AIG was responsible for Banks' Jan & Feb Profits

[wwswimming]

"... 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."

more details @
http://zerohedge.blogspot.com/...onsible-for-banks.html

http://market-ticker.denninger.net/authors/2-Karl-Denninger

"What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, 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."

banks rally - J6P (Joe6Pack) buys into the rally - banks add to their equity holdings.

United States prints money to finance government debt - for the first time in history. That announcement was made about a week and a half ago, mid-March.

 

[mugs]

I see a couple of problems here.
1. A blog posts an article that they claim as an "exclusive"
2. The article is written by someone using the pseudonym Tyler Durden.

I think what the author sees as nefarious scheming is just AIG fulfilling its obligations to the banks.

 

[Acanthus]

The bailouts are likely paying derivatives to the other banks.

Which is not in any way fraudulant, unfortunately.

 

[Socio]

Originally posted by: Acanthus
The bailouts are likely paying derivatives to the other banks.

Which is not in any way fraudulant, unfortunately.

If those derivatives are used to fake profit in order to fool consumers and the market in to thinking these banks were actually turning a real profit, would that not be fraudulent?

 

[StageLeft]

Originally posted by: mugs
I see a couple of problems here.
1. A blog posts an article that they claim as an "exclusive"
2. The article is written by someone using the pseudonym Tyler Durden.

I think what the author sees as nefarious scheming is just AIG fulfilling its obligations to the banks.

I really cannot defend the author, Karl Denniger, in a grand sense, but I have been reading his stuff for a couple of weeks and he does appear quite well informed and has called some things correctly. He may be right on this.

I thought the profitability sounded funny, like either it was an aberration or this whole thing had been a scam to begin with. I saw citi stock skyrocket and caught the tailend of it but finally sold on Friday, because really the banks right now are still just like putting your money down at the roulette table. The underlying problems continue to be impossible to wrap arms around--at least, it appears that way as the gov continues to open its wallet, endlessly.

 

[Craig234]

Another way to look at the same facts was expressed by a guest on Charlie Rose, who described funding AIG as the government's 'lazy way to fund banks as a pass-through'.

In other words, instead of the government figuring out how much to pay a bunch of banks, they could just give a sum to AIG, and they'd distribute it.

 

[GTKeeper]

This is true and it will come out in the media soon enough.

You wonder why the head of JPM said that 'March was much tougher than Jan / Feb'. Gee.... I wonder why.


I think people don't realize how scheming and colluded the financial industry is. Why was the head of freakin GOLDMAN SACHS in the meeting over at AIG with GEITNER, PAULSON and BERNANKE....... when bailout talks etc were being discussed? ..... Maybe the 13 billion dollar pay off might have something to do with it.


As for Karl Denninger, I think more people should read his ticker. Look at his 2007 and 2008 predictions...... right on.

His fundemental issue and what the gov't and no one else is acknowledging is that we need to reduce our DEBT, we can't get out of debt or a credit freeze by issuing more DEBT. We need a massive nation-wide cram down and we need to start on that now. Until that happens it will be fun and games until eventually it does happen to a much worse degree.

Since no bond holder is willing to take a voluntary haircut, it should be forced upon them especially bond holders of our failed financial institutions.

 

[LegendKiller]

Originally posted by: GTKeeper
This is true and it will come out in the media soon enough.

You wonder why the head of JPM said that 'March was much tougher than Jan / Feb'. Gee.... I wonder why.


I think people don't realize how scheming and colluded the financial industry is. Why was the head of freakin GOLDMAN SACHS in the meeting over at AIG with GEITNER, PAULSON and BERNANKE....... when bailout talks etc were being discussed? ..... Maybe the 13 billion dollar pay off might have something to do with it.


As for Karl Denninger, I think more people should read his ticker. Look at his 2007 and 2008 predictions...... right on.

His fundemental issue and what the gov't and no one else is acknowledging is that we need to reduce our DEBT, we can't get out of debt or a credit freeze by issuing more DEBT. We need a massive nation-wide cram down and we need to start on that now. Until that happens it will be fun and games until eventually it does happen to a much worse degree.

Since no bond holder is willing to take a voluntary haircut, it should be forced upon them especially bond holders of our failed financial institutions.

