Starting in November 2008, the Federal Reserve Bank of New York under Timothy Geithner began urging American International Group, the huge insurer that the government had bailed out, to limit disclosure on payments made to banks at the height of the financial crisis, e-mail messages obtained by DealBook show.
The e-mail exchange between the bailed-out insurance giant and its regulator portray a strange reversal of roles, with A.I.G. staff arguing for the disclosure of certain details on payments for credit-default swaps to major banks, only to be discouraged by officials at, or representing, the Federal Reserve.
In a draft of one regulatory filing, A.I.G. stated that it had paid banks — including Goldman Sachs Group, Merrill Lynch, Société Générale and Deutsche Bank — the full value of C.D.O.’s, or collateralized debt obligations, that they had bought from the company.
In the response to that draft from the law firm Davis Polk and Wardwell, which represented the New York Fed, that crucial sentence was crossed out, and did not appear in the final version filed on Dec. 24, 2008.
In a March 12 e-mail message whose subject line is “Fw: counterparties” — importance: “high” — Kathleen Shannon, a senior vice president at A.I.G., writes:
“In order to make only the disclosure the Fed wants us to make, which we understand to be to not include the CUSIPs or Tranche names and give the amounts by counterparty on a total rather than a transaction by transaction basis, we need to have a reasonable basis for believing and arguing to the SEC that the information we are seeking to protect is not already publicly available.”
The messages were initially obtained by Representative Darrell Issa, Republican of California and ranking member of the House Oversight and Government Reform Committee, and first reported by Bloomberg News.
“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information to the S.E.C.,” Representative Issa said in an e-mailed statement.
Mr. Geithner, for his part, has defended the A.I.G. rescue, saying he had no choice but to pay full value
Who Is the ‘One Big Bidder’ For US Treasuries?
by ilene - January 14th, 2010 7:09 pm
Who Is the ‘One Big Bidder’ For US Treasuries?
Courtesy of Jesse’s Café Américain
There are a number of possibilities for the identity of the non-primary dealer domestic source of enormous purchases at the longer end of the yield curve in recent US Treasury auctions.
It could be a misclassification, a branch of a bank representing a foreign power. The problem with this theory is that [they] have a particular reluctance to buy the long end of the curve.
It also could be a legitimate domestic purchaser like a pension fund compelled to match duration of obligations, as is required by a little noted ruling of the US government a couple of years ago. They might be shifting out of other long term instruments with similar durations but more risk.
It might even be PIMCO. They certain have the money as the world’s biggest bond fund, and they do offer two Treasury ETF’s which although not directly related to the buys might be relevant on a cross trade. And they have recently been talking down Treasuries in favor of corporates, which doesn’t mean anything since traders often ‘talk their book.’ Still, unless its for the ETF it is hard to justify buying the long durations straight up in size. And while PIMCO says they do not like Treasuries, Benny and the Fed said they are buying long to keep interest rates lower. Why doubt them?
And of course, it might very well be the Federal Reserve Bank, or the Treasury via the Exchange Stabilization Fund.
It could also be the one big bidder who comes in with some regularity and smashes down the price of precious metals with the obvious intent of manipulating the market like clockwork just after the PM fix in London.
It might even be the big bidder who stands ready to buy the SP futures market at every turn, maintaining a floor on the market and a steady drift higher in prices with no change in fundamental underpinnings. Their hand in the market is apparent.
It is less probable, given the state of market manipulation by a few big proprietary trading desks riding another wave of cheap FEd money, but it might even be the party that entered the US equity market yesterday at 12:03 PM with a HUGE order (228,000…
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Time To Indict Geithner For Securities Fraud
by ilene - January 7th, 2010 2:06 pm
Time To Indict Geithner For Securities Fraud
Courtesy of Mish
The web of known parties guilty of fraud, coercion, or securities manipulation keeps getting bigger. Please consider N.Y. Fed Told A.I.G. Not to Disclose Swap Details.
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The REAL Battle Over America’s Banking System
by ilene - October 12th, 2009 2:44 pm
The REAL Battle Over America’s Banking System
Courtesy of Washington’s Blog
New York Versus the Rest of the Country
If you are happy with the banking system, and don’t think it needs to be reformed, then you probably work for one of the banks headquartered in New York.
Indeed, the banks outside of New York have acted much more conservatively, used more conservative capital ratios and less leverage and gotten less involved in credit derivatives and other speculative investments.
Buy a banker in the Midwest a drink, and he will probably rail against the giant New York banks for causing the financial crisis, costing the smaller, better run banks a lot of money and huge fees, and driving many smaller banks out of business.
And even within the Federal Reserve, what the New York Fed and Bernanke are saying is wholly different from what the heads of the regional Fed banks are saying. The Fed banks in Philadelphia and Kansas City and Dallas and elsewhere disagree with what the New York Fed and Fed’s Open Market Committee are doing. See this and this.
So the battle isn’t between bankers versus outsiders. It is between the giant New York money-centered banks and the rest of the country.
Reserve Requirements
Congresswoman Kaptur said last week:
We used to have capital ratios. We need to get back to them. Ten to one. For every dollar in your bank, you can lend ten. You know what J.P. Morgan did? A hundred to one. And then with derivatives, who knows how much?
Remember, Milton Friedman – the monetary economist worshipped as the guy with all of the answers in the latter part of the 20th century – advocated for 100% reserves.
Forget 100 to 1 or even 10 to 1. Friedman said the capital ratio should be 1 to 1, where banks only lend out the amount they actually have as deposits on hand.
Friedman has been deified as the economist to follow. But his views on reserve requirements have been completely ignored.
Money Out of Thin Air
Congresswoman Kaptur also said last week:
Banks have the power to create money. And decide how much that is worth.
What is Kaptur talking about?
Here Comes the Judge
Well, in First National Bank v. Daly (often referred to as…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.