AIG reports massive Q1 net loss of US$7.8bil

By Joseph Chin
KUALA LUMPUR: The world’s largest insurer - American International Group, Inc. - reported a massive net loss of US$7.81bil or US$3.09 per diluted share, due to fallout from the subprime mortgage crisis in the United States.

In a statement posted on its website, AIG announced Friday a plan to raise about US$12.5bil in capital to strengthen its balance sheet and provide increased financial flexibility.

“The capital is to be raised through a common stock offering and an equity-linked offering for an aggregate of approximately US$7.5bil,” it said.

On the Q1 results, AIG said the continuation of the weak US housing market, the disruption in the credit markets, as well as equity market volatility, had a substantial adverse effect on its results for the first quarter ended March 31, 2008.

“These factors were primarily responsible for AIG incurring a net loss for the first quarter of 2008 of US$7.81bil or US$3.09 per diluted share,” it said.

AIG said the net loss included the effect of economically effective hedging activities that did not qualify for hedge accounting treatment under FAS 133 or for which hedge accounting was not applied, including the related foreign exchange gains and losses.

For Q1 of 2007, AIG reported net income of $4.13bil or US$1.58 per diluted share. But for Q1 this year, adjusted net loss was US$3.56 billion or US$1.41 per diluted share, compared to adjusted net income of US$4.39bil or US$1.68 per diluted share for the first quarter of 2007.

AIG said despite the difficult environment and its resulting effect on AIG's overall financial performance for the first quarter, core insurance businesses continue to perform satisfactorily.

“AIG is confident that, although present economic conditions are difficult, AIG's unmatched competitive advantages, strong brand, and unmatched global franchise position it extremely well for the future,” it said.

Meanwhile, Reuters reported AIG was replacing its chief financial officer, as operating income weakened across much of the company.

"I'm disappointed. It was clearly a difficult quarter for them and the difficulties were fairly widespread, they weren't just in the investment portfolio," said Bill Fitzpatrick, an analyst covering financial stocks at Optique Capital in Racine, Wisconsin, which owns AIG shares.

Ex-cop: Officers routinely lied to obtain search warrants

By STEVE VISSER
The Atlanta Journal-Constitution
Published on: 05/08/08
A former Atlanta police officer testified Thursday that narcotics officers routinely lied under oath when seeking search warrants — a practice that led to police killing a 92-year-old woman.

Former Detective Gregg Junnier told a Fulton County jury that detectives would tell judges that they had verified their informants had bought cocaine from dealers by searching them for drugs before the buy took place.

"I have never seen anyone searched before they go into the house — I've never seen that done — even though officers always swear to it," Junnier said. "It's done that way in 90 percent of the warrants that are written."

But it wasn't just lies to get the warrant to search Kathryn Johnston's home that made Junnier uneasy, he said. He had an inkling something was wrong when he and Officer Jason R. Smith were leading the narcotics team to the front door. He said the northwest Atlanta house differed from the informant's description.

"I said, 'Man, this doesn't look right,' and he said, 'I know,' " Junnier testified. " 'I said what do you want to do.' He said, 'Hit it.'"

A minute later, Johnston was lying on her floor, dying.

Junnier testified at the Superior Court trial of one of his former partners, Arthur Tesler, who was guarding the back of Johnston's Neal Street home on that day, Nov. 21, 2006.

Junnier and Smith pleaded guilty to voluntary manslaughter and face up to 10 and 12 years in prison, respectively, depending on their cooperation. Tesler faces 15 years on charges of lying in an official investigation, violating his oath as an officer and false imprisonment, a charge stemming from illegally surrounding Johnston's house.

Junnier, whose confession unraveled the case, is to testify again today.

"I have already asked for forgiveness from God and everybody I can," he said.

On the day of the raid, Junnier said he knew Smith had lied to a magistrate to get the no-knock warrant — which allows police to break in before identifying themselves — to seize the cocaine they had been told was in the house.

Junnier testified that Smith, who had sworn out the warrant, had lied about more than searching the informant for drugs. Smith swore that a reliable confidential informant had bought cocaine from the Johnston house, Junnier said. In actuality, he said, they relied on Fabian Sheats, a low-level dealer arrested earlier that day.

Junnier said they had confidence in Sheats' descriptions, which detailed the drugs, location and a dealer named "Sam," whom Sheats said worked from the house.

He said the chance to seize a kilo — 2.2 pounds — of cocaine also drove the officers, who normally made arrests for much smaller amounts.

In the raid, police fired 39 shots. Junnier was shot in the face, chest and leg. Two other officers were also wounded. Investigators determined Johnston had fired one round from a revolver; the officers were shot in their own crossfire.

