Bill Herbert

AIG Rewards Failure: How Could the Brightest Be So Blind?

>>I hope some of them have learned their lessons and will leave the sector.<<

There is a GREAT place for some of these offenders to actually learn their lesson - it's called a Federal Correctional Institution.

They committed gross negligence and violated their fiduciary duties when they wrote illegal insurance contracts in pursuit of bonuses based on phantom profits. And as far as I'm concerned, it should be classified as a crime when an employee accepts a bonus under those conditions, knowing that eventually the company may lose a huge amount of money, or even go bankrupt because of his or her action.

In short, this is the biggest ripoff, or heist, in history - the US Govt is being swindled by the Ivy League Mafia that has been allowed to subvert the law and the regulatory process to defraud the government and the citizenry, and steal hundreds of billions of dollars.

AIG Needs Transparency, Now

>>The identity of the counterparties is not the only issue. I would like to know how many of these counterparties actually owned the assets for which they bought CDS's.

The American public would be outraged if they find out that most of AIGs book was naked CDSs' and that our billions are being spent to cover "side bets" made by hedge funds and other speculators.<<

You could even go one giant step farther.

How do we know if some of these contracts are even legitimate?

It seems the American taxpayer is being used like an endless charge card for the fraudsters in the hedge fund community and the leveraged speculators in the banks.

The Fed is an absolute joke, stuffed with chalkboard economists, most of whom have never run anything - including Bernanke, who has done nothing more than draw diagrams on chalkboards at fancy universities, and published a bunch of murky academic studies.

Yet these people are signing the checks for their crooked masters/future employers, and they won't even tell us who is getting paid, or how much is foreign vs. domestic, or if they have even bothered to verify that many of these CDS contracts EVEN EXISTED before the US Govt started being played for a fool by the Wall Street crooks.

i mean, these people have a long, sordid record of defrauding the public in everything from the muni-bond market - that was Hank's 'specialty' - to dotcoms, late-trading, massive front-running scams, back-dated stock options, and God only knows what else.

Many of the top people on Wall Street obviously have a self-dealing, criminal mindset. So why should we trust them to be honest in presenting us with a number that they have "lost" in the latest accounting period?

Rethinking Subsidized Finance

>>In any of the two cases, the govt will nationalize the "grid" if any catastrophe of the like blows up and harms lives, almost without a thought. Why won't we do the same to banking industry?

I want to emphasize that we're back to 1997 DOW people!!! And still going back! Talk about time travel backwards economically, sheesh!

With such destruction (more than a decade of destruction in the USA; more than TWO decades of financial wasteland in Japan) wrought, why do we still want to do the same thing?

I agree with the author that banking seems to be a net, capital, money and sanity losing proposition for the whole economic system.<<

Banking works OK if you have honest, capable bankers trying to do the right thing for shareholders, and society, and make a decent living doing that.

Unfortunately, it seems to attract some of the sleaziest elements of the corporate world, looking for get-rich quick deals and obviously open to massive corruption. That's why it needs to be tightly regulated.

When Bush came in, the rule book was thrown away, and the green light for rampant fraud and speculation was turned on. The regulators took long lunches and played a lot of golf on Vegas junkets, sponsored by the bankers!

Then all the $hit hit the fan - now we pay for the most incompetent administration in history.

Sad, isn't it?

AIG, Systemic Risk and Greenberg's Inner Circle

I would fully support a thorough investigation of AIG's activities over the past ten years, complete with criminal indictments wherever possible.

This is a crime scene, not an insurance company!

I'm sure there are hundreds of disgruntled former employees who can provide a lot of color on the nefarious activities of this crew.

Throw 'em in the slammer, for God's sake!

How Banks Hedge Counterparty Risk

>>Big Al45 - you asked: Do CDS' serve any business purpose or is it just an unregulated form of gambling. <<

Your question is much more relevant to where we are today than the detailed explanation above of how this whole sordid business operates.

If it isn't clear by now that the whole derivatives fiasco is just a gigantic heap of nonsense, that 'employs' people in a huge gambling racket, then it will never be clear.

We have allowed a bunch of gangsters with high-tech computer models (many of those obviously being quite flawed) to take on enormous risks and obligations, and to sink our financial system.

All the thick-skulled professors and economists have blinded one another by arguing about theory and models, when in the real world, a lot of this just doesn't apply. These guys breathe so much chalk dust that their thinking becomes impaired.

The gargantuan pile of global derivatives, some $600 trillion notional, is just a screaming joke. Most of these bets could never be paid - now everybody is holding fistfuls of questionable paper, and begging for bailouts when they are called upon to cover their bad bets. If it weren't such a tragedy, it would be screamingly funny, for sure.

