Why rumored? Because of the infuriating refusal to turn over any information as to who these counter-parties are by the Fed and Treasury:
“The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma” on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral.
Fed secrecy was the focus of a Senate Banking Committee hearing today in which the panel’s top two members said the central bank’s reluctance to identify companies benefiting from the American International Group bailout risks undermining public confidence in the government.
“If the American taxpayer’s money is at stake, and it is, big time, I believe the American taxpayers, the people, and this committee, we need to know who benefited, where this money went,” said Senator Richard Shelby of Alabama, the committee’s top Republican. “There is no transparency.” (emphasis added)
Who is being made whole at the taxpayer expense? The taxpayer isn’t merely getting screwed here, we are taking the royal shaft up the patootie in previously unimaginable ways.
Nouriel Roubini explains the refusal to allow the public to learn how their monies are being disbursed:
“In the meantime, the massacre in financial markets and among financial firms is continuing. The debate on “bank nationalization” is borderline surreal, with the U.S. government having already committed–between guarantees, investment, recapitalization and liquidity provision–about $9 trillion of government financial resources to the financial system (and having already spent $2 trillion of this staggering $9 trillion figure).
Thus, the U.S. financial system is de facto nationalized, as the Federal Reserve has become the lender of first and only resort rather than the lender of last resort, and the U.S. Treasury is the spender and guarantor of first and only resort. The only issue is whether banks and financial institutions should also be nationalized de jure.
. . . AIG, which lost $62 billion in the fourth quarter and $99 billion in all of 2008 and is already 80% government-owned. With such staggering losses, it should be formally 100% government-owned. And now the Fed and Treasury commitments of public resources to the bailout of the shareholders and creditors of AIG have gone from $80 billion to $162 billion.
News and banks analysts’ reports suggested that Goldman Sachs got about $25 billion of the government bailout of AIG and that Merrill Lynch was the second largest benefactor of the government largesse. These are educated guesses, as the government is hiding the counter-party benefactors of the AIG bailout.”
Could Goldman Sachs dig in any deeper at Treasury?
Yes they can. Over at naked capitalism, Yves has the story of yet another highly conflicted Treasury nominee, Sullivan & Cromwell chairman H. Rodgin Cohen:
Sullivan & Cromwell has long been the outside counsel for Goldman, and outside counsel is a vastly more important role for a securities firm than just about any other type of business. In the stone ages, when I worked for a few years at Goldman, certain S&C partners had so much clout at Goldman that they could get a mid-level banker fired. And even then, “Rodg”, head of the banking practice, was a very influential figure at Goldman.
All for the greater glory of Goldman . . .
Previously: Solvent Insurer / Insolvent Insurer (March 4, 2009) http://www.ritholtz.com/blog/2009/03/solvent-insurer-insolvent-insurer/
Sources: Fed Refuses to Release Bank Data, Insists on Secrecy Mark Pittman and Craig Torres Bloomberg, March 5 2009 http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aG0_2ZIA96TI
The U.S. Financial System Is Effectively Insolvent Nouriel Roubini Forbes, 03.05.09, 12:01 AM EST http://www.forbes.com/2009/03/04/global-recession-insolvent-opinions-columnists-roubini-economy.html
Originally published at The Big Picture blog and reproduced here with the author’s permission.