situation where the people who scammed this should be in jail for multiple life sentences, but then I’m just a moralistic scold.

        ——————

        One final note that makes me think EW is absolutely right about their threats to ‘blow things up’: when I’ve signed contracts for employment, ‘any code, trademarked item, yadda, yadda’ remains the property of the corporation.

        No way in hell these people are walking away with that code and living to tell the story without some very badass AIG legal dogs hunting down their sorry asses.

        And who but a criminal outfit is every going to hire them again?

        • phred says:

          Thanks rOTL, I think that is probably it. So just to make sure I follow you…

          Lets say Goldman buys a contract from AIG for $1 to insure against the market going sour in some fashion. If the market goes sour, then AIG agrees to pay Goldman $30. So even though AIG is on the hook for $30, to actually repay Goldman the full value of their asset to “unwind” the contract, AIG just has to return the $1 they were paid. Is that right? If so, then I get it.

          On the other hand, if Goldman insists on being paid in full for their contract ($30), then I don’t get it.

          Feel free to let me know which ; )

          • readerOfTeaLeaves says:

            Take with more than two scoops of salt, b/c I’m not at all certain that I’m correct. But here’s how I suss it out:

            First, BillE@27 gets what I’m talking about ;))
            To keep those bacteria from growing rampantly out of control, you put them in the freezer to ‘hibernate’ them. I’m most familiar with e. coli.

            Phred, as I understand it:
            GS stands to collect $29 only if the conditions in the swap are met — say, the price of a stock falls to ‘x’. (Actually, I’m not clear whether Goldman was doing it, or whether ‘only’ the hedges were doing it.)

            Then, by rumor (see Jim Cramer) or other means like buying up the stock for Company X and then somehow appearing to sell a ton of it to suggest there’s some problem with that company, you sink the price to ‘x’.

            Then AIG has to pay you the $29, unless the contract date has passed.

            So I suspect that there’s a lot of financiers trying to pop things in and out of refrigerators and freezers so to speak until the contract dates expire. But that’s a guess.

            I still think Paulson is the reckless baddie here, and I still find myself with a hunch that a lot of powerful people want to sink Geithner, because (like Spitzer) he has info that can land their asses in jail.

      • Aeon says:

        I would reckon it is the notional value of the CDSs vs. the worst case scenario forecasts.

        Either that, or the WaPo reporters were just writing down exactly what their sources were saying.

        Or more likely, both.

  6. radiofreewill says:

    I wonder if the FP Traders were either:

    1 – of the same nationalities (foreign banks like Deutche, UBS, etc,) or

    2 – related through career-affiliations (’formerly’ of Goldman, etc)

    as their Counterparties?

    • klynn says:

      That’s why I have been asking if anyone has bio background on Cassano.

      There seems to be an underlying tie to an outside party/flow of power and many know but are avoiding the information.

      • readerOfTeaLeaves says:

        Evidently, he worked at Drexel Burnham Lambert in the 1980s.
        Interestingly, the founder of Cerberus Capital Management also got his start in ‘junk bonds’ under Milken.

        Anyone have more data…?
        I conclude that if you don’t figure out the causes of the problems, and put people in jail and/plus blacklist them forever, they come back smarter, meaner, and make even worse problems.

  7. zak822 says:

    Retain them for what? What over business would keep you on board if you ran the company into the ground? Much less pay you a bonus.

    The concept is ludicrious. It amounts to telling them that performance does not matter, you get a bonus no matter what.

    Janitors get fired for non-performance.

  8. FrankProbst says:

    The handful of souls who championed the firm’s now-infamous credit-default swaps are, by nearly every account, long since departed. Those left behind to clean up the mess, the majority of whom never lost a dime for AIG, now feel they have been sold out by their Congress and their president.

    Tiresome. Names, dates of employment, and copies of the contracts, please.

  9. Leen says:

    Yesterday Christy brought up how we would watch our Reps sing and dance in front of the cameras during the AIG hearing. Still I was taken back by the tap dancing…as if they had no idea that there were going to be executive compensation packages…surprise…yeah right. They handed over this money (with Hank Paulson breathing fire down their throats) with few restrictions.

    The Colbert Report was amazing last night. He had his pitchfork out and sharpened it too. Also Juan Cole on(I believe one of the first times on the MSM) FINALLY

    FULL EPISODE (first 5 minutes AIG report Juan at the end

    http://www.comedycentral.com/c…..eId=222059

  10. BoxTurtle says:

    I’m thinking the solution is chapter 11 and let the Bankruptcy judge untangle things. I’m just not seeing that as some sort of economic nuclear bomb as some do.

