AIG stock up 97% YTD, HOWEVER: Forgot to Report $18.7 Billion of Company Guarantees

Robert Benmosche (12/29/10):

"I was wondering if I might get a call from someone saying maybe 'you were right,' because we look better than we did last May and we can see the finish line from here, and it comes with a profit for the taxpayers," Mr. Benmosche said in an email. "But as I learned in [Ayn Rand's book] 'Atlas Shrugged,' find your Thank Yous from within." WSJ Unlikely Comeback of AIG's Stock

By Andrew Frye and Hugh Son
Dec. 29 (Bloomberg) -- American International Group Inc., the bailed-out U.S. insurer, failed to report $18.7 billion of policyholder guarantees at two property-casualty subsidiaries in 2008, a Pennsylvania regulator said.

National Union Fire Insurance Co. of Pittsburgh and American Home Assurance Co., which issued the guarantees to bolster other AIG units, had contingent liabilities tied to the promises of $157 billion on Dec. 31, 2008, compared with the $138.3 billion disclosed at the time, Robert Pratter, the state’s acting insurance commissioner, said today in a report.

AIG was instructed by the regulator to limit or end its intra-group guarantees, according to the report. It doesn’t face financial penalties, Rosanne Placey, a spokeswoman for the Pennsylvania regulator, said in an e-mail. The New York-based insurer, once the world’s largest, was brought to the brink of collapse in September 2008 when the company was unable to meet its obligations without a cash injection from the government.

Failing to report contingent liabilities may be “a serious problem because of the systemic risk for the whole enterprise,” said Robert Hunter, a former Texas insurance commissioner who is now insurance director at the Washington-based Consumer Federation of America. The rest of the AIG/Absent Minded Professor Bloomberg Story

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.

Treasury Estimates TARP Bailout Loss at $29 Billion

The Treasury Department expects to lose

$29 billionon the federal bailouts

stemming from the financial crisis

By Louise Story
The New York Times
10/5/10

The Treasury Department expects to lose $29 billion on the federal bailouts stemming from the financial crisis, with most of the losses in its housing finance program and the auto rescue.

In a report released on Tuesday, the administration said it expected a $17 billion loss from its investments in General Motors, Chrysler and the auto finance companies, as well as a $46 billion loss from housing programs like the mortgage modification program known as the Home Affordable Modification Program.

The new figures, which include profits that offset some of the losses, come just as the Obama administration tries to wind down the bailout program known as the Troubled Asset Relief Program, or TARP. Last week, the government announced a plan to exit its investment in the insurer the American International Group.

Treasury officials have declared the bailout a success, emphasizing that much of the program’s money has been returned and that losses are now likely to be less than once expected. The cost, the report says, is far below the $350 billion the Congressional Budget Office once estimated.

“Because of the success of the program, TARP will likely cost a fraction of this amount,” the report said.

Recently, the Congressional Budget Office put the cost at $66 billion. And, after the bailout, the government will still be left with its investments in Fannie Mae and Freddie Mac, the government-backed housing finance companies. The report said Fannie and Freddie were expected to cause “substantial losses,” but it noted that they were financed using other funds, not the troubled asset funds.

The Treasury arrived at its figure by adding in profits that it expects to receive on shares of A.I.G. stock. Those shares were given to the Treasury by the Federal Reserve Bank of New York, and the Treasury expects they will yield a $22 billion profit. Without those shares, the Treasury would have reported a $51 billion loss, rather than a $29 billion loss, the report said.

In total, the Treasury has received back about $204 billion of the bailout funds, or just over half of the money it doled out. The report segregated the money given out under the Bush administration — $294 billion — from the $94 billion awarded under the current administration. All of the large bank bailouts were made under the prior administration, and since then, the money was invested in small banks, automakers, housing programs and A.I.G., the report said.

The bright spot, according to the report, were the bank paybacks. Nearly 80 percent of the money given to banks has been paid back. The Treasury also received $26.8 billion from banks through interest payments on the investments as well as sales of warrants the government received in the banks.

