Transcript: President Obama Talks About AIG Bonuses Today at White House

(The following is the section of the President’s remarks on small business where he diverted to discuss his displeasure with the AIG situation. Source: White House Press Office)

THE PRESIDENT: Now before I talk about the new steps we’re taking to get credit flowing to small businesses across our country, I do want to comment on the news about executive bonuses at AIG. I think some of you have heard a little bit about this over the last few days. This is a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?

Read more

After A Weekend of Bad Press, Obama Officially ‘Outraged’ Too

I Think AIG Has the President’s Attention

Barack Obama From the Washington Post:

“Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay,” Obama said. “How do they justify this outrage to the taxpayers who are keeping the company afloat?” He said he has asked Treasury Secretary Timothy F. Geithner to “pursue every single legal avenue to block these bonuses and make the American taxpayers whole.”

Obama added: “What this situation also underscores is the need for overall financial regulatory reform, so we don’t find ourselves in this position again, and for some form of resolution mechanism in dealing with troubled financial institutions, so we’ve got greater authority to protect the American taxpayer and our financial system in cases such as this.”

Video: Ben Bernanke Interview on 60 Minutes – Depression Averted, Recovery Soon

Bernanke on 60 Minutes Part 1:

Watch CBS Videos Online

Bernanke on 60 Minutes Part 2:

Watch CBS Videos Online

AIG Begins To Share With Taxpayers Where Their Money Is Going

Screen Grabs from AIG Slides – The four slide deck can be found here.  AIG’s press release may be found at bottom of post.

Read more

More Evidence Feds Don’t Know What the Hell They’re Doing in Bank Bailouts

The excerpt below is from a New York Times story about banks that wish to return their bailout money to the federal government because Uncle Sam has some thin strings attached.  Numbered comments are mine …

1. Signature Bank of New York has informed the Treasury it wishes to return the $120 million it received three months ago – the executives there don’t like executive pay restrictions.  Question: Why did these guys get $120 million in the first place if they can just decide to give it back?
2. The story reports that banks are waiting to give money back until the federal government creates a process for its return. Suggestion: Banker – write check, send to Timothy Geithner, U.S. Treasury Secretary; I think he’ll know what to do with it.
3. Here’s another string the government could attach: Any bank which takes bailout money and gives it back because they don’t want to let shareholders vote on executive pay or some other weak reason should be considered to have passed a stress test and forbidden from accepting any government assistance for five years.

WASHINGTON — The list of demands keeps getting longer.

Financial institutions that are getting government bailout funds have been told to put off evictions and modify mortgages for distressed homeowners. They must let shareholders vote on executive pay packages. They must slash dividends, cancel employee training and morale-building exercises, and withdraw job offers to foreign citizens.

As public outrage swells over the rapidly growing cost of bailing out financial institutions, the Obama administration and lawmakers are attaching more and more strings to rescue funds.

The conditions are necessary to prevent Wall Street executives from paying lavish bonuses and buying corporate jets, some experts say, but others say the conditions go beyond protecting taxpayers and border on social engineering.

Some bankers say the conditions have become so onerous that they want to return the bailout money. The list includes small banks like the TCF Financial Corporation of Wayzata, Minn., and Iberia Bank of Lafayette, La., as well as giants like Goldman Sachs and Wells Fargo.

They say they plan to return the money as quickly as possible or as soon as regulators set up a process to accept the refunds. On Tuesday, Signature Bank of New York announced that because of new executive pay restrictions in the economic stimulus package, it notified the Treasury that it intended to return the $120 million it had received from the government only three months ago.

Dear Secy Geithner: It’s Not Just Some Silly Bloggers Waiting for Change

I’ve now read in two different places that U.S. Treasury Secretary Timothy Geithner blames some of his bad pub on those rascally bloggers.

Well, it’s not just the bloggers.  How about Paul Krugman in a column on Monday headlined, Behind the Curve:

So here’s the picture that scares me: It’s September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it’s still headed up. Mr. Obama finally concedes that a bigger stimulus is needed.

But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts. And as a result, the recession rages on, unchecked.

