When I'm trying to figure out what motivates a person, I ask a question. "If you owned everything in the world, where would you put it?" A sane, non-megalomaniac replies, "If I had everything, I'd put it everywhere. Leave it where it is. I mean, where else would you put everything?"
Then there are the Masters of the Universe. The people who say, "I'd put it in my pocket and charge admission." And these are the people we call "Hedge Fund Managers."
Perhaps I over simplify. I have no formal education in economics (not even a Nobel!) other than what I've read and seen. Heck, I don't even pay my bills on time. I'm ready for all those Ivy League economists to roll their eyes and sigh, "it's too complicated for anyone dumb enough to pay taxes to understand..."
Nonetheless, follow me over the fold and prepare to scream. This may just be what happened!
Many thanks to Matt Taibbi for his article. It really filled in some gaps for me.
First, let's consider why Hedge Funds exist and what they are. Certain obscenely wealthy people need ways to produce huge returns to continue to own a dozen Bentleys and Rule the World. They do this by pooling vast sums of cash to buy politicians and entire governments so they can have an unregulated high stakes casino using other people's money to absorb and deflect any risk.
Banks use them to leverage their assets to insane heights with unregulated cash that can be used over and over. Not that anyone with any power to do anything about it is watching anyway. I wouldn't be surprised to learn that lots of ill-gotten gains (drug money, mafia cash, no-bid defense contract goodies, all that missing cash from Iraq, etc.) get laundered funneled through these things.
They aren't illegal, but perhaps they should be.
I think this is a reasonable blow-by-blow of the crisis:
- Certain Hedge Funds bought credit default swaps (CDS) betting that firms like Bear Stearns, Lehman Brothers, Merill Lynch, and even Fannie and Freddie would fail. Since these events sounded like a long shot at the time, they had a big payoff (like 1000 to 1). Sorta like a 16 seed beating a 1 seed in college basketball, except that you destroy the entire global economy--not just your office pool bracket (it's OK, everyone else picked the #1 seed, too). AIG was the fool holding most the betting slips on this long shot.
- These certain Hedge Funds were also buying up lots and lots and lots of mortgage securities--especially BBB (the lowest) rated ones. Since "no one could have foreseen" that housing prices had a ceiling (uh, like how much us taxpaying morons could actually afford to spend on housing), bankers, traders, and brokers were happy to collect these fees and make as many stupid loans as possible to meth addicts in prison. Fannie and Freddie, assured these were all AAA rated securities, bought the mortgages so the banks could lend more and AIG was happy to insure all these risky assets. Our unregulated system rewarded this behavior, which is why it kept happening.
- Then
aided by well bribed and/or incompetent higherups at the SEC "too politically connected to be arrested" these certain Hedge Funds set match to fire by naked short-selling first Bear Stearns causing their share prices to crash from $65 to $.45 in 7 short days. The SEC ignored the naked short selling (which is completely and totally illegal if you don't own several members of Congress and the Chairman of the SEC). After a brief pause, certain Hedge Funds completed the job on Lehman Brothers, taking the global economy with them, including banks holding about 70% of real money global assets.
If you haven't seen this video (3 Parts), you need to. It's a really good explanation of this phenomenon
- In the old We, the People US of A, (pre-oligarchy) we sicked the FDIC on such failed banks, who dutifully fire Those Responsible without back pay and "performance bonus," cover all deposits, sell everything worth anything, and leave the shareholders and bond holders to split up the rest (pretty much nothing). The Lehmans, Bear Stearnses, AIGs, the unregulated uninsured investment banks would be subject to Chapter 11 bankruptcy, split up and divided amongst their creditors, and put in the grave. The problem is, the biggest players at the casino were very well connected: Paulsen's former employer Goldman-Sachs and former treasury secretary Robert Rubin's Citigroup. Both "too big to fail," code for "friends of ours we're not going to throw to the dogs even if that's where they belong." (Note: It turns out GS apparently didn't need the money, but since you're offering....).
