This has to be the most outrageous headline I’ve read since whatever the last headline was that made me apoplectic:

SEC mulled national security status for AIG details

In a little noticed story over the weekend, Reuters has discovered that the New York Federal Reserve want to invoke national Security rules to keep the details of the bailout a secret.

It reveals the degree to which the NY Fed was a) In a state of sheer Panic; b) Captured by the banks they regulate; and c) Failed to understand the basic premise of Democracy.

Aside from what this means to the ongoing tenure of Tim Orwell Geithner at Treasury, it shows how utterly clueless the people who bailed out the banks and their bond holders actually are.

Here is Matthew Goldstein of Reuters:

“U.S. securities regulators originally treated the New York Federal Reserve’s bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security, according to emails obtained by Reuters.

The request to keep the details secret were made by the New York Federal Reserve — a regulator that helped orchestrate the bailout — and by the giant insurer itself, according to the emails.

The emails from early last year reveal that officials at the New York Fed were only comfortable with AIG submitting a critical bailout-related document to the U.S. Securities and Exchange Commission after getting assurances from the regulatory agency that “special security procedures” would be used to handle the document.

The SEC, according to an email sent by a New York Fed lawyer on January 13, 2009, agreed to limit the number of SEC employees who would review the document to just two and keep the document locked in a safe while the SEC considered AIG’s confidentiality request.

The SEC had also agreed that if it determined the document should not be made public, it would be stored “in a special area where national security related files are kept,” the lawyer wrote.

In another email, a New York Fed official said the SEC suggested in late December 2008, that AIG file the document under seal and then apply to the regulatory agency for so-called confidential treatment, if central bankers wanted to stop the information from becoming public.”

Perhaps it would be best if someone showed Timmy to the door . . .

>

Source:
SEC mulled national security status for AIG details
Reuters, Jan 24 2010
Matthew Goldstein
http://www.reuters.com/article/idUSTRE60N1S220100124

Category: Bailouts

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

28 Responses to “NY Fed Wanted National Security Exemption for AIG”

  1. The Window Washer says:

    Seems like a completely reasonable idea to me, can’t see why it would upset you Barry.

  2. The Curmudgeon says:

    Security is always the foundation upon which the government builds its most egregious abuses of power. They usually couch in terms of “war”, e.g., the “Drug War”; the “War on Poverty”; the “War on Terrorism”, etc.

    But this one should be called “The War on Financial Responsibility” because that is precisely what it is.

  3. The Window Washer says:

    OK let me get this strait AIG does or doesn’t have Weapons of Mass Destruction?

  4. TakBak04 says:

    If there’s a possiblity that Bernanke knew anything about this…maybe it would be better if the Senate put a hold on his re-appointment until after more investigation is done on on this and after Geithner’s hearings scheduled for Jan. 27th?

    More disturbing information is coming out (and who knows where it leads) but to rush through his appointment before we know more about what went on in the crisis days before Obama even was inaugurated is worth a wait for the good of the country.
    ——
    Meanwhile the AP has called it early for Bernanke, and CNBC seems to be in some jitters over both Bernanke and Geithner today. Fear of change seems to be the meme. “Markets could implode and end the recovery” are the comments from the usual suspect guests.

    ——

    Stocks recover as Bernanke’s prospects improve
    Stocks stabilize as hopes improve for Bernanke’s reappointment, break worst slide since March

    By Stephen Bernard and Tim Paradis, AP Business Writers , On Monday January 25, 2010, 1:34 pm

    NEW YORK (AP) — Stocks are recovering Monday from last week’s bruising as prospects brightened that Federal Reserve Board Chairman Ben Bernanke would be appointed to another term.
    The Dow Jones industrial average skidded 5.2 percent from Wednesday to Friday of last week as President Barack Obama stepped up his campaign to tighten oversight of banks. Signs last week that Bernanke’s appointment could be in trouble contributed to the big drop.

    http://finance.yahoo.com/news/Stocks-recover-as-Bernankes-apf-1012591412.html?x=0&sec=topStories&pos=1&asset=&ccode=

  5. Moss says:

    Does anyone dispute that the ‘system’ would have collapsed w/o extraordinary effort.
    I am not condoning anything illegal but seems like these guys were absolutely convinced that a total collapse was possible. Had MS and GS followed Bear and Lehman I suspect that would have been the case.

  6. gordo365 says:

    Moss – I think that those with hands on the controls did believe that the system would collapse without extraordinary measures. But they are the same folks that couldn’t conceive of a nationwide drop in housing prices.

    So – their beliefs are worth what?

  7. gavingunhold says:

    I tend to think that the system would have collapsed had the Fed not intervened. However, I’m not convinced the Fed had to intervene the way they did. They could have simply nationalized the failing companies, and run them long enough to get the economy back on track. And then when the economy improved, the Fed could have just eliminated the companies or sold them.

