Citigroup Spends Bailout Money Lobbying Student Lenders To Sabotage Obama Plan

Moe Tkacik | May 8, 2009, 6:17PM

If Citigroup -- recipient of $45 billion in bailout funds and constant visits with Treasury Secretary Tim Geithner, and longtime employer of former Treasury Secretary Bob Rubin -- is supposed to be the government's friend, it's quite the underminer. Today the bank emailed borrowers who took out student loans with Citigroup encouraging them to write to Congress opposing the administration's student loan proposal.

Obama has been talking about overhauling student loans since at least 2007, echoing GAO estimates that banks had been taking in $15 million a day peddling and securitizing private student loans without taking on any risk, since student loans are guaranteed by the government and cannot even be discharged in a bankruptcy. The "most controversial" aspect of his proposed legislation, according to the New York Times, would cut out the proverbial middleman so all students could borrow directly from the government. Any "controversy," of course, is likely to be fomented by the banks that make money off the arrangement -- as Citigroup's letter would seem to indicate.

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AIG

Are AIG FP Employees Using Bailout Cash To Get Jobs Elsewhere? Looks Like It, Says AIG Source

Moe Tkacik | May 8, 2009, 4:00PM

Remember the rumors that AIG Financial Products had "thrown in the towel," handing over massive portfolios of derivatives to the trading desks of major investment banks to unwind in a process that gave the beleaguered banking sector a profitable first quarter?

We first heard them back in March from the blog Zero Hedge. Then, sure enough, the banks began reporting first quarter earnings that for the most part beat expectations -- all thanks to record and near-record revenues for their trading operations.

Then the fixed income chief at the hedge fund BlackRock essentially confirmed the story to Bloomberg Radio in a wry interview we partially transcribed.

And now we've heard from an anonymous executive at AIG who is "familiar" with AIG FP...

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Topics: AIG

Rod Blagojevich

The National Pay-To-Play Scams: What, No Chicago Connection?

Moe Tkacik | May 8, 2009, 1:37PM

Do the expanding pension scandals have a Chicago connection?

The pay-to-play probes currently scrutinizing controllers of public pursestrings from New York to New Mexico to Alabama have so many parallels to the sweeping Illinois investigation that turned Gov. Rod Blagojevich into a reality show candidate, we're kind of surprised they haven't overlapped more.

For one, they both revolve around questionable public pension fund investments and "swaps" contracts. In Illinois, the probe began with questions about millions of dollars in consulting and "finder's" fees collected by Republican lobbyist Bob Kjellander for directing a $500 million teacher pension fund investment to a Carlyle Group hedge fund and convincing another state pension fund to bet on an interest rate swap that generated big fees for Bear Stearns. Some of those fees, according to last month's indictment of Blagojevich, wound up in Blago's own bank account.

But back in 2004, when CDR Financial Products, one of the main consulting firms being under investigation in the scheme, tried to set up shop in Chicago, it got nowhere.

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Topics: Rod Blagojevich

The Daily Muck

Moe Tkacik | May 8, 2009, 9:51AM

• Pelosi spokesman on her being briefed in 2002 on CIA interrogation tactics: "The briefers described these techniques, said they were legal, but said that waterboarding had not been used." But CIA documents "appear to conflict" with that line. [WSJ

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Pension Players Go Back To The Lincoln Bedroom Days

Moe Tkacik | May 7, 2009, 5:06PM

Finally, a fresh face to connect some dots in the evermore mind-numbingly convoluted state pension fund scandals!

Meet Lori Schiaffino. She is a former secretary of Revlon CEO Ron Perelman who gets invited to exclusive Oscar parties and lives some of the time in the Hamptons. According to records released by state investment authorities in New Mexico, Schiaffino also works as what is called a "placement agent," who helped secure a hedge fund called Optima a $50 million investment from the New Mexico teachers' retirement fund.

Placement agents, who are paid finders fees by hedge funds and other private money managers for securing investments from public pension funds, are at the heart of the expanding pension fund scandal. In March Hank Morris, the top adviser to former New York state comptroller Alan Hevesi, was indicted for running an elaborate scheme to collect $35 million in phony placement agent fees while he acted as an effective gatekeeper of the state pension fund in conjunction with Dan Loglisci, the fund's chief investment officer. A parallel -- and intertwined -- scandal is brewing in New Mexico, where a longtime associate of Gov. Bill Richardson named Marc Correra appears to have collected $13.5 million in finders' fees over the past few years -- including a whopping $2 million we told you about yesterday for directing a $90 million in the teachers' pension money to a "toxic waste" tranche of a mortgage-backed collateralized debt obligation that lost nearly all of its value within the space of a year.

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Chris Cox

Scenes From The Ninth Circle Of Financial Bureaucracy

Moe Tkacik | May 6, 2009, 6:56PM

We've been poring over the report -- hit piece? -- on the SEC issued today by the Government Accountability Office, and we're starting to understand why Hank Paulson wanted to shut the place down and put all those "enforcers" out of their Kafkaesque misery. The agency got more tips from FINRA -- the financial industry's self-regulator -- than it had the resources to pursue, it lost 11.5% of its lawyers since 2004, and the staff lacked in-house expertise on pretty much all the fancy financial instruments without which we would not have this crisis (in addition to "government securities" which seems a bit sad, the SEC being a division of the government). The agency's revenues were in a downward spiral, with corporate penalties falling 39% in fiscal year 2006, only to fall another 48% in 2007, only to fall another 49% last year.

