KeNo's Housing and Economic Portal: Wednesday August 19 Housing and Economic stories

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Proving once again it is better to steal and let the SEC go after you, Hank Greenberg, corrupt former CEO of AIG pays a minor fine after stealing $2B from the company:

· Former CEO Greenberg Transferred $2 Billion in AIG Shares to Wife Just Days Before Quitting Insurer during Government investigation - (www.insurancejournal.com) Three days before he resigned as head of American International Group Inc., Maurice '"Hank'' Greenberg gave his wife 41.4 million of his shares in the insurance company, according to a regulatory filing. The disclosure came on Tuesday, the same day Greenberg declined to answer questions posed by government investigators probing transactions at AIG. AIG's board forced Greenberg, 79, to relinquish his posts as president and CEO on March 14, and he retired as the company's chairman two weeks later. Greenberg transferred the shares to his wife, Corinne P. Greenberg, on March 11, according to his filing Tuesday with the Securities and Exchange Commission. The shares are worth $2.2 billion, based on AIG's current stock price. Greenberg directly held 1.95 million shares after the transfer. In the filing, Greenberg also disclaimed ownership "and any pecuniary interest'' in another 23.65 million AIG shares he held through C.V. Starr & Co. Inc., which controls AIG managers' compensation. Howard Opinsky, a spokesman for Greenberg's legal team, declined to comment on the filing, as did AIG spokesman Chris Winans. At Tuesday's deposition, Greenberg invoked his Fifth Amendment rights against self-incrimination in response to all questions during the 45 minute session, according to a person who attended the meeting but asked not to be identified by name. "I'm told it was quiet, cordial and professional,'' Opinsky said after the meeting. Greenberg, who arrived and exited the building via an underground tunnel, made no comments after the meeting. His lawyer had indicated on Monday that his client likely would refuse to answer questions because he had not had sufficient time to prepare.Greenberg's substantial stock gift to his wife is sure to spark investigators' interest, because it appears to be an effort to shield assets, said Thomas Ajamie, a securities lawyer in Houston. "All the alarms are going off, and red flags are waving, when he makes such a huge transfer at the exact same time that he's under civil lawsuit scrutiny and criminal scrutiny,'' Ajamie said. "This large of a transfer, even in isolation, would garner regulatory scrutiny, but in the context of the criminal and civil issues, the warning bells are waking up people from here to China.'' Investigators who attended the Tuesday session with Greenberg in New York Attorney General Eliot Spitzer's office in lower Manhattan included members of Spitzer's staff, representatives from the Securities and Exchange Commission and lawyers from the New York state insurance department. The investigators are looking into a number of reinsurance transactions booked by New York-based AIG, one of the world's largest insurers. Reinsurance traditionally has been used to spread out risk among insurers but, in some cases, has been used for the questionable purpose of polishing a company's financial statements. In the transaction at the center of the probe, AIG purchased reinsurance from General Reinsurance Corp. in the fourth quarter of 2000 and first quarter of 2001. Investigators have said that AIG used the deals to pump up its reserves when markets were uneasy about the company's outstanding liabilities. AIG acknowledged recently that its accounting for the transaction with Gen Re "was improper and, in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance.'' Billionaire investor Warren Buffett, whose holding company Berkshire Hathaway Inc. owns Gen Re, spoke with the investigators on Monday. The investigators indicated that Buffett was a "cooperating witness'' while Greenberg was subpoenaed as a target in the probe. Before Tuesday's session began, Joseph Fritsch, director of insurance accounting policy in the New York state insurance department, told reporters that investigators "have 40 pages of questions'' for Greenberg. He said that other AIG executives would likely be called for questioning, and that new information from them could result in a fresh subpoena for Greenberg.

· Former AIG CEO Greenberg To Pay $15 Million To SEC - (www.cnbc.com) Former AIG CEO Hank Greenberg has agreed to pay the SEC $15 million to settle past accounting issues, according to the Wall Street Journal. Also, former AIG CFO Howard Smith will reportedly pay $1.5 million to the SEC in the settlement. An official announcement by the SEC on the settlement is expected late on Thursday. Greenberg had received a subpoena from the SEC in July of 2007 on a continuing investigation into what role, if any, he played in alleged accounting improprieties at his old firm, American International Group, which led to a $3.6 billion earnings restatement, a $1.6 billion settlement between AIG and a host of regulators, and Greenberg’s eventually being forced from his job as chairman and CEO. Greenberg had steadfastly denied that he has done anything wrong. AIG had sued Greenberg as part of shareholder litigation over the accounting restatement, and officials there have made no secret that they thought the SEC was dragging its feet in bringing a case against Greenberg.

