I had a long talk with my friend who’s a higher-up at a hedge fund about TARP and the new TARP tax being proposed. He’s against the tax (though it would be good in a way for hedge funds since they wouldn’t be taxed) because he thinks it would be seen as a form of bailout insurance payment and would just encourage banks to think they’ll get bailed out next time, which in turn would encourage them to lever up on dangerous crap since there’s no consequences when that stuff blows up. He also said that nearly all the banks have paid back their TARP money with interest anyway.
He said that honoring AIG deals at 100 cents on the dollar was the most absurd deal he’d ever seen in lis life and that, in all likelihood, it had something to do with the fact they owed a lot to Goldman and Goldman people were running the Treasury. I was happy to see Congress question this specifically:
In his opening remarks, Edolphus Towns, the chairman of the House Oversight and Government Reform committee, said that the Federal Reserve was too secretive in its handling of the bailout.
“Secrecy leads to distrust and the American people now distrust what happened in these bailouts,” Mr. Towns said. He questioned why the banks who had deals with A.I.G. were paid out at the full value. He pointed out that in private industry, concessions are sometimes made in deals if one of the companies is in trouble. But that’s not what occurred in A.I.G.’s deals with banks like Goldman Sachs and Merrill Lynch.
“The rest of Wall Street came by and looted the corpse,” Mr. Towns said.
Goldman and the others would have happily taken 60 cents on the dollar for AIG obligations (and they would have been lucky to get it). Since Goldman was owed $13 billion from AIG, this would have meant $7.8 billion instead of $13 billion so they would have got $5.2 billion less. That’s about one year’s profit for them so it wouldn’t have killed them.
This isn’t about Matt Taibbi conspiracy theories and nonsense about $24 trillion in government obligations, but there’s no way around the fact that it’s troubling for a Treasury department program run by Goldman people (Paulson, Kashkari) to have given Goldman such a sweetheart deal.
libarbarian
OFF TOPIC…. but
DougJ
OFF TOPIC…. but
Thanks! I’ll post on this later.
Rick Taylor
One thing I really want to know, that I haven’t heard the answer too, is how much of that money AIG paid out went to cover bets people made on securities they didn’t own. If a company invests in a hedge fund and buys insurance and we pay it off, that’s galling but I can stomach it. If a company makes a wager that a security they don’t own will tank and we pay it off, that’s something else altogether. Not that there’s anything wrong with shorting or speculation, I just don’t see why we should be responsible to pay off the bets.
Anton Sirius
No offense to your friend, Doug, but there’s zero evidence that they don’t still think this way already. Theirs is a consequence-free world.
That argument has no more logic in it than the one that says congressional Dems shouldn’t do controversial things because the Pubs will then run attack ads against them.
DougJ
No offense to your friend, Doug, but there’s zero evidence that they don’t still think this way already. Theirs is a consequence-free world.
That’s the point! Everything done here needs to be structured in a way that penalizes those who fucked up and makes it so that the penalties are worse next time. (Not all the banks benefitted equally from TARP — some were in okay shape — so why not whack the ones who reaped the most benefit, but not the others.)
Zifnab
Troubling, but not in the least bit surprising.
The revolving public-private door in this country is probably the single most abusable aspect of the political system. Honestly, I can’t fathom why people deride “career politicians” as those people seem to be the least likely to be on the take in the current environment.
Zifnab
@DougJ:
How do you structure a long term tax or fee that singles out banks which committed sins in the previous decade? Wouldn’t it be better to just levee a one-time Windfall Tax on any bank that received money from AIG or another institute that wasn’t able to repay it’s debt?
We could call it a Derivative Fee or something else cheeky.
And even beyond that, when you’ve got this rock bottom 15% capital gains tax that’s supposed to encourage long term investments but gets exploited to shield rapid-turnover short term gains, a transaction fee tax makes a whole lot of sense.
Taxing rapid stock flipping and other extremely short term speculation would be a good thing, in my mind. Who cares if it hurts some disproportionately to their fault in this particular crisis?
Cat Lady
“The rest of Wall Street came by and looted the corpse”
bayville
Doug your friend is correct. Compare what AIG got with what Bear Stearns got (2-3 cents on the $$$ I believe). In fairness though AIG, is/was a much more significant Corp. than Bear but that is an example of a similiar bailout of a major bank.
