The $40 Billion Circus Has Arrived

13 | By Shah Gilani

Get ready for the Greatest Show on Earth. I’m not kidding!

The circus opens today in Washington at the big-top U.S. Court of Federal Claims.

That’s where insurer Starr International is suing the United States for essentially ripping off American International Group Inc. (NYSE: AIG) and its shareholders. Starr is an insurance company controlled by Maurice “Hank” Greenberg, the former CEO of AIG, not long ago the largest insurance company in the world.

Starr International Co. Inc. v. United States will feature clowns, both the frightening variety and the funny kind… lions and tigers and bears, oh my… death-defying high-wire acts… human cannonballs… and bare-naked ladies.

Here’s what it comes down to. Did the Federal Reserve and the U.S. Department of the Treasury have the right to confiscate 80% of AIG’s common stock during the 2008 bailout, in the process costing AIG shareholders $40 billion?

You heard me right.

Starr is suing for $40 billion. No wonder the circus is coming to town…

Grab Some Popcorn

Everyone knows AIG got an almost $180 billion bailout. But what very few people know is what the Fed and the Treasury actually did to AIG to cause it to need $180 billion.

No doubt the New York-headquartered but London-based AIG Financial Products Group was stupid to sell insurance in the form of credit default swaps to a whole bunch of giant banks, guaranteeing them payment in full if the mortgage-backed securities they were stockpiling ever defaulted.

While they were stupid, they were most likely also duped. But that’s another story.

When the mortgage crisis hit, the credit default swaps AIG wrote came back to haunt them.

Here is not the place to get into the particulars, though I know them intimately. Why not here? Because if we’re lucky – and we may get lucky this time – the truth about the particulars will come out at the trial.

If you know some of what really happened, you’ll be following the trial to find out why Goldman Sachs Group Inc. (NYSE: GS) did what it did to AIG in the first place and why AIG had to pay Goldman $14 billion when at the time it owed it $8 billion, at most.

Why did other banks, including several giant foreign banks, get paid 100 cents on the dollar on claims they made against AIG when they were only entitled to market-value amounts of what was owed to them? And that’s assuming they even had a right to collect in the first place, which was in dispute at the time.

Why did the Fed charge AIG 14% on the money it lent it and 8.5% on the money it was going to lend to it but it didn’t need, when it was charging big banks between 2.5% and 5%?

Why did the government take almost 80% of AIG’s equity and controlling voting shares when it didn’t take any voting shares from any other bailout customers it coddled?

There are a lot more questions to be answered.

Some of the clowns who were deposed privately (on videotape) will also testify in open court. They include then-Federal Reserve Bank of New York President Timothy Geithner; then-Treasury Secretary Henry Paulson (another Hank), formerly the head of Goldman Sachs; then-Fed Chairman Ben (aka “Benny” the jet helicopter pilot) Bernanke; and lot of other movers and shakers who bobbed and weaved behind the scenes to extract money from AIG to send to faltering favored sons to save them.

This really is going to be the Greatest Show on Earth because it’s going to expose the criminality of the system that bailed out some of the biggest crooks in the world, who then leveraged taxpayers and economies to make ungodly sums of money with the de facto understanding that the Fed and the Treasury had their backs.

Hurry, hurry, hurry – step right up!

I’ll be here twice a week to let you know how it’s all unfolding. I’m going to slice and dice this theatrical spectacular for you, one julienne fry at a time.

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13 Responses to The $40 Billion Circus Has Arrived

  1. Edward T. Mack says:

    Can’t wait to hear the testimony and your commentary on it. I can guess and infer that Goldman Sachs sits at the nexus of what amounts to a near criminal enterprise to foist off risky mortgage securities and derivative bets (“bad paper”) to AIG, which took bailouts from the Federal Reserve and government when it went bad and down. Also, foreign banks got bailed out 100% to pay GS. Then, AIG was used as a cash cow to fund GS and government coffers (good work, Paulson, since you got lots of this dough through your GS stock). We still don’t know how much the Fed holds in its assets from this debacle. But we do know its assets, which include lots of Treasuries, has swollen from under $1 trillion to nearly $4 trillion, about $3 TRILLION. And we know the players, playing fast and loose with all this money. Am I getting close to the truth?

