Saturday, November 28, 2009

Ravaging Frauds, Timmeh's Testimony and Goldman Sachs' Special Deal

Frauds Running Amok? (Too many to keep up with?) Seems the "tea-party"-ers are hardly the Little Rascals' tea party set. Unless your definition of tea party provides for no party and darn little tea for you. This article reveals the empathy level of the group that believes your best response to a critical health care problem, if you are poor, is to die quickly. The doctors they are currently trotting out as expert naysayers to the health care bill currently being negotiated in Congress belong to a fraternity formerly associated with the John Birch Society. Remember them? No? You will.

Yet despite the lab coats and the official-sounding name, the docs of the AAPS are hardly part of mainstream medical society. Think Glenn Beck with an MD.

The group (which did not return calls for comment for this story) has been around since 1943. Some of its former leaders were John Birchers, and its political philosophy comes straight out of Ayn Rand. Its general counsel is Andrew Schlafly, son of the legendary conservative activist Phyllis.

The AAPS statement of principles declares that it is "evil" and "immoral" for physicians to participate in Medicare and Medicaid, and its journal is a repository for quackery. Its website features claims that tobacco taxes harm public health and electronic medical records are a form of "data control" like that employed by the East German secret police. An article on the AAPS website speculated that Barack Obama may have won the presidency by hypnotizing voters, especially cohorts known to be susceptible to "neurolinguistic programming" — that is, according to the writer, young people, educated people, and possibly Jews.

For decades the AAPS has opposed any attempt — real or imagined — to expand the government's role in health care. Its last big moment in the spotlight came in 1993, when it sued Hillary Clinton to stop "socialized medicine," prompting a trial court to order the then first lady to disclose the participants of her health care task force. The organization requires members to sign a "declaration of independence" agreeing to stop participating with any third-party payers — meaning not only government programs like Medicare, but private insurers, too. Basically AAPS doctors believe that medicine should be a cash-and-carry business.

This free-market fundamentalism has made the AAPS a natural ally for big corporations. Documents released as a result of the tobacco litigation the 1990s and early 2000s show that Philip Morris officials worked with AAPS executive director Jane Orient to help the company's "junk science" campaign that attacked indoor smoking bans.

. . . For the AAPS journal, however, this is tame stuff. The publication's archives present a kind of alternate-universe scientific world, in which abortion causes breast cancer and vaccines cause autism, but HIV does not cause AIDS. Cutting carbon emissions represents a grave threat to global health (because environmental regulation would make people poorer and, consequently, sicker). In 2005, the journal erroneously claimed that illegal immigration had caused a leprosy epidemic in the US, a claim that was reported as fact in more mainstream outlets such as Lou Dobbs' show.

. . . Once in a while, an AAPS member has let slip that their opposition to health care reform doesn't stem purely from medical concerns. In July, Florida neurosurgeon and AAPS member David McKalip circulated on a tea-party listserv a photo of Obama dressed in Papua New Guinean tribal garb with a bone through his nose, captioned "Obamacare: Coming soon to a clinic near you." News of the photo, first reported by Talking Points Memo, forced McKalip to apologize publicly and step down as president-elect of the Pinellas County Medical Association. He claimed afterward that he would stay out of politics for a while, but a few weeks later, he spoke at a tea party in south Florida and, on October 16, appeared on the Glenn Beck show with another AAPS member for a special on health care reform.

Do yourself a favor and read the rest here.

The data on Little Timmeh's Rocking Weekend with those gorgeous guys (but no Lassie) from the Fed continue to gush in. But are the most affected players (taxpayers left holding the bills) even listening?

The Fed has gone hog wild in extending credit (through repos, for instance) with supervised institutions. It has taken all kinds of dodgy collateral at all kinds of dodgy valuations. That certainly involves taking a long term credit exposure. (Spare me any protests that there is no credit risk here because these repos are collateralized. Given the quality of the collateral, and the counterparties, there is an appreciable probability that the Fed will suffer a credit loss on these deals.) And if the Fed’s actions were a response to an existential event, which is the gravamen of its defense of its actions, such prissiness over protocol appears decidedly inappropriate – making this explanation exceedingly implausible.

. . . Further thought: Given that the CDS were so far underwater to AIG, if the government had guaranteed them, the likelihood that the Fed would have become a creditor to the banks on the other sides of the deals was exceedingly remote. That is, it was highly unlikely that the Fed would have been exposed to default losses on these deals, meaning that the “credit relationship” was a fiction. (Besides, at the time, were most of the counterparties even under Fed supervision? Most were foreign banks, and even the US counterparties, with the exception of Wachovia, were investment banks that I do not believe were under direct Fed supervision, except perhaps as Treasury primary dealers, rather than as banks.)

Second, “there was a lack of statutory authority of the Federal Reserve to provide such a guarantee.” Please, again. There are a variety of structures that effectively create guarantees. For instance, if the Fed could see its way clear to setting up and capitalizing a special purpose vehicle (SPV) to buy the CDOs, it could have set up and capitalized an SPV, and then novated the deals to the SPV. If it was concerns about counterparty risk that made the banks so insistent on receiving collateral payments, this structure would have allayed their concerns – and required no cash to go out the door.

