Mbuna

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

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.../

Don't Ban Naked Credit Default Swaps if the Law Can't Be Enforced

Credit Default Swaps were invented in 1997 by a team working for JPMorgan Chase. By entering into CDS, a commercial bank shifted the risk of default to a third-party and this shifted risk did not count against their regulatory capital requirements.

So here we have a multi-trillion dollar market that has grown from an artifice of financial engineering specifically designed to create a loophole in financial regulation which will then allow banks to increase their leverage.. Financial engineering of this sort ultimately serves only one purpose, greed, (while generally playing everyone else for a fool at the same time) and does not benefit the broader economy but only gives the illusion of doing so.. And the proof of that statement has already demonstrated itself, in spades. So here we are with huge bloated financial corporations that created tremendous fake earnings for years and now we finally see the financial sector, the emperor of the US economy with 40% of GDP, and its new clothes. It was and is an illusion and the desire to sustain this kind of financial sector will come to naught.


My view of the entire CDS market is that it is essentially nothing more than financial crack. The entire financial sector is completely addicted to something created out thin air to evade regulatory capital requirements, and they all think it is good for the economy!? They are all a bunch of ADDICTS hooked on this financial crack. Everyone I have read that defends CDS strikes me as an addict. And yes Geithner is hooked on it too. From where I stand, the Fed, the Treasury and Wall St are somehow hoping to turn the US economy back into some giant gambling casino when in fact they are addicted to an illusion that will never bear fruit. The entire CDS market should just be shut down, period.
Start from a position of sanity rather than addiction- the financial sector exists to facilitate the lending of capital for the broader economy. The financial sector itself IS NOT THE ECONOMY. You will never ever see the financial sector sustain 40% of GDP in reality because the broader economy cannot support it. It was a house of cards that was never real. What really has to happen is that the entire sector needs a very serious downsizing.

My Response to Soros' Views of CDS

Below is a portion of a comment I did a couple of days ago on a different article on CDS here on Seeking Alpha

" Banks actually worked before CDS's were around. This is just addict talk on many levels because CDS's are an artificial inducement into the market. Financial engineering of this sort ultimately serves only one purpose, greed, (while generally playing everyone else for a fool at the same time) and ultimately does not benefit the broader economy. And the proof of that statement has already demonstrated itself, in spades. When you can financially engineer a product whose purpose is obviously broad over many sectors of the economy I'll listen. Otherwise this is just a C(rack)DS addict scheming for his next hit using technically sophisticated language about how wonderfully the drug works. Ultimately it is a lie. "

The logic of CDS is exponentially vertical and it is this quality that makes it financial crack. Those who are hooked will insist on how essential it is that this market continue, what wonderful insurance it is, can demonstrate incredibly arcane computer models of risk that demonstrate its viability. But all I see are addicts sizing up another way to make a buck and get their high from it. It's ultimately a fake addition to the economy and I think it should be shut down.

Congress: Shortsighted About Financials

An important rule with Congress-
When it comes to money and government politics always comes first.
When it comes to money and the member of Congress money always comes first.

Did CDS Cause All the World's Ills? Confronting the Crisis Backlash

My impression of reading this- CDS's are a relatively recent drug introduced that has become highly addictive such that many addicts go through great and sophisticated lengths to explain the reason for their addiction. Case in point #1: "Allow banks to get regulatory capital relief on their loan books letting them free up capital." Translation- banks have a loophole on their capital requirements thus allowing them greater leverage and thus greater risk but also the possibility of greater profits. Case in point #2: "Allow banks to more efficiently manage credit risk." Translation- We don't have to be responsible! Let someone else be responsible so we can then get even greater leverage and greater profits!

Geez, haven't we seen the result of this already? Why on earth would anyone want to go back there? Addiction perhaps? Banks actually worked before CDS's were around. This is just addict talk on many levels because CDS's are an artificial inducement into the market. Financial engineering of this sort ultimately serves only one purpose, greed, (while generally playing everyone else for a fool at the same time)and ultimately does not benefit the broader economy. And the proof of that statement has already demonstrated itself, in spades. When you can financially engineer a product whose purpose is obviously broad over many sectors of the economy I'll listen. Otherwise this is just a C(rack)DS addict scheming for his next hit using technically sophisticated language about how wonderfully the drug works. Ultimately it is a lie.

Added Debt Won't Rescue the Great American Ponzi Scheme

Amen brother amen! The pain cannot be escaped. You can pay it now or pay it later. Guess which one will hurt more. I feel we are headed for a train wreck but may Grace and wisdom intervene for a more benign scenario.
(I especially liked the graph of deposits in failed banks as a % of nominal GDP.)

The Economy on Dope: Investors Fear Inflation, Embrace Gold

Kudos, nice article! I am almost shocked to find someone who generally thinks like I do about this situation. Except I can't imagine this continuing unabated for 10 years- things move much too fast now and I fear the wheels are coming off.

Current Popular Argument Against AIG Bonuses Takes the Wrong Viewpoint

On the contrary no sane taxpayer wants to touch what the financial sector has its hooks into.

www.rollingstone.com/p...