Junnier described entering Johnston's house: "She was still alive. She was gasping for air. I heard ... the order to cuff her."

Later that day, he said, the cover-up began.

Geoffrey Wheatcroft on ‘Muqtada’

Posted on May 9, 2008
By Geoffrey Wheatcroft

Just before the invasion of Iraq five years ago, the British prime minister met the French president. This episode has been described by Sir Stephen Wall, then of the Foreign Office, although not all Americans may have heard about it. Wall says that the meeting was quite cordial in the circumstances, with Tony Blair—the all-American hero of the moment—again voicing his ardent support for the war, and Jacques Chirac—whose very name was a curse to Americans at a time when congressmen were childishly ordering “freedom fries” with their lunch and Thomas Friedman was telling readers of The New York Times that France should be “voted off the island”—reiterating his opposition.

More specifically, Chirac said several things. For one, Blair and his friend George W. Bush knew nothing of the realities of war, but he did: 50 years ago, the young Jacques Chirac was a draftee serving in the French war in Algeria, a horrible conflict which Iraq has turned out to resemble all too closely. The Americans and British seemed to think they would be welcomed in Iraq with open arms, he said, but they shouldn’t count on it. He added very astutely that a mere Shiite majority was not to be confused with what we in the West call democracy. And as a final shot he asked whether Blair realized that, by invading Iraq, he might precipitate a civil war. When the British team left, the prime minister turned to his aides (no doubt with that boyish grin some of us have long since had enough of) and said, “Poor old Jacques, he just doesn’t get it!”

As Wall adds, we know now just who got it. The disasters which have come about were not only foreseeable, they were foreseen—although not even the canny Chirac could have guessed quite what terrible form they would take. For that matter, as Patrick Cockburn more than once remarks in “Muqtada,” few Iraqis imagined the violence into which their country would be plunged, and even the Sadrists, whose leader is the subject of this highly informative book, “were surprised by the scale of support for them as Saddam’s regime fell apart.”

Nor did the bitterest critic of the war then imagine that, five years on, American aircraft would still be helping the Iraqi army to hold off attacks by the Mahdi Army. But then astonishment has been greater still on the American side as Moqtada al-Sadr, the astute, harsh, frightening scion of a line of martyred Shiite clerics, became one of the central players in this grim drama. He was first completely underestimated by the Americans, and of all the mistakes they have since made in Iraq, Cockburn writes, one of the gravest (which is saying something) was the attempt to marginalize him and his movement.

But then the war had been embarked on by politicians in Washington and London, encouraged by a claque of media cheerleaders, who began knowing very little about the country they were invading. Cockburn knows a great deal. One of the pre-eminent foreign correspondents of the age, he first visited Iraq 30 years ago and has written earlier books on Saddam Hussein and on the war, besides his reporting for the London Independent. Whether or not even he could have envisaged the Shiite revival, at least he understands its causes, and he offers a helping hand to those of our rulers who to this day can barely explain the difference between Sunni and Shiite (or who, like Sen. John McCain, have not quite grasped the fact that Iran is a Shiite country, which very much does not support the Sunnis of al-Qaida).

As Cockburn recapitulates the story, Islam was sundered by the early schism which followed the killing of Ali, first cousin of the Prophet Muhammad, in the year 661. In the first place those called the “Shi’at Ali” were no more than Muslims who had supported his claim to the caliphate, and it was only with the passage of time that the distinctive nature of Shia sharpened. A couple of centuries later its adherents became known as “Twelvers”: There had been 12 imams in succession up to al-Mahd, who disappeared at Samarra, but Shiites held that he, the Twelfth Imam, would one day return to purify the world. This may seem quaint to sophisticated Westerners, but that belief is scarcely more esoteric than the belief of frum Jews that the Almighty of ineffable name will one day send the moshiach to redeem his people, or of Christians that, as the Nicene Creed says, he “shall come again with glory to judge both the quick and the dead.”

While there was no precise theological difference between Shiite and Sunni to compare, let’s say, with the doctrine of transubstantiation which divides Roman Catholics from Protestants, the memory of Ali’s piety and virtue would come to be contrasted with the wealth and power of the Ummayad dynasty in Baghdad. And so Shia gradually became “the faith of the dispossessed and opponents of the powers-that-be,” much like Catholicism in Ireland under the Protestant Ascendancy. Later still this faith acquired a greater importance when Iran was forcibly converted to Shia by the Safavid dynasty in the 16th century, and the tribes of southern Iraq converted in the 18th. The religious affinity between Iran and southern Iraq is now of the highest significance, even more so thanks to the accident of religious-cum-geological history which has left the Shiites sitting on top of a very large part of the world’s oil supplies.

