Seething Over Liddy's AIG-Goldman Connection 33 comments
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By Simon Johnson
I don’t generally overreact to news (from the NYT this morning, on the AIG-Goldman connection that runs through Edward Liddy’s stock ownership), but this has gone far enough.
Have we completely lost our sense of what is and is not a conflict of interest? Have we really built a system in which greed fully overshadows responsibility? Is it not time for a complete rethink of what constitutes acceptable executive behavior?
One of our country’s leading corporate attorneys made a telling point to me on Wednesday night, “the only way to control executive behavior is to criminalize it,” i.e., civil penalties do not change behavior - the prospect of jail time has to be on the table. His broader point was that antitrust action can make a difference in today’s world, but only if this includes potential criminal charges.
The same NYT article reports the following official statement from AIG.
“A.I.G. is a large institution that engages in standard commercial activity with companies all over the world,” Ms. Pretto said. “These activities are handled in the normal, day-to-day course of business and rarely, if ever, rise to the level of the C.E.O.”
I have three specific comments on this.
1) Do not insult our intelligence. Either Mr Liddy is running the company or he is not. Of course a CEO doesn’t handle every detail, but he/she sets the tone, the compensation, and - have we forgotten? - is responsible for what happens.
2) According to the NYT report, Mr Liddy has an apparent conflict of interest. Please answer these questions as simply and directly as possible, because otherwise they will be repeated indefinitely. When did Mr Liddy disclose this and to whom at the Federal Reserve Bank of New York (or to which other responsible government officials)? What did Hank Paulson, then Secretary of the Treasury and former CEO of Goldman Sachs, know and when did he know it?
3) If the Obama Administration thinks this is a storm in a teacup, think again (I’m sure Valerie Jarrett gets this, but someone please check). Straws may or may not break camels' backs, but simple symbolic issues - that millions of people can understand and relate to - can bring major political damage in the midst of a broader, more complex economic fiasco.
Let me be very clear on my position vis-a-vis AIG-Goldman and the broader Washington-Wall Street Corridor. I’m not saying that anyone has broken any laws, but rather that laws need to be changed. I’m not even saying that there have been transgressions against the prevailing code of ethics for executives and politicians - although surely we agree that this code needs to be dragged, kicking and screaming, into the 21st century.
I’m just saying that we have a problem - ultimately, with the belief system that underpins how big finance behaves - and we need to fix it.
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If all the major banks -Goldman Sachs, J.P. Morgan, Citigroup and probably Bank of America (on Monday) are reporting quarterly earnings way above analysts' earnings estimates based on profits in trading fixed income, who is taking all the losses?
Private equity, Hedge Funds, or the American Taxpayer?
Guess we all know the answer to that question.
Hope you do several articles on the phony earnings being reported by these guys.
Regards.
Adam Smith, Jr.
On Apr 17 04:18 PM Gary A wrote:
> The GS thieves have done their thieving legally. But they are morally
> bankrupt and we will see the Geithners, Paulsons, Summers and Liddys
> of the world ultimately get their just reward. They came into the
> world with nothing and they will exit with nothing.
On Apr 17 05:11 PM Alan Young wrote:
> I was misinformed. I thought we had a new administration in Washington.
> Now I understand that this is just the 16th (or so) year of the
> Goldman-Sachs administration.
Which insolvent company makes its debt/obligations whole? Only if Goldmand/Pualson are at the receiving end.
The system is corrupt beyond belief.
Dick Cheney's connection was very upfront and public. It was a government contract, not a gift of taxpayer dollars. If he had any significant money in Halliburton, he lost his short! Check the history of the stock price. Not really a great contract. Not really much of a scam either.
In this case someone has lost their money and is replacing it with our taxpayer dollars. The conflict of interest information was also not disclosed by he or his current employer.
On Apr 17 01:29 PM Just Say Whoa! wrote:
> >Seething Over Liddy's AIG-Goldman Connection
>
> Funny, I don't remember any Republicans "seething" over Dick Cheney's
> Haliburton connections, no?
