Need to hide $40b in losses from view? You can, in one easy step — just change the accounting methodology, and like magic, yo can make the loss disappear!

“The United States Treasury concealed $40 billion in likely taxpayer losses on the bailout of the American International Group earlier this month, when it abandoned its usual method for valuing investments, according to a report by the special inspector general for the Troubled Asset Relief Program . . .

In early October, the Treasury issued a report predicting that the taxpayers would ultimately lose just $5 billion on their investment in A.I.G., a remarkable outcome, since the insurance company was extended $182 billion in taxpayer money in the early months of its rescue. The prediction of a modest loss, widely reported as A.I.G., the Federal Reserve and the Treasury rushed to complete an exit plan, contrasted with an earlier prediction by the Treasury that the taxpayers would lose $45 billion.”

This is my favorite part of the article:

“[SIGTARP Inspector Neil] Barofsky said he had written to the Treasury secretary, Timothy F. Geithner, in mid-October, after widespread reports in the news media about the possibility that the Treasury could wind down its position in A.I.G. with just a $5 billion loss. He recommended that the Treasury correct the October report, perhaps by adding a footnote saying the methodology for calculating its losses had changed.

The Treasury declined. It sent back a letter saying its methodology for calculating losses had not really changed, although its assumptions had . . . “

They refused to add a footnote — if this was a public firm the SEC would be all over their asses! Adding a footnote disclosing the accounting change was too much for Treasury — outrageous.

Yet more reasons why bailouts are a bad idea: Incentivizing the government to lie . . .

>

Sources:

SIGTARP October 26, 2010 – Quarterly Report to Congress [PDF]

Treasury Hid A.I.G. Loss, Report Says
MARY WILLIAMS WALSH
NYT, October 26, 2010
http://www.nytimes.com/2010/10/26/business/26tarp.html

Category: Bailouts, Earnings

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.

30 Responses to “SIGTARP Report: Treasury Hid AIG Losses”

  1. mathman says:

    For Franklin411 and anyone else who may be interested:

    http://questioneverything.typepad.com/

  2. mathman says:

    There’s a lot of “stuff” hiding in plain sight:

    http://www.financialarmageddon.com/

  3. JustinTheSkeptic says:

    And everyone says that only China has a Command Economy! Why is, what our officials are doing, any different than what the USSR did back in the day? (They cooked the books however they wanted them just like young Timmy, and Big Ben are doing today.) It will be interesting if our “Iron Curtain Democracy” gets torn down this time around.

  4. kmckellop says:

    @ BR: “Incentivizing the government to lie . . .”

    I think -Incentivizing the government to commit treason”- is more accurate.

    >

  5. TakBak04 says:

    Re: Geithner and Treasury. Perhaps his not paying his taxes was a clue to his character. Some of us had a problem with appointing a Sec. of Treasury who couldn’t keep his own finances in order.

    @mathman:

    That Joe Bageant article is a must read. It really cuts through the crap out there and brings home what’s important and what’s manipulated to seem important. “Anecdotal, Deductive, Inductive.” Good points.

  6. And Warren Buffet’s Berkshire Hathaway does not have to use mark to market on two large equity holdings….(yes, I know BRK is an insurance company, but not using mark to market on two equities, just because you think their value will be higher two years from now?)

    The two companies are Kraft and US Bancorp – I do not know about anyone else, but I for one am not confident enough in my understanding of where food prices & the food business will be two years from now to say that Kraft should have been higher than it was at the end of 2009 !

    This example, and others such as the ‘accounting’ for AIG, etc should lead investors to consider U.S. sovereign risk a bit differently (ie, the U.S. as banana republic, anyone?)

    http://alaricinvestments.wordpress.com/

  7. [...] A scathing report on how badly planned and managed the TARP was/is, Geithner slammed.  (ZeroHedge) and (TBP) [...]

  8. Winston says:

    For snark’s sake, I’ll say it again: Maybe Larry Summers supplied the math.

    I knew a guy who prepared profit-loss statements for a small company. If he used the same “cook book recipe” the boss and (eventually the IRS) would have eaten him alive. Geithner, et al., seem to be incapable of shame.

  9. Niskyboy says:

    @ TakBak04 — “Re: Geithner and Treasury. Perhaps his not paying his taxes was a clue to his character.”

    You got that right, buddy.

  10. rktbrkr says:

    How about all the real estate collateral the Fed has taken from the banks, time to take a fresh look at those markdowns LOL

  11. ACS says:

    Gee, cooked good news in October. You don’t think it has anything to do with some kind of event early the next month do you?

  12. Lugnut says:

    “if this was a public firm the SEC would be all over their asses!”

    After the relative lack of actionof the SEC, post 2008, I think you may be giving them a little bit too much credit.

    Timmy may have character flaws, but he’s betting that even if it sees the light of day, it will never snow ball within MSM coverage circles. And in that, he’s probably correct. Who really does he answer to for malfeance? Obama? Congress? What are they going to do?

  13. stat_arb says:

    That is outraeous.

