Published by WallStreetWeather.net
Remember Ben Bernanke’s fake anger over the government’s bailout of AIG and the government-induced hysteria that erupted in mid-March over bonus payouts at AIG that were approved by the Fed and Treasury?
In “New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers,” Bloomberg reports that prior to the government taking 79.9% control of the company, the CFO of AIG’s Financial Products Division was in the process of negotiating with the banks who bought credit default swaps on CDOs from AIG to agree to accept payouts of around 40 cents on the dollar.
But once the government took majority control of AIG, Timothy Geithner who was then president of the New York Fed, along with Bernanke and then Treasury Secretary Hank Paulson, took over the negotiations. According to Bloomberg, people who saw a draft of the term sheet said that part of a sentence containing a blank space intended to show the amount of the haircut the banks would have taken was crossed out.
By making an almost bankrupt company pay counterparties at par (100%), the Federal Reserve has cost taxpayers at least $13 billion. This was unnecessary since a precedent had already been established by bond insurers such as Ambac (ABK) who got banks to agree to take a haircut on CDS commutations. Beyond the fact that the government paid far more than necessary, these banks probably had hedges against the insured CDOs or had already taken writedowns on their value.
Goldman Sachs (GS) received $13 billion - the largest beneficiary of the government’s payout. The moment the government took control of AIG on September 16, 2008 Paulson replaced AIG’s recently hired chief executive with Edward Liddy,* a Goldman Sachs director. After the Fed rescued Goldman from potential collapse by allowing it to become a bank, Stephen Friedman, then Chairman of the Board of Directors of the New York Fed and a Goldman director, received a special waiver January 21 from Fed Vice Chairman Donald Kohn that had been requested by Timothy Geithner so Friedman wouldn’t have to sell his Goldman shares or resign from Goldman’s board to comply with Fed policy prohibiting a “class C” director from serving on a bank board and owning bank shares.
As I noted in a post about Timothy Geithner, Friedman was selected by the Fed Board of Governors to represent the public on the New York Fed’s Board. The former Chairman of Goldman Sachs bought 52,600 Goldman shares – after the Fed forced AIG to pay Goldman and the other banks at par and before receiving the special waiver from the Fed on his original holdings of Goldman stock.
Pluto rules secrecy. With transiting Pluto conjoining Friedman’s Sagittarius Sun then, he must have believed his stock purchases would remain secret. Sagittarius and its ruler Jupiter represent ethical issues. With his natal Jupiter in Aquarius opposing Pluto in Cancer, Friedman would have the tendency to view his situation as unique and that his conduct might be stretching the law but not technically in violation of it. Reports about Friedman’s stock purchases in The Wall Street Journal caused Friedman to resign from the New York Fed on May 7.
Despite Bernanke’s public claims to increase Federal Reserve transparency, behind the scenes Fed officials were urging AIG executives to keep the transactions secret. One top AIG executive told Bloomberg he was pressured by the New York Fed not to file SEC documents divulging details of the payments to the banks. It was only a few days before the hearing about AIG bonuses that AIG publicly revealed who the counterparties were and the amounts they received.
In “Federal Reserve Protects Its Turf For Fear Of Getting Eclipsed,” I wrote that the Fed had hired its first lobbyist, Linda Robertson, who ran Enron’s DC lobbying office. While some media outlets were fixated on Democratic Rep. Alan Grayson’s** remark about her, it obscures the real issue which is why does the Fed have its own lobbyist in the first place?!
Capricorn and its planetary ruler Saturn represent government. Pluto entering Capricorn in 2008 brought the greatest level of government intervention in the financial system since the 1930s when Pluto was in Cancer, Capricorn’s opposite sign. Saturn entering Libra and challenging Pluto now represents a time to create fairness and transparency in the relationship between the government and the financial system.
Saturn challenging Pluto will be influential for the next several months, especially now through February 2010 as many of the actions taken by the government since the financial crisis erupted last year are found to be inadequate and nothing more than a band-aid. You cannot protect the status quo with Saturn challenging Pluto as this is definitely not a “business as usual” type of energy. Saturn/Pluto requires major structural changes to transform a financial system that is out of balance. This represents the death of outmoded structures that must occur in order to lay the foundation for implementing new reforms that will begin in the May 2010 when Uranus moves into Aries and opposes Saturn and challenges Pluto.
As I have written for quite some time on this blog, no government entity will be affected by these intense energies more than the Federal Reserve.
*Edward Liddy resigned from AIG on May 21, 2009. He was replaced by Robert Benmosche, the retired CEO and Chairman of Met Life (MET).
**For something more mature, here’s a You Tube video of Rep. Grayson questioning Scott Alvarez, the Fed’s general counsel, at a September 25, 2009 House Financial Services Committee hearing on legislation to audit the Fed.
Stephen Friedman: December 21, 1937 time unknown Brooklyn, NY