A Lesson From AIG: How to Fix the Fed

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The numerous articles that are coming out in defence of the FED (Paulson's FED)when they just used AIG as a conduit to the Banks and Goldman Sachs. Goldman Sachs was not a Bank at that time!
What about the original bailout terms to AIG. 8% plus Libor (almost 13%) for AIGs $85 Billion loan, plus 80% of AIG. Plus installing Ed Liddy as CEO of AIG. Ed Liddy was director on the board of Goldman Sachs. They put him as CEO of AIG so there was no negotiations on the payout to the Banks and Goldman Sachs. Once they payouts were completed, Ed Liddy and his team resigned from AIG!!!
No, this was not the bailout of AIG, it was the bailout of Goldman Sachs, Merril Lynch, Societe General, Deutche Bank, Citi etc at 100 cents on the dollar, when AIG had already negotiated 40 cents on the dollar to these institutions.

Mishka of NY 1:30PM December 01, 2009

Rick, you forgot to research the Fed . . . contrary to your intial premise it was 'congress' that loosened the rules. . . It was the FED that advised them it was the prudent thing to do.

frank of CA 12:53PM December 01, 2009

Agree with most of the article, but also believe Fed, like SEC, has mot adequately regulated. Need more effective reguilation to prevent large financial institutions from accumulating imprudent risk that in potentialing toppling these institutions threatens global financial markets and economies.
Joseph Tibman
Author, The Murder of Lehman Brothers
lehmanbook.blogspot.com

Joseph Tibman of NY 12:50PM December 01, 2009

The Barofsky audit is chocked full of bad logic. He derides the Fed's reasons for initially keeping the names of the counter parties secret - the potential for further destabilization of the financial markets in the last months of 2008. His reasoning: the financial markets paid little attention of the publication of the names in the spring of 2009 - at a time when the stabilizing effects of the bailouts was taking firm hold. This is obviously a defective, apples-and-oranges comparison. It is astounding such sophomoric analysis could end up in the audit. But it is there. And it goes on from there. Blatant errors in logic abound. It's a horrendous failure. Worst of all, Barofsky makes no case at all for how haircuts would have been beneficial for the taxpayer (saying it would have saved taxpayer dollars is simplistic, and likely false) and for how a haircut scenario would have played out in the financial sector (I suspect strongly destabilizing).
But read carefully, it vindicates the Federal Reserve (and Goldman Sachs) from the mountain of idiotic conspiracy accusations made in congress and the press.

JCH of TX 12:19PM December 01, 2009

"But the punishment proposed by critics of the Fed is far out of proportion to the crime."
I don't think so. I see the government as completely insolvent financially. It has grown to enormous size with both warfarism and welfarism running rampant. The reasons for this enormous bloated mess lies at the foot of Congress, the Federal Reserve, and the FIAT based currency upon which we rely. The FIAT currency can be printed whenever necessary by the Federal Reserve to facilitate needless war and insolvent government-entitlement entities. Of course Congress is filled with a bunch of crooks, minus a few good ones such as Ron Paul, so handing money creation to the Congress may cause some issues. That is why to do so requires the scarcity-restraint of a commodity-backed currency. This is what the constitution of the US calls for, i.e. Congress deciding what new money should be created which would of course be backed by gold and silver. As Peter Schiff says, "The party is over for the United States." There is more truth to this statement than most people realize. Dollar hegemony is under attack, and our bloated unfunded liabilities, out of control government spending, and Federal Reserve money printing will see to it that the dollar gets destroyed sooner rather than later. The apprentices of Gutenberg over there at the Fed are the problem. A full-scale audit will go a long way to reveal the Fed's complicity in the looting of Main Street in favor of Wall Street. What the Fed has done to dishonor contracts in saving the too-big-to-fails goes against everything that defines America. Free-market capitalism has been thrown to the wind for the past 100 years in favor of corporatism and looting by the well-connected. I am pretty tired of watching it happen.

Ben of NM 11:35AM December 01, 2009

"But the punishment proposed by critics of the Fed is far out of proportion to the crime."
I don't think so. I see the government as completely insolvent financially. It has grown to enormous size with both warfarism and welfarism running rampant. The reasons for this enormous bloated mess lies at the foot of Congress, the Federal Reserve, and the FIAT based currency upon which we rely. The FIAT currency can be printed whenever necessary by the Federal Reserve to facilitate needless war and insolvent government-entitlement entities. Of course Congress is filled with a bunch of crooks, minus a few good ones such as Ron Paul, so handing money creation to the Congress may cause some issues. That is why to do so requires the scarcity-restraint of a commodity-backed currency. This is what the constitution of the US calls for, i.e. Congress deciding what new money should be created which would of course be backed by gold and silver. As Peter Schiff says, "The party is over for the United States." There is more truth to this statement than most people realize. Dollar hegemony is under attack, and our bloated unfunded liabilities, out of control government spending, and Federal Reserve money printing will see to it that the dollar gets destroyed sooner rather than later. The apprentices of Gutenberg over there at the Fed are the problem. A full-scale audit will go a long way to reveal the Fed's complicity in the looting of Main Street in favor of Wall Street. What the Fed has done to dishonor contracts in saving the too-big-to-fails goes against everything that defines America. Free-market capitalism has been thrown to the wind for the past 100 years in favor of corporatism and looting by the well-connected. I am pretty tired of watching it happen.

Ben of NM 11:35AM December 01, 2009