Despite Bailouts, Business as Usual at Goldman - (www.nytimes.com) Lloyd C. Blankfein has a story about the cataclysm that nearly brought down all of Wall Street. It goes something like this: One by one, lesser banks were swept away by the financial storm of 2008. And as the floodwaters rose, no one, not even Goldman Sachs, seemed safe. The question, in Mr. Blankfein’s eyes, was how high the water would rise. But Washington stepped in with all those bailouts before the surge reached Goldman. The story, which was recounted by several friends and colleagues, represents a sobering private admission from Mr. Blankfein, Goldman’s chief executive. Publicly, it is a different story. Now that Goldman is minting money again, the bank insists that it was never in any real danger. Mr. Blankfein, in an e-mail message this week, disputed his private account, saying Goldman’s survival was never in doubt. Other Goldman executives reject the notion that the bank was rescued at all. “We did not have a near-death experience,” said Gary D. Cohn, Goldman’s president. The government saved the financial industry as a whole, but it did not save Goldman Sachs, he said. Rarely has the view from inside a company been so at odds with the view outside it. Could Goldman Sachs have lived if all those other giant banks had failed? Could it alone survive financial Armageddon? Goldman executives are dismissive, even defiant, when critics argue that the bank is playing a heads-we-win, tails-you-lose game with American taxpayers. And yet the questions keep coming. Last month the story of Goldman’s postcrisis success — and conspiracy theories surrounding it — leapt from the business pages to the cover of Rolling Stone. The idea that nothing has changed for Goldman Sachs strikes many outsiders as absurd. In this era of mega-bailouts, Goldman is widely perceived, on Wall Street and in Washington, as too big and important to fail. If its bets pay off, Goldman profits and its employees get rich. If its bets go bad, ultimately taxpayers will have to pick up the bill. “Many observers on the market believe that Goldman and others of its size now have a free insurance policy,” said Elizabeth Warren, the chairwoman of the Congressional oversight panel for the $700 billion bailout fund. “Whether they do or not is less important than the fact that many in the market believe they do. That means at some level Goldman is playing with the American taxpayers’ future.” Is Goldman gambling at America’s expense? Of course not, Mr. Cohn said. Should it change its business strategy in the wake of the gravest financial crisis since the Depression? No. Is Goldman taking big risks to make big profits? Courting more outrage over Wall Street pay with its plans to pay lavish bonuses? Throwing its weight around in Washington?

Massachusetts Cuts Hedge Funds After Pension Loss - (www.bloomberg.com) Massachusetts will cut investments in hedge funds after its public pension plan lost a record 24 percent on all assets in the fiscal year ended June 30. The state pension plan’s board of trustees voted today to lower the amount of money invested in hedge funds to 8 percent, or about $3 billion of the $37.7 billion it oversaw at the end of June, from 12 percent, which is about $4.5 billion. The vote reversed a five-year effort by the pension system to boost returns by expanding such alternative investments. “We all have to understand we’re making a bet on what assets will do well,” said state Treasurer Timothy Cahill, chairman of Massachusetts’s pension reserve investment management board. “Ultimately, we don’t make decisions based on the short-term, but we get measured on the short-term.” Public pension plans in Massachusetts, New Jersey and other states are reconsidering their expansion into alternative investments such as hedge funds after embracing the asset class. Greenwich Associates in Stamford, Connecticut, found that 38 percent of the 200 public plans it surveyed had expanded into hedge funds last year, up from 14 percent in 2004. The cuts in Massachusetts come after the return on the average hedge fundfell 23 percent last year compared with the S&P 500 index, which dropped 38.5 percent in 2008, according to Bloomberg data. The California Public Employees’ Retirement System is also pushing for lower hedge fund fees and a closer link between manager compensation and performance. ‘Re-evaluation Stage’: “Every fund has gone into a re-evaluation stage” after last year’s hedge fund losses, said Rodger Smith, managing director at Greenwich Associates. “You’ve got to have realistic expectations about what you’re doing. There’s no free lunch.” The board of the Massachusetts pension system voted to lower its hedge fund target after reviewing the way it allocates investments into stocks, bonds and other sectors. The last time the targets were changed was six years ago, saidStanley Mavromates, the system’s chief investment officer. The money removed from hedge funds will be invested in stocks, which account for about half the portfolio, he said. Cahill was among three of the eight board members to vote for a target hedge fund allocation of 11 percent. Leslie Kirwan, Governor Deval Patrick’s administration and finance secretary, was among the five voting for the 8 percent target. Other board members include public sector union representatives. The state invested in hedge funds through its so-called absolute return portfolio, which fell 14.4 percent in the year ending June 30, and its portable alpha program, which dropped 46 percent over the same period. The fund also lost money in hedge funds when Greenwich, Connecticut-based Amaranth Advisors LLC closed in September 2006 and Sowood Capital Management LP of Boston imploded in July 2007.