O.K., that’s a warning, not a prediction. But economic policy is falling behind the curve, and there’s a real, growing danger that it will never catch up. (emphasis Clips & Comment)

Or, how about Krugman last week in The Big Dither:

Last month, in his big speech to Congress, President Obama argued for bold steps to fix America’s dysfunctional banks. “While the cost of action will be great,” he declared, “I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade.”

Many analysts agree. But among people I talk to there’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.

Notice something?  Geithner is mentioned in the Big Dither, but the bullseye for this mess with the banks and AIG is falling squarely on the president in both columns.

Here’s from an op-ed from David Smick in Tuesday’s Washington Post, Tim Geithner’s Black Hole:

Pity Barack Obama’s economic advisers. The blogs are now demanding their scalps, and Treasury Secretary Tim Geithner and his colleagues face a nasty dilemma: There are no solutions to the banking crisis without extraordinary political and financial risks. Thus, they have adopted a three-pronged approach, delay, delay, delay, in the hope that somebody comes up with a breakthrough. …

… The Obama team needs to remember that we got into this mess because of a lack of financial transparency. It’s time to tell the American people what the stock market already knows: that the path to recovery will probably be expensive and politically unpopular, perhaps explosively so. …

… In the end, at least one thing is certain: Our present position is unsustainable. The longer we delay fixing the banks, the faster the economy deleverages, the more credit dries up, the further the stock market falls, the higher the ultimate bank bailout price tag for the American taxpayer, and the more we risk falling into a financial black hole from which escape could take decades.

Here’s the problem with voters, taxpayers.  Or, should I say here’s the problem with at least this voter and taxpayer.  I voted for change.  I was incensed, not so much by the $700 billion Paulson bailout, but by the rabbit hole the money seemed to disappear down.  We were told at the time that there was a national emergency and the government needed to dole out this money and fast.  We were told it would be used to corral some of those toxic assets and allow the banks to get back on track.  Here’s a couple of stock quotes from today’s close:

• Citigroup – $1.05
• Bank of America – $3.75

The Bush Administration either lied to buy time or no one knows what the hell they’re doing.  Don’t forget, Tim Geithner was one of the architects of TARP 1 as head of the New York Fed.

I want one of two things.  First, justice.  That means the pigs who brought this down upon us should experience the ultimate downside of that pure capitalism they love so much – failure.  Or, second, someone in the federal government to take whatever time is needed and explain to the American people as simply as possible why any of these foolish companies are too big to fail and what it will take to make things right.

When Tim Geithner whines about blogs, he’s whining about Americans who are frustrated with a system that is rigged for only the wealthy and privileged among us.  He’s whining about people who do their part, play their role in this economy whose lives are being changed or put on hold because of high tech, high finance gambling on Wall Street.  While the Treasury Secretary ‘dithers’ and prepares to throw more of our money into the maw of AIG or CitiGroup with little transparency or meaningful explanation, he’s blowing his boss’ political capital as well as our tax dollars.

I guess you could sum this up as follows: If we’re in what’s akin to a wartime situation, lay it out for us, don’t talk down to us.  And, since this isn’t war, shed the light of day on where the hundreds of billions of money from the executive branch has gone – every penny – and explain what $4 trillion in “guarantees” from the Federal Reserve means.

Must Read – Understanding the Problem with Banks and the Government

You should read the David M. Smick’s entire column, Tim Geithner’s Black Hole, over at the Washington Post.  Here’s an excerpt:

… The logical alternative — talk show hosts’ solution du jour — is to temporarily restructure or nationalize the banks and leave taxpayers alone. Remove the toxic assets, replace management and cut the too-big-to-fail financial dinosaurs into smaller, nimbler entities. Then reprivatize these smaller banks and let the recovery begin.

Oh, if it were that simple. I suspect Obama’s advisers would like nothing more than to dismantle an irresponsible firm such as Citigroup. They are afraid to do so, for one reason: All the big banks are connected to a potentially lethal web of paper insurance instruments called credit default swaps. These paper derivatives have become our financial system’s new master.

The theory holds that dismantling a big bank could unravel this paper market, with catastrophic global financial consequences. Or not. Nobody knows, because the market for these unregulated financial derivatives, amounting potentially to over $40 trillion (by comparison, global gross domestic product is now not much more than $60 trillion), is the financial equivalent of uncharted waters. …

Finally, Bernanke Tells Us How He Really Feels …

From Bloomberg Tuesday afternoon:

“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke told lawmakers today. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial- products division, this was a hedge fund basically that was attached to a large and stable insurance company.”

