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The Feds are closing in on a criminal fraud case against Joseph Cassano, reports ABC News, which tracked down the former AIG Financial Products czar wearing blue spandex and a sheepish expression outside his home in London. And before you wonder why a Brooklyn College educated swaps dealer with a name like Joe Cassano lives in London again, the answer is probably "taxes" -- and decimating taxes, it may not shock you to know, is fast emerging as the cornerstone of the AIG business model.

An ABC News investigation found that Cassano set up some dozens of separate companies, some off-shore, to handle the transactions, effectively keeping them off the books of AIG and out of sight of regulators in the U.S. and the United Kingdom.

"This is the other very important issue underneath the AIG scandal," said [tax law expert Jack] Blum. "All of these contracts were moved offshore for the express purpose of getting out from under regulation and tax evasion."
And as breathtaking as the sum of taxpayer dollars AIG has managed to put down in its post-crisis nationalized afterlife, the zombie insurer might possibly have indirectly scammed the government out of more money back in its Triple-A days. Today the Wall Street Journal explores AIG's euphemistically-named "tax structuring" business in a story about an IRS battle with Hewlett-Packard over an offshore entity -- or what the IRS terms a "sham that lacked economic substance and a business purpose" -- that AIG set up for the company to collect $132 million in tax credits. AIG's tax business, is "even bigger than the credit-default swaps business that led to the company's meltdown," a person "familiar with the business" tells the Journal. But that might be compartmentalizing things: we are beginning to suspect the credit default swap business and the tax "structuring" business were the same thing -- not just because they served the same end.

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A new Gallup poll finds Americans are closely divided on Tim Geithner's performance, with a large amount of undecideds, as well.

The numbers: Approve 42%, Disapprove 40%. Democrats approve at 61%, Republicans disapprove with 63%, and independents are nearly the same as the overall top-line numbers.

From the pollster's analysis: "It is not a good sign for Geithner, perhaps, that he receives significantly lower approval ratings than does his boss. In the same poll in which Geithner receives 42% approval, Obama receives a 64% approval rating (and a 30% disapproval rating)."

What's it like, the laborious job of "unwinding" hundreds of thousands of mind-numbingly complex derivatives contracts amassed over the years by the inimitable AIG Financial Products? Ask the Wall Street investment banks to whom they've been farming out the work -- it's so painful and time-consuming it feels like the old days, especially the "massively profitable" part. An anonymous derivatives trader tells the blog Zero Hedge:

During Jan/Feb AIG would call up and just ask for complete unwind prices from the credit desk in the relevant jurisdiction. These were not single deal unwinds as are typically more price transparent - these were whole portfolio unwinds.The size of these unwinds were enormous, the quotes I have heard were "we have never done as big or as profitable trades - ever".
Sort of undermines the notion that AIGFP employees needed retention bonuses so that the Great Unwinding might be an "orderly" and modest process conducted by cool heads and not, god forbid, subject to raids from ex-AIGers who'd left to trade against the company's book. Nah, they pretty much "threw in the towel," as Zero Hedge points out, and gave the "winners" on all those bad trades a chance to really earn their bonuses again.

But is the big payout the real shadowy force behind the recent runup in stock prices? Today's stock traders seem worried. Because even if reports that AIG FP has only unwound a quarter of its total trades are true, most investors agree the Treasury is too cash-strapped to do this forever.

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Backing down isn't Rep. John Murtha's style.

The cantankerous House power-broker is under fire for his ties to the PMA lobbying firm, which just shut down amid reports of an FBI probe into its campaign contributions to friendly lawmakers, including Murtha, who have steered millions in federal earmarks to PMA clients.

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The DNC has unveiled its new anti-Rush Limbaugh billboard, set to be put on display tomorrow in Limbaugh's home town of West Palm Beach:



(Click image to enlarge.)

The slogan, "Americans didn't vote for a Rush to failure," was the winner of a contest held by the DNC, in which Democrats across the country submitted their ideas for the DNC to pick from.

Jed Lewison, writing at Daily Kos, observes that GM's Rick Wagoner isn't the only CEO at a bailed-out company to be asked to step down by the government -- a counterpoint to the double-standard question raised today by Sen. Carl Levin (D-MI), Rep. Thaddeus McCotter (R-MI), and numerous media outlets (including TPMDC).

It's true that the Treasury Department and Federal Reserve asked Robert Willumstad to resign after three months in AIG's top spot, and that Fannie and Freddie's CEOs were also asked to resign last year.

Here's where those cases diverge from GM: the government controlled the majority of AIG when it ousted Willumstad and had already placed Fannie and Freddie directly into conservatorship when it booted their CEOs. The government also has become a leading shareholder at Bank of America and Citigroup, while taking the discrete step of lending money to GM ... while planning on showing the door to upwards of half of GM's board in the coming days.

None of this is intended to take a side in the double-standard debate that TPM readers have dismissed as a false equivalency -- merely to observe that it would be equally false to compare the circumstances behind Wagoner's resignation to those behind the AIG and Fannie-Freddie departures.

On Friday, Senate Majority Leader Harry Reid laid the smackdown on progressive grassroots groups that are marshaling their efforts against a group of conservative Democrats. But did the grassroots get the message?

It's becoming difficult not to conclude just that. When reports of Reid's statements broke, I put out calls to some of the more high-profile groups--including Campaign for America's Future (CAF), MoveOn, and Americans United for Change (AUC)--and the response has been...telling.

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The Minnesota DFL Party just put out a scathing press release regarding NRSC chairman John Cornyn's statement that the legal processes surrounding the disputed Senate election could last "years." The release declares: "Minnesotans, not Washington (or Texas), will decide who will represent them in the U.S. Senate."

Key quote from party chairman Brian Melendez:

"Former Senator Coleman's own attorney acknowledges that he'll lose his lawsuit. And apparently, the national Republicans have even less faith in his appeal to the Minnesota Supreme Court. But once Coleman's state appeals have run their course, the game is over. If he keeps filing more lawsuits, then he can do it after Senator Franken gets sworn in."

There's one thing that has be asked about NRSC chairman John Cornyn's bold statement that it could take "years" to resolve the Minnesota Senate situation: While it would obviously benefit D.C. Republicans to keep Al Franken out of the chamber, wouldn't this also trigger a huge backlash against the state GOP?

I asked Prof. Lawrence Jacobs of the University of Minnesota what sort of problems it could create for the state Republicans, if the national party were to keep the state without full representation for such a long time. And here's what he said:

Senator Cornyn's strategy may make political sense for Washington Republicans eager to maintain their leverage through the filibuster. But this national strategy could backfire in Minnesota against state Republicans coming into a big 2010 election year. Usually, the president's party loses seats in the Midterm election but a backlash against Minnesota Republicans could hurt them in the race for Governor and for the competitive congressional races for the seats currently held by Michele Bachmann and by first year Representative Erik Paulsen.


It should be noted that this isn't really Cornyn's problem -- there is no Senate election scheduled for 2010 in Minnesota. But could such an impasse really imperil Bachmann? Nooooooo!

Remember that ongoing FBI investigation of PMA, the lobbying group with close ties to Democratic power-broker Rep. John Murtha?

Well, up until now, House Democrats -- led by Speaker Nancy Pelosi, who's a close ally of Murtha, the powerful Defense Appropriations subcommittee chair -- have been successful on fending off GOP calls for a congressional probe of the matter. But that may be changing...

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