Exclusive: Big Banks' Recent Profitability Due to AIG Scam? 132 comments
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Zero Hedge is rarely speechless, but after receiving this email from a correlation desk trader, we simply had to hold a moment of silence for the phenomenal scam that continues unabated in the financial markets, and now has the full oversight and blessing of the U.S. government, which in turn keeps on duping U.S. taxpayers into believing everything is good.
I present the insider perspective of trader Lou (who wishes to remain anonymous) in its entirety:
AIG-FP accumulated thousands of trades over the years, all essentially consisted of selling default protection. This was done via a number of structures with really only one criteria - rated at least AA- (if it fit these criteria all OK - as far as I could tell credit assessment was completely outsourced to the rating agencies).
Main products they took on were always levered credit risk, credit-linked notes (collateral and CDS both had to be at least AA-, no joint probability stuff) and AAA or super senior portfolio swaps. Portfolio swaps were either corporate synthetic CDO or asset backed, effectively sub-prime wraps (as per news stories regarding GS and DB).
Credit linked notes are done through single-name CDS desks and a cash desk (for the note collateral) and the portfolio swaps are done through the correlation desk. These trades were done is almost every jurisdiction - wherever AIG had an office they had IB salespeople covering them.
Correlation desks just back their risk out via the single names desks - the correlation desk manages the delta/gamma according to their correlation model. So correlation desks carry model risk but very little market risk.
I was mostly involved in the corporate synthetic CDO side.
During Jan/Feb AIG would call up and just ask for complete unwind prices from the credit desk in the relevant jurisdiction. These were not single deal unwinds as are typically more price transparent - these were whole portfolio unwinds. The size of these unwinds were enormous, the quotes I have heard were "we have never done as big or as profitable trades - ever."
As these trades are unwound, the correlation desk needs to unwind the single name risk through the single name desks - effectively the AIG-FP unwinds caused massive single name protection buying. This caused single name credit to massively underperform equities - run a chart from say last September to current of say S&P 500 and Itraxx - credit has underperformed massively. This is largely due to AIG-FP unwinds.
I can only guess/extrapolate what sort of PnL this put into the major global banks (both correlation and single names desks) during this period. Allowing for significant reserve release and trade PnL, I think for the big correlation players this could have easily been US$1-2bn per bank in this period.
For those to whom this is merely a lot of mumbo-jumbo, let me explain in layman's terms:
AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the U.S. Treasury Secretary Tim Geithner disclose the real extent of this - for lack of a better word - fraudulent scam.
In simple terms, think of it as an auto dealer which knows that U.S. taxpayers will provide an infinite amount of money to fund its ongoing sales of horrendous vehicles (think Pontiac Azteks): the company decides to sell all the cars currently in contract, to lessors at far below the amortized market value, thereby generating huge profits for these lessors, as these turn around and sell the cars at a major profit, funded exclusively by U.S. taxpayers (readers should feel free to provide more gripping allegories).
What this all means is that the statements by major banks, i.e. JP Morgan Chase (JPM), Citi (C), and BofA (BAC), regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.
For banks to proclaim their profitability in January and February is about as close to criminal hypocrisy as is possible. And again, the taxpayers fund this "one time profit", which causes a market rally, thus allowing the banks to promptly turn around and start selling more expensive equity (soon coming to a prospectus near you), also funded by taxpayers' money flows into the market. If the administration is truly aware of all these events (and if Zero Hedge knows about it, it is safe to say Tim Geithner also got the memo), then the potential fallout would be staggering once this information makes the light of day.
And the conspiracy thickens.
Thanks to an intrepid reader who pointed this out: A month ago, ISDA published an amended close out protocol. This protocol would allow non-market close outs, i.e. CDS trade crosses that were not aligned with market bid/offers
The purpose of the Protocol is to permit parties to agree upfront that in the event of a counterparty default, they will use Close-Out Amount valuation methodology to value trades. Close-Out Amount valuation, which was introduced in the 2002 ISDA Master Agreement, differs from the Market Quotation approach in that it allows participants more flexibility in valuation where market quotations may be difficult to obtain.
Of course, ISDA made it seem that it was doing a favor to industry participants, very likely dictating under the gun:
Industry participants observed the significant benefits of the Close-Out Amount approach following the default of Lehman Brothers. In launching the Close-Out Amount Protocol, ISDA is facilitating amendment of existing 1992 ISDA Master Agreements by replacing Market Quotation and, if elected, Loss with the Close-Out Amount approach.
"This is yet another example of ISDA helping the industry to coalesce around more efficient and effective practices, while maintaining flexibility," said Robert Pickel, Executive Director and Chief Executive Officer, ISDA. "The Protocol permits parties to value trades in the way that is most appropriate, which greatly enhances smooth functioning of the market in testing circumstances."
So in simple terms, ISDA, which is the only effective supervisor of the Over The Counter CDS market, is giving its blessing for trades to occur (cross) below where there is a realistic market bid, or higher than the offer. In traditional equity markets this is a highly illegal practice. ISDA is allowing retrospective arbitrary trades to have occurred at whatever price any two parties agree on, so long as the very vague necessary and sufficient condition of "market quotations may be difficult to obtain" is met. As anyone who follows CDS trading knows, this can be extrapolated to virtually any specific single-name, index or structured product easily.
In essence, ISDA gave its blessing for below the radar fund transfers of questionable legality. The curious timing of this decision and the alleged abuse of CDS transaction marks by and among AIG and the big banks, is striking to say the least.
This wholesale manipulation of markets, investors and taxpayers has gone on long enough.
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This article has 132 comments:
"US commercial banks lost $9.2bn on derivatives trades in Q4 08"
Have a read.
ftalphaville.ft.com/bl.../
When Goldman said they didn't need AIG to pay them I couldn't stand but laugh. They claimed all their positions were hedged. Probably so, by a another slew of faltering insurers who can't hope to cover their derivatives obligations. And then, probably after the fact AIG was going bust.
Anyway, there are a million ideas of how to avoid mark to market and/or find ways to book a transaction at an inflated price to raise the price of thousands of similar derivatives. It is a game that has been around for centuries. It's just funny to see the government so obviously involved in the price fixing.
These people need to be punished! Criminal prosecution for the banks and aig.
timothy G needs to lose his job!
There is no bull run its all based on fraud and lies. This is the story of the decade if true!
BTW, these aren't "bailouts", they're gifts. I think the word bailout needs to be exchanged with the word gift as it applies to this free money that's be backed by soon to be worthless stock.
This is a complete fraud.
I agree that the banks' recent trading profitability is a one-time event and AIG's loss is their gain. However, I wouldn't go as far as calling it a scam since it is more an unintentional side effect of intense pressure to quickly wind down FP rather than a concerted effort by AIG to "gift" its counterparties with profitable trades.
In an ideal situation, AIG would have enough time to unwind trades in a manner that maximizes profitability to its shareholders, and by extension, U.S. taxpayers. However, in this risk averse environment, it seems that the company is willing to pay an enormous premium to immediately extricate itself from exposure to more catastrophic losses.
let's see it in the msm...
If the CDS contracts are valued realistically, the unwind trades are at fair value.
We really need names and dates here -- I wonder if any of these same traders are now inline for interviews at GS?
On Mar 30 04:40 AM Sophomore_23 wrote:
> It's an interesting theory, but isn't it also possible that after
> the bailout, there was a lot of pressure from above for AIG FP to
> unwind its positions as quickly as possible no matter the price?