Bernanke’s comments foreshadow tougher oversight of systemically important financial firms, and come as President Barack Obama seeks legislative proposals within weeks for a regulatory overhaul. The U.S. government has had to deepen its commitment to prevent AIG’s collapse three times since September as the company accumulated the worst losses of any U.S. company.

The company “made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system,” Bernanke said. At the same time, officials “had no choice but to try and stabilize the system” by aiding the firm.

AIG is getting as much as $30 billion in new government capital and relaxed terms on its bailout announced yesterday.

More AIG Bailouts Could Add Another $200 Billion to Taxpayers’ Tab

$30 Billion over the weekend brings current total to $170 billion

An article by the Associated Press this afternoon comes the closest I’ve seen in awhile to explaining, in plain English, why the Federal Reserve and U.S. Treasury seem hellbent on propping up AIG.

AIG, the world’s largest insurer, has tens of millions of customers and operates in 130 countries.  What’s gotten them in trouble is a scam the company ran over the past few years called credit default swaps.  These CDSs were essentially insurance policies sold by AIG and bought by other financial services companies and banks.  What they were supposed to insure were the multitude of mortgage backed securities, aka, the now toxic assets.  Only AIG and other purveyors of these CDSs bet that property values would continue to rise indefinitely – meaning they would never have to pay out on the “insurance” of the underlying investments.  We know today that the bubble burst and AIG didn’t have the cash reserve to come even close to making good on all of its CDS obligations. Read more

Federal Government Throwing $30 Bln More Down AIG’s Rat Hole

From the New York Times tonight:

The federal government agreed Sunday night to provide an additional $30 billion in taxpayer money to the American International Group and loosen the terms of its huge loan to the insurer, which is preparing to report a $62 billion loss on Monday, the biggest quarterly loss in history, people involved in the discussions said.

The intervention would be the fourth time that the United States has had to step in to help A.I.G., the giant insurer, avert bankruptcy. The government already owns nearly 80 percent of the insurer’s holding company as a result of the earlier interventions, which included a $60 billion loan, a $40 billion purchase of preferred shares and $50 billion to soak up the company’s toxic assets.

Federal officials, who worked feverishly over the weekend to complete the restructuring, said they thought they had no choice but to prop up A.I.G., because its business and trading activities are so intricately woven through the world’s banking system.

From Reuters:

Allowing the collapse of AIG, which has struggled to sell assets, would have far-reaching consequences for the global financial system as the company guarantees about $300 billion of asset-backed securities and other debt, analysts have said.

The government has been blamed by many for exacerbating the financial crisis by allowing Lehman Brothers to fail.

“The government really does not have the option of letting AIG totally blow up,” said Robert Haines, senior insurance analyst at CreditSights.

“The counterparties on most of the book are (European) banks that would be hammered if the U.S. walked away,” he said. “Hopefully, the third bailout will be the charm.”

What I’ve Been Waiting to Hear From President Obama on the Banks

In at least a rudimentary way, I’ve understood what Mr. Keynes had to say about business cycles and the need for the government to prime the pump from time to time since my 12th grade economics teacher drilled it into me.  So, the economic stimulus package makes all the sense in the world to me.

What hasn’t made sense is the unfairness of the hundreds of billions going to people who so greedily and so recklessly took us all down this economic road to ruin.  I’m talking about the investment banks, brokerages, insurance companies and others in the financial services industry who leveraged America’s future to hell and back.  Tonight, the president reassured me, and hopefully others, that his Administration will deal with these fools differently:

I understand that when the last administration asked this Congress to provide assistance for struggling banks, Democrats and Republicans alike were infuriated by the mismanagement and results that followed. So were the American taxpayers. So was I.

So I know how unpopular it is to be seen as helping banks right now, especially when everyone is suffering in part from their bad decisions. I promise you – I get it.

But I also know that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment. My job – our job – is to solve the problem. Our job is to govern with a sense of responsibility. I will not spend a single penny for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can’t pay its workers or the family that has saved and still can’t get a mortgage.

