Fannie and Freddie Owe Our Grandchildren $134 Billion While Executives Make Millions

The FHFA has defended executive pay at Fannie and Freddie

in the past by saying the salaries were necessary to recruit and

retain talented executives who can run big, complex companies.

The Center for Public Integrity
By: John Solomon and
Julie Vorman
May 26, 2011

Over the last two years, the Obama administration has approved a whopping $34.4 million in compensation to the top six executives of the financially troubled Fannie Mae and Freddie Mac mortgage giants while lacking basic protections to ensure such compensation is warranted, a federal watchdog found.

The largesse flowed to the six executives even though the two companies they run struggle to staunch billions of dollars in losses, remain in government conservatorship, and are required to repay taxpayers for assuming the companies’ liabilities during the mortgage crisis. Fannie and Freddie are tapping Treasury Department funds each quarter to help pay 10 percent dividends owed to the U.S. government.

“The need for effectiveness, integrity, and transparency in FHFA’s programs and operations cannot be overstated,” said Inspector General Steve Linick, a former Justice Department prosecutor confirmed by Senate last year to watch over federal housing programs. “Fannie Mae and Freddie Mac have received almost $154 billion in taxpayer funding to support the still-fragile housing market. In addition, they own or guarantee about $5.4 trillion in residential mortgage obligations.”

Compensation Fast Facts

• Fannie Mae Chief Executive Michael J. Williams received a compensation package totaling $9.3 million in 2009 and 2010, according to a March report by the FHFA inspector general. That figure includes an annual salary around $900,000, a similar amount in long-term incentive awards each year, plus $2.9 million in annual deferred pay. All three types of compensation are paid in cash.
• Fannie Mae’s chief financial officer, David M. Johnson, was paid $4.6 million in 2009 and 2010. The company’s general counsel, Timothy Mayopoulos, had a compensation package of $4.5 million for the two years, the inspector general said.
• At Freddie Mac, Chief Executive Charles Haldeman had a two-year compensation package totaling $7.8 million in salary, incentive awards and deferred pay. Freddie’s chief financial officer, Ross Kari, was paid $4 million and its general counsel, Robert Bostrom, took home $5.2 million, according to the inspector general. Continue Reading

Banks: Still too big, Still can't fail (so much for financial reform)

The biggest banks are bigger than

they were before the last crisis.

The Wall Street Journal
March 5, 2011

The 2010 Dodd-Frank law was sold as a way to prevent future bank bailouts. But so few people believe it that Sheila Bair, chairman of the Federal Deposit Insurance Corporation, has embarked on a campaign to convince the markets that next time really will be different.

On Friday Ms. Bair sent a letter to Standard and Poor's, the giant credit-ratings agency. S and P, like most of the financial community, suspects that Washington will open the checkbook again when Wall Street stumbles. Therefore the firm has given the largest financial institutions higher credit ratings to reflect this potential government support.

Ms. Bair's note assures S and P that she will put the wood to big banks and their creditors if they end up in the FDIC's new resolution process for systemic firms. Therefore, she argues, the giant banks should no longer receive higher ratings, because Uncle Sam isn't coming to their rescue.

We guess the financial crisis really is over when a senior federal regulator feels confident urging downgrades of big banks. And on the merits, if Ms. Bair were the only Washingtonian with a say in this matter, investors might start to believe that the freedom to fail really has been restored.

But investors are still expressing a different belief. Recent data from the Federal Reserve and Ms. Bair's FDIC confirm that the biggest banks still enjoy advantages over their smaller rivals, and by some measures these advantages have been growing since the July enactment of Dodd-Frank.

The FDIC data show how much banks pay to borrow money. One would expect that if Dodd-Frank really eliminated the possibility of government assistance for the largest banks and their creditors, then such creditors would be no more or less willing to lend to the big banks than to their smaller competitors. But in the second half of 2010, right after the passage of the law, banks with more than $100 billion in assets clearly enjoyed a lower cost of funds than banks in every other category.

While the FDIC collects data on banks, the Federal Reserve collects data for bank holding companies. Its data only go through the third quarter, but they also show a funding advantage for the biggest players. And an analysis by Mike Mayo of Credit Agricole Securities (USA) shows that for all of 2010, the 10 largest bank holding companies, on average, paid 29 basis points less on interest-bearing liabilities than the next 40 bank holding companies.

The FDIC concedes that big banks enjoy funding advantages, but not because the government will bail them out. The agency says the product mix at large firms helps them do especially well in low-interest-rate environments like the current one.

The FDIC has a point. The big banks also enjoyed particularly cheap funding relative to competitors in the 2002-2004 period of very easy money. And whereas academic research once suggested that banks couldn't draw much additional benefit from economies of scale once they had grown to a few hundred million dollars of assets, more recent data suggest that even the biggest banks can gain efficiencies as they grow and deploy automated systems across vast territories.

But the big guys have been enjoying free money for years since the crisis, and the benefits of scale for even longer. If Dodd-Frank was really working as advertised, wouldn't the loss of special government protection create at least a competitive speed bump? Some claim that mandated capital raises after the crisis have made them a safer investment, but those changes were underway long before last summer's passage of Dodd-Frank.

What's remarkable about the FDIC data is that the biggest banks seem to be accelerating through the first months of Dodd-Frank. Looking at the FDIC's data on non-deposit, interest-bearing liabilities, the big guys' funding advantage over the other banks in the second half of last year was even larger than in the first half—before the great "reform" was enacted. The funding advantage enjoyed by banks with more than $100 billion in assets over those in the $10-$100 billion range rose from 71 basis points in the first quarter to 78 basis points in the third quarter, which began with President Obama signing the bill and proclaiming an end to too-big-to-fail. The advantage increased to 81 in the fourth quarter. It's good to be the kings of banking in a Dodd-Frank world.