The story was further complicated by the rise of an independent Shiite clergy, or ulema: The crucial fact that this ulema was separate from the state made Shia a much more potent alternative force to the existing regimes. That was so first under the Ottoman empire and then, after the Great War, when the modern entity of Iraq was created by the British—“in a fit of absence of mind,” if ever that phrase applied—with a one-fifth Sunni minority set in power over a Shiite majority. Such precarious minority rule persisted under the Hashemite monarchy; then when the last king was overthrown in 1958; when the secular Arab Socialist Baath Party took power in 1968 (those were the days when, as an old Middle East hand said to me sardonically not long ago, “we thought the Baathists were the progressive modernizers"); and when Saddam Hussein established his personal dictatorship in 1979.

No ruler of a Muslim country can easily wage a full-scale Kulturkampf on “the House of Islam,” but Saddam vigorously persecuted the Shiite leaders, notably the clan then headed by Mohammed Baqir al-Sadr, uncle of Moqtada. Told that he must submit to the government, Baqir memorably said, “If my little finger was Baathist, I would cut it off”; he was duly executed by Saddam in 1980. His cousin Mohammed Sadiq al-Sadr, Moqtada’s father, succeeded him as the regime’s main opponent; Saddam’s hit men duly assassinated him along with two of his other sons in 1999. Just as Stalin ordained following the murder of Kirov, the assassins were themselves subsequently killed. One can well understand from this story that, although the wholesale dismissal of Baath Party members was one of the worst mistakes the occupying forces made, since it denuded the country of policemen and teachers, Shiites have little fond memory of the Baathists.

Nor do they have much fondness for the Americans. After Saddam’s forces were driven out of Kuwait in 1991 there were some in Washington who wanted to push on and destroy Saddam, and who still bemoan the fact that this was not done. What Bush the Elder said in answer—“We would have been forced to occupy Baghdad and, in effect, rule Iraq”—looks much more convincing now that precisely that has happened. The real crime of the first Bush administration was to encourage a Shiite insurrection (as well as another by the Kurds) and then look away while Saddam savagely suppressed it: Much of what we have witnessed recently is payback for that time.

In one more macabre twist to the plot, the mendacious denial by Saddam’s regime that it had killed Mohammed Sadiq al-Sadr may have allowed his son Moqtada to survive; that and his own considerable skill and cunning, “his ability to make swift retreats, politically and militarily, when faced with an adversary of superior strength.” Born in 1973, Moqtada was still in his 20s when he became the leader of the Sadrists. The regime tolerated him, even allowing him to start and edit al-Huda, his own magazine, while he bided his time. He had skillfully exploited the memory of his father even before the invasion gave him the opportunity to assert his authority over a large part of Shiite Iraq when Saddam fell.

It also allowed him to settle some scores. The Sadr clan had a long-standing family feud with Sayyid Majid al-Khoei, another leading opponent of the Baath regime, and “a charming and intelligent man,” according to Cockburn. Within 24 hours of Saddam’s overthrow, Majid was dragged from the Imam Ali shrine in Najaf and brutally hacked to death; it was generally assumed (wherever it was not too dangerous to say so) that Moqtada was behind the murder. Cockburn delivers an open verdict, wondering whether someone whose survival instincts had been as well honed as Moqtada’s under Saddam would have been so incautious as to give clear orders in front of witnesses for a murder of this kind. But that is not the same as acquitting him, and the portrait that emerges is of part messianic preacher-man and part ruthless capo di tutti capi.

That does not mean that he is no more than a rabble-rouser, or no less than a new Hitler, both phrases used of Moqtada by Paul Bremer. The appallingly incompetent proconsul wanted to arrest the Sadrist leader, but neither the Iraqi police nor the Spanish component of the coalition forces that happened to be outside Najaf where he had taken refuge was so imprudent as to do this. Moqtada remained at large, and his movement grew in strength. In 2006 the Sadrists fought and won the bloody battle of Baghdad with its accompanying ethnic cleansing of Sunni, but both before that and after he sometimes appeared to seek compromise. Last year he quietly and adroitly vanished for several months, and although he has denounced the occupation, he has for the most part prudently avoided direct confrontation with American forces he cannot possibly match in firepower but which he can most certainly outwit, as he repeatedly has done.