>
>
> I agree that the banks' recent trading profitability is a one-time
> event and AIG's loss is their gain. However, I wouldn't go as far
> as calling it a scam since it is more an unintentional side effect
> of intense pressure to quickly wind down FP rather than a concerted
> effort by AIG to "gift" its counterparties with profitable trades.
>
>
> In an ideal situation, AIG would have enough time to unwind trades
> in a manner that maximizes profitability to its shareholders, and
> by extension, U.S. taxpayers. However, in this risk averse environment,
> it seems that the company is willing to pay an enormous premium to
> immediately extricate itself from exposure to more catastrophic losses.
>
They chose (b), which requires shovelling hundreds of billions, if not trillions, into private for-profit companies, at the expense of taxpayers. Since the required amounts are much larger than can be announced in a transparent way without excessive public opprobrium, it follows that hidden or disguised bailouts on a massive scale have to be implemented, so this "news" is no surprise, and likely just the tip of the iceberg.
As to your statement "...... If the administration is truly aware of all these events (and if Zero Hedge knows about it, it is safe to say Tim Geithner also got the memo), then the potential fallout would be staggering once this information makes the light of day ......."; I personally doubt that the general public will have any interest in the arcane details of what is going on, and the potential fallout will be limited to academic discussions on sites such as this.
On Mar 30 03:10 AM the_feds_corrupt wrote:
> If this is true i expect the bull run is the fraud run!
> These people need to be punished! Criminal prosecution for the banks
> and aig.
> timothy G needs to lose his job!
> There is no bull run its all based on fraud and lies. This is the
> story of the decade if true!
Both the USG in the form of Treasury and the Fed as well as the financial sector have done nothing but try to hide the trading and investment actions and the values of their assets since this crisis began.
Now, apparently, they are all dealing with each other in massive insider deals that essentially rape the American taxpayer. But who's going to know if no one except these insiders can actually see the transactions among them?
The American public needs and deserves absolute transparency of the actions of the government that is suppose to advance its interests. If that occurs, the government will be less willing to make these horrendous, self-serving bailouts at taxpayers' expense, and progress can be made on a rational, balanced approach to rebuilding the financial marketplace. Until that happens, however, we will just be stumbling along, doling out trillions of taxpayer dollars to billionaires who either deliberately or through utter stupidity drove the financial sector into this massive hole.
What this guy's saying in a nutshell is that after the government started bailing out AIG, AIG started selling their interests in the stuff they were insuring(and more, keep in mind I'm just speaking in general as there are lots of different things that AIG has been dealing with instead of just insuring stuff that involves less risk) far below the fair market value to CITI, BOFA, yada yada, and those interests have been making the profits you have been seeing from CITI, BOFA yada yada.
On Mar 30 05:12 AM mikeg3 wrote:
> Could someone really parse that memo? I'd love to learn the jargon.
On Mar 30 04:40 AM Sophomore_23 wrote:
> It's an interesting theory, but isn't it also possible that after
> the bailout, there was a lot of pressure from above for AIG FP to
> unwind its positions as quickly as possible no matter the price?
>
>
> I agree that the banks' recent trading profitability is a one-time
> event and AIG's loss is their gain. However, I wouldn't go as far
> as calling it a scam since it is more an unintentional side effect
> of intense pressure to quickly wind down FP rather than a concerted
> effort by AIG to "gift" its counterparties with profitable trades.
>
>
> In an ideal situation, AIG would have enough time to unwind trades
> in a manner that maximizes profitability to its shareholders, and
> by extension, U.S. taxpayers. However, in this risk averse environment,
> it seems that the company is willing to pay an enormous premium to
> immediately extricate itself from exposure to more catastrophic losses.
>
AIG traders have no incentive to trade profitably since they work for the government under retention packages. Who knows, a few of them may be interested in being friendly with potential future employers as well.
THEY'RE BACK!!! Short Interest is over 18% on Citi!! Out to kill another bank and start this crap all over again. But we see you this time. Drive it all down again so I can buy more and drive it back up your chart.
"Accounting scandals have been replaced by coverage of Madoff, I have an easy time believing that at least some shenanigans are going on with the books of at least a handful of major U.S. corporations, driven by the crisis that is pummeling the markets."
--Seeking Alpha reader comment by mac.barron on 13 March in response to "It's a Winter Warming Spell - But More Snow Ahead for Markets" by Richard Shaw.
Moreover:
"Vikram Pandit’s recent letter to Citi employees was a nicely timed communication to his broader social and political audience. His upbeat note was plausible because he put down some very specific markers, e.g., “best quarter-to-date since 1997″; the danger is that these come back to haunt him."
"Indeed. Will any of us be truly shocked if a short time down the road "adjustments" are made to Citi's actual (filed with the S.E.C) quarterly results which will revel that Pandit's letter was just fakery?"
--Seeking Alpha reader comment by mac.barron on 22 March in response to "The Economics of Vilification" by Simon Johnson
So I was right about the buggery of the books but wrong in that, technically, there actually may have been a profit for the bank. All I was sure of was that something was rotten. A big, gracious "thank you" to T.D. for putting the various pieces together.
ProShares UltraShort S&P500 (NYSE:SDS) anyone?
I got news for them. I think they have milked the cow too much. Now the cow is on the brink!
I very much appreciated this article however, and it certainly has confirmed my suspicion that we are going to be in deep ___ as long as the bankers are wagging the dog.
These guys make Houdini look like a clumsy lout.
On Mar 30 06:41 AM morph366 wrote:
> Excellent reporting - I wonder how much of trader Lou's observations
> could be documented in a manner that anyone in Congress would understand.
The real problem at AIG-FP was the ability to write these "policies" without having to post collateral. A collateral requirement would have prevented this from ever happening. Instead, leverage was infinite. Now everyone gets to pay and the bailout is really for speculators, which could have been banks, hedge funds or other market participants. Add that to the outrage.
This is just another example, true or not, of the public perception of corporate America - Little Empires controlled and abused by their CEOs and higher ranked company officals.
This has been going on for decades, has'nt it?
Enron, WorldCom, BS, LEH, AIG, etc. are the fallouts of excessive powers entrusted to the CEOs and their minions.
Rick Wagoner's ouster should be the catalyst for a chance to start disciplining corporate America's Little Empires.
It comes at a great cost to taxpayers' money. But who is going to do the cleaning of this corporate mess if the board of directors of said Little Empires have become the puppets of the CEOs?
"Because I Say So" valuation is in full effect.
After watching how Congress and Mega Biz (Too Big To Fail) operate, why would anyone be shocked by this?
Nothing like a bit of uncomfortable circumstance to pique interest in public affairs.
To Assume Benevolence Is Foolish.
The Complexity Of Corruption Is Vast.
I posted links to this article on Huffingtonpost, hopefully by spreading this article more we can force the mainstream media to cover this.
On Mar 30 12:32 PM Big Al45 wrote:
> Considering what we've elected, probably none of it could be understood
> by Congress.
One thing that won' recover is SekkingAlpha's reputation.
I have all these ludicrous, assinine articles bookmarked and I will be trotting them out in 3 mos 6 mos , a year. Its is going to be embarrassing to you, SeeekingAlpha editors, when I remind people that this was your featured article was for today.
Re-defined today as "sleight of hand" as practiced by the financial elite.