In a Wednesday visit to the Journal, Kansas City Fed President Thomas Hoenig said that the banking giants' "huge" edge over their smaller rivals is due in large part to government support.

Yes, there is new authority for Ms. Bair's FDIC to resolve large institutions, but will it even be used? In a recent speech, Mr. Hoenig noted that "there are important weaknesses with this framework. In particular, the final decision on solvency is not market driven but rests with different regulatory agencies and finally with the Secretary of the Treasury, which will bring political considerations into what should be a financial determination."

Mr. Hoenig reminded us that the biggest institutions are even bigger than they were before the financial crisis, and that he expects more bailouts of financial giants in the next crisis, regardless of "who the Secretary of the Treasury is." That sounds right to us, which is also what the market is saying. Dodd-Frank is making the big banks bigger and more protected than ever against failure.

Mike Mayo on CNBC:

Do you truly believe the banks

will not need another bailout?
Well...???

Grandpa believe Mr. Mayo could experience

some acid reflux from his bullish call

on Bank of America...time will tell...

Dylan Ratigan: Where are the handcuffs? Fraud in the financial system. Oh, by the way, Angelo Mozilo WALKS!!

February 17, 2011 on the Dylan Ratigan Show: Where are the handcuffs? Thousands jailed during the S and L crisis. Why not know? Charles Ferguson, director of the "Inside Job" share with Dylan Ratigan that everyone within the Obama Administration refused an interview request for the "Inside Job" documentary.

Visit msnbc.com for breaking news, world news, and news about the economy

If this interview didn't get you blood boiling, how about news the very next day!

Mozilo's actions in the mortgage meltdown

which led to $67.5-million settlement against him

did not amount to criminal wrongdoing,

federal prosecutors have determined

Los Angeles Times
February 18, 2011
By E. Scott Reckard
 


As the former chairman of Countrywide Financial Corp., Mozilo helped fuel the boom in risky subprime loans that led to the crippling of the banking industry and the near-collapse of the financial system.

A federal grand jury in Los Angeles began probing Mozilo in 2008, and four months ago he agreed to pay a $22.5-million fine and to repay $45 million in what the government said were ill-gotten gains to former Countrywide shareholders. The payments settled a civil action by the Securities and Exchange Commission.

But the criminal investigation has wound down without indictments of Mozilo or others at his Calabasas company, according to people familiar with both the prosecution and the defense teams, all of whom spoke on condition of anonymity because they were not authorized to discuss the matter.

"Sometimes the public thinks all you have to do is to indict someone and that's it," one of the federal sources said. "But you have to be able to prove your case, and it can be worse losing a case than not bringing one at all."

The 72-year-old Mozilo hung up the phone when contacted for comment at his home in the Lake Sherwood golf community of Ventura County.

The criminal investigation into Mozilo was never announced publicly, and as a rule federal prosecutors make no formal announcement when such cases are closed.

One defense attorney, however, said the government would probably keep a close watch on civil litigation by Countrywide shareholders against Mozilo and could still decide to bring charges depending on what develops in those cases.

"He may have to testify, and you never know what may come up," the attorney said.

Asst. U.S. Atty. Stephen A. Cazares, who spearheaded the Countrywide criminal probe, could not be reached for comment. A spokesman for U.S. Atty. Andre Birotte Jr. said the office would have no comment "at this time." If you dare to care, keep reading









Federal prosecutors have shelved a criminal investigation of Angelo R. Mozilo after determining that his actions in the mortgage meltdown — which led to $67.5-million settlement against him — did not amount to criminal wrongdoing.

JPMorgan Chase: Operate with the highest standards of integrity, unless dealing w/military families

Dylan Ratigan on JPMorgan Chase foreclosing on U.S. active duty service personnel. Nobody at JPMorgan cared to listen. JPMorgan Chase admitted overcharging thousands of military families for the mortgages, including families of troops in combat overseas.

JPMorgan Chase's business principles include:

• Operate with the highest standards of integrity
• Be open and honest with ourselves, our colleagues, our shareholders and our communities
• Foster an environment of respect and inclusiveness

Yes, JPMorgan Chase received $25 billion of TARP bailout dollars and is clearly a friend a "friend" of President Obama:

"You know, keep in mind, though there are a lot of banks that are actually pretty well managed, JPMorgan being a good example, Jamie Dimon, the CEO there, I don't think should be punished for doing a pretty good job managing an enormous portfolio."

Jamie Dimon, chairman and CEO of JPMorgan Chase is a member of the Federal Reserve Bank of New York's Board of Directors and was one of the thirteen members of The Business Council to meet with President Obama.

Finally. let's not forget, Jamie Dimon in an era of To Big To Fail (while getting bigger), with the assistance of the U.S. Federal Government, acquired Bear Stearns and Washington Mutual.

t's really nice having friends in high places. Yes, this is the same organization that admitted overcharging thousands of military families for the mortgages, including families of troops in combat overseas. Oh, before I forget, while many active duty service personnel are dodging bullets and IED's, JPMorgan Chase just reported a $4.8 billion in 4th Quarter profits.

Visit msnbc.com for breaking news, world news, and news about the economy

Do you really believe the U.S. is Done Bailing Out Banks? Ask Bank of America.

Do You Actually Believe the U.S. Gov.

is Done Bailing Out Banks?

Read...Read Again and Ask Yourself;

"Do You Feel Violated?" Well Do You?

The Atlantic
By Daniel Indiviglio
Other Really Good Reads by Daniel
1/4/2011

Some people who aren't familiar with the mortgage market might have gasped as they read the news that Bank of America would pay $3 billion to government-sponsored mortgage companies Fannie Mae and Freddie Mac. After all, $3 billion sounds like a lot of money. "Maybe BOA is finally getting what it deserves," some naive bank-haters might have exclaimed. In fact, paying this sum is an incredible win for the bank. The penalty is so small that it's effectively insignificant.

