Skip to comments.The real AIG rip-off (in case you don't know)
Posted on 03/21/2009 3:16:16 AM PDT by dennisw
We are really bailing out Goldman Sachs, Merrill Lynch, UBS, Deutsche Bank etc etc with tens of billions of taxpayers dollars
AIG is simply the intermediary through which these thieves are being made whole on idiotic gambles
I despise the AIG bonuses but this is a smokescreen covering up the real crime which is Goldman Sachs getting 10 billion dollars of bailout direct through the AIG bailout.
And not just GS but European banks and other parties totaling 60 billion dollars who got bail out money via AIG. Because they bought credit default swaps from AIG. How is it the taxpayers problem that these "geniuses" bought credit default swaps from AIG?
Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?
For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.
It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG's counterparties are justified with an appeal to the sanctity of contract. If AIG's contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse.
AIG bailout: plunder by the plutocracy
The controversy over the US$180-billion bailout of AIG is over the fact that it includes US$165 million in bonuses to the traders who brought it to the brink. But that is only the tip of the iceberg.
What is scandalous is only not the US$165 million. Its the US$180 billion which has been shoveled into AIG by taxpayers to date, funds which have mostly gone toward paying off AIGs creditors, or counterparties. These include banks, brokers, pension funds and other gamblers who paid premiums to AIG in order to insure the value of their bond portfolios against calamitous losses.
I agree these counterparties must get something in order to prevent a disastrous cascade-effect, but they should, like AIG employees, be forced to take dramatic haircuts. This is what Washington has forced autoworkers and others to do. This is what the world has had to do.
So, just how do we impeach Congress?
Elections have consequences....
Warren Buffet (or rather Berkshire Hathaway) gets practically every penny of that 10 billion.
It’s pretty plain to me that things have gone horribly wrong and there is no way to put it back in the bottle.
Are they even trying to do the math? Is there some grand equation that assures the people in charge that anything they try will work? It appears to me that there are a lot of people padding their personal balance sheet ahead of an unmitigated disaster. But that would make me a cynic, wouldn’t it?
What did he know and when did he know it?
If my house burns down and my insurer goes bankrupt three days later I'm not getting any money
Goldman Sachs and other parties knew all about AIGs notorious credit default swap division in London England and that AIG was issuing insurance (these swaps) they could not cover
That is what I have been asking for two days now. Did not Warren Buffett sits in with with Paulson and Geithner in the early going?..........
Warren Buffet has a hobby of insurance and risk. Berkshire Hath owns General Re.
Believe it or not last year Florida took out hurricane insurance direct from Berkshire Hathaway for 200 million or so. There were no hurricanes so Warren came out good on that bet
“If my house burns down and my insurer goes bankrupt three days later I’m not getting any money
Goldman Sachs and other parties knew all about AIGs notorious credit default swap division in London England and that AIG was issuing insurance (these swaps) they could not cover.”
What all this demonstrates is that the system has been run, whether by Rs or Ds, for and by the plutocrats. In the meantime we’re all suckered by the politicians and exploding heads of the talk, print and TV media who work for or actually are them!
THIS IS CRIMINAL! CLEAN HOUSE AND SENATE IN 2010!
BTW, I just read your same post on bostonherald.com.
BTW, I just read your same post on bostonherald.com.......
How so? I only posted here
That depends on whether you want AIG to survive as a going concern or whether you are liquidating it. By forcing it to break its insurance contracts with the trading partners, you would in effect be slitting its throat. As to whether that would be better, I can’t really say because I’m not that savvy in exotic financial instruments but at least someone said AIG “was too big to fail”. This is how I understand the situation:
If AIG is the major player in the investment insurance game, then perhaps it is too big to fail. In other words, if AIG goes, the willingness of trading partners to purchase U.S. financial instruments may significantly lessen. If it lessens, then banks and other financial organizations will have less market for their riskier instruments and must alter their current operating rules on liquidity and risk in the first place, which means less money to loan out to businesses and individuals. This, in turn, means stagnation at every level of the economy. In other words, the whole system is a house of cards threatening to collapse at any point.
Now, it is easy to point at AIG and other financial instrument marketers to say they took too many risks in the first place. Perhaps. But you have to go back to political correctness, affirmative action and Clinton to see how its insistence that every person be given a loan, regardless of how creditworthy, created an intolerable lack of security and income for the banks forced into making these loans. Financial institutions came to the banks’ rescue by bundling lots of loans—some good, some bad—into negotiable paper which could be sold to other investors and thus restore banks’ liquidity. The problem was when the investors went to purchase the negotiable instruments, they had no way of investigating the level of risk they were undertaking because the loans and their probability of default were no longer traceable due to the bundling. Thus, before agreeing to purchase these instruments, the investors wanted some type of insurance on their risk. This is where I think AIG came in. It was to cover losses by those defaults as they trickled in over the years.
Now go back to last summer when gas prices, loud-mouthed politicians and other factors touched off a slew of defaults and threats of defaults. What was supposed to be a slow, steady stream of defaults became a torrent and as the strain grew on AIG and others, the investors began getting nervous. The market fell for these bundled mortgages and banks got strained. Insurance companies make their money by assessing the normal risks of whatever they are insuring and maintain enough liquidity to handle those normal risks. The run on AIG was far beyond normal.
