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The Almighty Buck United States Politics

Call To "Open Source" AIG Investigation 259

Posted by Soulskill
from the still-looking-for-somebody-to-crucify dept.
VValdo writes "As you may recall, the citizens of the US shelled out about $85 billion to bail out AIG and its creditors (Goldman Sachs in particular) last year. But as 80% owners of AIG, we still don't know what happened, exactly. That may change. In a new op-ed piece, former prosecutors (including former NY governor Eliot Spitzer) are calling for the US Treasury to force AIG to release its treasure-trove of emails to the public before allowing AIG to 'break free' of our control. As the prosecutors put it, 'By putting the evidence online, the government could establish a new form of "open source" investigation. Once the documents are available for everyone to inspect, a thousand journalistic flowers can bloom, as reporters, victims and angry citizens have a chance to piece together the story.' Good idea?"
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Call To "Open Source" AIG Investigation

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  • Rigghttt... (Score:2, Insightful)

    by Anonymous Coward on Sunday December 20, 2009 @09:39AM (#30503812)

    That's a good one. Goldman Sachs and Lehman Bros ARE the government.

  • Yes. (Score:5, Insightful)

    by selven (1556643) on Sunday December 20, 2009 @09:42AM (#30503824)

    We own 80% of AIG, so 80% of AIG is technically part of the federal government. That means we should have open access to everything just like we should have open access to the Congress, senate, court system, etc.

  • Wonderfull Idea (Score:4, Insightful)

    by Anonymous Coward on Sunday December 20, 2009 @09:43AM (#30503832)

    Put PJ in charge! :)

  • Hrmm (Score:4, Insightful)

    by acehole (174372) on Sunday December 20, 2009 @09:43AM (#30503842) Homepage

    Unlike movies, the guys in high places taking home the multimillion dollar salaries 99% of the time dont get caught. They cover for each other.

    Sad fact of life,

  • The Risk (Score:4, Insightful)

    by Anonymous Coward on Sunday December 20, 2009 @09:47AM (#30503864)

    As purported owners of 80% of AIG, shouldn't taxpayers also be concerned that the information released could compromise the viability of their investment necessary to regain their lost billions?

    I'd love to know what happened but I also want the money they took from me plus an onerous amount of interest. I think the interest will discourage them (and anyone who looks up to their executives as examples of how to rape taxpayers) from repeating their greed/mistakes. Of course what they really deserved was to sink like the anchors they were... Seriously, if you divide the TARP bailout money it comes out to $20,000 per US citizen. My savings and investments can't cover that level of corporate charity disguised as taxes.

  • Re:No (Score:5, Insightful)

    by Anonymous Coward on Sunday December 20, 2009 @09:48AM (#30503866)

    We need that and a 'Cultural Revolution' that fights back against the idea that the upper class knows what's best for the rest of us and that any attempt to eek out even 4% more of their wealth from them is not socialism at all.

  • Re:No (Score:2, Insightful)

    by arcticinfantry (1130171) on Sunday December 20, 2009 @09:53AM (#30503888)
    Yeah, nice idea, but you'd need a legion of Paul Bunyan's to do that. Obama would probably chop his foot off on the first swing.
  • Ummm... (Score:5, Insightful)

    by Anonymous Coward on Sunday December 20, 2009 @09:54AM (#30503904)

    We know exactly what happened... a few *idiots* in AIG's derivatives trading department thought they could sell credit default swaps on mortgage backed securities without keeping *anything* in reserve. It's actually a great strategy... unless housing prices go down, in which case you will take huge, mind-boggling losses. Essentially a few people in one department of an otherwise well run institution took down the whole thing by drastically underestimating risk.

    Credit default swaps are an insurance product. If you sell them, then you had better keep proper reserves to cover claims AND you had better buy reinsurance in case there is a market downturn. AIG did neither and went kaput.

  • A little late... (Score:1, Insightful)

    by Anonymous Coward on Sunday December 20, 2009 @09:56AM (#30503910)

    Shouldn't we have seen those emails BEFORE we bailed them out?

  • by Anonymous Coward on Sunday December 20, 2009 @10:04AM (#30503942)

    This is a great idea, but it is POST-crash thinking. That's how prosecutors think: They wait for something bad to happen, see blood in the water and then look for the crime. Certainly this is a part of how regulation must happen.