And yes Goldman would have failed, beyond a shadow of doubt- not just because of the financial hit they would have taken but the hit that the revelation of their exposure would have done them in. These institutions are so corrupt I say let em all fail. Start fresh.

The Economics of Vilification

Let's fan the flames some more
www.rollingstone.com/p...

The Economics of Vilification

Blankfein, Paulson, and the rest of the Goldman Sachs cabal needs investigation, indictment, and prosecution. Nothing less will suffice with that bunch.

Jamie Dimon says "“When I hear the constant vilification of corporate America, I personally don’t understand it,” Dimon said in his speech. “I would ask a lot of our folks in government to stop doing it because I think it’s hurting our country.”

Here is the problem that Dimon in fact exemplifies- He thinks that he and and the corporations of this country are America. Citizens no longer count- corporations are what count. Under the previous administration, via regulation, laws and court cases, the rights of corporations have been put above those of the citizen. So this is the foul myth that those bank CEO's, with the help of government insiders (yes probably Summers and Geithner among them) are intent on continuing. Now I would not say that this is some "conspiracy", it's just how they think it should be. I would almost call it an unconscious conspiracy because clearly they are all blinded by their own bubble.

The financial sector of this economy has been a huge gambling house of cards that cannot be sustained. All the major financial institutions took part in a huge ponzi scheme of mortgage securities and CDS vapor policies. None of them and I mean NONE OF THEM have grounds on which to speak. Like a bunch of drug addicts we are all supposed to believe they mean good now just because they can no longer sustain their habit. What utter BS. They should all be sent to rehab, literally.

Now for some banking reality. First there is up to $2 trillion of bad commercial real estate loans that you haven't heard anything about. Does the Fed have the capability to hide it under the rug forever? I don't think so. They've go another $500 billion in CDS to unwind before the commercial real estate tsunami hits so they will likely be out ammunition. Stay tuned.

Ultimately the piper has to be paid and that means pain, in this case financial pain. No one wants to get the real lesson of life here and that is that YOU must be responsible for what you have wrought. There simply is no way to rectify this situation without learning the lesson. I think it will take a lot more pain before the bank executives come around because they clearly think they are the bulwark of America even as they rob us all due via their own blinding addictions.

AIG Infographic: Where the Money Went

The Fed and the Treasury propping up the corpse that is AIG is a ruse for the Wall St. insiders to get their money out. This puppy is headed for bankruptcy. See newsweek.com/id/18... for more information about how the supposed "good business" of AIG may be just as rotten as the AIGFP unit.

Financials: Cleaning House Is Always Better

There is indeed an integrity problem in the financial industry and the depth and breadth of it will be shocking to behold. Hang onto your seats it's going to be a wild ride.


On Mar 20 01:45 PM Ricard wrote:

> If this truly is an integrity problem pervasive in the financial
> industry, then God help us all.

Financials: Cleaning House Is Always Better

The Fed and the Treasury propping up the corpse that is AIG is a ruse for the Wall St. insiders to get their money out. This puppy is headed for bankruptcy. See www.newsweek.com/id/18... for more information about how the supposed "good business" of AIG may be just as rotten as the AIGFP unit. And Goldman Sachs is holding a press conference today to clarify their relationship with AIG because the press was starting (about 9 months too late) to put 2+2 together.

There seems to be an underlying psyche in this administration that is committed to keeping a bloated and unsustainable financial sector bloated and unsustainable. This is not realistic or pragmatic. Leon Black, in a FT interview says up to 2 trillion dollars in US commericial real estate bad loans have yet to be reconciled while Roubini says we can look forward to another $500 billion CDS to unwind very shortly. There is still far more insolvency out there than anyone wants to acknowledge.

The incestuous relationship between Wall St., the Fed and the Treasury will ultimately come to no good.and if any Wall St firm is worthy of a special prosecutor it is Goldman Sachs.

Not the Tax Clawback I Had in Mind

What the House just passed was for show and for politics. The House bill is unconstitutional via Article 1, section 9 of the Constitution. It could never stand up in court, period. Pelosi just had some fun making the Republicans jump through some hoops trying to maintain both their ideological and populist fervor at the same time.

Washington's AIG Outrage Really a Political Diversion Tactic

On Mar 20 04:35 AM the hand wrote:

> nothing is fair about politics. congress is having hearings when
> they are the problem - and blaming everyone else. the citizens should convene a panel in washington to review how congress got us into this recession.
Mbuna here-
CONGRESS GOT US INTO THIS RECESSION?? How quaint.
The hand continues-
> when taxpayer money is being used to fund companies, we expect certain levels of contraction of expenditures. as these companies are not in bankruptcy, they must honor their contracts.
Mbuna-
I like the way you say "we expect...." Please explain who "we" is. Full disclosure PLEASE.
The hand-
> you cannot expect a company to not honor contracts unless in bankruptcy.
Mbuna-
The only real corollary I can glean from the Hand here is that the Fed and Treasury exist for the purpose of providing funds when needed so that companies may honor their contracts. A nice idea I suppose but really, what have you been smoking? May I suggest a lobotomy?