The report did not break down the sources of the automobile losses. The government gave the most money to General Motors and is seeking to recoup some through an initial public offering. The government also gave funds to Chrysler, Chrysler Financial and Ally Bank, formerly GMAC, the auto financing arm of G.M.

The housing programs, the report said, are not expected to return money to the government. Though $45.6 billion has been committed to programs, just $500 million has been paid out, because the Treasury plans to pay out the funds over time if, for instance, modified loans become permanent. The programs include mortgage modifications as well as funds for unemployed homeowners and those whose homes are underwater, or worth less than their mortgage debt.

The last bailout awards were announced last week, as part of the A.I.G. exit plan. The Treasury plans to give A.I.G. $22 billion more. That money will help A.I.G. pay down its debt to the Federal Reserve of New York. In exchange, the Treasury is also receiving the rights to proceeds from two special purpose vehicles from the Fed. The vehicles will pay out based on profits A.I.G. receives on sales of two of its units. The Treasury is predicting no losses on those.

The Government Accountability Office also released a report on Monday about the bailout, which said that the Treasury gave funds to 66 banks that were known to be weak. The bailout program was supposedly intended for banks that were healthy enough to survive without the funds.

In response to that report, a Treasury spokesman said that small banks that received bailout funds lent more money than banks that did not.

Mary Schapiro thinks Flash Crash "Anxiety" may have contributed to retail investors running for the hills

By Marcy Gordon (AP)
9/7/10

WASHINGTON — Anxiety over May's "flash crash" on Wall Street may have contributed to the withdrawal of retail investors from the stock market in recent months, the head of the Securities and Exchange Commission said Tuesday.

SEC Chairman Mary Schapiro said the panicked disruption, which saw the Dow Jones industrials plunge nearly 1,000 points in less than a half-hour, "was clearly a market failure" that heightened concerns over the fast-evolving structure of the market.

Schapiro said the SEC has received written comments from brokerage firms saying their retail customers have pulled back from the market since the May 6 plunge. Many individual investors filed comments that are sharply critical of the current structure of the market, Schapiro said in a speech to the Economic Club of New York.

Schapiro acknowledged there could be many reasons for investors withdrawing from the market. But she said the issue is troubling, especially if investors' concerns about the market in the wake of the plunge "are playing even a small role in investor decision-making." More on Schapiro's Anxiety

Grandpa

Yes Mary, there very well could be many reasons for investors withdrawing from the market. Your choice of "withdrawing" is classic government "understatement speak" as retreating and fleeing from the market more aptly describe the retail investor.

I maintain retail investor "anxiety" stems from a history of the equity market pillaging retail investors and an absence of proactive enforcement courtesy of the Securities and Exchange Commission. Individual investors have been and continue to be duped and abused by Wall Street players and the CEO con artists of publically traded companies. Given the following "barely scratched the surface" recap, anguish and angst are better descriptors versus "anxiety".