Reality Will Be Reality Whether Believed In Or Not.
Those who refuse to discuss where the lions are and whether they are hungry tend to become Big Kitty Snacks.
I prefer to hear BOTH ends of the spectrum and Seeking Alpha gives audience to many opposing views. It is up to the individual to determine who has the "Grains of Truth" and who is living in fantasy.
Pretend At Your Own Peril.
On Mar 30 02:10 PM notblind wrote:
> These times belong to the misfits and cranks, so these are the articles
> and comments that we need to put up with until the end of the crises
> sweeps you misfits back into the woodwork.
>
> One thing that won' recover is SekkingAlpha's reputation.
>
> I have all these ludicrous, assinine articles bookmarked and I will
> be trotting them out in 3 mos 6 mos , a year. Its is going to be
> embarrassing to you, SeeekingAlpha editors, when I remind people
> that this was your featured article was for today.
How can anyone, long or short read this transparent BS and not see right through it?
You think this joker is going to be around in 6 months? I am book marking these articles and you will be surprised at how what sounds reasonable to you now will be as ridiculous to you after a year as it is to me now.
And tell SeekingAlpha that serious investors are going to take the site off their reading list if they keep finding ludicrous foolishness like this as featured artcles.
Why am I wasting my time with this? better just not waste my time even reading these stupid articles or visiting the site.
Or mass unrest insues when the bailout of the Banks through AIG continues unabated and we finally wake up and realize the continuance of the scam.
Either way.....Dow 4000 or less here we come.
BUT - here you have the Paulson's of the world forcing taxpayers to feed the AIG payouts that were set up to fail since they knew they were going to send Paulson to the pulpit to get the bailouts.
They wouldn't of bought them from AIG without the wink wink that taxpayers would be lined up to empty their wallets.
and who the hell changed the rules to let people buy insurance on debt they don't own??? Would you feel safe if all your neighbors bought home insurance on YOUR home? You can bet they already have your hose slashed and gasoline dripping on the walls....
"Banks caught rigging the stock market using AIG bailout money"
How hard is that to understand?
(But hell may freeze over before a news anchor announces anything of the sort)
That said, there are several possible reasons that we see nothing to validate this articles hypothesis:
1) None of the authors allegations are true.
2) Better Financial Institution profitability is due to favorable credit spreads with relatively little positive benefit to Citi or BofA from the AIG trades(entirely possible).
3) There really is a Wall St - Government cabal to benefit the priviliged few (an option with heavy populist support).
4) The SEC misses its chance again (highly likely).
I, for one, will be carefully reading the 1st Quarter 10Qs.
These guys F__ked the country, and now they get to f__K the taxpayer to boot.
I doubt I am the only taxpayer who is getting bored with this.
On Mar 30 05:41 PM Kinabalu wrote:
> This is exactly the kind of situation the SEC should be monitoring.
> Two major financial institutions make positive mid-quarter comments on earnings...
I'll tell you one little thing I saw and that was the banks announce the sudden return of profitability. It would take a mental defective to believe that there wasn't overt manipulation behind that. Period.
Just how stupid is the American public supposed to be? I guess we are finding out
> As to your statement "...... If the administration is truly aware
> of all these events (and if Zero Hedge knows about it, it is safe
> to say Tim Geithner also got the memo), then the potential fallout
> would be staggering once this information makes the light of day
> ......."; I personally doubt that the general public will have any
> interest in the arcane details of what is going on, and the potential
> fallout will be limited to academic discussions on sites such as
> this.
a) nationalize the banks - that will happen after the last drop of good derivatives is in the hands of the same few players and all the bad stuff is dumped on taxpayers.
b) government would accelerate clearing the debts, instead government septupaling them. Combined with losing USA AAA rating by 2011-2012, a loaf of bread will be $10 along with a $15 gallon of gas, final nail in the coffin of USA financial system
I advised people to buy equities in April for five year buy and hold but that Washington would be the wild card. If your into commodities, go that route. I choose now a different path of what I consider necessary humanitarian work.
On Mar 30 11:35 AM vodop09798 wrote:
> Hey Folks,
> THEY'RE BACK!!! Short Interest is over 18% on Citi!! Out to kill
> another bank and start this crap all over again. But we see you this
> time. Drive it all down again so I can buy more and drive it back
> up your chart.
On Mar 30 12:32 PM Big Al45 wrote:
> Considering what we've elected, probably none of it could be understood
> by Congress.
That means, basically, that with only half the answer, and the solution being somewhere in the middle of that half, we still don't really know what will happen when this is all sorted out. If we allow the idiots to get away with what they did, and only go after the banks, then we are the ones paying for everything and the idiots get off scot free. And they are probably shorting all the bank stocks and running away with all those profits. Silly us, to be so hung up with name calling and finger pointing when we should be facing the other half of the problem instead.
www.bloomberg.com/apps...
We don' have a free market, we don't even have capitalism. the entire game is rigged and I think it's something the public should know about. I actually think if more people did some reading instead of watching dancing with the stars we would overthrow our government. Surprise surprise AIG was the biggest donor to Dodd.
Figures below are FICTITIOUS --- just as a model ...
1- AIG, as an insurance company, holds contracts with HIGH liability - let's say 60 cents liability on the dollar ( assuming the subprime papers are worth 30 cents in the Itraxx index).
2- The banks hold/own the actual subprime paper which is mark-to-market at 30 cents. But the banks believe that the value ( based on cash flow) is closer to 60 cents.
3- AIG keeps saying that their CDS is "senior"--- meaning that they do not have to immediately settle until a set condition ( example : only pay IF and WHEN the debt cash flow is interupted. So if the mortgages still pay 92% cashflow, AIG doesnot pay). But meanwhile, on the AIG books, the liability of 60 cents on the balance sheet show LARGE loss.
So the unwind:
4- IF AIG pays 20cents to the bank to close out the contract, AIG balance sheet shows a GAIN of 40 cents ( 60cents liability - 20 cents).
5- The banks never believed that their subprime paper was worth 30 cents. The banks always said that they are not selling at 30 cents. So let's say that they think that it is worth 60cents.
By receiving 20 cents from AIG, they bought the suprime paper for 100 cents, got 20 cents from AIG. So now that the banks can sell the subprime paper for 60cents. Sell for 60 cents + 20 cents AIG = 80 cents bank income... loss of 20 cents ( 100cents purchase - 80 cents income from sales and insurance).
6- Now Mr G. ( Treasury ) walks in with Hedge Funds - $1T Plan - ready to sweep all the subprime away from the banks at 70 cents!.
In Step #5 above, the banks get 20 real cents earnings by 'cancelling' their insurance held by AIG. AIG 'makes' 40c or avoid loosing 40c ( 60 cents liability - 20cents paid). The banks never believe that the insurance is worth 60 cents, but they could not claim it either ( the banks were getting cash from the mortgages)
Zero Hedge is seeing all these unwind transactions at below value, BUT WHOSE VALUE IS TRUE... the market maker value ( Itraxx index?) or the value that the two parties agree to close out their liability? This CDS over the counter market is unregulated, remember? There is nothing that stops one party to accept whatever value agreed by both parties to unwind their own transactions.
When you have a car accident and the adjuster gives you a value for the repair, you can always negotiate a settlement price and turn in the damage car. The subprime papers are being adjusted to be traded in.
