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:

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Bernanke on 60 Minutes Part 2:

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Media – How Does It Feel To Be Managed Through the AIG Bonus Story

One thing I haven’t heard today regarding the over $100 million dollars the pigs at AIG are going to bonus themselves is any pushback at the company or at the U.S. Treasury Dept about they were managed through this thing.

There’s an old expression among flaks which goes something like this: “You take the trash out at 5 p.m. on Friday.”  Treasury Secretary Geithner did us one better this week with the AIG bonus story – Treasury took the trash out at around 8 p.m. Saturday night.  Taking the trash out means dumping the story you don’t want to have to talk much about when the media – and the public – are least attentive.

In reading through the dispatches today and watching the talking heads this a.m., it’s obvious Treasury knew what was up last Wednesday.  That is, last Wednesday Geithner and his lawyers realized they were punk’d by Ed Libby and AIG’s lawyers.  I can just imagine the final, behind the scenes discussion.  Tim Geithner, Wall Street Insider, asks AIG, America’s largest welfare case and Wall Street Personified, “Can we hold this til the weekend?  I’ll be out of the country and this will all blow over by Monday …”

Whether you are liberal or conservative, you’re job is to not let this blow over.  AIG are some of the guys who put the whole nation at economic – and therefore geopolitical – risk.

Today, one of the Administration’s talkers said we’re in something akin to wartime footing with regard to the economy.  While President Obama reads up on his Abraham Lincoln or FDR, he might take note that during a time of war the Executive Branch has been upheld in suspending some laws.  Perhaps AIG’s “contractual obligations” to the slicksters and scam artists in it’s financial services division could be declared null.

(UPDATED 1) Totally Unbelievable: AIG to Pay Out $100 Million in Bonuses To Its Financial Products Division

I am so angry right now, I can’t see straight and I may not be thinking clearly.

President Obama, this crap has got to stop.

The New York Times is reporting tonight that AIG, the world’s largest insurer and the original company deemed “too big to fail” will be paying out $100 million in bonuses shortly.  The government of the United States has shoveled $170 BILLION in AIG’s coffers since last fall in an effort to keep the company afloat.

A once venerable insurer, AIG began gambling on Wall Street some time ago in the credit default swap market.  These financial products, which are essentially insurance, are unregulated by the U.S.  According to multiple accounts in the media since last September, AIG is thought to have guaranteed trillions of dollars in these swaps.

Essentially, in a credit default swap, one party – the insurer – guarantees it will cover the full original value of a financial deal.  The purchaser of the swap pays a “premium” which is usually a percentage of the amount being guaranteed.  In the case of the current economic crisis, the financial deals being covered in these insurance gambles were the bundles of good and bad home loans – mortgage backed securities.  Companies like AIG thought they were raking in free money because, they believed, housing prices would continue to rise.  The housing bubble burst, the underlying bundles of loans became worthless and the swap purchasers are demanding their “insurance” settlements – the original values of the bundles of mortgages.  AIG and other financial institutions who sold credit default swaps don’t have the cash to make good on their obligations.

I fully understand “priming the pump” and the need for increased government spending to kick start a stalled economy.  I do not understand the unaccountable, opaque bailouts of private corporations.  I do not understand the total lack of accountability and justice for the companies like AIG who brought this mess down upon us.

The Times reports:

An official in the Obama administration said Saturday that Treasury Secretary Timothy F. Geithner had called A.I.G.’s government-appointed chairman, Edward M. Liddy, on Wednesday and asked that the company renegotiate the bonuses.

Administration officials said they had managed to reduce some of the bonuses but had allowed most of them to go forward after the company’s chief executive said A.I.G. was contractually obligated to pay them.

In a letter to Mr. Geithner, Mr. Liddy wrote: “Needless to say, in the current circumstances, I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them.”

Geithner “asked that the company renegotiate the bonuses?”  Are you fucking kidding me?  Geithner should have demanded that the bonuses not be paid.  Administration officials are actually taking this crap that AIG is “contractually obligated” to pay these pigs for screwing every single American taxpayer?  This financial crisis is a national emergency – I would expect that after $170 billion thrown down AIG’s maw we would have more leverage than to roll over because of a contractual obligation.  Where are the lawyers?

