Edward Liddy

Stop Thief! NYT steals Examiner’s AIG scoop with no attribution

by John Berlau on April 17, 2009 · 1 comment

in Bailout Watch, Culture, Politics as Usual, Sanctimony

One week after Washington Examiner ace investigative reporter Timothy P. Carney broke the blockbuster story reporting that American International Group’s post-bailout CEO Edward Liddy owned a large stake in Goldman Sachs. a top recipient of the AIG bailout, the New York Times has decided that this is news “fit to print.” But for some reason, the so-called paper of record didn’t think it was “fit” to give any credit to the original source of this story.

Almost all of the significant details in the Times story  by Mary Williams Walsh, posted last night on its web site, were reported in Carney’s column in the Examiner a week ago (and elaborated on in my post in Open Market): The fact that Liddy — who was installed in his position by former Treasury Secretary Hank Paulson (and with the approval of  then-Federal Reserve Bank of New York President Tim Geithner, a detail not in the Times story!) — still owns more than 27,000 shares of Goldman Sachs that its valued at more than $3 million; and that this represented a potential conflict of interest because Goldman was a counterparty of AIG that got $13 billion from the taxpyer-funded bailout.

The Times even talks to the same AIG spokeswoman, Christina Pretto, who originally confirmed these details for Carney. But the story doesn’t once reveal to Times readers that all this information had already been broken by the Examiner.

It is highly doubtful the Times hadn’t known of the Examiner piece. Earlier, at the prominent financial blog site Ritholtz.com, prominet risk analyst Chris Whalen wrote a commentary on the issue citing both Carney’s piece and my analysis in Open Market.

The Times’ appropriation in its covering of what I had described to Carney as a “looting” of taxpayers and AIG shareholders can, in a sense, be called thievery on top of thievery.

LibertyWeek 38: Pirate Warriors on Deck

by Richard Morrison on April 13, 2009

in CEI Projects, Podcast

Your hosts Richard Morrison and Cord Blomquist are joined by special guest co-host Jeremy Lott for a very swashbuckling Episode 38 of LibertyWeek. We start with the rescue of Capt. Richard Phillips from Somali pirates by the U.S. Navy and Special Forces, look into the murky finances of AIG CEO Edward Liddy in Scandal Watch, and figure out what ISPs are up to in Technology News. We also get an update on how West Virginia is about to become even more Wild and Wonderful, and finally we answer the call for wealthy, multilingual volunteers in Olympic News.

AIG CEO Liddy owns millions in stock in bailout beneficiary Goldman — Tim Carney blockbuster in DC Examiner

by John Berlau on April 10, 2009

in Bailout Watch, Features, Odds & Ends, Politics as Usual

Everyone should read the blockbuster exclusive in today’s Washington Examiner in which Timothy P. Carney confirms that American International Group CEO Edward Liddy — appointed to his position at the behest of Hank Paulson and Tim Geithner after the government takeover of AIG in September — still owns more than $3 million in stock in Goldman Sachs, one of the biggest beneficiaries of the AIG bailout.

I am privileged to be quoted in this article that both breaks news and puts it into an informative policy context. The dogged investigative reporting conducted for this piece by Carney, a former Warren T. Brookes Journalism Fellow at CEI, should be enough to garner him several awards, and in my opinion this piece and likely follow-ups may be Pulitzer Prize-worthy material.

A couple weeks ago, after the brouhaha about the “retention” bonuses paid to the AIG Financial Products employees, Liddy’s calm demeanor before Congress and the media helped diffuse the situation. He emphasized that he was making a nominal $1-a-year salary and argued he was doing the CEO stint merely as a public service. Liddy wrote in a recent Washington Post op-ed that “my annual salary is $1. My only stake is my reputation.”

