A splendid opportunity is in the offing, though it is premature to expect the earth to quake. As background, Hank Greenberg, former chairman of AIG, is suing the United States. The case itself is not the subject here. Starr International Company, in which Greenberg is housing his lawsuit, was the largest shareholder in AIG on September 16, 2008, the day when the U.S. government “seized control of AIG” (quoting from the September 17, 2008, Wall Street Journal).
Federal Reserve Chairman Ben S. Bernanke played a central role in the seizure. He was subpoenaed to testify (in STARR INTERNATIONAL COMPANY, INC., v. UNITED STATES) on its behalf and on behalf of a class of others similarly situated plaintiffs.
Bernanke ducked the deposition. The UNITED STATES (the Department of Justice) argued the “deposition would interfere with Mr. Bernanke’s important duties in managing the nation’s economy and fiscal policy.” [My underlining – FJS]
Before returning to this jarring admission from America’s National Socialist headquarters, Judge Thomas Wheeler’s anger v. the UNITED STATES is offered as background.
A Bloomberg headline on May 17, 2013: “AIG Judge Asks if U.S. Scared Board from Starr Lawsuit.” The curious judge was Thomas Wheeler, who expressed “concern” that the U.S. scared off American International Group from joining a lawsuit by Maurice “Hank” Greenberg, its former chairman, challenging the insurer’s 2008 federal bailout.” Wheeler had a “lingering concern” that a “request by AIG and the government to dismiss [Hank] Greenberg’s lawsuit” was a product of the government “intimidating” the “AIG directors who took their seats during the bailout.”
Such a judge, glued athwartship v. the UNITED STATES’ attempt to arrogate his courtroom, was unlikely to let the Federal Reserve chairman skip town. And he didn’t. In the United States Court of Federal Claims, No. 11 – 779C (Filed: July 29, 2013), Judge Wheeler wrote: “The Court is persuaded that Mr. Bernanke is a key witness in this case, and that his testimony will be highly relevant to the issues presented. Because of Mr. Bernanke’s personal involvement in the decision-making process to bail out AIG, it is improbable that Plaintiff would be able to obtain the same testimony or evidence from other persons or sources…. Indeed, the Court cannot fathom having to decide this multi-billion dollar claim without the testimony of such a key government decision-maker…. Defendant [the UNITED STATES’ Department of Justice – FJS] contends that Plaintiff should be required to pursue other avenues of discovery first before seeking Mr. Bernanke’s testimony. In its July 23, 2013 reply, Defendant also asserts that a deposition would interfere with Mr. Bernanke’s important duties in managing the nation’s economy and fiscal policy.” [My underlining: Note “cannot fathom” – Judge Wheeler is ripping mad – FJS]
Defendant’s motion for a protective order is DENIED.
IT IS SO ORDERED
s/Thomas C. Wheeler
THOMAS C. WHEELER
There is so much that is wrong with all of this: The Federal Reserve chairman, 1 – managing the economy and, 2 – running fiscal policy. Leaving aside his eternal bumbling, the Federal Reserve chairman is a bureaucrat with no authority to do either. Fiscal policy is for Congress. Bernanke should be planted in front of a congressional inquiry at this very moment, to explain himself. The Justice Department wrote the “too busy” plea to Judge Wheeler. Instead, it should read what it wrote and draw up charges against the Federal Reserve Chairman. Reading through Judge Wheeler’s comments on May 17, 2013, and July 29, 2013, the Justice Department is guilty of obstructing Starr International’s case against the UNITED STATES.
Why might that be? Probably because of the central charge: the UNITED STATES exceeded its authority by commandeering AIG without compensation to anyone. If the UNITED STATES is found guilty by the courts, it “should” (it is unwise to say “will” regarding legal decisions and precedent anymore) place restrictions on the government’s gargantuan appetite for whatever it wants to control.
The UNITED STATES may also be attempting to preclude an open investigation that will show how Federal Reserve Chairman Ben S. Bernanke, Secretary of the Treasury Henry Paulson and New York Federal Reserve President Timothy Geithner mishandled the 2008 financial crisis. This is not a secret. Books by Sheila Bair and David Stockman, as well as the Financial Crisis Inquiry Report (by the FCIC) have already done so. Yet, the media continues to report how we “must thank Bernanke (or the others) for saving us from a nuclear winter.” These advocates have avoided the evidence.
A segment of Bernanke’s ignorance was discussed in “The Professor Who did NOT Save the World.” In summary: “Those who held insurance policies with AIG or its subsidiaries never bore risk of non-payment.”
Bernanke still had no understanding of AIG’s structure a year later when he testified before the Financial Crisis Inquiry Commission. The professor did no homework. Lack of preparation by Bernanke is no longer even surprising. His various testimony is shot through with errors.
The FCIC transcript quotes Bernanke on page 28 and 29: “The reason AIG was set up the way it was originally, the financial products division [“Financial products division” was the profit center that sold CDS – FJS], which did the CDS, attached itself precisely because it was a large, highly-rated insurance company with lots of assets. Therefore it could sell CDS without what would otherwise be sufficient capitalization and protections because the counterparties would know that this was a highly rated firm with lots and lots of assets. It was precisely because of that reason when [AIG] financial products [division] had to sell – had to come up with the collateral – and was facing a run on its positions, that the Fed – that there existed the collateral, the assets that the Fed could lend against.” [My italics – FJS]
This is all wrong.
The two dopes, that would be former Fed Chairman Greenspan and Bernanke, have never been cornered by the various Congressional and Senatorial Committees. Retired Congressman Ron Paul was a persistent irritant to the Fed chairmen but he was not a lawyer and not equipped with a good court room attorney’s ability to make mincemeat of a fumbling witness. Starr International Company is represented by David Boies, who, if he is at all worthy of his reputation, will twist Bernanke (presumably, he is also questioning Paulson and Geithner) into a pretzel of incomprehensibility. The favorable disposition of Judge Wheeler is wind at his back. Should Boies need any help in how to question the head of the Fed, please send him this way.
Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009) and “The Coming Collapse of the Municipal Bond Market” (Aucontrarian.com, 2009)