    Anyway, didn’t happen. And now we’re debating whether it’s appropriate for the federal government to increase regulations on Wall Street firms that almost destroyed the American economy. God, I love this country.

  8. Mike in Nola says:

    Barry,
    It’s a good bet that whatever last made you apoplectic involved Timmy, AIG, or the FRBNY.

    TakBak04
    Is their any doubt that Timmy would have told Ben what was going on?

  9. the bohemian says:

    and here . . .the whole while . . .you were trying to be the sensible one BR . . .no conspiracies . . .no cover-ups-

    ZH brought this idea up previously- as a possibility- long before any story broke- and I am sure people thought they were a bit daft -

    sometimes people are doing “secret” things

  10. Moss says:

    It is not their beliefs that mattered, it was their belief what the crowd of ‘financial participants’ beleived.
    Clearly that crowd would have jammed the market and the shares of the aforementioned financials to zero if given the chance. GS and any other counter party or creditor should have taken a haircut, paying 100% was not warranted.

  11. inthewoods says:

    Just f’ing unbelievable. Someone talk me off a ledge.

  12. km4 says:

    James Howard Kunstler calls Geithner a feculent weiner ( which is spot on ! )
    http://kunstler.com/blog/2010/01/-a-lot-of-things.html

  13. ashpelham2 says:

    Of course, most of the American public will never read or pay attention to this piece. Tonight’s American Idol night, right? This is the sort of thing that causes a Bernanke to lose his job, and for former Presidents to be brought to the gallows. Again, unless it’s on Entertainment Tonight, most of America will never notice.

    But I noticed….And I use my information to tell clients that they don’t stand a chance if they think they will “beat” the market. Sure, anyone can get lucky. And some of us, few, might actually outperform the market gross of taxes over a long period of time. But the system is gamed more than ever, and the house always wins.

  14. Mannwich says:

    Ah yes, stealing money from taxpayers to give to our nation’s “elite” is now a “National Security Concern”. But of course it is. Why wouldn’t it be?

  15. BuffaloBob says:

    “Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power.” – Benito Mussolini.

    This news item, in combination with the recent Supreme Court Decision championing corporate rights at the expense of democracy make it quite apparent where we are heading.

  16. David Merkel says:

    Matthew Goldstein does some great investigative work — another graduate of TSCM.

  17. Paul Jones says:

    Society dying.

  18. ToNYC says:

    So SockGen and DoucheBank were going to let the cat out of the bag. So now we are in a blackmail State?
    I reckon so; and Johnny John can’t make enough Band-aids to cover this turd-infested gash.

  19. cognos says:

    CV Starr… who is the godfather of AIG. Was an early OSS / CIA guy, no?

    If you think about AIG’s international business… this is the stuff of true conspiracy theories. And I am typically an anti-conspiracy theory kinda guy. What I mean is… what does a hugely global insurance company really do? Answer = money laundering. Think about it… insurance is a basic way to turn lots of small incremental “payments” into one large lump sum.

    Now there is nothing “scary” about this. It just means that the large insurance companies are closely affiliated with the large intelligence networks. They also both work hard for stability, in the sense that war, terrorism, crisis… means alot of insurance payments.

    So the “national security” thing… is not quite as crazy as it sounds. But still… I get it… its crazy.

  20. TakBak04 says:

    @cognos Says:
    January 25th, 2010 at 6:14 pm

    CV Starr… who is the godfather of AIG. Was an early OSS / CIA guy, no?

    If you think about AIG’s international business… this is the stuff of true conspiracy theories. And I am typically an anti-conspiracy theory kinda guy. What I mean is… what does a hugely global insurance company really do? Answer = money laundering. Think about it… insurance is a basic way to turn lots of small incremental “payments” into one large lump sum.

    ———–

    COGNOS:
    Nothing Conspiracy here….just do a Google on AIG or hit the WIKI link to start your search:
    HERE for the BACKGROUND:

    http://en.wikipedia.org/wiki/Maurice_R._Greenberg

    AND:..if you want the Edith Wharton…or “Current View” go to this website for a synopsis ..(in political terms) of AIG/Greenberg in a more “Colorful/Quick Read form. A GOOD READ…for “Zero Hedge” type folks:

    It’s an interesting one about AIG and their BACKGROUND/HISTORY…for sure… SPY…THRILLER….and it goes on!

    What’s amazing is that “Hank” Greenberg is such a cute little man…and Maria Barteromo interviews him often on CNBC. He’s really such a kindly Granfatherly person… Who could believe?

  21. foxmuldar says:

    Looks like were dealing with another Area 52 project. Aliens must have landed on Wallstreet in the middle of the night and beamed Geithner up for a briefing. Aliens had big holdings in AIG and were on the hook for major losses. Geithner had two choices, either he bails AIG out for the full amount of their losses, or else the Alien ship would zap the New York Stock exchange. Geithner had to act quickly to save his friends on Wallstreet. Naturally if word got out the world would be in total panic. Thus the top secret security clearance. Hey why not?

