Matt Taibbi:
The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror. This is a company that built a giant fortune across more than a century by betting on safety-conscious policyholders — people who wear seat belts and build houses on high ground — and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people’s money would make his dick bigger.
Read the whole thing.
Right now I am vacillating between thinking I really don’t like Congress passing laws to tax specific people to wondering at what point some of the assholes who caused this mess are going to see jail time. Probably never.
pharniel
i fail to see how this is a bill of attender if it jsut specifies ‘any company recieving funds from the TARP program shall have bonuses taxed at x rate’
sounds like a change to the tax code, and if they don’t want to get taxed that high don’t take the money and/or find other work;)
btw, big picture has some lovely ranting about how there’s no safty net for these bonsu people.
whaaa
Comrade Jake
Obama basically said as much last night on Leno. All this shit was legal.
The folks over at TPM seem to be intent on digging on the fraud issue with AIG. Good for them, but I fear it’s a train to nowhere.
The one interesting question I have seen though is: why not let AIG just go bankrupt? Does anyone know enough to state why that was not a realistic option here?
BDeevDad
Someone should start a level of journalism with Matt Taibbi on top and Jim Cramer in the basement.
Michael
My questions:
1. Why did AIG hire Cassano and his junk bond unit out of DrexelBurnhamLambert? That just doesn’t seem to be risk averse for an allegedly "cautious" company to have done.
2. Cassano’s education is sketchy, and he was a cop’s son. Is a mob connection impossible?
BDeevDad
@Comrade Jake: Because they carry about half the insurance of the US. If they went belly up, look for the creditors to drop any high risk policies even if they are fully paid.
TenguPhule
Fixed.
Mark my words, there’s going to be violence before its over.
ksmiami
I said at the time of the first bailout AKA the Wall Street Heist that Paulson was a true criminal and ultimate insider who would funnel the money back to his buds no strings attached. He was just another connected deal junkie asshole. HE needs to be strung up, not Geithner
JM
Two things always astounded me about the rightwing juggernaut that’s died over the last two years:
1. the utter childishness of the "market will magically fix everything" paradigm.
2. the kind of childish assholes who were draw to it, whose only joy was to shit on someone else, as if compensating for a trauma that could never be healed.
They were truly stupid people pushing a dumb idea, people who only succeeded because they were useful to those who owned the megaphone. It’s too bad Obama isn’t the socialist they make him out to be. At least then we could look forward to show trials and executions.
TenguPhule
Because apparently AIG reached out and touched everyone.
With clients ranging from international banks to probably foreign governments, the scale of chaos resulting from all of those insurance policies and counter party agreements going bad at the same time the people who made said agreements run into the arms of those counterparties, the world economy might survive, but then again it might not.
Michael
The other thing that a lot of the Punditariat is missing: the free market dogmatists keep saying that the market will act rationally and that the participants will practice self-restraint.
At the same time, we’ve seen over and over that the opposite is true – when given the opportunity to act with self restraint, these guys shank it every time they step up to the tee.
The bonus recipients aren’t the guys working at the Quickie Lube, faced with impossible choices in the event that a pay cut were proposed. These are allegedly skilled, highly educated professionals that are tied into societal nuance. It is as if they didn’t understand what the reaction would be.
Comrade Jake
@BDeevDad:
But wasn’t that part of AIG (the standard insurance division, not financial services) largely healthy? Wouldn’t that have been allowed to continue to function through a bankruptcy process?
Brian J
I don’t really like the idea of taxing all bonuses over $250,000, as that would seem to him a lot of people who had nothing to do with what happened. Of course, that’s if that actually happens. I am still unclear at exactly how many people would be affected by this, should it even come to pass.
JM
That’s parallel to the libertarians’ assertions that we don’t need government to do X because of [non-existent transparency, rationality, and accountability], so they side with the Republicans as the latter do away with transparency, prey on irrationality, and evade accountability while robbing ordinary people blind.
Are libertarians too stupid to figure this out or too dishonest to admit it?
Atanarjuat
AIG should have been allowed to go bankrupt in the first place, since the end result will be the same, and the government could have saved a lot of wasted taxpayer money.
The only thing the bailouts and "stimulus" spending plans have accomplished is to permit the terminal patient to linger long after the EEG readings have flatlined.
Thanks for nothing, President Obama.
-A
TenguPhule
Corrected for Accuracy.
This Shit Sandwich was brought to us by the GOP, may they soon swing for it.
TenguPhule
Apparently not.
It seems the various parts were insuring each other to beef up their books.
