AIG, Other Insurers Among Firms to Pay Proposed $90 Billion Tax
Jan. 18, 2010 – President Barack Obama last week announced a plan to implement a federal tax on large financial firms with at least $50 billion in assets and who accepted federal funding to survive the recent financial crisis – although some who declined taxpayer dollars would pay, too.
Corporations responsible for paying the proposed tax would include the American International Group (AIG), the Bank of America, Citigroup, Goldman Sachs and JP Morgan Chase. The tax would be levied over a 10-year period beginning June 30 and accrue an estimated $90 billion over a decade.
President Obama calls the proposed tax the “financial crisis responsibility fee,” which is designed to recoup much of an estimated $117 billion U.S. taxpayers have lost through the federal Troubled Asset Relief Program (TARP), which is a $700 billion fund created in 2008 to relieve ailing corporations like AIG of toxic assets mostly tied to various mortgage markets and largely blamed for the global economic meltdown over the past year. Federal law requires the President to recoup any TARP program funding losses by 2013.
Obama says the proposed tax would recoup lost taxpayer dollars by making only those firms most responsible for the recent downturn and who were primary recipients of taxpayer dollars repay the funds instead of adding to the federal deficit. The tax would levy a 0.15 percent fee on corporate assets while exempting “high-quality capital,” such as common shares, and retained and disclosed corporate earnings. If approved by Congress and signed into law, the Internal Revenue Service would collect the fee over a 10-year period beginning June 30. Only those firms with assets topping $50 billion and who own federally insured depository institutions would be levied.
While AIG was among firms cited as being liable for the proposed federal tax, several other insurance companies also would qualify for the additional levy. Allstate, Ameriprise Financial, The Hartford Financial Services Group, Lincoln National, MetLife, the Principal Financial Group and Prudential Financial all would be eligible for the proposed tax based on each firm’s adjusted assets even though many declined federal assistance, according to a report issued by Credit Suisse on Friday.
Of insurers that accepted federal TARP funds, AIG could owe up to $389 million if the tax is levied. The Hartford would owe about $28.2 million and Lincoln National $29.4 million, according to Credit Suisse.
But firms that declined federal assistance would pay large amounts as well. MetLife would be assessed up to $97 million, Prudential about $85 million and Allstate some $34 million despite none of the insurers having accepted taxpayer assistance, according to Credit Suisse and Citigroup analysts.
Bunning Pressing for SEC Probe of AIG Bank Payments
Jan. 12, 2010 – U.S. Senator Jim Bunning has joined a growing chorus of lawmakers calling for a federal investigation into potential law violations regarding the roles officials for the Federal Reserve Bank of New York might have played in securing full reimbursement for ailing insurers American International Group’s (AIG) banking partners and then hiding the transactions for U.S. taxpayers.
U.S. Senator Jim Bunning (R-Kentucky) is a member of the Senate Banking Committee and yesterday wrote U.S. Securities and Exchange Committee Chairwoman Mary Schapiro requesting a federal investigation into the matter.
“Because the information withheld appears to be material information about the financial condition of AIG and the value of the company, these actions may constitute a serious violation of the securities laws,” Bunning said his letter to Schapiro. Bunning also suggested the secretive actions by Federal Reserve Bank of New York officials “are likely to have caused and continue to cause losses to private investors and undermine the credibility of the U.S. financial and securities markets.”
Bunning joins other federal lawmakers calling for an investigation into the matter and whether or not U.S. Treasury Secretary Timothy Geithner, then president of the Federal Reserve Bank of New York, had any knowledge of or played a role in negotiating a full settlement amount for AIG’s banking partners and then hiding the details from U.S. taxpayers. Geithner was the president of the Federal Reserve Bank of New York until President Barack Obama appointed him U.S. Treasury Secretary in December 2008. But several federal lawmakers during the past week have accused Geithner of orchestrating full payments for AIG’s banking partners during the fall and winter of 2008, when Geithner was the president of the Federal Reserve Bank of New York.
Congressman Darrell Issa (R-California) last week released copies of e-mails indicating Federal Reserve officials actively sought to keep U.S. taxpayers from knowing about efforts to fully reimburse banks with contractual business ties to AIG. But a Jan. 8 letter to Issa from the Federal Reserve Bank of New York’s general counsel, Thomas Baxter, suggests lower-level employees kept Geithner out of the loop regarding negotiations and settlement amounts.
Geithner has denied having any role in the controversial negotiations between AIG officials and representatives of banking giants Goldman Sachs, Deutsche Bank and Societe Generale. But Issa suggested the letter from Baxter confirms Federal Reserve Bank officials already knew Geithner’s position on the matter and carried out his will.
Congressman Spencer Bachus (R-Alabama) and Congressman Elijah Cummings (D-Maryland), last week requested Geithner appear before the House committees on which they serve to explain how AIG’s banking partners received 100 cents on the dollar for high-risk, mortgage-backed securities known as credit default swaps, which crippled AIG and would have bankrupted the insurer had it not received nearly $183 billion in involuntary aid from U.S. taxpayers.
