Blog on the Run: Reloaded

Tuesday, January 31, 2012 9:41 pm

“Abracadabra,” or “Stick ’em up”?

Like Keyser Soze in “The Usual Suspects,” some $1.2 billion in customers’ money has disappeared from MF Global Holdings Ltd., the trading firm run by former U.S. Sen. Jon Corzine, D-N.J.:

Federal officials looking for an estimated $1.2 billion missing from customers of MF Global Holdings Ltd. feel more and more that a lot of it may never be located, according to a report citing sources familiar with the probe.

What’s been learned so far suggests that a good deal of the money may have “vaporized” because of scrambling in trading in the week before MF Global filed for bankruptcy protection Oct. 31, the Wall Street Journal reported, citing “a person close to the investigation.”

Many now think specific MF Global employees used money from a customer account meant to be walled off and used it to cover collateral requirements or to unfreeze assets of banks and others as they became more worried about how exposed they were to MF Global, the Journal reported.

The probe also is looking at other possibilities that have taken on weight, including the chance that the firm lost a lot in investments that used customer money, according to the report.

At least, that’s what they’re saying in public. Duncan “Atrios” Black thinks the truth might be a little different:

No the money hasn’t disappeared, they’re just making clear that whoever took it is unlikely to relinquish it. Whoever took it is more important than the people it was taken from. … And a new standard will be established: the right people are free to steal $1.2 billion.

And who might those people be? Emptywheel hazards a guess:

I actually don’t think Federal Reserve Bank of NY Board Member Jamie Dimon got his hands on the almost $3 billion of Iraqi money deposited in the FBRNY that has vanished.

An audit by [Special Inspector General for Iraq Reconstruction Stuart] Bowen’s office published on Sunday investigated the roughly $3 billion the Iraqi government gave the Defense Department to pay bills for contracts the Coalition Provisional Authority awarded before it dissolved in 2004. Most of these funds were deposited into an account at the Federal Reserve Bank of New York.  Even though DOD was responsible for maintaining the proper documentation, it could only account for $1 billion of the money.

“It’s symptomatic of the poor record keeping that was rife throughout the early stages of the reconstruction effort,” Bowen, who has conducted three other major audits into the original pot of roughly $21 billion in Iraqi funds the U.S. managed in 2003 and 2004, said.

After all, that money dates to 2004 and Dimon’s service on the FBRNY Board didn’t begin until January 2007. (Though I will note that Jamie Dimon and Iraq’s money overlapped at the FBRNY for a year.) Moreover, it was DOD’s responsibility to keep track of the money, not the FBRNY or Jamie DImon.

Still, I can’t help but notice that the announcement that we’ve lost almost $3 billion of Iraqi’s money (on top of the more than $100 million in cash that managed to walk out of Saddam’s former palace) came within a day of the time some are declaring the missing MF Global $1.2 billion has “vaporized.”

[snip]

That money does seem to have been lost in the immediate vicinity of Dimon’s JP Morgan.

As the week progressed, MF Global executives came to believe that JPMorgan Chase & Co., one of MF Global’s primary bankers and a middleman moving that cash, was dragging its feet in forwarding the funds.

Corzine phoned Barry Zubrow, then JPMorgan’s chief risk officer, to question the slow payments. Corzine also called William Dudley, president of the Federal Reserve Bank of New York, to update him on MF Global’s status and told him that payments were slow to arrive from JPMorgan and others.

[snip]

JPMorgan was able to slow the delivery of funds, worsening MF Global’s distress. As a result, they note, hundreds of millions of dollars of MF Global money may be still stuck in accounts at JPMorgan.

So while I’m not suggesting Jamie Dimon bears any personal liability for these missing billions (or those of Lehman or Bear Stearns), I will note that Dimon seems to have the 21st Century equivalent of the Midas Touch: Rather than turning things into gold when he touches them, when billions get within reach of Jamie Dimon, they seem to vaporize.

For the record, I have no earthly idea where either the MF Global money or the Iraq money went, but I’m confident that it didn’t go wherever it went accidentally. Would it be irresponsible to speculate? It would be irresponsible not to.

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Thursday, January 28, 2010 9:24 pm

We wuz robbed; or, “These CDOs have ‘cliff risk,’ as in falling off of one.”

On Wednesday, an unredacted list was finally released of what toxic assets the New York Federal Reserve took off AIG’s hands in 2008 for 100 cents on the dollar of our money. Financier Janet Tavakoli has reviewed the list and tells us what we can learn from it.

How badly did this deal screw taxpayers? Horribly:

… at the time of the November 2008 buyout, some CDOs had implied prices of around 60 cents on the dollar. Others had implied prices of around 20 cents on the dollar. Not revealed by the new report is that many of the assets backing some of the CDOs have a high risk of severe or total principal loss (many have actual losses). These CDOs have “cliff risk,” as in falling off of one. (There is currently no reliable secondary market, and similar CDOs have traded as low as one penny.) [To clarify, that’s not one penny on the dollar, that’s one penny per security — Ed.]

Among her other findings:

  • Although AIG’s Joe Cassiano has claimed that the company was out of the mortgage-security protection business by the end of 2005, about 14 percent of the CDO tranches, nominally constituting $21 billion of the $62 billion in assets the New York Fed bought from AIG, originated later.
  • Although Blackrock’s managed investments included a AAA-rated June 2007 CDO that had deteriorated to C (junk) status by December 2008, Blackrock got no-bid contracts to manage investments that the New York Fed bought from AIG.
  • The high-dollar bailout of AIG, the insistence that the situation was too critical to allow for negotiations, and the subsequent secrecy all directly and significantly benefited Goldman Sachs.

She adds:

The fact that the Fed and SEC suppressed potentially explosive facts is bad enough, but the delay in making the information public has given interested parties a window of opportunity to cover their tracks by dumping the worst of the assets, thus hiding them forever from public view.

Suppressing the details of AIG’s trades made it easier for AIG’s counterparties to cover-up profiteering and then exploit public funds. If details of these trades had been made public in September 2008, a reasonable negotiator would have demanded that the billions of dollars that had been extracted from AIG (including the $7.5 billion Goldman extracted by then) should be recharacterized as a loan.

Instead, the Fed gifted tens of billions of dollars to banks that supplied the financing for bad loans that damaged the U.S. economy. More than that, these banks engaged in suspect deals that covered up losses and allowed them to continue to report apparent “profits” and pay inflated bonuses. Meanwhile, their securitization activities continued to harm the economy during a period at which the United States was at war.

Goldman is not solely responsible, but it had a large role in AIG’s crisis and a unique position of conflicted interest and influence over the terms of the bailout. Now that the crisis is over, this issue should be reopened, and billions in collateral should be clawed back to pay down public debt, before Goldman Sachs pays more than $16 billion in taxpayer subsidized bonuses to its employees.

And this, folks, was only one bailout.

During his State of the Union address Wednesday night, President Obama reportedly said, “I don’t want to punish the banks.” I think MikeElk speaks for roughly 300 million Americans when he asks why the hell not.

I’ll go a step further: Mr. President, I don’t give a damn what you don’t want. What matters is what we want and what the law says we are owed: Investigations. Indictments. Convictions. Restitution. You want to stimulate the economy? Create the biggest freakin’ law-enforcement task force in this country’s history and turn them loose on the banksters.

Oh, and one other thing we want, Mr. President: fines so big those jackals will never get out from under them. Because tens of millions of Americans will never get out from under what they did. They ought to know, at least, what that feels like.

Monday, November 23, 2009 5:41 am

Most concise explanation I’ve seen …

… of why Tim Geithner ought not be on my payroll.

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