    It looks to me as though all the impact Main St would get through AIG failing is already here. Yes, it would hurt Wall St but they made the bets.

    Boxturtle (Way too simplistic, I know. Need caffine)

    • readerOfTeaLeaves says:

      Re-read that bit that EW quotes.
      “Counterparties’ presumably know the conditions for paying out the CDO contracts, plus the expiration dates. If I were AIG I would not want to tip my hand.

      “Nobody is going to give it back and then stay,” said one of the firm’s employees. “If they give back the money, then they will walk. And they will walk into the arms of AIG’s counterparties.

      As I understand what I’ve read, ‘bankruptcy’ is one of the conditions that would generate the requirement that AIG honor the payout of the $29. Multiply that a few times, know there are 22,000 potential derivative contracts out there (who knows who would collect? who knows how much?)

      This whole thing reminds me of watching bacteria grow in petri dishes.

      Day 1, you have a few little specs.
      Day 2, you have 10 times as many.
      Day 3, you have 100.
      Day 4, you have 1,000.

      The thing is, all contracts have expiration dates. I think AIG is trying to figure out expiration dates and triage from there.

      But maybe I’ve just read too much biology…?

      • BillE says:

        Your petri dish analogy is very apt. My dad used to teach a course using that very analogy to explain exponential growth. You start with a dish with food for 500,000 thousand bacteria. Start with one, it starts doubling. At some point you are on the brink, 256,000 little guys all happy and playing. The next double and they are all dead.

      • BoxTurtle says:

        The non-compete/non-disclosure agreements still apply. The people who jumped ship and talked would be liable. IF the firm they went to actually used that information, it would be guilty of a major securities violation and the people who did it could be charged with felonies.

        And the bankrupcy court has wide latitude to modify all contracts, discharge debts, etc that congress simply does not. So I’m thinking those blackmail deal wouldn’t stand up under a judges scrutiny.

        But I doubt that congress wants bankruptcy. Too many people on both sides of the asle have friends and donors that would be hurt.

        Boxturtle (I say we put the congresscritters on eBay and let everyone bid on them!)

        • PJEvans says:

          (I say we put the congresscritters on eBay and let everyone bid on them!)

          It’s hard to bid in negative dollars!

          • freepatriot says:

            I think it would work FINE, and I am willing to donate money to ANY state that wants to bid on Senator Feinstein*

            *not valid in California

  11. wavpeac says:

    There is a lot more to this story. That money is a pay off of some form for work already done. (not retention which has been completely debunked). I still think the larger story remains huge control fraud (as defined by William Black) and financial terrorism.

    I think it’s fascinating that Obama actually used the metaphor in his q and a last night. He said it’s kind of like dealing with somebody who has a bomb strapped to their chest. I think that he is being very honest when he says it. I just think it’s not just AIG, and I think those bonuses were a pay off put into the contracts to keep people quiet. We still haven’t got the story. The truth is till not being told. As long as their are secrets being kept about what is going on, and as long as people are reporting, yelling about it, and it’s not being reported on, it tells me that there is a bigger story here. (I know tin foil hat, but I am living with the criminal behavior, witnessing it, getting e-mails from others experiencing it, it hasn’t stopped despite this mess, something else is going on!!)

    I wonder if Obama’s metaphor was about more than just the AIG threat….

  12. janv says:

    Don’t get me wrong–I believe Liddy when he says the US government stands to be exposed to the tune of $1.6 trillion if this happens. I believe this threat is real.

    Isn’t that terrorism, and if so where’s Homeland Security?

  13. Leen says:

    “What are WE going to do about it”?

    Keep pushing for ACCOUNTABILITY.

    Will Hank Paulson be asked to testify? Who made sure that the effort to block executive compensation last fall would not “hold water”

    Why not release the names of those who did do the damage especially if those left behind had nothing to do with the massive amount of mistakes?

    Liddy sure made a weak case for never releasing names (the peasants are verbally threatening)

  14. radiofreewill says:

    Another way to look at it might be that AIG is being un-wound by the Counterparties, prior to the Counterparties shifting their reserve currencies to a non-dollar standard?

