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This is about the many ways in which Wall Street is about to do what they've always done to us: game the system for their own advantage.

It's what they do. As the old question goes: "Why do you think they get the big bucks?"

But, first, a little background...

There are a ton of extremely valid reasons why our government is engaging in the biggest giveaway of all time to the status quo (a/k/a Wall Street).

I get it. Believe me, I do. (I have been blogging about the economy going on two years. I've been addressing it on behalf of fellow Democrats, professionally, for three decades.)

Expediency in an emergency--in light of crashing markets and dramatically rising unemployment and real and potential domestic and international social unrest--is about as legitimate of a reason as there is to act swiftly, right now.

President Obama--who is certainly addressing this expediently--pointed out the obvious "too-big-to-fail" meme tonight on 60 Minutes: "Obama Says Risks Still in System, Questions Bonus Tax."


"There are certain institutions that are so big that if they fail, they bring a lot of other financial institutions down with them," Obama said in an interview for the CBS program "60 Minutes" broadcast tonight. "And if all those financial institutions fail all at the same time, then you could see an even more destructive recession and potentially depression."

When your house is on fire, you don't hunt down the arsonist first; you put the fire out first; then you hunt down the sucker that started the fire and you hang them out to dry.

My fears (sorry Larry Summers, but if you're going to use "fear" to further your agenda and then simultaneously admonish the rest of us for talking about our legitimate fears--which happen to be heavily supported by a myriad of Obama-supporting authors and economists as well as two folks whom you won't even give the time of day: former Federal Reserve Chair Paul Volcker and Nobel Prize Winner Joseph Stiglitz), however, which also happen to be the shared concerns of even Obama's and Biden's closest economic advisors, Austan Goolsbie and Jarred Bernstein, respectively, as well as Office of Management and Budget Director Peter Orszag, are that we may be putting out this fire with gasoline.  (NOTE: Austan Goolsbie actually pointed out this article to me--the link for which is provided in the previous sentence--a couple of weeks ago.)

If you think we're not making a deal with the devil--Wall Street--to dig ourselves out of this mess that risks haunting (and maybe even tragically undermining) both this administration, the Democratic Party, the public and at least one or two generations to come, then you're totally unprepared for what lies ahead.

It's not just important, it's imperative that we get this right the first time. Stating the obvious, there really might not be a second chance.

The biggest reason why we may not get a second chance to address these matters, effectively, relates to the reality that there's only so much money to go around, as DKos diarist gjohnsit  brilliantly illustrated in their diary the other day: "U.N.: It's time for the world to ditch the dollar."

Then, on queue, almost simultaneously, the following two stories (and many more that were similar) appeared:

   "Yen, Dollar Fall on Optimism Obama Plan to Add to Yield Demand"

   "US Dollar Devaluation As Predicted"

But, apart from this coming week, this diary isn't about what lies ahead; it's about right now.

More importantly, it's about being prepared right now for what lies ahead.

Throughout this economic crisis, there's been an ongoing pattern of the government acting (or, at least acting like it's acting) quickly, and then doubling-back and dealing with the fallout (both politically and economically) from its actions, afterwards.

In many respects, this same behavior is repeating itself this upcoming week as Treasury Secretary Tim Geithner announces his multi-faceted bailout plan for Wall Street.

There are massive black holes to be navigated around throughout this undertaking, now and going forward, and many of them relate to a matter that many members of the Obama administration have already totally wrapped their collective minds around, and that's implementing better regulatory oversight of Wall Street and the shadow banking sector. This weekend, Stephen Labaton wrote a very good piece on how the Obama administration is clearly focused on this matter, going forward, entitled: "Administration Seeks Increase in Oversight of Executive Pay ."

The only problem here is that they're formulating regulatory strategy relating to legislation that may not be written (and, hopefully, passed) until many weeks, months or years from now. Meanwhile, the cash spigot is turned on full-blast, and the money is spent now.

WALL STREET: "How will I game thee? Let us count the ways."

Just as sure as the sun will shine and the moon will rise, once again, Wall Street--known far and wide for doing just about whatever it takes to make a buck--prepares to game the government and the U.S. taxpayer for all they're worth.

The one thing you can take to the bank today, even if you don't have a pantload of cash to deposit there, is that truth.

FIRST, THERE WAS THIS...