So it seems even the bread on this shit sandwich is simply more shit, different color.
Ash
@Atanarjuat: Yeah, I know, thanks Obama, for not being president when all this shit went down?
Populist OUTRAAAAAAAGE is never a good thing for legislators to pay attention to. Of course they need to get elected and all that good stuff, but a majority of us are stupid.
Comrade Jake
@Atanarjuat:
Thanks for posting that, opposite boy. Now I know that there is no way they should have been allowed to go bankrupt. Want to guarantee a Palin victory in 2012 while you’re here this morning?
Michael
Even the healthy side doesn’t have the resources to pay off the derivatives.
Besides, there also seems to be a sphincter-tightening problem that’s become visible on the "healthy" insurance side.
http://www.newsweek.com/id/189917
Apparently, AIG’s spokeshole is channeling Kevin Bacon’s "Keep Calm, All is Well" ROTC cadet from Animal House.
J. Michael Neal
No. The crisis went into full gear in September. When Lehman went bust, one of the consequences was that all of the credit default swaps (or, at least, a lot of them) shot up in price. By the contracts, AIG had to post more collateral. The government stepped in at the point that AIG had effectively pledged all of its assets as collateral. That includes all of the assets necessary to run the insurance side.
One of the portions of the 2005 bankruptcy bill pertained to derivative contracts. It appears that the theory that the derivative counter-parties get to go to the front of the line in general bankruptcy proceedings was wrong. However, it seems clear to me that they do get to go ahead and seize collateral that has been pledged without regard to the stay that applies to other creditors. Since all of AIG’s assets had become someone else’s collateral, the effects are the same. If AIG goes into bankruptcy, the insurance side of the company goes belly up, even though it is profitable.
Rick Taylor
My worst fears appear to be true. According a Wall Street Journal article, the funds you and I are paying to AIG are in part going to hedge funds who shorted the markets. Clever investors bought insurance on mortgage backed securities that they do not own, forseeing the coming housing crash. They win big when the insurance pays.
Now I have nothing against clever investors who short the market and make money, but I don’t see why I should be the party responsible for paying off their winnings when the banks they’ve placed their bets with are unable to do so. Here’s the article at the . You can’t read it without a subscription but some of the comments are priceless.
This is what I was writing about earlier. The bonus scandal was peanuts; you, me, all of us funneling money through AIG to the banks to hedge fund speculators who bet against the market. Found via Firedoglake.
My stomach is clenched and I am nearly shaking.
TenguPhule
I forsee a thriving market in wooden stakes, kerosene, rope and matches.
Michael
How dare you point out that basing statements of corporate health on transactions between an entity’s wholly owned units is not a sound business practice. At some point, adequate dollars have to actually enter the system from outside.
Hank Greenberg may wind up in the cell that Ken Lay would have occupied.
J. Michael Neal
Plus, what the other Michael said. I have no idea if that’s true. The Newsweek story is essentially sourced to one guy, whose incentives are to play up the problem; he’s a lawyer for policyholders, so getting them into the bailout is in his interests. Still, his argument is at least plausible.
Miriam
Greenberg, the original CEO (he wasn’t there through this whole fiasco) has filed a lawsuit claiming that AIG mislead investors about its exposure to subprime mortgages and ruined his fortune. He was the largest non-institutional investor in AIG.
So there might be legal action, though maybe not criminal action, taken against AIG’s management.
http://news.yahoo.com/s/ap/20090320/ap_on_bi_ge/aig
And in terms of how right it is to tax these guys, as far as I’m concerned, the country was alot better off when the tax rate was more progressive – there was less inequality and more prosperity. I see this as a move in the right direction.
J. Michael Neal
I don’t see a legal way to pay off the counter-parties that it’s important to save while stiffing the undeserving hedge funds. (By the way, that’s not all of the hedge funds; some of them fall into the former category.) You bail them all out, or you don’t.
Brian J
Very, very smart comments from Brad DeLong about risks and long-term versus short-term compensation from Silicon Valley to Wall Street. He seems to be saying what I’ve thought for some time, but for the lower-level employees instead of the higher-ups: if they really believe in their work, they will accept options for the future as they work for limited compensation now for government-owned firms. I think it applies for both, which is why limited compensation for companies receiving bail out money seems to make sense. He says a big exit or "Going Galt" would indicate they think their work is worthless. I’m inclined to agree.
Basically, he seems to be saying they need to stop taking us for a ride, not that they need to be punished or need to be made examples of. We are, as he says, the owners of these companies.
