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"The tough terms also were aimed at compensating taxpayers for the substantial risks of lending to AIG, so that they could “share in any potential upside of a successful rescue.” "
Maybe all of us U.S. taxpayers will get a big bonus check like the Saudi King just gave to all of the workers there? :)
This may have already been posted?
Summing Up the Latest Light Reading from the AIG Bailout Trial
By LESLIE SCISM
Hank Greenberg
Bloomberg News
Judge Thomas Wheeler, the Washington, D.C., jurist in charge of the lawsuit challenging the legality of the bailout of American International Group, has no shortage of reading material: He just got handed 1,100 pages of newly filed documents summing up how each side thinks he should rule.
From plaintiff Starr International, run by former, long-time AIG Chairman and Chief Executive Maurice R. “Hank” Greenberg,” some 700 pages arrived Thursday. Most of those pages seek to distill eight weeks of testimony last year into proposed findings of fact favoring Mr. Greenberg’s argument: that the U.S. government cheated Mr. Greenberg and other shareholders out of at least $35 billion when it demanded a 79.9% equity stake in AIG in exchange for providing $85 billion in an initial emergency loan.
Mr. Greenberg’s legal team asserts that the government’s demand for equity in the giant insurer—on top of a double-digit initial interest rate on its loan—overstepped the Federal Reserve’s statutory authority as it sought to punish AIG while favoring many banks with much more-lenient terms.
In its roughly 445 pages, the Justice Department presents a different set of proposed findings of facts. It maintains that the government acted lawfully. Moreover, it maintains that Mr. Greenberg and other AIG shareholders didn’t establish any economic loss, given the alternative to the bailout was a bankruptcy filing.
Each side will now have the opportunity to respond in writing to the latest filings by the other. Those responses are due March 23, and closing arguments in the lawsuit are set for April 22.
AIG fully repaid by the bailout, which reached to nearly $185 billion at its peak, by the end of 2012.
Below are some excerpts from the filings from each side.
Starr:
The U.S. government’s regulatory failings “substantially contributed to the 2008 financial crisis,” and contrary to common wisdom that AIG’s near collapse resulted from recklessly taking on large exposure to subprime-mortgage bonds, “AIG, like many financial institutions, faced a severe liquidity crisis… as a result of the market-wide financial crisis.”
AIG had quit selling insurance on risky subprime bonds three years before the crisis hit, though it remained exposed to risk in existing contracts, and was managing its liquidity needs until the second week in September 2008 when then-investment-bank Lehman began to fail and markets worsened.
The government “took a number of actions and made a number of statements that directly disadvantaged AIG compared to other financial institutions and contributed to AIG having no reasonable choice other than to accept a loan” on bad terms. Among other things, the government rejected AIG’s request for a financial guarantee that might have helped it raise private-sector money.
The credit agreement between the government and AIG was aimed at “penalizing AIG shareholders.” Yet the government didn’t “undertake any investigation or analysis, make any findings, or hold any hearing concerning whether AIG or its shareholders should be penalized and, if so, how.”
The government maneuvered to deprive Starr and other then-shareholders of an opportunity to vote on the credit agreement, the issuance of equity and other elements of the bailout.
“Many financial institutions engaged in much riskier and more culpable conduct than AIG” yet received government assistance “without the punitive equity confiscation required of AIG.”
Government:
The Federal Reserve hadn’t previously supervised AIG and it had “extremely limited” knowledge of the insurer’s financial situation, which helps explain why AIG’s bailout terms were tougher than those of banks that the Fed supervised.
The Fed wasn’t obligated to help a nonbank like AIG. The government’s demand for an equity stake wasn’t designed to “punish” AIG for its risk-management failures, as alleged by Starr, but to reduce “the enormous windfall AIG shareholders were receiving compared to shareholders of other fragile companies that failed without extraordinary assistance” from the government.
The tough terms also were aimed at compensating taxpayers for the substantial risks of lending to AIG, so that they could “share in any potential upside of a successful rescue.”
AIG”s board “voluntarily and independently agreed to the challenged loan terms” as being in the best interests of AIG and its shareholders at a dire time for the U.S. economy.
The AIG bailout was modeled on terms developed by private-sector bankers based on what they believed the market would require to lend to AIG—and those bankers concluded the risk of lending was too great to justify private-sector lending.
The Federal Reserve believed the AIG loan “posed enormous risk despite being secured” with collateral. While the Federal Reserve Bank of New York thought it “had a reasonable prospect of obtaining repayment of its loan over time, it also faced the genuine risk of losing” billions, if not tens of billions, of dollars.
The Fed had statutory authority to condition lending on the equity stake.
http://www.wsj.com/articles/BL-MBB-33524
Should be a busy week! Yellen goes before the senate Tuesday, Yellen before the house Wednesday and future of housing, FHA, part 2 before the House Thursday.
Hearing entitled “The Future of Housing in America: Oversight of the Federal Housing Administration - Part II”
Thursday, February 26, 2015 10:00 AM in 2220 Rayburn HOB
Housing and Insurance
x
because they didn't have the FHFA governing them to "sign off" on it
The bailout with the banks was much different from the "bailout" of Fannie, Freddie. The banks weren't forced to accept a bunch of subprime junk in the beginning, and they were not forced into conservatorship.
