Federal Reserve moral hazard smoking gun

(While I prefer to post about cleantech at night, about something optimistic and positive rather than just more on the slime oozing out of Wall Street. However this story looks to be huge. Mark my words, the AIG scandals will metastasize into a cancer that will make Enron look small.)

In August 2008 Goldman was willing to tear up AIG derivative contracts, offered to take haircut

Yet the NY Fed forced AIG to stand-down, made them pay back at 100% (which gave the investment banks billions) and has tried desperately to cover up what happened ever since. WSJ broke the story.

Zero Hedge

The implications of this discovery are huge as they essentially destroy all the arguments presented by the FRBNY about an inability to extract concession out of Goldman (which being the largest AIG CDO counterparty, was the critical negotiating factor). It also casts doubt on the veracity of any arguments presented in Congress by Goldman representatives discussing the potential to take a haircut on their AIG exposure. What this means in plain English is that, in the month before the Fed entered the scene, GOLDMAN SACHS ITSELF OFFERED TO TEAR DOWN THE CDS ON AIG’S CDO PORTFOLIO (we don’t use caps lock lightly).

This is basically a smoking gun on the moral hazard issue perpetrated by the FRBNY when it got involved, and indicates that through their involvement, Tim Geithner, Sarah Dahlgren or whoever, not only did not save US taxpayers’ money, but in fact ended up costing money, when they funded the marginal difference between par (the make whole price given to all AIG counterparties after AIG was told to back off in its negotiations) and whatever discount would have been applicable to the contract tear down that had been proposed by Goldman a mere month earlier. This, more so than anything presented up to now, is the true scandal behind the New York Fed’s involvement.

If this November Blackrock report indeed exists, and if Goldman did in fact offer to tear down contracts, this is an act of near criminal implications and heads at the FRBNY must roll immediately.

TARP IG opens two new investigations of AIG.

“If anyone at the Fed thought that this investigation will stop after Wednesday’s hearing – they are completely mistaken,” [Rep. Darrell] Issa said in an emailed statement. “There has been a widespread effort by officials at the NY Fed to thwart transparency and we will continue to pursue this investigation for as long as it takes to get the truth.”

NY Fed emails about AIG coverup

SEC mulled national security status for AIG details. Yes, they wanted to invoke national security to cover their trails. What are they hiding?

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