TARP: Taxpaying Americans Rear-ended Purposely

In times like these, it’s good to know who’s on your side. We can eliminate a couple agencies, Congress and the President right off the bat, thanks to articles like this. And recent testimony from bail-out-ees like AIG’s Liddy, which tells us more about the AIG machinations than we EVER wanted to know. Basically “The Fed made me do it!” Do what, you ask? Overpay to close out AIG’s credit default swaps, perhaps?

..Counterparties received 100 cents on the dollar for the CDOs, even though the prices paid by the Federal Reserve suggest that the bonds were actually worth 47 cents on the dollar.
“The latest admission from the (defunct yet living) company [AIG] is that well over $100 billion in taxpayer monies has gone to counter-parties at 100 cents on the dollar – no haircut, no penalty, no cost to those who made bad bets or chose their counter parties poorly,” notes Barry Ritholz, one of the sharpest minds on Wall Street who runs the must-read website the Big Picture Typepad.

I watched David Faber from CNBC go after this yesterday morning. He notes $180B of taxpayer moneyto AIG and asks how much went “NOT to bail out AIG, but it’s counterparties?…When the Fed went in and AIG took the money and closed out these credit default positions, why did it do so at par, when many of them were trading at steep discounts and could therefore have been unwound at numbers that would have been a lot less cost” to AIG and, ergo, the American taxpayer. Faber was listening when AIG’s Liddy testified before Congress Wednesday and was asked that exact question…and the answer to that is just horrific.

Liddy: “The FEDERAL RESERVE decided that we should pay a hundred cents on the dollar…that a hundred cents on the dollar should be paid in the settlement..”
Congressman Issa (R-CA): “But these were credit default swaps that I could have bought for a fraction of that on the open market, to the extent that somebody was floating them at the time, right? So we paid more than their current value at the time we paid them off.”

Liddy: “I believe that’s what the FEDERAL RESERVE decided was in THE BEST INTEREST OF THE FINANCIAL SYSTEM.”

Note to self: Geithner was the NY Fed president during all this. Another interesting footnote: Goldman Sachs was one of the beneficiaries of the Fed’s generous repayment policies in our name. For starters, ‘interesting’ because…

..Even more intriguing is Geithner’s informal brain trust, loaded with Wall Street luminaries. Since coming to the Fed in November 2003-recruited by then-New York Fed chairman Pete Peterson, co-founder of the Blackstone Group-Geithner has learned the ways of the financial industry at the feet of some of its biggest legends. He was almost immediately taken under the wing of Gerald Corrigan, a gregarious former New York Fed chief who is now a managing director of Goldman Sachs.

…especially when you consider

…Digging deeper, it was likely Paulson who orchestrated the entire show and made the decision to pay claims at par, knowing that it would be a simple yet effectively hidden manner of further re-capitalizing Wall Street (and Goldman) without pesky questions from Congress. We have been told there were 4 attendees at the meeting to decide AIG’s fate: Paulson, Lloyd Blankfein (CEO of Goldman Sachs), B-52 and Geithner. That is Paulson’s crew, and any decisions emanating from this meeting are ultimately his responsibility, no matter how it is spun to Congress months later.

If I thought money in the mattress would do any good, I’d say go for it.
But the way things are now, it won’t be even be worth the effort to stuff it.

3 Responses to “TARP: Taxpaying Americans Rear-ended Purposely”

  1. Retread says:

    I heard this morning (on CNBC, I think) that a trucker wants to apply for bail-out funds.
    Paco has said that his father recommends canceling elections once in a while and holding public hangings instead. I agree, except it wouldn’t get at the unelected crooks.

  2. JeffS says:

    Even worse, money can’t be used for toilet paper: it’s too stiff.
    Maybe we can burn bundles of cash for warmth?

  3. Yojimbo says:

    Retread:YRCW wants one billion for their pension costs.
    It’s not TARP money, it’s TRAP money.

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