Regulation Proposed For Over-The-Counter Derivatives

The Chairmen of several U.S. financial regulatory agencies outlined a series of steps that can be taken to provide better oversight for Over-the-counter (OTC) derivatives dealers.

Appearing before the Senate Banking, Housing, and Urban Affairs Committee Monday, Gary Gensler, the Chairman of the Commodity Futures Trading Commission articulated the need to lower systemic risk, prevent fraud, and increase transparency in the OTC derivatives market.

“If we are not fully able to regulate the dealers, we will not give the American public the comfort they need,” explained Gensler.

The hearing comes shortly after President Barack Obama’s call for sweeping regulatory reform, which aims to establish a regulatory body to oversee the entire financial system, provide transparency for large private investment funds, and supervise agencies that offer credit-ratings.

When asked by Sen. Mike Johanns (R-Neb.) if the proper regulation would have prevented the failure of insurance giant American International Group (AIG), Gensler responded, “I think that a number of features here would have slowed down and maybe even have stopped [AIG’s collapse].”

Liveblog: AIG - Where is the taxpayer's money going?

By Kayleigh Harvey - Talk Radio News Service


Talk Radio News Service will be liveblogging the House Oversight and Government Reform Committee hearing with AIG CEO Edward Liddy today at 10:00. Refresh this page for updates.

AIG Chairman and CEO, Edward Liddy, will come before Congress today for the second time since it was revealed, in March, that AIG paid out $120 million in bonuses after receiving a $85 billion from the government bailout package.

Chairman of the Committee Edolphus Towns (D-N.Y.) said, "Eight months ago, the American taxpayer came to the rescue of AIG with an $85 billion bailout. That was followed by more money in November, more again in December and more money still in March. The taxpayers have now provided more than $180 billion in financial assistance to AIG.

"A few days ago, we learned that the aIG has put together a plan called Project Destiny. Project Destiny is described as "a multi-year roadmap for the restructuring of AIG. I requested a copy of this plan, but AIG says that disclosing the plan "would undermine its efforts to achieve its goals for the benefit of American taxpayers." AIG says it is consulting on the issue with the New York Fed. In other words, "trust us." Everything will be alright."

Adding, "I was surprised and disappointed to see that AIG continues to argue for secrecy. In his testimony, Mr. Liddy seems to argue that criticism of AIG will somehow hurt the company. Again we are hearing, "Trust us." But we are not willing to let $180 billion go just on trust. We will questions, we will inquire, we will verify, and we will not hesitate to probe every aspect of AIG management and operations to protect the taxpayer's investment."

Ranking Member, Darrell Issa (R-Calif.) said, "I want to acknowledge that none of this is the trustees' fault, they are simply operating within the organization that was created by others, and no doubt do so out of patriotic spirit of public service."

Adding, "The American people have a right to know what is being done with their money."

In his opening testimony Edward Liddy said, "We are working hard to determine the destiny of the component parts of AIG."

Adding, "We intend for taxpayers to realize the fullest possible value from every asset disposition, and we intend that every company that emerges at the end of restructuring will be strong, transparent, and a credit to all its owners.

In particular, we are transferring two major foreign life insurance companies - ALICO and AIA - into special purpose vehicles in exchange for a substantial reduction in AIG's debt to the Federal Reserve Bank of New York. We expect to complete the contractual arrangements for these in the near future."

Liddy added, "We recognize our responsibility to work hand in hand with the government to preserve that value, and I assure you that is our goal. We continue to welcome a frank and open dialogue with Congress on our progress in restructuring, so that you can be in a position to support our efforts. That is essential and I will help us to preserve the value of AIG franchise for the benefit of AIG's stakeholders, the American taxpayer most of all."

Asked by Towns, "Can you confirm that AIG will not require any other additional government money?"

Liddy, "What I can say is we will do our best not to require any additional funding...that answer is very dependent on what happens around the financial globe...I can't give you a guarantee on that. I can't control what happens in the global market."

Towns asked Liddy to provide a copy of 'Project Destiny' by the end of the day.

Liddy responded by saying, "I will do my best."

