Bob Dole: Bank Nationalizer Sheila Bair Putting The"Compassion" Back In Conservativism

Moe Tkacik | March 27, 2009, 6:46PM

One of the great ironies of this financial crisis (and there are lots) is that the only financial regulator remotely capable of inspiring confidence in anyone is a Republican Bush appointee who's gone largely ignored by the White House since Tim Geithner reportedly tried to push her out of her job for not being enough of a "team player." We speak of course of FDIC Chairman Sheila Bair, who has gotten so much practice nationalizing financial institutions since the crisis began she let 60 Minutes come watch and record one for a segment earlier this month. And now she's been pushing for the authority to take her operation to the likes of AIG, Bear Stearns and the rest of the Too Big To Fail cartel. (And as finance blogger Felix Salmon explained in the New York Times today, she may get her wish as part of Geithner's public-private toxic asset buyout plan.)

On Wednesday Bair went on the hyperconservative supply-side pundit Larry Kudlow's CNBC show to sweetly explain why, when a company like AIG fails, she ought to be able to

come in, repudiate employment contracts, pick and choose who you want to keep, who you want to get rid of, what you want to pay them. Replace the management, get rid of the boards, bring in better management and do an orderly unwinding of the entity.

Kudlow seemed stunned. "You've done this before?" he asked. (About 50 times since the crisis began.) But he remained polite in the face of all this suspiciously socialist-sounding rhetoric -- because it came from a Republican. Her old mentor Bob Dole even confirmed it, an American Banker report today reveals...

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Topics: FDIC, Sheila Bair, Tim Geithner

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

Barack Obama

What Obama Can Learn From JP Morgan CEO Jamie Dimon

Moe Tkacik | March 27, 2009, 2:17PM

Whatever the 25 bank CEOs descending upon the White House this morning told the president and his economic team, we hope JP Morgan CEO Jamie Dimon repeated one line from the speech he gave at the Chamber of Commerce earlier this month. (It's about 11:30 in.)

One of the main root causes [of the crisis], and this has been going on for a long time, was the huge trade and global financing imbalances which fueled very low rates and excess consumption, and over a long period of time I do not believe you can run those kind of trade deficits...

Dimon was getting at one of the root structural causes of the current crisis -- America takes, the world (China especially) makes, an unsustainable situation sustained above all by an increasingly usurous financial services industry. As the CEO of PNC Financial Services just pointed out, banking is the biggest sector of the American economy -- and it's been to the detriment of everything else.

And while that might seem obvious, intuitive even, Dimon's speech came just three days after Larry Summers told the Financial Times that the global trade imbalance wasn't the problem anymore, that it had been eclipsed by more pressing emergencies, etc. etc.

Naturally Dimon went on to condemn the demonization of Wall Street and corporate America.

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Topics: Bank of America, Barack Obama, Jamie Dimon, Larry Summers

Henry Paulson

Hank Paulson To Write Goldman/Bush/Credit Default Swap Tell-All

Moe Tkacik | March 26, 2009, 6:48PM

Hank Paulson has a book deal. And if there is demand in the marketplace for yet another score-settling insider account by a flawed but well-meaning Bush appointee, we guess it is Hank. Since the centimillionaire is generously refusing an advance and donating the proceeds to a hotline that helps homeowners prevent foreclosure -- an endeavor he did not have much time for as Treasury Secretary -- we'll put a copy on hold. But a Hank Paulson book is veritably guaranteed to disappoint, right? Or should we hedge that statement?

After all, Paulson is a competitive guy, and the "Bush Administration Treasury Secretary Tell-All" genre has formidable competition in The Price Of Loyalty, Ron Suskind's account of Paul O'Neill's tenure in that post -- plus Paulson has the advantages of having presided over the spectacular financial crisis that begat the current depression and Goldman Sachs. Paulson doesn't seem to have pent-up literary ambitions -- instituting the short selling ban was his equivalent to "burning books," he told the Post -- but he will undoubtedly submit himself to the editorial judgments of his daughter, a journalist who writes about public education. And in interviews, as his willingness to admit to burning books suggests, Paulson has seemed less of an ideologue than an ambitious business man who had never given ideology much thought -- so we won't be getting Ten Minutes From Normal here. (Although it would be awesome if he ripped off that title.)

On the other hand...

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Topics: Goldman Sachs, Henry Paulson

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

CDR

Regulator Who Regrets "Silence" About Derivatives Told To Shut Up

Moe Tkacik | March 26, 2009, 2:55PM

Yesterday Christopher "Kit" Taylor, the former executive director of the Municipal Securities Rulemaking Board, became one of the few regulators to publicly apologize for his role in the crisis. Like many public officials, he worried for years about the explosion in the unregulated derivatives market, which he was in the unique position of seeing bankers pawn off on slightly less sophisticated investors than the usual hedge fund guys: school districts, park authorities, power companies and other local government entities. Today Detroit, Jefferson County, Alabama and various towns in California alone are out more than a billion dollars after investing in interest rate "swaptions" and other financial "products" that left them on the hook in a national conspiracy through which banks, lawyers, consultants and corrupt politicos bilked as much as $4 billion a year from state and local government coffers. But "the big firms, he told Bloomberg yesterday, "didn't want us touching derivatives...they said, 'Don't talk about it, Kit.'"

"Every time I talked to the board about swaps, I made it clear that the MSRB had no authority to take action," said Taylor, in an e-mail. "My 'regret' is that MSRB would not speak out loudly that swaps were going to cost taxpayers a bundle if issuers did not clearly understand what they were doing."

Perhaps as penance, Taylor has been a main source for most of the media coverage of municipal finance corruption, currently the subject of a federal probe, and his candor has been hailed by his former colleagues in financial regulation, oh wait not really.

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Topics: Bill Richardson, CDR, Christopher "Kit" Taylor, Muncipal bonds, Tim Geithner

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

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.