We should remember that the 'Banks Gains' are partly reversal of "loss" that they alreay took in 2008. The AIG gains are reversal of write-downs / reserve that they took in 3Q and 4Q 2008. The real 20cents that they transfer to the banks are capital that AIG will collect when they sell their other divisions ( airplane leasing...). AIG looses Broadwalk in the monopoly game; the banks' real losts are 100cents on the dollar minus what they get selling to the Treasury+Hedge Funds.
The CDS market loose the VOLUME of business on naked CDS. there will always be covered CDS on real bonds, but the insurance company will need to post real capital to cover potential claims.
Estimates:
AIG took a loss of $60B in 4Q2008. And we know that they decreased their CDS portfolio from 2.3T to 1.7T = delta $600B. So in round figure they paying 10 cents per portfolio dollar ( 60B / 600B) just to close out the CDS contracts.
On Mar 30 08:25 PM Ronald Pires wrote:
> Unfortunately all of this appears to be completely legal, which gives
> credence to those naysayers who suggest that the laws can never catch
> up with the markets. I'm afraid the only way we will get any justice
> here is to go after the individuals involved with an IRS sledgehammer.
> As many of the Obama nominations suggest, it is quite dificult to
> make this much money without inadvertantly doing something illegal.
> Many of us will not see this however, as it is difficult to read
> the financial pages while selling apples on streetcorners.
On Mar 30 05:41 PM Kinabalu wrote:
> This is exactly the kind of situation the SEC should be monitoring.
> Two major financial institutions make positive mid-quarter comments
> on earnings. The SEC should be asking for expanded disclosure in
> the next 10Qs to address the basis for the comments and any divergence
> in the remainder of the quarter.
>
> That said, there are several possible reasons that we see nothing
> to validate this articles hypothesis:
> 1) None of the authors allegations are true.
> 2) Better Financial Institution profitability is due to favorable
> credit spreads with relatively little positive benefit to Citi or
> BofA from the AIG trades(entirely possible).
> 3) There really is a Wall St - Government cabal to benefit the priviliged
> few (an option with heavy populist support).
> 4) The SEC misses its chance again (highly likely).
>
> I, for one, will be carefully reading the 1st Quarter 10Qs.
On Mar 30 06:33 PM Jason Rines (iThinkBig) wrote:
> No, they understand now. The larger of them that were directly involved
> face blackmail. The inept are now also culpable. As I have stated
> here for over a year, watch Washington and that we would have voter
> revolution by 2012. Not all in the population just sit back and watch.
> Some of us understand the counter as these events are not new in
> the USA or Europe, it's called a marketing solution to a monetary
> model problem.
On Mar 30 05:41 PM Kinabalu wrote:
> This is exactly the kind of situation the SEC should be monitoring.
> Two major financial institutions make positive mid-quarter comments
> on earnings. The SEC should be asking for expanded disclosure in
> the next 10Qs to address the basis for the comments and any divergence
> in the remainder of the quarter.
>
> That said, there are several possible reasons that we see nothing
> to validate this articles hypothesis:
> 1) None of the authors allegations are true.
> 2) Better Financial Institution profitability is due to favorable
> credit spreads with relatively little positive benefit to Citi or
> BofA from the AIG trades(entirely possible).
> 3) There really is a Wall St - Government cabal to benefit the priviliged
> few (an option with heavy populist support).
> 4) The SEC misses its chance again (highly likely).
>
> I, for one, will be carefully reading the 1st Quarter 10Qs.
Politically, it is much easier to keep giving money to the "evil AIG" , which will eventually be non-existant, rather than more and more bailout funds to the banks, which would alarm the citizens. And it gives the appearance that the banks may be stabilizing after the injection of the TARP funds. (Even more so, with bankers saying they were ready to start giving back TARP money)
We know that AIG paid 13 billion to Goldman Sachs. Was using AIG to send funds to GS (or anyone else) the modus operendi for Treasury ? Whether GS received the money in the normal course of fairly and impartially deconstructing AIG is not known. (I know which way I would bet, though).
The banks claims of profits in Jan and Feb were viewed by many (including commentors on this site) as highly suspect. And recent statements by the same bankers that March has been "more difficult" certainly fit the outline of the memo. That is, the Jan-Feb profits were not real banking profits, but bogus money-funnelling profits.
If this is truly what is going on, the damage may be irreparable, as there will be no entity left in this country that has any integrity or credibility.
We are a society of law where contracts can't be broken for AIG bonuses, but they can be done for the UAW, in sports, and every other thing I know of. THINK ABOUT IT.
On Mar 30 04:11 PM Mennodus wrote:
> You can't change the rules while the game is still playing. These
> CDS contracts are crystal clear in terms of unwinding, and right
> now they have to be unwinded. So that is what AIG is doing. And that's
> what CDS' are for: protecting against bankruptcy. And like some
> other people said, like in any bankruptcy-like situation, if the
> positions are not unwound, that liability is still open. And if its
> open, its risk has to be assessed, and that liability is far more
> expensive than just closing down the position.
On Mar 30 09:16 PM Mr. Ed, Jr. wrote:
> There are certainly some reasons not to dismiss the memo....
> real banking profits, but bogus money-funnelling profits.
>
> If this is truly what is going on, the damage may be irreparable,
> as there will be no entity left in this country that has any integrity
> or credibility.
There never was an entity with integrity or credibility. It was a fiction all along that we believe like a fairy tale. Now we are just a bit more grown up.
On Mar 30 04:40 AM Sophomore_23 wrote:
> It's an interesting theory, but isn't it also possible that after
> the bailout, there was a lot of pressure from above for AIG FP to
> unwind its positions as quickly as possible no matter the price?
>
>
> I agree that the banks' recent trading profitability is a one-time
> event and AIG's loss is their gain. However, I wouldn't go as far
> as calling it a scam since it is more an unintentional side effect
> of intense pressure to quickly wind down FP rather than a concerted
> effort by AIG to "gift" its counterparties with profitable trades.
>
>
> In an ideal situation, AIG would have enough time to unwind trades
> in a manner that maximizes profitability to its shareholders, and
> by extension, U.S. taxpayers. However, in this risk averse environment,
> it seems that the company is willing to pay an enormous premium to
> immediately extricate itself from exposure to more catastrophic losses.
>
"Let me try to understand the loop :
Figures below are FICTITIOUS --- just as a model ...
1- AIG, as an insurance company, holds contracts with HIGH liability - let's say 60 cents liability on the dollar ( assuming the subprime papers are worth 30 cents in the Itraxx index).
2- The banks hold/own the actual subprime paper which is mark-to-market at 30 cents. But the banks believe that the value ( based on cash flow) is closer to 60 cents..............."
This guy does a good job, but he's also the same guy who quoted a silly senator that claimed all money market funds were minutes away from being pulled back in September. That one was categorically false.
Believe what you want to believe. Just like religion, make believe may sound good but it ain't real.
"ISDA, which is the only effective supervisor of the Over The Counter CDS market, is giving its blessing for trades to occur (cross) below where there is a realistic market bid, or higher than the offer. In traditional equity markets this is a highly illegal practice. ISDA is allowing retrospective arbitrary trades to have occurred at whatever price any two parties agree on, so long as the very vague necessary and sufficient condition of "market quotations may be difficult to obtain" is met."