So now AIG gets bailout money and it pays its insurance contract liabilities to the big banks. Why? There may be some nepotism there but I also suspect it is because these are the big buyers of risky U.S. instruments and if that market completely collapses, so does our economy. Government should at this point find a way to get rid of the community reinvestment act (which forces banks to loan money to unacceptable risks) and other things which defy natural economic rules and ease everyone back to the real world. But that is not what the Obama Administration is doing. If anything, it is further eroding confidence in U.S. debt instruments by fueling inflation and pushing even more regulation to benefit bad risks.
So, while you are right to be angry, I’m not sure either AIG or its trading partners are the proper target. Sure, there was a lot of money made there and it seems like the fatcats are getting away with it again, but if the fatcats go away and invest in, say, China or Russian or Singapore, you and I are in a world of hurt far beyond this bailout. The liquidity simply won’t be there for cars, mortgages, capital improvements, business expansion, education grants, and people won’t be able to buy our homes at even the price we paid for them, let alone a profit. It isn’t fair but once the government started distorting the credit market, it was all pretty predictable.
One of the problems with a notion of American exceptionalism is that it often goes beyond the idea that we have a destiny as a city on a hill. Some believe that we don’t have to follow normal rules in economy and that we can, by virtue of our exceptionalism, try the same idiotic socialist tactics that have sunk other countries without failing ourselves. We deal a lot in fantasies nowadays: Look at American Idol, at legal fictions like two daddies, unborn baby not human, men and women identical and so forth. We as a society are divorcing ourselves from reality and American economics is no different.
Now I’m sure I have not adequately stated the situation. As I wrote above, I’m no financial expert but it seems to me that the problems are so systemic that no one party or groups of parties to this house of cards bears the full blame. We certainly should resist demonizing a middleman, especially if that middleman is vital to our continued viability as a nation. We can start by demanding Congress get itself out of the social engineering by financial fiat business. The people thinking up these social engineering ideas are the ones getting caught now cheating on their taxes, abusing privileges, lying through their teeth, and pointing fingers at anyone but themselves. Most businesses don’t trust incompetents to handle their finances and we taxpayers need to do the same. We need to find ways to get Congress out of the business of micromanaging the country, of meddling everywhere and of confiscating taxpayer funds to further their personal agenda instead of the nation’s. I’m hoping we can do this without calling a Constitutional Cenvention but even that may be necessary to rein in this profligate Congress with our all-too-willing president. We need to sue and sue again to define Congressional authority. We need to find ways to impose term limits on those professional politicians who brought us this mess. We need to find ways to make Congressmen and Senators answerable to the nation as a whole rather than to their specific constituents. The political system is broken right now because the Founding Fathers envisioned an educated, honorable electorate choosing its best people from among them to hold office for a limited period while taking a break from their “real careers”. We have strayed so far from that standard that the trust given to Congress is no longer warranted. Now we have elections of media creatures fueled by millions of special interest dollars with little or no accountability to the people as a whole.
What can we do to control this behemoth? A lot probably. We can hold politicians’ feet to the fire. We can use the internet to expose hypocrisy and corruption. The President is writing a book for kids. We can write books for kids. We can counter bad education with good education at home and in the public fora. We can stop being cowed into silence by the liberal furies. We can speak of our faith in the country, its people and God at every opportunity we can. We can, perhaps, hold hearings in the form of forums or panel discussions on the behavior of our politicians. We can write letters to the editor, have our own pithy bumper stickers which teach more than insult. We can educate ourselves about the values that make this country work. We can find and fund true conservative voices willing to speak out and create organizations to help them move further to the right like MoveOn.org is doing to move Dems to the left. There’s lot to do and it will take a long time but it might come faster as more Dem chickens come home to roost and we help the public see they are Dem chickens. The next election isn’t far away and we can help people see the Dem complicity in all this between now and then.
Okay, rant off. I must get a little more sleep before the usual Saturday marathon begins or this normally sane person might blow a fuse. Sitting on my desk here at home right now is a WW2 Japanese bomb detonator. My nerdy husband found it this week at a secondhand electronics joint and thought it would make a nice decoration or paperweight. I’m going to use it to help remind me that getting mad and blowing up isn’t very constructive. ;o)
Even if the punitive surcharge would be allowed to stand based on a tradition of judicial deference to Congress on tax matters, it is clearly in the nature and the spirit of a bill of attainder. Just listen to the demogagues talking about it. It may as well be the French Revolution.
One of the most important themes I picked up in law school is that American judges can look past the names people give things and perceive what they really are (when they choose to do so). Whether this is a Bill of Attainder, it is exactly the sort of thing the clause about Bills of Attainder and Ex Post Facto laws was intended to prohibit. The founders probably never imagined that we would have an income tax that would provide an umbrella for this kind of punitive seizure from a small and well defined class of targets.
include banks, brokers, pension funds and other gamblers who paid premiums to AIG in order to insure the value of their bond portfolios against calamitous losses.
If the ‘bond portfolios’ were such a big risk, banks, brokers, pension funds should have stayed out of them.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.