Questions on AIG, Goldman, and Deutsche

I want to raise a few points on AIG that don’t seem to be coming up elsewhere, but that need critical attention if we are to understand how this disaster came to pass and who else is implicated.

There have been a few reports that AIG stopped selling credit default swaps – the financial instruments that eventually destroyed the company – in late 2005 (the latest timeline comes from TPM). But asset-backed credit default swaps, which allow investors to short CDOs, were not even invented until early 2005, according to a Dow Jones article published on January 27, 2005. The article was titled “New Derivatives Could Boost Asset-Backed Secondary Market”:

Continue reading Questions on AIG, Goldman, and Deutsche

Americans’ Ire Grows

By a vote of 328-93, House passes historic bill to tax bonuses at Wall Street firms at rate of 90%; Kramer, Pandit, Boehner opposed. (NYT)

Axelrod says Americans don’t care about AIG.   (The Plum Line)

Geithner confirms that he asked Dodd to weaken anti-bonus provision. (CNN)

13 TARP recipients failed to pay $113 million in taxes, according to Lewis and IRS. (WaPo)

AIG sues US government for return of $306 million in taxes related to complex offshore dodges. (NYT)

President makes video appeal to Iran. (NYT)

March madness

In surprise move, Fed announces it will print $1 trillion in attempt to spur recovery. (NYT)

AIG CEO Liddy draws ire of House committee; says he will urge employees to pay back their bonuses. (NYT)

Florida Republican becomes first Washington lawmaker to call for Geithner‘s resignation. (Fox News)

TALF may expand to include older, low-rated securities in addition to new securities backed by car loans, mortgages; plan may involve FDIC and Fed. (Bloomberg)

US agency accuses Union Pacific of shipping drugs north from Mexico on numerous occasions. (WSJ)

Decider is writing a book about decisions. (AP)

Shadow banking in the spotlight

WSJ report: AIG bailout money may be going to hedge fund clients of Deutsche, Goldman, et al. (WSJ – subscription; Reuters)

Cuomo reports AIG bonuses included $33.6 million for 52 people who have already left company; political storm gathers strength. (NYT)

Baker and Kissinger travel to Russia for talks. (Bloomberg)

Citi‘s chief economist brings record of rosy forecasts to new post at Treasury. (WSJ)

Friedman: Americans need to “suck it up,” make sacrifices, and do everything they can to support Obama administration bank bailout plan. (NYT)

Dole on hold

Obama orders Geithner to block AIG bonuses as public outrage grows.

California Rep says TARP allowed Treasury to restrict compensation, but it chose not to. (TPM)

Research center directed funds to defense firms supporting Murtha. (WaPo)

CIA director picks former Republican Senator to guide him through intelligence committee investigation of Bush-era practices. (AP)

Verizon and AT&T lobby heavily to ensure broadband stimulus funds do not create competition in underserved areas. (WSJ)

Bonus backlash

AIG, under fire for $450 million in bonus payments, names biggest counterparties; Goldman tops list with $12.9 billion in payouts. (Bloomberg)

Wells Fargo‘s Kovacevich slams TARP, questions conditions. (Bloomberg)

Two dozen Treasury officials work from Detroit this week to figure out what to do about GM; bankruptcy getting more consideration. (NYT)

Clinton ends lucrative relationship with Burkle‘s Yucaipa. (WSJ)

IRS going after Stanford for $227 million in back taxes. (Reuters)

Table talk

Obama addresses Business Roundtable, signals willingness to negotiate on corporate income taxes and climate policy. (WSJ)

Perry Capital, DE Shaw, Cerberus, and other hedge funds are in non-stop negotiations (with who?) over TALF. (WSJ)

Buffett and GE lose AAA ratings. (FT)

Congresswoman had financial ties to bank she helped. (NYT)

Citigroup to name board nominees Grundhofer, O’Neill and Thompson. (WSJ)

Another Treasury nominee withdraws after issues arise in vetting process. (WaPo)

Sweeten that beat

Auto task force head knew little about auto industry two months ago; WaPo lauds his “chameleon-like talent to adapt.” (WaPo)

RNC chief says abortion is a choice. (DC Examiner)

Cuomo says Merrill lied to Congress about bonuses. (Reuters)

Gates back on top of Forbes billionaires list as purses shrink worldwide. (Forbes)

Obama picks FDA chief. (NYT)

Freeman blames influence of Israel lobby for forcing him to withdraw as pick for intelligence council. (WaPo)

The Protégés

In earlier posts, we’ve highlighted Robert Rubin‘s network of protégés, who have assumed nearly every economic policy post of consequence in the Obama White House. In spite of his abysmal record of institutional leadership – Citigroup entered penny stock territory on Friday and Harvard, where Rubin’s influence as a member of the Corporation is unrivaled, has all but run out of cash – Rubin’s “wise man” brand won over Obama, who moved most of the policy staff of the Rubin-founded Hamilton Project and top Rubin advisers from the Clinton era into key administration posts at Treasury, the OMB and the inner sanctum of the White House.

While Rubin’s role in re-shaping the Democratic Party has been chronicled (and discussed here), less attention has been paid to his adeptness in building a power base of hedge fund capitalists that parallels his political network. Many of the techniques that allowed Rubin to pack the White House with friends – such as deep mentorship of bright-eyed Ivy League recruits fresh out of school and subsequent placement of the recruits in strategic institutions – have served also to place Rubin at the center of an unrivaled web of capital.

Continue reading The Protégés

Mailing it in

Letter from CEO of failing bank announcing pre-writedown profits lifts markets worldwide. (NYT)

Madoff expected to plead guilty. (WSJ)

Boxes and bins tip off Seattle Post-Intelligencer staff that Hearst will shut it down soon. (Seattle P-I)

Sachs won’t be nominated for Treasury undersecretary for domestic finance, will remain as counselor; Brainard to be nominated for undersecretary of international affairs. (WSJ)

Builders Pulte Homes and KB Home can’t compete with foreclosure. (WSJ)