    Iow, a forcible claw-back by the ’investors’ of their Capital…after losing faith in the American Brand…which they’ll ’change’ into (Euros?)…thanks to the Bush-Cheney Cabal.

    This would be Karma. AIG ’stuck’ the ’investors’ with the toxic collateral of Bush’s ’Ownership Society’ sub-prime windfall for his Real Estate Buddies – the Shitpile – so the ’investors’ gutted AIG using CDSs to get their money back…before taking their money elsewhere to more trusted pastures.

    This would make the Goldman Counterparty move a ’hedge’ against the other Counterparties leaving – if they left, Goldman would take their cash and follow them into whatever currency became the ’new’ currency of choice.

    If this ’is’ what is going on, then We, the People, could get ’stuck’ with Enormous Debt, for generations to come, abandoned by the Wealthy Clients of Favored Banks, who will have gutted US before they left, and ostracized from the Global Community, who views US as complicit through weakness.

    In this scenario, the ’Rich’ and other Aggrieved Nations would be rejecting Bush, using their Lobbyists to take their Wealth, and kicking US to the curb as the ’Losers.’

  15. earlofhuntingdon says:

    Walking into the arms of AIG’s global counterparties? Meaning over to the [commercial] enemy if they don’t get their pound of flesh. As EW says, “players” who make threats like that, on their own or at the silent request of managers still at AIG, who fantasize about continuing a viable business, are not people one can bargain with. They are playing brinksmanship, but have nothing left to lose except to bring more of the system down with them.

    And what do they mean by being willing to go over to the enemy? They claim to have more financial dirt. Which means we’ve spent trillions without knowing what it will accomplish except to nearly bankrupt taxpayers. We still have no idea how far down this rabbit hole goes.

    • selise says:

      Walking into the arms of AIG’s global counterparties? Meaning over to the [commercial] enemy…

      don’t know anything about this industry, so take what i have to say with an extra truck load of salt, but this strikes me as a profound misread of the relationship.

      are not the counterparties customers, and not competitors (commercial enemies)?

      i’d think that would only change when/if one of the parties refuses to honor the terms of the contract.

      also, without knowing the terms of the individual contracts, it’s really hard to know who (within aig) was dealing dirty and who was maybe not. this brings me back to something i said yesterday during the hearing: they should post every fucking contract on the web.

      • earlofhuntingdon says:

        AIG’s counterparties are those on the other side of their transactions, the buyer to AIG’s seller, so to speak. Their interests collide with AIG’s, never more than when the deal’s in trouble.

        AIG’s staff put together the deals now causing trouble. They threatened to go over to the other side, the commercial enemy. That’s a bit like the loan officer who put together an illegal deal threatening to go to work for the borrower and tell it all he knows about the loan being illegal – which would mean the lender might not be able to enforce repayment.

        As EW reports, this is very high-stakes brinksmanship.

        • selise says:

          i don’t see long term buyer/seller business relationships as those of enemies. but that was in high tech manufacturing (where one’s business is very dependent on the viability of both one’s suppliers and customers). maybe it’s very different in the financial world, but i don’t see the enemies frame as generally accurate.

          • earlofhuntingdon says:

            I wasn’t referring to healthy buyer-customer relationships (which excludes most of Wal-Mart’s). When deals sour, there’s an inherent conflict of interest between buyer and seller. Each side wants to protect its assets and seek recovery from the other, such as by undoing the deal, or by recouping losses, with fees and costs.

            The trick, as you know, is finding hard evidence that proves the other guy did something that causes him to be liable. If one side has inside information from the other, that’s a major advantage. If there are significant flaws in the deal, or major wrongdoing, that knowledge can make the difference between major frustration and a win in court or at the negotiating table. Especially where the information would entitle shareholders to sue.

            Given the likely bankruptcy of AIG or its hedge outfit, and given the size of its unpaid obligations, those who made deals with them will be desperate to find fraud. That would make their claims non-dischargeable in bankruptcy and may lead to personal liability. It may also trigger additional D&O insurance coverage, which is likely to be a prime source of available cash to pay claims.

        • brendanx says:

          From what I’ve read here I didn’t understand them to be threatening to “tell all they know about the loan being illegal” — I thought the breach of these retention “contracts”, for whatever they are worth, are defined in the transactions between AIG and its counterparties as “default events”, which would trigger…what? That’s what I’m not clear on: how would the situtation after the “default event” differ from the situation prior?