The one major disappointment I have with the Obama Administration is that the change we were promised is so far merely nibbling around the edges of the financial crisis.  For all of my conservative friends out there who wring their hands every time the word ‘nationalization’ comes up, this circumstance is what nationalization may cure.  This is our money being given to greedy pigs who are held harmless from the havoc they’ve wrought.  Temporary nationalization of these big companies would at least give our government control to go in and clean house.

If we don’t have the political will for nationalization or to hold Wall Streeters accountable, then it’s time to begin letting these companies go bankrupt.  Half the country seems to want this purity of the marketplace, give it to them.  If AIG were in bankruptcy, I believe these contractual obligations would go by the boards.

Update: 1 a.m. Sunday

The current version of the NYT story is now different from the block quote above.  I’ll bet there was some screaming from the Administration about Geithner ‘asking’ AIG to renegotiate bonuses.  The newer version of the story has Geithner portrayed as more forceful.  However, that doesn’t change a thing.  The newer version also points out that the U.S. government (us/we) own 80% of AIG.  If that’s the case, someone needs to have the stones to put a stop this sort of behavior.  AIG is not playing with their money now, they’re wasting ours.

From the Times:

Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.

The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.

The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the government’s efforts to prop up Wall Street. Past bonuses already have prompted President Obama and Congress to impose tough rules on corporate executive compensation at firms bailed out with taxpayer money.

A.I.G., nearly 80 percent of which is now owned by the government, defended its bonuses, arguing that they were promised last year before the crisis and cannot be legally canceled. In a letter to Mr. Geithner, Edward M. Liddy, the government-appointed chairman of A.I.G., said at least some bonuses were needed to keep the most skilled executives.

Video: Jim Cramer Interview on Daily Show with Jon Stewart

Part 1:

Part 2:

Part 3:

Two Highlights from Geithner on Capitol Hill Today

From Reuters:

GEITHNER ON BANK REPAYMENT OF GOVERNMENT CAPITAL:

“I wouldn’t give a penny to help a bank. The only thing we’re doing is we’re trying to make sure that credit is available on a scale and terms necessary for recovery to come back. There is no way we’re going to get recovery with the speed and force we need unless we do better in achieving this goal. Nothing would make me happier than to see strong banks repay the government the capital they took. And we would love to see banks go out there and replace that capital with capital from the private sector, repay us, and allow us to use that where it can be targeted next.”

GEITHNER ON AIG:

“AIG is systemic. I wish it were not the case but AIG is systemic and the least-cost way to the American taxpayer and the American people for dealing with that risk is to help this company restructure.

“The bottom line is we have to make sure, given the severity of this crisis and the fragility of the system that we do everything necessary to protect against the risk that we have a disorderly failure of a major financial institution.”

Madoff Pleads Guilty, Bail Revoked – News Roundup

• Madoff’s Bail Revoked – New York Times

Bernard L. Madoff pleaded guilty Thursday to all the charges against him and expressed remorse for a vast Ponzi scheme that bilked investors out of billions of dollars.

Standing before Judge Denny Chin in United States District Court in Manhattan, Mr. Madoff was sworn in and reminded that he was under oath. Noting that he had waived indictment, Judge Chin asked, “How do you now plead,” guilty or not guilty?

“Guilty,” Mr. Madoff responded.

His formal confession will cost him his liberty. Rather than letting him remain free on bail and return to his apartment on Manhattan’s Upper East Side, Judge Chin ordered Mr. Madoff immediately jailed as he awaits sentencing.

“He has incentive to flee, he has the means to flee, and thus he presents the risk of flight,” Judge Chin said. “Bail is revoked.”

The 11 counts of fraud, money laundering, perjury and theft to which he pleaded guilty carry maximum terms totaling 150 years.

• Madoff tells judge he’s guilty in Ponzi scheme – Bloomberg
• Madoff remanded to jail – New York Daily News
• Madoff plea troubles investors – Reuters

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.

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. …

Sen. Specter: Nation on ‘brink of depression’

From the Associated Press:

HARRISBURG, Pa. — The nation is on the “brink of a depression,” but there’s a “reasonable chance” that the $787 billion economic stimulus package will help ease the situation, Sen. Arlen Specter said Monday.