A Drop in the Bucket

For starters, it's important to remember that Bank of America also means Countrywide. After purchasing the ailing mortgage company in 2008, Countrywide's problems became BoA's problems. And according to the press release, this $3 billion loss provision the bank is taking should cover all Countrywide/BoA mortgages sold or guaranteed by Fannie and Freddie during the housing bubble.

How much is that? According to a Washington Post article on the story, it covers a BoA-Countrywide portfolio of about $530 billion held by Fannie and Freddie. That puts the loss rate on these loans that BoA will be responsible for at less than 1%. You don't need to be a mortgage analyst to know that a 1% loss doesn't begin to characterize housing's deterioration.

No Wonder the Market Celebrated

After this revelation struck, financial stocks were broadly up yesterday. This should come as no surprise. BoA-Countrywide together were originating more than to one-quarter of the mortgages created when the housing market was humming along in the middle of the last decade. If the losses imposed by Fannie and Freddie's put-backs are in the couple billion dollar range for BoA-Countrywide, then you only need to multiply by three to figure out what the rest of the market probably owes.

If this settlement is any indication, then the other banks and probably won't be responsible for much more than $9 billion of put-backs from the government entities. That's a loss they would be happy to endure, considering that the downside could have been well into the tens of billions of dollars. No wonder they're celebrating.

A Backdoor Bailout?

This settlement has a few implications. The most significant is that Fannie and Freddie are essentially admitting that the vast majority of their losses are their fault. The cost of the bailout alone to taxpayers is expected to easily exceed $150 billion. If it obtains a measly $12 billion or so from banks, that puts its responsibility at roughly 92%.

This means one of two things. The first possibility is that Fannie and Freddie really were so screwed up that banks rarely broke any rules or tricked these companies into buying and guaranteeing their garbage mortgages. This is actually somewhat plausible, considering that there was a relatively standardized system in place for selling mortgage risk to Fannie and Freddie. Any bad behavior by banks should be relatively easily identifiable through inaccurate or missing documents.

But the second possibility is that banks were, in fact, shady and Fannie and Freddie could legally push more of its mortgage losses to the banks, but has chosen not to do so. Why take such a strategy? The companies' willingness to let banks off easy could be politically-driven. It could be a sort of backdoor bailout.

How Fannie and Freddie Complicate the Role of Government

This latter possibility demonstrates the unfortunate situation the government has gotten itself into through its decision to stand behind Fannie and Freddie. On one hand, it doesn't want to see financial stability or the housing market thrown back into chaos. So it doesn't want to be too hard on the financial industry. On the other hand, it's duty is to act to minimize the loss to taxpayers from Fannie and Freddie.

If this settlement is a backdoor bailout, then the government has prioritized stability over taxpayers, again. Under these circumstances, the two are in conflict. Either Fannie and Freddie didn't have enough evidence to bring the banks to court to demand a higher settlement, or the bureaucrats who now run these entities chose not to, for the sake of the stability of the financial system and housing market.

123 TARP Banks Miss November's Dividend Payment

Cumulatively, these tardy banks owe Treasury

roughly $161 million in dividends,

according to SNL

By Taylor Allred and Kevin Curry
SNL
12/14/10

The number of financial institutions deferring dividends on their TARP preferred stock rose once again in November, as 123 banks and thrifts failed to make their Nov. 15 dividend payment, according to a Dec. 10 Treasury report. This compares to 115 deferrals in August, 91 deferrals in May and 74 deferrals in February.

The 123 institutions that deferred the latest TARP dividend payment received a total of $3.3 billion in Capital Purchase Program funds, which comprises 1.6% of the $204.9 billion received by the 707 institutions under the CPP.

In total, 135 institutions are delinquent on at least one TARP dividend payment. The U.S. Treasury Department invested $3.4 billion in the delinquent companies, which have now racked up a noncurrent dividend balance of $161.3 million.

Of the 123 dividend deferrers in November, 18 institutions missed their first payment since entering the program. This represents a decline in first-time deferrals from the 28 that deferred payment for the first time in August. Fifteen of the 18 first-timers are bank holding companies, which means they must pay cumulative dividends and missed payments accrue.

Banks without holding company status pay noncumulative dividends, and missed payments do not accrue. In some cases, state regulators can restrict banks from paying dividends if their accumulated earnings do not meet a certain threshold. Some banks also must attain shareholder approval before paying dividends.

Some Down and Dirty Facts

• Eleven institutions paid their November dividends but still have not paid some previously deferred dividends
• Three banks that had previously missed dividend payments failed during the most recent payment period. Treasury had invested $19.5 million in Tacoma, Wash.-based Pierce County Bancorp; Sonoma, Calif.-based Sonoma Valley Bancorp; and, Tifton, Ga.-based Tifton Banking Co. The companies had missed four, three and one dividend payments prior to failure, respectively.
• As of Nov. 30, a total of 14 institutions have paid in full all their previously missed dividend payments to the Treasury
• Complete SNL Report

Will Rogers commented on our current financial system 80 years ago (like today, nobody listened)

In Honor of Will Rogers

Your Presence is Sorely Missed Mr. Rogers

(November 4, 1879 to August 15, 1935)
Grandpa has no comments, Mr. Rogers says it all...

