Seriously. Connecticut is really pissed off and they want their piece of the pie. Yesterday.
The state of Connecticut is analyzing the details of bonuses paid by American International Group to see whether they violated state law and what possible remedies might be pursued, the Commissioner of Consumer Protection said on Monday.
But that’s nothing. Consider the point of this $165 v. $218 million bonus discrepancy thing. Connecticut wants to get that. Now.
This discrepancy now will be probed, Farrell said.
Well, Ed, prepare to be probed.
Connecticut eyes AIG bonuses, possible remedies [Reuters]
Tyler Durden over at Zero Hedge has an interesting take on Goldman’s AIG hedging:
Purchasing $10 billion in CDS (roughly in line with what Viniar claims happened) at a hypothetical average price of 25 bps (and realistically much less than that) and rolling that would imply that at today’s AIG 5 yr CDS price of 1,942 bps, the company made roughly $4.7 billion in profit from shorting AIG alone! This would more than make up for the $2.5 billion collateral shortfall (out of $4.4 billion total) GS claims AIG had with Goldman Sachs… If AIG had filed for bankruptcy, and assuming Lehman is any indication, the P&L would have likely hit $6+ billion.
Preliminary Goldman Call Observations [Zerohedge]
A Dealbreaker commenter points out: “The bill that just passed is saying that anyone working for those firms with a combined family income of $250k or more will have the bank employee’s bonus taxed at 90%.”
The reason for this, which I hinted at yesterday, is that its difficult to get such a directed tax bill to pass constitutional muster without widening the people it impacts. If you think it is an accident that the bill has been set up this way after executive comp failed badly on the first two go-arounds, then you just don’t understand the meaning of “never let a crisis go to waste.”
I expect that anyone who watches carefully for the inevitable “But we had to expand the reach of the bill to make it legal,” will be rewarded with almost exactly this line from proponents of the newly expansive bill. This is both because the legislature can’t simply target a subset of individuals with punitive intent, even if its a tax, and because the goal was always an expansive executive comp cap.
The “bill of attainder” test keys off these two prongs:
Is it targeted at specific individuals?
Is it of punitive intent?
So what’s punitive intent? The Fifth Circuit’s SBC Communications v. FCC ruling is about the most direct on this as the Supreme Court hasn’t touched the issue in decades. In short:
Does the legislation fall into the historical meaning of legislative punishment,
Can the statute “reasonably be said to further nonpunitive legislative purposes,” and;
Does the record show “a congressional intent to punish?”
We leave it to you to decide where these prongs fall on the “punish-o-meter.”
What is the specificity prong? No one really has any clue as the Fifth Circuit (which effectively invented it) declined to address it in SBC.
All this overlooks the fact that Bill of Attainder jurisprudence is in quite a bit of disarray and this would make for a very juicy (and time-consuming) case if it went to the Supreme Court. The legislature, and the New York Attorney General, is hardly helping itself with the level of punitive sounding rhetoric that daily issues forth from those offices to clog the public record. Neither would it serve the legislation if anyone bothers to recognize that AIG was basically given the green light by the very people now up in arms over the “outrage” of these bonuses, and that they have been “approved” since 2008.
So, instead it looks like, in order to avoid that particular courtroom morass, we will get a wide-ranging executive compensation cap of the sort that was violently resisted not a few months ago. And no one dares vote it down now. Hurray for our side!
You knew AIG was going to be shedding assets as quickly as humanly (or inhumanly) possible. You also knew that some of this stuff was going to go at firesale prices. Be this as it may, the panic sale of AIGs buildings is something of a surprise:
Six months ago, sources had estimated that 70 Pine St. could command between $310 million and $385 million, in part because the Art Deco Tower with its lovely architectural details and relatively small floor plates would have made an ideal condo conversion. At this point, however, it is highly unlikely anyone would want to convert the tower in a deepening recession that has already sent apartment prices reeling and left a vast number of units vacant.
AIG HQ to sell at fraction of price [Crains New York]
We aren’t sure if Goldman took lessons from Greenspan, or if Greenspan learned from Goldman, but either way, the density of the Goldman discourse on a given AIG question reaches neutron star levels while entropy is impossibly high. Consider this bit from a recent Reuters Q&A:
QUESTION: If Goldman Sachs was collateralized and hedged on its AIG positions, why did it take $12.9 billion of taxpayer money?
