The New York Times has unearthed a damning tidbit about the bailout of AIG:

When the government began rescuing it from collapse in the fall of 2008 with what has become a $182 billion lifeline, A.I.G. was required to forfeit its right to sue several banks -- including Goldman, Société Générale, Deutsche Bank and Merrill Lynch -- over any irregularities with most of the mortgage securities it insured in the precrisis years.

Yves here. How one reacts to this depends in no small measure as to how one views the salvage operation. For all intents and purposes, the rescue of AIG was merely a way to save the banks; the credit default swaps had been too big a source of faux capital (via risk-shifting for US firms, and for Eurobanks, as part of a regulatory arbitrage) to let the insurer go. So any effort by the officialdom to aid the banks, most notably by paying out 100% on credit default swap exposures (which had already been written down by counterparties to less than par) was simply an effort to funnel more cash to the banks. Since we've had massive backdoor bailout mechanisms in addition to the overt ones, this orientation should come as no surprise.

But then we get to the funny business. Why a broad waiver? Why shouldn't AIG (and by extension, taxpayers) not recover in the event of fraud? And we turn again to the ambiguous standing of AIG. By all rights, it ought to be owned by the government. The reason it isn't is that we don't do nationalization in America, and full ownership would require AIG's debts to be consolidated with government debt. So another way to read this requirement is that the Fed and Treasury were opposed to having fraud at the banks exposed, period.

That is a very troubling stance for bank regulators to take. And experts agreed:

"Even if it turns out that it would be a hard suit to win, just the gesture of requiring A.I.G. to scrap its ability to sue is outrageous," said David Skeel, a law professor at the University of Pennsylvania. "The defense may be that the banking system was in trouble, and we couldn't afford to destabilize it anymore, but that just strikes me as really going overboard."

"This really suggests they had myopia and they were looking at it entirely through the perspective of the banks," Mr. Skeel said.

Yves here. Also note that the banks mentioned by the Times account for a significant proportion of the Maiden Lane III exposures (the $62.9 billion CDO portfolio; note this does not include all CDO guarantees assumed by the Federal Reserve; seven Goldman Abacus trades stayed with AIG and were salvaged via credit extensions to AIG). An analysis by Tom Adams and Andrew Dittmer showed the significance of Merrill, Goldman, and SocGen (percentages based on par amount):

1. Merrill as both packager and counterparty 7.7%
2. Goldman as both packager and counterparty 7.4%
3. Merrill as packager, Goldman as counterparty 9.6%
4. Goldman as packager, SocGen as counterparty 15.9%

We thought these interrelationships were potentially significant; they account for 40.6% of the Maiden Lane III exposures. Then add in:

5. Anyone else with a pulse as packager, SocGen as counterparty 11.0% 6. Anyone else with a pulse as packager, Goldman as counterparty 5.5%

That bring you to 56.5% of the total.

Goldman, either as packager or as swap counterparty, was involved in 38.4% of the Maiden Lane transactions, plus had additional AIG exposure through seven Abacus trades (we only have tranche exposure on three of these transactions):

Abacus 2004-1
Abacus 2004-2
Abacus 2005-2
Abacus 2005-3
Abacus 2005-CB1
Abacus 2006-NS1
Abacus 2007-18

Yves here. The time is long overdue that Lloyd Blankfein's early and extensive involvement in the AIG rescue be investigated in detail. The legal waiver no doubt was particularly beneficial to Goldman, and given that it is now being sued by the SEC, it is fair to ask if he put the idea of the waiver forward. It is highly unlikely to have occurred to the Fed and Treasury officials unprompted, particularly given the fevered pace at which the AIG rescue was cobbled together.

Moreover, while the Fed was being advised to take a tough posture towards the banks, it was Treasury, then under former Goldman CEO Hank Paulson, who was bending over backwards:

For its part, the Treasury appeared to be opposed to any options that did not involve making the banks whole on their A.I.G. contracts. At Treasury, a former Goldman executive, Dan H. Jester, was the agency's point man on the A.I.G. bailout. Mr. Jester had worked at Goldman with Henry M. Paulson Jr., the Treasury secretary during the A.I.G. bailout.

Yves here. And in an astonishing lapse, Jester still owned Goldman stock. By any standard, he should not have been involved at all in the process, much less in a crucial role. But because he was a contractor, and not a government employee, this arrangement was kosher. Not surprisingly, Jester opposed measures that would require Goldman and other banks to take any pain.

The Times reminds readers it pays to be a bankster:

All of this was quite different from the tack the government took in the Chrysler bailout. In that matter, the government told banks they could take losses on their loans or simply own a bankrupt company; the banks took the losses.

