Monday, March 16, 2009

Convergence: Democrats, AIG, Banks, and the Muni-Bond Scandal

Amidst all of the attacks on AIG bonuses, the release of the banks and states they paid money to shows an amazing connection to the muni-bond scandal. This is from the Times today:

Financial companies that received multibillion-dollar payments owed by A.I.G. include Goldman Sachs ($12.9 billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion).Big foreign banks also received large sums from the rescue, including Société Générale of France and Deutsche Bank of Germany, which each received nearly $12 billion; Barclays of Britain ($8.5 billion); and UBS of Switzerland ($5 billion).

I wrote this in February in regards to Obama's payoff to the banks:

For the record UBS is involved with the Richardson scandal where the bank was part of a 4 way cut of over 5.1 million in fees in a muni-bond deal scandal known as Gripgate. Its also subject to lawsuits in Federal courts by various cities and municipalities. And what other financial institutions has played a key role in the muni-bond scandal that has taken down politicians across this country and is facing suits in the Federal courts, why J.P Morgan Chase of course. The same company that also stands to rake in extra business from this action. Understand all banks can profit from this and if the muni-bond market sees extra business it could also provide more revenue for CDR Financial Products as well. Who knows, perhaps it was Barney Frank's payoff all along.

This is From Feb 18th regarding the collapse of Jefferson county Alabama:

It appears the county, which is now about to go bankrupt due to the deals CDR put together will Mayor Larry Lanfgord adding insult to injury the county may have over paid by a cool 80-100 million for deals that ended up destroying it. In these deals CDR received 2.3 million in fees to carry them out. Other financial groups involved in the deals include JPMorgan Chase & Co.,Bear Stearns Cos., Bank of America Corp. and Lehman Brothers Holdings Inc.

So right of the top you have some of the key beneficiaries of the AIG bailout were the banks who had a hand in the formation of black box deals that impoverished whole communities. In regards to Soc Gen we have their involvement in various deals, this is from January,

We have all the elements of a black box deal. SocGen was the banker who worked with CDR down in Arkansas as well as in Virginia in sketchy deals that went sour.We have the Arizona Industrial Development Authority in whose name the bonds were floated, and CDR who put the deal together.

Charles Anderson, manager of field operations for the IRS's tax-exempt bond division, told bond lawyers in May that the agency is investigating cases where providers of guaranteed investment contracts paid kickbacks to the brokers who evaluated their bids for the agreements. Anderson didn't name the parties involved.

The IRS has scrutinized a $27 million bond sold by Pima County, Arizona's Industrial Development Authority to help individuals buy homes. According to documents obtained from the authority, the IRS said it was concerned about quarterly payments made by Paris-based Societe Generale, France's third-biggest bank, to CDR, which structured the transaction and evaluated bids for the investment agreement.

So Soc Gen, which received the most from the taxpayer via AIG has also been involved in various schemes of a questionable nature. Doesn't it seem odd that the Federal government, when it isn't funneling money to these institutions is subjecting them to investigation? Of course there is the massive lawsuit in the Federal docket launched by various states and municipalites:

Cecile Kohrs Lindell
The Deal
March 17, 2008 Several municipalities, including the city of Chicago, last week filed suits against most of Wall Street, accusing 22 investment banks and 15 brokerage firms of bid rigging and other antitrust violations in the sale of municipal derivatives.

The civil suits follow a criminal investigation under way at the Securities and Exchange Commission, the Internal Revenue Service and the Department of Justice's antitrust division.

According to the complaint, the defendants "agreed, combined and conspired with each other to fix prices, and to rig bids and allocate customers and markets of municipal derivatives sold in the United States and its territories." As a result of this activity, the complaint says, "Plaintiffs received lower interest rates than they would have in a competitive market."

