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Archive for November 17th, 2009

GM is going to pay back $1.2 billion of the government loan. Of course, GM is 61% owned by the Government. So, the Government is going to payback the Government for a loan that it received from the Government. Got it? Good.

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Polling is poorly understood, and more often, poorly implemented. Dave Burris has a reference to a recent Susquehanna Poll that allegedly shows Beau Biden beating Mike Castle in the Delaware US Senate race. However, as Mr. Burris shows (His blog can be found here):

[A]ny poll that uses 56% women and 49% Democrats isn’t worth the time. There is no way in my opinion that 2010 Election Day turnout reflects those numbers. The Democrats didn’t even reach 49% in 2008.

So, I went to check out the poll (which can be found here). From the explanatory paragraphs comes the following:

Among traditional “super” voters, or those who vote in all elections, the race is virtually tied at 43/42 (Biden), while among more infrequent voters, or those who mainly vote in presidential years Biden’s lead is stronger, at 49/38. This means Biden’s chances of success are greatly improved if turnout is higher among “presidential-type” voters next year, groups which historically have lower turnout in non-presidential years like 2010.

So, let’s cut through the chatter — Among likely voters polled by Susquehanna, the race is tied. Readjusting the numbers for an actual turnout balanced between Republicans, Democrats & Independents, and CASTLE WINS.

Note: Any poll conducted 11+ months before an election is silly since 40% of actual voters won’t make up their minds until October 2010, but at least have the honesty to conduct a real poll.

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I have not been a supporter of Tim Geithner since day 1. I believe that he has been in Goldman-Sachs pocket, a consummate insider who is more interested in helping his wealthy banker friends than in helping get the economy on track. Feel free to search my blog regarding Geithner to see previous posts.

Regettably, the proof that I am right just keeps pouring in. From Bloomberg News (The original article can be found here):

In the months leading up to the September 2008 collapse of giant insurer American International Group Inc.Elias Habayeb and his colleagues worked nights and weekends negotiating with banks that had bought $62 billion of credit-default swaps from AIG, according to a person who has worked with Habayeb.

One of his goals was to persuade the banks to accept discounts of as much as 40 cents on the dollar, according to people familiar with the matter.

Among AIG’s bank counterparties were New York-based Goldman Sachs Group Inc. and Merrill Lynch & Co., Paris-based Societe Generale SA and Frankfurt-based Deutsche Bank AG.

Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps — insurance-like contracts that backed soured collateralized-debt obligations.

Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.

The deal contributed to the more than $14 billion that over 18 months was handed to Goldman Sachs, whose former chairman, Stephen Friedman, was chairman of the board of directors of the New York Fed when the decision was made. Friedman, 71, resigned in May, days after it was disclosed by the Wall Street Journal that he had bought more than 50,000 shares of Goldman Sachs stock following the takeover of AIG. He declined to comment for this article.

So, let’s recap:

  • AIG was in the process of settling its outstanding bad debts at ~40 cents to the dollar.
  • Geither steps in, takes over the negotiations on behalf of the Fed, and pays full price.
  • This decision has been hidden from the public.
  • Geithner’s boss at the time had made a new investment in Goldman-Sachs (as did Warren Buffett I might add) and was Goldman’s former Chairman.
  • Geithner gets made Treasury Secretary because he is so smart.
  • Geithner’s Chief-of-Staff at the Treasury is Goldman-Sachs’ former head lobbyist.

The article continues with the following:

The Federal Reserve has been reluctant to publish information on its efforts to stabilize the financial system since the crisis began. The Fed has loaned more than $2 trillion, yet it refuses to name the recipients of the loans, or cite the amount they borrowed, saying that doing so may set off a run by depositors and unsettle shareholders.

Look, when you take public money, you are subject to a higher level of scrutiny than if you negotiate a private-sector transaction. If that means that some shareholders will be “unsettled” (shareholders like Mr. Buffett?), then too bad. If you want privacy, keep away from public money. The Fed has backstopped $250,000 worth of deposits, so if there is a run on a big money center bank, then let them fail.

Other than reinstating Glass-Steagall, I don’t know what major changes we really need in our banking industry other than a good housecleaning of the Fed and Administration’s leaders. Mr. Geithner should go.

I’ll close with the following from the a Bloomberg article from today (which can be found here):

The Fed “made several policy decisions that severely limited its ability to obtain concessions,” including telling the banks that participation in talks was voluntary, [Neil] Barofsky [Special Inspector for the Troubled Asset Relief Program] said. The Fed also opted not to use its “considerable leverage” as regulator of some of AIG’s counterparties to force them to accept so-called haircuts, he said.

Hey, it wasn’t Mr. Geithner’s money, so why should he push?

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