          • earlofhuntingdon says:

            I used a loan officer and illegal loan as an analogy. The threat seems to be that some of AIG’s top sellers of hedge products might go to work for the counterparties and reveal the goods on AIG’s business.

            That hard information might do many things. It might be enough, for example, to start a prosecution; to put wide swathes of instruments in default, triggering cycles of payment obligations; to suits for undoing the deals with costs and legal fees; or to claims that key AIG players and its board members should be personally liable in trillion dollar fraud suits.

            • brendanx says:

              Thanks. My question really gets at how “cycles of payment obligations” works. Are AIG and its counterparties just treading water right now, not acting in any way on the knowledge that these insurance contracts are worthless?

              • earlofhuntingdon says:

                There are multiple layers of securities created out of home mortgage assets and the streams of payments generated by them. Traditionally, a few decades ago, banks held their mortgages until maturity, collecting monthly repayments of interest and principal. Mortgages-as-assets are now routinely sliced and diced into sometimes minute bits, for example, securities based on a stream of interest only payments for the first three to five years.

                So, too, with hedges. Bets were placed on bets on top of bets, with little or no underlying capital. The industry built a house of cards as high as the Citibank building. Trigger one series of repayments, such as by declaring defaults, and you trigger a series of interconnected payments. In today’s climate, few would be paid, which would trigger yet further hedge payments. It’s almost Dantean, with the taxpayer in the seventh circle of hell.

                • brendanx says:

                  Sorry to persist, but…my question really is — nothing until now has triggered anything? Everyone is in a state of suspension, pretending that various securities have an unknown but ultimately unknowable value? That’s what it seems like.

                  But would the revocation of retention contracts really be the first trigger?

                  • freepatriot says:

                    But would the revocation of retention contracts really be the first trigger?

                    good question

                    are the retention contracts Poland, or Czechoslovakia ???

                    probably not the analogy AIG wants us to use, but it fits

                  • earlofhuntingdon says:

                    Until we’ve seen the relevant contracts, it’s hard to know what will trigger them. They list what triggers the holder’s right to make a claim. It’s generally, a default, or sometimes a “reasonable insecurity” in repayment. Canceling or not paying on the compensation contracts designed to retain an employee would not trigger it.

                    It would, however, put these employees on notice that AIG won’t be paying their “hush money”. If they want to stay employed or get revenge, they might go to the counterparties and sell their stories. That information may reveal the existence of an event of default allowing them to make a claim. Or, as I said earlier, it could give them information useful to sue AIG on various grounds. It might also reveal information the SEC, a UK or state or federal prosecutor might use to file criminal charges.

                    That’s why it’s brinksmanship; it’s a threat to AIG’s continued existence and possibly its top managers’ and board members’ personal assets. Criminal behavior sometimes voids certain insurance cover, meaning there would be less to pay claims from shareholders or other aggrieved parties. Spilling the beans could easily reach to the wider market for these questionable hedges, which AIG would want to avoid. As an aside, these employees would owe a “duty of loyalty” to AIG, but not to the extent of covering up criminal behavior or massive fraud, for example, if any exists.

                    • readerOfTeaLeaves says:

                      If they want to stay employed or get revenge, they might go to the counterparties and sell their stories. That information may reveal the existence of an event of default allowing them to make a claim.

                      Okay, you’re thinking along the same lines that I am, it appears.

                      Have really found your comments helpful — they always are, but this thread particularly.

                    • dakine01 says:

                      If the AIG employee with knowledge of a criminal act walked to the Feds, then all well and good.

                      But if they just walk out the door and go to a competitor and start spilling AIG “secrets” seems they’ve just put themselves at risk for criminal actions as well.

                    • readerOfTeaLeaves says:

                      Yeah, that’s how I see it.
                      But then, there are layers we don’t see.
                      Who worked in that London office, and what are/were their nationalities?

                      I think the Serious Crime Unit in UK has a lot of work on its hands.

                    • earlofhuntingdon says:

                      Spilling the beans would be an elaborate meal, not an “it’s all on one plate” special at a greasy spoon. Former employees have to be careful not to casually reveal their former employee’s secrets, but such private conversations routinely take place with little traceability. It all depends on what there is to talk about.

                      It’s like a non-nuclear version of the Cold War’s MAD, mutual assured destruction. AIG may not know exactly what these employees have to say and vice versa. It knows they know a lot; it might fear harm from the disclosure. So there’s an element of “chicken” there, too.