    But, there is an even more powerful, I would say way more powerful, idea lurking behind what they are considering: Why not "open source" the whole industry? For example:

      o Have open source analytics that measure risk and values and apply those analytics against firm positions to show aggregate exposures and stress values? The recent "stress tests" that were performed against the banks were generally considering quite weak by industry standards. For example, they were based on single scenarios being applied against option-like positions. And, the scenarios were simply housing and interest rate related but not further defined by prepayment and default models. A full analytics package applied with monte carlo methods would give a much more robust answer of the true risks. Shouldn't we know exactly what exposure all large firms have? If the market has much more information on the risks that various firms are taking, it will be much easier to reward good decisions and punish bad ones.

      o Force all firms of a given size to publish their largest counter-party exposures on a daily basis. If I own BAC and they are long AIG, shouldn't I as a shareholder be able to see the exposure? Shouldn't anyone be able to see that, for the benefit of the whole? If you produce enough of the counter-party graph connectedness, the market will have much more information on system stability and be able to punish/reward bad/good decisions.

      o Shouldn't we be able to see prices of ALL transactions that occur in the capital markets? This is a pretty simple database: CUSIP, Date/Time, Amount, Price. Currently members of the public can only see corporate and (I believe) muni prices. What about MBS/ABS/CMBS/CDO/CLO etc? Also, for OTC transactions there could be other databases that show counter-parties, etc.

      o How about seller transparency in fixed income markets? If an MBS deal is coming to market, shouldn't the buyers get access to all material information the sellers have? This would allow for a market where the buyers can actually price risk without massive information asymmetry.

      o Getting back to open source analytics, having such analytics (paid for by the large financial firms and produced by independent modelers) would greatly help the fractured buy-side firms who simply can't otherwise compete with the large firms that develop sophisticated, proprietary analytics.

    If you want to open source the capital markets, there are many, many things you could do that are proactive and would lead to much greater transparency and stability.

  • by WindBourne (631190) on Sunday December 20, 2009 @10:05AM (#30503950) Journal
    Lets break them up. The last thing that we need is have companies that are 'too big to fail'. We need more competition. If these companies that 'required' and accepted help, then we should break them up into at least 3 companies so that if any are ran into the ground again, we let them die.
  • Re:No (Score:2, Insightful)

    by Cyner (267154) on Sunday December 20, 2009 @10:06AM (#30503954) Homepage

    I agree, the public is just going to crucify the company. We need to move forward, fix the problems, and make sure they don't happen again.

    On the other hand, this might be a great learning exercise for academia. It might be nice if accredited institutions could review a portion of the details in the interests of study cases; particularly a business ethics class (no that's not an oxymoron).

  • by The_Duck271 (1494641) on Sunday December 20, 2009 @10:12AM (#30503988)
    You mean, like the open source "investigation" of the leaked climate change research group emails? That turned out well...
  • by arcticinfantry (1130171) on Sunday December 20, 2009 @10:21AM (#30504034)
    But that would ruin the whole purpose of CDS's!! Where would a CEO be able to rat hole liabilities to improve the balance sheet!
  • It's a start (Score:5, Insightful)

    by mbone (558574) on Sunday December 20, 2009 @10:23AM (#30504042)

    I have no doubt that there is a lot of dirty stuff in those emails, so releasing them would be good.

    Since clearly not everything could be released (HIPPA stuff, personal bank account numbers, etc.), this raises the question of who would remove the private information, and whether they could be trusted. Clearly, if this was done by AIG, an amazing amount of stuff would presumably be declared personal and private and not for release.

  • not only (Score:4, Insightful)

    by phrostie (121428) on Sunday December 20, 2009 @10:24AM (#30504048)

    not only is it a great idea, it should have been a requirement before the bailout.

  • by steve buttgereit (644315) on Sunday December 20, 2009 @10:32AM (#30504086) Homepage

    While it is certainly easy to suggest something like this for those evil people at AIG, it presupposes that those good prosecutors and men at law that would protect us from such evil themselves are actually good. In truth the situation is much more grey than that. Firstly consider that many prosecutors in the country are elected and the prosecutorial policy is originates in the politics of the various office holders. Are politicians so indifferent to their own self interest that such a policy as being proposed by the article could be executed in good faith? Of course not. Politicians, and those that serve at them, are as notorious as any 'fat cat' in using their position and power to their own benefit at the expense of the others. All this policy does is feed a sort of populist anger that garners political support for those that suggest it and at the expense of real justice for the small minority that it targets... regardless of their past transgressions. One should remember that enshrining rights, such as prohibitions against search and seizure without convincing a court, exist largely to protect minorities from majority exploitation.