End of quote
_________
This from ISDA website: www.isda.org/
- ISDA, represents over 820 member institutions from 57 countries on six continents.- Members include most of the world's major institutions that deal in privately negotiated derivatives, as well as many of the businesses, governmental entities and other end users that rely on over-the-counter derivatives to manage efficiently the financial market risks inherent in their core economic activities.
- Among its most notable accomplishments are: promoting sound risk management practices, and advancing the understanding and treatment of derivatives and risk management from public policy and regulatory capital perspectives.
______________________...
I have some few questions:
1) How could AIG with the help of BAC, C, JPM take such a big part in manipulation of markets without the knowledge of 57 countries on six continents? The whole world was watching what if this happened? How stupid he World is supposed to be for not seeing this?
2) Those are some of ISDA´s Board of directors AND where they work:
- Eraj Shirvani - Deutsche Bank
- Diane Genova - J.P. Morgan Chase & Company
- Stephen O' Connor - Morgan Stanley
- Alan Haywood - BP OIL International
- Thomas Riggs - Goldman Sachs
- Gerhard Seebacher - Bank of America
Some of this names I have just read in author text, coincidence? believe or not.
3) Should't the SEC be monitoring this?
4) Where us "trader Lou" and the all press/media to cover this when it took place?
I personally would like to be aware of this history by mid-2007.
I could be less poor today, I and so could most U.S. taxpayers and many many investors around the world also.
______________________...
We should now be discussing criminal prosecution for these frauds and lies the past is gone.
Let´s holpe someone could provide some evidence of what was reported by the author, and culprits must have an exemplary punishment so that this does not happen again not in America not in any part of the world.
" The government had to make a choice: (a) nationalise the large banks and reboot, or (b) prop them up and save their powerful managers. They chose (b), which requires shovelling hundreds of billions, if not trillions, into private for-profit companies, at the expense of taxpayers. so this "news" is no surprise, and likely just the tip of the iceberg."
Something very similar did happen in the former Soviet Union 15-20 years ago. The first Russian president Boris Yeltsin together with a group of selected con-artists looted the entire state. The general population standards of living went down 85%. All savings were completely wiped out.
At the same time,using very sophisticated schemes,
- Zillions of US$ were transfered into offshore accounts of Yeltsin family members and close to president con-artists
- General population became impoverished
- Suddenly a new class of Russian oligarchs appeared. At least dozen Russian oligarchs immediately appeared in the Forbes 100 riches people of world. These oligarchs seized all most profitable companies and enterprises.
- To protect themselves and their loot, Yeltsin transfered all political power to the State Security Agency (a.k.a. KGB) and their boss A. Putin. Consequently, Russian people found themselves back in "state slavery times".
How was is done? It all was done under a slogan of "Democracy and Privatization".
"Privatization", in a nutshell, worked very simply:
- Privatization of most lucrative enterprises was done "privately" when billion-dollars corporations were transfered into "right" hands for just few millions dollars
- These "right people" got these millions dollars for free quietly from the State banks.
Our former president GW Bush was very good mind reader. He looked into Putin's eyes and recognized someone very close to him: the same gangster, liars and a thief.
WOW. America, you have selected the Russian way going to the future.
On Mar 30 02:38 PM notblind wrote:
> Opposing views are one thing, calculated drivel that feeds the mania
> of dumb money shorts who are about to get vaporised is another.
>
>
> How can anyone, long or short read this transparent BS and not see
> right through it?
>
> You think this joker is going to be around in 6 months? I am book
> marking these articles and you will be surprised at how what sounds
> reasonable to you now will be as ridiculous to you after a year as
> it is to me now.
That being said the taxpayer is still on the hook and this is something else that will anger Joe Public.
On Mar 30 10:10 PM CJJ wrote:
> Wake us all up when you have a shred of fact. Can't wait until bloggers
> save the world. Oh yea, you can't save the world sitting behind a
> computer.
> This guy does a good job, but he's also the same guy who quoted a
> silly senator that claimed all money market funds were minutes away
> from being pulled back in September. That one was categorically false.
>
> Believe what you want to believe. Just like religion, make believe
> may sound good but it ain't real.
On Mar 30 08:45 PM IsThisRight wrote:
> Let me try to understand the loop :
>
> Figures below are FICTITIOUS --- just as a model ...
>
> 1- AIG, as an insurance company, holds contracts with HIGH liability
> - let's say 60 cents liability on the dollar ( assuming the subprime
> papers are worth 30 cents in the Itraxx index).
>
> 2- The banks hold/own the actual subprime paper which is mark-to-market
> at 30 cents. But the banks believe that the value ( based on cash
> flow) is closer to 60 cents.
>
> 3- AIG keeps saying that their CDS is "senior"--- meaning that they
> do not have to immediately settle until a set condition ( example
> : only pay IF and WHEN the debt cash flow is interupted. So if the
> mortgages still pay 92% cashflow, AIG doesnot pay). But meanwhile,
> on the AIG books, the liability of 60 cents on the balance sheet
> show LARGE loss.
>
> So the unwind:
> 4- IF AIG pays 20cents to the bank to close out the contract, AIG
> balance sheet shows a GAIN of 40 cents ( 60cents liability - 20 cents).
>
>
> 5- The banks never believed that their subprime paper was worth 30
> cents. The banks always said that they are not selling at 30 cents.
> So let's say that they think that it is worth 60cents.
> By receiving 20 cents from AIG, they bought the suprime paper for
> 100 cents, got 20 cents from AIG. So now that the banks can sell
> the subprime paper for 60cents. Sell for 60 cents + 20 cents AIG
> = 80 cents bank income... loss of 20 cents ( 100cents purchase -
> 80 cents income from sales and insurance).
>
> 6- Now Mr G. ( Treasury ) walks in with Hedge Funds - $1T Plan -
> ready to sweep all the subprime away from the banks at 70 cents!.
>
>
> In Step #5 above, the banks get 20 real cents earnings by 'cancelling'
> their insurance held by AIG. AIG 'makes' 40c or avoid loosing 40c
> ( 60 cents liability - 20cents paid). The banks never believe that
> the insurance is worth 60 cents, but they could not claim it either
> ( the banks were getting cash from the mortgages)
>
> Zero Hedge is seeing all these unwind transactions at below value,
> BUT WHOSE VALUE IS TRUE... the market maker value ( Itraxx index?)
> or the value that the two parties agree to close out their liability?
> This CDS over the counter market is unregulated, remember? There
> is nothing that stops one party to accept whatever value agreed by
> both parties to unwind their own transactions.
>
> When you have a car accident and the adjuster gives you a value for
> the repair, you can always negotiate a settlement price and turn
> in the damage car. The subprime papers are being adjusted to be traded
> in.
>
> We should remember that the 'Banks Gains' are partly reversal of
> "loss" that they alreay took in 2008. The AIG gains are reversal
> of write-downs / reserve that they took in 3Q and 4Q 2008. The real
> 20cents that they transfer to the banks are capital that AIG will
> collect when they sell their other divisions ( airplane leasing...).
> AIG looses Broadwalk in the monopoly game; the banks' real losts
> are 100cents on the dollar minus what they get selling to the Treasury+Hedge
> Funds.
>
> The CDS market loose the VOLUME of business on naked CDS. there will
> always be covered CDS on real bonds, but the insurance company will
> need to post real capital to cover potential claims.
>
>
> Estimates:
> AIG took a loss of $60B in 4Q2008. And we know that they decreased
> their CDS portfolio from 2.3T to 1.7T = delta $600B. So in round
> figure they paying 10 cents per portfolio dollar ( 60B / 600B) just
> to close out the CDS contracts.
