Did Steve Rattner Really "Cover" The Chrysler Bailout For The Times?

Moe Tkacik | April 17, 2009, 5:56PM

Before he was linked to the expansive New York pay to pay probe for paying shady "finder's fees" to steer $100 million in pension money to his private equity firm, Obama "car czar" Steve Rattner was controversial for a more straightforward reason: there was something of a deficit of evidence he knew anything about cars.

Having spent most of his lucrative financial career investing in and advising media companies, Rattner's automotive experience appeared limited to two things: first, his private equity firm Quadrangle made a bad loan to the private equity firm that owns Chrysler to make an investment in Maxim magazine that managed to reap worse returns than the ailing automaker. And secondly, there was the fact that Rattner had, as NPR and other news agencies reported, covered the Chrysler bailout as a reporter for the New York Times in 1979. NPR even quoted from a story he had written on the bailout, and the Wall Street Journal subtly emphasized that bailout's significance in Rattner's career in a profile that ran earlier this month:

Roger Altman, a Wall Street financier who was the Treasury Department's point man during the first Chrysler bailout in 1979, says Mr. Rattner is well-suited for his new job.

"Steve has a brilliant grasp of finance, and that is the single-most important ingredient here," said Mr. Altman, a longtime mentor who lured Mr. Rattner to Lehman Brothers in 1982.

We'd better hope Altman is right about that.

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Topics: Steve Rattner

Steve Rattner

Did Auto Czar Steve Rattner Help Scam New York Pensioners?

Moe Tkacik | April 17, 2009, 2:12PM

Steve Rattner, the money manager who is Obama's top adviser on bailing out the auto industry, is uncomfortably close to a criminal investigation into the New York state pension fund, newspapers reported today.

In October 2004 Rattner, the private equity investor and former New York Times reporter who is leading (if not quite the "czar" of) the Obama administration's task force to save the auto industry, met with David Loglisci, the recently-indicted chief investment officer of the New York General Pension Fund to solicit an investment in his private equity fund Quandrangle, according to news reports in today's New York Times and the Wall Street Journal. By January Rattner's fund had allegedly signed a written agreement to give a 1.1% cut of whatever investment Quadrangle received from the fund to Henry Morris, the (also recently indicted) former aide to the disgraced former state comptroller Alan Hevesi. A few days later, as if to sweeten the deal, Rattner agreed to meet with Loglisci's brother and wound up investing $88,841 for the DVD distribution rights to a movie that had grossed barely a third of that during its brief release in theaters through a Quadrangle affiliate called GT Brands. (The brother produced the movie, Chooch.) Three weeks later, Loglisci the CIO "personally informed" Rattner that Quadrangle would be getting a $100 million investment from the pension fund -- and over the next two and a half years Morris would in turn collect over a million dollars in "finders fees" for the transactions.

Those, at least, are the allegations of a lawsuit filed Wednesday by the SEC against Morris, Loglisci and two of their associates in the latest development in the protracted pay-to-play probe of New York state pension funds. The lawsuit only makes reference to a "Quadrangle executive" but the Times and the Journal quote sources confirming the executive is Rattner. Both papers also specify that Rattner is not himself a target of the probe, and that he told the administration about the investigation when he took the job.

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Topics: Municipal finance, Steve Rattner

Jennifer zuccarrelli

JP Morgan Chief Disses TARP While Poaching Its Staff

Moe Tkacik | April 17, 2009, 11:34AM

Yesterday JP Morgan became the second huge bank this week to announce a return to multibillion dollar profits, largely due to record trading profits that are probably "one-offs" related to AIG, but nevertheless use this triumphant return to the black as an opportunity to boast about its plans to pay back its TARP money and get back into the eight figure bonus business. And JP Morgan CEO Jamie Dimon wasn't exactly at a loss for mirth over that last part in the morning's conference call:

Dimon, calling money received through the Troubled Asset Relief Program "a scarlet letter" and "the TARP baby," said on a conference call with reporters today that the New York- based bank is awaiting guidance from the U.S. Treasury Department...The bank, which bought about $34 billion in mortgage-backed and asset-backed securities in the quarter, doesn't expect to participate as either a buyer or seller in the Treasury's Public-Private Investment Program, known as PPIP. "We learned our lesson" about borrowing from the government, said Dimon.

But if that's so true, what's Jennifer Zuccarrelli, a top aide to former TARP overseer Neel Kashkari, doing on loan to the JP Morgan media relations department?

