TPMMuckraker
AIG: March 2009

Did Risk Team Look At Cassano's Deals? AIG Execs Offer Contradictory Claims

Zachary Roth | March 31, 2009, 6:42PM

We've told you that the Feds are looking at that December 2007 presentation that Joe Cassano gave for investors, to determine whether he, along with AIG CEO Martin Sullivan, knowingly gave an unduly rosy picture of AIGFP's exposure to sub-prime losses.

But a review of that presentation suggests that a few other AIG execs may also have shaded the truth, to put it mildly, on a different question.

PERMALINK | COMMENTS (0) | RECOMMEND RECOMMEND (4)
Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

AIG

Cassano: CDOs Are "Money Good Assets"

Zachary Roth | March 31, 2009, 5:23PM

Earlier today, we picked out some fascinating-in-hindsight excerpts from a May 2007 presentation given by Joe Cassano, then the head of AIG's financial products unit.

Since then, we've been looking at a similar presentation (via Nexis) for investors given by Cassano and other AIG execs in December of that year. By that time, the collapse of the subprime housing market could no longer be downplayed, and Cassano's appears more anxious than ever to reassure clearly nervous investors about AIG's exposure to losses on its credit default swaps.

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Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

James Thomas

How $2 Million In AIG FP Options Saved An IRS Attorney $145 Million In Taxes

Moe Tkacik | March 31, 2009, 4:54PM

As we are quickly coming to understand, AIG Financial Products was siphoning billions from tax coffers the old-fashioned way ages before the collateral calls began flooding in. Essentially, the same unregulated swaps and options contracts in which AIG FP "specialized" a.k.a. "did not understand" lay at the heart of many of the sham "partnerships" corporations and wealthy people use to obscure their capital gains. These partnerships are often referred to as "Son of Boss," we still do not know why, and the IRS has been shutting down them down for years, because it is usually abundantly clear that the rich people who bought said derivatives had no idea what the hell they were for beyond "generating artificial basis" or somesuch euphemism for "pretending they lost money to hide the fact that they actually raked it in." That said, most of the people with enough money to know about tax shelters are/have pretty decent lawyers, so sometimes they think up a pretty good excuse for having invested in a baffling combination of esoteric "swaps" and such. Last month, for instance, a Los Angeles judge struck down a Son of Boss partnership that had spared a pair of local real estate developers an accumulated tax bill of $145 million by investing $2 million in some obscure AIG credit default swaps. But one of the developers, former Sacramento Kings owner and former IRS attorney James Thomas, had a pretty genius alibi.

In 2001 they sought out an abusive tax shelter that has become known as "Son of BOSS." In the Son of BOSS scheme used by Thomas and Fox, they purchased an exotic form of a financial option that they claim would have protected them against a catastrophic decline in real estate values, which they feared in the immediate aftermath of the terrorist attacks of September 11.

A catastrophic decline in real estate values you say? How very "black swan"!*
The judge wasn't hearing it though.

PERMALINK | COMMENTS (2) | RECOMMEND RECOMMEND (2)
Topics: AIG, James Thomas

AIG

Joe Cassano, In His Own Words

Zachary Roth | March 31, 2009, 2:41PM

How did Joe Cassano -- the man who brought down AIG, and with it, perhaps the entire global financial system, with those disastrous credit default swaps -- talk about what his unit, AIG Financial Products, was up to?

We've been looking through a presentation that Cassano gave to a group of entrepreneurs and analysts in May 2007 -- just as the extent of the collapse of the sub-prime market was becoming clear. In his speech (accessed by Nexis), Cassano detailed AIGFP's various business lines, and, of course, painted a rosy picture of the unit's future earning potential.

The entire performance has an almost poignant quality, looked at in light of the tumult that would soon befall AIGFP. (Less than nine months later, it would announce Cassano's resignation after an $11.1 billion writedown of credit-default swaps.) But we've pulled out a few of Cassano's comments that day that are particularly noteworthy...

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Topics: AIG, Bailout, Financial Crisis, Joseph Cassano, Wall Street

AIG

Traders "Unwinding" AIG: "We Have Never Done As Big Or As Profitable Trades -- Ever"

Moe Tkacik | March 30, 2009, 5:28PM

What's it like, the laborious job of "unwinding" hundreds of thousands of mind-numbingly complex derivatives contracts amassed over the years by the inimitable AIG Financial Products? Ask the Wall Street investment banks to whom they've been farming out the work -- it's so painful and time-consuming it feels like the old days, especially the "massively profitable" part. An anonymous derivatives trader tells the blog Zero Hedge:

During Jan/Feb AIG would call up and just ask for complete unwind prices from the credit desk in the relevant jurisdiction. These were not single deal unwinds as are typically more price transparent - these were whole portfolio unwinds.The size of these unwinds were enormous, the quotes I have heard were "we have never done as big or as profitable trades - ever".

Sort of undermines the notion that AIGFP employees needed retention bonuses so that the Great Unwinding might be an "orderly" and modest process conducted by cool heads and not, god forbid, subject to raids from ex-AIGers who'd left to trade against the company's book. Nah, they pretty much "threw in the towel," as Zero Hedge points out, and gave the "winners" on all those bad trades a chance to really earn their bonuses again.

But is the big payout the real shadowy force behind the recent runup in stock prices? Today's stock traders seem worried. Because even if reports that AIG FP has only unwound a quarter of its total trades are true, most investors agree the Treasury is too cash-strapped to do this forever.

