News events appear to be unfolding in a virtually symmetric fashion over the past 24 hours to indicate that the s**t may, indeed, be hitting the fan with regard to congressional TARP/bailout investigations regarding various, potential improprieties that may have occurred in the early Fall of 2008 between senior management at AIG and Goldman Sachs. Further exacerbating these realities, it is a matter of highly-publicized record that all of this played out under the direct supervision of some of the highest-ranking U.S. officials within the Treasury Department and Federal Reserve.
William Black, the former deputy director of the Federal Savings and Loan Insurance Corp during the U.S. Savings and Loan Crisis of the 1980's, is interviewed in this week's Barron's Magazine in what may be an even more provocative piece than his highly publicized Bill Moyers' interview last week. As many reading this may recall, Black's PBS interview was widely covered in the blogosphere last week, including a very spirited discussion between multiple DKos' diarists.
Here's the link to yesterday's Barron's piece, which I would highly recommend for anyone who's following this story:
The Lessons of the Savings-and-Loan Crisis. IMHO, I think it may be even more provocative than last week's Moyers' interview.
Barron's Magazine
The Lessons of the Savings-and-Loan Crisis
By Jack Willoughby
11 April 2009 (appeared in the April 13th edition of Barron's Magazine)
AN INTERVIEW WITH WILLIAM BLACK: The current bank scandal dwarfs the 1980s savings-and-loan crisis -- and could destroy the Obama presidency.
--SNIP--
Barron's: Just how serious is this credit crisis? What is at stake here for the American taxpayer?
Black: Mopping up the savings-and-loan crisis cost $150 billion; this current crisis will probably cost a multiple of that. The scale of fraud is immense. This whole bank scandal makes Teapot Dome [of the 1920s] look like some kid's doll set. Unless the current administration changes course pretty drastically, the scandal will destroy Barack Obama's presidency. The Bush administration was even worse. But they are out of town. This will destroy Obama's administration, both economically and in terms of integrity.
--SNIP--
[Barron's:] Summarize the problem as best you can for Barron's readers.
[Black:] With most of America's biggest banks insolvent, you have, in essence, a multitrillion dollar cover-up by publicly traded entities, which amounts to felony securities fraud on a massive scale.
These firms will ultimately have to be forced into receivership, the management and boards stripped of office, title, and compensation. First there needs to be a clearing of the air -- a Pecora-style fact-finding mission conducted without fear or favor. [Ferdinand Pecora was an assistant district attorney from New York who investigated Wall Street practices in the 1930s.] Then, we need to gear up to pursue criminal cases. Two years after the market collapsed, the Federal Bureau of Investigation has one-fourth of the resources that the agency used during the savings-and-loan crisis. And the current crisis is 10 times as large.
There need to be major task forces set up, like there were in the thrift crisis. Right now, things don't look good. We are using taxpayer money via AIG to secretly bail out European banks like Société Générale, Deutsche Bank, and UBS -- and even our own Goldman Sachs. To me, the single most obscene act of this scandal has been providing billions in taxpayer money via AIG to secretly bail out UBS in Switzerland, while we were simultaneously prosecuting the bank for tax fraud. The second most obscene: Goldman receiving almost $13 billion in AIG counterparty payments after advising Geithner, president of the New York Fed, and then-Treasury Secretary Henry Paulson, former Goldman Sachs honcho, on the AIG government takeover -- and also receiving government bailout loans.
Which brings us to a segue into a rather incredulous piece running over on Bloomberg tonight regarding Goldman Sachs' CFO, David Viniar: Goldman Sachs's Viniar `Mystified' by Interest in AIG.
Goldman Sachs's Viniar `Mystified' by Interest in AIG
By Christine Harper
April 14 (Bloomberg) -- David Viniar, Goldman Sachs Group Inc.'s chief financial officer, said he's "mystified" by the interest investors and government officials have shown in the bank's trading relationship with American International Group Inc.
"They're one of thousands and thousands and thousands of counterparties and the results of any trading with AIG are completely immaterial to what we do," Viniar said today in an interview. "I am mystified by this fascination with AIG."
Goldman Sachs, the most-profitable securities firm before converting to a bank last year, received more cash from AIG after the Federal Reserve rescued it last year than any other counterparty. The company has said it was insured against any losses from AIG and it didn't benefit from the government's rescue of the New York-based insurer. The Treasury Department's chief watchdog for the financial rescue program is investigating whether AIG paid more than necessary to banks.
In this story we also learn that Neil Barofsky, special inspector general for the government's Troubled Asset Relief Program, is leading an audit that commenced two weeks ago concerning "...whether there were attempts by AIG or the government to reduce the payments, according to an April 3 letter to Representative Elijah Cummings."
Representative Cummings is leading a group of 26 other congressmen in requesting a probe of these matters.
Lawmakers, frustrated with the cost of an AIG bailout that has expanded three times, have asked why about $50 billion was paid after the initial September rescue to banks that bought credit-default swaps from the firm. The audit will reveal who made "critical decisions" regarding the payments and provide an explanation for the actions, Barofsky said.
Tens of billions in taxpayer dollars flow into Goldman-Sachs in Q4 '08, and their Chief Financial Officer expects us to believe it's little more than a petty cash transaction?
Here's Yves Smith's take on this today over at Naked Capitalism:
...Viniar professes to by "mystified" at the interest in the Goldman's dealing with AIG and pretends AIG is a mere "counterparty". Let's see, the CEO of AIG was recently a board member of Goldman and still owns $3 million of Goldman stock. Goldman CEO Lloyd Blankfein was the only Wall Street representative asked to confer with Treasury Secretary Hank Paulson when the AIG crisis broke. AIG paid out al its counterparties in full on their exposures at each downgrade, a move that has since been questioned, and Goldman was far and away the biggest recipient of these payments. Viniar's defense is that the payments netted to zero, which is technically correct but more that an tad misleading (why should Goldman be made whole on a bad business decision? Since when is the taxpayer in the business of propping up Goldman, particularly since the firm paid large bonuses in 2008? Aand unlike AIG, where the bonuses are mere chicken feed, we are talking bonuses in easily in excess of $10 billion.
It looks like, between what's occurring over on the Hill and in conjunction with Black's highly-publicized interviews over the past few days, this story has a lot of legs and it's going to be around for quite awhile.
Regardless of your sentiments on these issues, it actually looks like the crap may be about to hit the fan. What do you think?