Buy BAC, GS?????
They always say "don't fight the fed" don't they??
Let's give Obama a chance. It's the only time in my lifetime of over 60 years that I've seen an exceptionally intelligent man in the White House. He can't just hand out money to the poor. If he did that, everybody would be lined up at Burger King for lunch but nobody would be there to flip the burgers.
The banks have to be given the green light to lend money to creditworthy borrowers. Just giving them money didn't seem to do the trick. I guess if you gave them enough it would. But you need to make them feel secure enough to part with what they have. Remember, they are expected to leverage themselves 10 to 1, but if accounting rules put them under water, they lose their jobs and their company. How about relaxing the Mark to Market rules on performing loans so they don't have to MTM these at all. What I don't understand is how they MTM all their loans anyways. I thought they diced and sliced and bundled them up in pieces and sold them back and forth. How does anybody know what any of that is worth? I can understand nobody wants to pay the original issue price for it. So how do you evaluate it's worth? Maybe that's a lot of the problem?
After 80 years of marxist incompetence and corruption the Russians were already a 3rd world country. What are you trying to achieve with this propaganda??
regards
On Mar 30 11:28 PM nova wrote:
> prudentinvestor wrote:
> " The government had to make a choice: (a) nationalise the large
> banks and reboot, or (b) prop them up and save their powerful managers.
> They chose (b), which requires shovelling hundreds of billions, if
> not trillions, into private for-profit companies, at the expense
> of taxpayers. so this "news" is no surprise, and likely just the
> tip of the iceberg."
>
> Something very similar did happen in the former Soviet Union 15-20
> years ago. The first Russian president Boris Yeltsin together with
> a group of selected con-artists looted the entire state. The general
> population standards of living went down 85%. All savings were completely
> wiped out.
>
> At the same time,using very sophisticated schemes,
> - Zillions of US$ were transfered into offshore accounts of Yeltsin
> family members and close to president con-artists
> - General population became impoverished
> - Suddenly a new class of Russian oligarchs appeared. At least dozen
> Russian oligarchs immediately appeared in the Forbes 100 riches people
> of world. These oligarchs seized all most profitable companies and
> enterprises.
> - To protect themselves and their loot, Yeltsin transfered all political
> power to the State Security Agency (a.k.a. KGB) and their boss A.
> Putin. Consequently, Russian people found themselves back in "state
> slavery times".
>
> How was is done? It all was done under a slogan of "Democracy and
> Privatization".
>
> "Privatization", in a nutshell, worked very simply:
> - Privatization of most lucrative enterprises was done "privately"
> when billion-dollars corporations were transfered into "right" hands
> for just few millions dollars
> - These "right people" got these millions dollars for free quietly
> from the State banks.
>
> Our former president GW Bush was very good mind reader. He looked
> into Putin's eyes and recognized someone very close to him: the same
> gangster, liars and a thief.
>
> WOW. America, you have selected the Russian way going to the future.
On Mar 31 05:44 AM ZZ wrote:
> IsThisRight has it right. There is nothing sinister going on here,
> unless you are fed up generally by Wall Street traders and execs
> of all corporations stealing the country blind. Look what so called
> 'free' capitalism has created: A super rich elite class, the building
> of thousands of Palaces (called homes) which are empty and nobody
> can afford (you should see the communities Bobby Ginn developed in
> Florida that are now a big bust), while hard working millions are
> out of work and homeless. Free markets are a myth and always have
> been.
>
> Let's give Obama a chance. It's the only time in my lifetime of over
> 60 years that I've seen an exceptionally intelligent man in the White
> House. He can't just hand out money to the poor. If he did that,
> everybody would be lined up at Burger King for lunch but nobody would
> be there to flip the burgers.
>
> The banks have to be given the green light to lend money to creditworthy
> borrowers. Just giving them money didn't seem to do the trick. I
> guess if you gave them enough it would. But you need to make them
> feel secure enough to part with what they have. Remember, they are
> expected to leverage themselves 10 to 1, but if accounting rules
> put them under water, they lose their jobs and their company. How
> about relaxing the Mark to Market rules on performing loans so they
> don't have to MTM these at all. What I don't understand is how they
> MTM all their loans anyways. I thought they diced and sliced and
> bundled them up in pieces and sold them back and forth. How does
> anybody know what any of that is worth? I can understand nobody wants
> to pay the original issue price for it. So how do you evaluate it's
> worth? Maybe that's a lot of the problem?
I have just read Tyler's article, and find it quite interesting, not to say thought-provoking. I am not certain that I am in full agreement with the theories propounded via Trader Lou's email, however. I simply don't know enough, and I think it is safe to say that mos, if not all, of the other people posting about this article fall into the same category that I do. For now, I think I agree with ZZ. I don't things have necessarily changed much on Wall Street, except for the disappearance of the big investment banks. I think that what is different in today's market is that more and more of us are finally , thanks to the Internet, figuring out what makes the machine run.
I agree with ZZ on one more point. Let's give the current administration a chance.
Jail would be a gift to these characters...
On Mar 31 10:03 AM ETFtrader wrote:
>
On Mar 31 10:03 AM ETFtrader wrote:
>
On Mar 30 05:25 PM totheabovejerkface wrote:
> please - anyone supporting the payouts of the CDS is stupid. AIG
> should of just went bankrupt. If you break the casino bank and it
> doesn't have enough insurance to payup, then it goes bankrupt. <br/>
>
> BUT - here you have the Paulson's of the world forcing taxpayers
> to feed the AIG payouts that were set up to fail since they knew
> they were going to send Paulson to the pulpit to get the bailouts.
>
>
> They wouldn't of bought them from AIG without the wink wink that
> taxpayers would be lined up to empty their wallets.
>
> and who the hell changed the rules to let people buy insurance on
> debt they don't own??? Would you feel safe if all your neighbors
> bought home insurance on YOUR home? You can bet they already have
> your hose slashed and gasoline dripping on the walls....
1) Was AIDFP long or short credit overall before its blowup? Based on Lou's recount, it sounds like they long credit portfolio risk was mostly hedged by short single names(which may cause issues when they unwound the trades). However, that is just impossible to me: if they managed their risk so carefully, why AIG went bust at first place in Sep? Logically, one would guess they sold tons of naked credit protection and not hedge them properly, which brought down the whole house. If their correlation desk "back risk out" properly, they should not in big trouble at first place.
2) This is the quote in the article: "This caused single name credit to massively underperform equities - run a chart from say last September to current of say S&P 500 and Itraxx" Ok, I don't quite get it either: why was he comparing S&P with Itraxx at all? Itraxx indices are for Euro names rather than US name. CDX index i more relevant here. Ok, now you pull SPX and CDX IG on the run index, from Jan 1 09 to Feb 09, SPX is down 20.7%, CDX IG 11 index was down 10.2%. Where was the "massive underperformance"?
3) Based on Lou's talk, AIGFP sold protection on both corp and asset-backed notes. I don't know how they managed their risk since there was very limited liquidity to even unwound all the trades, not to mention manage risk properly with their models.
On Mar 30 05:59 PM fleeing omega wrote:
> How can I be so brash when I haven't seen all the data?
>
> I'll tell you one little thing I saw and that was the banks announce
> the sudden return of profitability. It would take a mental defective
> to believe that there wasn't overt manipulation behind that. Period.