1. Bernie "I do not believe I have anything to hide" Ebbers. Nothing to hide other than $11 Billion worth of WorldCom accounting statements.
2. Jack "WorldCom Cheerleader" Grubman of Smith Barney who reiterated his buy rating 3 months prior to WorldCom filing for bankruptcy, cut to neutral one month later and cut to underperform 2 days prior to WorldCom filing for bankruptcy.
3. Henry "internet stock pumper" Blodget of Merrill Lynch fined $4 million and banned from the securities industry for life. industry for life
4. Ken "I was fooled" Lay during a four period made $217 million from stock options and another $19 million in salary and bonuses while running Enron into bankruptcy. Let's not forget while he was selling stock, he was advising employees to continue to purchase Enron stock.
5. Lehman Brothers files for bankruptcy mid September 2008 while Moody's, Standard and Poor's and Fitch maintained at least an "A" rating right up to bankruptcy filing.
6. Moody's maintained a AAA rating on AIG until hours prior to AIG's collapse.
7. Bernie "I had a great run" Madoff and his $18 billion Ponzi Scheme.
8. January 2006. The SEC and McAfee simultaneously settled the case (SEC complaint stating McAfee overstated its revenues by $622 million in order to meet revenue and earnings targets and understated its cumulative net losses by $353 million). McAfee paid a fine of $50 Million.
9. August 2009, GE settles SEC fraud charges for $50 million without admitting or denying SEC's allegations.
10. Marvell Technology Group settles with SEC ($10 million fine) on regulator's accusations of improper backdating of stock options. Marvell neither admitted nor denied wrongdoing but did agree to refrain from future violations of the securities laws
11. A Federal judge said Monday (2/22/10) he would reluctantly approve an amended $150 million settlement between the Securities and Exchange Commission and Bank of America to end civil charges accusing the bank of misleading shareholders when it acquired Merrill Lynch.
12. July 2010, Securities and Exchange Commission today announced that Goldman, Sachs & Co. will pay $550 million and reform its business practices to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse. Goldman regrets that the marketing materials did not contain that disclosure.
13. Ben Bernanke (5/17/07): “The sub prime mess is grave but largely contained. Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the sub prime sector on the broader housing market will likely be limited”.
14. April 2009, U.S. accounting rule makers (FASB) bowed to congressional and financial industry pressure on Thursday by allowing more flexibility in valuing toxic assets, a move expected to boost bank earnings and improve their capital levels.
15. June 2010, More than half of the lobbying force seeking to influence landmark financial reform legislation is made up of former members of Congress, Capitol Hill staffers and executive branch employees, according to a Center for Public Integrity analysis
16. August 2010, (AP-New York) — The 10 banks that received the most bailout aid during the financial crisis spent over $16 million on lobbying efforts in the first half of 2010, as the debate over financial regulatory reform reached its height.
17. Regulators are scrutinizing what some in the stock market are calling "quote stuffing," trading in which unusually large numbers of orders to buy or sell stocks are placed in a fraction of a second, only to be canceled almost immediately. The Securities and Exchange Commission has begun looking into whether the practice is putting some investors at a disadvantage by distorting stock prices, according to people familiar with the matter.

Perhaps your assessment is correct Ms. Schapiro, the fundamental basis of retail investor "anxiety" was a single day "flash crash"...

Dylan Ratigan points out that Senator Judd Gregg's math is a mere $2 trillion low

Dylan Ratigan fact checks Senator Judd Gregg's claim that American taxpayers have made money from TARP and almost all of the money has been paid back. If you spot Senator Gregg $2 trillion, his statement is accurate. Grandpa believes Senator Gregg may have assisted Ed Whitacre of GM regarding their commercial on how they paid the government back...in full and early....like Judd "Mr. Spin" Gregg, Eddie left out about $45 billion of debt not yet repaid to the American citizens.

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

Lies Divide, Truth Unites (Dylan Ratigan)

By Dylan Ratigan

The good news in America today is that many of lies from our leaders and media no longer seem to be working. Four out of five people view the current proposed financial reform as ineffectual. Many in Congress who voted for socialism for the rich now look like they will be voted out for continuing those giveaways.

Now the only way those Banksters can survive is to pretend that their corporate communism is working even in the face of overwhelming evidence to the contrary. Most recently, they decided that instead of taxing complicit financial institutions the cost of their "Financial Reform-In-Name-Only", they will instead use what I call the Big Tarp Lie to pander for the vote of Senator Scott Brown and others.

The mainstream media rarely fights back against this lie, either by an inability to understand, a desire to protect their access to these same Politicians and Bankers or an unwillingness to go up against the very same financial institutions that are often the only thing between them and the unemployment line.

However, we the people have to fight back against these lies - and thankfully we own the truth.

This lie must be beaten back by all of us like whack-a-mole every time it rears its ugly head. Please help me by sending this information to any Politician, Media Figure, Banker, Neighbor or Robot that you find repeating it - they can take our money, but they don't own the truth.

