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AIG Gate:
The World's Greatest
Insurance Heist
By
Ellen Brown
ccun.org, February 8, 2010
Rumor has it that Timothy Geithner is on his way out as Treasury
Secretary, due to his involvement in the AIG scandal that is now unraveling
in hearings before the House Oversight and Reform Committee.
Bob Chapman writes in The International Forecaster: Each day
brings more revelations of efforts of the NY Fed and Goldman Sachs to hide
the details of the criminal conspiracy of the AIG bailout. . . . This is a
real crisis on the scale of Watergate. Corruption at its finest. But
unlike the perpetrators of the Watergate scandal, who wound up looking at
jail time, Geithner evidently has a golden parachute waiting at Goldman
Sachs, not coincidentally the largest recipient of the AIG bailout. At
least that is the rumor sparked by an article by
Caroline Baum on Bloomberg News, titled “Goldman Parachute Awaits
Geithner to Ease Fall.” Hank Paulson, Geithner’s predecessor, was CEO
of Goldman Sachs before coming to the Treasury. Geithner, who has come
up through the ranks of government, could be walking through the revolving
door in the other direction. Geithner has been under
the House microscope for the decision of the New York Fed, made while he
headed it, to buy out about $30 billion in credit default swaps
(over-the-counter derivative insurance contracts) that AIG sold on toxic
debt securities. The chief recipients of this payout were Goldman Sachs,
Merrill Lynch, Societe Generale and Deutsche Bank. Goldman got
$13 billion, roughly equivalent to its bonus pool for the first 9 months
of 2009. Critics are calling the New York Fed’s decision a back-door
bailout for the banks, which received 100 cents on the dollar for contracts
that would have been worth far less had AIG been put through bankruptcy
proceedings in the ordinary way. In a Bloomberg article provocatively titled
“Secret Banking Cabal Emerges from AIG Shadows,”
David Reilly writes: [T]he New York Fed is a quasi-governmental
institution that isn’t subject to citizen intrusions such as freedom of
information requests, unlike the Federal Reserve. This impenetrability comes
in handy since the bank is the preferred vehicle for many of the Fed’s
bailout programs. It’s as though the New York Fed was a black-ops outfit for
the nation’s central bank. The beneficiaries of the New York Fed’s
largesse got paid in full although they had agreed to take much less. In a
November 2009 article titled “It’s Time to Fire Tim Geithner,”
Dylan
Ratigan wrote: [L]ast November . . . New York Federal Reserve
Governor Tim Geithner decided to deliver 100 cents on the dollar, in secret
no less, to pay off the counter parties to the world's largest (and still
un-investigated) insurance fraud -- AIG. This full payoff with taxpayer
dollars was carried out by Geithner after AIG's bank customers, such as
Goldman Sachs, Deutsche Bank and Societe Generale, had already previously
agreed to taking as little as 40 cents on the dollar. Even after the GM
autoworkers, bondholders and vendors all received a government-enforced
haircut on their contracts,
he still had the audacity
to claim the “sanctity of contracts” in the dealings with these
companies like AIG. Geithner
testified that the Fed’s hands were tied and that the bank could not
“selectively default on contractual obligations without courting collapse.”
But if it was all on the up and up, why all the secrecy? The contention that
the Fed had no choice is also belied by a recent holding in the Lehman
Brothers bankruptcy, in which New York Bankruptcy Judge James Peck set aside
the same type of investment contracts that Secretaries Paulson and Geithner
repeatedly swore under oath had to be paid in full in the case of AIG. The
judge declared that clauses in those contracts subordinating other claims to
the holders’ claims were null and void in bankruptcy. “And notice,”
comments bank analyst
Chris
Whalen, “that the world has not ended when the holders of [derivative]
contracts are treated like everyone else.” He calls the AIG bailout “a
hideous political contrivance that ranks with the great acts of political
corruption and thievery in the history of the United States.” If
you tell a lie big enough and keep repeating it, said Joseph Goebbels,
people will eventually come to believe it. The bailout of Wall Street
initiated in September 2008 was premised on the dire prediction that if
major counterparties in the massive edifice of derivative contracts were
allowed to fall, the whole interlocking house of cards would collapse and
take the economy with it. A hijacked Congress dutifully protected the
derivatives game with taxpayer money while the real economy proceeded to
collapse, the financial sector choosing to put their money into this
protected form of speculative betting rather than into the more mundane and
risky business of making loans to struggling businesses and homeowners. In
the end,
$170 billion of federal funds went to AIG and the banks feeding at its
trough. Meanwhile, a survey of state finances by the Center on Budget and
Policy Priorities think tank found that state governments face a collective
$168 billion budget shortfall for fiscal 2010. If the money used to bail
out AIG and the banks had been used to bail out the states instead, the
states would not be facing insolvency today. There is no law
against gambling, but there is a law against fraud. In Watergate, a
special prosecutor was appointed to bring criminal charges; but times seem
to have changed. Ellen Brown developed her
research skills as an attorney practicing civil litigation in Los Angeles.
In Web of Debt, her latest book, she turns those skills to an analysis of
the Federal Reserve and “the money trust.” She shows how this private cartel
has usurped the power to create money from the people themselves, and how we
the people can get it back. Her eleven books include Forbidden Medicine,
Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to
Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are
www.webofdebt.com,
www.ellenbrown.com, and
www.public-banking.com.
www.webofdebt.com/articles
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