Alexander Hamilton’s Scorn: Reflecting on AIG, Goldman, Hank Paulson and Bob Rubin

-

alexander hamilton.jpgIt has slightly bothered me that the Brookings Institution’s Hamilton Project grabbed some Hamilton branding for ideas that were anything but.
The Hamilton Project’s early objectives were to promote a variant of neoliberal economic policy — free and fast trade, fiscal conservatism and budget hawkishness, and a rejection of national economic strategies that would maximize American worker and producer interests over the interests of other states.
The real Alexander Hamilton who was the key conceptualizer and organizer of the American government and who laid the foundation of the nation’s strong financial architecture believed in promoting manufacturing via tariffs; promulgated the expansion of credit as long as integrity, credibility and confidence were maintained; and was America’s most sophisticated and essential economic nationalist.
But whereas our immediate past Secretary of the Treasury Hank Paulson and another Secretary of the Treasury during a Democratic White House Robert Rubin made hundreds of millions of dollars flitting between private sector responsibilities and objectives and government roles, Hamilton — even in his private life — studiously avoided financial conflicts of interest.
Hamilton believed in banks and finance and built, wrote the corporate charter for and co-founded the Bank of New York — the first firm in the new nation whose stock was traded on the New York Stock Exchange.
But to avoid the appearance of conflict, Pulitzer Prize winning author Ron Chernow reports that Hamilton — who was at the time of the Bank of New York’s founding in 1784 a private lawyer — “held in his own name only a single share of the bank that was long to be associated with his memory.”
Rubin is a mega-share/mega-option guy. Hank Paulson too.
And while Tom Daschle and Nancy Killifer have been castigated for errors in tax reporting and essentially barred from serving their government, a deeper, more profound structural corruption has fixed itself in the superstructures of government that is drawing almost no attention.
While many are criticizing the gross and wrong AIG taxpayer-funded bonuses of senior executives, the truth is that that kind of corruption is relatively small time — even at $165 million — and was predictable. The outrage expressed by Obama, Lawrence Summers and Tim Geithner must be feigned — or they don’t know what they are doing in the positions they have acquired.
But what is serious is that Goldman Sachs executives seem to have lied or at best seriously misled the media and public during the early stages of the AIG financial crisis stating that their firm did not have significant exposure to AIG’s collapsing financial position.
But after AIG published its roster of financial distributions, Goldman Sachs comes in on the top of the list at $12.9 billiion.
Treasury Secretary Paulson and former Treasury Secretary Bob Rubin both served as top executives at Goldman Sachs — and in the end, they wouldn’t let Goldman collapse despite allowing Lehman Brothers to die.
Rubin and Paulson have had major conflicts of interest that make Tim Geithner’s tax manipulations while an IMF employee look pathetically insignficant. Tom Daschle’s rides in a town car, Killifer’s failure to pay taxes on domestic help, and others who have avoided government because of the very high hurdles Obama has set for those who join his team simply pale in comparison to what we have learned about Bob Rubin’s ties to Citibank, Goldman and the Treasury; Hank Paulson to both Treasury and Goldman — and which have implications as well for their chief acolytes Lawrence Summers and Timothy Geithner.
AIG and Goldman both lied about their positions last September. And Hank Paulson and other major financial elites involved in the AIG bailout knew it also.
That is the story we should be following — but few are paying attention.
And we should remember that the great economic genius of the early United States, Alexander Hamilton — the man who hatched the great Bank of New York — possessed just ‘one share’ of that bank.
We should be re-reading about Alexander Hamilton’s life and deeds. Soon it is easy to see how he would have been fairly disgusted by those who have recently held his position and pretended to carry on his brand of national interest public service.
— Steve Clemons

Comments

49 comments on “Alexander Hamilton’s Scorn: Reflecting on AIG, Goldman, Hank Paulson and Bob Rubin

  1. erichwwk says:

    “Reorganising the Banks: Focus on the Liabilities, Not the Assets” by Jeremy Bulow and Paul Klemperer
    at http://www.voxeu.org/index.php?q=node/3320
    for the way to pull our head out of the sand (or wherever else it might be inserted).
    Also worth another look may be Bethany McLean old (1-30-09)interview on PBS “Billions in Bogus Bonuses?”, where the larger problem of this being essentially an income distribution problem (wealth shifted w/o their being real wealth created) that everyone hopes will go away, without having to acknowledge or address it head on.
    [ on hot link above ]
    More and more economists are being outspoken that addressing the toxic assets rather than the unsecured liabilities is just digging us into a deeper hole. Hope the upcoming NAF forum lead by Steve Clemons does not ignore this issue.
    As Joe Nocera at NYT aptly describes next Tuesdays (March 24) House Financial Services Committee hearings w/ Geithner and Bernanke, which focus on just the bonuses, “Is that Nero I hear fiddling?”
    [Talking Business
    The Problem With Flogging A.I.G. March 20, 2009 NYT]

    Reply

  2. erichwwk says:

    “Reorganising the Banks: Focus on the Liabilities, Not the Assets” by Jeremy Bulow and Paul Klemperer
    at http://www.voxeu.org/index.php?q=node/3320
    for the way to pull our head out of the sand (or wherever else it might be inserted).
    Also worth another look may be Bethany McLean old (1-30-09)interview on PBS “Billions in Bogus Bonuses?”, where the larger problem of this being essentially an income distribution problem (wealth shifted w/o their being real wealth created) that everyone hopes will go away, without having to acknowledge or address it head on.
    http://www.pbs.org/now/shows/505/index.html
    More and more economists are being outspoken that addressing the toxic assets rather than the unsecured liabilities is just digging us into a deeper hole. Hope the upcoming NAF forum lead by Steve Clemons does not ignore this issue.
    As Joe Nocera at NYT aptly describes next Tuesdays (March 24) House Financial Services Committee hearings w/ Geithner and Bernanke, which focus on just the bonuses, “Is that Nero I hear fiddling?”

