Envelope, Please

Messrs Geithner, Bernanke, and yet another gentleman from the former investment bank Goldman Sachs, (Bill Dudley who replaced Geithner as President of the NY Fed), went before the House Financial Service Committee to answer questions about the AIG bailout today .

Notwithstanding the alternately inane, occasionally relevant but hopelessly mangled, or just downright painful questioning from House members typically out of their depth, ie: the usual, m* was rather looking forward to today's hearing. The opportunity to focus attention on the decision process behind one of the most extraordinary actions taken thus far in the crisis, the initial and now ongoing operation to keep AIG on life support, seems long overdue.

Mere hours after Lehman Brothers was inartfully "allowed" to file for bankruptcy (most market participants having been lulled into complacency by the extraordinary measure of a $40bn Fed loan to JPM to help smooth the passage of Bear Stearns into its long goodnight), the Fed and Treasury reversed course, again, and advanced AIG $85bn (for 80% of the firms equity) to meet collateral calls from its trading counterparties and prevent a bankruptcy.

The justification put forward at the time, that a "disorderly" bankruptcy risked unknown but assuredly catastrophic effects on the financial system and the economy, was the party line in today's hearing. And yet as the taxpayers' tab continues to mount, after multiple rounds of capital injection, extraordinary funding facilities, and last week's unveiling of the Fed's nuclear option, debt monetization, we have no further understanding of our financial saviors' analysis than a platitude about risk and catastrophe. For this we have unleashed trillions.

Surely, we the people deserve grittier stuff than that. Its our dime. It's pithy, sure, but m* wants to know where are the Powerpoint slides? Where are the charts? Surely there is a scratch-pad someplace with AIG's off balance sheet liabilities and the potential losses a potential bankruptcy might have entailed? A meeting agenda, a presentation, a back of an envelope?

Or have these gentlemen from the Fed, and now Treasury, led us down a course of treatment, founded on no more than a fear of an uncertain and painful future, that risks transforming our financial corpus beyond all recognition? If the analysis is correct, and the course of action appropriate, what is there to hide? Gentlemen, the envelope please.

Bonus Round

Who can keep up with all the four-letter acronyms emanating from the organs of state capitalism these days? Like a bad winter bug, if you work at a "TARP Bank," TARP’s revenge made the rounds today. The House, in a spasm of populist retribution, passed legislation and the Senate considered legislation to punitively tax bonuses awarded to financial workers whose firms accepted TARP funds, willingly or unwillingly, and well, is anyone surprised? m* is not.

TARP was dumb money, perpetual capital at 5% interest plus a puny passel of warrants, as part of a dubious plan, details to be worked out later, for purchasing bad “assets” from banks. In reality it was a $700bn blank check from the Government, gifted in haste to a group of important banks whether they needed it or not, (later expanded to consumer credit firms and automakers) by an unlikely trio of ministers enthralled with the Street and their own savior complexes.

The Street played its part in the con when US markets conveniently swooned upon TARP's initial rejection, then having appropriately scared Congress into reversing its weak objections, rallied upon its passage. A self important Congress breathed a huge sigh of relief for having saved the stock market, and embarked on a surreal and nauseating string of self-congratulatory speeches for the record to empty floors of both houses from legislators with only the vaguest notions of mark-to-market, CDS, or FAS 157, touting their part for the folks back home in saving the nation from collapse.

Granted, after their near death experiences, the management of certain of those lucky (unlucky?) institutions might have been expected to behave more discreetly with the fruits of the fleecing, a bit more congruent with the act of charity dis-enfranchised and increasingly unemployed taxpayers had visited on them. But this is Wall Street folks. Greed and fear are reliably available. Forbearance has always been in short supply. And besides, wasn’t the premise that these institutions (and their bankers) were too valuable to lose?

But where Wall Street went wrong was not in taking the money and running. It was in embarrassing Congress. Having blithely signed over a large portion of the Treasury on a bill they didn’t understand to an industry they can’t comprehend, now "those same folks" (as big O. would say), reacting to public outcry over what amount to personal bailouts for financial employees, are mad as hell that the blank check they wrote was not spent how they wanted and that they didn't know. Wall Street traded securities for cash. Congress traded cash for praise. Wall Street pocketed the cash. Congress, having found praise fleeting, now wants the cash back. Bonus round.