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Topics: AIG, Goldman Sachs

AIG

AIG's Stiffed Business Partners Begin to Speak Out

Brian Beutler | March 30, 2009, 2:04PM

Last week we reported that the House Financial Services committee's ranking member, Rep. Spencer Bachus (R-AL) is asking chairman Barney Frank and the Treasury department to look into the cases of smaller U.S. banks that are allegedly being stiffed on their loans to an AIG subsidiary while its major CDS counterparties are paid off in full.

In a story that may shed some light on his complaint, the Wall Street Journal reports today on the cases of two businesses who partnered with AIG on real estate development projects and are now fighting to get AIG to contribute its share of cash to pay project expenses:

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Topics: AIG, Bailout

AIG

Wife Of London-Based AIG Exec Claims He's Aiding Federal Probes Of Cassano

Zachary Roth | March 30, 2009, 12:01PM

Following in the footsteps of martyr to truth Jake DeSantis, another AIG Financial Products exec just can't help himself from going public about how unfairly he's being treated by just about everyone from his employer, to Congress, to Andrew Cuomo. But a blog post by his wife may be even more interesting....

The blog Clusterstock has posted a long rant from London-based Paul Harriman, which originally appeared on the site Live Journal. The predictable gist: Harriman complains that without his bonus, he won't be able to afford his $10,000 a month apartment and his kids' school fees.

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Topics: AIG, FBI, Financial Crisis, Joseph Cassano, Wall Street

AIG

Taibbi To AIG-er DeSantis: "Be A Man And Deal With It"

Zachary Roth | March 27, 2009, 4:41PM

Some Friday afternoon catharsis ...

In one of those perfect matches of writer and subject, Matt Taibbi responds to that op-ed writing AIG-er Jake DeSantis -- and says all the things you'd probably forget to say if you ever ran into deSantis, but then would think of in the shower when it was too late.

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Topics: AIG, Bailout, Financial Crisis, Wall Street

Wall Street

The TARP Email Trail: AIG And Citi Execs Clueless And Arrogant, Kashkari "Tough To Watch"

Moe Tkacik | March 27, 2009, 3:48PM

Following a few months of courtroom wrangling, Fox Business News has obtained a much-redacted 10,096 pages of Treasury Department documents on the bank bailout. Scrubbed of "proprietary" information and what would presumably be their most explosive revelations, the communiques exchanged between the Bush Administration and executives at Citigroup and AIG read something like "Dumb and Dumber and I Know It Seems Impossible But Even Dumber Than That." The first role would be played by the TARP overseer and cheerleader for the Italian automobile industry Neel Kashkari, whose aides nervously emailed one another as they watched him testify before the House Financial Services Committee on what exactly he was doing with their money.

Nason: How's it going?

Zuccarelli: Bad. Serious questions, too, not "chump" type questions. They're going to start to break Neel down soon, I'm getting worried he's going to start snapping.

Nason: This AIG stuff is tough to watch.

Zuccarelli: They killed him on exec comp. He didn't know answer.

But we wouldn't know how to answer, either, if we'd written the law that appropriated the trillion or so taxpayer dollars that paid bonuses to the clueless executives at AIG and Citigroup:

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Topics: AIG, Citigroup, Wall Street, elijah cummings, neel kashkari

AIG

How Did AIGFP Shut Out Risk Officers? Congressman Wants To Know

Zachary Roth | March 27, 2009, 3:44PM

Earlier today we flagged that exchange between AIG CEO Ed Liddy and Rep. Gary Peters (D-MI), during Liddy's testimony last week.

Peters asked Liddy about AIG's how AIG's internal risk management procedures could have failed so badly. In response, Liddy said that those procedures "generally were not allowed to go up into the financial-products business" that caused the firm's collapse.

When Peters pressed Liddy on how that could be, the CEO replied:

[Y]ou need to get the people who ran FP -- Mr. Cassano -- and the people who ran AIG before my arrival, and ask them that question.

Peters clearly agrees with us that this is worth some follow up: a spokesman from his office tells TPMmuckraker that they've contacted AIG for a fuller explanation of just how the financial products unit was able to operate in such secrecy.

So you can add Peters' office to the growing list of bodies that's probing, formally or informally, various related aspects of the AIG fiasco.

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Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

AIG

Did Cassano Shut Out AIG Risk Officers?

Zachary Roth | March 27, 2009, 1:38PM

Did AIG's entire risk management team fall down on the job? Or, like the firm's auditors, were they prevented from doing it?

Yesterday we told you about Bob Lewis, AIG's chief risk officer, who still has his job despite a rather obvious failure to ensure that the firm wasn't taking on an unmanageable level of risk.

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Topics: AIG, Bailout, Financial Crisis, Joseph Cassano, Wall Street

Bailout

Lawmakers Call On Bailout IG To Probe AIG Counter-Party Payments

Zachary Roth | March 27, 2009, 11:45AM

The effort to get to the bottom of those payments by AIG to its counter-parties is heating up.

Earlier this week, we noted that several different efforts to investigate that question. Now, reports the New York Times, Rep. Elijah Cummings (D-MD) has sent a letter, signed by 26 other House Democrats, to Neal Barofsky, the inspector general for the TARP funds, calling on him to probe the matter.

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Topics: AIG, Bailout, Financial Crisis, Treasury Department, Wall Street

AIG

Looks Like AIG's Chief Risk Officer Still Has A Job!

Zachary Roth | March 26, 2009, 6:10PM

It seems safe to say that if your job at AIG was to ensure that the company was managing its credit risks effectively, you failed.

Which is why it's interesting that the man who has had that post since at least 2000, Bob Lewis, still appears to have the job today.

An official list of AIG execs obtained by TPMmuckraker and created after CEO Ed Liddy took over last September shows Lewis as the firm's Chief Risk Officer and an executive vice president.