    Reply

  3. DavidT says:

    Steve,
    I too admire Alexander Hamilton arguably the most influential American never to be elected president. However with so many serious troubles with our economy I don’t understand why you are so preoccupied with Robert Rubin (I also would be much happier if you stopped using the term “neoliberal” to describe one of the elements you find objectionable w/him since in this country for quite a few years that term meant something quite different from the way you are using this term). Did he swipe your COOP apartment from under your nose or something :)?
    Rubin is not someone I wish to defend. However, if you feel the need to finger point he’s a virtual regulatory maniac in comparison with your buddy Grover Norquist who I believe has done far more harm to our country than Rubin could ever dream about (and been a central player in helping California’s government become insolvent with his insistence that raising taxes are anethema to any Republican officeholder).
    And Rubin is not particularly relevant in the economic debates of today (unless you enjoy pointing fingers instead of trying to make policy). Instead of seriously examining our current crisis, much of it based on a lack of confidence in our system, you and many members of Congress wish to point fingers instead of focusing on really fixing the problem. If times were great I wouldn’t object. However given our current condition all this finger pointing is diminishing people’s confidence in their government, making them feel that no solution is the best solution since a true solution might aid some pretty unlikeable people. Talk about playing into the Republican and Norquist’s hands.
    Of Hamilton’s admirable qualities, if you are right that he was an ardent protectionist, then lucky for us that most economists no longer buy into the theories of the self-inflicted injuries we might undertake with more restricted trade. I seriously doubt Hamilton would be a protectionist today and would be willing to also bet that if he were around he would be less preoccupied during the current crisis with finger-pointing than with coming up with sensible solutions to our current mess.
    With the usual respect and hope for more constructive posts on your part (i.e. how do you respond to Leslie Gelb’s argument that the current administration is handling issues in too piecemeal a fashion instead of developing an overarching strategy? How’s Secretary Clinton doing so far? Apart from the Israel right or wrong crowd, are there signs that Hamas and/or Hezbollah will sit down with us and develop constructive solutions to our problems? What does the exit of Khatami as candidate for president in Iran mean for us? Is Ahmed Rashid right that the primary problem in Pakistan is that the military is preoccupied with the Indian threat and incapable of operating counterinsurgencies over more serious threats like the Taliban?).

    Reply

  4. erichwwk says:

    From James Galbraith:
    Financial Crisis Caused by a ‘Culture of Complicity’
    While the world talks about new ways to save struggling banks, there are a handful of economists who think some banks shouldn’t be saved at all. American economist James Galbraith told Manager Magazin that it might make more sense to break them up and start over.
    Manager Magazin: Professor Galbraith, you suggest that banks that suffer from bad assets should simply be declared insolvent, instead of rescuing them with taxpayers’ money. Why?
    James Galbraith: We need a correct assessment of the degree of losses suffered by a bank which is functionally insolvent. But as long as the old management is in place, there are no incentives to cooperate in the evaluation you need to make. That’s the first problem.
    The second problem is: When a bank is insolvent, the incentives for normal banking practice disappear. They become perverse. The incumbent management has good reason to gamble excessively and to make capital losses. This is because it appears that the regulators could soon close down the bank.
    Beyond that, if the situation for the bank is truly hopeless or if the management is truly corrupt, then the incentive is to loot the institution, to take as much money out of it — e.g. in the shape of bonuses and dividends — before the true state of the books is discovered.
    Rest here: http://tinyurl.com/dakmcd

    Reply

  5. erichwwk says:

    Misleading??????? It is a black and white case of criminal fraud.
    Credit default swaps are essentially a contract to sell insurance, agreeing to accept a payment for the service, the service being exactly nothing. They were called CDS only to circumvent insurance reserve requirements.
    When one is “hedged” with a phony insurance policy issued by AIG, one has a clear and obvious “exposure to AIG’s collapsing financial position”.
    To claim otherwise is clearly a lie.
    What AIG was doing is not fundamentally different from what Bernie Madoff did, ie take in money without delivering a product, essentially a ponzi scheme, however Libby and Goldman Sachs tries to parse it.
    http://www.alternet.org/module/printversion/132298

    Reply

  6. Bob h says:

    “But what is serious is that Goldman Sachs executives seem to have lied or at best seriously misled the media and public during the early stages of the AIG financial crisis stating that their firm did not have significant exposure to AIG’s collapsing financial position.”
    Strictly speaking, they were hedged with credit default swaps, but it is still a misleading statement.

    Reply

  7. rich says:

    Galbraith is finally stating The Obvious:
    http://www.washingtonmonthly.com/features/2009/0903.galbraith.html
    ‘NO RETURN TO NORMAL’…. In the cover story for the next issue of the Washington Monthly, James Galbraith, a University of Texas economist and senior scholar with the Levy Economics Institute, has a must-read analysis of the economic landscape, just how serious the economic crisis is, and why the Geithner plan may come up far short of what’s needed.
    In short, if we are in a true collapse of finance, our models will not serve. It is then appropriate to reach back, past the postwar years, to the experience of the Great Depression. And this can only be done by qualitative and historical analysis. Our modern numerical models just don’t capture the key feature of that crisis — which is, precisely, the collapse of the financial system.
    If the banking system is crippled, then to be effective the public sector must do much, much more. How much more? By how much can spending be raised in a real depression? And does this remedy work?
    It is a chilling piece, challenging long-held assumptions — embraced even by members of the Obama administration — about self-stabilizing economic models. If this downturn is unlike most modern recessions, and Galbraith believes that it is, then the “return to normal” is off in the distance, and these initial steps taken by the White House are woefully inadequate.
    As Paul Glatris, the Monthly’s editor in chief, put it, “If Galbraith is right — and I fear he is — it means that tens of millions more Americans will be out of work in a year or two or five, even if the stimulus creates all the jobs the president expects. It means that the big banks really are ‘zombies’ that will neither resume normal lending nor grow their way out of insolvency regardless of how much money the Treasury pours into them. It means that the auto companies will burn through every dime the government lends them and still not turn a profit.”
    Galbraith goes on to offer a recipe for a more comprehensive approach to what ails our entire financial system. Take a look.
    via Steve Benen at political Animal.
    http://www.washingtonmonthly.com/archives/individual/2009_03/017352.php

