If you are into this type of thing and want some very interesting reading there is a damning Bloomberg article on how the former CEO of Goldman Sachs (GS) "saved AIG" and the first batch of money went in large part directly to Goldman Sachs (GS) and Morgan Stanley (MS). It will get the blood boiling if this is your type of thing - so essentially your tax dollars went from your pocket to Goldman and Morgan via a quick pit stop at AIG.
- Sept. 29 (Bloomberg) -- As much as $37 billion from federal bailout loans to American International Group Inc. has gone to investment banks including Goldman Sachs Group Inc., the firm Treasury Secretary Henry Paulson used to run.
- ``It was the biggest crisis ever -- if you're an investment bank,'' said Joshua Rosner, a managing director at investment research firm Graham Fisher & Co. in New York. ``We didn't just save AIG. We saved the counterparties, the banks. It's true that it would have been a disaster, but it would have been a disaster for them.''
- Paulson's successor at Goldman, Lloyd Blankfein, was the only chief executive at a meeting Sept. 15 at the New York Federal Reserve Bank at which the troubles at AIG were discussed, although representatives of other firms were present, a Fed spokesman said.
- The payments show how bailouts engineered by Paulson and Federal Reserve Chairman Ben Bernanke are beginning to shift money to Wall Street firms involved in subprime mortgage trading.
Again, this insurance was in theory supposed to be for people who actually HOLD debt - BUT Lehman (just one example of many that this game was played against) ONLY had $158B worth of bonds, but there was more than DOUBLE the amount of "insurance" against the debt. Meaning each bond was "insured" (cough) twice. No different than naked short selling really when for each share in existence, there are multiple shares "created" and bet against it so the supply / demand equation is completely out of kilter. That (naked short selling) was ok too, as long as the investment banks and their customers were profiting from it - only when the naked short selling turned on them, did they run to Capital Hill and the White House to get it changed. What a crock.
SEC Chairman Cox's past history? He's a former Congressman. Just what was needed...not.
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Hedge funds, which have been selling stock endlessly to meet client redemptions, must be frothing at the mouth for next Tuesday, Oct. 21. That’s payday for everyone who took out insurance against Lehman Brothers' bonds. And bear-raiding hedge funds took out a heck of a lot of insurance against that investment bank.
In fact, while Lehman Brothers [LEHMQ 0.067 
-0.013 (-16.25%) ] sold only $158 billion worth of bonds, the SEC allowed hedge funds to take out $365 billion in insurance.
This was all part of the short-sellers grand – and legal – plan to bring down Lehman, Cramer said. Hedge funds bought the insurance knowing they could push the stock down virtually unrestricted, spurring the ratings agencies to downgrade Lehman, further inciting fear, and on and on until the company collapsed. The fact that the U.S. government said it was done saving investment banks only aided the hedge funds’ cause. To them, that insurance was money in the bank.
Guess which company probably did the most underwriting of said insurance. Yep, AIG [AIG 2.27 -0.16 (-6.58%) ]. That means the U.S government, which now owns most of AIG, will most likely spend next Tuesday cutting checks to the hedge funds involved. Cramer thinks this payout will erase whatever value might be left in AIG’s common stock. So the company’s going in the Sell Block.And this doesn’t even take into account the myriad other issues at AIG. Watch the video for Cramer’s take on last December’s analyst meeting, executive bonuses and company junkets and other legally challenging activities at the insurer.
7 comments:
wow, how does the small guy have a chance?
I thought corruption was a thing of the developing world, but it's done here on a much bigger scale, under the umbrella of the US govt, and an official face ie Paulson etc.
Almost makes me throw up and give up.
Have you watched - Zeitgeist, The movie?
I would love your perspective on that, i watched most last night and am very confused in terms of what to think of the future.... is this doomsday scenario, depression, inflation, food shortage, war, going to play out?
Talked to a guy in San Fran who sat beside Perkings(economic hitman) on a plane once. Told me shocking stories....
Cheers
I couldnt be much happier for this, let them live recession style just like they put America in. Quote from Ray Finkles mom: they should die of ghonnorhea
woops, this post was made for the 10000 hedge fund layoff, I didnt mean taxpayers, big woops, lol
never heard about that movie
corruption is in all governments - we just do it in a more sophisticated way
there is very little transparency in our government and even when watchdogs cry out the American people don't care to pay attention, so the foxes live it up. Fannie and Fredie have been warned about for over a decade - but they were the 2 biggest lobbyist contributors to political campaigns. Really this special interest funding for political campaigns is the crux of so many problems it is amazing. Money always buys influence so that will never change but I have read the lobbyist population has grown something like 20 fold over the past decade or something huge - don't quote me the number but the scale is immense. While we're told "we're reforming it"
It just makes you want to move to some remote corner of the US and do your thing away from powers that be sometimes. I wish more Americans would read up and self educate because until they agitate against it, it will continue. But it appears to not be a concern for most. A lot of people struggle enough with just getting by day to day.
Don't know why you refer to the credit default swaps as naked shorting. It is more like buying put options on lehman's debt. In fact that is EXACTLY what it is. And last time I checked, buying puts is not considered 'wrong' or illegal (whether you own the stock/bond or not). The people hurt by this are the idiots that thought they could sell an infinite amount of insurance that will never be exercised (in comes AIG).
I was listening to Robert Reich on NPR the other day, and I got the impression that credit swaps were just a form of insurance in the event the loan (or in the case of these packaged derivatives) loans defaulted. I was surprised that TM mentioned they could be used to game the system. So I checked on Wikipedia..... There are several ways hey can be manipulated... But, while there, I found something of interest regarding Mr. Buffet.
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Warren Buffett famously described derivatives bought speculatively as "financial weapons of mass destruction." In Berkshire Hathaway's annual report to shareholders in 2002, he said, "Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counterparties to them. In the meantime, though, before a contract is settled, the counterparties record profits and losses--often huge in amount--in their current earnings statements without so much as a penny changing hands. The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen)." The same report, however, also states that he uses derivatives to hedge, and that some of Berkshire Hathaway's subsidiaries have sold and currently sell derivatives with notional amounts in the tens of billions of dollars.[20] Berkshire Hathaway, with a market capitalization of $196 billion[21], certainly does have enough equity to collateralize or guarantee these contracts.
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jegan
Sia they are like naked puts. My only reason to reference them as naked shorts was it makes no sense to insure MORE than the outstanding debt. The idea of insuring debt is the person who owns the debt takes out insurance. So when people who don't even own the debt take "insurance" it strikes me a lot like naked shorting. But yes they are like naked puts in terms of how they "work".
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