Companies involved:

AIG Financial Products Corp., AIG Sunamerica Life Assurance Co., Bank of America Corporation, Bank of America NA, Bear Stearns Companies, Inc., Cain Brothers & Company, LLC, CDR Financial Products, Inc., Financial Guaranty Insurance Co., Financial Security Assurance Holdings, Ltd., First Southwest Company, GE Funding Capital Market Services, Inc., Genworth Financial Investment Management, LLC, George K. Baum & Company, Investment Management Advisory Group, Inc., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., Kinsell Newcomb & De Dios, Inc., Merrill Lynch & Co. Inc., Morgan Keegan & Co., Inc., Morgan Stanley, National Westminster Bank plc, Natixis, S.A., Packerkiss Securities, Inc., Piper Jaffray & Co., Security Capital Assurance, Inc., Shockley Financial Corp., Societe Generale, Sound Capital Management, Inc., Trinity Funding Company, LLC, UBS Ag, UBS Securities LLC, UBS Financial Services Inc., Wachovia Bank, N.A., Wachovia Corporation, Winters & Co. Advisors, LLC, XL Asset Funding Company 1 LLC, XL Capital, Ltd. and XL Life Insurance & Annuity Company

Now that is just the business side of the equation, the states and municipalities also got burnt by the muni-bond scandal, from the Times today:

A.I.G. also named the 20 largest states, starting with California, that stood to lose billions last fall because A.I.G. was holding money they had raised with bond sales.In total, A.I.G. named nearly 80 companies and municipalities that benefited most from the Fed rescue, though many more that received smaller payments were left out.

In case after case this blog has documented how sour these black box deals went and how they ended up hurting states and cities across this country. And who was right there to orchestrate these deals, in the vast majority of cases it was Democrats, from January:

The Municipal Bond Scandal that Bloomberg markets exposed in 2006 with their story Broken Promises is emblematic of a culture of corruption that exists in the Democratic party. Using the poor and needy as an excuse, CDR Financial Products along with several other businesses including J.P.Morgan Chase and AIG, teamed up with significant elements of the Democratic party in a nationwide scheme that routinely left parts of this country devastated.

Pay for Play is a misnomer, in reality that is only half the equation. Yes the bribery of Democrat politicians is an offense all by itself. But even more threatening were the black box deals and financial schemes using the municipal bond market as a means to pilfer millions of dollars. The deals were opaque by nature and complicated by design. In short they involve insurance companies, banks, and CDR floating municipal bonds for local government agencies with the purpose of funding improvements, but with the real goal of merely of enriching the companies .
A summary of black box deals:

Step 1:Issuer sells Millions in Municipal Bonds to finance civic improvements
Step2 :Financial firms make millions in fees from bonds Sales (Some have secret agreements to make more from investment gains and insurance)
Step 3: Cities buy back bonds from investors, citizens get nothing.
Step 4: IRS says the agreement cheats taxpayers, demands a tax penalty to keep the bonds tax exempt.

and the Democrats

The withdrawal of Bill Richardson recently made the headlines. In his case CDR gave money to Si SE Puede, a PAC formed to help pay Richardson's expenses at the 2004 Democratic Convention. In exchange its argued that CDR received favorable treatment in regards to bids to do business for GRIP (Govenor Richardson's Investment program) , bid rigging in short.

Another aspect of pay for play, and one more likely to land a politician in jail is CDR's tactic of finding friends, fundraisers and associates of elected Democrats, and hiring them as "Consultants". In New Mexico it was Richardson friend Mike Stratton who was hired by CDR. On a side note the Director of Si Se Puede Fred Duval was hired by UBS ,a Swiss bank, as a consultant. UBS was also one of several banks that ended up receiving a cut of the GRIP pie. The collusion of CDR, elected Democrat, and consultants that occurred in New Mexico is similar to other CDR linked scandals. In Philadelphia it was Ron White (now deceased) who received money and super bowl tickets from the company and was hired as a consultant. He was also an associate and fundraiser for Philly Mayor Sharpe. In Pennsylvania as a whole it was Alan Kessler who was the chief lobbyist for CDR and a top fundraiser for Ed Rendell. The most egregious example would be Mayor Larry Langford of Birmingham Alabama, who is accused in a 101 count indictment of using his friend William Blount and lobbyist Albert LaPierre to funnel money, jewelry, cloths, and watches into his hands in exchange for government favors while he was President of the Jefferson County Commission. Jefferson County, which includes Birmingham is on the precipice of the greatest municipal bankruptcy in history. There are also questions of CDR's actions in Atlanta and several of municipalities and CDR is currently being sued by over 20 school districts and cities in addition to the criminal investigations.