But Carney found that Liddy was not telling the whole story about his real stake in the AIG bailout. Namely that Liddy, as Carney notes, has “an acute financial stake in one of AIG’s counterparties—namely, his $3.2 million personal investment in Goldman Sachs.” And under Liddy’s direction, AIG disbursed nearly $13 billion from the taxpayer bailout money to Goldman, in a move many say is more disturbing than the employee bonuses that were the source of the recent controversey.

Everyone from former AIG CEO Maurice “Hank” Greenberg to liberal Rep. Brad Sherman, D-Calif., have expressed outrage that Goldman and other banks were compensated at full value for their derivative contracts. Goldman had bought billions in credit deafalt swaps from AIG. Had AIG gone into bankruptcy, Goldman and other counterparties would have almost certainly had to take a “haircut” on the contracts due to declining market conditions.

In the article, Carney generously writes that “there is no reason to believe Liddy is influencing AIG actions to unfairly benefit Goldman.” Yet Liddy had to be aware that many were saying Goldman may not have survived the hit if AIG substantially reduced payment. He resigned his position from Goldman’s board of directors when he became CEO of AIG, ostensibly to avoid conflict of interest, but has not seen fit yet to sell his more than 27,000 shares in Goldman stock, which he is listed as holding in the firm’s 2008 proxy statement. Carney reports that “an AIG spokeswoman confirmed for the Examiner that Liddy still owns all these shares.”

Carney points out the paradox of “strange public-private chimeras like AIG spawned in this age of bailouts.” When it bailed out the firm, the government took an 79.9 percent stake in AIG, making AIG in one sense a government entity. Yet, as Carney points out, this “situation represents a potential conflict of interest that would never be allowed in a government agency.”

It also likely wouldn’t fly in a purely private company, where directors and shareholders are on guard against executives’ “related party transactions” that aren’t in the company’s best interest. Yet, because he is running a public-private hybrid, Liddy lacks accountability to both to private shareholders and government ethics rules

Former Treasury Secretary Paulson, himself a former Goldman Sachs CEO, has a lot to answer for in forcing out AIG CEO Robert Willumstad and bringing on Liddy to replace him. So does Geithner, who was heavily involved in the AIG bailout as president of the Federal Reserve Bank of New York. Why did they not insist that Liddy divest his holdings or find someone who didn’t have this conflict?

Above all, this shatters the illusion that the government can magaically take over a company, fire the CEO, and run it more efficiently for the taxpayers. I have written before on Open Market that Obama’s firing of Rick Wagoner was not the first time the government forced out a CEO. Even before Paulson ousted Willumstad after the bailout, then- New York Attorney General Eliot Spitzer effectively forced out longtime AIG CEO Greenberg on baseless charges that have almost all been dropped. Greenberg built up AIG successful 35-year tenure, and has testified that the issuance housing-related credit defaut swaps at the center of the firm’s problem exploded in the months after he left.

As I tell Carney in concluding paragraph of the story, “The whole AIG experience demonstrates the fallacy that the government can efficiently sack CEOs and replace them.”

With or Without You

by John Berlau on March 30, 2009 · 1 comment

in Bailout Watch, Culture, Deregulate to Stimulate, Features, Mobility, Nanny State, Odds & Ends, Politics as Usual, Zeitgeist

The ouster of General Motors CEO Rick Wagnoner by the Obama administration isn’t the first time in the recent history of bailouts that the government has forced out a CEO. That first happened in September when Bush admnistration Treasury Secretary Henry Paulson forced out American International Group CEO Robert Willumstad in favor of Paulson’s friend Edward Liddy.

The lesson from AIG is that replacing a CEO is no panacea. There is no love lost for the poor managment of Rick Wagoner. He is the one who went to the government hat in hand, and when the government is paying the piper, it can call the tune. But replacing him won’t solve GM’s long-term problems of too many brands of autos and too large of a workforce. And it is increasingly clear that the bailout itself is an impediment to effective restructuring.

The prospect of an ever-increasing supply of tax dollars is leading parties with auto industry contracts — unions, bondholders, dealers and others — to play a game of chicken. No one wants to renegotiate a contract when they think the government will come in with more money to cover the losses. And the Obama administration, as with AIG, does not have the power of a bankruptcy court to discharge debt.

