Thread: Geithner Busted, Must Go - Told AIG To Hide Data

Geithner’s Fed Told AIG to Limit Swaps Disclosure (Update2)

By Hugh Son

Jan. 7 (Bloomberg) -- The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailoutâ€

WE Need a ZERO-TOLERENCE policy with any form of deceit from Politicians and Government Officials...

Geithner should have been arrested and charged already, and an investigation started.

Geithner’s Fed told AIG to hide “backdoor bailoutâ€

Tim Geithner "Protects America From Itself" By Forcing Elimination Of Material AIG Disclosure

Submitted by Tyler Durden on 01/07/2010 10:23 -0500

The story of the day once again focuses on the (lack of) actions of Treasury Secretary Tim Geithner, who according to recent revelations courtesy of Darrell Issa, did all he could to prevent material disclosure at AIG indicating the sad shape of the company in a filing released on Christmas Eve in 2008. The kicker can be seen on the crossed out section in the attached memorandum, where Geithner made it clear that he was willing to withhold materially public information vis-a-vis the bailout of AIG counterparties at 100 cents on the dollar, that only became public months later after intense political inquiry. The whole part discussing this in the December 24, 2008 SEC filing was eliminated under Geithner's instructions:

As a result of this transaction, the AIGFP counterparties received 100 percent of the par value of the Multi-Sector CDOs sold and the related CDS have been terminated. ML III has now acquired approximately $[62.1] billion in par amount of Multi-Sector CDOs and has aggregate liabilities resulting from its borrowings from the NY fed of approximately $[___] billion.

We aren't sure, SEC, but in our opinion this consitutes a pretty dramatic and forced lack of public disclosure for what was still a public company? And if that wasn't enough, the following guidance from Mr. Geithner should be sufficient for Judge Rakoff to immediately add Mr. Geithner to the list of people who will soon have their fate determined by a jury of their peers. Because while the SEC has proven beyond a reasonable doubt it does not care for proper disclosure of information any more, Mr. Geithner's admonition is simply staggering:

"Note that there should be no discussion or suggestion that AIG and the NY Fed are working to structure anything else at this point."

How ironic this blatant obfuscation would eventually turn out to be...

Yet one of the very relevant pieces of information is also contained in what was previously undisclosed:

On December 17, 2008, AIGFP entered into Amendment No. 1 to the Shortfall Agreement, dated November 25, 2008, with Maiden Lane III LLC in connection with ML III's purchase, on December 18, 2008 of $[ ] billion in par amount of additional multi-sector collateralized debt obligations, including $[ ] billion of Multi-Sector CDOs previously held by AIGFP as a result of exercise of 2a-7 Puts.

Ah, the mythical 2a-7 "puts." Let's recall a little blurb from AIG's Q2 2008 conference call, where Citadel's Dan Johnson' leads the following exchange:

Operator

Next question comes from Dan Johnson, Citadel Investments. Your line is open.

Daniel Johnson - Citadel Investments

Great, thank you very much. Would you folks mind giving us a little bit more of a tutorial around the issues referred to as 2a-7 Puts I believe its on page 87, of the Q, just basically trying to understand how many more I guess clients could put this business back to you that would cause you to generate more CDOs as we did in the second quarter?

Elias Habayeb - Chief Financial Officer AIG Financial Services

Dan it's Elias Habayeb. With respect to the 2a-7 at this point we have written all the 2a-7s we're committed to write. So that's the maximum amount of 2a-7 Puts that we have outstanding. The way those work is that that if there is a failed remarketing then we would have potential obligation to buy the CDO back and/or the underlying security back and on most of them we do have backstop liquidity lines in the event those bonds have been put back to us.

Daniel Johnson - Citadel Investments

And is it that we don't have any more exposure to this because there is been no failed remarketings or even that whole issue is basically there are no more 2a-7 that we would be on, potentially on a risk for?

Elias Habayeb - Chief Financial Officer AIG Financial Services

No, we do have outstanding 2a-7 Puts that continue to be outstanding and given the current state of the market we would be expecting to be buying back those underlying referenced obligations.

Daniel Johnson - Citadel Investments

And if sometime now what that means from capital consumption?

Elias Habayeb - Chief Financial Officer AIG Financial Services

Not at this point.

Our legal experts is looking evaluating whether or not this disclosure by then AIGFP CFO Elias Habayeb may constitute 10(b)-5 fraud. In either case, we will present a much broader analysis of 2a-7 puts due to their close connection to a topic near and dear to us and our readers: money markets, which all fall under the purview of Rule 2a-7. We are midly curious why AIGFP had material exposure to money market portfolio enhancing arrangements:

Rule 2a-7 currently characterizes certain features that enhance the credit or liquidity of portfolio securities as "puts" and "unconditional puts."<(10)> To clarify terminology used in rule 2a-7, the Commission proposed to replace these terms with a new term -- "guarantee" -- that would include a wide-range of arrangements designed to unconditionally support the credit of the issuer of a security...Since 1986, rule 2a-7 has permitted a fund to rely exclusively on the credit quality of the issuer of an "unconditional demand feature" in determining whether a security meets the rule's credit quality standards.<(13)> The 1996 Amendments also permitted a fund to exclude from the rule's issuer diversification standards a security subject to an unconditional demand feature provided by a person that does not control, or is not controlled by or under common control with, the issuer of the security ("non-controlled person").<(14)>

We are also very curious why 2a-7 puts were the proximal cause for billions in multi-sector CDO exercises. Lastly, we are extremely curious at how many other entities (aside from AIG) 2a-7 puts may play a comparable destructive and destabilizing influence at the nexus of structured finance and money markets.

In the meantime, here is the full letter, courtesy of Bloomberg, that should make any ambivalence in calls for Tim Geithner's immediate resignation moot.





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Cummings Demands Geithner Testify on AIG-Fed E-Mails (Update1)
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By Hugh Son

Jan. 8 (Bloomberg) -- Treasury Secretary Timothy Geithner should testify before Congress about efforts by the Federal Reserve Bank of New York to limit American International Group Inc.’s disclosures of payments to banks, a House Democrat said.

Representative Elijah Cummings of the Oversight and Government Reform Committee called for an investigation and hearing into what information was withheld from the public at the New York Fed’s request in 2008, when Geithner led the regulator. E-mails obtained by Congress include New York Fed requests that the bailed-out insurer withhold documents from public filings and delay disclosures about payments to banks to retire credit-default swaps, Bloomberg News reported yesterday.

“It is essential to know what knowledge or involvement now-Secretary of the Treasury Geithner had in the decisions made by New York Fed officials to exclude informationâ€

related: http://www.alipac.us/ftopict-184555-.html