                      AIG’s board and managers have a duty to protect AIG’s shareholders, now, ironically 80% of which are US taxpayers. More practically, they are protecting themselves with dwindling resources to do that.

                      Whether they have an obligation to disclose knowledge of a crime depends on the crime and the relevant law. But they needn’t testify against themselves. It’s horribly complicated and a big stakes play. Stay tuned for more from EW.

                    • readerOfTeaLeaves says:

                      Very big stakes, it appears.

                      For anyone reading this thread who doesn’t yet know about a new Rolling Stone article just out by Matt Taibibi, it’s a very good explanation about the players, layers, machinations, and depravation:

                      http://www.rollingstone.com/po…..g_takeover

                      He makes a very, very good point: it’s not about money. It’s about power.
                      In Supercapitalism, IMVHO, Robert Reich makes the very same point. Other economists have tried to make this point since the mid-1970s, and anyone interested in the current meltdown would benefit from the Taibibi article.

                      No need to have a military revolution: just take over the financial sector, which controls the government, and then enslave via credit cards and threats to pension plans.

                      I hope Obama says, “Game On.”
                      We will see.

                      Geithner is either severely compromised, or playing a deeper game than any of us know.

          • earlofhuntingdon says:

            Pretty much. Many of the financial instruments touted by AIG were “hedges”, a kind of safety net for the value of layer upon layer of securities issued on the backs of real estate mortgages generated nationwide. These hedges were not regulated, nor were their issuers, thanks to intense and lucrative lobbying. They were promises to pay made with no money to back them up. Their only “capital” was more similarly flawed promises.

            That was made possible, in part, by ratings agencies that gave top marks to those securities, backed in part by these empty promises. That made them eligible for purchase by private and state pension funds and grannies. Oops.

          • selise says:

            i think so. it’s just not clear to me exactly who is doing the threatening (certainly liddy delivered that message yesterday, so i count him as one).

        • readerOfTeaLeaves says:

          As EW reports, this is very high-stakes brinksmanship.

          Well, I sure can’t figure it all out, but this is the way it looks to me, as well. Which IMHO would explain Geithner’s silence.

  16. GregOPauls says:

    Let’s look back a few years and see who signed into law that the banks had to give out loans to individuals who could not pay, Clinton. So banks were forced to come up with creative loans for people who could not really afford homes in the first place. Not that Bush is free and clear but he also benefited from the same law. USA growth was great, so why change anything.
    Until bang, the crash, so we have Clinton, Bush, Congress and Senate that actually got us into the mess. Now we want them to get us out.
    Funny…

    • readerOfTeaLeaves says:

      I actually agree that Clinton got punk’d, and that it was probably Summers’ job to look out for Clinton.

      But it was the GOP Congress, led by Delay and Shelby and Gramm that got some key changes through.

      Then under Bush — gadzooks!
      And the 2007 SEC removal of something called ‘the uptick rule’ should land a number of people in jail for a very long time.

      But we shall see…

    • freepatriot says:

      hey dipshit, take a look at the party you’re defending:

      john BOEHNER (to wolf blitzer): Wolf, you have to understand, there was no deregulation of anything in the financial services industries. As a matter of fact, there was an increase in regulation.

      it must make you proud to support such a pack of craven liars

      especially a bunch of SORRY ASSED TRANSPARENT craven liars

      gramm leach blighley, the credit default swaps, moving the leverage rate from 12 to 35

      according to the best and the brightest of gregopauls’ party, this stuff NEVER HAPPENED

      ddude, at least when we discuss Democrates, we’re in the realm of REALITY

      but you jes keep braying about Senator Dodd

      when the voters compare Dodd to Bohner, DEMOCRATS WIN AGAIN

      that delusional accusatory negativity stuff is really impressing Americans, keep it up

      The Democratic Party will thank you

      turns out my troll isn’t an ass after all, just a burro

    • Leen says:

      “urged”or “threatened”

      Former Secretary of the Treasury was breathing fire last fall “the sky is falling” as he allowed Lehman Brothers to completely fail

  17. Synoia says:

    Call their bluff, and inform the counter parties that if they take action based on these people’s efforts, their contract are null and void, and they a liable for conspiracy charges.

  18. Synoia says:

    The Government is either hopelessly corrupt (bought) or hopelessly inept, and looking for a way not to annoy its’ large donors.

    Either way, there will be no forthright action until all other options a(including many trillions more in money printing or Government debt), before any firm action.