Let's break it down:

1. TARP itself hasn't even made money. AIG alone still owes us $75.6 billion. However, they always add the caveat "Other than AIG..." when they say that the bailouts were "profitable". But the AIG money was DIRECTLY PAID to many of these same banks that "paid back their TARP" at an outrageous 100 cents on the dollar! Mind you, this was done by government officials that were the former employees and current shareholders of the very banks they were helping. Let's make the banks like Goldman Sachs, Bank of America and Societe Generale pay back the $105 billion of stolen taxpayer money before we let anyone say "TARP was paid back."

2. TARP is a tiny little part of a massive amount of taxpayer support. TARP is actually less than 10% of your tax dollars that have been handed to the banks. And now the banks "paid back" the tiny slice that is TARP with OUR money and you are supposed cheer them for savvy. At this very moment, the taxpayer is still owed $2.02 Trillion dollars for the bailout by our Politicians and Banksters, and that number is growing every day.

Never mind the money that these same banks make getting endless 0% interest loans from the Federal Reserve (aka You) while either they lend it back to you at 14% or just lend it right to back the government and pocket the yield. Never mind the multitude of benefits they get from being Too Big Too Fail. But you're not supposed to pay attention to that; you're only supposed to notice how fast they paid back TARP!

So instead of these Politicians looking for the only obvious place to find the money - clawbacks from the people who continue to steal it - we are now being subjected to outright lies as they once again pick the banksters over the people who voted them in. But don't let them, or anyone in the media, get away with it without hearing from you.

Thanks to Zero Hedge for the Guest Post

Wall Street Banks Earnings Week: Fairy tale season is about to begin

Fairy tale season is about to begin

by David Weidner
Marketwatch
Tuesday, July 13, 2010

Wall Street banks and brokerages are readying second-quarter numbers for mass digestion. They'll show healthy balance sheets, tolerable risk levels and have all the trappings of well-run companies.

Don't believe a word of it.

If the second quarter is anything like quarters of the past couple years, risk is up and capital is down. And what you'll see on earnings day bears little resemblance to the business being conducted between the bookends of the start and end of the latest quarter. After all, Wall Street is an industry built on prevaricating for clients — Enron Corp., Greece and Parmalat Spa (PLATF.PK - News) to name a few — why would it come clean with its own financials?

Late last week, Bank of America Corp. (NYSE: BAC - News) became the latest big financial firm to cop to manipulating end-of-the-quarter earnings. In a letter to the Securities and Exchange Commission, B. of A. said it masked debt levels between 2007 and 2009 by making six trades designed to shine up the numbers on earnings day.

You can bet that the Charlotte, N.C.-based bank isn't the only one using the David Blaine accounting method. In April, the The Wall Street Journal examined data from the Federal Reserve bank of New York and found 18 banks including Goldman Sachs Group Inc. (NYSE: GS - News), Morgan Stanley (NYSE: MS - News) and J.P. Morgan Chase & Co. (NYSE: JPM - News) masked debt levels in the five quarters ending in March.

The Journal found the banks "understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data showed. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters."

Of course, like many Wall Street practices in the era of deregulation, all of the trades were perfectly legal, just as the "repo" accounting used by Lehman Brothers to hide its leverage exposure was legal — at least in the opinion of the U.K. attorneys they could get to approve the deals.

Lehman was hardly alone. Before, during and after the financial crisis, banks used countless accounting tricks, including off-balance sheet entities called special purpose vehicles, short-term repurchase agreements, securities that banks label "available for sale," and all varieties of "intent-based accounting."

Research conspiracy
You would think this kind of window dressing would raise the ire of analysts whose rosy analysis of Wall Street firms including American International Group Inc. (NYSE: AIG - News) Bear Stearns, Lehman Brothers and Merrill Lynch were made to look foolish by opaque and misleading balance sheets.