    • John A Betts says:

      I have said all along that the government thieves from Goldman Sachs should be facing the same prison terms that Bernie Madoff is facing

  2. David M says:

    I really hope you are right about these guys, on both sides, being exposed for their role in the financial debacle of 2007. I imagine nobody will go to jail, but maybe when the Phase II of the financial debacle which will probably begin within the next year or two, maybe the courts will start incarcerating the people responsible.

    Too bad politicians will never go to jail or the Ivy League miscreants who are running the Treasury and Fed.

    There were many politicians who were responsible for making the disaster much worse, including Clinton who overturned Glass-Steagall; thanks to his greed he capitulated to Sandy Weill’s demands.

    Also, Barney Frank was told by the Bush White House on two occasions, in 2004 and 2005, that there was a real estate bubble and action needed to be taken to slow the housing market.

    Frank’s responses were “Everyone ought to own a house (2004)” and “Let’s continue to role the dice (2005)”. I was watching CSPAN at the time and my jaw hit the floor both times.

    I’m sure that others in congress are just as culpible, maybe even more so since Frank never seemed to be very bright, just arrogant and bombastic, just like our president during his first 5 years…now he is just arrogant.

    Nevertheless, our justice system is slowly moving in the right direction, putting white collar criminals in jail, but they are moving to slowly.

  3. Michael says:

    The prelude to Arm-o-geden has arrived! Between Ideologies and Theologies, it’s hard to tell who the winners are from the mounting numbers of global loser’s (Joe “American”, or feel free to add your once sovereign former Nation’s name – here______)…
    This “Circus” will soon prove that this Blooming Global Dilemma to be the true “Greatest Show on Earth” (or what’s left of it anyway)… OMG!
    There’s a BIG problem though! Now that the culling of acceptable expendables is nearing completion on the main stage all of you Big Top Stars (and wannabe groupies) have begun to realize that you’ve gone too far and have painted yourselves into the corner of the Monkey Cage and they’ll have to head for the exits! The realization will dawn on them soon that the exits are locked and guarded by 6+ billion angry Gorilla’s that want refunds for all those stolen bananas!!! Ooopsie!!
    The moral of this story is; Now that you’ve turned your back on Humanity and captured the worlds Wealth and Natural Resources through your greedy deeds the show is ending now and the ensuing Anarchy you’ve found inside Pandora’s Box is inevitable. Is this one of those “Mission Accomplished moments?
    So now, it’s a matter of who’s going to take you down first? Will it be all those people on the ladder you climbed over that led you to the high-wire, or will it be Mother Earth?? It’s now time to think about your Epitaph’s! Remember one thing on your way to hell in your Gucci Hand-baskets, you could have made a difference, but you didn’t care about anything other than yourself and all that money and toys that you can’t take with you..You looked the other way… It’s too late now to change the past. There ain’t gonna be a net to catch you when you fall this time!

  4. R Conrad says:

    Shah:- I’m so glad to see you are on top of this one! With this cast of characters, the show is
    bound to be a ‘once in a lifetime’ event. As one of the losers of the 2008 meltdown I have always
    wondered why no one went to prison for causing that tragedy!

  5. Shawn Miller says:

    These people ruined lives and families for what they didnt have enough.Makes me sick.I hope they all get what is coming to them.

  6. Bernard B. says:

    Ain’t gonna happen. It will just be the usual dog and pony show. After all it is a circus isn’t it? They are all in on it, both parties, top to bottom. Problems: We let lobbyists “bribe” our misfits, I mean legislators with so called campaign contributions. Another, we do elect the the different people in all the departments who have been there, through many administrations, creating make do work and expanding their influence, “for our own good, of course.”
    Big banks own the Federal Reserve and even receive a dividend from them.
    So with the revolving door policy of (financial to government to lobbyist, back to government, back to financial), all policy and decisions are going to favor banks and the connected cronies. And when the court starts accepting honorariums for speeches, their decisions get tainted from it. But the biggest problem is the average American, unlike the readers Shah has, does not know, and does not care to know. Pooey

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