Tuesday, January 12, 2010

Why the Federal Reserve and SEC Wanted to Keep Information Secret on the AIG Bailout Payments

Janet Tavakoli explains to Reuters the motive behind the regulators desire to keep secret the details of the AIG bailout:
Information about the American International Group bailout that regulators agreed to keep secret may reveal which banks held some of the worst performing mortgage-related securities at the time of the rescue.

Reuters reported Monday that the Securities and Exchange Commission approved a request last May by AIG to keep confidential some portions of a year-old regulatory filing that provided details about the funneling of tens of billions of federal bailout dollars to banks like Societe Generale, Goldman Sachs, Deutsche Bank and Merrill Lynch.

The SEC's order granting confidential treatment to the redacted portion of the filing, known as Schedule A - List of Derivative Transactions, lasts until November 25, 2018.

A close review of the non-redacted portions of the Schedule A exhibit, which the giant insurer filed with the SEC on March 16, reveals the regulatory agency permitted the giant insurer to keep secret any identifying information about the securities a group of 16 big US and European banks sold to Maiden Lane III, an entity set-up by the Federal Reserve of New York in November 2008 as part of the AIG bailout.

The NY Fed established Maiden Lane III to retire the credit default swaps-and insurance-like derivative product-AIG had sold to the banks to guard against a decline in value on those mortgage-related securities.

The redacted information includes things such as the CUSIP, or trading ID number, for each security; the name of each security and its face value. Also redacted was the distressed market price, or "negative mark to market" value, for each security sold to Maiden Lane III.


Derivatives consultant Janet Tavakoli said the information kept secret made it difficult to determine which banks held the worst performing securities as well as the identity of the banks that arranged and marketed those securities.

"They didn't want you to know which deals had soured the fastest,'' said Tavakoli, president of Tavakoli Structured Finance and a vocal critic of the AIG bailout. "The reason they didn't want to release these details is because it would have shown that some securities suffered only moderate discounts while others were worth much, much less. And that could have prompted an investigation into the deals that performed the worst.''
Bottom line, the regulators were protecting the worst banks by lumping everything together. Only the details will show who the regulators were really bailing out. This, of course, brings immediately to mind the further question, "Why are regulators protecting certain banks, especially if they are the banks that created, sold and held the worst financial products?"

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