    Reply

  8. erichwwk says:

    William Buiter [Professor of European Political Economy, London School of Economics and Political Science; former chief economist of the EBRD] has an important post up relative AIG, essentially calling the Treasury and Fed effort to save AIG “hogwash”.
    “Slaughtering sacred cows: it’s the turn of the unsecured creditors now”
    Why are the unsecured creditors of banks and quasi-banks like AIG deemed too precious to take a hit or a haircut since Lehman Brothers went down? From the point of view of fairness they ought to have their heads on the block. It was they who funded the excessive leverage and risk-taking of banks and shadow banks. From the point of view of minimizing moral hazard – incentives for future excessive risk taking – it is essential that they pay the price for their past bad lending and investment decisions. We are playing a repeated game. Reputation matters.
    Three arguments for saving the unworthy hides of the unsecured creditors are commonly presented:
    * Unless the unsecured creditors are made whole, there will be a systemic financial collapse, with dramatic adverse consequences for the real economy.
    * If the unsecured creditors are forced to take a hit, no-one will ever lend to banks again or buy their debt.
    * The ultimate ‘beneficial owners’ of these securities – notably pensioners drawing their pensions from pension funds heavily invested in unsecured bank debt and owners of insurance policies with insurance companies holding unsecured bank debt – would suffer a large decline in financial wealth and disposable income that would cause them to cut back sharply on consumption. The resulting decline in aggregate demand would deepen and prolong the recession.
    I believe all three arguments to be hogwash.
    rest here: http://tinyurl.com/dlnm92

    Reply

  9. Cee says:

    Someone needs to say it
    Nowadays almost entirely Jewish Zionist subversion may kill the the US political and economic system before the 21st century hits the halfway point. The seceding American colonies did not face as great a threat from Britain as the USA does today from Judonia.
    http://eaazi.blogspot.com/

    Reply

  10. PissedOffAmerican says:

    Considering the fact that Chris Dodd stood before the nation yesterday and lied to each and everyone of us, any rational human being has to ask themselves;
    “What else has Chris Dodd lied to us about in the course of his political career?”
    Truth is, if this nation held its politicians to the standards we purport to, Chris Dodd should not have merely admitted to lying today, he should have stepped down from his post in disgrace. He has rendered himself useless, a liar, lacking credibility. What possible reason or justification do we have for trusting him past this point?
    Engaged in two wars, our economy in shambles, people losing homes, livelyhoods, security, in increasing numbers…
    What time period can be more critical, what time period can be more neccesary, for the American people to trust their “leaders”?
    These lying posturing pieces of shit are all that stand between you and a massive depression, further deteriorated world status, increased war, civil unrest, and the loss of the promised freedoms that our founders bestowed upon us. Are we really to trust a political body that stands before us and lies their God damned asses off about a whole myriad of issues? I’m now listening to Obama grandstand before an applauding bunch of buffoons in Orange County. Do you hear this son of a bitch apologizing to us for Dodd’s behaviour? Condemning it?
    It was just disclosed that Bush/Cheney ceded themselves dictatorial powers these last 8 years. Have you heard Obama say one fuckin’ thing about that? On the contrary, his Justice Department seems hell bent to protect these crooks, their illegal practices, and their distortions of history.
    Dodd, standing before us yesterday and lying through his teeth yesterday should be a wake up call for every American. Thats the face of your government, and it is a monstrous and pathetic caricature of the face the founders sought to show us.
    Dodd should resign. He won’t. And one more politician shows us we can’t trust one damned thing that comes out of these people’s mouths.

    Reply

  11. erichwwk says:

    The corruption now clearly extends to the US Senate and the Treasury Dept. Sen. Chris Dodd of Connecticut (where the derivatives branch of AIG, AIG Financail Products Corporation is located) covers for AIG and lets bonuses slip through, after first denying he was responsible for that, now claiming it was at the urging of Treasury.
    Treasury is still in hiding.
    Interestingly, LA Times article yesterday reported:
    “I have significant doubts about the validity of AIG’s claims that they are required by Connecticut law to pay these outrageous bonuses,” Atty. Gen. Richard Blumenthal said in a statement.
    http://tinyurl.com/c76huz
    So now we learn it takes just one US Senator [Sen. Dodd] in cahoots with Treasury to loot taxpayer funds.

    Reply

  12. ... says:

    rubin worked for 26 years at gs… starting to see some patterns here folks???

    Reply

  13. erichwwk says:

    The real tragedy here is that so many had hopes that Obama would be focus on returning our political and economic institutions to some semblance of fairness and efficiency, and avoid the hijacking of the government by a cabal.
    Instead we seem to have gotten a government where economic policy has been hijacked by Robert Rubin’s Hamilton Project, lead by a Dick Cheney in disguise Robert Rubin. When one looks closely at who Obama has appointed to positions of economic power, they seem to be handpicked by Robert Rubin, perhaps because of his Harvard Law classmate Michael Froman, point man on the transition team who introduced Obama to Rubin. The rest, as they say, is history.
    http://tinyurl.com/cfqo49
    We now have a WH run by Citibank and Goldman Sachs,where crooks are coddled and the UAW can go take a flying fuck.

    Reply

  14. ... says:

    gs has always had the appearance of being the closest to the federal reserve.. in other words, if the federal reserve was going to cook something up, you would see the pattern watching gs.. getting to gs is getting closer to the federal reserve…

    Reply

  15. Linda says:

    AIG debacle shows that Geithner and Summers are too close to Wall Street to understand Main Street and have very poor communications skills. And Obama can’t keep hearts and minds of the people while being tone-deaf to populism.
    All this nonsense about the sanctity of contract law makes no sense when contrasted with the demands that auto workers renegotiate their contracts to get a small amount of bailout money compared to AIG.
    Maureen Dowd is vey funny today. Where’ve you been WigWag? I liked Dowd even when she zings the candidate I supported.
    And this is the next outrage from Tim Rutten in
    LA Times today, but it was in NYT yesterday:
    “Meanwhile, the New York Times reported Tuesday that Goldman Sachs Group Inc. is using millions in federal bailout money to make loans to its employees whose stakes in the firm’s internal investment partnerships have been undermined by the collapse of the real estate and equities markets.
    In its own way, what’s happening at Goldman is every bit as appalling as the AIG debacle. Has anyone offered you government funds to shore up the losses in your 401(k) or retirement portfolio? It’s a ludicrous double standard that reflects the ethical sinkhole Wall Street has made of its relationship with the rest of American society.”