One Unbelievably Insightful Comment (1923)

"Borrowing money on what's called "easy terms," is a one-way ticket to the Poor House. If you think it ain't a Sucker Game, why is your Banker the richest man in your town? Why is your Bank the biggest and finest building in your town? Instead of passing Bills to make borrowing easy, if Congress had passed a Bill that no Person could borrow a cent of Money from any other person, they would have gone down in History as committing the greatest bit of Legislation in the World." WA #14, March 18, 1923

Financial "Crisis"

"Bankers are likeable rascals. Now that we are wise to 'em, it's been shown that they don't know any more about finances than the rest of us know about businesses, which has proven to be nothing." DT #1924, Oct. 4, 1932

"If a bank fails in China, they behead the men at the top of it that was responsible...If we beheaded all of ours that were responsible for bank failures, we wouldn't have enough people left to bury the heads." Feb. 6, 1927

"It looks like the financial giants of the world have bungled as much as the diplomats and politicians. This would be a great time in the world for some man to come along that knew something." DT #1611, Sept. 21, 1931

Bailout

"The whole financial structure of Wall Street seems to have fallen on the mere fact that the Federal Reserve raised the amount of interest from 5 to 6 percent. Any business that can't survive a 1 percent raise must be skating on mighty thin ice...But let Wall Street have a nightmare and the whole country has to help them back in bed again." DT #950, Aug. 12, 1929

"But we can't alibi all our ills by just knocking the old banker. First he loaned the money, then the people all at once wanted it back, and he didn't have it. Now he's got it again, and is afraid to loan it, so the poor devil don't know what to do." DT #1833, June 8, 1932

"See where Congress passed a two Billion dollar bill to relieve bankers' mistakes. You can always count on us helping those who have lost part of their fortune, but our whole history records nary a case where the loan was for the man who had absolutely nothing." DT #1715, Jan. 22, 1932

Financial Reform

"Wall Street is being investigated, but they are not asleep while it's being done. You see where the Senate took that tax off the sales of stocks, didn't you? Saved 'em $48,000,000. Now, why don't somebody investigate the Senate and see who got to them to get the tax removed? That would be a real investigation." DT #1803, May 4, 1932

"I am not against (bull fighting). Every nation has their own affairs and own sports. Some nations like to see blood, and some like to see their victims suffer from speculation. It's all in your point of view. They kill the bull very quick. Wall Street lets you live and suffer." DT #1646, Nov. 1, 1931

Stimulus Package, Bush Tax Cuts and QE-1/QE-2

"Why don't somebody print the truth about our present economic situation? We spent six years of wild buying on credit-everything under the sun, whether we needed it or not-an now we are having to pay for 'em, and we are howling like a pet coon.

"It wasn't what we needed then that was hurting us, it was what we was paying for that we had already used up. The country was just buying gasoline for a leaky tank. Everything was going into the gopher hole and you couldn't see where you was going to get it back."

"America already holds the record for freak movements. Now we have a new one. It's called "Restoring Confidence." Rich men who never had a mission in life outside of watching a stock ticker are working day and night "restoring confidence." Writers are working night shifts, speakers' tables are littered up, ministers are preaching statistics all on "restoring confidence."

(Note: WA means Weekly Article; DT means Daily Telegram)



Other Words of Wisdon from Will Rogers
Will Rogers Museum

Senator Bernie Sanders on CNN: Fed's Veil of Secrecy Lifted

Sen. Bernie Sanders says new details on the Fed's actions during the financial crisis reveal misplaced priorities.

"The average American is sitting home. His or her standard or living is declining. Can't afford to send their kids to college. May have lost their home."  And I think what this revelation, this disclosure is about, is a group of enormously powerful people -- who today in many instances are making even more money than they did before they were bailed out by the taxpayers -- and I think the American people are saying hey, what does the government do for me?"

For the lucky few on Wall Street, the Federal Reserve sure was sweet (Huff-Post)

This year, Wall Street is poised to break

yet another record for employee compensation

and bonuses. Thanks to near-zero percent

interest rates -- also set by the Fed -- firms

are able to continue making easy money

with minimal risk.

Shahien Nasiripour
Huffington Post
12/1/10

NEW YORK -- For the lucky few on Wall Street, the Federal Reserve sure was sweet.

Nine firms -- five of them foreign -- were able to borrow between $5.2 billion and $6.2 billion in U.S. government securities, which effectively act like cash on Wall Street, for four-week intervals while paying one-time fees that amounted to the minuscule rate of 0.0078 percent.

That is not a typo.

On 33 separate transactions, the lucky nine were able to borrow billions as part of a crisis-era Fed program that lent the securities, known as Treasuries, for 28-day chunks to the now-18 firms known as primary dealers that are empowered to trade with the Federal Reserve Bank of New York. The program, called the Term Securities Lending Facility, ensured that the firms had cash on hand to lend, invest and trade.

The market was freezing up. Effectively free money, courtesy of Uncle Sam, helped it thaw. Huffington Post complete article

Chris Whalen: California Will Default On Its Debt (makes Ireland look incidental)

Tech Ticker
11/16/10
Municipal bonds have plummeted in recent days, as investors have suddenly focused on huge state and city budget deficits that there's no easy way to fix.

Nowhere has this collapse been more visible than California, which faces a massive $25 billion shortfall and red ink for as far as the eye can see.

After years in which every looming financial crisis has been met with a government bailout, you might think that the same solution awaits California, as well as all the other states that have huge obligations that they can't afford to meet.

But this time that may not happen, says Chris Whalen, a financial industry analyst and Managing Director of Institutional Risk Analytics.

In fact, Whalen thinks that California will default on its debt--hammering all the pension funds and other investors who have loaded up on apparently safe state bonds.

The state won't immediately default, Whalen says. It will start by issuing the same sort of IOUs that it issued to by itself time during its budget crisis last year. But, eventually, the debts will have to be restructured, and this will result in those who own California's bonds receiving less than 100 cents on the dollar.

Why won't California just get a bailout?

Because the Republicans now control Congress, Whalen says. And also because, if California gets bailed out, dozens of other states will immediately line up with their hands out. The public is fed up with bailouts, Whalen says--and eventually, the country will be forced to face up to its bad debts and write them off.

