The Automatic Earth

You're Being Played

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It's high time to divert your attention from AIG bonuses, and to focus on the entire system. The one that's cost you $2 trillion, not just $165 million. Time to look at Goldman Sachs and Morgan Stanley, at the people who run those operations. At the role played in the whole scheme by the revolving door crowd of Henry Paulson, Tim Geithner, Robert Rubin, Lloyd Blankfein etc etc., who were all actively involved in the creatively innovative deals of the past decade that have led to the government spending $2 trillion on their firms. Actually, there are the very people who, once they entered government, obtained the power to spend your cash to cover the losses they had incurred -for their companies- while working in the private sector.

The present anger is being controlled by spin doctors. You're being played. They are very good at what they do. They want nothing more than for you to focus on a bunch of AIG minions, so your attention can be drawn away from their masters. Are you going to let that happen? The AIG bonus receivers should be fired, of course. But many of the higher-ups need to be prosecuted. The problem is that they presently hold the reins of power. Perhaps that is where your anger would be far more useful.

I did inhale.

"The Real AIG ScandalIt's not the bonuses. It's that AIG's counterparties are getting paid back in full.
By Eliot Spitzer
Posted Tuesday, March 17, 2009, at 10:41 AM ET

American International Group Inc. Click image to expand.AIG's Manhattan, N.Y., office. 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.

But wait a moment, aren't we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won't be laid off. Why can't Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, and aren't they sitting on more than $100 billion in cash? Haven't we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn't they have accepted a discount, and couldn't they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?

The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.

So here are several questions that should be answered, in public, under oath, to clear the air:

What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?

Was it already known who the counterparties were and what the exposure was for each of the counterparties?

What did Goldman, and all the other counterparties, know about AIG's financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn't they bear a percentage of the risk of failure of their own counterparty?

What is the deeper relationship between Goldman and AIG? Didn't they almost merge a few years ago but did not because Goldman couldn't get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG's business model was not to pay on insurance it had issued.

Why weren't the counterparties immediately and fully disclosed?

Failure to answer these questions will feed the populist rage that is metastasizing very quickly. And it will raise basic questions about the competence of those who are supposedly guiding this economic policy.
http://www.slate.com/id/2213942/

A peoples revolt, that is. The bonus thing makes people angry, and rightfully so. Its another outrage in a long, long line.

But many were outraged that the auto companies wanted a gov loan of 15 billion, too. Even though that could conceivably save their neighbors job and home.

Perhaps the simplicity of the act of these execs --some of whom have already left the firm-- getting contracted(?) 'bonuses' when it was they who participated directly in the current financial chaos explains the reaction. But hell, if torturing in your name, killing a million civilians in your name, indefinite detention of citizens in your name, all while spying on everyone doesn't get people to coalesce around a cause, what possibly could?

Bush was re-elected. I think that says it all. Americans have been played so well for so long they really are nothing if not harmless to the ruling class.

excellent -that's quintessential first advice. look bigger, and away from whatever's sanctioned. the herd chute gets more bruising every day, and more conspicuously.

obama, being unable to block the bonuses, had an opportunity to bring it all out on the table. he expended his own political capital right then. the anger reaction was to that. he in effect stopped short. disclosure's too big a price.

the herd chute gets more damned every day.

and by what obama keeps employed or in reserve do we see his decision tree.

it's an ugly big picture, and has been illuminating the past as well, (um, well, like this snapshot from 2006) all of which though is ultimately a Good Thing that we may have, somehow, a better future. ultimately. but our immediate focus is always a question. (in 'apocalypse now', col. kurtz targeted the right handful of people and immediately pacified a whole area. he took that thinking upon himself and went crazy. we have vets returning home now in such states.) we are dealing with piracy, not demons or ideology or religion or class war or timewave zero even. we need prosecutors. militarization of law needs more than constitutional lawyers, it needs be met by charges. all around. when [judicially] stymied, those facts need be on the table. the Federal deserves all the attention it's getting. all the pirates do. until they all are broadly, rather than singularly and episodically, will they not be less encouraged. obama's general disinclination to prosecute will continue to betray and damn him and task him. strengths of motivations here is hugely unbalanced and prosecutions, if any, are unfortunately more likely to happen for the most machiavellian of reasons.

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we need prosecutors. we need transparency. worldwide piracy, financially and militarily and morally can only be deterred if met that way and broadly and uniformly and immediately, and most importantly, locally. in a zone defense as it were.

the horror, the horror

the realpolitik thinking of the past 40+ years has been fatally flawed and it's got to be stopped by being laid out. had jimmy carter done that we might not have iran/contra, but i digress, sort of... the disreality of any future realpolitik thinking in the future will only be restrained by force of living local law. a worldwide economy with no worldwide government has always been tempting to and challenged by worldwide piracy...

your comment here got me on far too long a tear, but consider that a compliment to how prompted i was. i went afield and learned about the MOI index for one thing, Chris Hohn for another, and and and -well, i wasn't looking at AIG related stuff, which was the point. oh, i did see one link about it being a nonstory story.

The Death of a Brand.

IMHO, there's collusion in those contracts and there's no-way the taxpayers should be saddled with them! AIG parlayed losses to the taxpayers and reaped profits--and they do believe they'll get away with it. One can only trust that the law has a different interpretation of their shady dealings.

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AIG chief asks for bonuses back

The boss of US insurer AIG has called the bonuses paid to executives "distasteful", but said he asked some recipients to return at least half.

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If executives agree, it does reduce the amount, but AIG needs to come up with at least one good reason why any of it is picked up by taxpayers.

I wrote two words: "moral hazard" ages ago, because that was what happened ...

_{--Sell Alaska to China!}

AIG stock price has increased in few days from 0.40 to 1.38

Just to remind that somebody know what happens but of course it is not in the news or in/on the blogs.

_{--Sell Alaska to China!}

Like a violin. They see the Obama plan working and need to divert attention from good news. Markets up 1000 points in eight days, commodities coming back, refis at records, retail coming back, new construction up 22%. But does that get covered? No. What bad news will they find for next week?

The Market Ticker, By Karl Denninger, April 2

(Credit Barry Ritholtz and Institutional Risk Analytics, the original source)

WHOAH!

In fact, our investigation suggests that by the time AIG had entered the CDS fray in a serious way more than five years ago, the firm was already doomed. No longer able to prop up its earnings using reinsurance because of growing scrutiny from state insurance regulators and federal law enforcement agencies, AIG’s foray into CDS was really the grand finale. AIG was a Ponzi scheme plain and simple, yet the Obama Administration still thinks of AIG as a real company that simply took excessive risks. No, to us what the fraud Bernard Madoff is to individual investors, AIG is to the global financial community.

As with the phony reinsurance contracts that AIG and other insurers wrote for decades, when AIG wrote hundreds of billions of dollars in CDS contracts, neither AIG nor the counterparties believed that the CDS would ever be paid. Indeed, one source with personal knowledge of the matter suggests that there may be emails and actual side letters between AIG and its counterparties that could prove conclusively that AIG never intended to pay out on any of its CDS contracts.