"President Barack Obama should serve the taxpayers, not Goldman Sachs, and liquidate AIG"

[brentspeak]

http://blogs.telegraph.co.uk/gerald_warner/blog/2009/03/18/president_barack_obama_should_serve_the_taxpayers_not_goldman_sachs_and_liquidate_aig

Posted By: Gerald Warner at Mar 18, 2009 at 19:52:00
Posted in: Eagle Eye


Barack Obama cannot walk on water after all, but that is unsurprising since he has four massive weights shackled to his ankles: AIG, Citigroup, Fannie Mae and Freddie Mac. Of these, the most urgent challenge is posed by AIG. The current row over the payment of $165m in bonuses - an outrage, admittedly, especially since 11 employees who received more than $1m in "retention" bonuses have already left the company - is a distraction, like Sir Fred Goodwin's pension in the UK, from the main concern.

Barack Obama and Tim Geithner have one sensible option: they must send the liquidators in to AIG to pick the bones clean. The sooner they take this drastic action, the more effective it will be. The perception is growing that the real motive behind the AIG bailout is to save the posterior of Goldman Sachs: AIG appears to have become a staging post through which billions of taxpayers' dollars travel into the coffers of Goldman Sachs and other banks.

The question is also being asked why Goldman Sachs' chief executive Lloyd Blankfein sat in on meetings discussing the AIG bailout. The core of the AIG problem and, by extension, of America's banking crisis, is the question of Credit Default Swaps (CDS), the contracts invented by a team working for J P Morgan Chase in 1997, regarded as state-of-the-art financial practice and imported into the banking system like a plague bacillus.

The exposure to CDS liabilities amounts to $15 trillion. Forgive an inquisitive foreigner questioning Uncle Sam's credit worthiness, but does America actually have that kind of money to spare? No, is the evident answer. So, what is to be done? The Obama/Geithner formula seems to be to throw exponential amounts of taxpayers' money at AIG to delay the inevitable. But there is one procedure that would solve the CDS problem at a stroke: the bankruptcy process would allow all these toxic CDS contracts to be torn up, to the relief both of the financial system and the taxpayer.

Why will Obama and Geithner not take this course? It might sound perverse to describe Lehman Brothers as a success story, but in the present dire circumstances it could be called that: liquidation of Lehman has allowed its viable divisions to put down fresh roots. Why will Geithner not do the same with AIG? Financial commentators were quick to notice the startling similarity between Geithner's bank bailout plan and proposals that Goldman Sachs had been hawking around for a month beforehand.

Timothy Geithner is toast: even the Treasury cat knows he cannot survive. The present policy is madness. Anybody who listened to Barack Obama's campaign speeches would have presumed that, in a conflict between the interests of the suits on Wall Street and the families on Main Street, Obama would not hesitate. Nor has he: the suits have it. Meanwhile, AIG is the mortal wound sapping life from the Obama administration. Change we need? Hope? Some hope.

[stray cat]

1. Are we sure thats in the best interests of main street?

I really don't know - I'm not sure anyone does and I sure wouldn't believe anyone who assured me they knew the answer.

[jeanpalmer]

13. Why don't you know?

Why don't we know? Because All the people involved are deliberately keeping the facts from us so we cannot have an informed opinion about the correct course of action. It allows them to make the decisions without any public scrutiny. And that's the way they have designed it. In the case of AIG, we ought to know in detail what's on their books, who they owe money to, what's the basis for it. We shouldn't need a Congressional hearing to get AIG to divulge whom they paid TARP funds to. We should know as a matter of course. It's not in the interest of good government to keep that information private, as Obama, Geithner and Bernanke are doing.

[valerief]

2. I wish people would stop talking about Main Street. Main Street

died the in the 60s and 70s. Malls killed it.