Of course, if Whalen is right, the country could have a major crisis on its hands. California is hardly the only state in trouble (click here to see the worst ones), and pension funds and other "safe" investments that Americans depend on will get hammered if states begin to default.

Fixing state and local obligations will also require the renegotiation of pensions and salaries that government workers have long since taken for granted. And they certainly won't give those up without a fight.

Fannie Mae $3.5 Billion loss attributable to shareholders and sticks its hand out for another $2.5 billion

The Fannie Mae Black Hole Gets Deeper

Pays the U.S. Government a $2.1 Billion Dividend

and Requests an Additional $2.5 Billion

This is simply crazy!!

Fannie Mae Earnings Press Release
11/5/10

WASHINGTON DC – Fannie Mae (FNMA/OTC) today reported a net loss of $1.3 billion in the third quarter of 2010, compared to a net loss of $1.2 billion in the second quarter of the year. The company continues to focus on building a strong new book of business and returning to profitability (excluding Treasury dividend payments), and its operating results reflect stabilizing credit-related expenses and increasing revenues.

The company’s net loss attributable to common stockholders was $3.5 billion, including $2.1 billion in dividend payments to the U.S. Treasury. To eliminate the company’s net worth deficit of $2.4 billion as of September 30, 2010, more than 85 percent of which is the dividend payment to Treasury, the Federal Housing Finance Agency has requested $2.5 billion on the company’s behalf from Treasury. Upon receiving those funds, the company’s total obligation to Treasury for its senior preferred stock will be $88.6 billion. The company has paid a total of $8.1 billion in dividends to Treasury. Fannie Mae's Report

AIG to get another $22 billion in TARP funds for restructuring and Geithner still expects a profit

And it's only Monday

Reporting by David Lawder
11/1/10

(Reuters) - Bailed out insurer American International Group will get up to $22 billion more in U.S. taxpayer funds to facilitate its restructuring and prepare for an eventual government exit, the U.S. Treasury said on Monday.

But the Treasury reiterated that it expects the government to earn an overall profit on bailout investments in the insurance giant -- once as high as $180 billion -- assuming the AIG restructuring announced on September 30 is executed.

AIG will draw the $22 billion from remaining Troubled Asset Relief Program funds to repurchase Federal Reserve preferred stock interests in the special purpose vehicles holding two key subsidiaries being sold off, AIA Group Ltd and American Life Insurance Co (ALICO), the Treasury said in a statement.

Following the sale of ALICO and AIA's initial public offering in Hong Kong, the Treasury said it will receive the remaining special purpose vehicle assets, including AIG's remaining shares in AIA and shares in ALICO buyer MetLife Inc. These assets "significantly exceed the amount of the preferred investments, and as such, no losses are expected on those preferred interests," the Treasury said.

Currently, the New York Fed values the AIA and ALICO preferred interests at $26.1 billion -- with part of this to be paid down from sale and IPO proceeds.

The bulk of the $20.5 billion in proceeds from the AIA IPO and $7.2 billion in cash from the AIA sale will go to pay off a Federal Reserve credit facility, at a cost of about $20 billion including accrued interest and fees.

AIG on Monday closed the sale of ALICO to Metlife Inc for $16.2 billion, with $7.2 billion in cash and the remainder in stock.

Following the restructuring, expected to be completed by the end of the first quarter of 2011, the Treasury will own 92.1 percent of AIG's common stock, or about 1.66 billion shares.

Based on Friday's market closing price of $42.01, the government's stake was worth $69.5 billion, compared with the Treasury-only investment of $47.5 billion. The $69.5 billion value excludes the special purpose vehicles, which includes stakes in AIA, MetLife and in AIG subsidiaries Nan Shan in Taiwan, Star Life and Edison Life Insurance in Japan and aircraft leasing firm International Lease Finance Corp.

"It is expected that proceeds from the monetization of these assets will be used to repay the SPV preferred interests in full," the Treasury said.

Two other Federal Reserve bailout special purpose vehicles, Maiden Lane II and Maiden Lane III, hold AIG mortgage assets whose value now exceeds their original Fed loan amounts. These loans, totaling $27.8 billion, are expected to be repaid in full from the assets held in the vehicles, the Treasury said.

Insultingly Simplistic Response from the White House on SIGTARP Report

Jen Psaki posted the White House response

to the recently released SIGTARP report.
"All of this financial talk can get complicated..." We dumb
Americans so appreciate Jen taking the time to post, given
her hair appointment for the Sadie Hawkins Dance...

Posted by Jen Psaki
The White House Blog
10/27/10

Jen Psaki's last movie

Some people just don’t like movies with happy endings. How else to explain this week’s report by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP)? Rather than focusing on the growing evidence we’ve seen in recent months that TARP will be far less costly than anyone expected, SIGTARP instead sought to generate a false controversy over AIG to try and grab a few, cheap headlines.

SIGTARP's last movie

Last month, the Administration released a new report showing that – after giving effect to a proposed restructuring and based on current market prices – Treasury’s overall investment in AIG is expected to break even or turn a profit. This valuation reflects AIG’s recently announced exit strategy to pay back taxpayers, including the conversion of Treasury’s illiquid preferred stock stake in that company to 1.7 billion shares of publicly traded common stock.

Unlike the preferred stock we currently hold, AIG’s common stock has a readily identifiable value on the New York Stock Exchange. Under federal accounting rules, we are required to value that common stock at the current market price. And based on current market prices, the sale of that AIG common stock would provide a substantial profit for taxpayers.

The math isn’t that complicated. It’s simple multiplication. Our calculations on AIG are straightforward, and we have published our methodology for all of the American people to see.