ANSWER: “Goldman Sachs has maintained that its exposure to AIG was collateralized and hedged. The majority of Goldman Sachs’ CDS (credit default swap) exposure to AIG Financial Group was collateralized. That means that Goldman Sachs had collateral. To the extent it wasn’t collateralized, Goldman Sachs hedged its exposure via the credit default swaps market. If the government had allowed AIG to fail, Goldman Sachs would have received its collateral. A credit event would be triggered, and Goldman Sachs would receive a payout from the credit default swap insurance that it had. This is from other counterparties.”
Separating out the money Goldman received due to AIG’s securities lending obligations, DuVally said: “AIG was not allowed to fail. So there was no payout from the hedges. Additionally after the bailout there was some additional deterioration in AIG’s position. Under the terms of the contracts that Goldman Sachs had with AIG, it was entitled to collateral. We were always fully collateralized and hedged.”
What he said.
Q&A with Goldman Sachs over AIG bailout [Reuters]
I know you thought Jack Welch had faded away. We did. Sure, he’d appear at this or that conference. Make a speech here or there. But we were kind of convinced that he had a body double doing all this work while he played bridge at the secret Welch Hideaway Compound. Well, that was until his appearance last night with Larry Kudlow when the guy who gave us Jeffrey R. Immelt poured out his heart. He had some not-so-kind words for the new “owners” of AIG:
KUDLOW: Geithner and his group should have called Liddy down to Washington. I don’t understand this. And just sat him down and say, okay, here is the way life works. Here’s the way it’s going to work. Is that what you’re saying?
WELCH: It should have been resolved between Liddy and the Treasury, or the Fed, or whoever it is that represents the US government who is the owner of AIG! The idea that these guys who own it, can now all throw rocks at it, makes no sense. It would be like a board of directors throwing rocks from the outside and not being responsible.
Jack makes a good point. The government has always seemed to believe that owning a majority stake of common somehow grants them some sort of mystical micromanaging power over individual salaries and operational details that would make a Chancery Court puke. Are all these lawmakers just this clueless about corporate governance? Or is the current outrage really just populist pandering? Given that the details of AIG bonuses have been public and in front of Congress for quite some time and this bit of outrage is so sudden and violent, we think the latter.
An Interview With Jack Welch [CNBC]
Britain’s serious fraud office and U.S. regulators are combing through the records of AIG’s Financial Products Group, formerly located on the fifth floor of an office building in London’s
The unit’s small group of traders risked nearly half a trillion dollars to insure U.S. mortgages and other debt using complex financial products called credit default swaps, according to recent congressional testimony.
$280 million of the in-falling currency matter apparently went to the group’s head, Joseph Cassano, over the course of the last eight years.
AIG’s Small London Office May Have Lost $500B
FOX Business Network has won a victory against the Treasury Department in its Freedom of Information Act request for details about the government’s bailout plan.
Judge Richard J. Holwell of the U.S. District Court for the Southern District of New York said in a decision Friday that the government is directed to comply with FOX Business’s request under the FOIA “within 30 days and to produce a Vaughn index with 45 days.”
The initial request, filed on Nov. 25, sought actual data on the use of the bailout funds for American International Group and the Bank of New York Mellon, and an additional request, filed on Dec. 1, sought similar data on the bailout funds for Citigroup.
FBN asked the Treasury Department to identify, among other issues, the troubled assets purchased, any collateral extended, and any restrictions placed on these financial institutions for their participation in this program.
Cody must be thrilled.
FOX Business Wins FOIA Lawsuit Against Treasury [FBN]
What do you do when you are on the hook for notional CDS amounts 30-50 times the actual face value of a bunch of worthless ($0.10 on the dollar) bonds? Why, buy the bonds at 100% of face, of course. This is especially clever if you are using the taxpayer’s dime. Not that we know anyone for sure who is actually doing this or anything, you understand. Just a rumor. Nothing to see here.
AIG has managed, probably despite all efforts, to keep itself in the news the last several weeks. Among other things, it’s been enough to attract the attention of authorities in the United Kingdom. To wit:
American International Group Inc.’s financial products unit, which brought the firm to the verge of collapse with bad bets on credit-default swaps, is being investigated by U.K. regulators for possible criminal conduct.
U.K. investigators are working with authorities in the U.S. who are conducting separate reviews, the Serious Fraud Office said today in a statement. The company is cooperating with the probe, which isn’t related to insurance operations, New York- based AIG said in a separate statement.
“We will use our full range of powers to seek information and to speak to those with an inside knowledge of the company’s operations,” said Richard Alderman, director of the SFO, in the statement. “It is right for us to look into the UK operations of AIG Financial Products Corp., to determine if there has been criminal conduct.”
Know about the inside workings of AIG but the Feds leave a metallic taste in your mouth? You have other options too.
AIG Financial Products Unit Probed by U.K. Regulators [Bloomberg]