  22. deadhead says:

    BR said: “It reveals the degree to which the NY Fed was a) In a state of sheer Panic; b) Captured by the banks they regulate; and c) Failed to understand the basic premise of Democracy.

    Aside from what this means to the ongoing tenure of Tim Orwell Geithner at Treasury, it shows how utterly clueless the people who bailed out the banks and their bond holders actually are.”

    Yet you seem so absolutely certain that these same folks would not directly or indirectly via the PDs buy the futures market. I recall you saying that proof is needed and that will be impossible unless a comprehensive forensic audit is completed of the Fed’s balance sheet and cash flows.

    Other than this item, I’ve been an admirer of your work and I do thank you for sharing your wisdom and insights on a daily basis.

  23. mgkurilla says:

    When will the insanity come to an end? Is there no amount of blatant trampling over everything decent that will cause someone to raise criminal charges against the NY Fed Going back to Friedman who bought GS stock while the original TARP negotiations were underway, the entire NY Fed has distinguished itself for flagrantly violating laws and regulations. And these are the guys who we are suppose to give greater authority over banking regulations?

    I’m sick and tired of hearing how Bernanke “saved” from a fate worse than death due to expertise on the Great Depression. The fact is thousands of economists have made their careers on describing aspcets of the Great Depression and yet despite all of this collective supposed wisdom in the mind of BB, he didn’t see it coming, denied it was coming and still refuses to take any responsibility. BO cannot continue to blame Bush because BO has maintained the same players and continued the same policies.

    When will heads roll?

  24. bullionaire says:

    I think the terminology for this type of conduct is prelude to anarchy.

    The bailout is bad enough – the cover up imo is an order of magnitude worse.

    The fact that this revelation doesn’t top the national news only serves to reinforce what is going on here and it certainly ain’t “change we can believe in”.

  25. cognos says:

    I think you guys make too much of it. So what that it was a difficult situation that people would rather have handled discretely. This does not make it — illegal, unethical, or anti-american.

    Nor does it make it a problem going forward.

    Actually, the problem is over. Should we have a bit of an investigation…yes. But this will be much like “the 911 commission”… it doesnt change the main facts or simple truths.

    We had a housing bubble. Citizens levered into it. Bankers levered into it. Regulators slept.

    Its over. Dont go crazy. People arent perfect. Lots of money is (again) being made in new jobs, new companies, new industries. Everything will be back to normal in 6-12 months (its already 75% back).

  26. rktbrkr says:

    So SockGen and DoucheBank were going to let the cat out of the bag. So now we are in a blackmail State?

    We need foreign banks to squeeze the truth out of our appointed officials? No way BB should ever be reconfirmed. This is something some Dems should help filibuster!

  27. Halp says:

    Just showing Timmy the door isn’t enough at this point. The level of corruption throughout the system is deep seated. At this point what is need is some criminal conviction of those trying to cover things up.

  28. maybe I’m looking at this with partisan eye or maybe it’s the lawyer in me (sorry) – but I don’t see anything in this where it was NY Fed wanting the “national security” treatment – it was Bush’s SEC that suggested the “national security” route (as they used “national security” as cover to hide all sorts of other things throughout those 8 years). I agree with Cognos up above – it looks like, at least from the NY Fed POV that is more along the lines of “a difficult situation that people would rather have handled discreetly”. From the Reuters article, it seems that the idea of handling the desire for secrecy as a “national security” issue originated solely from the SEC (“But this latest round of emails reveals that it was an official with the SEC in December 2008 who recommended that AIG and the New York Fed could seek confidential treatment for the Schedule A document as an alternative to making the entire document public” and “In another email, a New York Fed official said the SEC suggested in late December 2008, that AIG file the document under seal and then apply to the regulatory agency for so-called confidential treatment, if central bankers wanted to stop the information from becoming public.” Evidently, the SEC’s version of “confidential treatment” involves limiting access to the original document and storing it ” “in a special area where national security related files are kept”. Hence the reference to “national security” status.
    There is nothing in the article that actually says that the “NY Fed Wanted National Security Exemption” . All that was said by anybody, and originated by the SEC, is that confidentialiaty was desired and because the route to that confidentiality lead to close physical proximity of documents to documents of a national security measure, somehow or other this means that Tim Geithner and the NY Fed “Failed to understand the basic premise of Democracy” and somehow or other abused the idea of national security.
    Talk about yellow journalism. I’m actually a bit surprised at the crudeness of the spin trying to use this to attack Geithner. We can debate in good faith whether or not the documents should have been made public or kept secret – but to derive from this a charge that the NY Fed wanted “national security status” for its secrets isn’t a good faith argument in my book.