    The real sin in the AIG case, to be fair, was not any action of AIG at all. It was that we bought into the bogus notion that a firm can be 'too big too fail' and must be bailout out by Government. AIG made bad judgments and bad investments and its owners (shareholders, including big investment banks) allowed it to be managed poorly. The company should have been allowed to fail, something all those involved earned. What we did instead was reward the foolish risk taking made by the shareholders and the managers and, worse still, told future generations of shareholders and managers that taking these risks is OK... the government will bail you out if you lose so there really is no risk at all... you're too big too fail. Let em fail! Stop taking my savings, diluting my money, borrowing on my behalf to save businesses that by all rights have earned their failure (including all those that chose to have a business relationship). There are other insurance companies, there are other investment banks, and there are others capable of filling the gap responsibly. Sure none of them have such good friends as Geithner, Paulson, Obama, & Bush... but they can rise to the occassion.

  • Re:Ummm... (Score:3, Insightful)

    by mbone (558574) on Sunday December 20, 2009 @10:39AM (#30504130)

    We know exactly what happened... a few *idiots* in AIG's derivatives trading department...

    Sorry, but I don't buy it. My experience is that idiocy generally starts at the top, but it doesn't really matter. Like the Captain of a ship, the people at the top of a company should be responsible in any case, even if they didn't know.

  • Re:Yes. (Score:5, Insightful)

    by MikeURL (890801) on Sunday December 20, 2009 @10:52AM (#30504208) Journal
    If Americans accept this argument then they can expect the government to simply keep the spigots open and funnel every last dollar in the economy to wealthy people. Those wealthy people will then give the people elected ever more money so they can stay in power.

    At some point there is a level of apathy that will almost force people in power to behave badly. If you kick someone in the balls and they smile and give you a $100 bill then eventually you will not only do a LOT of kicking but you also come to hate that stupid smiling face.
  • only too true (Score:3, Insightful)

    by gadget junkie (618542) <gbponz@libero.it> on Sunday December 20, 2009 @10:56AM (#30504236) Journal

    No, not a good idea. What is the point in having a Cultural Revolution? Better to just split these companies which are too big to fail into smaller chunks, kick out the top management making sure they never work in that capacity anymore, enforce layers of separation between businesses and let them free. Restore the Glass–Steagall Act and separate commercial banking from investment banking.

    That fits with my idea that the standard politician idea of going after bankers' salaries and bonuses [ft.com] is moronic. The crux of the problem is how fat the BANKS get, not how they pay bigwigs.

    One more comment: all governments seem bent on getting aid money back from the banking system ASAP, and the Herds are mooing that that's a good thing; but if you consider that the regulations of the banking system is more or less what it was when Lehman went under, central bankers included, I see it more as a "blank check " for keeping regulation lax ( or stupid, witness Basel II [bis.org] ); It would be very difficult for governments to press for reenacting the Glass- Steagall act, which would permanently erase excess profits at realities like Goldman Sachs, all the while asking the same companies to make those excess profits in order to repay the Government.

  • by Anonymous Coward on Sunday December 20, 2009 @11:03AM (#30504306)

    All this "Evil Bankers" stuff is getting ridiculous. The banks/bankers are just the scapegoats for a fundamentally corrupt and unsustainable system.

    The magic with blaming the banks/bankers is that we cant get rid of them since we need them. Hence blaming them is the perfect way of maintaining things just the way they were.

  • Moral hazard ... (Score:3, Insightful)

    by Pinky's Brain (1158667) on Sunday December 20, 2009 @11:13AM (#30504386)

    IMO FDIC is an abomination ... government bonds should be the investment of choice for people who want to have guaranteed savings (and private citizens should be first in line during issuance). Banking and other types of investment should be for people who want to bear the risks. Implicit or explicit insurance for financial instruments causes moral hazard.

  • Re:Keep Dreaming (Score:3, Insightful)

    by maxume (22995) on Sunday December 20, 2009 @11:19AM (#30504450)

    It's likely that they could have pushed the haircut issue, but the banks that got the money were not the ones that would lose on the insurance contracts (for instance, Goldman only stood to lose $14 billion if AIG completely exploded, AIG's customers stood to lose hundreds of billions, so the government would have been depending on the generosity of the creditors (if they were willing negotiators), or doing even more damage to contract law (if they were unwilling)).

  • Mandatory (Score:1, Insightful)

    by Anonymous Coward on Sunday December 20, 2009 @11:25AM (#30504498)

    But Spitzer consorted with prostitutes! He's as bad as Tiger Woods!

    Won't somebody think of the children?