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Topics: Jamie Dimon, Jennifer zuccarrelli

GE

CNBC Under Corporate Pressure To Stop Bashing Obama?

Moe Tkacik | April 16, 2009, 8:48PM

Earlier this month Goldman Sachs CEO Lloyd Blankfein gave a speech condemning Wall Street's systemic greed and sloppiness, prompting pundits to wonder if Wall Street was finally starting to "get it." Could Wall Street's preeminent mouthpiece CNBC be starting to "get it" as well?

A unnamed source at the network told this morning's New York Post that NBC Universal chief Jeff Zucker and Jeff Immelt, CEO of parent company GE, had recently convened a dinner with the network's top brass and some of its high-profile reporters to discuss whether the network that launched a thousand search engine queries into the meaning of teabag should start distancing itself from the "grassroots" war it started with the Obama administration two months ago. Indeed, yesterday the network mentioned the T-word by far the fewest times of any of the major cable news networks. The Post source, an anonymous "insider," said dispatches from the dinner had been filtering down to reporters, who were concerned about being "muzzled by GE."

Quoting the Post ...

"It was an intensive, three-hour dinner at 30 Rock which Zucker himself was behind," a source familiar with the powwow told us. "There was a long discussion about whether CNBC has become too conservative and is beating up on Obama too much. There's great concern that CNBC is now the anti-Obama network. The whole meeting was really kind of creepy."

Media bias at CNBC has been a hot topic since CNBC anchor Rick Santelli, a former options trader who reports on the arcana driving interest rates and futures from the pit of the Chicago Board of Trade, touched off the tea party madness when he used one of his live spots in February to deliver an impassioned and incoherent speech predicting the "collectivist" path pursued by the Obama mortgage modification bill would impoverish the country such that Americans, like Cubans, would soon be driving "54 Chevys" (which he added was "maybe the last great car to come out of Detroit.")

Santelli's rant, in turn, fueled a campaign led by The Daily Show host Jon Stewart to hold the network "accountable," a sentiment echoed in an online petition signed by dozens of prominent economists exhorting network execs to Fix CNBC:

Americans need CNBC to do strong, watchdog journalism - asking tough questions to Wall Street, debunking lies, and reporting the truth. Instead, CNBC has done PR for Wall Street. You've been so obsessed with getting "access" to failed CEOs that you willfully passed on misinformation to the public for years, helping to get us into the economic crisis we face today.

So are Zucker and Immelt really coming down on CNBC to lighten up on Obama? Not so, says a CNBC staffer who attended the dinner...

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Topics: CNBC, GE, Jeffrey Immelt, Jim Cramer, Rick Santelli

Larry Summers

Who Else Is Paying For Those Fat Wall Street Profits?

Moe Tkacik | April 15, 2009, 6:21PM

There's another big reason -- besides AIG -- that Wall Street trading desks have been booking such fat profits lately: fees they're collecting closing out interest rate swaps that have been exploding in the faces of cities, states, towns and public utilities over the past year.

Put another way: they're not just booking those billions soaking the government, they're booking them soaking...the government. Along with hospitals, utilities, park authorities, pretty much every other realm of the public or nonprofit sector...

Including Harvard! In December the university raised $2.5 billion dollars in a bond offering partially designed to give them the capital to buy out of $570 million in underwater interest rate swaps it had invested in back in 2005. The swaps were expressly endorsed by then-president Larry Summers, now head of the National Economic Council.

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Topics: Goldman Sachs, Larry Summers

JP Morgan

Dear Gina's MySpace Wall: I'm From JP Morgan, And I'm Here For Your Father's Car

Moe Tkacik | April 15, 2009, 4:13PM

Defaults on consumer loans have hit record levels, such that investment banks are bidding as low as 68 cents on the dollar for auto loan-backed securities. But if a lawsuit filed in Illinois Circuit Court can be believed, it's not for lack of trying to squeeze payments out of them. According to an Illinois resident and Mercedes driver named named James Ricobene, a collection agency hired by JP Morgan Chase went so far as to leave a threatening wall post on his daughter's MySpace page. (If this is her, she has since deleted it -- but she kept this appropriate photo of a car spray-painted with the words "HOPE SHE WAS WORTH IT.") According to the lawsuit, the message the collection agency allegedly posted on the daughter's MySpace page ("on or about March 20, 2009 at 3:25 p.m.") read as follows:

We have been retained by, JPMorgan Chase Bank, to locate and repossess their missing collateral a 2007 Mercedes GL 450. Please contact our office immediately so we can discuss the peaceful recovery of the collateral. Failure to contact me will result in further action against your father James Ricobene. Legal options range from having a replevin order served on you or even worse reporting the collateral as stolen to local authorities in Illinois under the A.R.S. act 18-5-504. Failure to comply with this notice of surrender is a class 5 felony and carries a maximum penalty of imprisonment for two years plus all applicable surcharges. You must contact the writer within 5 days to prevent this action from taking place. You can contact me directly at 800-667-7704 ext 222 or directly at 604-267-1581 ext. 222

Awaiting your immediate response.