Last night, I posted a diary which discussed the reality that at least some--if not all--of the collateral covered in the first iteration of TARP, back in the last quarter of 2008, was never collected by our government when payments were made to the various entities that needed to cover counterparty derivative debt.

In AIG's case, it appears (based upon the quote below) that this was/is the disposition of all of their counterparties. AIG's counterparties were allowed to keep the underlying derivatives and securities even though our government covered AIG's counterparty obligations.

The truth remains that the public knows very little about all of this, even now. Here's something we do know:

On December 28th, 2008, the stock market website, Seeking Alpha, in a post entitled, "AIG Becomes the Fed's Vehicle to Buy Toxic Assets," enlightened us to the  reality that AIG's counterparties were being compensated for their losses but, simultaneously, they were also enabled by the government (via AIG) to actually hold onto their toxic trash while pocketing taxpayer-backed bailout money for it.


AIG Becomes the Fed's Vehicle to Buy Toxic Assets
by:  Michael Steinberg December 28, 2008

The Washington Post (from Bloomberg News) "With Fed's Help, AIG Unloads $16 Billion in Credit Default Swaps" reports that American International Group (AIG) retired another $16B face value of credit default swaps for $6.7B by purchasing the underlying securities and canceling the contracts. The insured (counterparties) were able to keep the more than $9B in collateral that AIG posted. The counterparties were taken out at par. So far, the Fed's Maiden Lane III special purchase fund has purchased $62.1B face value of CDOs from AIG's counterparties. The Fed has committed to purchase up to $70B face value of CDOs from AIG's counterparties at roughly 50% of par.  Each time the Fed is allowing the counterparties to keep all collateral.

Why has the Fed completely removed the risk of AIG as a counterparty in CDS transactions? Perhaps the Fed views moral hazard as a foreword looking constraint and AIG is just trying to unwind past regrettable activities. More likely the Fed is viewing AIG as a conduit to funnel capital into favored financial institutions. By forcing counterparties to sell the underlying CDO securities in order to receive full recovery, the Fed is liquidating toxic assets and preventing pure speculators from participating. But by paying close to par, when posted collateral is included, the benefit of price discovery is missing.

AIG told shareholders that the Fed would negotiate the CDO purchases on AIG's behalf and AIG's participation in any price appreciation would be limited. The implication was that the Fed would use its strength to be an advocate for AIG. Quite the opposite turned out to be true. Instead the Fed used its strength to force a weakened AIG to make whole its stronger counter parties.


Diarist emphasis is in bold.

What we're being told in this article is that all this toxic paper is still in the hands of the folks that have already been compensated for it by our government! How could that be? Apparently, we've knowingly let these AIG counterparties (and, perhaps other recipients of other bailout funds) keep it.

This week, per news articles throughout Saturday's MSM quoted above, Treasury Secretary Geithner will formally announce a series of federal programs to subsidize the private sector's purchase of all of this toxic paper--and more--from these very same entities.

Now, with the advent of new Financial Accounting Standards Board regulations that redefine the meaning of "Net Income," along with the Treasury Department's and the Fed's new TALF, TLGP and related programs, it would appear that these same counterparties may be enabled to:

a.) place those same derivatives and underlying securities--derivatives and securities for which they've already been compensated once by U.S. taxpayers--on their books as assets at mark-to-model valuations (i.e.: 100 cents on the dollar or more, for garbage that's only worth pennies on the dollar); and/or

b.) repackage them and offer them through to the shadow banking sector via TALF and a few other programs, collecting more government-sponsored subsidies--equivalent to possibly much more than the derivative's original value--in the process of doing so, thus...

c.) earning upwards of 150% in taxpayer-subsidized returns on paper that's actually worth only cents on the dollar.

But, there really isn't much deviousness here. The truth is, if the government even has an inventory of what they were supposed to obtain--and didn't--we don't even know if it exists. So, the likelihood that it may/will be sold within the upcoming program offerings remains very real.

BUT, THAT WAS JUST A PRELIM FOR THIS...

Tonight, I spent some time over at the Naked Capitalism blog, a left-leaning site that focuses on all things related to business and our economy--and one that's frequented by a lot of market professionals too--and let me tell you, it was an eye-opener!

Apparently, I was just scratching the surface.

If you have any doubt about what's about to go down this week on Wall Street, I would strongly, strongly suggest you take a gander at the ongoing discussions between host Yves and fellow bloggers there to understand just how simply and readily our government is about to get the shit gamed out of it.