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Topics: AIG, Financial Crisis, Wall Street

Andrew Cuomo

Cuomo Wants Info On AIG's Credit Default Swaps

Zachary Roth | March 26, 2009, 4:52PM

Is New York Attorney General Andrew Cuomo's probe of those AIG bonuses expanding?

Maybe kind of.

The Wall Street Journal reports (sub. req.) that Cuomo plans to subpoena AIG for documents about the credit default swaps that brought the company to its knees.

AIG has claimed that it paid those lavish bonuses because it needed to keep employees of its Financial Products unit in place, so that they could do the difficult work of unwinding the disastrous deals. But in some cases, AIGFP paid back its counter-parties in full, raising questions about how complex the job really was -- and therefore, whether AIG needed to spend so much money to get their employees to stick around and do it.

Bonuses aside, the subpoena request suggests that Cuomo's probe could end up shedding important light on the underlying question of how AIGFP managed to take on so much risk through its credit default swaps that it toppled the company and put the entire financial system at risk.

Cuomo has already obtained from AIG the list of employees who got bonuses, and has said his office is considering security concerns before deciding whether to release it.

Other investigators are also looking into the bonuses, and the swaps deals. A staffer for the House Oversight committee told TPMmuckraker earlier this week that the committee planned to soon probe the question of who at AIG knew about how the swaps were being conducted.

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Topics: AIG, Andrew Cuomo, Financial Crisis, House Oversight, Wall Street

AIG

Why Can't AIG Get Rid Of Its Non-Toxic Assets?

Moe Tkacik | March 26, 2009, 4:06PM

Don't say AIG never put anything in your wallets, taxpayers! The company just sold its Taiwanese securities unit to the Bank of East Asia, for something between ten and twenty million dollars, or between five and nine retention bonuses. Which brings us to the latest twist in the ongoing mystery of America's great black-scholes hole: why is it taking so long to sell off the pieces? Surely the rest of the company's units couldn't be as toxic as the one that had Joe Cassano in charge! Or could they? On Tuesday Ben Bernanke let it slip to Congress that had AIG Financial Products been allowed to bust, its bread-and-butter insurance businesses might have folded as well -- so buried were their balance sheets in lethal "products."

Cue the red tape gestapo!! But isn't insurance regulated? Says Institution Risk Analytics:

Speaking of poor fundamentals, when AIG released information about the amounts and recipients of roughly $100 billion of its government loans from September to December 2008, almost utterly unreported was the fact that the staid, boring, heavily regulated insurance businesses managed to run up losses on securities lending requiring $44 billion of government support.

By contrast, the free marketeers at Institutional Risk Analytics point out, the "credit derivatives widely blamed for bringing down the world's financial system" were only consuming $27 billion. "Could it be that the big story at AIG is the unsoundness of the insurer, not the credit default swaps?" they ask. "Why the misdirected coverage?"

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Topics: AIG, Joseph Cassano

AIG

AIG Execs: We're Being Extorted!

Moe Tkacik | March 26, 2009, 12:31PM

No really, AIG Financial Products chief Gerry Pasciucco told a meeting of his European based derivatives gurus that the money vortex CEO Ed Liddy's request that they return their bonuses amounted to "blackmail." That's according to a London-based recipient of one of the bonuses -- London, you'll recall, is where the inimitable Joseph Cassano was employed -- who furnished the news agency with emails showing that AIG compliance officer David Haig had actually asked the country's Serious Organised Crime Agency to probe whether the (voluntary) requests could be legally considered extortion. Well what a fascinating use of government-bankrolled hours for the taxpayers of both countries!! But wait, don't shoot yourself, hear the anonymous employee out...

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Topics: AIG, Joseph Cassano, Wall Street

AIG

AIG Financial Products Chief Cheers As His Unit Loses Executives -- And Another $234 Billion?

Moe Tkacik | March 26, 2009, 11:24AM

That AIG Financial Products trader who resigned -- and stridently refused to return his million dollar bonus -- in yesterday's New York Times, apparently gave some notice. Yesterday, in latest installment of the Wall Street Ends Its Contrite Silence trend we highlighted yesterday, the Wall Street Journal reports, he showed up for work to a standing ovation! And conspicuously not sitting out the ovation was AIG FP president Gerry Pasciucco. Wow it is just like that scene in Dead Poet's Society!

A less inspiring trend DeSantis' resignation highlights is this: AIG is hemorrhaging executives as fast as it is money, and if the company is to be believed the losses will cost the system hundreds of billions more dollars. In fact, the loss of two Paris-based executives, James Shephard and Mauro Gabriele, could trigger nearly a quarter trillion dollars in defaults. Say that again?

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Topics: AIG

AIG

Is Probe Of AIG Bailout, Payments To Counter-Parties, In The Offing?

Zachary Roth | March 25, 2009, 2:48PM

Is the momentum building for an investigation into the real beneficiaries of AIG's latest bailout?

Earlier this month, the Treasury Department announced it was rescuing the fallen insurance giant yet again, bringing the total amount of taxpayer assistance given to the firm since last September to $170 billion. It soon became clear that much of that money -- over $49 billion, to be exact -- was going right through AIG to the counter-parties on its credit default swaps, both American banks like Goldman Sachs, and foreign ones like DeutscheBank.

Defenders of the move have argued that not giving the counter-parties this indirect bailout would have risked a wider financial collapse.

