Nail 'Em To the Wall

[prole]

Panel Told of F.B.I. Efforts to Fight Financial Crime

 

Attorney General Eric H. Holder Jr. told a panel created to examine the reasons for the financial crisis on Thursday that the Justice Department was working to hold accountable those who had contributed to the near collapse and to prevent similar conduct in the future.

 

In that vein, Mr. Holder said, the F.B.I. was investigating more than 2,800 mortgage fraud cases, almost five times as many as the 534 inquiries in 2004. The efforts to fight financial crime, Mr. Holder said, will foster confidence in the system.

 

Mr. Holder was the first witness to appear as the panel, the Financial Crisis Inquiry Commission, began its second day of hearings on Capitol Hill. Among the witnesses for the second day were Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation, and Mary L. Schapiro, chairwoman of the Securities and Exchange Commission, who both spoke of the need for regulatory reform.

 

In his comments, Mr. Holder identified several of the agency’s recent successes: the conviction of Bernard L. Madoff for running a giant Ponzi scheme; the arrests of Raj Rajaratnam and Danielle Chiesi, who have been accused of perpetrating the largest insider-trading ring in the history of hedge funds; and the sentences meted out to officers of National Century Financial Enterprises after their convictions on conspiracy, fraud and money-laundering charges.

 

Of the 2,800 mortgage fraud investigations under way at the Federal Bureau of Investigation, most — 1,842 — were classified as major cases, which meant they involved more than $1 million in losses. As of November, federal charges related to mortgage fraud were pending against 826 defendants.

 

Mr. Holder, who was joined by Lanny A. Breuer, the assistant attorney general for the Justice Department’s criminal division, said that federal authorities were determined to bring to justice “businesses or individuals whose disregard for the law has hurt the pocketbooks” of ordinary Americans.

 

In his remarks, Mr. Breuer said the fraud cases included loan origination schemes, property flipping, foreclosure rescue schemes and loan modifications. The culprits, he said, included real estate brokers, appraisers and bank insiders as well as borrowers and “plain old fraudsters who gravitated to mortgage fraud.”

 

Ms. Bair,, who has been outspoken in her assessment of the regulatory system’s failings, said in her prepared remarks that it was essential to create a way of breaking up large banks without resorting to government support.

 

“The financial crisis calls into question the fundamental assumptions regarding financial supervision, credit availability and market discipline that have informed our regulatory efforts for decades,” she said. “We must reassess whether financial institutions can be properly managed and effectively supervised through existing mechanisms and techniques.”

 

But Ms. Bair also said that the underlying causes of the crisis were deep-rooted.

 

“This crisis represents the culmination of a decades-long process by which our national policies have distorted economic activity away from savings and toward consumption, away from investment in our industrial base and public infrastructure and toward housing, away from the real sectors of our economy and toward the financial sector,” she said.

 

Ms. Schapiro also spoke of the need for broad regulatory reform, but she added a plea for more stable budget resources. She pointed to problems in the regulation of asset-backed securities, an excessive reliance on credit rating agencies, inadequate regulation of over-the-counter derivatives and executive compensation that encouraged unhealthy risk-taking.

 

And she expressed sympathy for the idea of a council of regulators “with the power to evaluate risk across the financial sector,” and added, “Large, interconnected institutions should be supervised on a consolidated basis.”

 

The House last month adopted a broad overhaul that would give the government new powers to break up huge companies, create a new consumer financial protection agency and tighten oversight of derivates trading. The Senate has yet to vote on the measure.

 

Ms. Schapiro added a plea for more stable budget resources.

 

Unlike other regulators, she said, the commission depends for its financing on the president’s budget and Congressional appropriations.

 

“As a result, the S.E.C. has been unable to maintain stable, sufficient long-term funding necessary to conduct long-term planning and lacks the flexibility to apply resources rapidly to developing areas of concern,” she said in prepared testimony.

 

As the second day of hearings proceeded, varying priorities among the 10 commission members — six appointed by Democratic lawmakers and four by Republicans — emerged.

 

For example, the commission’s chairman, Phil Angelides, a Democrat and a former California state treasurer, asked Mr. Holder about reports that the head of the Justice Department’s criminal division had warned in September 2004 of an “epidemic” of mortgage fraud that, if unchecked, could match the savings-and-loan crisis of the 1980s in magnitude.

 

Mr. Angelides also spoke of complaints that after 9/11, hundreds of Justice Department investigators who had been dedicated to white-collar crime were transferred to counterterrorism work. Implicit in Mr. Angelides’s questions was criticism of the administration of President George W. Bush.

 

In contrast, Bill Thomas, the commission’s vice chairman, a California Republican and a former chairman of the House Ways and Means Committee, pressed Mr. Holder on whether the Justice Department would share information with the commission — as much as is legally possible — as regulatory agencies had done.