I am pretty infuriated by this whole CDS fiasco, they should just collapse the whole market at this point, either that or eliminate naked CDS positions.

as far as Denninger, he's a fucking joke. Any yokel could have predicted the problem when he did and now his predictions are getting ridiculous.

We can get out of a credit freeze by issuing debt. As long as the credit goes to credit worthy people and, overall, people reduce consumption (and thus debt) things will get better.

I do abhor the notion that even once the economy recovers we can still spend like drunken sailors.

 

[GTKeeper]

Originally posted by: LegendKiller

Originally posted by: GTKeeper
This is true and it will come out in the media soon enough.

You wonder why the head of JPM said that 'March was much tougher than Jan / Feb'. Gee.... I wonder why.


I think people don't realize how scheming and colluded the financial industry is. Why was the head of freakin GOLDMAN SACHS in the meeting over at AIG with GEITNER, PAULSON and BERNANKE....... when bailout talks etc were being discussed? ..... Maybe the 13 billion dollar pay off might have something to do with it.


As for Karl Denninger, I think more people should read his ticker. Look at his 2007 and 2008 predictions...... right on.

His fundemental issue and what the gov't and no one else is acknowledging is that we need to reduce our DEBT, we can't get out of debt or a credit freeze by issuing more DEBT. We need a massive nation-wide cram down and we need to start on that now. Until that happens it will be fun and games until eventually it does happen to a much worse degree.

Since no bond holder is willing to take a voluntary haircut, it should be forced upon them especially bond holders of our failed financial institutions.

I am pretty infuriated by this whole CDS fiasco, they should just collapse the whole market at this point, either that or eliminate naked CDS positions.

as far as Denninger, he's a fucking joke. Any yokel could have predicted the problem when he did and now his predictions are getting ridiculous.

We can get out of a credit freeze by issuing debt. As long as the credit goes to credit worthy people and, overall, people reduce consumption (and thus debt) things will get better.

I do abhor the notion that even once the economy recovers we can still spend like drunken sailors.

I'm not going to defend Denninger vehemently, but he actually undestands capital markets and how they work and what he posts makes sense and gets to the point. We are very close to the point where issuing more debt actually does anything. (there is a famous chart on this, kind of bang for each debt buck) I think we are now at 10-15% effectiveness.

I agree about the naked CDSs, its what I have been saying as soon as I found out what they were (if you asked me 1 year ago what is a naked CDS, I wouldn't know) I knew that they had to be eliminated.

What absolutely infuriates me more than anything, is that our government is allowing for such blatant cycle of privitizing profits and socializing losses. I have sent letters to my gov't reps countless times, usually with some lame ass response. I even visited a few town halls, but people just 'don't get it'.

And to top it all off you get piss ants like DeSantis whining about their lack of compensation after raking in millions on casino betting at AIG while at the same time not knowing WTF was going on in a division of 377 people? PLEASE, give me an F-ing break. If he knew nothing of these 'CDSs' and these back room deals, WHY THE HELL IS HE AT AIG ON A RETAINER TO UNWIND THESE POSITIONS?! AIG said 'DeSantis knows this stuff, and no one else does', DeSantis claims he is a victim..... someone is a LIAR.

It is AMAZING that there are people out there that defend AIG! AIG has been caught breaking the law before but act like they are this god's gift to society.

 

[zephyrprime]

Originally posted by: LegendKillerI am pretty infuriated by this whole CDS fiasco, they should just collapse the whole market at this point, either that or eliminate naked CDS positions.

as far as Denninger, he's a fucking joke. Any yokel could have predicted the problem when he did and now his predictions are getting ridiculous.

We can get out of a credit freeze by issuing debt. As long as the credit goes to credit worthy people and, overall, people reduce consumption (and thus debt) things will get better.

I do abhor the notion that even once the economy recovers we can still spend like drunken sailors.

But we can't reduce debt without killing the economy since going into more debt is the only way to create more liquidity in our system. This is why paying down debt is not enough. Cram downs are the only way to reduce debt without reducing liquidity in the system.

 

[scruffypup]

The gist of the story is incorrect,... they are trying to say this is a scam and AIG is again the evil party. Wrong, they are being forced to unwind their positions in a hurry. They cannot go the normal piecemeal route, they are being forced to do this in chunks. Yes the banks are getting a better deal than they would otherwise most likely, and it is effecting their balance sheets for the last few months,.... however the scam and evil party thing is incorrect.