Here are just a couple of examples of what I'm talking about--fellow professional Dem's explaining in great detail how this will all go down in coming days--and you may link to it all in real time, right here: Naked Capitalism.


    Yves,

    There is a much simpler way to play this game than buying the CDS contract mentioned before.

    Let's say ABC bank has $100m nominal value of debt that they have marked down to $90m on their books. But ABC knows it will really only net out to $60m if held to maturity. So they have another $30m in losses to recognize.

    The easy way to game the system is for ABC to coordinte with Hedge Fund XYZ and simply loan XYZ the 3% of the $90m, or $2.7m with a two year term. This allows XYZ to bid and win the debt at full book value. Of course the debt could be spinning off $4-$7m annually depending upon your assumptions.

    The bank beneifts in several ways: 1) they have a $2.7m risk-free loan that they know will be money good and paid in full in two years, ABC has a worst case loss of $2.7m instead of $30m. Of course the chances of losing anything are almost non-existent.
    2) Their capitalization ratios are repaired immediately.
    3) They don't have to take an additional mark down and the associated hit to earnings.

    XYZ will get a healty portion of the spin off of cash in the mean time, that far exceeds the $2.7 million loan, and XYZ garners considerable goodwill with bank for future deals.

    Since the Treasury sponsored loan is non-recourse, XYZ gets to walk away free and clear. XYZ has a huge potential to make money and Treasury is left holding the bag for the $30m that doesn't pay off.

    To make matters worse, it would be almost impossible to stop this sort of deal from occuring. Even if the program forbade the bank from financing the purchase of their own debt it would be difficult to discover an agreement between two banks to cross fund other investors. Not surprisingly the XYZ fund always wins the bid because he intentionally overbids.

    It is my guess that in the end this is the shell game that has been designed by the Fed, Banks, Treasury, Pension Funds, and Hedge Funds in order to hand the bill to the taxpayer a piece at a time without them knowing it.

And, something from Yves...


Saturday, March 21, 2009

Investor on Private Public Partnership: "One would have to be a criminal to participate in this"

Hoisted from comments:
Say I am SAC Capital. I get to be one of the bidders on bank assets covered by the program

Citi holds $100mm of face-value securities, carried at $80mm.

The market bid on these securities is $30mm. Say with perfect foresight the value of all cash flows is $50mm.

I bid Citi $75mm. I put up $2.25mm or 3%, Treasury funds the rest.

I then buy $10mm in CDS directly from Citi [or another participant (BOA, GS, etc)] on the bonds for a premium of $1mm.

In the fullness of time, we get the final outcome, the bonds are worth $50mm

SAC loses $2.25mm of principal, but gets $9mm net in CDS proceeds, so recovers $6.75mm on a $2.25mm investment. Profit is $4.5mm

Citi writes down $5mm from the initial sale of the securities, and a $9mm CDS loss. Total loss, $14mm (against a potential $30mm loss without the program)

U.S. Treasury loses $22.75mm

Great program.

It's just a scheme to transfer losses from the bank to the taxpayer with an egregious payout to a middleman (SAC) to effectively money launder the transaction.

You've also transmuted a $30mm economic loss into a $36.75mm economic loss because of the laundering. So its incredibly inefficient.

How did fraud and money laundering become the national economic policy of the US?

There are actually much better illustrations on the site than what I have posted here. But, it's certainly proof positive that there are, literally, dozens of loopholes--many of them discussed over there in detail--which provide plenty of initiatives for anyone wishing to make a buck at the taxpayer's expense to do just that.

One of the examples I found especially amusing was how banks simply work with a favored hedge fund to move toxic paper from the bank's books to the hedge fund's ledgers...just to remove the loss from their ledges and to establish a much higher value for the paper as recorded in the new transaction, itself. Once the new, higher value (which has nothing to do with the actual market value of the paper) is recorded, the bank then "buys" the paper back from the hedge fund; and they book a "defined asset" with "real value" (as recorded by the previous transaction which establishes a benchmark for same), and therefore has a much higher-valued asset on its own ledger sheet!  (And, that's an easy one that even I can understand!) Oh, yes, one more detail: the taxpayer ends up eating a multimillion dollar bill, too.

The long and the short of it is that if there's a way for a bank to semi-legitimately (and I'm really stretching the use of the word, "legitimately") pawn off bad paper, and at the same time enable a hedge fund to make a pile of money in the process, no matter how much it costs the taxpayer, it's all but definitely going to happen in the next few days, thousands and thousands of times over.