SIGTARP, however, incorrectly claims that our report is inconsistent with TARP’s audited financial results from March 2010. And in doing so, SIGTARP seems to be arguing that when Treasury conducts any evaluation of the cost of its investment in AIG, it should pretend that the company’s exit strategy was never announced.

SIGTARP’s analysis seems to be stuck in a time warp if they believe that we should ignore AIG’s exit strategy in evaluating our investment in that company. Moreover, they demonstrate a fundamental misunderstanding of the difference between audited financial results – which are backward looking and represent a snapshot in time – and forward-looking valuations of future profits, such as Treasury’s recent report.

Additionally, invaluing our expected common stock holdings in AIG, Treasury employed the exact same methodology we use for valuing the common stock we own in other publicly traded companies. And we made it clear that the valuation was based on giving effect to the restructuring and subject to certain conditions, which AIG is moving to fulfill. The fact that AIG will raise at least $18 billion in its offering of AIA – announced in the last few days – brings us one big step closer to completing the restructuring and ensuring that taxpayers are paid back.

All of this financial talk can get complicated, but here’s the bottom line: Any truly independent observer would say that Treasury’s stake in AIG will be worth more than taxpayers originally invested in that company. Of course, as with any investment, prices could rise or fall in the future. That’s the nature of any financial transaction. But Treasury is confident that we are in a much stronger position today to recoup our investment in AIG than two years ago – or even a few short months ago. And that’s very good news for taxpayers.

Thank you so much for uncomplicating the financial talk Jen.

It's so comforting that Timmy Geithner has the situation

completely under control for we mere mortals.

Will Geithner's AIG TARP Loss Estimate be Greater after the Election??

The Treasury failed to make clear it had changed its calculation method

Insensitivity to the values of transparency...  

By Donna Smith
10/25/10
WASHINGTON, Oct 25 (Reuters)

The Obama administration's latest estimate of taxpayer costs of the Wall Street bailout is too rosy and could ultimately damage public trust in government, the top bailout cop said on Monday.

In its quarterly report to Congress, the Special Inspector General for the Troubled Asset Relief Program said the Treasury Department's bailout cost estimate for American International Group (AIG.N) was an example of using misleading numbers to paint a positive pre-election account of the program.

The administration on Sept. 30 slashed its estimate of the overall cost of the U.S. financial bailout by more than half to less than $50 billion on the back of a new plan to sell the government's stake in insurer AIG.

The SIGTARP report said the Treasury Department, in coming up with the fresh estimate, had changed its calculation method to estimate a $5 billion cost for AIG. That was a shift from an earlier projection of $45 billion that used a broader measure to calculate the cost.

Public anger at the bailout of Wall Street has been a major factor in congressional races ahead of a Nov. 2 election in which Republicans are poised to make major gains against Democrats who now control Congress.

The Treasury failed to make clear it had changed its calculation method and that it was relying solely on recent stock market prices for AIG shares in making the new estimate, the SIGTARP report said. It concluded that Treasury needed more transparency in its public disclosures about TARP costs.

"This conduct has left Treasury vulnerable to charges that it has manipulated its methodology for calculating losses to present two different numbers depending on its audience," the report said.

A different set of numbers will be reported to the Government Accountability Office for an assessment of the program that is set to be released in November, it said.

"Treasury's unfortunate insensitivity to the values of transparency has led it to engage in conduct that risks further damaging public trust in government," the report said.

Republican Senator Charles Grassley said the quarterly report showed a pattern of the administration trying to cast the bailout in the most favorable light.

"It raises the question of whether administration officials are trying so hard to put a positive spin on program losses that they played fast and loose with the numbers," he said.

"You can't change the way you calculate losses to come up with a rosy scenario in October and then go back to the real numbers in November without seriously damaging your credibility with the American people," Grassley added.

Treasury officials said the AIG estimate reflected a recapitalization plan that shifted preferred stock the government holds to common stock and that the Treasury's report made that clear.

"It's a complicated recapitalization plan, but I don't think there is any lack of transparency by the Treasury in the way in which we were valuing the position either in the retrospective or previously," Jim Millstein, chief restructuring officer at the Treasury Department, told reporters in a conference call.

The department in that retrospective estimated the $700 billion TARP program would end up costing taxpayers about $50 billion and once the government sold its AIG shares, the cost would drop to about $30 billion.

SIGTARP also criticized the department for failing to heed suggestions that it set "meaningful benchmarks and goals" for the government program that is supposed to help struggling homeowners who face foreclosure.

"As a result, a program that began with much promise now must be counted among those that risk generating public anger and mistrust," it said. The report urged the Treasury Department to "acknowledge" the failings of the Home Affordable Modification Program and publish more "meaningful" goals.

Tim Geithner and Treasury use questionable methods when calculating AIG TARP losses

By Ian Katz and Hugh Son
Oct. 25 (Bloomberg)
The Treasury Department’s plan to recoup taxpayer funds from the bailout of American International Group Inc. uses questionable methods and may be too optimistic, the Troubled Asset Relief Program’s inspector general said.

Treasury’s estimate that it will lose $5 billion on its TARP investment in AIG “represents a dramatic shift from the $45 billion loss that Treasury had projected in its AIG investment just six months earlier,” Neil Barofsky, special inspector general for TARP, said in a report today. “While AIG’s fortune may have indeed improved during the course of those six months, there is a serious question over how much of this decrease comes from a change in Treasury’s methodology for calculating the loss as opposed to AIG’s improved prospects.”

AIG, once the world’s largest insurer, turned over a majority stake to the U.S. in 2008 as part of a rescue that grew to $182.3 billion. The exit plan converts the government’s preferred stock into 1.66 billion common shares for sale on the open market and taps a Treasury facility for as much as $22 billion to retire Federal Reserve bailout vehicles.