We need to collapse this sick business pronto - I would love to see the derivatives business wound down to maybe 1/20th of its present size, and throw thousands of these pathetic jokers out of 'work.' Admittedly, I use the terms work and employed rather loosely - this is a floating crap game, with thousands of shifty players making promises, for which they often do not have enough money to even play!

If AIG can't cover, for God's sake, then who can? What an absurd mess we have, and I don't want to see any more crooks like our Treasury Sec coming forward with hand outstretched, looking for a loan that will NEVER be repaid.

Crunching Numbers: Why I'd Buy AIG

>>Selling the January 2010 puts with a 10 strike price and collecting 4 dollars seems to be the best way to play this now <<

That's what WEBISKING said, and I agree, this is a good trade. On Monday, we may see further downside in Merrill and AIG due to whatever happens later today with Lehman. So this AIG put sale will perhaps fetch an even higher premium about an hour after the open on Monday.

My comment on the Lehman fiasco and ramifications -

Once the investing/gambling crowd realizes that LEH went out for chump change on the equity side, they will be pretty fearful about MER in particular, and to a lesser extent AIG. It's really not clear if there actually is any appreciable equity value left at LEH - it is tiny at this point.

Dick Fuld blew it bigtime - he could have done a recap at $35 in May - instead, he tried to 'look tough and bluff' which by the way, is a strategy that has already been PROVEN TO BE A FAILURE at every stage of this equity meltdown, and for EVERY FIRM that has tried it!

Think back to the subprime mortgage originators (New Century, CFC) and the rating agencies and Thornburg Mortgage and the mortgage insurers and Indymac and Fremont General and Bear and dozens of others nobody even remembers at this point. They all looked into the camera, spoke clearly with an assuring, measured tone, and then imploded. EVERY one of them.

So, I give Fuld an F minus for his handling of this - he is just another grossly overpaid Wall Street Capo who is blind to his own reality. He runs an extremely-highly-lever... gambling house. It's really that simple - and that's all it is. And when his pile of chips was rapidly shrinking, and he was looking at really bad cards, he tried to bluff his way out of the hand, and got called.

Now his firm is basically worthless, and he personally lost over $500 million.

Dick Fuld wouldn't last two hours at the poker tables in Vegas - what the hell is he doing running a multi-billion dollar financial firm???

Now back to AIG. Assuming they survive this latest short attack and run on their assets, they are in a much better position to ride it out than MER, for example. Although John Thain is a very well-connected insider in the Wall Street rackets, he is not a magician, as far as I know. Merrill has very serious problems, and I suspect will announce massive layoffs over the next year. Most of the money they've made in recent years has been through milking suckers, and running a piece of the fraud-tainted securitization, CDO, auction-rate, and hedge fund games that Wall Street has been running.

Most of this is disappearing or under investigation at this point. The investing public is sick to death of the lies, fraud and dirty dealings of the banks, the admin, and corporate America. Therefore, I think Merrill's basic business is in serious trouble, and that is on top of massive and growing losses on their asset book. So I think MER could go to single digits very easily here, and stay there for a while.

I doubt that AIG will be in the $10 range for long, although I must admit, it surprised me how rapidly it sank this past week. It was a stunner.

I was steeling myself against the urge to jump in and buy AIG - now I am sure I will wait until LEH is resolved, and we see if there are any other "surprises" that float out of that cesspool. The delays in putting the rescue together tell me that there is some bad news that has not yet been fully revealed.

But at some point, unless there is just a whopper of a fraud announced at AIG, I will be a big buyer, as I feel that the upside here is really strong, and could be a quick double before year-end. Call Options trades could be a five bagger if timed right, and with a bit of luck.

Corporate Fraud + Government Intervention = Bailout Nation

I agree 100% with this commentary. To suggest that the banks had no role in their own demise is totally laughable. Any responsible banker or economist should have known long before the "meltdown" that extremely serious problems were occurring, like phony appraisals, bogus 'insurance' on mortgages, ludicrous lending and documentation standards, and an atmosphere of fraud and tolerance for bending/breaking rules on all levels.

People were making a lot of money and had no regard for the consequences. And I agree, it's people like Phil Gramm who are more to blame than anyone. I've always considered him to be a joke and a menace to sound financial principles and responsible conduct of our financial markets.

Two cases in point - Gramm led the charge to allow massive fraud and market-rigging behavior in the commodities markets - the result was Enron and significant corruption and volatility that exists to this day. The second example is as described above - the whole "deregulation" effort that destroyed Glass-Steagal and brought in a bunch of crooks and racketeers to run our biggest banks and brokerage houses.

The result of that is insanely huge compensation for criminals and a complete breakdown of responsible conduct, and now the U.S. taxpayers and foreign investors will be hit for several trillions to pay for it, so that a bunch of corrupt jokers like Phil's friends and campaign contributors can enjoy mansions and fleets of expensive luxury cars. What a travesty.