Allowing the companies to go into bankruptcy is what should have been done from the start. As with multiple businesses such as airlines that have succesfully emerged from Chapter 11 bankruptcy, debts could be discharged and the companies could be restructured in bankruptcy court.

To say that consumers would be discouraged at buying a car in bankruptcy misses the point. Consumers might be more likely to buy a car from a company restructured by a bankruptcy court, as they buy tickets from once-bankrupt airlines, than to buy a vehicle from zombie companies dependent on the next government bailout. This delay likely hurts “satellite” companies like auto parts makers more than a bankruptcy would.

In the meantime, the government should lift antitrust barriers and leave all options on the table for mergers. The merger with Chrysler and Fiat that the government is encouraging may not be the most effective. GM and Chrysler had long considered merging, but may have been blocked because the combined company would be deemed by antitrust regulators to have too large a share of the “light truck” market, never mind that this market itself is shrinking. Given the precarious state of the companies, they should be given a blanket antitrust waiver to make the combinations they deem best for their viability.

The government should also delay the imposition of the recently announced increase in Corporate Average Fuel Economy standards. This flawed mandate that adds costs and reduces choices even in a good economy, could be a lethal blow in times such as these.

Let’s drop both the auto bailouts and the mandates. The American auto industy, which has produced such wonderful innovations for so many decades, is too important to be “saved” by Washington’s central planners.”

“Going Galt”– 90 percent tax may provide impetus

by Fran Smith on March 20, 2009 · 3 comments

in Bailout Watch, Economy, Personal Liberty, Politics as Usual, Sanctimony

Already there’s confusion over what the 90 percent bonus tax bill passed by the House really means. Targeted at the AIG bonuses, which sparked bi-partisan demagogism, the bill would really apply to all firms that received more than $5 billion from the Troubled Asset Relief Program (TARP). Here’s what the text of the bill states:

· (1) IN GENERAL- The term `TARP bonus’ means, with respect to any individual for any taxable year, the lesser of–

(A) the aggregate disqualified bonus payments received from covered TARP recipients during such taxable year, or

(B) the excess of–

(i) the adjusted gross income of the taxpayer for such taxable year, over

(ii) $250,000 ($125,000 in the case of a married individual filing a separate return).

Here’s what Henry Blodgett thinks it means (by way of MarginalRevolution:

If the “TARP bonus” bill the House passed today becomes law, any of the hundreds of thousands of people who work for Citigroup, Bank of America, AIG, and nine other major US corporations will have to fork over 90 cents of every dollar they make that puts their household income over $250,000.

That’s household income, not individual income.*  If you’re married and filing singly, you’ll have to surrender anything over $125,000.  Indefinitely.

It does seem to mean that if somebody is making $125,000 or a couple filing jointly making $250,000 gets a bonus, the amount above that income level gets taxed at the confiscatory rate.

It’s not likely that those thousands of employees around the country will be happy with this confiscatory taxation. There’s been lots of talk in recent months about “going Galt,”but so far it hasn’t really caught on at the big firms. Caroline Baum at Bloomberg thinks the time may be ripe for that to happen, and this was written before the 90 percent tax vote.

Somewhere John Galt is smiling.

The hero of Ayn Rand’s “Atlas Shrugged” is smiling because he’s seen it all before: the government’s intervention in the private sector; the constraints placed on business in the name of the people; the desperation on the part of government bureaucrats when they realize their leverage is limited; and — this part is still fiction — the decision on the part of business leaders to walk away from the enterprises they built.

Wonder how AIG head Edward Liddy feels after his contemptible treatment by lawmakers this week. And this is the guy who took over the firm in September 2008 and pays himself $1 in salary. He should have been praised for taking on this almost-impossible job. But no, legislators were too busy posturing for the cameras and venting their outrage. But he would be a hero if he “goes Galt.”