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Topics: AIG, Bailout, Federal Reserve, Financial Crisis, Goldman Sachs, Treasury Department

AIG

Wall Street To Washington: "I Want My Campaign Contributions Back"

Moe Tkacik | March 25, 2009, 1:33PM

Yes, that was an actual sentence spoken -- or more specifically "groused" -- by an anonymous Wall Street executive concerned for his "personal safety," though not enough to be dissuaded from attending or talking to a reporter at yesterday's Wall Street Journal 'Future Of Finance' Conference, where the future sounded like it had gone back in time and purchased a hundred billion dollars worth of extra credit protection, which is to say suspiciously like Finance Past.

It looks like Wall Street, no doubt emboldened by the recent 20% runup in the S&P 500, the fourteen bucks in matching leverage the government is offering them for every dollar they invest in toxic/"legacy" assets and the prospect of better-than-awful numbers at Citigroup and Credit Suisse, got its hubris back along with its proverbial groove. In the six months since it nearly triggered global financial Armageddon, the investment banking community has seemed, if not quite chastened, at least somewhat subdued amidst the nation's ever-heightening awareness that their industry engineered the ever-intensifying economic morass. But not anymore!

This morning the New York Times ran as an op-ed the resignation letter of one Jake DeSantis, a securities trader and executive vice president at AIG's infamous financial products division and recipient of one of those million dollar bonuses ($742,006.40 after taxes.) That's right: he's keeping it. And don't ask him if he feels guilty about it because he will tell you: NO.

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Topics: AIG, Federal Reserve, Goldman Sachs, Timothy Geithner, Treasury Department

AIG

Source: Cassano In Congressional Investigators' Sights

Zachary Roth | March 24, 2009, 4:47PM

Another set of investigators is hot on the trail of Joseph Cassano, the man who walked away with a multi-million dollar golden parachute after spearheading the credit default swaps that brought down AIG.

Investigators for the House Oversight committee intend to interview Cassano about his role in the firm's collapse, and have already contacted his lawyer, a committee staffer told TPMmuckraker.

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Topics: AIG, Financial Crisis, House Oversight, Joseph Cassano, Wall Street

AIG

Longtime AIG Chief Greenberg To Testify On Firm's Collapse

Zachary Roth | March 24, 2009, 3:42PM

Former AIG CEO Maurice "Hank" Greenberg will appear next week before a congressional committee probing the firm's central role in causing the financial crisis, according to a committee staffer.

Greenberg -- who had run AIG since 1968 before stepping down in 2005 -- will be questioned by members of the House Oversight committee about the credit default swaps that led to his former firm's collapse last year. "No one knows AIG better than Greenberg," said the staffer. "He ran every minute detail of that company -- nothing took place without his knowledge."

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Topics: AIG, Bailout, Financial Crisis, Henry Waxman, House Oversight, Wall Street

Goldman Sachs

Government Sachs: TARP Funds Just The Tip Of The Iceberg For Goldman

Zachary Roth | March 24, 2009, 12:39PM

Goldman Sachs is planning to give back the TARP money it got last fall, "ideally in the next month," reports the New York Times.

The firm is saying it just can't handle the level of government oversight that comes along with the funds, especially amid the outrage over AIG bonuses. "It's just impossible to run our business in this environment," one exec told the Times' Andrew Ross Sorkin.

Sounds great.

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Topics: AIG, Bailout, Federal Reserve, Financial Crisis, Goldman Sachs, Treasury Department, Wall Street

AIG

Cuomo: Most AIG Bonus Money Went To Foreigners

Zachary Roth | March 23, 2009, 6:39PM

Nine of the top ten AIG bonus recipients have given back the payouts, according to Andrew Cuomo, the New York Attorney General who is probing the issue.

Cuomo also said, on a conference call this afternoon, that 15 of the top 20 bonus recipients from the firm's financial products unit, which is at the center of the bonus furor after causing the company's collapse last year, have returned their awards.

But he added something else that may wind up being less exculpatory for AIG: 47 percent of the $165 million in retention bonuses was awarded to Americans, he said, declaring that he expected to get that money back. That means 53 percent -- around $87 million -- of taxpayer money went to foreigners, and is unlikely to be recouped.

Cuomo said he didn't think it would be in the public interest to release the names of those who gave back the bonuses, and that his office is still assessing the risks of releasing any names at all.

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Topics: AIG, Andrew Cuomo, Financial Crisis, Wall Street

AIG

Connecticut AG Subpoenas AIGers For Testimony On Bonuses

Zachary Roth | March 20, 2009, 5:58PM

This could be good.

Not content with letting New York Attorney General Andrew Cuomo hog the spotlight, his Connecticut counterpart, Richard Blumenthal, has subpoenaed several AIG employees, incluing CEO Ed Liddy, to testify about those bonuses, totaling $165 million, at a legislative hearing March 26th.

Said Blumenthal in a statement:

Now living off supersized taxpayer-paid bonuses, these AIG employees have a moral and legal obligation to appear at this legislative hearing and disclose details about corporate compensation to employees," said Blumenthal in a written statement.

AIG Financial Products, the unit that caused the company's collapse and got those bonuses, is absed in Wilton, Connecticut.

These hearings should be more good theater, but it's worth asking: given that Liddy has already testified, and Cuomo will likely soon release the names of the bonus recipients, what more pertinent information will AIG employees be able to provide? Guess we'll find out...

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Topics: AIG, Andrew Cuomo, Financial Crisis, Wall Street

AIG

Cuomo Has Names Of AIG And Merrill Bonus Recipients

Zachary Roth | March 20, 2009, 4:13PM

It looks like Andrew Cuomo holds all the cards. He now has in hand the names of the recipients of both of the corporate payouts that have provoked all that populist rage lately.