San Jose approves bailout of underwater loans to former police auditor - (www.mercurynews.com) San Jose leaders Tuesday vowed changes in a city program that provides low-cost loans to top officials before approving a deal in which the city and its taxpayers will be soaked by the former police auditor's underwater mortgage. Mayor Chuck Reed and City Manager Debra Figone said they would seek changes to the executive home loan program, which is designed as a recruitment perk. Those changes include requiring officials taking advantage of the program to put 10 percent or so of their own money down on the property they plan to buy; limiting the proportion of the debt the city would take on; and having the City Council sign off on final terms of such loans. The proposed changes came after the council voted 9-2, with Pete Constant and Nora Campos opposed, to approve a deal in which the city would forgive its $250,000 low-cost loan to former Police Auditor Barbara Attard and pay off the $94,000 debt on her first mortgage in exchange for the deed to a downtown condominium she borrowed the money to buy. Attard paid $350,000 for the condo in the Ryland Mews complex at 435 N. Second St. in 2005, with none of her own money down and interest on the city loan at just 2.86 percent. After several high-profile clashes between Attard and the police chief, the council declined to renew her contract last year. City officials said Attard's condo has been appraised this year at as little as $250,000, substantially less than she owes on it. But city lawyers said the city bears the risk on the loan. Constant said the city must evaluate the need for such loans, noting that Attard had also kept a house in San Francisco. Seven other city officials have loans under the program.

US faces huge bill for Afghan security - (www.ft.com) The US will have to provide billions more dollars in coming years to finance a huge increase in the size of Afghanistan’s security forces, officials and analysts warn. General Stanley McChrystal, the new commander of US and Nato forces in the country, is in the final stages of a review of policy in which he is expected to conclude, among other findings, that the Afghan army and police force should be increased to a combined total of 400,000. “Afghan security forces need to grow to somewhere in the neighbourhood of 400,000, which is being looked at by the McChrystal review,” retired Gen Jack Keane, one of the architects of the surge in Iraq, told the Financial Times, in comments backed up by serving military officials. Republican senator John McCain said at the weekend: “The Afghan army has to increase significantly. And that’s going to be a huge cost.” At present, the Afghan national army and police are respectively about 86,000 and 80,000 strong. Current US strategy seeks to increase them to about 134,000 – a goal that will be more than doubled if Gen McChrystal endorses the 400,000 mark. US officials argue that boosting the size of Afghan forces is essential to holding the territory long-term and to addressing questions about the sustainability of the war effort. “It’s apparent that the current level of the security forces of Afghanistan are not going to be sufficient in the long run,” Richard Holbrooke, US special representative to Afghanistan and Pakistan said last week, adding that the US would look at the issue with the country’s government after Afghan presidential elections on August 20. But the sheer size of the contribution needed – an estimated $20bn (€13.98bn, $11.89bn) over five years to set up the new security force – raises questions about sustainability itself.

OTHER STORIES:

China shares fall on credit worries - (finance.yahoo.com)

Limits on Speculative Trading Needed to Protect Energy Markets, U.S. Regulator Says - (www.nytimes.com)

Pitfalls of history offer warning to SEC reformers - (www.ft.com)

SEC May Delay Short-Sale Curbs by Reopening Comments on Rules - (www.bloomberg.com)

U.S. Treasury to Sell $75 Billion in Long-Term Debt - (www.bloomberg.com)

Jim Rogers Says U.S. Commodity Curbs to Drive Markets Overseas - (www.bloomberg.com)

Sugar prices surge on India monsoon fears - (www.ft.com)

SEC chief in call for funding shake-up - (www.ft.com)

Junk Bonds Make Loomis Sense Dot-Com-Like Danger - (www.bloomberg.com)

Drought to More Than Triple India’s Sugar Imports - (www.bloomberg.com)

BOE Extends Bond Purchases, Saying Recession Worse Than Thought - (www.bloomberg.com)