Geithner’s Fed Told AIG to Limit Swaps Disclosure

From Bloomberg:

The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

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More Arrogation Of Power?

From The Market Ticker:

Bloomberg has an interesting story up on the AIG derivative “payoff” mess I’ve repeatedly written about (just stick “aig & billions” into the search box and start reading.  Make sure you have a lot of time):

Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps — insurance-like contracts that backed soured collateralized-debt obligations.

….

Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.

Where did the NY Fed get this authority?  Remember, this wasn’t the NY Fed’s money – it was ours.  Where was it appropriated by Congress?  This was not part of TARP – AIG was separate.

All appropriation bills must originate in The House.

This one didn’t originate at all.  It was simply arrogated by The Federal Reserve and the NY Fed.

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More Stress Test Shenanigans

From Washington’s Blog:

AFP reports:

The Federal Reserve will expand its so-called stress tests of the banking system to ensure they have enough capital during difficult periods, Fed chairman Ben Bernanke said Friday.

Bernanke highlighted the positive impact of stress tests conducted earlier this year on major banks, a move aimed at ensuring their financial health and building confidence.

“Building on the success of this initiative, we will conduct more frequent, broader, and more comprehensive horizontal examinations, evaluating both the overall risk profiles of institutions as well as specific risks and risk-management issues,” Bernanke told a conference organized by the Boston Federal Reserve.

The highly publicized stress tests conducted earlier this year focused on 19 major banks, and indicated 10 needed additional capital.

Bernanke said the Fed would step up efforts to review bank capital requirements to avoid a recurrence of the credit crisis that has spread around the world.

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Did Paulson’s secret meeting with Goldman Sachs break the law?

The bigger question is “If it broke the law, what will be done about it?”

From Raw Story:

When Henry Paulon left his position as CEO of investment bank Goldman Sachs in 2006 to become George W. Bush’s Secretary of the Treasury, he signed an ethics letter promising to avoid conflicts of interest by not getting involved in any dealings with his former firm.

Paulson received a secret waver of that promise at the height of the financial crisis last year — but a new book by New York Times columnist Andrew Ross Sorkin reveals that Paulson had already met secretly with the Goldman Sachs board of directors in June 2008, after the collapse of Bear Stearns but three months before the waiver. The meeting took place in Moscow, where Paulson had gone in an unsuccessful attempt to seek Russian investment in the US economy.

According to Sorkin, “When Paulson learned that Goldman’s board would be in Moscow at the same time as him, he had [Treasury chief of staff] Jim Wilkinson organize a meeting with them. Nothing formal, purely social — for old times’ sake. … Anxious about the prospect of such a meeting, Wilkinson called to get approval from Treasury’s general counsel. Bob Hoyt, who wasn’t enamored of the ‘optics’ of such a meeting, said that as long as it remained a ‘social event,’ it wouldn’t run afoul of the ethics guidelines.”

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Zoellick Favors Power for Treasury, Not Fed

From The Wall Street Journal:

WASHINGTON — World Bank President Robert Zoellick questioned the wisdom of giving the Federal Reserve more power over banks, as the Obama administration has proposed.

[Robert Zoellick]Robert Zoellick

In the text of a speech he is to deliver Monday at the Paul H. Nitze School of Advanced International Studies of Johns Hopkins University, Mr. Zoellick says central banks around the world fell down as regulators — and that the Treasury, which is more accountable to Congress, should be given the authority to regulate big financial institutions, not the Fed.

“It will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority,” he says. “My reading of recent crisis management is that the Treasury Department needed greater authority to pull together a bevy of different regulators. Moreover, the Treasury is an executive department, and therefore Congress and the public can more directly oversee how it uses any added authority.”

Mr. Zoellick, among other positions in the U.S. government, served in various posts in the Treasury from 1985 to 1993.

“Central banks failed to address risks building in the new economy,” Mr. Zoellick says. “They seemingly mastered product price inflation in the 1980s, but most decided that asset price bubbles were difficult to identify and to restrain with monetary policy. They argued that damage to the ‘real economy’ of jobs, production, savings, and consumption could be contained once bubbles burst, through aggressive easing of interest rates. They turned out to be wrong.”

Mr. Obama’s Treasury has recommended that the Fed get oversight of too-big-to-fail financial institutions in an overhaul of financial-services regulation. One argument against giving such power to the Treasury is that it doesn’t have the resources for the job. But lawmakers have been resistant to giving the Fed more power. Treasury Secretary Timothy Geithner served as president of the Federal Reserve Bank of New York before joining the Obama administration.

Excerpts of Mr. Zoellick’s comments were released in advance of his speech by the World Bank.

Federal Reserve General Counsel Scott Alvarez Threatens the U.S. with Economic Terrorism

From Cryptogon:

September 26th, 2009

Some people may not like my headline. I don’t care. Make up your own headline, if you like. Call it whatever you want.

Barney Frank doesn’t want to rock the boat. Oh no. Appearances need to be maintained on the Ship of Fools.

Well, the only thing that’s certain is that the Ship of Fools is headed for oblivion. What’s not clear is how much time remains on the journey.