    Reply

  16. Daro says:

    Offtopic – Is it just me or do Alexander Hamilton and William Kristol share an enormous facial similarity?

    Reply

  17. rich says:

    Steve,
    “It has slightly bothered me that the Brookings Institution’s Hamilton Project grabbed some Hamilton branding for ideas that were anything but.”
    Excellent point that needs to be hammered home. That phenomenon is rife in the think tank-agency ecosystem. And it should bother everyone a whole lot.
    Also important to shine a harsh light on the mega-scale corruption. Agreed. Right on. Needs to be tackled head-on; the go-slow approach has failed and will fail for not doing facing up to it.
    The AIG bonuses are significant, though, as well. Relative to Americans operating in the real world, the bonuses are obscene.
    Just in terms of method of disbursal and scale, though, the AIG bonuses are a critical mistake that exposes a systemic double-standard. Deliver a decent chunk of that bailout to each American and the economy’ll improve far more effectively. Instead, Uncle Sam is now bailing out foreign banks and the GLOBAL banking system — and it’s the much-vaunted globalized system that failed. Oops.
    They aren’t retention bonuses; it’s hush money. It’s not a performance-based reward; it’s a payoff for fixing a fight/throwing the market, for selling fraud IN order TO screw things up.
    Wall Street doesn’t give a rat’s ass about the integrity of contracts. AIG is not bound by any contract relating to these bonuses. By definition, a bonus is discretionary. Contracts are broken all the time — and IF contracts had meant anything at all to corporate America, they wouldn’t have touched all those pension funds that were mysteriously not there. Yet narya a protesting squeak from the delicate legal eagles at AIG for the past 30 years as companies raided their employees’ pension funds. Contracts only mean something, apparently, if it’s AIG’s a$$ on the line.
    The bonuses are also a grave mistake: paying those who either a) failed utterly or b) conned us outright to fix this mess is stupid at best and criminal at worst. It matters because Base salary to the average American is sufficient compensation to actually, you know, to do their JOB. There’s no way there aren’t other qualified financial experts available to do this work. To continue asserting that ‘it’s complicated’ and that ‘you wouldn’t understand it’ only lends more clarifity to the understanding that they’re just not finished fleecing the American taxpayer. It’s an unmistakable signal that they still need secrecy to avoid accountability and that clearing up the books isn’t the first priority. If they don’t understand the investment vehicles, get some smarter people in there who can figure it out. After all — smarter folks need jobs and didn’t fvck up.
    Otherwise, it’s lesson still not learned:
    Courtesy the NYTs, Uncorked: the $15,000 brunch shows Wall-Streeters still know how to do it, thanks to George Bush’s bailout.
    http://www.nytimes.com/2009/03/15/nyregion/thecity/15part.html?_r=1
    NYTs:
    “As for how he and his fellow Wall Streeters could still afford such afternoons, he said: “We all made so much money in the past five years, it doesn’t matter.”
    “A 29-year-old man who works for a large investment management firm and was at Bagatelle’s brunch one recent Saturday and at Merkato 55’s the next, put it another way: “If you’d asked me in October, I’d say it’d be a different situation, and I don’t think I’d be here. Then the government gave us $10 billion.”
    See? Socialism is alive and well. Crime does pay. Lesson not learned.

    Reply

  18. arthurdecco says:

    Posted by PissedOffAmerican, Mar 17 2009, 10:25PM
    What a pathetic comedy this whole effin’ thing is.
    Watching these posturing pieces of shit screaming from their thrones about the AIG bonuses would gag a maggot. You can set your watch by how often these bastards in Congress vote themselves pay raises. And what up with this bitch Pelosi demanding Air Force jets for her and her entourage damned near every weekend?
    Have you seen any of our politicians tightening their belts, refusing benefits, taking cuts in pay? For Chrissakes, Obama just put on the most expensive crowning ceremony in the history of mankind.
    My recommendation to all these AIG crooks that are being told to forgo their bonuses? Take up a collection amongst yourselves, and set up a meeting with Obama and Biden. Two million each oughta do the trick. And don’t worry about Schumer, just donate a mil to AIPAC, and show him the reciept. That’ll shut him up.”
    This should be required reading for every American before breakfast every day!

    Reply

  19. arthurdecco says:

    Carroll said: “don’t bother,all you have to do is wait, it’s so incestuous and corrupt it will collapse all by itself”.
    And it IS collapsing, isn’t it. Carroll?

    Reply

  20. DonH@hotmail.com says:

    Hey, POA,
    The drunken Irishman is spending his own money!
    Do you get it, President Obama?

    Reply

  21. Don says:

    Hey, POA,
    What’s the difference between an AIG executive and a drunken Irishman?

    Reply

  22. PissedOffAmerican says:

    What a pathetic comedy this whole effin’ thing is.
    Watching these posturing pieces of shit screaming from their thrones about the AIG bonuses would gag a maggot. You can set your watch by how often these bastards in Congress vote themselves pay raises. And what up with this bitch Pelosi demanding Air Force jets for her and her entourage damned near every weekend?
    Have you seen any of our politicians tightening their belts, refusing benefits, taking cuts in pay? For Chrissakes, Obama just put on the most expensive crowning ceremony in the history of mankind.
    My recomendation to all these AIG crooks that are being told to forego their bonuses? Take up a collection amongst yourselves, and set up a meeting with Obama and Biden. Two million each oughta do the trick. And don’t worry about Schumer, just donate a mil to AIPAC, and show him the reciept. That’ll shut him up.