But as the Columbo-eseque foil for a cabal of deep-pocketed financiers with $87,000 rugs in an absurdist Office Space comedy about how the crisis happened, the SEC as depicted in the GAO report is ideal. We excerpted some of our favorite bits:

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Topics: Chris Cox

Marc Correra

New Mexico: Richardson Pal Marc Correra Made $2 Million On "Toxic Waste" Teacher Pension Deal

Moe Tkacik | May 6, 2009, 2:35PM

Last week we introduced you to Marc Correra, a longtime ally of New Mexico Governor Bill Richardson, who appointed his wife Claudia Correra in 2004 to be the state's first "international protocol officer." Last month Correra's name surfaced as the most successful in a list of dozens of "placement agents" paid by hedge funds and other money managers to secure investments in the state teachers' retirement fund; he was listed as having netted at least $11.5 million in fees for channeling around a billion dollars in pension investments to various money mangers -- including a controversial $90 million investment in a near-worthless "toxic waste" tranche of a subprime mortgage-backed CDO. The CDO, Vanderbilt Financial Trust, was put together by a Chicago firm called Vanderbilt Capital Group.

At the time the state said it did not know Correra's fee for the transaction, and his attorney strenuously denied his involvement whatsoever with Vanderbilt in the Albuquerque Journal:

"That did not happen," Bregman said Friday. "Marc Correra never received a fee for that transaction. He was not involved in that transaction in any way, shape or form."

But that's not what Vanderbilt told New Mexico, according to a document the state released yesterday.

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Topics: Bill Richardson, Marc Correra

Chrysler bankruptcy

Chrysler Hedge Funds Denied Motion For Protection From -- Anonymous Internet Commenters?

Moe Tkacik | May 6, 2009, 12:50PM

On Monday we brought you news that the Chrysler bond-holding hedge funds courageously defending the U.S. Constitution by holding out for a bigger payout in bankruptcy court were appealing to have their names sealed after receiving death threats.

Blaming a "hostile climate" perpetuated by the Obama administration "publicity campaign," Tom Lauria, the attorney representing the group of twenty hedge fund calling themselves the "Chrysler Non-TARP Lenders," filed a motion to seal claiming the hedge funds "targeted by the president" -- presumably Oppenheimer Funds and Stairway Capital, since those were the only funds associated with the group -- had "received various threats, including dozens of death threats directed to their employees."

But today bankruptcy court Judge Arthur Gonzales denied the motion, seeing "no evidence that authorities found the threats bona fide" -- maybe because the only evidence of said threats cited in the motion was a printout from the comments section of the Washington Post website.

We've excerpted the relevant portion of the motion after the jump, so we'll leave it to you to determine the seriousness of these elusive zealots operating pseudonymously under enigmatic handles (e.g. "jerkhoff").

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Topics: Chrysler bankruptcy

AIG

AIG Subsidiary Explains "Timely" Decision To Pretend It Was Never Called "AIG"

Moe Tkacik | May 4, 2009, 6:38PM

"We are pleased to announce our decision to rebrand to a familiar name -- VALIC," begins a brochure titled, "Back to our roots" that was recently distributed to holders of policies with the Variable Life Insurance Company. Um, and guess what slightly more familiar name VALIC has decided to cast off? Yes, that would be everyone's favorite federally-funded money vortex the American International Group.

Possibly, and this is entirely idle speculation on our parts but, the fancy public relations firms the zombie insurer retained are known for running focus groups. Perhaps the feedback concluded that somehow the AIG name was a turnoff to people looking for a place to store their remaining life savings?

"We believe this decision is timely," the brochure goes on, adding that with its return to its more venerable brand it restores a name "that has represented more than a half a century of helping people plan for and enjoy a secure retirement"* and also sounds vaguely like the pickle brand, possibly to convey a sense of "preservation."

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Thomas Luria

Chrysler Creditor Hedge Funds Take Courageous Stand Upholding Consititution, Beg Judge For Anonymity

Moe Tkacik | May 4, 2009, 4:52PM

Last week a group of hedge funds that had invested in Chrysler bonds "came out with guns blazing", in hedge fund terms anyway, against the administration's 33 cent on-the-dollar settlement offer, forcing the automaker into bankruptcy in spite of the president's stern verbal appeals for everyone involved to make a "sacrifice." But most observers agreed the holdouts were not likely to get much higher than 30 cents in any bankruptcy court, and some of them undoubtedly would have made a profit under the terms of the Obama deal, as this Bloomberg story points out: in March, after all, Chrysler bonds traded as low as 13 cents.

But the crusade was about so much more than money, the holdouts insisted. By Friday they had organized into a group they dubbed the "non-TARP lenders" -- to differentiate themselves from Chrysler's biggest creditors, four big banks which had, like all big banks, received TARP funding. One hedge fund manager, Geoffrey Gwin -- who officially joined the holdouts Friday -- even allowed a Wall Street Journal reporter to bear witness to the "turmoil" plaguing him as he wrestled with his own decision on the matter.* And a preliminary objection filed today in the bankruptcy court on behalf of the group calls the administration's bankruptcy proposals "patently illegal" and "not proposed in good faith" in a "tainted sales process" that is "unconstitutional."

So why are so few of the holdouts willing to go on the record upholding the Constitution on this weighty matter? Today in court the non-TARP lenders' chief counsel Tom Lauria, pleaded with the court to keep his clients' firm names sealed, according to the Detroit Free-Press.:

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Topics: Chrysler bankruptcy, Perella Weinberg, Steve Rattner, Thomas Luria