Think again. Most analysts still read the suspect financial data they're handed every three months and take it as gospel.

Take a look at the usual suspects. Since the start of the year, analysts have issued six ratings upgrades to Citigroup (NYSE: C - News), six to Goldman, four to Morgan Stanley and nine to Bank of America, according to FactSet. Combined, analysts have only issued five downgrades.

Even some of the best analysts, including Brad Hintz at Bernstein Research, Meredith Whitney, who runs her own research company and Glenn Schorr at Deutsche Bank AG seem reluctant to mention the fact that banks are tweaking the numbers. And why should they? Admitting that a bank has cut risk for earnings day undermines their "analysis."

Denials and lies
Less than a decade ago, a crusading attorney general upended Wall Street with a series of investigations and settlements concerning practices that the industry and public took for granted: late trading of mutual funds, bid-rigging in the insurance market and research conflicts.

Regardless of Eliot Spitzer's personal failings and his lasting impact as a reformer, at least he had the gumption to challenge practices on the grounds of common sense and evenhandedness. Unfortunately, no one seems to have taken up the mantle of championing fairness in the markets.

Even after the financial crisis, financial firms still take short cuts behind the scenes, the analysts keep playing it straight, investors continue to follow the analysts and credit ratings agencies. Not only does the emperor have no clothes, no one in the kingdom cares.

Maybe it's the obfuscation: like the way a chief financial officer authoritatively patronizes investors on the earnings call. Or perhaps it's the way banks such as Goldman and Morgan Stanley vehemently deny they use "repo" transactions to make the books look better at the end of the quarter but are hazy when asked about other transactions.

Maybe it doesn't matter anyway. All of this stuff, we're told, is legal. And if the SEC does make a move, it's only going to require more disclosure of mid-quarter activities.

Maybe lie is too strong a word for the game big finance plays at the end of the quarter. It is, after all, trickery played inside the lines.

But here's something you should refuse to call it: the truth.

The Con of the Decade Part I by Charles Hugh Smith

Great Post by Charles Hugh Smith (http://www.oftwominds.com/)

The con of the decade (Part I) involves the transfer of private debt to the public (the marks), who then pays interest forever to the con artists.

I've laid out the Con of the Decade (Part I) in outline form:

1. Enable trillions of dollars in mortgages guaranteed to default by packaging unlimited quantities of them into mortgage-backed securities (MBS), creating umlimited demand for fraudulently originated loans.

2. Sell these MBS as "safe" to credulous investors, institutions, town councils in Norway, etc., i.e. "the bezzle" on a global scale.

3. Make huge "side bets" against these doomed mortgages so when they default then the short-side bets generate billions in profits.

4. Leverage each $1 of actual capital into $100 of high-risk bets.

5. Hide the utterly fraudulent bets offshore and/or off-balance sheet (not that the regulators you had muzzled would have noticed anyway).

6. When the longside bets go bad, transfer hundreds of billions of dollars in Federal guarantees, bailouts and backstops into the private hands which made the risky bets, either via direct payments or via proxies like AIG. Enable these private Power Elites to borrow hundreds of billions more from the Treasury/Fed at zero interest.

7. Deposit these funds at the Federal Reserve, where they earn 3-4%. Reap billions in guaranteed income by borrowing Federal money for free and getting paid interest by the Fed.

8. As profits pile up, start buying boatloads of short-term U.S. Treasuries. Now the taxpayers who absorbed the trillions in private losses and who transferred trillions in subsidies, backstops, guarantees, bailouts and loans to private banks and corporations, are now paying interest on the Treasuries their own money purchased for the banks/corporations.

9. Slowly acquire trillions of dollars in Treasuries--not difficult to do as the Federal government is borrowing $1.5 trillion a year.

10. Stop buying Treasuries and dump a boatload onto the market, forcing interest rates to rise as supply of new T-Bills exceeds demand (at least temporarily). Repeat as necessary to double and then triple interest rates paid on Treasuries.

