Reuters reported this week that AIG’s suit against the Federal government will receive class action status.
Department of Justice, you now have no choice but to protect the U.S. taxpayer. AIG’s credit default swaps were entered into fraudulently, since they knowingly entered into them without the financial capacity to make good on them. This is financial contract law 101. The time is now for our countersuit. AIG’s suit contends this was a “backdoor bailout” of Wall Street banks”. Yes it was. However, AIG knows very well, these contracts were entered into fraudulently. All parties are complicit in this fraud. How can we prevent it from happening again?
January 8, 2013: The Department of Justice and the U.S. Taxpayer v AIG, The Derivative Project Blog Post for background.
Why Must the DOJ Take Action Now
While we are wasting taxpayer dollars defending this most frivolous suit, derivative dealers are lobbying Congress to weaken Dodd Frank reforms to end public bailouts and lessen the amount of collateral they must post, putting greater risk on the U.S. taxpayer. They want the chance to do this all one more time. It is just too lucrative to not try again.
The House Agriculture Committee held hearings on potentially weakening reforms to prevent this from happening again, last week. Congressman Collin Peterson (D-MN) has been a leader in Congress in standing up for the U.S. taxpayer to end the bailouts and systemic risk. He was the driver behind the initial push to introduce derivatives legislation to protect the U.S. taxpayer, beginning in 2009 with his introduction of the Derivatives Transparency Act of 2009, the predecessor to the Dodd-Frank bill.
Here is his response last week on the proposed bills to weaken Dodd-Frank:
“However, Ranking Member Collin Peterson (D-Minn.) suggested patience with the Commodity Futures Trading Commission (CFTC) and cautioned changing the law. Peterson said that his frequent talks with Chairman Gensler of the CFTC assure him that many of the bills the Committee considered are not necessary.
“The CFTC is going to get this right,” he said. “To date, most of the final rules coming out of the Commission have bipartisan support and are addressing the concerns that stakeholders have expressed to both us and the Commission.”
“The sad part of this exercise is that we may find out later it wasn’t even necessary,” Peterson added. “What is potentially even sadder is that even if we do find that any of these bills are necessary, they have no future. The majority of Senate Republicans and their leadership have dedicated themselves to the repeal of Dodd-Frank.”
The Derivative Project Blog archives. Scroll to July 24, 2010 and April 6, 2010 for the correspondence between The Derivative Project and the Department of Justice. The Department of Justice simply told The Derivative Project, “What AIG did was not illegal, it was just stupid.” Their response to our letter shows the Department of Justice did not even give us the courtesy to read our letter. It was that dismissive.
U.S. taxpayers will no longer tolerate the “stupidity defense”. We seek a straight-forward legal response as to why the Department of Justice deems these contracts were not fraudulent. Without that, this type of fraud will simply continue.
AIG’s executives were enriched with millions upon millions of dollars by knowingly entering into speculative contracts without the financial capacity to make good on them. We all know that is very smart.