Chris Flanagan
Senior investigator

Did he get a response!

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Topics: JP Morgan, Universal Tracing Services

BlackRock

Goldman Claims Trading Profit Had Nothing To Do With AIG; BlackRock Bond Chief Calls BS

Moe Tkacik | April 15, 2009, 3:39PM

On Monday afternoon Goldman Sachs posted a miserable first quarter for most of its typical investment banking divisions -- and a record $6.56 billion in revenue for its trading unit, giving the bank a net profit nearly double Wall Street expectations. Mere seconds into the question and answer session of yesterday's conference call with analysts, Guy Moszkowski of Merrill Lynch asked the question on everyone's lips: what did the $180 billion money vortex called AIG have to do with those numbers? Nothing, insisted chief financial officer David Viniar, who said the impact of the unwind for the quarter "rounded to zero" and later professing to Bloomberg he was "mystified" over the public fascination with the question.

Was Viniar lying? Yesterday we explained how Goldman appeared to have booked the cash flow from the bailout in its "orphan month" of December, making Viniar possibly technically truthful. But then Peter Fisher, who heads fixed income trading for the hedge fund BlackRock, all but accused Viniar of flat-out lying. With the seen-everything tone one might expect of the longtime central banker Fortune once described as "one of those behind-the-scenes guys who keep Wall Street from coming apart at the seams," Fisher told Bloomberg Surveillance host Tom Keane in an audio segment uploaded by the blog ZeroHedge that Goldman, as
rumored, had reaped huge "one-off" profits on the AIG unwind.

"So," Keane asked sarcastically, "did [Goldman] make those trading gains by taking the hide out of BlackRock?" That got a laugh, so Keane pressed:

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Topics: AIG, BlackRock, David Viniar, Goldman Sachs, Peter Fisher

Bradley Birkenfeld

Second Florida Yachting Exec Charged In UBS Tax Shelter Probe

Moe Tkacik | April 15, 2009, 12:07PM

Another rich client of UBS has been charged with using Swiss banking secrecy laws to evade taxes: it's Robert Moran, who failed to declare a $3.7 million account with the bank on his 2007 tax return.

Like Steven Michael Rubinstein, who earlier this month became the first UBS client charged in the investigation, Moran is a Florida yacht dealer charged with a single count of tax fraud. The Times specifies that the two are "not connected" except inasmuch as theirs were two of the 285 names the ailing Swiss bank, which today announced it would cut another 7,500 jobs after posting a $1.8 billion loss, handed over to the IRS earlier this year as part of a $780 million settlement into its tax evasion business.

Yachts were a "fertile recruiting ground" for UBS, according to Bradley Birkenfeld, the former UBS private banker whose "statement of facts" in the criminal probe of his role in the bank's tax evasion business provided the basis for much of the larger investigation. And Moran is a resident of Lighthouse Point, Florida -- also an address used by Birkenfeld's most famous client Igor Olenicoff, the billionaire real estate developer for whom Birkenfeld once laundered cash by traveling to the United States with a toothpaste tube full of diamonds. Birkenfeld's statement confesses to "numerous overt acts [of tax fraud] in Broward County," where both Rubinstein and Moran reside. Both men appear to be cooperating in the investigation.

So who boarded those fancy yachts, one of which can be chartered for the reasonable price of a million dollars a week plus expenses?

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Topics: Bradley Birkenfeld, Robert Moran, UBS

Did Goldman Hide AIG Payout In The "Orphan Month" Of December?

Moe Tkacik | April 14, 2009, 2:35PM

Since it appeared near the top of the list of AIG's investment bank counterparties, investors -- and bloggers, and politicians, and anyone with an interest in the bailout -- have been eagerly awaiting the first quarter results of Goldman Sachs. Would the unwind, as rumored, be wholly responsible for a profitable quarter at the investment bank?