Specter, R-Pa., said the nation’s economic situation is more dire than the public has been told, but did not elaborate.

“Our economic problems are enormously serious _ more serious than is publicly disclosed. And I think we’re on the brink of a depression,” he told reporters at the state Capitol.

If there’s one thing I’m sick of – from Ds and Rs – it’s not playing straight with voters and taxpayers about where all the money to banks and AIG is going.  That gets right at the heart of how “dire” the economic situation is today.  Specter gets a FAIL for not elaborating.

Transcript: Obama Interview with New York Times Aboard Air Force One – May Negotiate with Taliban

(Source: New York Times)

President Obama spoke in a 35-minute interview aboard Air Force One on Friday afternoon as he traveled from Columbus, Ohio to Andrews Air Force Base. This is an edited transcript, as recorded by The New York Times.

Q. You said it’s going to take a long time to get out of this economic crisis. Can you assure the American people that the economy will be growing by the summer, the fall or the end of the year?

A. I don’t think that anybody has that kind of crystal ball. We are going through a wrenching process of de-leveraging in the financial sectors – not just here in the United States, but all around the world – that have profound consequences for Main Street. What started off as problems with the banks, led to a contraction of lending, which led in turn to both declining demand on the part of consumers, but also declining demand on the part of business. So it is going to take some time to work itself through.

Read more

Eighth Straight Week With At Least One Bank Failure

This week there was only one bank seized by the Federal Deposit Insurance Corp., Freedom Bank of Georgia, Commerce, Ga.

Full Text: Ben Bernanke Testimony on Economy and Federal Budget, March 3

(Source: Board of Governors of the Federal Reserve System)

As Prepared for Delivery

Chairman Conrad, Senator Gregg, and members of the Committee, I am pleased to be here today to offer my views on current economic and financial conditions, the federal budget, and related issues.

Recent Financial and Economic Developments and the Policy Responses
Over the past 18 months, the global economy has experienced a period of extraordinary turbulence. The collapse of a global credit boom, triggered by the end of housing booms in the United States and other countries and the associated problems in mortgage markets, has led to a deterioration of asset values and credit conditions and taken a heavy toll on business and consumer confidence.

Read more

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

Dow Lowest Since ‘97, Mfg. Down, Consumer Spending Shows Some Strength

Stocks Fall Worldwide: Bloomberg

“The bear market has only begun,” Robert Prechter, the founder of Gainesville, Georgia-based Elliott Wave International Inc. who predicted the 1987 stock market crash, said on Bloomberg Radio. “I don’t see the clear weather yet.”

Manufacturing Slump Persists: Bloomberg

March 2 (Bloomberg) — The recession in U.S. manufacturing persisted for a 13th month in February as sales dropped worldwide and factories cut jobs at the fastest pace on record.

The Institute for Supply Management’s factory index was 35.8, compared with 35.6 in January. Readings less than 50 signal a contraction. Other reports showed consumer spending rose in January with a spurt of post-holiday discounts, and construction dropped more than twice as much as anticipated.

Dow Drops Below 7k: NYT

“Another day, another 200 points,” David Dietze, chief investment strategist at Point View Financial Services, said, comparing the daily markets to water torture.

The decision by many companies to trim dividends — one of the incentives for owning stocks — was contributing to the sell-off, Mr. Dietze said. Earlier Monday, the large regional bank PNC Financial Services Group cut its dividend 85 percent and the International Paper Company cut its by 90 percent. Last week, the General Electric cut its dividend 68 percent, and JPMorgan Chase reduced its dividend 87 percent.

Looking ahead, he said: “All eyes are on that Friday unemployment report.”

Rise in Consumer Spending: NYT

In the government report, consumer spending rose in January pushed higher by purchases of food and other nondurable items. But the increase is expected to be fleeting given all the problems facing the economy.

The Commerce Department said Monday that consumer spending rose 0.6 percent in January, even better than the 0.4 percent gain that economists expected.

Personal incomes rose 0.4 percent in January, partly reflecting the cost-of-living adjustments provided to millions of Social Security recipients. Still, that was better than the 0.2 percent decline economists expected.

The personal savings rate surged to 5 percent, the highest level since 1995 as consumers continued to save more of their incomes amid the deepening recession.

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