Liddy will consult with AIG lawyers on this issue as he fears that releasing details of 'Project Destiny' could provide access to marketing information to their competitors and then impact AIG's ability to pay back taxpayers money."

Towns closed by saying, "Do you honestly believe you have a right to prevent Congress from reviewing how the taxpayers money is being spent?"

Frustrated at Liddy's response that he would need to talk to his counsel before providing Congress with details on 'Project Destiny,' Issa gave Mr. Liddy a chance to talk to his attorney sitting behind him.

After conversing for less than two minutes, Mr. Liddy concluded that it there would be limitations to what can be provided as there is "commercially sensitive" information in the plans that AIG would not want competitors to see.

Congressman Paul Kanjorski (D-Penn.) said, "Do you have any opinion whether it would be helpful...if in someway we developed a Federal Insurance charter?"

Liddy replied, "There needs to be someone that looks at systemic risks."

Congressman Brian Bilbray (R-Calif.), "Are you hoping to be able to pay back the taxpayer before the ceiling falls in....How long will it take to pay the taxpayers back?"

Liddy replied, "Somewhere between three and five years. What makes the answer so difficult is how strong will the economy be worldwide and how strong will the financial markets be worldwide."

Bilbray added, "When will you start repaying debt?"

Liddy replied, "As soon as possible....hopefully in a matter of months assuming we get all the Federal approval. "

Congressman Elijah Cummings (D-Md.) asked, "What can you tell them [people who have lost jobs and homes] about what they can expect to see as they see foreclosures signs in front of their houses and businesses?

AIG is looking at its contracts to ensure bonuses are paid on performance basis. Liddy said, "If there are bonuses you earn them."

Congressman Jeff Fortenberry (R-Neb.) asked Liddy to explain to the public what exactly AIG is.

Listing several branches, Liddy said, "It's an insurance company with a few exceptions."

Liddy told the committee, "My time today is focused on today and tomorrow and less on yesterday."

Fortenberry asked Liddy about new figures on AIG bonuses differing from those provided to Congress in March.

It has now been revealed that AIG paid $454 million to bonuses in to its employees in 2008, compared to the $120 million figure released in March.

Apologizing for any confusion on how much was paid exactly for bonuses. Liddy said, the discrepancy on the amount occurred when they were asked by Congress about different type of bonuses, specifically cooperate bonuses.

Appearing frustrated and angry at Liddy's responses throughout the hearing, Congressman Dennis Kucinich (D-Ohio), told Liddy that AIG's behavior was "unacceptable." Adding, "You cheated people who saved lives, who save our children, what are you going to do about this?"

Liddy said he would work with Congress and offered to meet with Kucinich after the hearing.

Kucinich told Liddy that until this matter is resolved "Congress is not going to let you go," shouting that this was "unacceptable" behavior. He told Liddy that Congress "will keep calling you back here," until this issue was concluded.

Kucinich agreed to meet with Liddy following the hearing.

Congressman Jeff Flake (R-Ariz.) asked Liddy, "Can you tell us what the administration's plans are with moving forward with AIG?"

Liddy said, "I cannot."

Congressman William Clay (D-Mo.) asked, "Is AIG really too bog to fail and has it already failed?"

Liddy said, "I would point out to you that this quarter's figures showed that losses for this quarter were not 62 billion...it was 4.3 billion, substantially less than it was in the first quarter of 2008. It's a very complicated institution. It's a very complicated operation."

Hearing was suspended until 12.15pm as Congress was called to vote.

Congressman Stephen Lynch (D-Mass.) said he was “disappointed” with Mr. Liddy as he failed to address the question both in this written and oral testimony, relating to where the taxpayer’s money is going. Lynch said, “It’s a new ball game. One of transparency and accountability.”

Liddy replied, "The last time I was here we provided a very exhaustive document that explained where all the taxpayers money has gone...it was a very exhaustive analysis that explains that in some detail. I thought we had already answered that."