  19. reader says:

    Like the lady selise said … AIG was started by an OSS guy. Keeping secrets and making lies look true is the key skill. I don’t believe anything Wall Street says, or AIG, or the WaPo propoganda machine. If Liddy says bad case US is on the hook for $1 trillion (but I don’t believe him) wouldn’t it be worth it to get out for this mess for that fixed amount and end the uncertainty? I’d take that about now.

    We don’t have any better option as long as we don’t know what’s really going on. And everyone’s lying to us.

    And to make the wonderful $1 – $29 example and ramifications meaningful and personal: this sounds to me like I buy an insurance policy on my house for $1 to get $29 of coverage and then I GO OUT AND BURN MY HOUSE DOWN. And I end up getting paid $29. Now I get it.

    • readerOfTeaLeaves says:

      That’s as near as I can figure it out.
      Which means this mess has to have a seething criminal understory to it, **IF** my hunches are correct.

      I’d recommend NakedCapitalism, or any Oxdown diaries by masaccio, who has done yeoman’s work on this mess.

      Also Morgenstern and Nocera at NYTimes if you’re willing to trust that source.

      But **IF** this is true, you can see that you’d want to know who has matches, who’s bought gas recently… that sort of thing. And I don’t know that there are enough law enforcement resources to track it all, but hell if the NSA doesn’t have records then WTF were they doing spying on the rest of us? Jeepers.

    • readerOfTeaLeaves says:

      And everyone’s lying to us.

      Some are probably lying, but IMHO others are having trouble actually getting to the bottom of it. There’s a lot of potential for misunderstandings and incorrect info at times like this when emotions are raw.

      It’s important to recognize that not everyone is lying.
      Some people are probably simply receiving bad info and passing it on, so it’s important to take a deep breath ;^}

  20. radiofreewill says:

    If We really want to ’know’ what’s going on, get an injunction in Court to stop paying the Counterparties until the Contracts can be legally reviewed for Fraud by Congress.

    Then we’ll find out everything.

    Maybe we’ll find out that Bush and Paulson used the No-Strings-Attached Bailout to ’cut deals’ with:

    – the Germans (through Deutche Bank) to block any International Torture trials

    – the Swiss to provide a conduit out of the dollar for the ’privileged and loyal’ (through UBS,)

    – Goldman as an escape vehicle for ’those in the know,’ and

    – the Southern Banks to prop-up Bush’s political base as a defense against being held accountable for his crimes.

    Obama has the tools to put the brakes on the Wall Street Fraud and begin a Systematic Review of the Players, their Actions and the Landscape of the Playing Field.

    If the Secret ICRC Report came out in late 2007, the Counterparties had plenty of time to ’leverage’ their knowledge of Bush’s Big Secret to their Advantage. How else to explain the ’shunning’ of Bush at the G-20 Conference?

    Did Germany have any trouble dumping Chrysler? None. Bush’s Investment Cronies at Cerberus couldn’t get to the table fast enough.

    Did Cheney hunt with Katherine Armstrong (Lobbyist for the Swiss) and Pamela Williford (Amb. to Switzerland)? Yes.

    Is Paulson’s Goldman getting Huge Counterparty pay-outs with No-Strings-Attached? Yes.

    Did the Southern Banks get bailed-out one-for-one? Yes.

    So, We don’t ’know’ what happened with the Bailout, but it certainly looks like Bush Took Care of Himself at Our Expense…and we’re still being Hustled to give up more money without looking into what’s going on…

  21. orcatjf says:

    I say let them keep the bonuses, and they diffuse their bomb. They we can recoup the money via fines and imprisonment. Why aren’t these people being arrested and investigated for the fraud they created? Didn’t a recent NIE state that the financial problems were a greate threat to the US than terrorism. That makes this a matter of “national security”. Those magic words that will allow our leader to do whatever he wants. So, in this true and real matter of national security, why aren’t people being arrested? And why hasn’t Obama asked for Geithner’s nad Summer’s resignations, yet?

  22. reader says:

    Wow, thanks readerOfTeaLeaves. First I was hopelessly confused as usual and then that metaphor popped into my head to simplify what you were saying. My brain can skip and pop a bit when money’s the topic.

    As I wrote that I was thinking ”can it be that simple.” Yup. I already believed the whole thing is criminal. But if it’s as simple/direct as insurance fraud, well, then all the complexities serve to hide that precious truth, huh.

