AIG - Goldman Sachs:    Partners in the Crime?

Washington Journal

May 15, 2009

Professor Michael Greenberger

University of Maryland Law School

“…The most classic understanding to people in their everyday life is a derivative – the most clear analogy would be…      if you go to the Superbowl or watch the Superbowl on television and you bet on a team. Your bet and the value of your bet is derivative of what that team does.  You don’t own the team.  You don’t get the trophy.  You don’t the money that a winning team gets. You don’t get the advertising.  But you’ve placed a bet on that team – someone has agreed to take the other side of the bet.  Your bet is derivative of the success of the Superbowl champion if you bet correctly.  If you bet incorrectly, you lose your bet.

Subprime –

Many bets were placed on the question of whether individuals who took out loans from lenders to pay for their houses and did not, on the face of it seem to have the wherewithal to pay the loans off – there were many bets placed on whether the loan would be paid off or would not paid off. 

And just to carry that through for you a little bit… historically, traditionally, banks made loans to individuals.  The bank was putting its financial well-being at risk so they were very careful about who they made the loan to….     That discipline in the market has disappeared because what banks do with their loans now is that they make the loan and then they sell the loan to third parties.    Third parties essentially buy stock in the loan. The loans are bundled into a basket - offered to the world and they buy stock in it.  Owning that stock is not a derivative because you’re an actual owner of the loan.  What happened in our situation – especially when the mortgage lenders wanted to take risks with the subprime loans – that is people who did not have the likelihood to pay them off - is that people were so excited about the possibility of making money off this that they ran out of the actual mortgages and securities in mortgages.  So what the banks decided to do was to create bets on whether or not the mortgages would be paid off.  They were synthetic securities.   That is to say, you didn’t own anything but you were betting that the borrower would pay the mortgage off. 

Professor Greenberger goes on to explain that what AIG did was to take the losing side of bets.  They took the bet saying that the liars who applied for the liar loans would pay off the loans.  

Why would they do that?      Would you take a bet on a liar loan?    The why becomes an especially critical question when you know what AIG did to torpedo the American economy in the 1990's.  It appears to this writer that AIG was intentional set up to self-destruct. 

Their counterparty on a significant percentage of the bets was Goldman Sachs.  We don't know whether Goldman owned the actual mortgage securities or the derivatives - the synthetic securities.   My bet would be the latter.

The Setup

In previous work titled, "War in the Context of Everything Else:  The Global Ponzi Scheme", I documented the history of AIG and their war on the American worker/citizen.  A cabal of CEOs from the financial services industry:  American Express, AIG and Citibank formed an organization called the US Coalition of Service Industries.  Beginning in the early to mid 1970s, this organization used their power (money) and influence (money) to buy trade agreements favoring their businesses against the interests of both the United States and the American people.  This coalition succeeded in 1994 in getting "Trade in Services" - people and jobs as tradable commodities - included in the GATT agreement that created the World Trade Organization.  It was the signing of that agreement that was the beginning of the end for the U.S. economy and the American way of life as evidenced by the current state of our nation. 

In 1995, the Information Technology Association of America (ITAA) hired Harris Miller as President.  Miller had been an immigration lobbyist in California who successfully broke Caesar Chavez's Farm Worker's Union by using a campaign of propaganda - "crops rotting in the field - shortages of workers"  he succeeded in breaking down California's farm laws and he lobbied for increases in the number of farm workers - flooding the farm labor market with scabs thereby rendering the Farm Worker's Union powerless. 

The ITAA is probably the largest and wealthiest organization under the umbrella of the U.S. Coalition of Service Industries.  Miller then applied the same propaganda campaign strategy of "shortages" while he lobbied Congress for increases in the number of foreign workers to come into the country on H1-b and L1 visas to take software and engineering jobs - thereby flooding the labor market for white collar professionals.  At the same time, Miller was working the other side of the ocean in India.  He was working with Dewang Mehta to establish the environment to receive the computer systems (software) of American financial and service industries. 