If you think these entities aren't experts at obfuscating transaction issues to make billions and billions of dollars, then you're in serious denial.

But, don't take my word for it, click on the links above and see for yourself what I'm referencing herein.

Now, we know the Obama administration is going to focus on regulating a lot of this stuff going forward, but it's safe to say it's not going to happen until long after the bad guys have made their getaway and the taxpayers are out trillions more in increasingly scarce cash...cash that could be going to Main Street instead of Wall Street.

Do you, honestly, in your heart of hearts think anything other than this is going to happen over the next few days? (Again, check out http://www.nakedcapitalism.com for much more conniving illustrations than what I'm showing you here.)

Inherently, within these programs, there are scores of ways to play the system and game the government.  And, when it comes to Wall Street, it's what they do!

As much as two trillion--or more--taxpayer dollars are at stake. Do you think there'll be any other outcome other than what I'm discussing herein?

If you do, I've got a really nice bridge overlooking the East River that I'd like to sell you.

Originally posted to http://www.dailykos.com/user/bobswern on Mon Mar 23, 2009 at 01:00 AM PDT.

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Comment Preferences

  •  Tips: Details, details, details... (14+ / 0-)

    "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

    by bobswern on Mon Mar 23, 2009 at 01:13:54 AM PDT

    •  Shame you got the details wrong, isn't it? (0+ / 0-)

      Every time I read one of your posts, it's full of inaccuracies. Not just little inaccuracies, but big, glaring, black-is-white, up-is-down inaccuracies.

      Here, for example, you're telling your readers that AIG's counterparties are being allowed to keep the CDOs which the Fed is buying from them. That's just not true. And the SeekingAlpha article from which you draw that conclusion SAYS it's not true.

      How to explain that? To me, it looks like you just don't understand what your source material is saying.

      What the article says is that the Fed has set aside $70bn to buy risky CDOs from AIG's counterparties - CDOs on which AIG has sold credit protection and which would therefore consume taxpayer money if and when they default. Rather than waiting for the CDOs to default and then making the counterparties whole using taxpayer funds, the Fed is paying AIG's counterparties 50c on the dollar for the CDOs - or half their par value. That's obviously a kick in the teeth for the counterparties, which had insured at par. So, to make the deal work, the Fed then allows the counterparties to keep the collateral which AIG had posted against the increasing value of the CDS. That's NOT taxpayer money. Those are securities which AIG handed over as a way of mitigating the counterparties' increasing exposure to AIG itself.

      As a CDS increases in value - in other words, as the likelihood of it paying out increases - collateral will be posted to the protection buyer by the protection seller, so that the buyer has some security in the event of the seller defaulting before the contract is settled. If you add up the 50c that the Fed is paying plus the collateral that was posted earlier by AIG, you get close to par value for the protection buyer ... but without needing to use taxpayer funds to pay for all of it, as would have happened if the CDO was allowed to default and the CDS was exercised.

      If you re-read the article, you'll see it says that "American International Group (AIG) retired another $16B face value of credit default swaps for $6.7B by purchasing the underlying securities and canceling the contracts."

      You see the value of what the Fed is doing, now? They've cancelled $16bn of CDS - for which the taxpayer would be on the hook - by spending $6.7bn on the underlying CDOs and letting the counterparties retain the collateral paid by AIG. The taxpayer saves money, AIG's counterparties are made whole, and the Fed ends up holding the CDOs in the Maiden Lane fund mentioned in the article.

      Now, I'm guessing this is an innocent mistake on your part - you didn't know what CDS collateral is and therefore concluded that the Fed was letting AIG's counterparties keep the securities it had bought. But you might want to edit your post before you lead anyone else up the garden path.

      •  You may want to read the article before... (0+ / 0-)

        ...telling folks their work is inaccurate. This was for all of the deals, whether they were CDO's or CDS', or anything else for that matter, etc. There were more pieces on this, but I only used that quote as an example.

        "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

        by bobswern on Mon Mar 23, 2009 at 06:37:44 AM PDT

        [ Parent ]

        •  All collateral was kept by the counterparties... (1+ / 0-)
          Recommended by:
          Knarfc

          ...and the article asks if this collateral is going to be sold...and it goes onto to state that we'll probably never know since there's no transparency.

          But, then again, your comment is an an ad hominem attack on much of my work (where are the other cites?), so I really don't know why I'm taking the time to bother to respond to you in the first place!