This is part of what is needed to return at some point return to normalcy in our financial markets and in so doing, in a forced manner, is going to have some less than ideal effects,.... if the government wanted AIG to get the most for each transaction on behalf of the taxpayer,.... this unwinding would take years,....

 

[smashp]

So the real problem was AIG's willing ness to Insure these crappy Derivitive products and Since the derivitives were insured, The Banks had no problem purchasing more and more of them and overloading their books with them. I mean hey, they are insured from Loss.


Welcom to what the "free market" has brought us people

 

[jman19]

Originally posted by: Socio

Originally posted by: Acanthus
The bailouts are likely paying derivatives to the other banks.

Which is not in any way fraudulant, unfortunately.

If those derivatives are used to fake profit in order to fool consumers and the market in to thinking these banks were actually turning a real profit, would that not be fraudulent?

Fake profit? So those losses banks took on derivatives don't count either, right? :roll:

 

[jman19]

Originally posted by: LegendKiller

Originally posted by: GTKeeper
This is true and it will come out in the media soon enough.

You wonder why the head of JPM said that 'March was much tougher than Jan / Feb'. Gee.... I wonder why.


I think people don't realize how scheming and colluded the financial industry is. Why was the head of freakin GOLDMAN SACHS in the meeting over at AIG with GEITNER, PAULSON and BERNANKE....... when bailout talks etc were being discussed? ..... Maybe the 13 billion dollar pay off might have something to do with it.


As for Karl Denninger, I think more people should read his ticker. Look at his 2007 and 2008 predictions...... right on.

His fundemental issue and what the gov't and no one else is acknowledging is that we need to reduce our DEBT, we can't get out of debt or a credit freeze by issuing more DEBT. We need a massive nation-wide cram down and we need to start on that now. Until that happens it will be fun and games until eventually it does happen to a much worse degree.

Since no bond holder is willing to take a voluntary haircut, it should be forced upon them especially bond holders of our failed financial institutions.

I am pretty infuriated by this whole CDS fiasco, they should just collapse the whole market at this point, either that or eliminate naked CDS positions.

as far as Denninger, he's a fucking joke. Any yokel could have predicted the problem when he did and now his predictions are getting ridiculous.

We can get out of a credit freeze by issuing debt. As long as the credit goes to credit worthy people and, overall, people reduce consumption (and thus debt) things will get better.

I do abhor the notion that even once the economy recovers we can still spend like drunken sailors.

Agreed, the lack of regulation around CDS' has been a disaster... time to blow it up and start over with some oversight...

 

[StageLeft]

Bailing out naked CDS truly does make no sense, they should all be void right now unless the issuer has their own funds to pay for them. Any complains, F you, you have no legal recourse, period, it's a dead-issue.

 

[LegendKiller]

Originally posted by: Skoorb
Bailing out naked CDS truly does make no sense, they should all be void right now unless the issuer has their own funds to pay for them. Any complains, F you, you have no legal recourse, period, it's a dead-issue.

We agree on this issue.

 

[chess9]

Originally posted by: Acanthus
The bailouts are likely paying derivatives to the other banks.

Which is not in any way fraudulant, unfortunately.

You are right, but Treasury has to know that bailing out AIG is bailing out Goldman Sachs, et al. This is an easy way to spread around the bailouts. It's politically palatable.

But, it's also terrible policy.

-Robert

 

[GTKeeper]

Originally posted by: scruffypup
The gist of the story is incorrect,... they are trying to say this is a scam and AIG is again the evil party. Wrong, they are being forced to unwind their positions in a hurry. They cannot go the normal piecemeal route, they are being forced to do this in chunks. Yes the banks are getting a better deal than they would otherwise most likely, and it is effecting their balance sheets for the last few months,.... however the scam and evil party thing is incorrect.

This is part of what is needed to return at some point return to normalcy in our financial markets and in so doing, in a forced manner, is going to have some less than ideal effects,.... if the government wanted AIG to get the most for each transaction on behalf of the taxpayer,.... this unwinding would take years,....