>
>
> Just how stupid is the American public supposed to be? I guess we
> are finding out
I think the administration should show compassion and give all defaulted homeowners a tent and allow them to live on their ex-property, but not go inside the house.
On Mar 31 12:48 PM ZZ wrote:
> "But there is not some multi-million person homeless problem going
> on, at least to the extent there wasn't one before. Homelessness
> is not a lack of housing problem. And we have plenty of housing."
>
>
> I think the administration should show compassion and give all defaulted
> homeowners a tent and allow them to live on their ex-property, but
> not go inside the house.
>
On Mar 30 08:45 PM IsThisRight wrote:
> Let me try to understand the loop :
>
> Figures below are FICTITIOUS --- just as a model ...
>
> 1- AIG, as an insurance company, holds contracts with HIGH liability
> - let's say 60 cents liability on the dollar ( assuming the subprime
> papers are worth 30 cents in the Itraxx index).
>
> 2- The banks hold/own the actual subprime paper which is mark-to-market
> at 30 cents. But the banks believe that the value ( based on cash
> flow) is closer to 60 cents.
>
> 3- AIG keeps saying that their CDS is "senior"--- meaning that they
> do not have to immediately settle until a set condition ( example
> : only pay IF and WHEN the debt cash flow is interupted. So if the
> mortgages still pay 92% cashflow, AIG doesnot pay). But meanwhile,
> on the AIG books, the liability of 60 cents on the balance sheet
> show LARGE loss.
>
> So the unwind:
> 4- IF AIG pays 20cents to the bank to close out the contract, AIG
> balance sheet shows a GAIN of 40 cents ( 60cents liability - 20
> cents).
>
> 5- The banks never believed that their subprime paper was worth 30
> cents. The banks always said that they are not selling at 30 cents.
> So let's say that they think that it is worth 60cents.
> By receiving 20 cents from AIG, they bought the suprime paper for
> 100 cents, got 20 cents from AIG. So now that the banks can sell
> the subprime paper for 60cents. Sell for 60 cents + 20 cents AIG
> = 80 cents bank income... loss of 20 cents ( 100cents purchase -
> 80 cents income from sales and insurance).
>
> 6- Now Mr G. ( Treasury ) walks in with Hedge Funds - $1T Plan
> - ready to sweep all the subprime away from the banks at 70 cents!.
>
>
> In Step #5 above, the banks get 20 real cents earnings by 'cancelling'
> their insurance held by AIG. AIG 'makes' 40c or avoid loosing 40c
> ( 60 cents liability - 20cents paid). The banks never believe that
> the insurance is worth 60 cents, but they could not claim it either
> ( the banks were getting cash from the mortgages)
>
> Zero Hedge is seeing all these unwind transactions at below value,
> BUT WHOSE VALUE IS TRUE... the market maker value ( Itraxx index?)
> or the value that the two parties agree to close out their liability?
> This CDS over the counter market is unregulated, remember? There
> is nothing that stops one party to accept whatever value agreed by
> both parties to unwind their own transactions.
>
> When you have a car accident and the adjuster gives you a value for
> the repair, you can always negotiate a settlement price and turn
> in the damage car. The subprime papers are being adjusted to be
> traded in.
>
> We should remember that the 'Banks Gains' are partly reversal of
> "loss" that they alreay took in 2008. The AIG gains are reversal
> of write-downs / reserve that they took in 3Q and 4Q 2008. The real
> 20cents that they transfer to the banks are capital that AIG will
> collect when they sell their other divisions ( airplane leasing...).
> AIG looses Broadwalk in the monopoly game; the banks' real losts
> are 100cents on the dollar minus what they get selling to the Treasury+Hedge
> Funds.
>
> The CDS market loose the VOLUME of business on naked CDS. there will
> always be covered CDS on real bonds, but the insurance company will
> need to post real capital to cover potential claims.
>
>
> Estimates:
> AIG took a loss of $60B in 4Q2008. And we know that they decreased
> their CDS portfolio from 2.3T to 1.7T = delta $600B. So in round
> figure they paying 10 cents per portfolio dollar ( 60B / 600B) just
> to close out the CDS contracts.
No matter what they did, somebody would be saying its a scam. Obama was left a huge mess to clean up thanks to so many years of GOP incompetence, and most people don't understand the complications involved.
On Mar 30 04:40 AM Sophomore_23 wrote:
> It's an interesting theory, but isn't it also possible that after
> the bailout, there was a lot of pressure from above for AIG FP to
> unwind its positions as quickly as possible no matter the price?
>
>
> I agree that the banks' recent trading profitability is a one-time
> event and AIG's loss is their gain. However, I wouldn't go as far
> as calling it a scam since it is more an unintentional side effect
> of intense pressure to quickly wind down FP rather than a concerted
> effort by AIG to "gift" its counterparties with profitable trades.
>
>
> In an ideal situation, AIG would have enough time to unwind trades
> in a manner that maximizes profitability to its shareholders, and
> by extension, U.S. taxpayers. However, in this risk averse environment,
> it seems that the company is willing to pay an enormous premium to
> immediately extricate itself from exposure to more catastrophic losses.
>
On Mar 30 12:32 PM Big Al45 wrote:
> Considering what we've elected, probably none of it could be understood
> by Congress.
I can only speculate why, but let me start by suggesting that maybe no MSM reporter could corroborate (or deny) this report--or maybe even explain it in a way that might reach mainstream audiences. Without corroboration, it's unlikely the MSM will publish on the topic. It would be interesting to know if they even tried.
I would also note that this is the second time I have seen what seems to me to be an important (and probably negative) piece of economic and financial information (the other was BOA/Merrill's David Rosenberg's call of an ongoing depression) that was not picked up by the MSM.
Frankly, I think we receive a much more complete picture of the economic and financial world (and other aspects of the world around us) through blogs like this. Occasionally, their reporting may be off the mark, but in the end (a) at least we have the info and (b) it is ALWAYS our responsibility to evaluate it and act accordingly.
Kudos to Durden, Zero Hedge, and Seeking Alpha for their work!
If you think this article is anything but hot air, you should always consult people who have demonstrated they have your best interests at heart before ever signing any legal document or making an investment decision. It is not easy to do but realizing that you are not fully equipped to understand and critically examine information is half the battle in trying to avoid being the bagholder or chump of someone who is smarter than you.
If you mention this article to your congressmen, they will be polite to you but instantly write you off as noise.
Banks are in a desperate situation. The government is in favor of improving their financial situation. That's why the Fed has moved its key rate to 0% so that banks can raise their operating profits and improve their capital position.
We saw the chairman of AIG testify that it still has $1.6 trillion of derivatives to unwind, down from $2.7 trillion. The longer it takes to unwind these positions, the more risk AIG has of losing the people who understand the positions. After all, would you want to work for AIG?
So, yes, they are unwinding as quickly as possible at fire sale prices. And banks are benefiting. And Treasury knows about it. And the taxpayer is paying for it through AIG.
But we already knew all of this. Propping up AIG means that AIG is able to meet its financial obligations to other banks and insurance companies. We finally were trusted with the list of payments from AIG and we already know Goldman Sachs received $13 billion.
If AIG had been allowed to fail, it may have caused the failure of countless other financial institutions. By coming to the rescue of AIG, the US Govt was able to make good on AIG's bets and pass money to banks who are suffering through a capital crisis.