At the beginning of this crisis, Goldman would have been “happy” to get 60-cents on the dollar. As your friend predicted the banks are back to doing what they did prior to 2008.
One other thing, it is apparent to me while watching these House hearings with Geithner that so few of these Congressmen still don’t understand the specifics of the bailout and why Geithner was summoned to THIS hearing. It’s about his non-disclosure practices while running the NY Fed in regard to bailing out AIG.
It’s like watching children – specifically Burton, Mica, Cummings, Panjorski – and we are only 90 minutes in.
Tsulagi
Ya think?
You’re thinking oh so pre-Geithner. That $5.2 is about one quarter’s profit now.
For fourth quarter 2009 their profit was $4.95B. Another way to look at it is the 5.2 would be not quite one-third of the $16.2B in bonus money Goldman has set aside for last year’s performance.
Evinfuilt
@Cat Lady:
Cap and Trade. Goldman wants it to pass, they’ve got the legislation written for them so they can inflate and destroy it much like they did with rice and other commodities a couple years ago. Who cares if it bankrupts the middle class and allows the R’s to return to full power (oh hold on, that’s their plan, sabotage cap and trade, allow their party back in and then profit again as cap and trade is removed, then move onto the next bubble they’ll create.)
@Tsulagi:
Wow, they’re nearing Exxon profit levels and they don’t even produce anything but profit for themselves.
Cat Lady
@Evinfuilt:
Ugh.
If you’ve already platinum plated your light switches and fur lined your sock drawers, then it’s just about the game now. The SOB’s need to understand fear, and only fear of death is going to change the game. If only.
Why oh why
Well that is exactly what Taibbi is saying then. As for that “$24 trillion” number, Taibbi is wrong to repeat it without explanation, but the truth is that the Fed and the Treasury are on the hook on an unknown number of trillions in the so-called “toxic assets”, and they won’t tell anyone (not even Congress) what is on their books.
In practice, this really is like handing out X trillions of dollars in taxpayer money to the big banks, where X will be known in a few decades.
Don
I still don’t know what to make about the AIG support and wonder if we ever will. Knowing enough about the CDSes and how intertwined they’d made the whole market I am inclined to give some credit to the idea that there really was a need to prop them up lest there be a complete cascade failure.
Clearly that’s unprovable given the OTC nature of credit default swaps.
I’m also inclined to give some benefit of the doubt to claims that the AIG support was predicated somewhat on concerns about their global nature and how complete CDS failure could have destabilized some marginal nations. The complete credit freeze was an unattractive threat but I’d take it over renegade nukes and failed states.
I realize the above would be more credible if I could be arsed to google up some of the supporting links and theories but I’m so sick of the subject right now that I can’t bring myself to research stuff purely for monday morning quarterbacking purposes.
seabe
Doug, AIG was hedged, so if they only offered 60 cents on the dollar, Goldman would have gotten the rest from AIG’s hedged counterparties. Goldman would have gotten 100 cents on the dollar no matter what.
I don’t see the issue here.
J. Michael Neal
Once again, the front pagers are ignoring the foreign policy aspect of this problem.
They also continue to ignore the collateral problem.
However, I’ve gone over these so many times that I’m not going to do it again, because I can only conclude that they have chosen to deliberately ignore these issues in order to be righteously angry.
scarshapedstar
In all seriousness, if Matt’s “inside deal” narrative is a silly conspiracy, then I assume you never raised an eyebrow when the Cheney administration gave hundreds of billions of no-bid dollars to Halliburton?
JC
Talking to a buddy at another insurance industry, fyi, the money that AIG received, they were able to use in ANY WAY they wanted to.
Which means, one of the things they did, is they turned around and used some of that money to offer cheaper insurance policies, for their regular insurance division, with the TARP money, cushioning the bottom line, so that they are ABLE to lower the insurance quotes.
However – companies that are ‘regular’ insurance companies, and that DIDN’T do the speculation/leveraging game – of which my buddy is one – were not ABLE to offer the significant discounts on the insurance, and so lost business to AIG, on the year.
Talk about rewarding failure!!
GG
Thought from the headline that this was about John.
postmodernprimate
I hope he isn’t suggesting that paying back TARP with interest covers even a pittance of the cost of the bailout programs, subsidies, giveaways etc… being engineered by the fed and treasury in their desperate attempt to rebuild bank balance sheets. The bailout was far more than TARP despite PR efforts to reduce it to just that.