A judge earlier this week ruled that Bank of America had to turn over the list of names of the 200 highest-paid Merrill Lynch bonus recipients, that the New York Attorney General has been seeking. According to reports, B of A, which now owns Merrill, did so yesterday.

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Topics: AIG, Andrew Cuomo, Bank of America, Financial Crisis, Merrill Lynch, Wall Street

AIG

Cassano Lawyer Repped WorldCom

Zachary Roth | March 20, 2009, 3:03PM

Earlier today, we told you that in the view of one expert, some of the allegations about former AIGFP chief Joe Cassano echo those in the WorldCom case from earlier this decade, which ultimately sent former CEO Bernie Ebbers to jail -- in particular the charge, made in at least one investor lawsuit, that Cassano obstructed the work of his firm's auditors.

And it turns out that there's another parallel with the WorldCom case. Cassano's lawyer, white-collar crime expert Joseph Warin of Gibson, Dunn, and Crutcher, was hired by WorldCom in 2003 to conduct an internal investigation into allegations that it re-routed long-distance phone calls in order to get out of paying billions of dollars in fees owed to other companies.

That's a different charge from the one that felled Ebbers. Still, could it be another small sign that this whole AIGFP saga is going to take its place in the pantheon of high-profile white-collar fraud cases?

And while we're on the subject of Warin, here's another fun fact. In 2004, Washingtonian magazine compiled a list titled "Who to Call When You're Under Investigation." Guess who was on there.

Sounds like Cassano is a Washingtonian reader.

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Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

AIG

Expert: Allegation That Cassano Blocked Auditor Is "Analogy To Obstructing Justice"

Zachary Roth | March 20, 2009, 1:11PM

We've told you about allegations from AIGFP's internal auditor, Joseph St. Denis, that the unit's leader, Joseph Cassano deliberately thwarted St. Denis' effort to do his job. And according to one expert we just spoke to, those allegations, if borne out, could put Cassano in serious jeopardy.

To review: In a letter to congressional investigators, St. Denis claimed that Cassano repeatedly prevented him from participating in the process in which AIGFP valued its assets -- a crucial piece of the accounting puzzle St. Denis was hired to put together. According to St. Denis, Cassano told him in September 2007 (a time when evidence of the assets' exposure to the subprime mortgage mess was mounting): "I have deliberately excluded you from the value of the [credit default swaps] because I was concerned you would pollute the process." In addition, around the same time, Cassano berated St. Denis for pointing out accounting irregularities in a target company's hedge accounts. Cassano created a new organizational structure for AIGFP which isolated him from AIG proper, significantly reducing his influence. St. Denis resigned soon after, citing Cassano's moves as the reason.

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Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

AIG

The Rise And Fall Of AIG's Financial Products Unit

Zachary Roth and Ben Buchwalter | March 20, 2009, 9:36AM

As we delve into the back-story behind the collapse of AIG, we thought it might be useful to lay out some key factual information about the firm's Financial Products unit, known as AIGFP, whose disastrous credit default swaps brought the company to its knees. How and when did AIG Financial Products get started? Who ran it, and from where? How did it get into credit default swaps, and what exactly are they, anyway? And how did this group of derivatives traders eventually wind up bringing down one of the most admired financial firms in the world?

So here's a rundown of some of the key developments in AIGFP's tumultuous history -- many gleaned from a superb three-part December 2008 Washington Post series on the unit (parts 1, 2, and 3):

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Topics: AIG, Bailout, Federal Reserve, Financial Crisis, Joseph Cassano, Wall Street

AIG

Cassano's Lawyer Is White Collar Crime Expert

Zachary Roth | March 19, 2009, 6:31PM

We've told you that Joe Cassano, who ran the AIG unit that made those credit default swaps, has hired a lawyer in connection with an ongoing Justice Department investigation.

And from the looks of the lawyer in question, Cassano is taking the charges very seriously indeed.

F. Joseph Warin, who works out of the Washington, DC office of the prestigious Los Angeles-based law firm Gibson, Dunn, & Crutcher, is, according to his bio, a former assistant US Attorney who specializes, perhaps unsurprisingly, in white collar crime and securities enforcement, and chairs the firm's White Collar Defense and Investigations Practice Group*.

Investigators are reported to be examining, in particular, whether Cassano and other AIG execs committed fraud by intentionally making misleading public statements about the firm's level of exposure to losses on its credit default swaps.

Warin didn't return a call from TPMmuckraker. But his assistant asked, unprompted, whether we were calling about Cassano.

Sounds like he's getting a lot of calls.

*This sentence has been corrected from an earlier version, which incorrectly reported that Gibson, Dunn is based in Washington, DC.

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Topics: AIG, Financial Crisis, Joseph Cassano, Justice Department, Wall Street

AIG

AIG Gives Names Of Bonus Recipients To Cuomo

Zachary Roth | March 19, 2009, 4:50PM

New York Attorney General Andrew Cuomo has received the names of the AIGers who got bonuses, and is weighing whether to release those names, his office has announced.

Cuomo had subpoenaed AIG for the names. Yesterday, the firm's CEO, Ed Liddy, declined to tell Congress he would cooperate with the subpoena, citing concerns about the safety of employees whose names were released.

Cuomo's full statement follows after the jump....

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Topics: AIG, Andrew Cuomo, Financial Crisis, Wall Street

AIG

Is Cassano Vulnerable To Fraud Charges That Felled Ebbers, Lay?

Zachary Roth | March 19, 2009, 2:51PM

Yesterday we laid out some preliminary evidence that AIG execs -- led by Joseph Cassano, who ran the firm's financial products unit -- may have committed criminal fraud in connection with those credit default swaps that brought the company down. And as we noted, federal investigators have been probing that very question.