[asphalt.jungle]

3. Torygraph? next

nm

[TBF]

4. He should but he won't. n/t

[CreekDog]

5. they are liquidating AIG

the gov't is buying up the investments and selling them off.

they are trying to prevent investors from pulling money out of institutions all over the world.

what are you talking about "protecting taxpayers", they are trying to protect EVERYONE from financial collapse, which is actually more urgent right now.

[brentspeak]

7. The government is liquidating AIG by having AIG give Goldman billions of our tax dollars?

By giving hedge funds billions of our tax dollars?

That's "liquidation"?

[CreekDog]

8. we are buying them and selling them

and all the component parts.

oh they could just close them down and not pay a dime.

that would feel better wouldn't it?

of course, nobody would have a pension next week, but we'd feel better. :eyes:

[brentspeak]

9. We are "buying and selling"...what??

What "component parts"?

This discussion is concerning AIG. What are you referring to?

[amandabeech]

6. This may be the Torygraph, but I was very interested in the alleged fact

that the head of Goldman Sachs was in the meetings when the AIG bailout was discussed and formulated. If that was true, then we have been taken in a way that dwarfs the bonus brouhaha, which is bad enough in and of itself.

Hank Paulson was from GS, as was his deputy, one Mr. Kashkari, who IS STILL AT TREASURY.

Sunday evening AIG released a list of those counterparties to CDOs who had been paid. GS was near the top, second IIRC to Societe' General of France.

With the bonus bailout out flap going on, no one is focusing much on where all that AIG money was really going.

It sounds to me like Paulson and his deputy Kashkari used AIG to shore up Goldman to their personal gain.

The FBI should be on this like flies on a dead skunk. They're going to have to put the screws to someone, but someone has to talk.

[inna]

12. how interesting. do you happen to have a link, by chance?....

i'm just curious what $ amounts are at stake here.

plus, as far as i know, there is almost no transparency with regard to these issues, so.... any links/pointers would be much appreciated.

[amandabeech]

14. I'm not sure what you want the link to.

I made several points. I'll help if I know what to look for.

[redstate_democrat]

10. I don't understand why they didn't make breaking up AIG's divisions and spinning off its subs

the first course of action. The Financial Unit Products division is the source of the problem. The CDS's are from that division. The other product divisions can remain. Spin off the Financial Unit with the CDS's, investigate their formation and the underlying deals, and if need be, bankrupt it. Your not destroying the underlying security (if they had any value to begin with), you're only canceling the insurance coverage on it. I can hardly see how someone could get mad because they paid a % of a penny for every dollar insured on assets and securities they never owned, and the government comes along and declares it fraud. To make things fair, maybe we just return the premiums they paid on the CDS's. Goldman Sachs was the first to start making noise about the AIGs CDS's and demanded collateral from AIG. They kept going back for more collateral claiming that AIG wasn't good for the dough on the CDS's. AIG, stupidly entered totally insane deals, but Goldman Sachs did not have clean hands in this. Now, AIG is being propped up simply to pay off CDS's to Goldman's and hedge funds. I suspect that once they are paid, the viability of AIG will no longer matter.

[Demeter]

11. They Were Hoping They Could Finesse It

Although why they would think that escapes me.

Maybe they only thought they could pull the wool over the sheeple's eyes. That sure didn't work.

Maybe they really didn't think it through at all. That much is obvious starting way back at the beginning...2002 or so.

[Mojorabbit]

16. Ah but I read an article here today

which said the insurance part is in bad shape. From what I understand of it the many insurance divisions within the company reinsured eachother. Wasn't there something in the bankruptcy bill too having to do with hedge funds having first dibs on any bankruptcy money? It is too late for me to be up and my brain is not working. It is a big mess all the way around no matter how you cut it.

[MarjorieG]

15. The Brits, globally, would not like Obama quickly liquidating. However much this guy likes to bash.

Bush racked up many times what we are bailing out banks for, in taxes for rich, Irag, etc, the GOP deregulation mess. AIG might be doing their tasks, getting rid of the riskiest, but will take time.