 

“We’ll certainly work to make such an agreement possible,” Mr. Holder replied, while noting that prosecutors are sometimes barred by the Privacy Act and federal rules of criminal procedure from divulging information.

 

“O.K., I don’t interpret that as yes,” Mr. Thomas cut in, saying that “we simply cannot conclude our job in the timeframe Congress has assigned us” if timely information is not provided. The commission is to submit a final report to President Obama and Congress by Dec. 15.

 

During the question-and-answer session, Mr. Angelides homed in on credit rating agencies, saying there had not been enough competition. “Isn’t the whole system essentially broken?” he asked Ms. Schapiro. “It was proved to be worthless, broken, and it remains so today.”

 

Ms. Schapiro said the S.E.C. had taken steps to tighten standards for the rating agencies since 2006, when it gained powers to regulate them.

 

When Mr. Thomas asked Ms. Bair why the F.D.I.C. did not collect insurance premiums from many large banks “for a decade before the crisis,” Ms. Bair replied that the agency lost its ability to charge such premiums to well-capitalized banks (about 98 percent of banks) in 1995 and regained it only after she took office in 2006.

 

Later on Thursday, the commission will hear from a panel of state and local officials, including two attorneys general, Lisa Madigan of Illinois and John W. Suthers of Colorado; Denise Voigt Crawford, commissioner of the Texas Securities Board; and Glenn Theobald, chief counsel to the Miami-Dade County Police Department. -- NYT 1/15/10

 

Lawmaker wants Geithner's AIG records, testimony

 

WASHINGTON (Reuters) - The chairman of a U.S. congressional panel said he wants to see all of Treasury Secretary Timothy Geithner's communications about the Federal Reserve's payouts to counterparties of insurer AIG Inc at 100 cents on the dollar after a government bailout.

 

Geithner was president of the New York Fed in September 2008, when the government stepped in to rescue American International Group at a cost to taxpayers of $180 billion.

 

House of Representatives Oversight Committee head Edolphus Towns, a New York Democrat, on Wednesday invited Geithner to testify at a January 27 hearing and to respond to the request by January 15.

 

Geithner should be prepared to testify about his role in AIG matters including any advice about payments by AIG to counterparties, Towns said.

 

Towns has previously referred to the Fed's decision to compensate in full firms that had contracts with AIG as a "backdoor bailout." He said he has also subpoenaed Geithner's e-mails, phone logs and meeting notes about the decisions surrounding public disclosure of the counterparty payments.

 

New York Fed President William Dudley defended the central bank's actions surrounding the AIG rescue, saying the firm's collapse would have triggered a devastating cascade of failures.

 

"AIG was a building on fire," he said in an interview with Nightly Business Report on PBS. "We have acted completely in the spirit of the law, letter of the law, in everything that we've done."

 

Towns questioned why the Fed made full payments to some of the most profitable companies in the world when AIG was facing bankruptcy. He said AIG documents suggest the New York Fed wanted to keep details of the counterparty payments hidden.

 

"When average people were losing their homes and their jobs, the Bush Administration decided to use taxpayer dollars to give a backdoor bailout to the biggest players on Wall Street," Towns said.

 

"We need to understand why and how taxpayer dollars were used to bailout the same people who helped cause the financial crisis in the first place," the New York Democrat said.

 

Dudley said that when the government rescued AIG, it did not have the ability to decide who would lose money and who wouldn't.

 

"People are arguing that we were trying to cover up who benefited from AIG," he said. "But the fact is, it's very clear who was going to benefit from AIG not going bankrupt, all their counterparties -- absolutely every last one."

 

Treasury has said that Geithner was "recused" from involvement in any matters related to AIG around the time that his nomination as Treasury Secretary was announced by the White House on November 24.

 

The Obama administration and New York Fed have said Geithner was not aware of any emailed advice by New York Fed lawyers to AIG to limit disclosures about payments it was making to banks on derivatives contracts.

 

Towns is also asking for emails, phone logs and meeting notes from former New York Fed Board Chairman Stephen Friedman, New York Fed General Counsel Thomas Baxter, and the New York Fed official responsible for monitoring the relationship with AIG, Sarah Dahlgren. --from Reuters 1/15/10

[billcoe]

Check your blood pressure before you read this one. LOL, filing this under the "no good deed goes unpunished" file. Side note: no one was nailed to anything in the 2 years since Prole posted that story.