From my profile of Harris Miller:

We know that Harris Miller orchestrated the stealth attack on our economy because of a quote from Dewang Mehta, the “Father of India IT”[4].  In March of 2001 at a signing ceremony of a Memorandum of Understanding (MoU) between NASSCOM and ITAA:

“According to Mr Mehta, Nasscom and ITAA have been working very closely together for the last five years”[5]  Unfortunately, less than a month after making this statement, poor Mr. Mehta, only 38 years old, was found dead in his hotel room - died of a surprise heart attack while attending an IT conference in Australia[6] ]

And.. while on the subject of surprise heart attacks, one night in about 2004 or 2005, Lou Dobbs was interviewing a jolly little Indian fellow for his 'Exporting America' segment who,  when asked something to the effect, "Won't that mean that all technology jobs will go to India?",  the guy gleefully answered, "Yes it will".  The next day on his program, Lou Dobbs announced that the man was dead - died of a surprise heart attack.   Of course, it could be just a coincidence - if you believe in fairy tales. 

With all of that as the background, the significance of the Chubb-AIG Knowledge Trade Initiative shouldn't be lost. 

The U.S.-India Business Council and the Federation of Indian Chamber of Commerce and Industry (FICCI) are pleased to announce the Knowledge Trade Forum, the culminating event of the Knowledge Trade Initiative (KTI), to be held in Bangalore, India, November 29-30, 2001.

The KTI was launched during President Clinton’s trip to India in March 2000, and was subsequently organized under the auspices of the USIBC and FICCI. The KTI is a bilateral forum between India and the U.S. to discuss key issues affecting the trade of knowledge-based products and services between the two countries. The KTI aims to solidify Indo-US leadership in the knowledge economy by harmonizing bilateral positions on key issues affecting knowledge trade.

The Forum will pull together key industry and government stakeholders from India and the U.S. focusing on knowledge-based industries. The American delegation will be led by USIBC Chairman Ambassador Frank Wisner Jr., Vice-Chairman AIG, and Chairman of the Knowledge Trade Initiative, Dean O’Hare, CEO of The Chubb Corporation.

A "Hollywood meets Bollywood" extravaganza will kick off the proceedings on November 29^th, followed by a full day of events on November 30^th focusing in particular on four tracks: IT services, biotechnology, e-entertainment, and bridging the digital divide. Workshops will take place throughout the day on topics including: accessing venture capital, entrepreneurial success stories, and proven paths to success in the IT outsourcing space. There will also be a contest for the most innovative way to deliver communications access, with an award of $10,000 going to the winner as determined by a distinguished international panel.

The Forum will also provide the backdrop for the presentation of the final report of the KTI. The KTI has formed a series of working groups to consider key policy areas that affect the trade in knowledge-based products and services. Over 150 international experts in each of their fields have met regularly over the past months coming up with policy recommendations for India and the U.S. to secure their positions as leaders of the new economy.

Knowledge Trade Initiative

Background

Participants

Clinton - MOU

Clinton Press Release

Saved Web pages from the Department of Commerce website

Statement of Principles

Stimulating High Tech Trade

U.S.-India Talks

And how is this for the ultimate insult - "your government"  Exporting America - literally.

At the time that the U.S. Coalition of Service Industries - led by AIG and Chubb - orchestrated the attack on the American economy, roughly 65% of the American economy was comprised of Service Sector jobs - with the best of those jobs being the white collar, professional jobs that were the prize to be exported. 

The Counter Party

Background:  

In 2004 Catherine Austin Fitts was interviewed on the Jim Puplava radio program to talk about U.S. government finances and mismanagement.  Fitts is  Founder and President of Solari, Inc.  And organization designed help promote 'healthy local living economies'.

Former background: Managing Director and member of the Board of Directors of the Wall Street investment bank,  Dillon and Reed.  She was also Assistant Secretary of HUD under the first Bush Administration.

Audio Clip of Fitts

Text from the transcript on Rense

Let's make it simple. Because 5 years ago I decided that I was going to start traveling around the country by car to see what was really happening on the ground. Because I think you can always understand an economy by simply walking around and, you know, when I was on Wall Street I used to do due diligence by going to the company and just going up and down in the elevator and talking to the secretaries. Let's talk about what things look like on the ground in America, and what that means to the credit of a Freddie Mac or a Fannie Mae.