This book is a truly valuable addition to our patchy knowledge of true events in Iraq, although it is not always easy reading. Cockburn is a more workmanlike than graceful writer, there are signs of haste, with events not related in consecutive order and untidy repetitions, and the endlessly tricky nomenclature—“the Grand Ayatollah’s son Mahdi al-Hakim” is not to be confused with either the grand marja Muhsin al-Hakim or Mohammed Baqir al-Hakim—makes more demands than usual on the reader’s concentration. There used to be editions of “War and Peace” with bookmarks listing all the characters and their connections, and such a bookmark would have been no bad idea for this book, maybe with a glossary (Marji’iyyah, mujitihads, al-haram, turba, husseinayas) printed on the other side.

But Cockburn’s command of the subject is never in doubt, nor his intimate knowledge of the country. He actually likes Iraq and its people, despite everything, and he has a sharp eye for telling detail. Among other nice touches, he observes that you could always tell when a political meeting was made up of people who hadn’t lived in Iraq for too long, since there were no smoke-filled rooms: Whereas most Iraqis chain-smoke, these returning exiles had been conditioned by decades of the American anti-smoking terror.

In a bleak final chapter on “The Disintegration of Iraq,” Cockburn glances scornfully at the catalogue of error the last five years have seen. This has made it possible for some who originally supported the war to offer the sheer incompetence with which it was conducted as an excuse. This defense should not be allowed, since the war was never based on any rational, feasible political project, but it’s true that mismanagement made things far worse than they need have been.

At the time of the invasion, almost all support for Saddam collapsed, and “had life become easier in Shia Iraq in the coming years, this might have undermined the Sadrist movement. Instead, people saw their living standards plummet as provision of food rations, clean water, and electricity failed. Saddam’s officials were corrupt, but the new government cowering in the Green Zone rapidly turned into a kleptocracy comparable to Nigeria or the Congo.” Even Moqtada himself was sometimes in the dark, and was barely able to control the forces he had helped unleash.

All the same, in terms of statecraft he is a veritable Talleyrand or Bismarck compared with the Americans. They never grasped that, however much Iraqis had hated Saddam, few felt that the occupation was legitimate, and they therefore would not give their loyalty to the United States or the Iraqi governments it sponsored. At the same time, the “attempt to create an anti-Iranian Iraq was to play into Iranian hands and produce the very situation that Washington was trying to avoid.” As Jacques Chirac might ask with a Gallic smile, did les anglo-saxons really have any idea what they were doing?

Geoffrey Wheatcroft is the author of several books, including “The Controversy of Zion,” “The Strange Death of Tory England” and “Yo, Blair!” He is writing a book on Churchill’s reputation before and since his death

The $200 billion bail-out for predator banks and Spitzer charges are intimately linked

By Greg Palast
Reporting for Air America Radio’s Clout

March 14th, 2008

While New York Governor Eliot Spitzer was paying an ‘escort’ $4,300 in a hotel room in Washington, just down the road, George Bush’s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.

Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man Bernanke was using ours.

This week, Bernanke’s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks’ mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.

Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers’ bordello: Eliot Spitzer.

Who are they kidding? Spitzer’s lynching and the bankers’ enriching are intimately tied.

How? Follow the money.

The press has swallowed Wall Street’s line that millions of US families are about to lose their homes because they bought homes they couldn’t afford or took loans too big for their wallets. Ba-LON-ey. That’s blaming the victim.

Here’s what happened. Since the Bush regime came to power, a new species of loan became the norm, the ‘sub-prime’ mortgage and its variants including loans with teeny “introductory” interest rates. From out of nowhere, a company called ‘Countrywide’ became America’s top mortgage lender, accounting for one in five home loans, a large chunk of these ‘sub-prime.’

Here’s how it worked: The Grinning Family, with US average household income, gets a $200,000 mortgage at 4% for two years. Their $955 monthly payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise ain’t worth a can of spam and the Grinnings are told to scram - because their house is now worth less than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the “discount” they had for two years. Suddenly, payments equal 42% to 50% of pre-tax income. The Grinnings move into their Toyota.

Now, what kind of American is ‘sub-prime.’ Guess. No peeking. Here’s a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans versus 17% of similar-income Whites. Dark-skinned borrowers aren’t stupid – they had no choice. They were ‘steered’ as it’s called in the mortgage sharking business.

‘Steering,’ sub-prime loans with usurious kickers, fake inducements to over-borrow, called ‘fraudulent conveyance’ or ‘predatory lending’ under US law, were almost completely forbidden in the olden days (Clinton Administration and earlier) by federal regulators and state laws as nothing more than fancy loan-sharking.

But when the Bush regime took over, Countrywide and its banking brethren were told to party hearty – it was OK now to steer’m, fake’m, charge’m and take’m.