>
> "IOKIYAR"
On Apr 17 12:05 PM User 396757 wrote:
> He was placed in charge od AIG by the government. You would have
> thought he was completely checked out on these issues. Having said
> that and having been exposed to the Administration's Cabinet nominations,
> this is a non-event. You simply need to learn better that politicans
> have their own set of rights and wrongs. The Obama Administration
> should have more focus on all these issues, such as everyone so far
> in charge of this stimulus is an alum of Goldman. Why aren't you
> focused on the whole instead of just continuing to focus on the AIG
> government pipeline to bailout the institutions they did not want
> to publically address. Spend a little of your Barney Frank oversight
> of the GSE's while his significant other was head of product development
> or better yet how many members of congress had family or significant
> others working at the GSE's while they voted or continue to vote
> on their funding. Hell man report the news and stop trying to make
> news. This conflict of interest seems much deeper than AIG and Liddy.
> The Liberal Media just seems to have another agenda and most just
> deals with not focusing on the inept leadership and taking of responsibility
> by those still in power that had as much to do with this debacle
> as anyone at AIG Financial Products.
when the fox is guarding the henhouse you gt lots of unattached feathers lying around.
> jack
Mr. Rines,
Do you honestly think that "the citizens" will "take care of one another" if the sort of cataclysmic crash you so gleefully predict occurs? You are a fool if you do.
With the stupendous volume of hateful bile unleashed by the election of an "other" and directed at the poor, at minorities, at immigrants, at LGBT folks, at scientists -- at anyone except religious Caucasian heterosexuals -- you can expect all those guns flying off the shelf to be used on your fellow Americans.
This is not the 1930's when Americans still had a commitment to shared sacrifice and genuine love of country. Today people are motivated by selfish narcissism and filled with raving lunacies from people whose mental circuitry is clearly dysfunctional. Because of the mass media people who have enormous public platforms but no real connection to the world of cause and effect, consequences, and real responsibility can infect impressionable anti-social people on an unprecedented scale. You know who they are and the hateful things they advocate.
Be careful what you wish for. Sometimes fulfillment comes in a pretty box; sometimes it comes in a coffin.
On Apr 17 02:00 PM Jason Rines (iThinkBig) wrote:
> The current economic system will collapse in mid 2011 or early 2012.
> The citizens will flush the 'no-oversite' committees, default on
> the debt, face a couple of tough years and move on. Take care of
> one another in-between. Government's version of 'sharing' is wealth
> contraction across the board when in conjuction with Financial market
> collusion. You as gentlemen will need to take care of neighbors.
> I am doing my part already as some of you will find out soon enough
> - Viva la Liberty.
CHICAGO STYLE APPOINTMENTS). Have you ever seen so many tax freaks ("I just simply overlooked them, sorry") or socialist tendencies in contradiction to our successful history in one government administration. Good grief, you are scattering smoke to distract or blind your readers.
The focus on Goldman is becuase they were in the room with their alumnus in Treasury when the AIG scheme was hatched. Payments to other banks was collateral damage and absolves Goldman not in the least..
On Apr 18 08:13 AM wobatus wrote:
> Ed Liddy isn't running AIG to pad his pockets or reward Goldman.
> The focus on Goldman is obsessive. Lotsa banks got tarp funds and
> were counter-parties to AIG. Deutsche. Societe. etc. Money ws given
> to AIG to make counterparties whole. You can have an issue with that,
> fine. But AIG wasn't supposed to just sit on the funds. That was
> what it as for. You go run AIG for free. I really would like to see
> what all these nattering nabobs on the internet would do or would
> have done. Capital was fleeing in November. As bad as things got,
> I think things would have been worse and we would have a Greater
> Depression.
This was old news; why do you think it worthy of discussion? Geithner proved he was in Wall Street's backpocket last year. The GS CFO declined to modify the AIG contracts. GS gets billions of US taxpayer money from AIG, then reports a better than expected quarter, and wants to pay off the USG. Of course, all this is lost in the background of the wayward fools in Congress nattering on about AIG bonuses. My opinion on what should be done tax wise was submitted in March - put a corporate clawback in place:
• Any companies that receive payouts from AIG on CDS instruments that were purchased as a speculation, not as a hedge on an owned security, will be taxed at the clawback rate.
• Any companies that receive AIG payouts on legitimate hedges using CDS instruments, or had instruments repurchased by AIG, will pay the clawback tax rate on the different between the payout value and the lowest mark-to-market accounting value of the hedged security.
• Any companies receiving collateral transfers from AIG per CDS contractual obligations will pay taxes on imputed interest on the collateral at the clawback rate.
Irrespective of who the bail out was for, this guarantees the tax payers doesn't get taken to the cleaners.
> . THe First thing they Must do is END the FED ! The Private Banking
> Cartel that MERELY USES THE TERM FEDERAL to DELUDE THE MASSES
> !