 

http://www.politico.com/story/2013/01/washingtons-jaw-drops-at-possibility-of-aig-lawsuit-85924_Page2.html

 

 

Washington's jaw drops at possibility of AIG lawsuit

 

By BEN WHITE and ANNA PALMER | 1/8/13 5:09 PM EST

 

Remember when AIG took a $182 billion bailout only to turn around and hand out seven-figure bonuses to the same guys who tanked their company?

 

Grab the pitchforks — it gets better.

 

Now the insurance organization might join a lawsuit against the U.S. government over the terms of the bailout — saying the deal that saved the company cheated shareholders.

 

Treasury Secretary Timothy Geithner — who faced calls for his firing over the AIG bailout — and Federal Reserve Chairman Ben Bernanke are furious, according to one Democratic lawyer. Other officials inside the agencies were angered by the news, too, sources in the department told POLITICO.

 

Neil Barofsky, former inspector general for the Wall Street bailout said AIG’s possible lawsuit would be a “giant middle finger to the taxpayer.”

 

One of President Barack Obama’s top aides agreed: “Definition of Chutzpah: AIG, saved by taxpayers, contemplating suit,” David Axelrod tweeted.

 

Many Treasury and Fed insiders have long believed the terms of the AIG bailout — which only wrapped in recent weeks — were far too generous, not too punitive as the lawsuit is expected to contend.

 

(Also on POLITICO: Silver lining: Delay in hitting debt limit)

 

This week, the AIG board will consider whether to join a $25 billion lawsuit over whether the terms of the bailout were unfair to shareholders, who claim they were deprived of billions of dollars.

 

AIG began airing ads in recent weeks that say "thank you" to Americans for the rescue — a sentiment AIG's CEO Robert H. Benmosche assured is sincere in a statement the company released Tuesday night.

 

“AIG has paid back its debt to America with a profit, and we mean it when we say thank you to the American people,” said Benmosche.

 

He went on to explain that the company has no choice but to consider suing the government. “At the same time, the board of directors has fiduciary and legal obligations to the company and its shareholders to consider the demand served on us and respond in a fair, appropriate, and timely manner. Tomorrow’s board meeting is about listening to all of the parties involved and gaining a thorough understanding of the issues. We anticipate making a decision in the next several weeks.”

 

The Treasury and the Fed haven’t released official responses to the news of the potential lawsuit, first reported by The New York Times.

 

One former administration official, who worked on the AIG bailout, was in a state of disbelief.

 

“I can’t imagine that they will actually do it. Because whatever recovery they might possibly gain would be totally swamped by the enormous hit to their reputation,” the former official said. “What I don’t understand is why they have not ruled it out already. They have had plenty of opportunity to do so.”

 

This week the AIG board will consider whether to join a $25 billion lawsuit.

 

Warren served on a congressional task force that helped provide oversight of the $700 billion Wall Street bailout law.

 

Rep. Elijah Cummings (D-Md.), ranking member on the House oversight committee, agreed.

 

“[The] idea that AIG might sue the govt is an unbelievable insult to our nation’s taxpayers, who cleaned up the mess this firm created,” Cummings said, according to a tweet by @OversightDems.

 

“It highlights the worst about what people think of the financial services industry,” said one senior Democratic House aide. “It undermines any sliver of credibility they may have had.”

 

The aide said if AIG pursues the litigation he would expect hearings on Capitol Hill.

 

The company’s board of directors is set to hear arguments by the government and Starr International, once one of the largest investors in AIG that is led by former AIG CEO Hank Greenberg, according to The Wall Street Journal.

 

Dennis Kelleher, chief executive of the financial reform group Better Markets, called the notion of AIG suing taxpayers over the terms its own bailout absurd, but he believes there may be an unintended and beneficial impact of pulling back the curtain on where the bailout money went, including to AIG’s Wall Street counterparties. The idea that the AIG rescue was a “backdoor bailout” for Wall Street has long been a rallying cry for progressive groups.

 

“The idea of AIG, which got this sweetheart bailout deal with no strings attached, forcing Treasury and the Fed to parade into a board meeting and explain the terms of that deal is incredible,” Kelleher said. “But a lawsuit that actually explains exactly what went on with this mess might be a great public service.”

 

Scott Harrington, a professor at Wharton School of Business, said that the company actually benefited from the government bailout beyond just the financial investment.

 

“AIG was able to keep a lot of its commercial property casualty business especially because of government bailout. Those clients would have moved to other major insurers,” Harrington said, leaving a smaller business portfolio if the company had to go into bankruptcy. “The fact that AIG was backed up by the government allowed them to retain business that they probably should have lost given what occurred.”

 

Mo money mo money mo money......

 

 

[Jim]

Gretchen Morgenson of the NYTs has been reporting on these financial and Fed crooks for a number of years - if you want a good read, check out here summary of the housing fallout in Reckless Endangerment.

 

Link to Gretchen's Articles