  23. reader says:

    OK. Liz Warren isn’t lying. I’ll give you that!

    I like Nocera too.

    But we’re all in the outside, scratching our heads.

    • earlofhuntingdon says:

      Liz Warren is one of the few sane voices on financial and bankruptcy laws from the consumer’s perspective. She ought to be a top pick for a federal judgeship or a consumer’s commission if she could be persuaded to leave Harvard.

    • freepatriot says:

      so, on top of the 39% tax rate these fuckers are gonna be paying, that’s a 129% tax on those bonuses

      for any mathematically impaired AIG bonus recipients out there, those bonuses are gonna cost you $1.29 on the dollar

      and good luck with giving it back, that ship already sailed, pal

      fuck me ???

      NO

      FUCK YOU !!!

      if only AIG had known …

  24. bobschacht says:

    ROTL@22,
    If you are correct, then all the reason why this mess will never be solved until the Feds+Treasury declare a ”holiday” on all CDS and derivative transactions, and then takeover all the major CDS & Derivative holders, and sort out all this phonybaloney insurance scams that have infested the system. To keep throwing money into this system, while allowing transactions in CDS and derivatives to continue, is just throwing good money after bad.

    Bob in HI

    • readerOfTeaLeaves says:

      Hey bobs!
      First, **IF** I am correct, yes. IF I am correct, then I completely and wholeheartedly agree with all your points.

      Masaccio mentioned here or at Oxdown a month or more ago that he thought the first serious step was for the feds to declare all CDOs and CDS’s illegal. As I’ve tried to understand these better, I really see the significance of his point!

      As near as I can tell, someone thinks they have us over a barrel until those damn things are declared illegal. And obviously Paulson would not have been able to get his head around that concept, since he made beaucoup $$$ by bringing derivatives into Goldman Sachs, thereby building up his powerbase inside GS and edging aside Corzine. (I get this from the “Other People’s Money“, which is the best history that I’ve read about it.)

      These are insurance scams, and you had I have both had to hunt through code — I can’t quite fathom trying to ferret out all the derivative code, who it’s tied to, what triggers each contract, and what each contract triggers in turn, but it sounds like a complete nightmare to me.

      That, in turn, is the **only** reason that I am even marginally willing to cut Geithner some patience — I think that probably Paulson set this whole TARP shitpile up at the core, because remember Paulson’s 3-page Ultimatum/Edict to Congress, about how **no one** could ever go investigate his actions?! It seemed weird to me at the time; now, all I can fathom is that he was using TARP for some kind of incredibly elaborate shell game, with Bernanke basically trying to kick his ass politely and rein him in at the same time. (They seem like a very unlikely duo; Paulson seems pure ego, and Bernanke seems a lot more geeky.)

      The thing is, until Treasury, Paulson was a MasterOfTheUniverse on Wall Street, and it looks like he got that way overseeing derivatives. So not quite the guy to admit they’re corrupt piles of crap, methinks.

      But Bernanke seems more button-down, academic; I could see him at Microsoft Research easily, but I can’t see Paulson anywhere near that place.

      I don’t know about Geithner, and for the life of me I don’t fathom why he hasn’t recommended that Pres Obama get Congress to declare CDO’s and CDS’s null and void. Unless there are foreign policy implications, which there must be — both Blair and Clinton have mentioned their concerns about economic impacts.

      But I can’t for the life of me see the VALUE in derivatives.
      They’re a form of insurance, but given a completely unregulated environment, they appear to have become a favorite instrument of criminal interests. Then add on the layer of Swiss and offshore private/secret banking, and God only knows WTF is going on.

      Josh Marshall just put up a good post, that really cuts to the heart of this mess: who runs the show? Derivative traders, or elected politicians.
      I really think the rubber is hitting the road, and that’s the correct question to be asking.

      Robert Reich’s “Supercapitalism” kind of poses the same question: who’s in charge? Has finance so completely captured government that it’s choked the life out of democracy and will only continue to exacerbate inequalities? It sure looks like it. But I can’t think of any situation where that kind of outcome is sustainable; a whale that eats up all the krill starves.

      See also: “Midas”, the king who invented coinage, and then ’starved to death when everything he touched turned to gold’.

      Paulson and his manic traders appear to have a ‘Midas touch’, but they’re starving us, instead of themselves.

      Time to declare CDO’s illegal and unenforceable.

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