A former federal fraud prosecutor confirmed to TPMmuckraker today that criminal fraud occurs when someone willfully misstates the facts about a company's position in any public statement -- such as an SEC filing, an earnings release, a presentation to investors, or even a press conferences -- and when there's a clear financial motive for doing so. The former prosecutor further confirmed that the facts of the AIG case as currently known -- in which Cassano and other AIG execs made what turned out to be incorrect public statements, which had the effect of concealing from investors the company's true exposure to losses on its swaps -- could potentially lead to such charges, but declined to go further without access to the details of the investigation.

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Topics: AIG, Financial Crisis, Joseph Cassano, Justice Department, Wall Street

Bailout

Bailout IG: "Who Knew What, When, And Why" On AIG Bonuses?

Zachary Roth | March 19, 2009, 1:06PM

Neil Barofsky, the special inspector general for the bailout, told Congress this morning that he'll probe the AIG bonuses -- including what role the Treasury Department played.

In words that may send a chill up Tim Geithner's spine with their invocation of Watergate, Barofsky, asked specifically by Republicans about the Treasury Secretary's role, said his probe would seek to find out "who knew what, when and why," in regard to the bonuses.

He continued:

Preliminary information we have seen indicates that the TARP contract between AIG and Treasury that was entered into back in November specifically contemplated the payment of bonuses and retention payments to AIG employees, including AIG's senior partners.

Barfosky added that he'd work with Justice Department, as well as the office of New York Attorney General Andrew Cuomo, who is probing the bonuses, to look at ways that the money can be returned to taxpayers.

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Topics: AIG, Bailout, Financial Crisis, Tim Geithner, Treasury Department, Wall Street

AIG

Cuomo: I'll Release Names Of AIG Bonus Recipients

Zachary Roth | March 19, 2009, 10:23AM

It hasn't gotten much attention, but New York Attorney General Andrew Cuomo said yesterday that he'd publicly release the names of the AIG bonus recipients, reports the New York Times.

Cuomo is investigating the payouts, as well as those made by Merrill Lynch and several other Wall Street firms. He issued a subpoena for the AIG names earlier this week.

His declaration followed the news that a court has ruled that Bank of America, which owns Merrill, must give him the names of the Merrill recipients. That ruling suggests that Cuomo will likely also get the AIG names. AIG lawyers had referred frequently to the Merrill case this week, and had delayed giving Cuomo the names pending the outcome of that case.

Yesterday, AIG CEO Edward Liddy declined to assure Congress he would cooperate fully with Cuomo's probe, citing concern for the physical safety of employees who received bonuses, were their names to be made public.

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Topics: AIG, Andrew Cuomo, Bank of America, Financial Crisis, Merrill Lynch, Wall Street

AIG

Who Asked Senator Dodd To Defang Anti-Bonus Provision?

Justin Elliott | March 18, 2009, 7:23PM

Who in the Obama Administration pushed to weaken a key anti-bonus provision in the stimulus bill last month? Sen. Chris Dodd, who wrote the provision -- and ultimately agreed to defang it -- isn't saying.

Ever since the AIG story broke, we've heard about the company's binding contracts as a key barrier to the government blocking bonuses to AIG executives.

It turns out that a provision in the stimulus, which passed in February, prohibits the government from blocking any bonuses that were part of contracts agreed to before February 11. That provision has taken on new relevance this week because it would complicate any government effort to claw back the AIG bonuses.

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Topics: AIG, Chris Dodd

AIG

Did Cassano And AIG Commit Fraud?

Zachary Roth | March 18, 2009, 5:57PM

AIG chief Edward Liddy endured his anticipated ritual flaying today by Capitol Hill lawmakers angered by those bonuses. But, as Josh has been writing about over at TPM, there's mounting evidence that some current and former AIG execs could have much more to fear than angry questions from Gary Ackerman when all is said and done.

Since at least June 2008, the Justice Department has been investigating (sub. req.) whether AIG intentionally -- and criminally -- overstated the value of its credit default swaps, hiding its dire position from investors and government regulators. Joseph Cassano -- who during the period at issue ran AIG's financial products unit, AIGFP, which made those disastrous swaps, out of a London office -- has reportedly hired a lawyer in connection with that investigation. Britain's Serious Fraud Office is said to be on the case as well.

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Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

AIG

Liddy: We'll Try To Cooperate With Probe -- But No Promises!

Zachary Roth | March 18, 2009, 4:15PM

Here, despite the efforts of Rep. Gary Ackerman, AIG CEO Liddy resists saying that he'll cooperate fully with Andrew Cuomo's investigation into those bonuses...

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Topics: AIG, Financial Crisis, Wall Street

AIG

AIG Hate Mail

Zachary Roth | March 18, 2009, 3:27PM

Arguing that disclosing the names of the AIGers who got bonuses could put them at physical risk, CEO Ed Liddy reads some of the angrier mail he's been getting lately:

Barney Frank appears unimpressed.

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Topics: AIG, Financial Crisis, Wall Street

AIG

Cassano's Million Dollar A Month Contract

Zachary Roth | March 18, 2009, 12:41PM

Here's that agreement that Joseph Cassano signed with AIG in March 2008, which gave him a $1 million a month consulting contract, after he had run the company into the ground.

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Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

AIG

Congress Releases AIG Bonus Contracts

Zachary Roth | March 18, 2009, 12:31PM

Barney Frank's House Financial Services committee has released the contract that governed those AIG bonuses. We've posted it here.

No names are given, but you can see the terms of the payments.