Yves here. The Audit the Fed investigation will shed even more light on the AIG rescue, but the seamy dealing of Treasury means that investigations need to extend into its role as well. But it will take a public hue and cry for that to come to pass.

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Today -- June 30th - is the day that the payday lenders are supposed to close up shop in Arizona. But rather than celebrate, consumer advocates are braced for what might be coming next. They've seen what's happened in North Carolina, they see what's going on in Ohio.

And maybe they follow the Payday Pundit, the alter-ego of Steven Schlein, the man the $40-billion-a-year payday industry pays handsomely to put lipstick on the pig. Last week, the Pundit quoted an article in The Wall Street Journal noting that there were nearly 600 stores in Arizona making cash advances against people's next paychecks but changes in Arizona law "could effectively put them out of business" come July 1.

"Take heart," Schlein wrote in his role as the Pundit. "The industry has proven pretty resilient."

*

The payday lending industry didn't exist at the start of the 1990s but by 2001 there were more than 10,000 of these storefront bankers lending money $200 or $400 at a time to those living on the economic fringes. North Carolina was the first state to fight back against these lenders permitted by local law to charge fees that worked out to an annual interest rate of around 450 percent.

The state legislature in North Carolina had been smart. They were willing to invite the payday lenders into the state but the law they wrote would expire unless it was renewed within four years. The payday lenders had sold their product as a once-in-a-blue-moon emergency product but in reality people were owing money to one of the 1,000 payday stores that had opened around the state for months at a time.

It was in mid-2001 that North Carolina tried ending its experimentation with payday lending yet it wasn't until March of 2006 that the last of the big payday chains actually closed up shop.

The payday lenders made the right economic choice by continuing to operate in the state, even if also a morally dubious one. North Carolina meant about $20 million in profits for the payday lenders and if the last three big chains standing - Check Into Cash, Check 'n Go, and First American Cash Advance - didn't quite collectively book that much money each year, the trio was adding millions annually to its coffers.

And for operating in defiance of the law for nearly 5 years? The three paid a collective fine of $700,000.

*

To begin with the punch line. "Like mosquitoes adapting to a new bug spray," wrote Thomas Suddes, a columnist for the Cleveland Plain Dealer. Ohio not once but twice tried pulling the plug on its payday lenders but they're still making payday loans - even if they don't use the term "payday" when describing them.

The payday lenders first came to Ohio at the start of 1996. It was in 2007 that elected officials in Ohio started holding hearings where anybody who had something to say about the business - whether a store operator, a customer, a former employee, or just Joe or Jo Citizen - could be heard.

The Attorney General held public forums around the state. In the Ohio House of Representatives, the Republican chairman of the Financial Institutions Committee held several hearings, including one that lasted seven hours. The result? In the spring of 2008, the House voted overwhelmingly in favor of imposing a 28 percent rate cap on the payday lenders and the Senate followed suit shortly thereafter.

And then the day after Ohio Governor Ted Strickland's signature made the bill a law, the payday lenders filed paperwork to put a referendum on the ballot that would reverse it.

That gambit only proved that Ohioans were anything but ambivalent about payday loans. In November 2008, by nearly a two-to-one margin, voters in Ohio rejected the payday industry's appeal to let them continue making loans at rates that worked out to 391 percent per year.

Yet Ohio is pretty much a replay of North Carolina. The smaller players have tended to close shop but the chains are using one of a couple of workarounds. A favorite if for no other reason than its diabolical creativity: Charge only 28 percent interest on loans of a couple of hundred dollars - except now borrowers are paying a $15 application fee and also $10 for a credit check.

And some of the more aggressive lenders are paying their customers with a check so they can charge them an extra fee to cash it.

How else could they continue making 400 percent or so on their money?

The Ohio House has passed a bill that would curb the fees lenders can charge its customers but the Senate has yet to take any action.

*

Payday came to Arizona in 2000. But like North Carolina, the Arizona legislature added a sunset provision. The payday enabling legislation expired after 10 years, i.e., now.

In 2008, the payday lenders bankrolled an initiative they dubbed the "Payday Loan Reform Act." They spent $14.8 million trying to convince Arizonans to vote for a measure that would allow them to keep operating in the state, according to David Higuera of Arizonans for Responsible Lending. (Interestingly, the industry's ad campaign in support of their referendum called on voters to "crack down on payday lenders," as if theirs was an initiative supported by payday's foes.)