          "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

          by bobswern on Mon Mar 23, 2009 at 06:45:47 AM PDT

          [ Parent ]

          •  Ad hominem attacks ... (0+ / 0-)

            ... tend to be a bit blunter than my post, don't they?

            •  General statements about inaccuracies... (0+ / 0-)

              ...without supporting, substantiating citations are meaningless, and appear to most to be merely baseless attacks on another's credibility.

              It is what it is. And, the truth, in this instance with this comment--the one for which you do attempt to provide substantiation--is that we'll probably never know the truth (on this and a variety of issues relating to these bailouts) due to lack of transparency and/or deliberate obfuscation.

              "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

              by bobswern on Mon Mar 23, 2009 at 08:09:27 AM PDT

              [ Parent ]

              •  No. The truth is out there ... (0+ / 0-)

                You state that:

                And, the truth, in this instance with this comment--the one for which you do attempt to provide substantiation--is that we'll probably never know the truth (on this and a variety of issues relating to these bailouts) due to lack of transparency and/or deliberate obfuscation.

                Nonsense. This is a very specific issue which you got very specifically wrong.

                Here's what Fed vice-chair Donald Kohn said on the topic of Maiden Lane, in testimony given to the Senate Committee on Housing, Banking and Urban Affairs, on March 5:

                The Federal Reserve also took steps to help address the drain of liquidity on AIG arising from potential collateral calls associated with credit default swap contracts written by Financial Products on multi-sector CDOs.  The New York Reserve Bank made a secured, non-recourse loan in the amount of $24.3 billion to another special purpose limited liability company (Maiden Lane III).  Maiden Lane III then purchased, at market prices, multi-sector collateralized debt obligations with a par value of approximately $62 billion from credit default swap counterparties of Financial Products in return for the agreement of the counterparties to terminate the credit default swaps.   AIG provided $5 billion in equity to Maiden Lane III to absorb future losses on the CDOs held by Maiden Lane III.

                In other words, it's exactly like I've been saying: the Fed wanted to wipe out some of the CDS that AIG had written in order to reduce further taxpayer exposure, so it bought CDOs from AIG counterparties and it - Maiden Lane not the counterparties - ended up holding those assets.

                And doesn't it all make a lot more sense that way?

                •  There's more questions here than answers! (0+ / 0-)

                  Maiden Lane III then purchased, at market prices, multi-sector collateralized debt obligations with a par value of approximately $62 billion from credit default swap counterparties of Financial Products in return for the agreement of the counterparties to terminate the credit default swaps.

                  I never said all of the CDS' were left with the counterparties. In fact, we don't know...but we do know that many tens of billions of derivatives were not cancelled.

                  To say anything other than that occurred, based upon a (deliberate) total lack of information, is what would be inaccurate!

                  "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

                  by bobswern on Mon Mar 23, 2009 at 10:26:53 AM PDT

                  [ Parent ]

                  •  Um. You didn't say ANYTHING ... (0+ / 0-)

                    ... about CDS. You said they were allowed to keep their "toxic trash" - the underlying notes that the CDS were written on.

                    Those assets were sold to Maiden Lane, as Kohn testified.

                    •  What part of this (comment) don't you understand? (0+ / 0-)

                      The insured (counterparties) were able to keep the more than $9B in collateral that AIG posted. The counterparties were taken out at par. So far, the Fed’s Maiden Lane III special purchase fund has purchased $62.1B face value of CDOs from AIG’s counterparties. The Fed has committed to purchase up to $70B face value of CDOs from AIG’s counterparties at roughly 50% of par. Each time the Fed is allowing the counterparties to keep all collateral.

                      "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

                      by bobswern on Mon Mar 23, 2009 at 10:55:33 AM PDT

                      [ Parent ]

                      •  I understand it perfectly. (0+ / 0-)

                        And it doesn't say what you claim it says.

                        Here's your take on it: What we're being told in this article is that all this toxic paper is still in the hands of the folks that have already been compensated for it by our government!

                        That's absolutely NOT what the text you've highlighted says - and that's why I said, in my first comment, that I don't think you understand the subject matter. You're completely mis-reading it. Collateral posted against a CDS is NOT the same thing as the toxic paper against which the CDS had been bought.