- Meanwhile, back at the
casino stock market, credit ratings were getting downgraded and all this BS was starting to create a domino effect in the real economy. Credit downgrades mean "time to show that pair of twos you've been playing there, AIG. Let's see that nothing Queen high, Citi." To the real economy, it means that, since certain Hedge Funds stole all the money, there's nothing to lend for cars, houses, payrolls, college, new businesses, R & D, etc. And worse, the certain Hedge Funds who put this all in motion are demanding payment and they brought some muscle with them (like the full faith and credit of the US Government). This is about the time (mid-September, 2008) the financial big wigs promised to pop a cap in the Global Economy's ass if we didn't start forking over the treasury post haste and forthwith. And we thought they sucked when they were only stealing the Social Security Trust Fund through "privatization"!
- Now enter former GS CEO and Bush Treasury Secertary Henry Paulsen. His solution was to "buy toxic assets" (the CDS and other bets) with cash from the treasury by covering them with a TARP (so we can't see him taking advantage of the crisis by handing billions to his buddies at Goldman-Sachs, et al, that they apparently didn't really need--"But as long as you're offering, we'll take $13B"). "Buy toxic assets" means purchasing bad CDSs from banks who--when bad CDSs are added to their balance sheets--are all completely (by billions and billions of dollars) insolvent. Take out the "toxic assets" and everyone's balance sheet looks just great, right? You know, the CDSs almost certainly owned* by the same certain Hedge Funds that engaged in the illegal naked short-selling that precipitated this whole disasta.
*99.99% probability because they are the only entities with enough unregulated cash. We don't know for sure because, well, no one knows because certain Hedge Funds are unregulated casinos using other people's money and they obviously bought off the SEC the SEC just wasn't in the mood to investigate and prosecute naked short-selling by certain Hedge Funds last fall.
- Paulsen planned to put the $700 billion TARP over this problem thinking that would make certain Hedge Funds happy and they would
stop threatening to break his kneecaps be pleased to get anything at all. Except that it turns out that the "toxic assets" were getting more toxic all the time (losing what value they had because, as people lost jobs, 401ks, etc., more people defaulted driving down the price of housing even further) and they at one time added up to about $76 trillion. Probably more by now. Oops. Paulsen was probably pretty glad to be able to pass this mess onto his buddy at the NY Fed, Tim Geithner and head for his golden parachute at some....who wants to bet he shows up at some certain Hedge Fund in the near future? (Hey, that would make a great Credit Default Swap! Any takers?)
- So now we have the Geithner Plan, which is the same as the Paulsen Plan, except that the certain Hedge Funds have to appear to risk some pittance of cash to be paid more money from the treasury to fix the damage that they themselves caused in the first place with forethought and malice, aided and abetted by collusion or incompetence of the very law enforcement agency, the SEC, charged with stopping this kind of crap. And let's not forget how helpful the Bush Treasury was in threatening us with Marshal Law if we didn't hand over all of our hard-earned taxpayer cash.
It took me about six months to finally get this far, pretty much because I have lots of free time. But all of this info is out there for anyone to read. I'm not especially sharp, especially when it comes to economics. In fact, I'm pretty much an idiot when it comes to economics.
So if a taxpaying economic moran like myself figured this out, and many of you taxpaying suckers have come to similar conclusions, has Obama figured this out? If he hasn't, he's not as smart as we think he is. If he has, what exactly is his move? If he comes out openly against the Hedge Funds, they'll put a cap in his ass they'll, at minimum, destroy his presidency. If he does nothing, as a man of great conscience (and I honestly believe this), how does he sleep at night?
My guess: he figured it out as it was happening. He goes along with the Geithner appointment (Wall Street's choice undoubtedly over Axelrod's strenuous objections), appears to support Rubinites Geithner and Summers, gives the plan One Friedman Unit (six months), then pulls the plug on the whole thing. Of course, things could be really bad by then. I guess we'll see, but I'm looking at everything that happens in the financial world through this prism now. So at least I've got a point of reference.
The owners of these certain Hedge Funds obviously plan to put the entire world in their pockets and charge admission. We could stop them by either outlawing or tightly regulating Hedge Funds. Or actually revive the Sherman Anti-trust Law that said too big to fail is too big to exist (denying them prey). I'm not holding my breath.
Most of you know by now that any regulations written with Wall Street and especially Hedge Fund Managers at the table will only make the problem worse. Which pretty much excludes the entire Treasury Department.
Don't look now, folks, but I think they're getting ready to go all Argentina on our asses.
Or...as Keith says, "The Bank Bailout: also known as 'Why Daddy Went to Prison.'"