Lynch said, "We are going to have to have you back up this. I am with Kucinich on this. We will not be rolled on this. When we call you up here and ask you a question, we want you to answer the question. "

Congressman Gerry Connolly (D-Va.) asked, “With respects to the bonuses, how many people left the company?

Liddy said, “On the FP sector we had about maybe 10 to 12 to maybe 15 resignations...don’t know if the resignations are over yet.”

Congressman Lynn Westmoreland (R-Ga.) asked Mr. Liddy to get and provide Congress with the number of lawsuits AIG are facing and to find out whether news reports on binding arbitration are true.

Congresswoman Marcy Kaptur (D-Ohio) asked, “Have you paid the taxpayers back any of the money they have lent you to date?”

Liddy responded, “Yes.”

Kaptur: “How much?”

Liddy: “Several billion dollars”

Kaptur: “Several Billion?”

Liddy: “Yes”

Kaptur asked for a list of dates, sums to be submitted for the record. Liddy agreed.

Kaptur then questioned Liddy about his connections with Goldman Sachs which revealed that Mr. Liddy has shares to the market value of $3 million from Golden Sachs.

Congressman Michael Turner (R-Ohio) wants to work with AIG and Mr. Liddy to look at how to improve mortgage back loan to value ratios. Turner fears that if this is not addressed then, "I believe that what we are going the see is the largest theft or fraud in history."

Congresswoman Jackie Speier (D-Calif.) told Liddy, “We are all scratching our heads how can you possibly pay back the taxpayers?”

Liddy said, “It is possible...as I said you before it depends on market circumstances.”

Kucinich said, "Is it true that even if the United States took over AIG 100 per cent these bonuses would still be awarded?"

“No. We have been looking at how we keep people spirited but how we keep in line with Federal regulations.”

Kucinich read a letter sent to employees which asked them to keep bonuses confidential. Kucinich asked Liddy, to inform Congress about any future bonuses.

Towns asked Mr. Liddy to remember that the American public wants to know why a company that contributed to our current economic crisis paid out bonuses that rewarded failure.

Kaptur asked anyone in the committee room currently under contract with AIG to stand - 6 people stood. Kaptur has asked for the details of their contracts.

Kaptur continues to probe into Liddy's connections with Goldman Sachs. Asking the committee to obtain minutes from meetings Liddy attended.

Issa told Liddy, "Please do not think you will not be back before us if you cannot answer...what have the American taxpayers bought for $190 billion dollars?"

Adding, "Provide us with some understanding on how you will pay us back."

Liddy said, "Assets values should be sufficient to satisfy all of what the company owes."

Congresswoman Carolyn Maloney (D-N.Y.) asked, "Whether the life insurance sector of AIG needed a bailout?"

Liddy said, "The life insurance sector was solvent."

Maloney asked, "Do you foresee that in the future that youl will not need any additional public money?

Liddy sighed saying, "Again, I would say that I certainly hope so."

Towns in closing told Liddy that he needed to understand that the "American taxpayer is frustrated."

Edward Liddy was able to leave the hearing at 1.36pm.

Chrysler Throws In The Towel

By Suzia van Swol, University of New Mexico-Talk Radio News Service
One-time giant Chrysler filed for bankruptcy protection today, but President Obama says he has every confidence it will emerge from this process stronger and more competitive.

After speaking with the President today, U.S. Rep. Marcy Kaptur (D-OH) said that the auto industry is important to the U.S. defense industrial base and the economic power of Northern Ohio. “Most important are the 30,000 jobs saved at Chrysler,” said Kaptur.

Kaptur said that the auto industry was brought down by Wall Street and it deserves to flourish. “The government will stand behind the working capital for Chrysler in the form of working capital and loans,” said Kaptur.

Striking comparison with other bailouts, Kaptur said that if you look at who got the big money, “the AIG gets 70 billion, one company?” She went on to say that TARP should have been opened up for vehicle sales
and for the financing of dealership showroom floors. Instead, there was a total credit strangle hold, which still is impacting this industry, and unemployment started to tick up all across the country.

The federal bankruptcy court will ultimately determine Chrysler’s immediate future, but Jeeps might still get a chance to four-wheel over mountains.

