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Thursday, June 16, 2016

Federal Reserve Defends AIG Bailout, Production And Manufacturing Down, SEC Charges Trader $2.8M, And New Investment Alert For Seniors

Did the Fed act beyond it's legal authority when it bailed out #AIG? Maurice R. Greenberg, the former chief executive of the American International Group, argues just that in a class-action lawsuit against the government in which he demanded $40 billion -- Starr International Company, Inc. v. the United States. At first the lawsuit was deemed ridiculous but then it started gaining traction. On Monday, the judge finally made a ruling which agreed that the Fed had overstepped its legal authority, but also said shareholders were better off having had the bailout and so no amount was awarded. This is what the Fed had to say in response
The Federal Reserve strongly believes that its actions in the AIG rescue during the height of the financial crisis in 2008 were legal, proper and effective.  The court's decision today in Starr International Company, Inc. v. the United States recognizes that AIG's shareholders are not entitled to compensation for that decision, and that the Federal Reserve's extension of credit to AIG prevented losses to millions of policyholders, small businesses, and American workers who would have been harmed by AIG's collapse during the financial crisis.  The terms of the credit were appropriately tough to protect taxpayers from the risks the rescue loan presented when it was made.
Still, the verdict may set an interesting precedent for those that believe the Fed has gained too much power over the past 5 years with Dodd-Frank and voting power over the IOER. 

Source: Federal Reserve June 2015 Empire State Manufacturing Survey
The Fed released the Industrial Production and Capacity Utilization index (G.17), a measure of capacity utilization for manufacturing, mining, electric and gas utilities. The industrial sector accounts for a large part of national output over the course of the business cycle so G.17 is used as a way to forecast structural changes. Industrial production decreased 0.2 percent in May after falling 0.5 percent in April. I'm confident this trend will reverse soon due to improved labor conditions. The NY Fed released the June 2015 Empire State Manufacturing Survey which showed declining business condition in New York. The index fell five points to -2.0. 

The SEC charged Helmut Anscheringer, a Swiss trader, with trading on insider information ahead of Apple's (Nasdaq: APPL) decision to purchase AuthenTec Inc. Anscheringer purchased stock and call options in AuthenTec Inc. after hearing that Apple wanted to buy the company. A few days after Anscheringer purchased the options and stock, the purchase was announced; Apple would buy AuthenTec Inc. for $355 million in cash which caused the stock price to jump almost 60 percent. Anscheringer made more than $1.8 million on the transaction. He has agreed to pay $2.8 million to settle charges.

The SEC issued an investment alert for seniors. More and more seniors are the target of investment fraud. This alert provides five red flags for seniors when making an investment decision. If you are a senior, or if you care for one, please read this alert.

Finally, GAFI recently published a guest post on SeekingAlpha titled US Bancorp: One Of Buffett's Favorite Banks Still Undervalued By 38%. The post argues that the discount rate for banks and US Bancorp in particular, should be lower than other companies and banks.