Full Text: GM & Chrysler Restructuring Plans as Submitted to U.S. Treasury Dept. Feb. 17

The following two documents were required by GM and Chrysler under terms of federal government loans totaling $18 billion made in December.  With these plans, the two automakers are asking for an additional $30 billion in loans to avoid bankruptcy.  Decisions on further federal assistance will be made by a federal task force led by Secretary of the Treasury Timothy Geithner and Chairman of the President’s National Economic Council Larry Summers.

General Motors Restructuring Plan Submitted to U.S. Dept. of the Treasury (Click for PDF)

Chrysler LLC Restructuring Plan Submitted to U.S. Dept. of the Treasury (Click for PDF)

Statement of Treasury Secretary Timothy Geithner:

“I have received restructuring reports from both General Motors and Chrysler, and they have been posted on the Treasury website. NEC Director Summers and I will be convening the President’s Task Force on Autos later this week to analyze the companies’ plans and to solicit the full range of input from across the Administration on the restructuring necessary for these companies to achieve viability.”

GM, Chrysler To Ask Treasury for More Money Today

Unknown how much more above the government’s previous commitment GM will ask for, but Bloomberg is reporting Chrysler will ask for an additional $3 billion.

• GM, Chrysler push for more U.S. aid after mistakes – Bloomberg

Bailouts, Stimulus, Etc. – What Has The Rush Gotten Us?

Drudge Report has been trying mightily since Saturday to “sell” this story: If there was such a hot rush to pass the stimulus bill, why was President Barack Obama taking the weekend off in Chicago?

What Drudge does is show he’s in the tank for the Republicans when he runs a picture like the one to the left “above the fold” all weekend with the following headline: What’s the rush? ‘Urgent’ stimulus on hold for Obama’s weekend off …

First of all, no president of the U.S. has a “weekend off.” Not even George W. Bush, although some may say he took years off.

This is a potshot – Drudge urging the producers over at Fox News to beat up on the president.

But, despite Drudge’s partisanship, he points out a real problem with Republican and now Democrat management of the U.S. economic crisis.  Our politicians are scaring us silly and ramming TARPs, assorted bailouts and stimulii through the government machine with very little transparency and even less accountability.

Back in the Fall when the Troubled Asset Relief Program, aka $700 billion bailout, was rammed through Congress there was lots of scary talk about meltdowns and companies so big and far-reaching that we couldn’t possibly let them fail.  $350 billion of that bailout went out to the banks and Wall Street.  We still have barely working credit markets.  They’ve loosened up a bit, but nothing much has changed in the past several months.  We also know that a lot of our tax dollars were wasted on bonuses, exorbitant compensation for failing management teams, mergers and acquisitions.

Read more

BusinessWeek: You Won’t Fix the U.S. Auto Industry on the Back of the UAW

2. Some southern Republicans think this is all the UAW’s fault. Not so. Wages are pretty competitive. The JOBS bank (that paid layoff clause that everyone hates) is on its way out. The union does need to give on its rigid work rules and its gold-plated healthcare deal. But you don’t save Detroit solely on the UAW’s back.

That quote is number two on a six-item list of things for our two new Car Czars, Timothy Geithner and Larry Summers, to consider as they set up a task force to help the U.S. auto industry help itself.  The article is online at BusinessWeek.

Does anyone else feel that Messrs. Geithner’s and Summers’ plates are already too full?  The Big Three Automakers are the industrial driver in most aspects of the once mighty, now pathetic U.S. manufacturing market.  In terms of GDP, what do you think has supplanted industry – which creates real, three dimensional value?  My armchair economist’s view is that is has been financial services, health care and government.

Now ask yourself, what is the root cause of or at the very least, one of the two or three root causes of our current economic predicament? Financial Services …  Who in the Administration are the two most in the tank and a part of that financial services, unregulated slop bucket for the investment class?  Messrs. Geithner and Summers.

The auto industry – and American workers all the way down the supply chain – are either going to be royally screwed by these two, or, perhaps we’ll finally see some of the economic and public policy brilliance we’ve heard so much about but hasn’t been on display yet for President Barack Obama.

Next Page »