What does that have to do with Fannie, Freddie?
CEO's said it long ago
True, we are on an upside. Fannie, Freddie will continue up!!!
Agreed, numbers work best in court. Clearly Fannie and Freddie have now paid more to the Treasury than they have ever received. As Obi also pointed out before, for an injunction the plaintiff must show that they are being harmed (simple words). Now we are in the stage of showing how the conservatorship is damaging, etc. Big money took us up from $2.25 the week before to the $3's now. That will continue!!!
They've been saying for a while that there are material weaknesses.
It's the continued tension between the execs having to sign their name off to these things, while they are supposed to report to and be governed by the fhfa that doesn't know squat!
Anybody have latest info on the Perry Capital appeal? Last I checked, it was just procedural stuff, exchanging information.
The world is watching 6 1/2 years in conservatorship, come on, someone is not doing their job. The shareholders survived for a reason!!! (tough, but think big picture!), so that the story may be told. These are private, government sponsored, publicly traded, trillion dollar companies in the United States of America!!!
Thanks cincy45069, you too!! Wish this stock would pop and we could have an ihubber ski run!!!
Toasts at the Wynn are always enjoyable!! 33% unexpected rise in one week for Fnma, Fmcc. Go check out the Ferrari room, play a little blackjack!!
Options expired today in the broader markets, expected volatility, but thought there would be more volume. Off to Costco, to prepare for the dump of snow in Colorado, should probably head to the ski, slopes, only 1 1/2 hour drive!!
They already used their privilege before, time to get this straightened out. :)
Berkowitz said maybe there is info that could lead to senior White House advisors?
Yes, PGA3, we have some good dd, things to talk about from the 10k, and in the meantime discovery continues!!! Fnma, Fmcc $$$$
What news MB?
End of February, let's see what happens!!! C'mon Fannie, Freddie!!!
My response was to Blue who is back to $5 one day and $2.49 the next? That's why I said pick a lane Blue, pick a lane. :) This is a tough stock to figure out! All opinions are welcome, IMO!!!
Hi MB! Did you get a copy of the transcript of the last Sweeney conference?
pick a lane Blue, pick a lane :)
Fnma moved up about 33% since last week. Even if no one can explain it,(correctly), :) that is pretty good. With all that we know, I'd rather be in Fannie, Freddie than out. In the broader markets, options expired today, C'mon Fannie, Freddie, Let's go!!!!
Great!!!!!!
I don't think they're talking about cooking the books or blowing smoke in that sense. These guys now are fairly conservative CEO's that are more familiar with how to run a trillion dollar company than the fhfa and Watt. There are certain times when different accounting tools are appropriate, like the whole mark to market argument, etc.
Thanks Myogenix! No need for fhfa to govern these companies. Stop the sweep and release!
That'll work! Blue skies ahead! $$$$
fnma, Fmcc
I think we finally came about here. Stay the course!! Maybe Ackman will give another shareholder update, cc.
Sure, I'm probably watching too much TV with this early retirement thing. Once this stock really takes off, I'll go do some sailing in the Caribbean. Hurry up Fannie! $$$$ I don't see any info on Fannie's ER, so maybe next week?
and then he said it's a $3 stock :) As long as he keeps refining it, making necessary corrections. I think someone tweeted to him that Fannie, Freddie are too important, make an effort to get it right! Gasparino
They went over the point that they said it was a trade, and still advised $3 stock, OTC etc. Then he said that as he covered it, he didn't realize that there were the powers behind the scene of Elizabeth Warren and Housing Trust Fund interests, and Ackman just saying it's the best, most interesting trade in capital markets. They revised their subtitles to say Ackman's comments, Housing Trust issue and Gasparino's coverage may have all had something to do with this last week's pop. Instead of just Gasparino's coverage. :) He repeated that all net profits are going to Treasury, and you have the voices being raised from Housing Trust fund that says it should be funded, and from Ackman saying profits should be returned to the companies and shareholders. He said basically, that he was fascinated that there is so much more going on than he covered, and that he got nailed on Twitter for it. :)
Wow, he actually cleaned up his story quite a bit. Good!
More gas
Hold on to your stomachs, Gasparino is coming up now on Foxbusiness to tell you why he said Fannie was a trade and why it's going down today.
Sweeney said she will not grant the stay, discovery continues. We thought GM's NYT article was big. We're not going to be the first to know what continues to come up in discovery. I think I'll just stay in and ride it up!! Berkowitz and Ackman just said again, they continue to add and are in it for the long haul. Fnma,Fmcc$$$$
Why does Carney stay so interested in Fannie, Freddie?..........
"Sweeping Up After Freddie’s Tough Quarter
Mortgage Giant Could Have Owed Government More
By JOHN CARNEY
So much for the idea the federal government has been expropriating the profits of Freddie Mac.
The mortgage giant, which on Thursday reported fourth-quarter results, said it would pay the government an $851 million dividend in March. That is its smallest payout to the U.S. Treasury since 2009."
Thanks my email was hacked last night along with the big ihub crash.