Here's the first part (the FRBNY is the Federal Reserve Bank - New York (Timmeh's former home)) and don't forget the quotable Hank Greenberg's role in the AIG mess (emphasis marks added - Ed):

Krugman is bashing Timmy! Geithner for his role in the AIG bailout. This poses something of a dilemma for yours truly. My sentiments parallel those of Henry Kissinger during the Iran-Iraq War: too bad they both can’t lose. All snark aside, the SIGTARP report that has put Timmy! (oh, that was snarky–sorry) on the hotseat raises some questions that have been totally ignored over the debate over whether the Fed should have sent Goldman, et al., to the barber shop to get a haircut on the valuations of their swaps with AIG. The indisputable fact is that billions of cash went out the door to Goldman et al as a result of Fed’s actions. The Fed took ownership of the CDOs underlying the swaps that AIG had entered with the banks, and effectively paid the banks 100 cents on the dollar. That is, they ensured that the CDO hedges were perfect (belying the old trader adage that the only perfect hedge is in a Japanese garden). The question is, therefore, what were the alternatives? The alternative that has garnered all the attention is that the Fed should have paid less than 100 cents on the dollar. But that’s not the only alternative. Hank Greenburg has suggested that the Fed should have simply guaranteed the swaps, thereby vitiating the need to provide any collateral payments. (I made a similar suggestion in an earlier post on AIG).The SIGTARP report states clearly (p. 14) that this alternative was considered, but dismissed. The ostensible reasons for the rejection seem very dubious, indeed. First, “FRBNY told SIGTARP that a perceived downside of this structure from FRBNY’s perspective was that it could involve FRBNY in long-term credit relationships with supervised institutions.” Please. The Fed has gone hog wild in extending credit (through repos, for instance) with supervised institutions. It has taken all kinds of dodgy collateral at all kinds of dodgy valuations. That certainly involves taking a long term credit exposure. (Spare me any protests that there is no credit risk here because these repos are collateralized. Given the quality of the collateral, and the counterparties, there is an appreciable probability that the Fed will suffer a credit loss on these deals.) And if the Fed’s actions were a response to an existential event, which is the gravamen of its defense of its actions, such prissiness over protocol appears decidedly inappropriate – making this explanation exceedingly implausible. Further thought: Given that the CDS were so far underwater to AIG, if the government had guaranteed them, the likelihood that the Fed would have become a creditor to the banks on the other sides of the deals was exceedingly remote. That is, it was highly unlikely that the Fed would have been exposed to default losses on these deals, meaning that the “credit relationship” was a fiction. (Besides, at the time, were most of the counterparties even under Fed supervision? Most were foreign banks, and even the US counterparties, with the exception of Wachovia, were investment banks that I do not believe were under direct Fed supervision, except perhaps as Treasury primary dealers, rather than as banks.) Second, “there was a lack of statutory authority of the Federal Reserve to provide such a guarantee.” Please, again. There are a variety of structures that effectively create guarantees. For instance, if the Fed could see its way clear to setting up and capitalizing a special purpose vehicle (SPV) to buy the CDOs, it could have set up and capitalized an SPV, and then novated the deals to the SPV. If it was concerns about counterparty risk that made the banks so insistent on receiving collateral payments, this structure would have allayed their concerns – and required no cash to go out the door. . . . To conclude: given the availability of another alternative to buying out the banks at 100 percent of par, that would not have required a cash payment, and the weak justifications for avoiding that option, make it highly likely that the AIG bailout was structured in part to provide liquidity to major banks (and perhaps, but not conclusively, one particular bank). Which makes the Fed’s – and Geithner’s – denial that the financial health of these firms was an irrelevance highly dubious, not to say, a lie.
Read on, please. One particularly knowledgeable reporter ("Thank you!") provides us with these links: The Special Inspector General's Report on the A.I.G. Bailout (SIGTARP) November 24, 2009 1:57 AM Goldman/AIG Conspiracy Theories: There’s a Reason They Won’t Go Away Suzan _______________________

4 comments:

TomCat said...

Very well put together, Suzan. Thanks. You've hit on the key problems and on why I opposed Geithner's appointment and am calling for him to be fired.

Suzan said...

Thank you, thank you, thank you, dahlink!

Moi aussi.

After all, he's Bush's choice.

S

Beach Bum said...

Know the John Bircher types very well. Even one that believed the pope was trying to control the world with his Jesuit priests.

Great bunch of cockroaches, and damn scary. Cause most of them are very prepared for doomsday and like their roach kinfolk you know they will survive just like them.

Also, Please forgive me for not mentioning your birthday last Sunday night when I wrote that long comment. And thanks for those kind words at my site.

Suzan said...

No forgiveness needed, friend.

You are always welcome at my place, and I read your blog voraciously for the calming effect(s).

Salute!

S