  14. b_thunder says:

    NYTimes writes: “An official of the Treasury disputed Mr. Barofsky’s conclusions, saying the department appropriately used different methods for different purposes…”

    …and so did Bernie Madoff! Same two sets of books. Why is Timmy not sharing a cell with Bernie????

    and until then, tell this administration that neither they, nor anyone they supports have my vote.

  15. rktbrkr says:

    Blood is thicker than water dept…

    O’Bama Treasury gets egg on face covering up for Paulson’s bailout of AIG (really Paulson’s ex AIG was beneficiary)

    O’B should have never appointed Turbo Timmy (Paulson lite) and should never have reappointed Uncle Ben, these guys are stealth agents for Repubs. One term Bama

  16. tradeking13 says:

    Well if FASB doesn’t care how losses are accounted for why should AIG?

  17. formerlawyer says:

    “Yet more reasons why bailouts are a bad idea: Incentivizing the government to lie . . .”

    Since when haven’t politicians been incentivized to lie? CYA is endemic in bureaucracy. Government accounting rules are a black hole. The only real difference I can see is the failure to qualify, by footnoting, a bald lie.

  18. VennData says:

    “Although the recapitalization plan does create the possibility of an accelerated government exit from its ownership in interest AIG, Treasury’s projections are subject o a degree of uncertainty…. this calculation does not account for the volatility in AIG’s stock price which may result in losses or gains that either either greater or less than the projected amounts”

    “The Retrospective …instead based on the market’s closing price of AIG stock.”

    “…and which will continue to use the auditor approved methodology”

    http://www.sigtarp.gov/reports/congress/2010/October2010_Quarterly_Report_to_Congress.pdf

    So, the Treasury will continue to use the methodology they have always been using, and will continue in the future. However, to show what will happen based on today’s market price, this is what will happens.

    So what’s the problem here?

    Page 126 under LOSS ESTIMATES shows how this methodology SIGTARP keeps harping on contains ALL the loss, “The estimate… like other before it, accounting for a broad range of factors that might affect the value of Treasury’s holdings.”

    For all you who hate changes in accounting, they are not doing that.

    For all of you who hate mark to model, Treasury offered what will probably happen… a mark to market for what will really, MOST LIKELY happen, while keeping the kitchen sink scenario for the actual accounting of the report that comes out in the future with all the possible disasters they concocted when they wrote the original report two years ago…

    For all of you who hate lies, trickery and deceit, this is all been explained. There are no lies. Treasury and the SIGTARP went back and forth and SIGTARP doesn’t like the explanation based on the actual stock price. They want to include all of the possible scenarios resulting in the 40B loss will only happen in the most unlikely scenario.

    So we’ll see who’s right. if you think that the Retrospective assumptions with everything that can go wrong is what’s happening, than be my guest and short the hell out of it.

    “Doctor, I’ve got a cold, will I make it?”

    “Well you may also have one of these two thousand diseases.”

    “Thanks, I’ll take two aspirin and call you in morning.”

    “I think we should investigate…”

    “See’ya.”

    Complete political nonsense.

  19. Pure-Water says:

    What a surprise…that whole “increased transparency” & “open government” thing was just a lie by Obama to help him get elected.

    How anyone can support either republicans or democrats is beyond me.

  20. DL says:

    “Incentivizing the government to lie”

    As if they needed another reason.

  21. ACS says:

    “Increased transparency” refers to the government’s ability to spy on the public.

  22. franklin411 says:

    I’ve heard of this Barofsky guy before. Hmm…where did I hear about him…

    Overstating Bailout Costs
    By Barry Ritholtz – July 21st, 2009, 7:11AM

    http://www.ritholtz.com/blog/2009/07/overstating-bailout-costs/

  23. [...] hid AIG (AIG) losses.  (NYTimes, Big Picture, Zero [...]

  24. soloduff says:

    Moral of the story: In class warfare, the have’s and their official instrument (a.k.a. the political state) need to lie; the have-not’s need to speak the truth. –This is, by the way, the main reason why the have’s today are unofficially represented not only by PR agents and other privately funded liars (such as corporate front groups) but also by professorial proponents of falsehood (such as N. Gregory Mankiw, Lawrence Summers, and just about any neoclassical economist of note); while the have-not’s struggle to field a small and motley crew consisting of such as Barry Ritholtz, Ralph Nader, and Yves Smith.

  25. lalaland says:

    There’s something about this Barofsky guy I just can’t figure out. Something about him reminds me of Elliot Spitzer; maybe it’s his background but maybe not. Anyway, I recommend – based solely on my gut – taking his word with as big a grain of salt as most of the commenters are taking with the words of Geithner, et al.

  26. cognos says:

    EXCEPT! – in each and every case, for nearly 2 years, the treasury, congress and pundits have OVER-ESTIMATED by as much as 100x the cost of tarp, talf, aig, autos, etc.

    FYI- they are STILL over estimating costs.

    Silly bears. Poor bears.

  27. lalaland says:

    pooh bears comes next…

  28. notakid says:

    I don’t see how timmay can think he dumps all that crap and doesn’t kill off his “profits”.

    @cognos – you may be correct on the balance sheet, however I would submit the real costs are far higher “off the books” so to speak.