Anandakos

Seething Over Liddy's AIG-Goldman Connection

Mr. Rines,

Do you honestly think that "the citizens" will "take care of one another" if the sort of cataclysmic crash you so gleefully predict occurs? You are a fool if you do.

With the stupendous volume of hateful bile unleashed by the election of an "other" and directed at the poor, at minorities, at immigrants, at LGBT folks, at scientists -- at anyone except religious Caucasian heterosexuals -- you can expect all those guns flying off the shelf to be used on your fellow Americans.

This is not the 1930's when Americans still had a commitment to shared sacrifice and genuine love of country. Today people are motivated by selfish narcissism and filled with raving lunacies from people whose mental circuitry is clearly dysfunctional. Because of the mass media people who have enormous public platforms but no real connection to the world of cause and effect, consequences, and real responsibility can infect impressionable anti-social people on an unprecedented scale. You know who they are and the hateful things they advocate.

Be careful what you wish for. Sometimes fulfillment comes in a pretty box; sometimes it comes in a coffin.

On Apr 17 02:00 PM Jason Rines (iThinkBig) wrote:

> The current economic system will collapse in mid 2011 or early 2012.
> The citizens will flush the 'no-oversite' committees, default on
> the debt, face a couple of tough years and move on. Take care of
> one another in-between. Government's version of 'sharing' is wealth
> contraction across the board when in conjuction with Financial market
> collusion. You as gentlemen will need to take care of neighbors.
> I am doing my part already as some of you will find out soon enough
> - Viva la Liberty.

Why AIG Wasn't Allowed to Fail

Can't do that. It would be an ex post facto law. Los Supremos would swat it down in a (dare I say it....) New York minute.

On Mar 17 05:01 PM Mike Hydes wrote:

> What would happen if Congress just invalidated these credit default
> swaps?
>
> If they can do that then why has it not been done?

CDS and the Looting of AIG

CDS FTW,

It is "naked" (third party) CDS contracts which are gambling. That is because the purchaser of the contract has no insurable interest, by definition. Essentially "A" is betting against "B" that "C" will default.

This creates moral hazard because "A" has a financial incentive to undermine confidence in "C" or impair its operations in some way thereby increasing the likelihood that "C" will fail, triggering "A's" claim on "B".

For the first few decades of life insurance back in the sixteenth century, Joe Doakes could buy a policy on Count Castle who passed by Doakes' house a few times a month on his way to or from his country estate. Do you think that Doakes would be pleased if by some greatest misfortune the Count were to perish because his carriage ran off the cliff a mile and a half down the road from Doakes' house?

After a rash of such "accidents", the insurers began refusing to sell a policy to anyone other than the "life". This is no different.

On Mar 04 10:53 AM cds ftw wrote:

> How are CDS any more like gambling than buying and selling cash equities?

CDS and the Looting of AIG

Larrysyr,

I don't think we're covering the "gambler's" losses. We're covering the "house's" losses. The gamblers made millions of tiny bets on double-zero, and double-zero came up. At 35 to 1 those tiny bets suddenly become a stupendous burden.

I agree with Philip Gvinter's point that CDS claims by holders of the actual bonds secured should absolutely be paid. Those claimants were purchasing insurance from the world's largest insurer. They have a reasonable expectation that their claims will be honored.

The naked CDS purchasers are gamblers pure and simple -- especially the hedgies -- and if ever in the history of the Republic there was a just cause for an ex post facto law, one banning all such CDS contracts is it. The purchasers should all be locked up and the keys melted down to make more bars. These people have done more to cause human misery than any group since the Khmer Rouge and the machete crazed Hutus in Rwanda.

I honestly believe that before this global meltdown ends there will be more people who die as a result of it than any one thing that's happened since, including Bush's wars.

On Mar 04 10:30 AM Larrysyr wrote:

> There's nothing wrong with gambling. And there's nothing wrong with
> insurance.
>
> There's something hugely wrong with pretending that gambling is insurance.
> And I resent having to cover the gamblers' losses.

Why Capping Pay Is Likely to Work

Think,

I believe you are making a fundamental mistake about what banks are and should be. Because banks drank the Wall Street Kool-Aid they abandoned their traditional role and adopted the behavior of investment banks (leverage!). The regulators were drinking too, so they allowed them to act like investment banks, even encouraging them.

This was a disastrous error, and like the last time it was allowed in the 1920's, led to exactly the same sort of excesses. The so-called "talent" you want to reward subsumed the depository function into large casino capitalist enterprises and poisoned the well for all and sundry.

Depository banks should be free from political interference -- we don't want the kind they have in China and Japan. But also they should be strictly regulated and prevented from engaging in behavior that can eviscerate their capital adequacy. Such institutions would not and should not make a gazillions of dollars in profit. So they don't need the sort of buccaneer "leadership" that unlimited compensation attracts.

Those folks have a perfectly valid place in American capitalism: as entrepreneurs, private equity managers, and venture capitalists. But they should not run depository institutions because their gambling ways put the government's insurance programs at risk. Let them reap huge gains and suffer huge losses on their own, without the taxpayer's implicit, explicit, or fantasy backing. And caveat investor when dealing with them.

Banks serve the vital function of providing credit to businesses and citizens, and obviously they need to make a profit to increase their regulatory capital allowing greater loan making capability. But they should NEVER engage in non-depository activities. They also need to be forbidden from becoming "too big to fail". The only real value I can see in Wells-Fargo and Bank of America having become truly "national" banks is that people can visit an ATM in a different state without having to pay a fee.

Thus they will not need enormously compensated CEO's. There are plenty of people running local banks and credit unions profitably for low six figure salaries who are completely capable of running larger enterprises so long as the "financial engineering" element of the mega-banks are not present. Let them.

By the way, credit unions offer the same fee-free "foreign" ATM access through their national co-op. Smaller banks could do the same thing if they wanted to offer the service to their customers.

On Feb 04 11:23 AM Think! wrote:

> Unfortunately, it is looking more and more like nationalization.
>
> Obama has opened up the gates of hell by feeding populist opinion
> in order to achieve his policy objectives.
>
> The American people are angry and "rich and fat" bankers look like
> a great place to blame, right? No realtor, mortgage broker, appraiser,
> leveraged borrower or home buyer has any responsibility for this
> mess, right? Let's sock it to those nasty bankers who have the nerve
> of getting paid part of their comp with bonuses!
>
> Capping comp in the short-term is probably ok but has risks. It
> has a lot more downside in the medium and long term.
>
> You arm-chair pundits don't have any idea what it takes to run or
> even be in the top 2 levels of management at a major financial institution.
> No, they won't be "giving you a call" because you don't even begin
> to have the skill set to get the job done. I have regular personal
> contact with the Treasurers, CFOs and CEOs of most of the top 20
> banks in the U.S. You have no idea how hard these people work and
> the pressure that they are under.
>
> If you drain the talent, then these organizations will truly be brain-dead.
> That is the problem. Removing all employee incentives will produce
> corresponding behavior. Equity (how Sr. Mgt and even the rank and
> file has been receiving the majority of its compensation for the
> past few years) has been gutted.
>
> How will you recruit, manage and motivate talent? "Be glad that
> you have a job" is a very-short term motivator. If there is no upside
> offered, there will be a brain drain from the industry.
>
> That will not be good for the institutions or the country.
>
> Try to moderate the emotion and maximize the strategic thinking.