    Reply

  23. Don says:

    Hey, Steve,
    I’m filing my taxes this week — which AIG executive should I make my check out to?

    Reply

  24. pauline says:

    “Under Cassano, Troubled AIG Unit Was Charged With Major Securities Law Violation”
    By Zachary Roth – March 17, 2009, 4:21PM
    “We’ve been doing a little digging into Joseph Cassano, who until last year ran AIG’s financial products unit, known as AIGFP. That’s the unit, of course, whose staffers just got $165 million in bonuses despite undertaking those credit default swaps that helped bring the company down. And it was under Cassano that those deals were made.
    As we noted earlier, the FBI and British authorities have lately been probing AIGFP. But it looks like under Cassano, the unit has been in criminal investigators’ crosshairs before.
    According to a “brokercheck report” put out by the financial regulatory agency FINRA, and unearthed by the blog Zero Hedge, the Justice Department in 2004 criminally charged Cassano’s unit with helping another firm, PNC Financial Services, to conceal certain assets from its books. In the end, AIG came to a settlement with DOJ and SEC, in which it paid a very hefty fine –$80 million.
    Here’s the full relevant portion of the FINRA report:
    Charge Details:
    THE DEPARTMENT OF JUSTICE (“DOJ”) FILED A CRIMINAL COMPLAINT AGAINST AIG-FP PAGIC, CHARGING AIG-FP PAGIC WITH VIOLATING TITLE 15, US CODE SECTIONS 78J(B) AND 78FF(A), CODE OF FEDERAL REGULATIONS, SECTION 240.10B-5 AND TITLE 18, US CODE SECTION 2. THE COMPLAINT ALLEGED THAT AIG-FP PAGIC VIOLATED FEDERAL SECURITIES LAWS BY AIDING AND ABETTING SECURITIES LAW VIOLATIONS BY A PUBLIC COMPANY, PNC FINANCIAL SERVICES GROUP, INC. (“PNC”), IN CONNECTION WITH A TRANSACTION ENTERED INTO IN 2001 WITH PNC THAT WAS INTENDED TO ENABLE PNC TO REMOVE CERTAIN ASSETS FROM ITS BALANCE SHEET. THE COMPLAINT ALLEGED THAT AIG-FP PAGIC KNEW, OR WAS DELIBERATELY IGNORANT IN NOT KNOWING, THAT THE PNC TRANSACTION DID NOT SATISFY THE REQUIREMENTS OF GAAP FOR NON-CONSOLIDATION OF SPECIAL PURPOSE ENTITIES.
    Disposition Details:
    AIG, AIG-FP AND AIG-FP PAGIC ENTERED INTO A SETTLEMENT WITH THE DOJ COMPRISING SEPARATE AGREEMENTS WITH AIG AND AIG-FP AND A COMPLAINT FILED AGAINST, AND DEFERRED PROSECUTION AGREEMENT WITH, AIG-FP PAGIC. UNDER THE TERMS OF THE SETTLEMENT, AIG-FP PAID A MONETARY PENALTY OF $80,000,000 AND THE DOJ AGREED (I) THAT IT WILL NOT PROSECUTE AIG OR AIG-FP IN CONNECTION WITH THE PNC TRANSACTIONS OR THE BRIGHTPOINT TRANSACTION THAT WAS SETTLED BY AIG WITH THE SEC IN 2003 AND (II) TO SEEK A DISMISSAL WITH PREJUDICE OF THE AIG-FP PAGIC COMPLAINT IN DECEMBER 2005, IN EACH CASE PROVIDED THAT AIG, AIG-FP AND AIG-FP PAGIC SATISFY THEIR OBLIGATIONS UNDER THE DOJ AGREEMENTS. THE OBLIGATIONS OF AIG, AIG-FP AND AIG-FP PAGIC UNDER THE DOJ AGREEMENTS RELATE PRINCIPALLY TO COOPERATING WITH THE DOJ AND OTHER FEDERAL AGENCIES IN CONNECTION WITH THEIR RELATED INVESTIGATIONS. THE DOJ FILED THE MOTION TO DISMISS WITH PREJUDICE THE AIG-FP PAGIC COMPLAINT ON DECEMBER 16, 2005; THE COURT SIGNED THE ORDER GRANTING THE MOTION TO DISMISS THE AIG-FP PAGIC COMPLAINT ON JANUARY 17, 2006, RESULTING IN A FINAL DISPOSITION OF THE AIG-FP PAGIC MATTER.
    The details of the PNC matter aren’t clear. But as Zero Hedge notes, had the SEC come down harder on Cassano and AIGFP, it’s conceivable that the agency could have helped stop the practices that would ultimately destroy AIG and that contributed to the current financial crisis.
    Leaving the SEC aside, there’s no evidence that AIG sanctioned Cassano in any way after this episode. Indeed, as we’ve noted, when he resigned as CEO of AIGFP last year, he was initally given a $1 million-a-month consulting retainer.”
    see —
    http://tpmmuckraker.talkingpointsmemo.com/financial_crisis/

    Reply

  25. Ralph says:

    Funds were given to AIG without any constraints. Instead of giving the money to AIG directly, it may have been better to pay off its trading partners on the company’s behalf – the real reason the funds were needed to begin with. AIG may not be a going concern regardless of what the government does. If it cannot generate new business then the bail out will also go to fund future operating losses. To learn more go to http://www.newyorkshockexchange.com/content/view/79/37/

    Reply

  26. Miriam says:

    Steve.
    This is a brilliant expose. I hope it gets the attention it deserves.

