More on LIBOR: Plus, Spitzer takes on Bartiromo in Japanese Monster-Movie Epic

Was on Viewpoint with the inimitable Eliot Spitzer last night and joined Dennis Kelleher from Better Markets in discussing some of the more upsetting recent revelations from the LIBOR banking scandal -- including most notably the not-so-surprising revelation that Tim Geithner was apprised of the rate-rigging as far back as 2008.

P.S. I advise everyone to check out the Godzilla-v.-Mothra death-battle between Spitzer and Maria Bartiromo from last Friday on her show on CNBC. Maria's always been a little nuts, but this latest crusade to rewrite history and cleanse ex-AIG chief Hank Greenberg of culpability in a fraud scandal that at the time led to the biggest financial settlement ever paid is an absolute head-scratcher.

The confrontation between the two of them on air is epic. In it, Bartiromo blasts Spitzer for going after Greenberg and accuses him of only targeting Greenberg for personal reasons. Spitzer counters by asking her if she's read a judge's opinion ruling that Greenberg had participated in a conspiracy to defraud. "Have you read this opinion?" he asks.

She hedges, pauses, and here's the funny part: Clearly she hasn't read it. 

Spitzer asks her again, have you read the opinion? This time she decides to go all in, and immediately says she has read it. "I've read much more than I want to read on this case!" she shouts.

Spitzer then gets so hot that he appears to have a prosecutorial flashback on live TV, saying: "You are under oath right now. I'm going to be very serious with you!" He again demands that she answer the question: Was it not true that a judge ruled that Greenberg had committed fraud?

Humorously, Bartiromo explodes here and then retreats into the unfamiliar/uncomfortable territory of the truth: "I'm not under oath and I am not in your courtroom! You are on my television show!"

Crazy stuff -- see for yourself:

The weird thing is, there's nothing terribly complicated about that AIG case. Over a decade ago, AIG's stock was dropping, in part because it was showing poor loss reserves. So beginning in 2000, Greenberg, then the CEO, apparently decided to stop the bleeding by entering into a series of fraudulent reinsurance transactions with General Re, a subsidiary of Warren Buffet's Berkshire Hathaway.

A federal judge, Christopher Droney, ruled in 2008 that it was rational to conclude that the conspiracy to create the artificial reserves began when Greenberg called then-General Re CEO Ron Ferguson to make the reinsurance deal. He wrote:

The government presented sufficient evidence that, starting with Greenberg’s Oct. 31, 2000 phone call to Ferguson, there was an agreement to carry out a transaction to artificially inflate AIG’s loss reserves and deceive AIG’s investors about the amount of the company’s loss reserves and the quality of its earnings.

But this is all old news. AIG long ago settled not just with Spitzer but with three other regulators, including George Bush’s S.E.C. and Justice Department, for the extraordinary sum of $1.6 billion – about three times what Goldman Sachs paid for the biggest fraud case to come out of the 2008 crash.

Greenberg himself settled for $15 million in a civil suit over some related fraudulent transactions, leading to an accounting restatement at AIG of about $2 billion. But characteristically, he later said the restatement was “mostly unnecessary” and that although he paid a $15 million settlement and pleaded the fifth in a deposition, he had “no responsibility” for the fraud that took place while he was C.E.O.

And that, folks, is probably what this whole Bartiromo episode is all about. If you follow any of these Wall Street settlements and investigations, banks and their executives often insist post-factum that they only paid fines to keep regulators off their backs – not because they’re guilty, mind you, but because paying off vengeful, mindlessly angry, and (probably) jealous regulators is part of the cost of doing business when you’re a rich, powerful, successful, and tirelessly ethical financial firm.

Thus the portrayal of regulators and prosecutors as overemotional pit bulls just out for a pound of flesh is part of the continual myth-making effort by Wall Street firms. In this mythical worldview nobody is ever really guilty of corruption charges, either, not even companies that pay billion-dollar fines.

This is why it’s such a problem when the government allows companies to make financial settlements without admitting wrongdoing. Not only do those settlements protect firms from civil litigation, they make it possible for shameless windbags like Hank Greenberg to go on barking about how wronged they were for years after they’ve been caught swindling shareholders and investors. It never ends.

Anyway, later this week: Maria lays a giant egg on Jones Beach, Spitzer saves Long Island by burning it with dragon breath ...

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