For Treasury to break even on its $49.1 billion investment in AIG stock, the shares must be sold for almost $30. The company traded below that level for more than two months this year, reaching a low of $22.15 on Feb. 8.

AIG slipped 13 cents to $41.43 at 2:16 p.m. in New York Stock Exchange composite trading today. The insurer has advanced about 38 percent this year.

TARP Bailed Out Companies Fund Candidates

" A hypocrite despises those whom he

deceives, but has no respect for himself.

He would make a dupe of himself too,

if he could." 

(William Hazlitt)

By T. W. Farnham

Washington Post Staff Writer
Sunday, October 24, 2010; 10:02 PM

Senate Minority Leader Mitch McConnell (Ky.) was a fierce critic of the federal bailout of General Motors and Chrysler last year, saying he could not "ask the American taxpayer to subsidize failure."

But GM doesn't seem to hold a grudge.

The political action committee formed by the company, which is now largely owned by taxpayers, cut McConnell a $5,000 campaign check in September, a small piece of the $190,000 it donated to campaigns in the past month.

Although GM suspended its contributions while it solicited the government for financial help, it is now back in the game of political giving, increasing donations from its federal PAC steadily over the past few months.

It is not alone: Companies that received federal bailout money, including some that still owe money to the government, are giving to political candidates with vigor. Among companies with PACs, the 23 that received $1 billion or more in federal money through the Troubled Assets Relief Program (TARP) gave a total of $1.4 million to candidates in September, up from $466,000 the month before.

Most of those donations are going to Republican candidates, although the TARP program was approved primarily with Democratic support. President Obama expanded it to cover GM and other automakers.

Greg Martin, a GM spokesman, said that the company's PAC donations come from voluntary contributions from its employees. "We contribute to candidates who thoughtfully approach issues that are important to the auto industry and manufacturing," he said. "If you look at our giving, we have given equally to both parties' leadership."

Some of the generosity to Republicans can be explained by the expectation that the party will make huge gains in Congress. But another factor is the Democratic Party's push for financial-regulation legislation this year. The new law, which passed the Senate with the votes of three Republicans and all but one Democrat, placed new curbs on banks and introduced a regulator to vet financial products for consumers. Most Republicans, and banks, say the law creates too many new restrictions.

Scott Talbott, a lobbyist with the Financial Services Roundtable, said another factor could be the tone some Democrats used against financial firms. At one point, Obama called Wall Street executives "fat cats."

"The entire industry was painted with a broad brush, and there was dissatisfaction with that," Talbott said.

Democrats have been abandoned by individual Wall Street donors as well as corporate PACs, leaving the party without an important source of funding as it fends off aggressive Republican challengers.

One company that used TARP funds to invest in toxic assets from other banks is getting into the political giving mode for the first time. The investment fund BlackRock created a federal PAC in March, only a few months after the company used $2 billion in government money to invest in those assets. Its newly formed PAC has cut campaign checks to federal lawmakers including Rep. Barney Frank (D.-Mass.), the chairman of the House Financial Services Committee.

More on hypocritical Politicians

The Barney Frank's Campaign Contribution Shuffle rakes in $40,000 from bailed out banks

In a statement last night, a Frank spokesman said the congressman

has declined to take contributions only from the top 10 TARP

recipients, but he noted he would accept donations from those

institutions once they repaid their debts.

By Dave Wedge
Boston Herald
10/22/10
U.S. Rep. Barney Frank, in an intensifying clash with GOP upstart Sean Bielat, has pledged not to take campaign cash from lenders that got federal bailouts — yet has raked in more than $40,000 from bank execs and special interests connected to the staggering government loans, a Herald review found.

Frank vowed in February 2009 that he wouldn’t accept campaign donations from banks that received money under the $700 billion Troubled Asset Relief Program (TARP) or political action committees tied to such institutions.

But Frank has hauled in thousands from top execs at Bank of America, Citizens Bank, Wainwright Bank, JP Morgan Chase and other institutions that received billions in TARP money.

Just yesterday, Frank made new campaign finance disclosures showing he received $17,000 from top executives of Bank of America — including $2,000 from CEO Brian Moynihan. B of A received $45 billion in bailout money. In all, Frank has hauled in at least $27,000 since 2009 from bank execs — and $13,000 from PACs — connected to banks that received TARP funding, including:

• $5,000 earlier this month from the Bank of America Corp. Federal PAC;
• $10,000 in August and September from the Bipartisan PAC/ Bank of New York Mellon Corp.; Mellon received $3 billion from TARP;
• $2,000 in June 2009 from the Financial Services Roundtable PAC, which counts TARP recipients B of A, JP Morgan Chase and Wells Fargo among its members; and
• $1,000 in March from U.S. Bancorp PAC; the Minnesota-based bank received more than $6 billion in TARP funds.

“Now that he’s in the political fight of his life, Barney Frank tossed aside his phony pledge and lined his pockets with cash from his closest allies — Wall Street executives,” said National Republican Congressional Committee spokesman Tory Mazzola. “He made a promise to voters, but obviously he cares more about saving his career as a politician than with keeping his word.”

In a statement last night, a Frank spokesman said the congressman has declined to take contributions only from the top 10 TARP recipients, but he noted he would accept donations from those institutions once they repaid their debts.

Meanwhile, in a release responding to a Herald report yesterday that Bielat is tapping Wall Street bigwigs in a bid to force Frank into a Martha Coakley-style collapse, Frank said, “Mr. Bielat’s eagerness to serve as the agent of those wealthy Wall Streeters who seek to undo the financial reform bill explains why this race has become so expensive and why it is so important in order to prevent another economic crisis.”

The 15-term Democratic congressman has scrambled to stem the surging Bielat, pumping $200,000 of his own cash into his campaign. New filings show Frank has shelled out $700,000 in the first two weeks of October and has $650,000 to Bielat’s $420,000. Bielat, a 35-year-old Marine, reported he has raised $650,000 so far in October, records show.