    Reply

  27. Carroll says:

    AIG has been under investigation for years and years. Everyone from it’s former CEO Maurice Greenberg, to lowly employees who were running contract fraud schemes. It is just another example of a system lacking all ethics and all the incesteous ties in WS and government.
    Replacing Greenberg with Sullivan didn’t change it and replacing Sullivan with Liddy isn’t going to change AIG. It’s been rotten to the core for years and it’s done. Bury it
    #Spitzer sues AIG, former CEO Greenberg – Corporate scandals- msnbc.com
    May 26, 2005 … New York Attorney General Eliot Spitzer on Thursday filed a civil suit against American International Group Inc., accusing the nation’s …
    #Former CEO Greenberg Transferred $2 Billion in AIG Shares to Wife …
    Former CEO Greenberg Transferred $2 Billion in AIG Shares to Wife Just Days Before Quitting Insurer. By Eileen Alt Powell April 14, 2005 …
    http://www.insurancejournal.com/news/national/2005/04/14/53758.htm – 34k
    #Former CEO Makes Millions on Collapse of AIG …
    Nov 20, 2008 … AIG: It’s complicated, but bets made by investment vehicles owned by former CEO Hank Greenberg somehow profited by tens of millions of …
    wsj.com/deals/2008/11/20/deals-of-the-day-former-ceo-makes-millions-on-collapse-of
    American International Group = Maurice “Hank” Greenberg
    Marsh & McLennan = Jeffrey Greenberg
    Ace = Evan Greenberg
    Bear Stearns = Alan Greenberg
    Jeffrey Greenberg
    Jeffrey W. Greenberg is the former chairman and CEO of Marsh & McLennan Companies. His father is Maurice Greenberg, former chairman and CEO of AIG, and Director Emeritus and Honorary Vice Chairman of the Council on Foreign Relations (CFR). His brother is Evan Greenberg, president and CEO of ACE Limited. Jeffrey Greenberg is also a member of the CFR and serves as a trustee of the Brookings Institution.
    Maurice Greenberg
    Maurice R. “Hank” Greenberg, “ranked 132 in the world and 59th in the US with assets of $3.1 billion,” was forced out as Chairman of top insurance company American International Group (AIG) after the company “admitted to $1.7 billion in improper accounting.” In Spring 2005, “two of Greenberg’s sons, both executives in the insurance business, have also been tarnished by scandal.”
    He is also a member on the Council on Foreign Relations. His son Evan Greenberg is the CEO of ACE. His son Jeffrey Greenberg is CEO of Marsh and Alan Greenberg is CEO of Bear Stearns. A family that preys together, stays together.
    Greenberg is well-known in Washington where he known for raising large amounts of money. Greenberg was one of the President George W. Bush’s ‘Rangers’ which means he personally raked in more than $200,000 for the reelection campaign. At the same time, he is also known for his access to members of the cabinet and Congress. This access has paid-off as the administration has often supported Greenberg on a number of issues ranging from access to China to terrorism insurance
    Affiliations
    * Chairman, Nixon Center (2)
    “Greenberg and AIG have further expanded their reach through the use of the $5 billion Starr Foundation, named after the founder of the company Cornelius Vander Starr. It supports influential groups such as the Council on Foreign Relations and the National Chamber Foundation, associated with the US Chamber of Commerce,”
    Evan Greenberg
    Evan Greenberg is President and CEO of ACE Limited. He is the son of Maurice Greenberg.
    Member of the Council on Foreign Relations.
    Alan Greenberg
    Alan “Ace” Greenberg was the former CEO of Bear Stearns and still serving as chairman of the boards. He is the son of Maurice Greenberg of AIG.
    Dubbed one of the shrewdest players on Wall Street, Alan Greenberg was born in Wichita, Kansas in 1927. Greenberg describes his family as close-knit. When Greenberg was 31, he was named a partner of Bear Stearns. In 1978, Greenberg was named chief executive officer of the firm. He continued to expand the business, finally taking it public in 1985. Greenberg was named chairman and CEO. Today, Greenberg retains the title of chairman of the board and chairman of the executive committee.
    I am constantly reminded of what my old time government insider friend said ever time I screamed BWTTGASO…”don’t bother,all you have to do is wait, it’s so incesteous and corrupt it will collapse all by itself”.

    Reply

  28. Curious observer says:

    Cee, here’s the link to Rep. Sherman’s speech on the House floor.
    http://www.youtube.com/watch?v=HaG9d_4zij8
    Sherman didn’t name Paulson, but Inhofe later did in the radio interview.

    Reply

  29. erichwwk says:

    Cee:
    Hank Paulson’s threat of martial law was alleged to have occurred on a Sept. 19, 2008 conference call, and was reported by U.S. Sen. James Inhofe, R-Okla., and U.S. Rep. Brad Sherman, D-Calif., the former on a Tulsa radio interview,
    and the later On Oct. 2. “Rep. Brad Sherman (D-Calif.) said on the House floor that “Many of us were told in private conversations that if we voted against this bill on Monday the sky would fall, the market would drop two or three thousand points the first day, another couple of thousand the second day, and a few members were even told that there would be martial law in America if we voted no.”
    http://tinyurl.com/dl5cov
    This is over all the independent news sources, but a search of both the NYTimes and the WP did not turn up ANY reporting.

    Reply

  30. erichwwk says:

    Tom Toles perspective at WP:
    http://tinyurl.com/cpe5wz
    I agree that the Goldman Sachs connection to AIG was reported on, even in TWN comments.
    If TWN is indeed successful in focusing on the extent to which Treasury and Obama economists serve a very narrow US population, namely the speculative, “get rich without working” population represented by Goldman Sachs and Robert Rubin, this would be major. I remain skeptical that this can be done w/o winning the minor AIG “divert as much taxpayer funds to private accounts beyond the reach of regulators” skirmish, that puts FACES on the problem.