  • Re:The Risk (Score:3, Insightful)

    by nedlohs (1335013) on Sunday December 20, 2009 @11:28AM (#30504516)

    Sure, if you ignore the simple fact that TARP just put a band-aid on. So in the next couple of years we'll get to pay for the real collapse as well.

    $2,333 per person to delay and compound something for a few years doesn't seem so wonderful to me.

  • Re:No (Score:2, Insightful)

    by wons0000 (1704448) on Sunday December 20, 2009 @12:22PM (#30504958)
    "What happens when money is created out of nothing is a little bit is stolen from everyone holding that currency by inflation." -Yes but only in the short term. This is not a 0-sum economy. The inflation would be offset with growth in the economy....the question is how long till things even out. The myth of the whole economy downturn is only a few reaped its benefits. The top brings the middle (and some times the bottom) with it when it grows. Main street doesn't exist without Wall street....at least not in its current form. The idea that the people who create "money out of thin air" do nothing of value is false. A modern economy needs credit to sustain its self and more importantly, grow. "Restore the Glass–Steagall Act and separate commercial banking from investment banking." -much better idea then any kind of re-distribution of wealth or some other non-sense.
  • by Anonymous Coward on Sunday December 20, 2009 @12:24PM (#30504974)

    There's a difference between having 80% ownership of a corporation and owning indebtedness of 80% of a loan for the agreed value of a property. The bank can only ask you to satisfy the debt owed, not vote upon your decisions dealing with the property nor claim ownership before foreclosure.

  • Re:No (Score:1, Insightful)

    by Anonymous Coward on Sunday December 20, 2009 @12:45PM (#30505132)

    People always focus on the wrong underlying items. What you have to realize is that the truly limited item is human labor per capita. That is, we can all only do so much in a given interval of time, and this is what limits the goods that can be produced, and thus, ultimately, the amount of wealth that is available to split up between us all.

    The only thing that can change this is a gain in efficiency so more goods are produced per person. Adding more people doesn't help because, while it will produce more goods per person, it also results in more people to split the goods between. The average remains fixed. Without an increase in efficiency, to make one group of people richer, you have to make another group poorer.

    Were does money come into it? It's what ties distribution and production together. It's both our vote on what goods gets produced from the fixed amount of human capital available and our method of acquiring then. You can feel however you want about how the money is distributed, but you can't change these facts. Giving everyone more just means there vote is worth less unless there is an underlying change in efficiency. Concentrate it hear instead of there and you just emphasis production of one goods over another.

    Money is necessarily created out of thin air. Its a proxy for the underlying item, how human labor is being spent and the results are distributed. Much like the slip of paper you use to vote for representative. It's created out of thin air too. It's valuable because it is ultimately a proxy for your government (which I note use it to direct, spend, and distribute the result of human capital).

    There is always a question of how we get these proxy items into circulation. In this case of votes, we directly give it to people. In the case of money, we use the banks to inject it into the system.

    Now I agree fully that these guys are being way over compensated for their time, however, I object to the term "for free". It's never for free unless there is no expenditure of human capital. Banks utilize humans to get their work done, so it is not for free. It's compensation. It's votes going towards how human capital is being spent. If we reduced it to zero, we would have no more banks.

    Your choice.

  • by Lawrence_Bird (67278) on Sunday December 20, 2009 @12:46PM (#30505138) Homepage

    There are two time frames which require serious investigation. The first is the period Sept 10-Sept 17. What was said in these meetings? Who was there? It is not even entirely clear that AIG would have failed so spectacularly had they been allowed (as proposed by NYS) to tap into some of the excess liquidity of the subs. AIG, similar to Lehmans, was all about liquidity and the lack of access to short term lending facilities. The marks that the CDS portfolio was set to take that quarter were survivable. The cash crunch came from the securities lending side as well as some debatable collateral calls by the likes of Goldmans. The government then decided to effectively do eniment domain on AIG - taking it from its shareholders (80%, they would have done 100% if law permitted) and making it a conduit to funnel money into other institutions. There was never any serious consideration given to assisting AIG, either through relaxed regulation or temporary bridge financing (public or some mixture private/public) at rates similar to those given other institutions which were far, far less punative..

    Second, the time period when Treasury decided to force AIG to pay par on the CDS held by many of the counterparts, even though they were not entitled to par as most, if not all, the underlying CDOs had not yet entered default. Even so, CDS held by other institutions *never* paid at par, even when underlying bonds/structures had legitimately defaulted. It was not uncommon to only receive 65 or 70c on the dollar. Yet AIG was forced to make whole a slew of counterparts who at the least should have taken a sizable haircut if not been made to go to court to enforce their agreements if AIG had violated any of the terms.