AIG paid more than $62 billion to fully reimburse the Goldman Sachs Group and other banking partners on high-risk credit default swaps tied to various mortgage markets after receiving its initial $85 billion taxpayer bailout. But instead of revealing the extent of payments to banks, Federal Reserve officials sought to keep them hidden from the public, Issa contends.
New York Federal Reserve officials negotiated the payments to banks, which was some $13 billion more than the settlement AIG officials attempted to negotiate. Issa suggested Geithner used the AIG bailout as a “backdoor” bailout for banks without taxpayers knowing.
Formerly the world’s largest insurance company, AIG became the world’s most indebted insurer after federal officials in September 2008 agreed to extend the company an $85 billion loan in exchange for an 80 percent share of company stocks. Federal officials said allowing AIG to go bankrupt would have a devastating impact on U.S. and international financial markets and later revised lending terms, making it a $153 billion loan with a lower interest rate and longer repayment period.
Fed: Geithner Not Privy to AIG Payout Information
Jan. 11, 2010 – Legal counsel for the Federal Reserve Bank of New York says U.S. Treasury Secretary Timothy Geithner did not participate in or know about negotiations ensuring U.S. taxpayers would fully reimburse American International Group’s (AIG) banking partners soon after AIG received an initial $85 billion in taxpayer funds during the financial crisis of 2008.
Geithner was the president of the Federal Reserve Bank of New York until President Barack Obama appointed him U.S. Treasury Secretary. But several federal lawmakers during the past week have accused Geithner of orchestrating full payments for AIG’s banking partners during the fall and winter of 2008, when Geithner was the president of the Federal Reserve Bank of New York.
Congressman Darrell Issa (R-California) yesterday said he is requesting more information after recently receiving a letter from the head legal counsel for the Federal Reserve Bank of New York stating Geithner had no role in and was not aware of efforts by Federal Reserve officials to ensure AIG fully reimbursed its banking partners rather than negotiate a lower settlement amount when the insurance giant faced bankruptcy in 2008. Issa last week released copies of e-mails indicating Federal Reserve officials actively sought to keep U.S. taxpayers from knowing about efforts to fully reimburse banks with contractual business ties to AIG.
But the Jan. 8 letter to Issa from the Federal Reserve Bank of New York’s general counsel, Thomas Baxter, suggests lower-level employees kept Geithner out of the loop regarding negotiations and settlement amounts.
“In my judgment, as the New York Fed’s chief legal officer, disclosure matters of this nature did not warrant the attention of the president,” Baxter wrote. “Further, Mr. Geithner played no role in, and had no knowledge of, the disclosure deliberations and communications referenced in those e-mails.”
Geithner last week denied having any role in the controversial negotiations between AIG officials and representatives of banking giants Goldman Sachs, Deutsche Bank and Societe Generale. But Issa suggested the letter from Baxter confirms Federal Reserve Bank officials already knew Geithner’s position on the matter and carried out his will.
“It’s a staggering admission by Mr. Baxter that he felt strong enough that Secretary Geithner wanted him to limit AIG’s disclosures on counterparty payments to the SEC that he says he didn’t even feel a need to bring the details to his boss’ attention,” Issa said. “This letter raises more questions on the inner-workings of the New York Fed during one of the most pivotal periods in our nation’s history.”
Issa isn’t the only federal lawmaker looking into the matter.
Congressman Spencer Bachus (R-Alabama) and Congressman Elijah Cummings (D-Maryland), last week requested Geithner appear before the House committees on which they serve to explain how AIG’s banking partners received 100 cents on the dollar for high-risk, mortgage-backed securities deals known as credit default swaps, which crippled AIG and would have bankrupted the insurer had it not received tens of billions of dollars in involuntary aid from U.S. taxpayers. Because an AIG bankruptcy would have meant banks a much lower – if any – payout from AIG, federal lawmakers want to know why and how banks received full payments and to what extent Geithner, then the head of the Federal Reserve Bank of New York, might have acted to hide the payments from U.S. taxpayers.
AIG paid more than $62 billion to fully reimburse the Goldman Sachs Group and other banking partners on high-risk credit default swaps tied to various mortgage markets after receiving its initial $85 billion taxpayer bailout. But instead of revealing the extent of payments to banks, Federal Reserve officials sought to keep them hidden from the public, Issa contends.
New York Federal Reserve officials negotiated the payments to banks, which was some $13 billion more than the settlement AIG officials attempted to negotiate. Issa suggested Geithner used the AIG bailout as a “backdoor” bailout for banks without taxpayers knowing.
Formerly the world’s largest insurance company, AIG became the world’s most indebted insurer after federal officials in September 2008 agreed to extend the company an $85 billion loan in exchange for an 80 percent share of company stocks. Federal officials said allowing AIG to go bankrupt would have a devastating impact on U.S. and international financial markets and later revised lending terms, making it a $153 billion loan with a lower interest rate and longer repayment period.