I read about the way Obama's soldiers have tried to blame poor Chris Dodd for the AIG bonus scandal, even though the true fault lies with Geithner. I also read this piece, which describes Governor Eliot Spitzer's attempt to expose the rot setting into our nation's financial foundation. And right now I'm reading this piece by Matt Taibbi in Rolling Stone, which contains this lovely line:
AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror.As I said: I'm reading. I'm reading this and reading that -- and, like you, I plan to go on reading for a long time. But I still don't understand one basic point:
AIG insured the crap financial instruments issued by big banks. Those crap instruments were based on crap loans. Soon the Tower of Crap toppled and AIG couldn't pay. Sometimes there's just too much crap. Thus, Uncle Sam (in essence) bought the company and took on its obligations.
Shouldn't that be it?
Why is Uncle also tossing more money at the big financial institutions (B of A, UBS, Merril Lynch and so forth)? Won't the insurance cover the losses? Isn't that what insurance is for?
Let's say someone steals your car radio. The loss is covered by your policy -- but your insurance company, Golden Fleece, goes bust and can't pay. So I buy Golden Fleece and pump cash into it -- enough cash to assure that the firm can cover its many obligations. Now when you ask Golden Fleece for your radio money, they can say: "No prob. One car radio coming up." So what gives you the right to come to me separately and say: "Hey, can you help me out here? I'm dyin' without my tunes..." I mean, aren't you asking for two car radios?
Maybe there are problems with my reasoning. I will be very happy to hear your explanation for the "two radios" conundrum. Note, though, that former Governor Eliot Spitzer made pretty much the same point:
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.I see two radios here. What do you see?
I'll leave you with these further thoughts.
1. Have you noticed that the Republicans have stopped using the phrase "ownership society"? That phrase has a nasty ring at a time when so many are going into foreclosure. Indeed, that phrase may have been intended to encourage people to buy houses they could not afford.
2. Paul Krugman:
At every stage, Geithner et al have made it clear that they still have faith in the people who created the financial crisis — that they believe that all we have is a liquidity crisis that can be undone with a bit of financial engineering, that “governments do a bad job of running banks” (as opposed, presumably, to the wonderful job the private bankers have done), that financial bailouts and guarantees should come with no strings attached.That last sentence explains why I consider radio oafs like Alex Jones worth talking about, although I understand why Krugman and other well-known pundits prefer to expend their breath and ink on more rational personages. Jones is Mr. Crude Populism. And there are a lot of other crude populists out there. History teaches us that fringe weirdos can seize an opportunity when the center no longer holds.
This was bad analysis, bad policy, and terrible politics. This administration, elected on the promise of change, has already managed, in an astonishingly short time, to create the impression that it’s owned by the wheeler-dealers. And that leaves it with no ability to counter crude populism.
German history, to be specific.
8 comments:
Joe, the 2 radios is as good an analogy as I've heard. That's an explanation the American people can easily understand. Regarding the Alex Jones' stuff. Like Obama said, crisis creates opportunity. But it looks like this crisis is gonna be an opportunity for the Republicans to say "We told you so". I still say they let the Democrats win it last year. They didn't want to be saddled with this mess and we all know its been known for a while now. Its the losers who voted for Bush twice and fell for the media hype of Obama. Just wait until citizens find out our troop buildup in afghanistan is to protect the Chinese as they mine for copper in Afghanistan. We're placing our troops along the route that China plans to buils a railroad to get that copper out of the country. Those loans are getting very expensive.
Or maybe we are going to put a strangle hold on that Iran - China trade route (oil too!) so the Chinese will keep buying our lousy endless bonds....
The two radios? Try one hundred radios. That's how much AIG has guaranteed - or covered by their "insurance". Let's say it's 50 trillion dollars (or could be, as things keep spraling down and more and more of those insured bets go bad). Every month we have to shovel in more money to pay off those insurance claims to the banks. Or the whole banking ediface crashes.Yup.
A better image may be Uncle Sam kneeling at the ocean's egde as the tide comes in, desperatly shoring up his crumbling sand castle as each wave washes in, washes in, washes in. And the taxpayers children's money and futures (and the value of our currency) washes out, washes out, washes out.....
AIG's sale of credit default swaps allowed not only you (who owned and had an insurable interest in the radio) but every neighbor on your street to purchase insurance on YOUR radio, essentially giving them all a motivation to hope that your car was burglarized.
I have yet to hear a plausible explanation as to why naked short selling is legal.
I have one kelluva point of view about all that.
We are under attack by “Economic Espionage”.
some players are father and son teams
Frank Wisner and Frank Wisner Jr., G Bush and his osns help out.
Old Frank to be frank, helped midwife the CIA, and Old Frank helped midwife “Operation Paperclip” and injected the Nazi poison into our system.