The scam part of it is, I wonder how many of the underlying bonds on these CDSs does Goldman actually own?

I am willing to bet not exactly the 12+ billion they received from AIG.

You don't think that's a scam?

 

[Aegeon]

Originally posted by: GTKeeper
The scam part of it is, I wonder how many of the underlying bonds on these CDSs does Goldman actually own?

I am willing to bet not exactly the 12+ billion they received from AIG.

You don't think that's a scam?

Uh, Goldman certainly did basically own investments covered by the CDSs and underlying bonds during the period in question, or the Golman Sax execs and others in on the fraud would be going to jail to scamming AIG. There might be the cases where another bank bought the bank that ended up with the loses, but ordinarily all agreements including insurance contracts get carried over.

Basically this is all about various banks buying insurance from certain investments turning out to be valueless, and the CDS basically being insurance covering if this occurs. Basically banks lost a huge amount of money on their investments and this is AIG honoring its insurance agreements.

The main question is whether we should have bailed out AIG who is the insurer in this case, but its certainly not a matter of the investment loses the banks have been taking not being real. (It may have turned out what they bought investment wise didn't have the value they though it did, but that's a different story.)

 

[zephyrprime]

Originally posted by: Aegeon
Uh, Goldman certainly did basically own investments covered by the CDSs and underlying bonds during the period in question, or the Golman Sax execs and others in on the fraud would be going to jail to scamming AIG. There might be the cases where another bank bought the bank that ended up with the loses, but ordinarily all agreements including insurance contracts get carried over.

Basically this is all about various banks buying insurance from certain investments turning out to be valueless, and the CDS basically being insurance covering if this occurs. Basically banks lost a huge amount of money on their investments and this is AIG honoring its insurance agreements.

The main question is whether we should have bailed out AIG who is the insurer in this case, but its certainly not a matter of the investment loses the banks have been taking not being real. (It may have turned out what they bought investment wise didn't have the value they though it did, but that's a different story.)

Goldman probably did own many real assets that they bought CDSs to cover. However it's entirely legal to buy CDSs for assets you do not own since the CDS market is unregulated. This is akin to me buying fire insurance on your house.

 

[BoberFett]

Then the question remains: Why are we bailing out AIG? Call what they did insurance fraud, invalidate all CDS contracts, slap them with a massive fine, and be done with it.

Instead, we're going funnel trillions of dollars to illegal gamblers and set up massive new bureaucracy to "fix" the problem.

Yay government. :roll:

 

[chess9]

Well, gentlemen, if you think Treasury is paying close attention to what it is doing, read this:

http://blogs.abcnews.com/georg...3/caught-my-eye-t.html

Elizabeth Warren is one of the few people in this mess you can, erm, 'bank' on.

-Robert

 

[rchiu]

It's funny....the premise of the AIG bailout is the interconnection between AIG and all the financial firms and if AIG fails, there will be domino effect. And now you people realize that there is an interconnection between AIG and the investment banks but instead of understanding better why the bailout is needed, you use that to bash AIG?

Seriously, you people should just declare Wall St. is evil and just burn it down. I am sure USA will be much better that way.

 

[chess9]

Originally posted by: rchiu
It's funny....the premise of the AIG bailout is the interconnection between AIG and all the financial firms and if AIG fails, there will be domino effect. And now you people realize that there is an interconnection between AIG and the investment banks but instead of understanding better why the bailout is needed, you use that to bash AIG?

Seriously, you people should just declare Wall St. is evil and just burn it down. I am sure USA will be much better that way.

I don't know about all the 'you people' out there, but if AIG could have paid their counterparties 10 cents on the dollar, the treasury would have a few extra hundred billion. I realize it's just play money to some people, but the counterparties didn't have to be paid in full. This realization has finally become political reality at Treasury, which is why you are seeing the screws being tightened.

I don't think many here hate bankers or Wall Street, though there is substantial evidence of systemic greed, excessive risk taking, and stupidity. Maybe you are one of the trees in the forest and can't see the 'root' causes of these 'lumbered' banks?

-Robert

 

[wwswimming]

Originally posted by: rchiuSeriously, you people should just declare Wall St. is evil and just burn it down. I am sure USA will be much better that way.

what contribution has Wall Street made to American society lately ?