In a Feb. 23, 2009, article in the Washington publication Roll Call, Frank is quoted saying, “I won’t take any PAC money from banks that took TARP funds, nor would I take it from the top executive.” The article made no mention of the policy only applying to the top 10 TARP fund recipients. Frank said he floated the loan to his campaign to counter an expected flood of right-wing attack ads, including from the national Tea Party

A Trip Down Memory Lane Courtesy of:

Open Secrets.org (Center for Responsive Politics)

Lindsay Renick Mayer

February 10, 2009

The eight financial institutions at Wednesday's hearing have given $63,250 to the chairman of the committee, Rep. Barney Frank (D-Mass.), and JPMorgan has given him more money than any other company, union or organization since 1989. The House Financial Services Committee has jurisdiction over the housing and financial sectors. Complete article

John Carney (CNBC) thinks congress will bailout banks again without spending a dime

By: John Carney
Senior Editor, CNBC.com
10/15/10

You should probably be a buyer of Bank of America right now.

I never thought I’d find myself typing those words. I’ve been a huge critic of Bank of America for years. I'm bearish on the financial supermarket model. I don't think the acquisition of Merrill Lynch is working out. I still don't understand the logic of buying Countrywide.

But Bank of America's recent decline—down almost 10% this week—is driven by fears that the bank could be hit with huge liabilities for faulty mortgage pools. And I’m pretty sure that is not going to happen.

Why not?

Because the politicians will not let the financial stability of the largest bank in the nation be threatened by contractual rights. Not when there’s an easy fix available that won’t cost taxpayers a dime.

Here’s what is going to happen: Congress will pass a law called something like “The Financial Modernization and Stability Act of 2010” that will retroactively grant mortgage pools the rights in the underlying mortgages that people are worried about. All the screwed up paperwork, lost notes, unassigned security interests will be forgiven by a legislative act.

There’s a big difference between the financial crisis of 2008 and the new crisis. In 2008, banks were destabilized by the growing realization that they were over-exposed to the real estate market. Huge portions of their balance sheets were committed to mortgage-linked investments that were no longer generating the expected revenues or producing losses. That was a problem of economics that could only be solved by recapitalizing banks or letting some of the biggest banks in the U.S. fail.

The put-back crisis is not driven by economics. It is driven by legal rights. And there’s simply zero probability that the politicians in Washington are going to let Bank of America or Citigroup or JP Morgan Chase fail because of a legal issue.

So here’s what I expect will happen. The lame duck session of Congress will pass a bill that essentially papers over the misdeeds of the banks that originated mortgage securities. Every member of Congress and every Senator who has been voted out of office will cast a vote for the bill. And the President will sign it.

Will the public be outraged? Probably. Financial bloggers will scream from the high heavens against another bailout of the banksters. Congress may try to create some cost for banks in exchange for the forgiveness, perhaps requiring more mortgage modifications.

But the much feared put-back apocalypse will be laid to rest.

If you’re skeptical about the possibility that this will happen, you have greater faith than I do in the ability of the political system to resist doing favors for bankers.

Grandpa Has Faith Mr. Carney

as I have not sold my soul to CNBC

and my focus remains grandchildren

not the next political hack making

yet another appearance on Squawk Box

with the Bobbsey Twins plus one!

Rival blasts Barney Frank’s swanky free jet ride

By Dave Wedge
Boston Herald
10/13/10
U.S. Rep. Barney Frank, immersed in one of the toughest political fights of his career, took a free private jet to the Virgin Islands courtesy of a Maine congresswoman’s billionaire fiance — whose company received a $200 million federal bailout, the Herald has learned.

Frank, who’s facing feisty Republican challenger Sean Bielat, flew to the tropical paradise for a vacation in 2009 on a $25 million jet owned by Paloma Partners honcho S. Donald Sussman, the fiance of U.S. Rep. Chellie Pingree (D-Maine). Paloma Securities — a subsidiary of Sussman’s Greenwich, Conn.-based hedge fund — received $200 million in 2009 as part of the $180 billion federal bailout of troubled insurance giant AIG, records show.

Frank, who chairs the House Financial Services Committee, said his partner, Jim Ready, lives in Pingree’s district and the couples are “personal friends.”

“She and I have become friendly and they invited us to the Virgin Islands and I checked with House ethics (officials) and they gave it the OK,” Frank said. “It was purely personal.”

Republican National Committee spokesman Parish Braden said: “Barney Frank’s acceptance of a lavish gift from a hedge fund manager, an industry he is responsible for regulating, is a troubling conflict of interest that raises serious questions about his judgment.”

Bielat added: “Typical. Barney keeps showing how career politicians work — they use our dollars for their favors. It may be legal, but it’s wrong and that’s why we need a change.”

Frank called the GOP criticism “nonsense” and said he has backed legislation to crack down on hedge funds.

“I’ve never talked with him about any favorable treatment,” he said of Sussman. “I voted to raise his taxes. That’s one of the most backwards things I’ve ever heard. I’ve taken the anti-hedge fund position.”

Frank, who voted for the bailout in October 2008, took the trip around Christmas 2009. He reported the trip in required House financial filings and valued the flight at $1,500. He originally listed the trip vaguely as “first class round trip travel by private aircraft” in a congressional filing in May. In July, he amended the report to show he traveled from Portland, Maine, to the Virgin Islands. He called the discrepancy a “clerical error.”

Sussman, a huge Democratic campaign donor with homes in Maine and Connecticut, lives in St. John, Virgin Islands. Spokespersons for Sussman and Pingree declined to comment. Pingree also is facing criticism from the Maine GOP for using Sussman’s jet.