Old Frank was suicided (not sure if it was self inflicted or not) because he was too chummy With Kim Philby in the early halcyon days of the CIA, and before it was discovered that Philby was a Stalinist and was in constant communication with the Kremlin about CIA matters. Wisner was suicided after the discovery.
Young Frank Wisner is CIA and sits on the board of AIG (which is a haven for CIA dudes, semi retired, or those that have gone into the many legitimate businesses beyond count now.
“Economic Espionage” is the name of the game and just so happens to be the Wisner expertise. It was worked in Viet Nam and domestically it was worked in the S&L banking collapses times ten, in the late 1980’s with no holler from the public at all and cost us several hundred billions way back when. (See Pete Brewtons "The Mafia, the CIA and George Bush" and the looting of the banks)
Poppy Bush deregulated the bannks in the early eighties and our bought and paid for Congress has followed his suit ever since having ignored the disaster of the S&L's (since we let them slide since we don't read books like Brewton's..the only journalist to dare report on it at the time and the only publisher that would publish it at the time shhheeesh)
The first thing you have to remember is that there are two parts to these entities, a black part and a white part. The white part is significantly larger than the black part and therefore the other department doesn't seem to exist for the outside world.
Well that worked just fine so they are doing it again. Why not? Only this time it is done with the intention of total destruction of the United States economic infrastructure, hence the entire world's.
Why? you may wonder?
There are whisperings (from China and other nations) for the creation of a world wide currency to peg all the systems into one global system, so they have to try to bring U.S. down, down, down so we will “sign up” because we are scared.
Insurance industries are wonderful for things like that, because they are very successful and make lots of money, it is easy to add an anti-insurance. AIG insures bank loans that have been over leveraged on purpose in order to blow the balloon up to an unmanageable size and that was filled with the hot air of most of the industrialized nations as co investors..not realizing the fragility of the “enterprise”,er, investment. It's really through the looking glass. So economic terrorism and anti-terrorism are combined in the same entity.
Since the anti-terrorism will grow rapidly when you apply the terrorism part, it means that the anti-part is always many times larger than the real objective and it becomes incredibly difficult to spot if you look at the problem directly, so look at it in normal context and then look at it in the anti context.
side note, Kroll is a subsidiary of AIG now and was sqallowed up after 911. It was the security company that was in charge of the seven buildings that day. It was Poppy's privatized CIA security company, back in the day he was director.
Re: the two radios thing.. my understanding has been that the sheer volume of investments is so overwhelming that what has been effectively bought thus far is on the scale of putting one radio on layaway. Keeping in mind the amount of physical US currency in circulation is less than a trillion dollars, when you read things like "The AIG Financial Products division headed by Joseph Cassano had entered into credit default swaps to insure $441 billion worth of securities originally rated AAA." this is all a result of the whole 'fractionalized reserves' banking system. It seems to me that part of the problem here is that these financial institutions were holding questionable assets as their 'reserves' - such as AIG insurance against potential losses on their mortgages and loans. When the 'reserves' are no longer anything remotely like hard currency, we reach a point where the financial tight-rope walk of wealth being exponentially created by means of re-loaning money out ad nauseaum comes to the point of absurdity. And from my layman's perspective, this approach of the Treasury to buy Treasury Bonds sounds like an illusory solution to a delusional problem - it seems like they're creating more "money" by having the federal government pull money out of it's left pocket and "pay" it to it's right. The fact that it's reached this point of ridiculous complexity gives me feeling people having been gaming this system for quite some time now, and the house of cards they've been building has been playing a critical supporting role in the facade that is our economy. But of course, we shouldn't focus on the past or try to assign blame. We should be keeping our eyes boldly on the glorious future, because anyway all the experts say this should all turn around by Fall and things will be peachy before you know it.
Another great post and the two radios analogy is perfect. That's why finding out what AIG did with the money, who they paid was so important. So now we know that Goldman Sachs, which has done well out of this debacle, for example got paid not only from TARP, but also from AIG. So why did they need the money from TARP?
What I can't believe is that AIG is still paying bonuses -- quarterly. And has no plans to stop.
As for where the money went, a lot of people took equity out of their based on inflated prices and just lived on it. One story I saw early on had a lady who took a second mortgage to get equity out of her home. She had lost her job and after she got the second loan, did not worked for years. She clearly spent the money on living expenses, including mortgage payments for awhile. She finally had spent it all and was losing her home. Well, yes. That would happen, unless you use the time that tactic bought to give you a chance to find another job. I have seen several similar stories since.
djmm
Thought question for the day: Why is AIG's contractual obligation to pay bonuses to the whiz kids who got us into this mess somehow more sacrosanct than GM's contractual obligation to fund pensions and retiree health benefits?
I'm with Nell.
All the neighbors bought insurance on the one stolen radio, and the insurance company you just bought is using your money to pay them for THEIR supposed loss, too.
Carolyn Kay
MakeThemAccountable.com
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