Obama had a choice to nationalize or to go with the existing structure and try to pump life back into it. He has chosen the second route. I hope he succeeds. I am much happier when my stocks go up.
Where are all the hungry attention whore journalists when you need them?
> 3) There really is a Wall St - Government cabal to benefit the priviliged few (an option with heavy populist support).
On Mar 30 08:52 PM dcb wrote:
> You do not understand. this is happening with the consent of our
> government, not against it. After all the little slips that have
> happened do you really think they want to cathc this. they don't
> catching things lowers amount of campaign dollars and cushy jobs.
> the american public doesn't read much so there is no worry of getting
> caught. Surprise of the day Dodd was AIG's biggest money recipient.
> WAKE UP. HOW MUCH PROOF DO YOU NEED TO SEE WHAT IS CLEARLY OUT THERE>
> JUST CONNECT THE DOTS
On Mar 31 03:28 PM Lilguy wrote:
> Interestingly, it's now a day after Mr. Durden and others published
> their story about the AIG to bank transfers--and, so far as I can
> tell, not one single MSM has reported on what appears to be the USG
> laundering taxpayer money through AIG to the benefit of major banks.
>
>
>
> I can only speculate why, but let me start by suggesting that maybe
> no MSM reporter could corroborate (or deny) this report--or maybe
> even explain it in a way that might reach mainstream audiences.
> Without corroboration, it's unlikely the MSM will publish on the
> topic. It would be interesting to know if they even tried.
>
> I would also note that this is the second time I have seen what seems
> to me to be an important (and probably negative) piece of economic
> and financial information (the other was BOA/Merrill's David Rosenberg's
> call of an ongoing depression) that was not picked up by the MSM.
>
>
> Frankly, I think we receive a much more complete picture of the economic
> and financial world (and other aspects of the world around us) through
> blogs like this. Occasionally, their reporting may be off the mark,
> but in the end (a) at least we have the info and (b) it is ALWAYS
> our responsibility to evaluate it and act accordingly.
>
> Kudos to Durden, Zero Hedge, and Seeking Alpha for their work!
On Mar 30 02:25 AM Mbuna wrote:
> Ahh yes those banks know exactly what they are doing, right? H/T
> Naked Capitalsim, from FT Alphaville-
>
> "US commercial banks lost $9.2bn on derivatives trades in Q4 08"
>
>
> Have a read.
> ftalphaville.ft.com/bl.../
very interesting i am going to see some cds traders this week it will be interesting what they say
On Mar 31 04:17 PM notblind wrote:
> It wasnt picked up because it is thinly disguised drivel which was
> thought up, written and packaged exclusively for an audience of gullable
> innocents.
>
> If you think this article is anything but hot air, you should always
> consult people who have demonstrated they have your best interests
> at heart before ever signing any legal document or making an investment
> decision. It is not easy to do but realizing that you are not fully
> equipped to understand and critically examine information is half
> the battle in trying to avoid being the bagholder or chump of someone
> who is smarter than you.
>
> If you mention this article to your congressmen, they will be polite
> to you but instantly write you off as noise.
Think of the episode of the Sopranos where the guy with gambling debts had his sporting goods store looted into bankruptcy by Tony's crew -- except on a vastly more sophisticated and breathtaking scale.
There should immediately be a special independent prosecutor appointed to investigate Paulson, Geithner, Greenberg, Casanno, Summers, Blankefein and their cohorts for criminal racketeering and conspiracy under the RICO act.
Follow the money, cui bono.
See: www.ft.com/cms/s/0/275...
On Mar 31 11:20 PM AlexS wrote:
> Why do they need to "unwind" these positions? They're just bets.
> Gambling. Gambling debts are not enforceable by law, or so I understand.
> Let them bring their CDSs together and they can all get their money
> back, and no more. Why should taxpayers cover AIG's gambling losses?
> Why should they provide the banks' gains? BTW, if you want to explain
> it to the public, this explanation they will understand.
On Mar 31 12:46 PM wobatus wrote:
> They said profitable absent marks. I find that the american public
> is actually smarter than mouth-breathing folks on message boards
> that think they know something because they read seeking alpha.<br/>
So ... Bushies ... do you still think that an imperial presidency is good?
I will also point out that the Inspector General of the TARP program is fighting with treasury about making sure there isn't fraud in the TARP funds. This is from page 1 of today's Financial times of London 4/1/09.
Is there really anyone out there anymore who actually doubts what is going on? It is clear that the only people who support our current government policy have a direct financial stake it it. I can also assure you the current plan will not result in financial stability, but in another credit bubble that bursts again, an unstable dollar, or high inflation. All designed to help the financial industry at the expense of the tax payer. Why is the US fighting with the G20 about reform of the financial system? This isn't a topic of debate anymore and should be put to rest.
On Apr 01 04:51 AM User 369125 wrote:
> The entire insurance 'game' is based on gambling. They gamble that
> you will never make a claim and make sure the odds are in their
> favor . If this is not an April fools joke and is in fact true,then
> AIG is just doing what is normal for any insurance company practice
> as they have done for 200 years .
So sit on that for a minute...
Your earlier article about the phony Citi memo that ignited the latest bull run struck a chord with many observers. I was shocked that anyone would believe the CEOs of these institutions, but the traders were looking for any shred of evidence of profitability to bid up prices (especially of financials) and create a sucker rally.
So, here we are 24 days later in the middle of a bull run built on lies and fraud. Your article is a classic masterpiece of understatement. I agree with your commentors that this behavior must be investigated, prosecuted, and the perpetrators (including the government culprits) punished.
I am truly sorry for us investors who are trapped between criminals and a government run by vested interests. Enough!!
No one likes that we got to this point but here we are.
I think the people most ticked off are massively short. This board reeks of goldbugs, conspiracy theorists, etc. It is all pretty black and white.
On Mar 31 10:42 PM Kanomi wrote:
> This article is correct. It's becoming clearer and clearer that AIG
> is being used as a pass-through operation to steal trillions of dollars
> of taxpayer money and give it directly to a criminal banking cartel,
> similar to how the mafia as 'silent partners' will loot a business
> completely before driving it into bankruptcy.
>
> Think of the episode of the Sopranos where the guy with gambling
> debts had his sporting goods store looted into bankruptcy by Tony's
> crew -- except on a vastly more sophisticated and breathtaking scale.
>
>
> There should immediately be a special independent prosecutor appointed
> to investigate Paulson, Geithner, Greenberg, Casanno, Summers, Blankefein
> and their cohorts for criminal racketeering and conspiracy under
> the RICO act.
>
> Follow the money, cui bono.
More over showing the banks to be profitable creats an illusion that things are not REALLY that bad.Which is exactly what AIG paying their counter parties in full was about.This illusion could not have been sustained had the banks taken the ENTIRE money UPFRONT as bailout.
This in turn would cushion them from having to ANSWER some tough questions from the WORLD WIDE community of INVESTORS who dump their DOLLARS at America's doorstep.
Indeed it would help them defend the LOGIC behind the DOLLAR being the RESERVE CURRENCY to the WORLD.
This whole exercise is meant to help USA to CONTINUE the PONZI scheme with the rest of the world.
The USA has lived off the rest off the world.Because it was a free meal they gorged and ended up with a horrible INDIGESION.
The stunning discovery that FREE is not ENOUGH.