SIGTARP Neil Barofsky- who is testifying later today- is adding oil to the AIG fire, saying in prepared remarks that French regulators were actually willing to negotiate AIG’s obligations after all. The claim further undercuts the argument the Fed has been using all along, namely that they didn’t push domestic counterparties to take haircuts as foreign regulators were unwilling and/or legally barred from taking discounts.
bailout
Timmy G, who, as we know is getting really frustrated with the whole AIG bailout storyline, apparently had a nice convo with Warren Buffett, Jamie D. and Lloyd on the day AIG was bailed out, at least according to phone logs submitted by the Fed in response to a subpoena last week from the House Oversight and Government Reform Committee.
Tim- who will testify next week- is maintaining, he never “looked at AIG memos” and that he “wasn’t involved in any AIG decisions.” Actually, he doesn’t even have any idea what AIG is. That talk with the big boys? Wasn’t him on the phone. Now leave him alone. Go harass Ben.
Ah Bernanke and his perfect sense of timing. Ben decided to play nice today and wrote a letter to GAO Acting Comptroller Gene Dodaro to let him know that the Fed would “welcome a full review by GAO of all aspects of our involvement in the extension of credit to AIG.”
Even though he’s on the verge of losing patience, because the Fed “has also provided significant information about its lending actions regarding AIG to the Congress in testimony and correspondence, to the GAO in connection with its original report in September 2009, and to other oversight bodies such as the Special Inspector General for the Troubled Asset Relief Program,” Ben pledged that he will “make available to the GAO all records and personnel necessary to conduct this review.”
Is there really anything else to add?
Fannie Mae and Freddie Mac are often referred to as “government sponsored entitities” but which government are we talking about? As it turns out, the Russians, Taiwanese and other funds sovereign hold most of the bonds of these companies. China, in particular, has between $ 400 billion and 600 billion invested. That represents a whopping 10% of China’s Gross Domestic Product.
Brad Setser argues that the entities might not only be too big too fail, they’re too Chinese and too Russian to fail. Given this huge foreign investment, holding off the collapse of the GSE’s looks like far more than a financial decision. It’s a foreign policy imperative. Hank Paulson, who has spent a lot of time reaching out to China, is no doubt keenly aware of this.
Setser argues that this foreign policy imperative means that there is no way bondholders in the GSEs won’t be made whole. These are, in effect, Treasuries. After the jump, see Setser’s chart illustrating the international holdings of agency debt.
Too Chinese (and Russian) to fail? [Follow The Money]
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