    Reply

  31. erichwwk says:

    Tome Toles perspective at WP:
    http://tinyurl.com/cpe5wz
    I agree that the Goldman Sachs connection to AIG was reported on, even in TWN comments.
    If TWN is indeed successful in focusing on the extent to which Treasury and Obama economists serve a very narrow US population, namely the speculative, “get rich without working” population represented by Goldman Sachs and Robert Rubin, this would be major. I remain skeptical that this can be done w/o winning the minor AIG “divert as much taxpayer funds to private accounts beyond the reach of regulators” skirmish, that puts FACES on the problem.
    Cee:
    Hank Paulson’s threat of martial law was alleged to have occurred on a Sept. 19, 2008 conference call, and was reported by U.S. Sen. James Inhofe, R-Okla., and U.S. Rep. Brad Sherman, D-Calif., the former on a Tulsa radio interview,
    and the later On Oct. 2. “Rep. Brad Sherman (D-Calif.) said on the House floor that “Many of us were told in private conversations that if we voted against this bill on Monday the sky would fall, the market would drop two or three thousand points the first day, another couple of thousand the second day, and a few members were even told that there would be martial law in America if we voted no.”
    http://tinyurl.com/dl5cov
    This is over all the independent news sources, but a search of both the NYTimes and the WP did not turn up ANY reporting.

    Reply

  32. Cee says:

    Hank Paulson and other major financial elites involved in the AIG bailout knew it also.
    I read that Paulson was the one who made the threats of martial law if the extortion bill wasn’t passed.
    Anyone have more information?

    Reply

  33. Curious observer says:

    It’s enough to make me think the bonus brouhaha has been deliberately ginned up to distract us all from the real scandal — the payouts to Goldman et.al. This amounts to, what, half of the money AIG’s collected so far? Does anyone think there’s a chance in hell that AIG’s ever gonna pay this back?
    And to Chuck Grassley and the rest of the Congresscritters spitting outrage over this — go to hell. You had the chance to put strings on the bonuses when you voted for the bailout last fall, and you chose not to because Hank Paulson said if you didn’t pass the bill yesterday, there’d be a market meltdown leading to martial law.

    Reply

  34. ... says:

    all roads lead to the federal reserve… like the grand poobah hiding behind the curtain in the wizard of oz… sooner or later someone is going to unmask it and see it for the corruption it is… meanwhile, focus on aig, as that is what is in the news…

    Reply

  35. alan says:

    I read your post at HuffPo. It is a pity that the people who are now policing Wall Street are from Wall Street. I think our impatience and cable driven chatter for instant solutions is dangerous to our financial health. Why do we have to listen to blather from people, for example, seated around a table on Morning Joe, coffee cup at head, lecturing the White House? They say the same thing over and over again; are pretty well insulated from the financial stress to which we are exposed, and engage in fatuous commentary.
    Suggestion: shut down cable news for a week. People need to think about this without ill informed gasbaggery.

    Reply

  36. Larry Martin says:

    Actually, AIG’s indebtedness to Goldman-Sachs, and Henry
    Paulson’s drive to save AIG so AIG could pay tens of billions to
    Goldman was reported at the time it was happening.
    It’s just that nobody gave a damn then, and nobody who can do
    anything about it really gives a damn now. Do they?

    Reply

  37. DonS says:

    better than the guillotine . . .
    http://www.cnn.com/2009/POLITICS/03/17/aig.bonuses/index.html
    I expect the repubs will vote against this anyway, seeing as how it’s a tax.
    Although I’m not sure that selective application of capital (gains) punishment isn’t called for.

    Reply

  38. erichwwk says:

    Bart writes”
    “My economics education is musty, but wasn’t Hamilton preaching protection of our “infant industries” when he recommended tariffs?”
    Not so musty.Hamilton is usually given credit for first developing the infant industry argument.
    That is the way ALL industrialized countries got to where they are. “Free trade” is mostly a “kick away the ladder after climbing to the top”, [the title of a Ha-Joon Chang book]
    http://en.wikipedia.org/wiki/Ha-Joon_Chang
    to allow the continued exploitation of other countries. It as at the heart of the Stiglitz-Summers controversy, and why the Obama economic advisers are so one-sided, and ardent in keeping other views from being heard, and applies as well domestically (ie protection of monoply rents internally, within the US)as it does to foreign entities.
    Joe Stiglitz, along with George Akerlof, have also written extensively on asymmetric information, the other important point that is often overlooked by free-market fundamentalists.

    Reply

  39. DonS says:

    I’ve got Chernow’s biography of Hamilton sitting next to my chair, and am slowly reading it — it needs more effort thatn I;ve put in so far.
    The massive architecture ofthe financial systems has obviously made it possible for many connected individualo to make massive fortunes. fortunes which, at some level, are financed by the rest of us. No one sriously objects until the stuff hts their personal fan. Then the populist posturing comes out.
    But can one really argue with those of us who are accused of hyperbole and fearmongering for noting the crimnal nature of this enterprise which is seriously, in the US alone, creating a disproportion in wealth that outdoes the basest tyrants and potentates?
    As to a fix? One can’t be had without financial revolution, lest we stumble towards something more violent. My thought about our current leader, Obama, is that he should stop being so inclusinve and respectful-acting. He should be kicking butt each morning and demanding answers and results from his minions. I’m sure we would then hear the protest, as with AIG, ect., that you can’t be too hard on these people because, you know, they’ll go elsewhere they won’t lend their talents to ‘serving’ the government, the people. How pathetic have we become as a nation? We are finding out.

    Reply

  40. Bart says:

    “The real Alexander Hamilton…believed in promoting manufacturing via tariffs…”
    My economics education is musty, but wasn’t Hamilton preaching protection of our “infant industries” when he recommended tariffs?