But despite spending so much money, the payday lenders lost that vote, just as they failed at subsequent attempts to convince the legislature to allow them to continue operating in the state.

The jig is up today - June 30th. But there are other alternatives for the innovative fringe lender in Arizona, like loans against a person's car. A lender can charge about 200 percent on a car title loan, not 400 percent (but then they hold a pretty valuable piece of collateral, the title on a person's car), and already operators representing about half the payday stores in the state have applied for a license to make these loans, said Jean Ann Fox, a long-time staffer for the Consumer Federation of America who happens live in Arizona.

And then there's the lender offering prepaid cards that include an overdraft feature that allows people to borrow against money they don't yet have -- at rates equal to a payday loan.

Arizona's Attorney General has issued a stern warning to any payday lender thinking of continuing to make payday loans after today. And Arizona, unlike Ohio, has limits on the fees a lender can add to the cost of a loan. Fox, who has been monitoring the payday industry since the mid-1990s, is confident that Arizona won't be as bad as North Carolina or Ohio even as she agrees that the payday lenders are a crafty and resilient bunch.

More on Arizona Politics

Amid GOP Concerns About Debt and Deficit, House Vote on Extending Unemployment Benefits Fails; Another Vote Expected

ATHENS, Greece — Dozens of masked youths clashed with police at a union protest Tuesday in Athens during the country's fifth general strike this year against the cash-strapped government's planned pension and labor reforms.

Riot police fired tear gas and stun grenades to disperse troublemakers who threw chunks of marble smashed off metro station entrances and set rubbish bins on fire. Running clashes continued along a major avenue – lined with shuttered shops and banks – as rioters armed with wooden clubs made repeated sallies against police.

Seven policemen were injured in the clashes, and 13 demonstrators were detained, six of whom were arrested, police said. Riot police chased demonstrators into a main subway station, and an AP photographer saw police detain one young man in a subway car, spraying him with pepper spray.

Demonstrators smashed bus stops and phone booths, and broke windows at three shops and two bank branches. The demonstration ended after a few hours, and rioters melted away toward the central Exarcheia district – a traditional anarchist hangout.

However, Tuesday's clashes were far more muted than the riots that erupted during a previous general strike on May 5, when three people died after becoming trapped in a bank torched by rioters.

The violence came as some 10,000 people took part in a demonstration organized by the country's two main labor unions and fringe left-wing groups. An earlier separate march by some 6,000 members of the Communist Party-backed PAME union ended peacefully.

Tuesday's strike shut down public services, disrupted transport, left hospitals operating on emergency staff and pulled all news broadcasts off the air. The country's airports, however, remained open, and international flights were operating normally although nearly 100 domestic flights were canceled.

Unions fiercely oppose draft legislation submitted to parliament last week that would increase retirement ages and make it cheaper for companies to fire workers. The measures – which include raising women's retirement age to 65 to match those of men and require 40 years of social security contributions for a full pension – are aimed at fixing the country's debt crisis, which has shaken the entire euro zone.

"They've declared war on you, fight back!" PAME demonstrators chanted as they walked down a major avenue in the center of the capital.

Greece is caught in a major debt and deficit crisis; it avoided bankruptcy last month only after receiving the first installment of a euro110 billion ($136 billion) emergency loan package from the European Union and the International Monetary Fund.

In return, Athens passed painful austerity measures, cutting pensions and salaries and raising consumer taxes, and is now pushing through labor and social security reforms.

Parliament is to start discussing the proposed reforms Tuesday, in a debate expected to last more than a week. Despite opposition from several of its own lawmakers, the center-left government – which holds a seven-seat majority in the 300-member house – is expected to win the final vote.

Tension mounted once more in the country's main port of Piraeus early Tuesday morning, where hundreds of PAME demonstrators attempted to prevent tourists and locals from boarding ferries to Aegean islands, even though a court had declared seamen's participation in the strike illegal.

"They want to put us in a straitjacket so we work for free all our lives so that some can have their wealth and get very rich at our expense," said Sotiris Poulikogiannis, a protester in Piraeus. "We don't accept this. Day by day we'll grow stronger and more aware of how to overturn this situation."

The Civil Protection Ministry said all ships scheduled to leave in the morning did set sail, with about 350 passengers. However, about 50-100 people didn't manage to board their ferries as strikers prevented them from entering the port. Authorities said their tickets would also be valid Wednesday.

Another four ships that were to sail for Crete and the Cycladic islands in the early afternoon had informed passengers that they would depart at midnight, the ministry said.