Via: Bloomberg:

Federal Reserve General Counsel Scott Alvarez said audits of monetary policy by the U.S. Congress could lead to higher interest rates and reduced confidence in central bank policy.

Congressional audits of monetary policy could “cause the markets and the public to lose confidence in the independence of the judgments of the Federal Reserve,” Alvarez told the House Financial Services Committee today in response to a question from Representative Dennis Moore, a Kansas Democrat. Alvarez said in his prepared remarks the audits would probably “chill” the central bank’s discussions on interest rates.

Fed Chairman Ben S. Bernanke and his colleagues are trying to persuade lawmakers not to pass legislation sponsored by Representative Ron Paul of Texas that would repeal the central bank’s immunity to audits of monetary policy. Fed officials used emergency powers to protect creditors of Bear Stearns Cos. and American International Group Inc. during the financial crisis, prompting congressional scrutiny.

“We don’t want to give the rest of the world or, more important, domestic investors the impression that we are somehow in a formal way injecting Congress into the setting of monetary policy,” said Representative Barney Frank, a Massachusetts Democrat and chairman of the committee. “That could have a very destabilizing effect.”

Frank added that “a lot needs to be done” on Fed transparency and said that Congress can accomplish that without interfering with the independence of monetary policy decisions.

Research Credit: oelsen

Federal Reserve Admits Hiding Gold Swap Arrangements, GATA Says

From Yahoo! News:

MANCHESTER, Conn.–(BUSINESS WIRE)–The Federal Reserve System has disclosed to the Gold Anti-Trust Action Committee Inc. that it has gold swap arrangements with foreign banks that it does not want the public to know about.

The disclosure, GATA says, contradicts denials provided by the Fed to GATA in 2001 and suggests that the Fed is indeed very much involved in the surreptitious international central bank manipulation of the gold price particularly and the currency markets generally.

The Fed’s disclosure came this week in a letter to GATA’s Washington-area lawyer, William J. Olson of Vienna, Virginia (http://www.lawandfreedom.com/), denying GATA’s administrative appeal of a freedom-of-information request to the Fed for information about gold swaps, transactions in which monetary gold is temporarily exchanged between central banks or between central banks and bullion banks. (See the International Monetary Fund’s treatise on gold swaps here: http://www.imf.org/external/bopage/pdf/99-10.pdf.)

The letter, dated September 17 and written by Federal Reserve Board member Kevin M. Warsh (see http://www.federalreserve.gov/aboutthefed/bios/board/warsh.htm), formerly a member of the President’s Working Group on Financial Markets, detailed the Fed’s position that the gold swap records sought by GATA are exempt from disclosure under the U.S. Freedom of Information Act.

Warsh wrote in part: “In connection with your appeal, I have confirmed that the information withheld under Exemption 4 consists of confidential commercial or financial information relating to the operations of the Federal Reserve Banks that was obtained within the meaning of Exemption 4. This includes information relating to swap arrangements with foreign banks on behalf of the Federal Reserve System and is not the type of information that is customarily disclosed to the public. This information was properly withheld from you.”

When, in 2001, GATA discovered a reference to gold swaps in the minutes of the January 31-February 1, 1995, meeting of the Federal Reserve’s Federal Open Market Committee and pressed the Fed, through two U.S. senators, for an explanation, Fed Chairman Alan Greenspan denied that the Fed was involved in gold swaps in any way. Greenspan also produced a memorandum written by the Fed official who had been quoted about gold swaps in the FOMC minutes, FOMC General Counsel J. Virgil Mattingly, in which Mattingly denied making any such comments. (See http://www.gata.org/node/1181.)

The Fed’s September 17 letter to GATA confirming that the Fed has gold swap arrangements can be found here:

http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf

While the letter, GATA says, is far from the first official admission of central bank scheming to suppress the price of gold (for documentation of some of these admissions, see http://www.gata.org/node/6242 and http://www.gata.org/node/7096), it comes at a sensitive time in the currency and gold markets. The U.S. dollar is showing unprecedented weakness, the gold price is showing unprecedented strength, Western European central banks appear to be withdrawing from gold sales and leasing, and the International Monetary Fund is being pressed to take the lead in the gold price suppression scheme by selling gold from its own supposed reserves in the guise of providing financial support for poor nations.

GATA will seek to bring a lawsuit in federal court to appeal the Fed’s denial of our freedom-of-information request. While this will require many thousands of dollars, the Fed’s admission that it aims to conceal documentation of its gold swap arrangements establishes that such a lawsuit would have a distinct target and not be just a fishing expedition.

In pursuit of such a lawsuit and its general objective of liberating the precious metals markets and making them fair and transparent, GATA again asks for financial support from the public and from all gold and silver mining companies that are not at the mercy of market-manipulating governments and banks. GATA is recognized by the U.S. Internal Revenue Service as a non-profit educational and civil rights organization and contributions to it are federally tax-exempt in the United States. For information on donating to GATA, please visit here:

http://www.gata.org/node/16

People also can help GATA by bringing this information to the attention of financial news organizations and urging them to investigate the Fed’s involvement in gold swaps particularly and the gold (and silver) price suppression generally.