                        I'll try to explain it again: AIG had written credit protection on CDOs (the "toxic paper" you mention above). As the paper became riskier, the likelihood of AIG needing to pay out also grew. As a result, its counterparties required the insurer to post collateral to them - in other words, to give them securities which they could keep or sell in the event that the CDOs defaulted and - at the same time - AIG defaulted on its obligation to make them whole.

                        Collateral, typically, comes in the form of liquid, high-quality securities.

                        The constant collateral demands were imposing a lot of strain on AIG, which had to keep handing over good paper - and there was also, of course, the risk that the CDOs would default and the taxpayer would have to pay for it. So the Fed decided to step in and reduce the risk, buying CDOs from the counterparties at 50c on the dollar and having them cancel the CDS - that's what your SeekingAlpha article says, and it's what Kohn said earlier this month. The purchased CDOs ended up being held by the Fed's Maiden Lane vehicle. In order to get the counterparties to accept half the CDOs' par value, the Fed needed to give them some extra value - and it did that by letting them keep the collateral that AIG had already posted.

                        Are you with me?

                        Now re-read what you wrote:

                        What we're being told in this article is that all this toxic paper is still in the hands of the folks that have already been compensated for it by our government!

                        It's not accurate, is it?

                        In fact, it's not even close to being accurate.

        •  You claim that AIG's counterparties were ... (0+ / 0-)

          ... allowed to keep the assets that were bought by Maiden Lane. They weren't. What they were allowed to keep was the collateral posted by AIG against the CDS it had written for those counterparties - and that was done in order to reduce the amount being paid by the taxpayer while still making the counterparty whole (or near enough whole).

          •  Actually, other comments support our... (0+ / 0-)

            ...assessment that the counterparties did, in fact, hold onto the assets in all instances (and this was symptomatic of much of the bailout money distributed to other sources, as well). And, I'm referencing other comments right on Seeking Alpha.

            "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

            by bobswern on Mon Mar 23, 2009 at 08:19:10 AM PDT

            [ Parent ]

            •  Meanwhile, tell me about "other" inaccuracies... (0+ / 0-)

              ...in other stories.

              You'll find that when there's a correction to be made on this stuff, I'll readily provide one.

              I see no citations for your much broader-based claims   concerning the accuracies of my posts.

              "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

              by bobswern on Mon Mar 23, 2009 at 08:21:30 AM PDT

              [ Parent ]

              •  Frankly, I don't have time ... (0+ / 0-)

                ... to trawl back through your other posts and set you straight in the way I did on this occasion.

                Given that that's the case, I probably shouldn't have mentioned the fact that this was an entirely characteristic misinterpretation of the facts. Apologies.

                •  I'd rec this, but the bottom line: you accused... (0+ / 0-)

                  ...me of making false statements, provided one instance which I've disproved...while simultaneously saying--from the get go--we'll never know...and now you tell me you don't have time (in the headline), but the text of the comment provides an apology?

                  I'm calling bullshit...just due to the manner in which you posed this comment!

                  "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

                  by bobswern on Mon Mar 23, 2009 at 09:57:40 AM PDT

                  [ Parent ]

                  •  You can call bullshit if you like. (0+ / 0-)

                    But the apology was actually (semi) sincerely meant ;)

                    •  What part of enclosed comment don't you get? (0+ / 0-)

                      The insured (counterparties) were able to keep the more than $9B in collateral that AIG posted. The counterparties were taken out at par. So far, the Fed’s Maiden Lane III special purchase fund has purchased $62.1B face value of CDOs from AIG’s counterparties. The Fed has committed to purchase up to $70B face value of CDOs from AIG’s counterparties at roughly 50% of par. Each time the Fed is allowing the counterparties to keep all collateral.

                      "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

                      by bobswern on Mon Mar 23, 2009 at 10:57:50 AM PDT

                      [ Parent ]

            •  Well, that's certainly not what the story ... (0+ / 0-)

              ... that you cited says.

              That story says that AIG's counterparties were allowed to keep the collateral posted against their CDS, thereby providing compensation for the fact that the CDOs were only bought at half their par value.

              If you've got other articles or sources which state that the Fed paid money for CDOs and then let the seller keep the asset, then great - bring them on - because what you've got at the moment is a post which asserts one thing and a source which says something very different.

              •  The source provides add'l verifications.... (0+ / 0-)

                ...but, based upon where your comment (above this) is coming from, I think this is a waste of time on my part.

                It's clear there's an attempt to provide disparaging remarks, across the board, in and of themselves...with  no effort to back it up other than returning to one comment in one blog.