11. Buy hundreds of billions in long-term Treasuries at high rates of interest. As interest rates rise, interest payments dwarf all other Federal spending, forcing extreme cuts in all other government spending.

12. Enjoy the hundreds of billions of dollars in interest payments being paid by taxpayers on Treasuries that were purchased with their money but which are safely in private hands.

Since the Federal government could potentially inflate away these trillions in Treasuries, buy enough elected officials to force austerity so inflation remains tame. In essence, these private banks and corporations now own the revenue stream of the Federal government and its taxpayers. Neat con, and the marks will never understand how "saving our financial system" led to their servitude to the very interests they bailed out.

The circle is now complete: in "saving our financial system," the public borrowed trillions and transferred the money to private Power Elites, who then buy the public debt with the money swindled out of the taxpayer. Then the taxpayers transfer more wealth every year to the Power Elites/Plutocracy in the form of interest on the Treasury debt. The Power Elites will own the debt that was taken on to bail them out of bad private bets: this is the culmination of privatized gains, socialized risk.

In effect, it's a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better.

Link to Charles Hugh Smith's website

Special thanks to Zero Hedge for calling out the great post and for their commentary.
 
Sometimes, when chasing the bouncing ball of fraud and corruption on a daily basis, it is easy to lose sight of the forest for the millions of trees (all of which have a 150% LTV fourth-lien on them, underwritten by Goldman Sachs, which is short the shrubbery tranche). Luckily, Charles Hugh Smith, of oftwominds.com has taken the time to put it all into such simple and compelling terms, even corrupt North Carolina congressmen will not have the chance to plead stupidity after reading this.
 
Of course, to those familiar with the work of Austrian economists, none of this will come as a surprise.

Sunday Comics...Grandpa's 500th post edition

Mr. Feinberg, as Pay Czar, describe your overall

impact on Wall Street bonuses to date...

General Motors Heated Washer Fluid System Recall Fix

Pres. Obama's perceived venue for meeting with

British Petroleum's Chairman and Executives

Bodyguard candidates for French President Sarkozy

after he reportedly banned tall security personnel

 from applying to be his personal bodyguards

Recommended attire when test driving the iPad

Apple defends the cleanliness of its stores and

remains committed to creating a healthy

environment for their customers

What Carly Fiorina reads between interviews

Did you hear the one about Bernanke stating that

he believes AIG will pay back all their TARP money...

A must View: McClatchy's Greg Gordon speaks on AIG (Geithner and Paulson not looking so bright)

By Greg Gordon
McClatchy Newspapers

WASHINGTON — At the peak of the 2008 financial crisis, then-Treasury Secretary Henry Paulson and top Federal Reserve officials told the nation that there was an urgent need for the government to lend $85 billion to the American International Group so the giant insurer's temporary cash squeeze wouldn't trigger global financial chaos.

Nearly two years later, taxpayers are on the hook for twice that amount, and it now appears that Paulson and senior Federal Reserve officials either plunged ahead without understanding AIG's financial situation and the risks it posed to taxpayers — or were less than candid about one of the largest corporate bailouts in U.S. history.

AIG reported combined total losses of $110 billion in 2008 and 2009, erasing any doubt that the government stepped into a colossal mess.

AIG was at the epicenter of all the government bailouts of financial institutions in 2008, a company through which more than $90 billion in federal money flowed out the back door to some of the same Wall Street banks whose risky behavior fueled the crisis. Among the leading beneficiaries of the AIG bailout was investment banking giant Goldman Sachs, which Paulson headed until June 2006.


Link to video

Grandpa's #1 genie wish for 2010 remains to see Geithner and Bernanke gone however odds are Geithner will hit the pavement prior to Bernanke. Both are as "non-grandchildren friendly" as they come...

Sunday Comics

Fitch Downgrades Aflac to A from A+

Consumer Confidence Report released 2-23-10

AIG Chairman Harvey Golub in a letter to shareholders:

"Limits on compensation made no business sense

and hurt the firms ability to repay its bailout".