I agree 100%. Kennedy did try that with his "executive order" but was killed few months after. I wonder why no one talks about that.
On Apr 18 08:13 AM wobatus wrote:
> Ed Liddy isn't running AIG to pad his pockets or reward Goldman.
> The focus on Goldman is obsessive. Lotsa banks got tarp funds and
> were counter-parties to AIG. Deutsche. Societe. etc. Money ws
> given to AIG to make counterparties whole. You can have an issue
> with that, fine. But AIG wasn't supposed to just sit on the funds.
> That was what it as for. You go run AIG for free. I really would
> like to see what all these nattering nabobs on the internet would
> do or would have done. Capital was fleeing in November. As bad as
> things got, I think things would have been worse and we would have
> a Greater Depression.
Senator Grassley also.
If we are not active we will deserve what we get.
It is distasteful and they shouldn't have gotten too big to fail to begin with. But i also think doing nothing would have been disastrous. I don't know that GS would have failed. At that time, fear was rampant, and runs can become self-fulfilling.
The question to me isn't so much did GS have influence as whether what was done was correct. What as the alternative and what would have happened. Since we don't know for sure what would have happened, very easy to give counter-factuals. Given that the financial system did not collapse, and it appears that it came close to in the Fall, it is possible some benefit came from using AIG as a conduit.
This isn't all a secret. Everyone knows, hank Paulsen was at Goldman, Bob Rubin, late of citi, was at Goldman. Yeah, we know. Kashkari was at Goldman. They had a hard time replacing him. He was willing to serve. A lot of others are not.
I have a friend who is an economist. He was at the Fed, then at a big bank. They asked him if he wanted to work for TARP (this was Bush admin., pre-Obama). He said no. What thanks would he get? Less money. Intense scrutiny of his personal life and some FOIA request for every e-mail he ever sent, and maybe sent packing when new admin came in-even though he isn't exactly political or a registered republican or anything? No, he is not from Goldman. :)
Ed Liddy didn't have to come do this job for a buck either. The folks who post on message boards, me included, generally couldn't do the job or wouldn't do the job. Count me in both categories.
I tend to think these things happened haphazardly, and not by nefarious design.
And Tim Geithner never worked for Goldman and was born into a life of public service. He may have grown close to them, but I just don't see the evil conspiracy most people see, although there's obvious appearances, and the whole caesar's should be above reproach kinda thing.
Have a great end of your weekend everyone. Enjoy it.
On Apr 18 09:13 PM Allan Frain wrote:
> "The focus on Goldman is obsessive. Lotsa banks got tarp funds and
> were counter-parties to AIG. Deutsche. Societe. etc"
>
> The focus on Goldman is becuase they were in the room with their
> alumnus in Treasury when the AIG scheme was hatched. Payments to
> other banks was collateral damage and absolves Goldman not in the
> least..
Lotsa bankruptcies are last minute panic decisions. I'm a bankruptcy lawyer and they can be disasters. :) LEH from what I gather was not very pre-planned and has been a bit of a bear to deal with.
Since the alternative did not happen, I guess we don't know if things would have ended disastrously if the government just stepped back and let the chips fall where they might, or if they nationalized everyone.
And maybe in the fullness of time, when and if investigations find out what went down, perhaps it was all a conspiracy, or engineered, or done to help Goldman. Maybe Goldman just was more cautious and better prepared than Bear an LEH.
On Apr 19 12:26 PM dcb wrote:
> I appear you have bought into their argument hook line and sinker.
> Isn't it strange that every argument they always make appears to
> line their won pockets. Unless you give me your money you will be
> worse off. :-) . The way that Lehman went down is what caused the
> problem. They were allowed to go down the way that they did. The
> had no plans for an organized bankruptcy and this caused chaos. the
> chaos was done on purpose to secure funds form the government and
> lack of oversight. It worked beautifully. A real coup.
With hate broadcast 24-7, and the MSM using 80-year-old women along the gulf coast for sound bites, America *still* voted for the pro-LGBT, very-pro-abortion minority candidate.
I guess you missed 2008.
This says more about you than the rest of the country.
[All immigrants are legal - I concede in advance that could change attitudes.]
On Apr 18 01:24 PM Anandakos wrote:
...With the stupendous volume of hateful bile unleashed by the election ...of an "other" and directed at the poor, at minorities, at immigrants... at LGBT folks, at scientists -- at anyone except religious Caucasian... heterosexuals -- you can expect all those guns flying off the shelf...to be used on your fellow Americans....