    Instead, not only did the government via Paulson/Geitner/Bernanke pay off the likes of Goldmans and Deutche, they hosed the US tax payer as well as the shareholders of AIG. Some may object to the last but consider that all the above events, particularly those in early September, amounted to the pilfering of the AIG shareholders too. Yes, they may ultimately have lost everything but the way things went down was a sham.

  • Re:No (Score:3, Insightful)

    by MightyMartian (840721) on Sunday December 20, 2009 @02:37PM (#30505960) Journal

    Could you point out where Capitalism is in the Constitution, and where Socialism is banned? Thanks in advance.

  • Re:Not quite (Score:5, Insightful)

    by Late Adopter (1492849) on Sunday December 20, 2009 @03:00PM (#30506134)
    Neither of you cited your claims, but I'm fairly sure it's actually the GP who has it right. Dodge v. Ford established that even a majority shareholder has some basic responsibility to the minority holders, which would preclude actions that would harm the shareholders for no clear benefit to the company. This is sometimes raised out of context on Slashdot to falsely claim that a business must by law maximize profit, but the basic principle is of a similar vein: you can't just water down the value of your shareholder's shares for nothing (as in the Ford case).
  • by FiloEleven (602040) on Sunday December 20, 2009 @03:38PM (#30506398)

    That's a very interesting observation. I think it's worth mentioning that "consumers" rarely fought for openness; we just want some end product and we want it cheap and immediately. Perhaps if we'd been less intellectually lazy it never would have gotten to this point.

  • Re:No (Score:3, Insightful)

    by mjwx (966435) on Sunday December 20, 2009 @09:41PM (#30508470)

    You have it completely backwards. I'm a libertarian but the one place the socialists have it right is that "some" of the rich steal it from the "workers".

    Unfortunately Libertarianism is the fungus in which this behaviour grows.

    A completely unregulated (anarchistic) capitalist system fails for the same reasons a completely unregulated (anarchistic) socialist system fails. It relies on everyone thinking the same and following unenforced and unwritten rules, the system breaks down when one person decides to act differently. With libertarianism it is only a matter of time before one company becomes a complete monopoly as they can continue to buy out, suppress or undercut other companies until they are bankrupt as they are permitted to leverage any advantage to any extent. Once this happens we have a two party system essentially, the corporation and the state, what happens here is the two begin to merge into one entity, a extremist authoritarian capitalist system (fascism) where the entire state works for the benefit of a small group (the fasci).

    This is similar to what happened with Pol Pot. He and his cohorts envisaged a utopian agrarian state, however many Cambodians didn't so the regime set about forcing people into this idealistic existence, to the tune of 2.2 million Khmer dead.

    If it weren't for regulation of essential economic sectors/industries this kind of scenario would have already happened. This is why the Australian economy with it's well regulated banking sector was the first 1st world nation to recover. Hard-line socialism inst the answer, neither is hard-line capitalism, it's about maintaining a healthy balance between financial growth and financial security.

    Well I call BS. If they were allowed to fail we would have a serious deflation with all of their fake money getting destroyed.

    The problem is that the debt is very very real, yes they created that debt with the Imaginary Dollar (which henceforth shall be refereed to by the symbol !$ symbolising that it is indeed not a dollar) but this bought real investments, this needs to be paid back with real dollars. The banks and the US economists gambled on the returns from the !$ in real dollars being greater then the repayments on the !$ borrowed to buy the investments. Basically they gambled on a continued and unsustainable level of growth and lost, this does not mean the money borrowed does not have to be repaid.

    If the US banks were permitted to fail the US would be a third world nation by now as you debtors hunt your mercilessly. However I don't understand why the CxO's responsible aren't in jail, yes the law permitted them to do this but they should have understood the consequences (Hint: they ignored the consequences, this is another example of how libertarianism fails).

    But of course we can't have that so the Federal Reserve creates even more money (stealing it through inflation) to give to their buddies.

    Inflation is the hidden tax, this is often raised when actual taxes cannot meet expenditures. So very often a tax cut offered as an election promise only serves to raise the hidden tax, inflation. This was the case in 2008 as Kevin Rudd delivered a bunch of small tax cuts after winning the election. Inflation is also quite inefficient compared to direct taxes.

The rich get rich, and the poor get poorer. The haves get more, the have-nots die.

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