A similar strike by two seamen's unions last week – which was also declared illegal – left thousands of travelers stranded in Piraeus for a day. Shipping companies and officials in Greece's vital tourism industry strongly criticized the government for not taking action to stop the strikers.

____

Associated Press Television crews and photographers in Piraeus and Athens, and AP writer Nicholas Paphitis in Athens contributed.

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WASHINGTON — With Republicans citing concerns about the growing national debt, the House rejected a bill Tuesday to extend unemployment benefits for people who have been out of work for long stretches.

Payments will continue to phase out for more than 200,000 people a week without an extension. The last extension expired at the end of May. House Democrats said more than 1 million people have already lost benefits.

Congressional Democrats have been trying for weeks to pass the extension as part of a larger tax and spending package, but the larger bill stalled in the Senate. On Tuesday, House Democrats brought up a standalone bill on unemployment benefits.

Democrats brought up the bill under a special procedure in which no amendments were allowed and debate was limited. Under the procedure, the bill needed a two-thirds majority to pass. The vote was 261-155, short of the two-thirds needed.

Nearly all Democrats voted in favor of the bill, while most Republicans opposed it.

"America's unemployed workers cannot wait any longer for us to do the right thing," said Rep. Jim McDermott, D-Wash., chairman of the House Ways and Means subcommittee on income security.

The measure would have provided up to 99 weekly unemployment checks averaging $335 to people whose 26 weeks of state-paid benefits have run out. The benefits would have been available through the end of November, at a cost of $33.9 billion. There were no offsets in the bill, so the cost would have added to the budget deficit.

"The American people know it isn't right to simply add the cost of this spending to our already overdrawn national credit card," said Rep. Dave Camp of Michigan, the top Republican on the Ways and Means Committee. "They want to help those in need but also know that someone has to pay when government spends money."

Republicans accused Democrats of playing politics with the measure, since they could have brought up the bill in regular order and passed it with a simple majority.

It's a tough vote for some lawmakers who want to help constituents hit hard by the recession but are wary of being labeled big spenders. The economy is starting to pick up, but unemployment is still high as the nation continues to struggle from the loss of more than 8 million jobs. At the same time, angst over deficit spending is growing as midterm congressional elections near in November.

"We are a community of people. When people lose their jobs and can't find them, we don't stand and simply stand idly by," said Rep. Sander Levin, D-Mich., chairman of the House Ways and Means Committee.

Rep. Kevin Brady, R-Texas, said, "People are frightened by the amount of debt this country owes."

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NEW YORK — Shares of Tesla Motors Inc. climbed in their trading debut after the electric car maker's expanded initial public offering raised more money than expected.

Tesla's performance was a feat in a sour market that has forced many companies looking to raise funds through IPOs to accept lower prices to get deals done.

The offering appealed to investors, raising $226.1 million after selling 13.3 million shares for $17 apiece. It had earlier expected to price 11.1 million shares at $14 to $16 per share.

Tesla's IPO came on a day when U.S. stocks fell more than 2 percent – following Asian and European markets lower – on worries that the economy is slowing. Tesla's shares initially traded as high as $19, but quickly pared that gain and fell as low as $17.55 before rebounding. The company's shares rose $1.37, or 8.1 percent, to $18.37 in afternoon trading.

The electric car maker, based in Palo Alto, Calif., is the first automaker to go public since Ford Motor Co. held its initial public offering in 1956.

Tesla CEO Elon Musk appeared Tuesday morning at the Nasdaq stock exchange at Times Square to mark the start of trading. At least five Tesla vehicles, including the $109,000 Roadster, were lined up outside, where spectators and tourists gathered to gawk at the cars.

"The response from investors has been tremendous," said Musk. "We increased the size of the offering and the demand was still enormous, so we increased the price to a dollar above the top of the range and we still had massive, overwhelming demand."

Tesla is a bet on the future of the electric car industry, which isn't currently a big draw for U.S. consumers. The IPO also comes at a time when volatile broader markets have dampened investors' taste for risk, particularly for companies with a history of losses or high debt levels.

The company hasn't had a profitable quarter since it was founded in 2003. It has sold only 1,000 of its high-end Roadster sports cars.

Investors are hoping that a planned lower-priced car will have a broader appeal. Tesla expects that a $50,000 four-door electric sedan, the Model S, which isn't slated to go on sale until 2012, will attract more buyers. Its goal is to build 20,000 of them a year.

The company has a prominent backer in Toyota Motor Corp., which last month agreed to sell Tesla a shuttered plant in Fremont, Calif., and invest $50 million in the company. Tesla plans to use the plant to build the Model S. Tesla expects annual net losses until mass production of the Model S.