Donations to Democrats
Over the past 16 years David Rubin, President of CDR, has managed to funnel 279,000 dollars to various candidates across the country. In total 95% of that money went to Democrats. Of those Democrats, Obama, Clinton, Ken Salazar, and Henry Waxman were some of the top beneficiaries. In addition he has spread 91,000 dollars to Democrats on a state and local level, with Ed Rendell, Governor of Pennsylvania being the top recipient. It should be noted that Rubin was on Rendell's transition team when he became governor a couple years ago. And where was our former Chairmen for House Oversight and Government Reform Henry Waxman when all of this corruption was going on? Broken Promises exposed CDR in 2006 and the SEC had fined that company in 2007, why no headline grabbing hearings for the country to sick its teeth into? Oh wait CDR in addition to being pouring hundreds of thousands to the Democrats happens to be located in CA-30, that would be Waxman's own district.

Updates on Politicians reactions:
So now we have stories like this as Democrats feign outrage:

WASHINGTON (CNN) -- President Obama said Monday he will attempt to block bonuses to executives at ailing insurance giant AIG, payments he described as an "outrage."

"This is a corporation that finds itself in financial distress due to recklessness and greed," Obama told politicians and reporters in the Roosevelt Room of the White House, where he and Treasury Secretary Tim Geithner were unveiling a package to aid the nation's small businesses.

The president expressed dismay and anger over the bonuses to executives at AIG, which has received $173 billion in U.S. government bailouts over the past six months.

"Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?"

Save some of that outrage for the Democrats who encouraged or ignored this scandal! But the President is not alone in the outrage game!

WASHINGTON (CNN) — Outraged House Democrats are scrambling to figure out what, if anything, they can do to recoup the $165 million in bonuses AIG awarded to employees after the company received $170 billion in federal bailout funds.

A House Democratic leadership aide and a House financial services committee aide said Congress is trying to shame AIG executives and employees into forgoing the bonuses while investigating possible legal avenues that can be used to force AIG to return the money used for bonuses.

The House financial services committee is trying to determine if Congress can force AIG to renegotiate the bonuses the company says it is legally required to give employees as dictated by contracts negotiated before it received its first infusion of bailout dollars in September, according to the committee aide.

This is crazy, all of it. We have democrats who enabled the muni-bond scandal that also damaged the state government fiscal houses now screaming about the bonuses to AIG. Now Dodd is getting in on the act:

Later, Dodd told CNN he is considering an unusual approach to get the bonus money back.

"One idea we're kind of thinking about is a tax provision," the Connecticut Democrat said. "We have a right to tax. You could write a tax provision that's narrowly crafted only to the people receiving bonuses. That's a way maybe to deal with it."

Dodd said the notion is in the "earliest of thinking" and has not been settled on as a way to resolve the issue that has set off outrage in Washington and across the country.

In the House, Democrats are trying to shame AIG executives into forgoing the bonuses. They're also investigating possible legal avenues Congress can take to force the company to return money used for bonuses, a House Democratic leadership aide and a House Financial Services Committee aide said Monday.

The committee is trying to determine whether Congress can force AIG to renegotiate the bonuses, which the company says it is legally required to give employees under contracts negotiated before the company received its first infusion of bailout dollars in September, according to the committee aide.

This could blow up in Democrats faces.

Now its Feingold's turn:

In a letter Sunday to Treasury Secretary Timothy Geithner, U.S. Sen. Russ Feingold urged the Obama administration to explore "legal options" to prevent the millions in AIG payouts."I write to ask why any bonuses would be legally required, given the company's abysmal performance," says Feingold, D-Wisconsin.

Feingold asked whether the bonuses could be canceled or recouped from recipients, and whether the administration will sue AIG executives for breaching their duties to shareholders

We shall see.
Here is Cambell Brown on the Sketchy Behavior of AIG:

If you want to find the epicenter of the earthquake that threatened to crumble the American economy, the fault line goes right through Cassano's office in London. It was Cassano who championed those now infamous credit default swaps as a way to jack-up profits in a hurry. In so doing, he took a huge gamble, didn't worry about the odds, and -- when the credit crisis hit Cassano, AIG, and all of us -- ended up losing big.

1 comment:

  1. It wasn't Dodd's fault. Actually he tried to insert retroactive bonus bans. It was the Obama Administration that pretty much flat out had a tantrum to keep the pre-February 11 bonuses in there.