                This has happened to me a couple of times in the past, and to a tee, the follow-up has been consistent...and, it's that if I do make a mistake, I'll acknowledge it in boldface type...but, I'm pretty good about this sort of thing...and in most (not all, but most) instances, it's just someone trying to lamely refute my work.

                What I see here is pretty lame, since the bottom line is there are plenty of supporting sources for this right in Seeking Alpha...and you're making disparaging remarks about my work, in general, and refusing to substantiate your derogatory comments, too.

                So, to paraphrase the Seinfeld's Soup Nazi "No more soup (comments) for you!"

                "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

                by bobswern on Mon Mar 23, 2009 at 10:21:02 AM PDT

                [ Parent ]

                •  What verifications? What supporting sources? (0+ / 0-)

                  Can you show me anything which suggests that although the Fed paid AIG's counterparties for their CDOs, the CDOs were left with the counterparties?

                  Frankly, I think you just misinterpreted the sentence that you set in bold - about the counterparties being allowed to keep the CDS collateral (which, as I've explained, is a very different thing).

                  •  What part of this (comment) don't you understand? (0+ / 0-)

                    The insured (counterparties) were able to keep the more than $9B in collateral that AIG posted. The counterparties were taken out at par. So far, the Fed’s Maiden Lane III special purchase fund has purchased $62.1B face value of CDOs from AIG’s counterparties. The Fed has committed to purchase up to $70B face value of CDOs from AIG’s counterparties at roughly 50% of par. Each time the Fed is allowing the counterparties to keep all collateral.

                    "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

                    by bobswern on Mon Mar 23, 2009 at 10:56:25 AM PDT

                    [ Parent ]

              •  HERE is what the story says.... (0+ / 0-)

                The insured (counterparties) were able to keep the more than $9B in collateral that AIG posted. The counterparties were taken out at par. So far, the Fed’s Maiden Lane III special purchase fund has purchased $62.1B face value of CDOs from AIG’s counterparties. The Fed has committed to purchase up to $70B face value of CDOs from AIG’s counterparties at roughly 50% of par. Each time the Fed is allowing the counterparties to keep all collateral.

                "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

                by bobswern on Mon Mar 23, 2009 at 10:58:31 AM PDT

                [ Parent ]

  •  Interesting stuff. (2+ / 0-)
    Recommended by:
    bobswern, luckylizard

    Just over at naked capitalism.

    I don't understand a lot of it, as money's a hard game to follow, but it certainly fits my understanding of the Swindle Formerly Known as the Economy.

    Fake wealth for fake people.

    Thanks Bob.

    Democracy - 1 person 1 vote. Free Markets - More dollars more power.

    by k9disc on Mon Mar 23, 2009 at 02:00:46 AM PDT

  •  I still want to know ... (1+ / 0-)
    Recommended by:
    bobswern

    how these bailouts advantaged anyone but the rich and those that caused the problems in the first place.

    Beer, politics & pizza - must have died and gone to heaven.

    by mrgardon on Mon Mar 23, 2009 at 03:42:29 AM PDT

  •  Isn't this just like (1+ / 0-)
    Recommended by:
    bobswern

    the "original sin" of selling the same debt (or bets against that debt) over and over?  I can only follow this stuff so far and then my eyes glaze over, but it looks like all of those who were screaming about doing the same things that got us into this mess were right.  It isn't just hiring the same people or throwing money at Wall St., it's going through the exact same motions to create more debt and resell it.  Am I anywhere close?  (This is starting to really pi$$ me off!)

    -7.62, -7.28 "We told the truth. We obeyed the law. We kept the peace." - Walter Mondale

    by luckylizard on Mon Mar 23, 2009 at 04:05:08 AM PDT

  •  I like this (3+ / 0-)

    from a NY Times blog.  Floyd Norris is discussing the AIG bonuses, but I suspect this is key to much of what's happening:

    The current power of the banking lobby is amazing. I have not been able to analyze the changes the Financial Accounting Standards Board is proposing to mark-to-market rules, but some people I respect think the board caved to political pressure. The banks whose excesses got us into this mess somehow have the ears of legislators, with the likely result being official sanction for the banks to fudge their books. As I wrote last week, I think the banks deserve some regulatory forbearance, but they should not be allowed to deceive investors.

    Speaking of bonuses, the bank lobbyists have more than earned theirs for this year.

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