Pelosi: Budget is “a statement of your national values”

By Kayleigh Harvey - Talk Radio News Service

“We are so, so very pleased of the work of the Budget Committee under the leadership of John Spratt, who really is a master at work,” said Speaker of the House Nancy Pelosi (D-Calif.) at her weekly press conference, adding that the budget was “a statement of your national values.”

Speaker Pelosi said that after much debate and amendments, the budget came out “intact.” She said the budget “reflects the blue print for America that President Obama has put forth.”

“It reduces the deficit. It reduces taxes for 95 per cent of the American people. It is a job creator in every respect. When it comes to a greener America and clean energy, it creates new green jobs. When it comes to the education of our children, creating a global workforce for the 21st century, it creates jobs. When it comes to making to making America healthier through prevention, bio-medical research and technological advancement, it creates jobs.” Speaker Pelosi stated.

She went on to explain, “We look forward to going to the next step on the budget.”

On the topic of AIG, Speaker Pelosi said, “Our bill that we passed served a very good purpose. It put the spotlight on the AIG abusive bonuses, bonus practices, and it still may pass in the Senate. It didn’t this week, but I think it has produced a result.”

In closing, Speaker Pelosi commented on the sadness of the storms in North Dakota, Minnesota and Mississippi. She said, “We send out warm regards.”

Geithner, Bernanke & Dudley defend AIG

by Christina Lovato, University of New Mexico-Talk Radio News Service


“This is an extraordinary time and the government has been forced to take extraordinary measures. We will do what is necessary to stabilize the financial system, and with the help of Congress, develop the tools that we need to make our economy more resilient and our system more just,” said Treasury Secretary Timothy F. Geithner at a House Committee on Financial Services hearing.

Today, William Dudley, the President and Chief Executive Officer of the Federal Reserve Bank of New York along with Ben S. Bernanke, Chairman of the Board of Governors of the Federal Reserve System and Treasury Secretary Timothy F. Geithner testified in front of Congress and were hammered with questions regarding the American International Group, Inc. (AIG), a company at the center of the economic crisis.

Bernanke said that the Federal Reserve along with the Treasury made their decision to lend $85 billion to AIG in September 2008 because they agreed that AIG’s failure under the conditions then prevailing would have posed unacceptable risks for the global financial system and for the economy. “Global financial markets were experiencing unprecedented strains and a worldwide loss of confidence.... At that time, no federal entity could provide capital to stabilize AIG and no federal or state entity outside of a bankruptcy court could wind down AIG,” said Bernanke. When it came time to talk about AIG’s payout of retention bonuses to employees at AIG’s Financial Products Unit (FP), Bernanke stated, “It was highly inappropriate to pay out substantial bonuses to employees of the division that had been the primary source of AIG’s collapse.... I asked that the AIG-FP payments be stopped but was informed that they were mandated by contracts agreed to before the government’s intervention.”

Dudley stated that he believes AIG’s Chief Executive Officer, Edward Liddy, weighed a number of factors in when deciding not to attempt to prevent payment of retention awards owed to AIG-FP employees. Dudley said that the factors include “the likely negative effects of disruption in staffing at FP in managing its multi-billion dollar exposures, legal advice that the contracts were valid, meaning that breaking them would likely increase the amount of company funds ultimately paid to the covered employees and the negative consequences to AIG’s business that could result from the public abrogation of these contracts.”

Geithner said that the Treasury is working to promulgate rules and to develop a program under the original TARP legislation to review certain bonus awards already paid. Geithner stated, “The proposed resolution authority would allow the government to provide financial assistance to make loans to an institution, to purchase its obligations or assets, to assume or guarantee its liabilities, and purchase an equity interest.... This proposed legislation would fill a significant void in the current financial services regulatory structure in respect to non-bank financial institutions. Implementation would be modeled on the resolution authority that the FDIC has under current law with respect to banks.” Geithner concluded the hearing by saying, “This plan will work. This plan because of the authority provided by the Congress, not just of the Treasury, but the fed, gives us broad ability to do what you need to get through a financial crisis like this.”