It's hard to say: the nature of accounting doesn't make it easy to determine these things. But what was interesting about the earnings numbers was the separate set of numbers for December 2008, which the bank dubbed an orphan month. Goldman changed its reporting schedule this year to follow a calendar year from a fiscal year that started in December. While this was initially reported as a sneaky losses-hiding tactic, Morgan Stanley did it too -- it's part of the emergency classification switch that changed the two investment banks into "bank holding companies" and enabled them to borrow cheaply from the Fed last September.

It looks like Goldman booked its big AIG payday during the "orphan month." This would dovetail with the chief financial officer's playing down of the AIG impact on its conference call this morning:

First of all, virtually all of those cash flows, which as you know were just cash flows, they had nothing to do with the P/L and in fact, most of them were value-for-value cash flows, most of those took place before the end of the year. The mane [sic: think this means Maiden Lane] lane transactions were unwound before the end of the year. I would say our P/L related to AIG in the first quarter rounded to zero.

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Topics:

Muncipal bonds

Another Faustian Swap: Indianapolis Water Authority Forced To Cough Up $100 Million-Plus

Moe Tkacik | April 13, 2009, 6:28PM

Another day, another group of American taxpayers forced to cough up tens of millions of dollars to Wall Street over a little-noticed provision in a "swap" contract gone sour. Last week we brought you the parallel tales of sudden budgetary meltdown in Tennessee, Alabama, Illinois, New Mexico and Philadelphia that in part prompted the credit rating agency Moody's to issue a blanket negative credit outlook on all bonds issued by American cities and towns. Today it's the Indianapolis Water Authority being screwed in a swap deal that might force the utility -- and by extension, its customers -- to cough up a collateral call of as much as $100 million.

The deal is a familiar one: in 2005 the city of Indianapolis refinanced $550 million in fixed-rate bonds to raise money to fund its acquisition of its old water company from the private utility company NiSource, which agreed to sell it as a condition of regulatory approval of its merger with Columbia Energy Group. The deal involved the ailing bond insurer MBIA as well as a similar German-Irish firm called Depfa Bank, which insure the utility's ability to pay up by writing credit default swaps on municipal bonds that protect investors in the event of default. But as Barney Frank pointed out last week, the risk of municipal bonds defaulting is historically minimal -- while the risk that MBIA and Depfa might default was steadily rising as they began to chase the riskier (AIG-dominated) business of writing swaps on collateralized debt obligations. And when those "insurers" started to see their credit downgraded last year, suddenly it was municipalities like Indianapolis that were swamped with calls demanding collateral -- which translates to a major refinancing being funded by an emergency 17.5% rate hike this summer.

If you're having trouble getting your head around how this works, it's a little like this: in order to get a cheaper interest rate on your mortgage, you pay you bank extra for a "swap" insuring the investors who buy the mortgage in the case of your default. But then the bank that originated the mortgage starts making riskier loans and its credit rating agencies downgrade its debt, it turns out the owner of your mortgage can demand collateral from you. Except in the case of municipal bonds, the homeowners are cities and towns with the legal authority to tax citizens and an infintessimal record of actually defaulting -- and the banks were using your interest payments to extend home loans to unemployed high school dropouts and senile 80-year-olds living on Social Security.

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Topics: Indianapolis Water Authority, MBIA Inc., Muncipal bonds, Municipal finance

AIG

AIG FP Chief: Taxpayer Ire Over Bonuses "Probably Hurt Taxpayers"

Moe Tkacik | April 13, 2009, 11:25AM

Last month AIG Financial Products head Gerry "Che" Pasciucco met with employees of the unit that took down the economy, and relayed a request from upper management that they return those controversial "retention bonuses," adding that he felt the request was tantamount to blackmail. But he was only thinking of us taxpayers, he tells today's Wall Street Journal, in a story that says 20 AIG FP employees -- not including the unashamed bonus keeper Jake DeSantis, who published his resignation letter in the New York Times -- had quit amid the controversy:

Mr. Pasciucco said that as a result of the bonus controversy, some employees' children were harassed, and some had clubs ask them to resign. "It doesn't surprise me that some senior people said, 'You know what, I've had enough,' " he said...Mr. Pasciucco says the controversy "hurt morale" and "stunned people such that our wind-down has slowed down." He added, "Taxpayers probably have been damaged."

But will we ever know how much we've been damaged? A Financial Times story about AIG FP's decision to "opt out" of a new International Swaps & Derivatives Association protocol signed by 2,000 derivatives market participant intended to to make the complex credit default swap business less "opaque" casts more doubt on that:

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Topics: AIG