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Topics: AIG, Barney Frank, Financial Crisis, Wall Street

AIG

2003 Lawsuit Suggests AIG Wasn't Always So Careful To Honor Bonus Deals

Zachary Roth | March 17, 2009, 6:35PM

Since the AIG bonus brouhaha broke over the weekend, the hobbled insurance giant has essentially been claiming it had to make the payments because not doing so could have created a "defalt event," potentially exposing taxpayers to losses of hundreds of billions down the road.

That may or may not be a legitimate argument (most experts seem to be saying "not"). But it's worth noting that just a few short years ago, there was a case in which AIG wasn't quite so fastidious about honoring bonus agreements with its employees.

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Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

AIG

Investor Lawsuit: Cassano Hid AIG Losses

Zachary Roth | March 17, 2009, 4:44PM

More from the Joseph Cassano files, which are proving to be very interesting indeed.

According to an SEC filing made this month by AIG, a company shareholder in January filed a lawsuit charging Cassano with concealing his financial product unit's massive losses. Cassano stepped down as the head of the unit -- which made the credit default swaps that drove AIG into the ground -- last year.

Here's the full relevant portion of the filing:

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Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

AIG

Under Cassano, Troubled AIG Unit Was Charged With Major Securities Law Violation

Zachary Roth | March 17, 2009, 4:21PM

We've been doing a little digging into Joseph Cassano, who until last year ran AIG's financial products unit, known as AIGFP. That's the unit, of course, whose staffers just got $165 million in bonuses despite undertaking those credit default swaps that helped bring the company down. And it was under Cassano that those deals were made.

As we noted earlier, the FBI and British authorities have lately been probing AIGFP. But it looks like under Cassano, the unit has been in criminal investigators' crosshairs before.

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Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

AIG

Since Last Fall, US And UK Launched Fraud Probes Into AIG

Zachary Roth | March 17, 2009, 2:31PM

Here's a point that's worth remembering amid the furor over those AIG bonuses: law enforcement agencies on both sides of the Atlantic have begun investigations into the company in recent months -- and those probes appear to be ongoing.

Last September, when the financial crisis began in earnest, following the collapse of Lehman Brothers, several news outlets reported (via Nexis) that the FBI had launched an investigation into potential fraud at four of the firms at the center of the collapse: Lehman, Fannie Mae, Freddie Mac ... and AIG. Subsequent reports have suggested that the AIG piece is focused on the financial products unit (AIGFP), where the losses that led to the firm's collapse mostly occurred.

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Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

AIG

Seventy-Three AIG-ers Got More Than $1 Million Each In Bonuses

Zachary Roth | March 17, 2009, 1:54PM

We're learning a bit more about the breakdown of those AIG bonuses -- thanks to New York Attorney General Andrew Cuomo.

In a letter sent to House Financial Services chair Barney Frank, Cuomo, who is probing the awards, wrote that seventy-three members of AIG's financial products unit were paid more than $1 million each.

And get this: Though the payments were called "retention" bonuses, 11 of those 73 millionaires, including one who got $4.6 million, are no longer even at AIG.

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Topics: AIG, Andrew Cuomo, Financial Crisis, Wall Street

AIG

Cassano: AIG Finance Staffers Are "Generally Well-Compensated," So They Don't Get Severance Pay

Zachary Roth | March 17, 2009, 12:31PM

So we know that it was AIG's financial products unit that engaged in those disastrous credit default swaps that helped bring the company to its knees last fall. And it's staff from that same unit that the firm just paid bonuses to last week, setting off a tidal wave of fury across the country.

That unit, based in London and Connecticut, was led until last year by Joseph Cassano, who negotiated a $1 million-a-month retainer when he left (AIG says it has since terminated that arrangement).

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Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

AIG

Warren: Is AIG Bailout Money Going To Pay Off "Speculators"?

Zachary Roth | March 11, 2009, 12:31PM

Looks like you can add Elizabeth Warren to the growing list of people who want the federal government to tell us more about that latest AIG bailout.

Warren, who chairs the panel that's monitoring bailout spending on behalf of Congress, went on MSNBC's Rachel Maddow Show last night, and all but demanded more disclosure from Treasury Secretary Tim Geithner.

Maddow raised the fact that AIG has reportedly passed bailout money onto its counterparties on those credit default swaps, and that it currently has four PR firms on its payroll. In response, Warren, appearing perhaps more frustrated than in any of her other numerous media appearances over the last few most, responded:

It doesn't seem strange to me, and the fact that it doesn't seem strange to me tells you something really awful about what it's been like to be in Washington for the last few months.

These financial institutions have figured out that they're bleeding red ink, and their best solution is to persuade the Treasury Department to give them lots of money. And when the Treasury Department starts to say, there may be some problems here, the American people don't want to go along with this, then lets see if we can spin the American people on it.

The Treasury Department has not asked for the critical information about where this money has gone, from AIG. We've poured the money into AIG, and it has somehow poured it out the other end. The Treasury Department has not asked, and has not revealed, what it is that's happening with that money.

And so as long as that's the case, maybe some of the money is going to other financial institutions. Maybe some of the money is going to pay off these credit default swaps that are essential for saving other institutions that have counted on it for credit and insurance. And maybe some of where this money is going is just off to speculators, who just played the game of speculation, and would now like to collect a hundred cents on the dollar form their speculations, and collect it indirectly from the American taxpayer.

You can see the video here. (The excerpt quoted above begins around the 9:00 mark.)

The Federal Reserve, which has been at the center of the latest AIG bailout, has declined to reveal much information about the maneuver, including the identity of AIG's counterparties, saying that doing so could affect confidence in the institutions at issue.