In the mid-90's Jim, we knew that a huge amount of jobs and income-generating activities in America were going to get outsourced to Asia. I mean, those decisions were made in the early 90's, and we knew that was going to happen.

And I was a leader in Washington promoting a model whereby Americans paid down their debt, refinanced their communities and themselves on an equity basis, and redeveloped their skills. I mean, we knew the workforce was going to have to reengineer itself, and our pension funds and retirement arrangements were not going to be financially credible unless the workforce reinvented itself, and paid down its debt, you know, then.

So we knew then we had a problem. And what happened is was my team was kicked out of Washington, and a decision was made instead of reengineering folks, skills, or migrating them to equity and starting new businesses, a decision was made to float the economy of the biggest wave of debt that I can imagine. And what we've done is we've seen consumer debt skyrocket.

I have a member of my group, the Solari Action Network, who reconfigures the BEA's statistics once a quarter, and what his calculations show is very much what I see on the ground in communities throughout America Jim, which is the average American household has income of $32,000 per year, they have expenses of $37,000 per year, and they finance that $5,000 per year deficit with liquidating assets, working harder, or borrowing more. And of course as you know, and it's clear from your website, that the debt has gone not just the consumer debt has gone up-up-up, but the mortgage debt has gone up-up-up. And now, that load is just increasing every year, and meantime we are accelerating moving all the jobs and income abroad.

Now, when you move all your income abroad, and you leave your growing debt at home, it doesn't take long to understand what's going to happen to a Fannie Mae or Freddie Mac or a Ginnie Mae. At some point the growing debt has got to get serviced, and the question is how?

In one of the Congressional hearings on CEO pay for the mortgage brokers who were involved in the subprime mortgage meltdown, the question was asked:   'Goldman Sachs dodged the bullet on the subprime mortgage market.  Why were they able to dodge the bullet - and you weren't?  What didn't you see that they did?'   Nobody on the panel could answer the question.  But I believe I can - and his name is Robert Zoellick.  

While researching Robert Zoellick, I found his bio on the Eurasia Foundation website website a couple years ago.   

During the 1997-98 academic year, Mr. Zoellick was the John M. Olin Professor of National Security at the U.S. Naval Academy. From 1993 through 1997, he served as an Executive Vice President at Fannie Mae, the largest housing finance investor in the U.S., with a market capitalization of about $70 billion. He was responsible for the corporation's affordable housing business, the General Counsel, regulatory and government relations, and international financial services.

Mr. Zoellick received the Distinguished Service Award, the Department of State?s highest honor. The German government awarded him the Knight Commanders Cross for his role in developing the U.S. Strategy toward German unification and service as the senior U.S. official in the "2 plus 4" negotiations.

From 1985 to 1988, Mr. Zoellick served at the Department of the Treasury in various positions, including Counselor to Secretary James A. Baker, III, Executive Secretary of the Department, and Deputy Assistant Secretary for Financial Institutions Policy. Mr. Zoellick received the Alexander Hamilton Award, the Department of Treasury's highest honor.

He currently serves on three for-profit boards: Alliance Capital, Jones Intercable, Inc., and Said Holdings. He is also a member of Enron Corp.'s Advisory Council.

Mr. Zoellick is the Director of the Aspen Institute's Strategy Group on Foreign Policy. He is a board member of the Council of Foreign Relations, the German Marshall Fund of the U.S., the European Institute, the Eurasia Foundation, the National Bureau of Asian Research, the American Council on Germany, the American Institute for Contemporary German Studies, and the Overseas Development Council. He serves on the governing council of the International Institute for Strategic Studies in London.

Mr. Zoellick is a member of the Advisory Board for Johns Hopkins School of Advanced International Studies (SAIS), the Board of Advisors of the Law & Economics Center at George Mason University, the Advisory Committee of the Institute for International Economics, the Brookings Institution's Advisory Committees for the Foreign Policy and Economic Programs, the Advisory Board of the Nixon Center for Peace & Freedom, the World Wildlife Fund's Advisory Council, the U.S. Executive Committee of the Trilateral Commission, the Advisory Board of the Centre for European Reform in London, the Australian-American Leadership Foundation, the Inter-American Dialogue, and the D.C. Bar.