The company also has a high-profile CEO. Musk was a co-founder of Internet payment service PayPal. He currently runs rocket manufacturer Space Exploration Technologies.

But Tesla may face competition in the electric car market by the time the Model S is ready for consumers. Nissan Motor Co. is already taking orders on its electric car, the Leaf, which gets 100 miles per charge and is priced at about $25,000 after tax credits. The Chevrolet Volt, an electric car with a gasoline range-extender, goes on sale by the end of this year with a $35,000 price tag.

While Tesla is the first automaker to go public in decades, it likely won't be the last. General Motors Co., which makes the Volt, is widely expected to sell stock to the public again, maybe as early as this year.

Tesla shares are trading on the Nasdaq under the symbol "TSLA."

___

AP Business Writer Tali Arbel contributed to this report.

President Obama's Fiscal Commission -- charged with developing a bipartisan plan to stabilize the soaring national debt -- holds a public hearing June 30. Since Commissioner Alan Simpson, former Republican Senator from Wyoming recently became an instant You-Tube star with his tawdry rant against seniors, Social Security defenders have been on high alert about what's going on in the closed door meetings.

Simpson - nearly 80 himself - maintained that the founders of the program never expected anyone to actually live to 65 and collect. "People just died - Social Security was never [for] retirement," he instructed.

The program has always been an easy target for deficit hawks and budget cutters because it's so big -- the government's largest expenditure, just ahead of the Pentagon. But setting up a target isn't as easy as actually hitting it. George W. Bush found that out when he proposed privatizing the system so we could all invest in the likes of Enron, Lehman Brothers, General Motors, and Goldman Sachs. Thanks to a massive campaign by progressive interest groups, that proposal was shot down. But like Freddy Krueger in Nightmare on Elm Street, the Nightmare of Cutting Social Security never dies -- it just returns in a new form every few years.

Tea-Partiers, egged on by Sarah Palin, were fond of claiming during the health care debate last summer that government "death panels" were going to off our grannies, even though it was an outright lie. Now that we have a much more serious and credible threat to the well-being of our elderly poor population (majority female) in the form of Fiscal Commission rumblings about cutting Social Security, Palin & company are strangely silent.

Not so the progressive groups that want to preserve the program. Ashley Carson, Executive Director of the Older Women's League and member of the Social Security Works coalition, points out that those same grannies the TPs have apparently forgotten about are the ones that will suffer the most if the program is cut.

Heidi Hartmann, President of the Institute for Women's Policy Research in Washington, agrees. "Raising the retirement age and other ways of cutting benefits would all have a devastating effect on older women, many of whom live alone and depend mainly or entirely on Social Security."

The numbers bear this out. Women depend on Social Security more than men, and without it, close to 60% of elderly women would live in poverty. One reason is that women are far less likely than men to have a company-provided pension, and when they do get one it's most often based on a lifetime of lower earnings. So much for Simpson's "greedy geezers." Even younger women would suffer if the program is cut, since they are the majority of caretakers when a spouse dies and leaves young children, who draw Social Security until they're eighteen.

Simpson may have embarrassed some of less flamboyant members of the Fiscal Commission with his outburst, but it remains to be seen whether in their hearts they believe he's right. We'll know on June 30 - Is granny in the crosshairs once again?

A 3.8% increase in April compared with the same period last year is the third straight month of appreciation but analysts say prices are likely to drop again with the end of the tax credit. L.A., San Diego see gain of 0.7%.

Home prices in 20 major cities gained ground for the third consecutive month in April when compared with their year-earlier levels. But analysts warned that prices are likely to fall again as the effects of the federal tax credit begin to wane and that "consistent and sustained" improvement in housing may not appear until next year.

A 3.8% increase in April compared with the same period last year is the third straight month of appreciation but analysts say prices are likely to drop again with the end of the tax credit. L.A., San Diego see gain of 0.7%.

Home prices in 20 major cities gained ground for the third consecutive month in April when compared with their year-earlier levels. But analysts warned that prices are likely to fall again as the effects of the federal tax credit begin to wane and that "consistent and sustained" improvement in housing may not appear until next year.

t is time to recognise that Greece is not just suffering from a liquidity crisis; it is facing an insolvency crisis too. Rating agencies have started to downgrade its public debt to junk level, while spreads on Greek sovereign bonds last week spiked to new highs. The €110bn bail-out agreed by the European Union and the International Monetary Fund in May only delays the inevitable default and risks making it disorderly when it comes. Instead, an orderly restructuring of Greece's public debt is needed now.

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