Reports by Warren's panel have grown increasingly critical of Treasury's level of transparency and accountability in regard to the bailout.

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Topics: AIG, Bailout, Elizabeth Warren, Federal Reserve, Financial Crisis, Tim Geithner, Treasury Department, Wall Street

AIG

AIG Counter-Party List Is Heavy On Foreign Banks

Zachary Roth | March 9, 2009, 11:11AM

Last week, we rounded up some reports from last fall that named some of the banks that AIG did business with on those credit-default swaps -- and therefore offered a first pass at where the fallen insurance behemoth's latest round of bailout money might ultimately be going.

But over the weekend, the Wall Street Journal offered some updated reporting (sub. req.) on that score. It obtained a confidential document listing banks that have been paid a total of roughly $50 billion by AIG, since it was first bailed out last fall.

Here's the Journal's list:

* Goldman Sachs
* Deutsche Bank
* Merrill Lynch
* Société Générale
* Calyon
* Barclays
* Rabobank
* Danske
* HSBC
* Royal Bank of Scotland
* Banco Santander
* Morgan Stanley
* Wachovia
* Bank of America
* Lloyds Banking Group

That includes $6 billion each for Goldman Sachs and Deutsche Bank.

As you can see, there's some overlap there with what we told you the Journal and the New York Times had previously reported.

But the new list shows how many of AIG's counter-parties were European -- a fact that's likely to add to frustration, among members of Congress and the public, that US taxpayer dollars are ultimately being used to save foreign banks from the consequences of their disastrous decisions to do credit default swaps with AIG. It's also likely to further fuel congressional demands that the federal government identify all of AIG's trading partners.

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Topics: AIG, Bailout, Federal Reserve, Financial Crisis, Treasury Department, Wall Street

AIG

Who Are The AIG Counterparties? Here Are Some...

Zachary Roth | March 5, 2009, 4:58PM

Over at TPM, Josh has been doggedly highlighting the refusal of both AIG and the federal government to reveal the identity of AIG's counter-parties in its disastrous credit default swaps. And several lawmakers have in recent days pressed Tim Geithner and Ben Bernanke on the issue.

The question matters, of course, because AIG needed to make its most recent multi-billion dollar trip back to the public trough (that's over $160 billion in all for AIG, if you're counting) in order to pay back its creditors on those disastrous swaps -- and thereby, we're told, prevent a wider financial collapse. So identifying who those swaps were made with will tell us, in effect, who this latest portion of our money is ultimately going to.

It's worth noting, then, that, thanks to some great reporting from the Wall Street Journal and the New York Times, we do in fact have some preliminary information about who AIG's partners were on the swaps.

This Journal story from October 2008 names the following nine American and foreign banks as having bought swaps from AIG: Goldman Sachs; Merrill Lynch; UBS of Switzerland; Credit Agricole SA of France; Deutsche Bank of Germany; Barclays, and Royal Bank of Scotland Group, of Britain; and CIBC, and Bank of Montreal, of Canada.

Merrill is described by the Journal as a "big client" of the AIG unit that did the swaps.

By the end of 2007, with the value of the underlying assets plummeting, many of these banks had asked for collateral on the swaps, according to the Journal.

For instance, the paper reports that Goldman held swaps that insured about $20 billion of securities. In August 2007, Goldman demanded $1.5 billion in collateral from AIG. It ultimately got $450 million, then another $1.5 billion last October. At that point, says the Journal:

Goldman hedged its exposure by making a bearish bet on AIG, buying credit-default swaps on AIG's own debt.

That picture of Goldman's exposure jibes with a New York Times story from September 2008 about the credit default swaps, which reported that Goldman was AIG's "largest trading partner," and likewise gave a figure of $20 billion for Goldman's exposure to AIG.

The Times also implicates another domestic firm: JP Morgan (now JP Morgan Chase). In fact, it recounts that it was derivatives traders from that company that a decade ago, first brought to AIG's London-based financial products unit, run by Joseph Cassano, the ill-fated idea of doing credit default swaps.

It reports:

Ten years ago, a "watershed" moment changed the profile of the derivatives that Mr. Cassano traded, according to a transcript of comments he made at an industry event last year. Derivatives specialists from J. P. Morgan, a leading bank that had many dealings with Mr. Cassano's unit, came calling with a novel idea.

Morgan proposed the following: A.I.G. should try writing insurance on packages of debt known as "collateralized debt obligations." C.D.O.'s. were pools of loans sliced into tranches and sold to investors based on the credit quality of the underlying securities.

It's not 100 percent clear, then, that JP Morgan Chase is a current counter-party of AIG on the swaps -- but it certainly wouldn't be surprising.

That same Times story offers another hint, albeit a vague one, about the identity of the counter-parties.

While clients and counterparties remain closely guarded secrets in the derivatives trade, Mr. Cassano talked publicly about how proud he was of his customer list.

At the 2007 conference he noted that his company worked with a "global swath" of top-notch entities that included "banks and investment banks, pension funds, endowments, foundations, insurance companies, hedge funds, money managers, high-net-worth individuals, municipalities and sovereigns and supranationals."

What to make of all this? Well, here's one thing. As Josh has noted, the usual argument given against disclosing the identities of the counter-parties is that it would reduce public confidence in the banks that were named, with potentially disastrous consequences for their positions. But there's little evidence we're aware of that any of the banks named above suffered such an effect when, for instance, the Journal and the Times published their stories -- whose accuracy have not been questioned.

In fact, Geithner and Bernanke haven't deigned to explain their position in even this much detail -- so it's difficult to know whether there are factors we're not considering. But in the absence of a fuller explanation, we'll keep pressing...