    Reply

  41. erichwwk says:

    Nice to have you back, Steve, with such a BANG!
    My $0.02 worth:
    While I agree that AIG compensations out of bailout funds are trivial in terms of the overall picture, I disagree that the bonuses are trivial in HOW [the process by which] the public is ABLE to fight over WHO is to decide WHAT in terms of financial rules or rights. Josh Marshall at http://www.talkingpointsmemo.com has been following this issue closely, see eg:
    http://tinyurl.com/cahn48
    He also previously linked to the letter ” AIG CEO Edward Liddy sent over the weekend to Secretary Geithner — in which he tells Geithner, with great courtesy and heaviness of heart, to go screw himself”. To change the BIG ISSUES [a government that favors the very rich, by key bureaucratic appointments] will require populist support, something that may be easier to achieve by starting with AIG bonuses than it is by focusing on Summers and Paulson,or how the Federal Reserve is structured, admittedly the more significant problems. Summers being on record as supporting AIG bonus contracts should help in creating the wedge necessary for moving this fight up.
    So, yes I agree that the conflict of interest (or rather the issue of WHOSE interest Paulson and Summers represent) is paramount. In addition to lying about Goldman Sachs interests in AIG, let’s ALSO include lying about letting Goldman Sachs main competitor [Lehman Bros] go under. And even bigger than that, is the extent to which Paulson and Summers are again merely the tip of the iceberg, the extent to which the US government, and especially the US Senate, itself is a conflict of interest, representing primarily the rich elite at the expense of the general public. Paulson and Summers are not an anomaly, but a symptom of how the system protects itself.
    Solving the issue of control over the financial sector rules and money creation will be extremely costly and difficult, if not impossible, to solve under our current system of government. Much as I like much of what Austan Goolsbee says, he too has personally benefited from unfair financial rules. Treasury has long represented the interests of the financial community; finding someone who understands the mechanics of these institutions that is not biased towards preserving these privileged interests is a pretty tall order.
    So just how is it envisioned that all these conflicts of interest will be resolved?
    After all, as far as I know, Robert Rubin himself is still a chief Obama economic adviser. And it was Robert Rubin himself who created the Hamilton Project.
    Steal a little and they throw you in jail, Steal a lot and they make you king …
    –Bob Dylan

    Reply

  42. rich says:

    Great post. We’ve radically departed from our Founders’ precepts in more ways than one, so much so that it’s a wonder anyone can call themselves a ‘conservative’ with a straight face.
    Was poring over Chernow’s biography of Alexander Hamilton just a few weeks ago — but it took its place at the end of a very long line.

    Reply

  43. brianartstar says:

    The silence from the Attorney General on this matter is deafening. This scandal makes me wonder about the wisdom of the choice of Eric Holder as AG. I think Holder is one of the good guys, but think Patrick J Fitzgerald is the right personality type to clean up this mess.
    By the way, this scandal has additional roots in higher education. It points to the abject failure of US business schools to value citizenship and ethics in their applicants and their students’learning and experiences, while in MBA programs. Where did these economic traitors come from? US MBA programs,that where.

    Reply

  44. jon says:

    NIcely said, Steve.
    It’s amazing that the risk and losses from derivatives are
    hundreds of times greater than the foreclosure losses that they
    were supposed to be insurance against. Hedging, which has
    always been seen as a way defray some of the risk from primary
    investments, has come to be used as a profit center. Coupled
    with fraudulent bond ratings, extraordinary leveraging and
    insufficient reserves, merging of commercial and investment
    banks, and lackadaisical oversight, what should have been a
    brief recalibration of residential mortgages has snowballed into
    a threat to world finances.
    I was frankly astonished to see Summers and Rubin come back
    into the administration, and instantly realized that Goldman
    would be safe and be able to achieve still greater control over
    the markets. Summers and Rubin had best keep arms-length or
    better distance from any activities related to Goldman.
    I’m glad that you see the AIG bonus as a sideshow to the real
    issues. It galls me to see those who created the problem
    benefitting from it, but that’s a sideshow. Whether those people
    continue to hold positions of authority and control securities in a
    year is more significant.
    But it’s easier for the general public to focus on the smaller and
    more human dimension, since it is so hard to understand
    billions and trillions of dollars. Wasn’t it Stalin (a fellow who
    knew something about calamity) who said “The death of a single
    person is a tragedy, but the death of a million people is a
    statistic.” It’s a struggle, but we have to try to stay focused on
    the big picture.

    Reply

  45. pauline says:

    “…to restore the broken financial system, Washington has to fix the Federal Reserve. Though this is not widely understood, the central bank has lost its ability to govern the credit system–the nation’s overall lending and borrowing. The Fed’s control mechanisms have been severely undermined by a generation of deregulation and tricky innovations that have substantially shifted credit functions from traditional banks to lightly regulated financial markets. When the Fed tried to apply its old tools, starting in the 1980s, the credit system perversely produced opposite results–an explosion of debt the policy-makers could not restrain. In its present condition, the Fed may even make things worse.
    Instead of frankly acknowledging the problem, Fed governors proceeded in the past two decades to engineer exaggerated swings in monetary policy–raising interest rates, then lowering them, in widening extremes. This led to the series of bubbles in financial prices–first stocks, then housing and commodities–that collapsed with devastating consequences, climaxing in the present crisis. In other words, the central bank’s weakened condition and its misguided policy decisions have been a central factor in destabilizing the American economy. More to the point, the Fed’s operating disorders are directly threatening to recovery; the economy is not likely to get well if the dysfunctional Fed is not also reformed.
    In this crisis the central bank has so far flooded credit markets and financial institutions with trillions of dollars in new liquidity and loan guarantees, which may help to stabilize credit markets. But the Fed has been unable to engineer what the economy desperately needs–renewed lending to companies and consumers that can finance renewed growth. The confused purpose of monetary policy stands in the way. The Fed could not restrain credit expansion when it was exploding, and now it cannot stimulate credit expansion when it is frozen.”
    source:
    http://www.thenation.com/doc/20090330/greider

    Reply

  46. Mauimom says:

    That “7” should be an “&”.

    Reply

  47. Mauimom says:

    Thanks, Steve. The American public needs to be reminded DAILY of the swamp from which Geithner 7 Summers came. Mud still clings to them and colors their every decision.
    Shame on Obama for not making better choices! The Republicans are going to capitalize on this Big Time.

    Reply

  48. ... says:

    steve – good general overview on the corruption of some in the banking system… the link shows gs out to be complete liars, but i doubt anyone will be held accountable… far easier to go after or set up the eliot spitzers, which help keep the general population in a continued state of perpetual sleep then ever challenge the mandarins of wall st… good luck trying to change any of this…

    Reply

Add your comment

Your email address will not be published. Required fields are marked *