But there was this annoying party-pooper. The Attorney General of New York, Eliot Spitzer, who sued these guys to a fare-thee-well. Or tried to.

Instead of regulating the banks that had run amok, Bush’s regulators went on the warpath against Spitzer and states attempting to stop predatory practices. Making an unprecedented use of the legal power of “federal pre-emption,” Bush-bots ordered the states to NOT enforce their consumer protection laws.

Indeed, the feds actually filed a lawsuit to block Spitzer’s investigation of ugly racial mortgage steering. Bush’s banking buddies were especially steamed that Spitzer hammered bank practices across the nation using New York State laws.

Spitzer not only took on Countrywide, he took on their predatory enablers in the investment banking community. Behind Countrywide was the Mother Shark, its funder and now owner, Bank of America. Others joined the sharkfest: Goldman Sachs, Merrill Lynch and Citigroup’s Citibank made mortgage usury their major profit centers. They did this through a bit of financial legerdemain called “securitization.”

What that means is that they took a bunch of junk mortgages, like the Grinning's, loans about to go down the toilet and re-packaged them into “tranches” of bonds which were stamped “AAA” - top grade - by bond rating agencies. These gold-painted turds were sold as sparkling safe investments to US school district pension funds and town governments in Finland (really).

When the housing bubble burst and the paint flaked off, investors were left with the poop and the bankers were left with bonuses. Countrywide’s top man, Angelo Mozilo, will ‘earn’ a $77 million buy-out bonus this year on top of the $656 million - over half a billion dollars – he pulled in from 1998 through 2007.

But there were rumblings that the party would soon be over. Angry regulators, burned investors and the weight of millions of homes about to be boarded up were causing the sharks to sink. Countrywide’s stock was down 50%, and Citigroup was off 38%, not pleasing to the Gulf sheiks who now control its biggest share blocks.

Then, on Wednesday of this week, the unthinkable happened. Carlyle Capital went bankrupt. Who? That’s Carlyle as in Carlyle Group. James Baker, Senior Counsel. Notable partners, former and past: George Bush, the Bin Laden family and more dictators, potentates, pirates and presidents than you can count.

The Fed had to act. Bernanke opened the vault and dumped $200 billion on the poor little suffering bankers. They got the public treasure – and got to keep the Grinning’s house. There was no ‘quid’ of a foreclosure moratorium for the ‘pro quo’ of public bailout. Not one family was saved – but not one banker was left behind.

Every mortgage sharking operation shot up in value. Mozilo’s Countrywide stock rose 17% in one day. The Citi sheiks saw their company’s stock rise $10 billion in an afternoon.

And that very same day the bail-out was decided – what a coinkydink! – the man called, ‘The Sheriff of Wall Street’ was cuffed. Spitzer was silenced.

Do I believe the banks called Justice and said, “Take him down today!” Naw, that’s not how the system works. But the big players knew that unless Spitzer was taken out, he would create enough ruckus to spoil the party. Headlines in the financial press – one was “Wall Street Declares War on Spitzer” - made clear to Bush’s enforcers at Justice who their number one target should be. And it wasn’t Bin Laden.

It was the night of February 13 when Spitzer made the bone-headed choice to order take-out in his Washington Hotel room. He had just finished signing these words for the Washington Post about predatory loans:

“Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.”

Bush, Spitzer said right in the headline, was the “Predator Lenders’ Partner in Crime.” The President, said Spitzer, was a fugitive from justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet.

Spitzer wrote, “When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favorably.”

But now, the Administration can rest assured that this love story – of Bush and his bankers - will not be told by history at all – now that the Sheriff of Wall Street has fallen on his own gun.

A note on “Prosecutorial Indiscretion.”

Back in the day when I was an investigator of racketeers for government, the federal prosecutor I was assisting was deciding whether to launch a case based on his negotiations for airtime with 60 Minutes. I’m not allowed to tell you the prosecutor’s name, but I want to mention he was recently seen shouting, “Florida is Rudi country! Florida is Rudi country!”

Not all crimes lead to federal bust or even public exposure. It’s up to something called “prosecutorial discretion.”

Funny thing, this ‘discretion.’ For example, Senator David Vitter, Republican of Louisiana, paid Washington DC prostitutes to put him in diapers (ewww!), yet the Senator was not exposed by the US prosecutors busting the pimp-ring that pampered him.
Naming and shaming and ruining Spitzer – rarely done in these cases - was made at the ‘discretion’ of Bush’s Justice Department.

Or maybe we should say, 'indiscretion.'

************
Greg Palast, former investigator of financial fraud, is the author of the New York Times bestsellers Armed Madhouse and The Best Democracy Money Can Buy.