How Paulson Used AIG To Throw Goldman A Big Old Bone

[Bolo Boffin]

I just finished a big long diary at Kos, cross-posted it at the Chimp, and thought I'd put it here, too. Here's the obligatory sample.

To help explain what's happened, I've prepared a PDF presentation of this, relying mostly on Kohn's testimony. You can access it at Google Documents here.

Let's go back a bit to when Bear Stearns went under. The Federal Reserve worked together with JPMorgan Chase to get JPMorgan a great deal. The Fed created a limited liability company in Delaware, named after the street the New York Fed bank is on, Maiden Lane. Maiden Lane, LLC, received $29 billion in loans from the Fed, and $1 billion in loans from JPMorgan. Maiden Lane used that money to buy up the toxic assets at the heart of Bear Stearns' woes. JPMorgan Chase then purchased Bear Stearns, free of the toxic assets with $30 billion sitting there all nice and tidy. And then JPMorgan bought Bear Stearns at $10 a share (although, remember, Hank Paulson wanted them to sell at $2.

Now this whole deal stunk mightily in the nostrils of Congress, and they saddled the Federal Reserve with some more strigent restrictions on how they deal out the money. And Maiden Lane, LLC, has actually lost $5 billion in value since that time. But that didn't stop them from pulling out the old playbook when AIG came staggering in through the door.

Well, what else was the Fed going to do?

I hope it makes sense, because I just finished it 30 minutes ago and my brain is a little fuzzy now.

[JDPriestly]

1. Thanks for your posts. I'm e-mailing your Daily Kos link to friends

and family. Great.

No wonder Paulson demanded absolute discretion with no oversight in his control of the TARP funds.

And, I wonder whether we would even know about this had Republicans taken a majority in Congres, or had McCain been elected.

I suspect that Paulson may have made himself immune from prosecution in the legislation that set up the TARP.

Paulson is too horrible, too greedy, too reprehensible, too disgusting, too despicable, too evil to be believed if your article is true. How could a man do what he did? How could he use the system to his personal advantage, to the advantage of his close friends as he did?

I feel like crying, and no, it's late on Friday night and I am tired, but I don't drink, so I'm not crying in my beer.

[dkf]

2. More from WSJ via TPM

Just out from the Journal (sub.req.) ...

The beneficiaries of the government's bailout of American International Group Inc. include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant.

Among those institutions are Goldman Sachs Group Inc. and Germany's Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008, according to a confidential document and people familiar with the matter.

http://www.talkingpointsmemo.com/archives/2009/03/now_w...

[DemReadingDU]

3. Thanks for putting this together

It helps to make a bit of sense to these fraud schemes, that were made so complex that they figured no one would be able to follow the money.

[Bolo Boffin]

4. You're welcome, and if you want more:

The AIG Bailout, a whitepaper just put out by a law professor from Northern Kentucky University. Much more detailed than I was. I'm about halfway through it and recommend it highly.

[dixiegrrrrl]

5. Why does this remind me of Enron?

[Bolo Boffin]

6. It is different.

Enron built the energy derivative market and then used their influence to control how energy was delivered and thus drive up the market on their derivatives.

Nobody thought these CDO's would fail to this extent. Nobody, certainly not AIG, was expecting the CDSs to do anything but pay them premiums.

Nobody tanked the market on purpose here (and I'm not counting the probable actions of naked short sellers who took down companies to collect on their shorts, and not even they wanted the market to crap out). Paulson would have been much, much happier to leave the market where it was and everybody stay high and dry. But when the market did tank, Paulson made sure that Goldman Sachs grabbed an even larger market share with as stable a position as they could.

With that $6 billion that Goldman Sachs got for their crapped-out CDOs, Goldman was able to get rid of assets dragging down their bottom line. This led to just over a $2 billion loss in the fourth quarter, which would have been much worse, and probably would have meant a year-end loss as well. This nice Christmas package meant that Goldman's losses were put onto AIG's books, Goldman's crappy assets were given to the taxpayer, and Paulson's blind trust stocks in his former company maintain a better stock price.

Enron was much worse (right now) in its malfeasance. If the CDOs continue to perform poorly and AIG goes under and the Maiden Lane LLCs recognize losses as well, then we will see.

[dixiegrrrrl]

7. So now we have Paulson't protogee, Geithner, at the helm of Treasure

and no one seems troubled by a Goldman Sachs mini-me shoving OUR money to continue the bailout.

Nice.

[Bolo Boffin]

8. Geithner oversaw the creation of the Maiden Lane LLC for AIG

They are named after the street the New York Fed Bank is on. That was Geithner's bank.

[dixiegrrrrl]

9. Arrghhhh.

How many will join me in a probably fruitless effort to e-mail the WH to demand that we get an
HONEST Treasury Sec?

oh....there may not be any candidates who meet that criteria...

[Bolo Boffin]

10. By the way, the Google Documents link doesn't work because

it's a PDF and Google Documents doesn't let you publish PDF documents, grrrrr.

So I posted the PDF at my completely-unrelated-to-this-topic website and you can grab it there.

http://ae911truth.info/pdf/AIG-Fed-Treasury.pdf (pdf)

[DemReadingDU]

12. Thanks again! n/t

[slipslidingaway]

11. Thanks and kick for later n/t