Ben Bernanke's testimony before the

House Financial Services Committee

Warren Buffett: The national slump in housing should

be over in a year or so.

Barron's Cover Story

THE HOTTEST INITIAL PUBLIC OFFERING of 2010

could be General Motors. That's right. GM.

House Financial Services Committee

“I feel more confident about the state of the nation than I have in

two-and-a-half or three years,” Geithner said

Typical Nancy Pelosi response to a coherent, fiscally prudent and

grandchild focused perspective.

AIG to pay out $100 million in bonuses

New York Times is reporting that AIG will be handing out $100 million in bonuses this week.

AIG agreed to cut “retention” bonuses by $20 million however the AIG “trick or treaters” will receive hefty retention bonuses. These bonuses are going to the financial products division that made the risky bets and lead to a $180 billion government (a.k.a. taxpayer) bailout.

Kenneth Feinberg (Treasury Department’s “special master for compensation) said the payments are contractual obligations entered into years ago. He also stated that the bonuses are “outrageous” but legal.

WHY ARE THEY LEGAL? They are legal courtesy of Timmy Geithner and Larry Summers who put the screws to Chris Dodd regarding his amendment to limit all future bonuses regardless of when they were promised. Summers stated the administration had no legal grounds to stop bonuses. Hey Larry, care to venture a guess on bonus levels had AIG gone belly up?

Geithner and Larry insisted that the bonus limitations only apply to future compensation contracts, not ones that already existed. Yes, the Treasury Secretary and the Director of the National Economic Council made sure the AIG bandits would continue receiving bonuses courtesy of the taxpayer.

Feinberg continues to work with AIG on their bonus structure in an attempt to not “offend” the taxpayer. AIG employees continue to rake in millions in bonuses and the next generation is left with a monstrous liability.

Too late Ken, we surpassed offensive months ago.

AIG Bailout National Security Status

Just when you think Tim Geithner couldn’t slither and lower. Bailing out AIG was a matter of national security! Does the U.S. have a special alert color for AIG?

Reported by Reuters:
U.S. securities regulators originally treated the New York Federal Reserve's bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security, according to emails obtained by Reuters.

The request to keep the details secret were made by the New York Federal Reserve -- a regulator that helped orchestrate the bailout -- and by the giant insurer itself, according to the emails.

The emails from early last year reveal that officials at the New York Fed were only comfortable with AIG submitting a critical bailout-related document to the U.S. Securities and Exchange Commission after getting assurances from the regulatory agency that "special security procedures" would be used to handle the document.

The SEC, according to an email sent by a New York Fed lawyer on January 13, 2009, agreed to limit the number of SEC employees who would review the document to just two and keep the document locked in a safe while the SEC considered AIG's confidentiality request.

The SEC had also agreed that if it determined the document should not be made public, it would be stored "in a special area where national security related files are kept," the lawyer wrote.

One day the grandkids will read the amended classics reflecting the Geithner-Schapiro conspiracy.

The Old Fun with Tim and Mary

Look Mary.

Look, Look

See Pelosi

See Mary Run

See Tim run

Run, run, run

Jump congress

Jump, jump, jump

Oh, congress

Sunday Comics

"I won George, I'm now the Speaker"

"Brutal, Copenhagen was a nada, my ratings are tanking,

 Scott Brown wins, health reform is lukewarm

and now the Supreme Court conniving 5"

Ford Focus, Best Green Car of 2010 Detroit Car Show

Feinberg wants AIG to

reduce retention awards

                                               AIG, "but $195 mil due in March"

Senators predict Bernanke confirmation

Jim Cramer's Market Rally post Scott Brown election

Here's a little song I wrote

You might want to sing it note for note

Don't worry, be happy...

Scott Brown Victory Dance

"It's all over the internet, 70 phone calls in 14 hours

including your buddies at JP Morgan and Goldman Sachs"?