J. Michael Neal
I don’t. I think there is a huge difference between a broad based, more progressive income tax system, and taxing a very narrow set of people because we think that their particular income is noxious. Even though it is noxious.
Michael
Take an aspirin on this one – Goldman Sachs was a huge issuer of CDOs. It also shorted a lot of CDOs. Particularly CDOs that it issued.
And it bought a lot of them back. They were insured by AIG.
And the taxpayers footed the bill for AIG’s obligation.
It was the ultimate no-risk gamble for Goldman – bundle paper, make it a little shitty, sell it using these AAA ratings, then short the same paper, all while knowing that its insured by AIG, which can’t fail.
The best part? Hank Paulson was there at Goldman when this little game started.
Rommie
It’s time for the Picard facepalm.
The Tim Channel
The worst criminal acts in the history of the country and not a single prosecution, both in the financial and torture examples.
Is it because the cops are too busy storming college apartmens and shooting unarmed kids in the chest for suspected pot use?
http://thetimchannel.com/?p=397
I can’t be the only one getting really nauseous from the continued levels of cognitive dissonance.
I’m betting the banks fail in the end. The FDIC doesn’t even have to money to cover the "insured". Looking for some inflation? Predict that when government starts printing money to "cover the losses". There’s no way the public will stand for the bankers getting ‘bailed’ out and not get what’s obligated to them.
Michigan legalized medical marijuana. Officials fear that this could lead to full legalization and their concern trolling is already in full go.
Then just go ahead and fully legalize marijuana. That will take the criminal element completely out of the picture. Easy answers to perpetually dumb fears.
Enjoy.
Rick Taylor
@J. Michael Neal:
Even Paulson’s original plan would have been better. Bypass the insurers, buy up the bad paper directly at inflated prices. Plus this is the government we’re talking about and there is a national emergency; make new laws if you have to. I see no reason why you and I should be stuck paying off the winnings of those who shorted the market
Montysano
OT, but not really. There’s blood all over the floors at the company where I’ve toiled for 18 years. A third round of layoffs is underway, and probably another round of pay cuts. Plus, our owner seems to be going mad from the stress and fear. I’ll probably survive, but be much poorer in the process. It’s ugly.
@Atanarjuat:
Piss off, goat boy.
TheHatOnMyCat
As the president said last night, everything they did was pretty much legal. It’s the lawmaking and regulatory process that got broken.
It doesn’t do any good to write wide open regulatory law and then bitch about what happens without proper regulation.
Who pushed us into deregulation? Jail those fuckers. And jail their apologists who are still apologizing for them in the halls of congress and on cablevision as we speak.
Oh, the apologizing was legal, too? Well then I guess the people have to smarten up and choose better leaders and pundits.
Yeah, that might work.
JenJen
Gawd, I love me some Matt Taibbi. Major crush, for years now.
TheHatOnMyCat
Yes, a clear two-way win. We save the costs of criminalizing marijuana, and then we can tax its sale, and start to earn back the money we spent on criminalizing it.
I don’t know how you can ask for a better outcome than that.
And, let the Republicans scream that it’s a tax increase. They will, right?
Michael
His original plan was a prop for what he ultimately did – bypass the steps, give it directly to the banks.
TenguPhule
Okay, after reading the whole thing I can safely say that I withdraw all my objections to the sale of military assault weapons provided that we are allowed to use said weapons to mow Cassano down like a rabid dog.
Cpl. Cam
@Brian J:
What is their incentive to "stop taking us for a ride" if they are not punished for the ride they just took us on?
David
"the free market dogmatists keep saying that the market will act rationally and that the participants will practice self-restraint"
It’s the same sort of argument they make about guns when a nut goes on a shooting spree.
Martin
The bonus tax is full of win. Anyone bitching about a 39% top marginal rate now? No? And all we need to do is sell out a few hundred executives? That’s cool. We’ve been selling out millions of poor people, minorities, gays and whatnot for completely unfair reasons for years. Maybe with the shoe on the other foot, we can get a little balance for a change.
JC
Good article, but wow.. I feel sick. We are all royally screwed.
Atanarjuat
@Comrade Jake:
I’m also emphatically against the multi-million dollar "retention bonuses" payed out to AIG executives, Comrade Joke.
Since my view should be "opposite" to yours, this means that you’ll join Rush Limbaugh in supporting said bonuses for all those failed executives.
Way to go, knucklehead!
-A
TheHatOnMyCat
@Atanarjuat:
Yeah, and people are really up in arms over all that money that WR Hearst made off the Spanish-American war he ginned up.
I tell ya, those rich people get no respect.
Look, shit for brains, it does no good to bitch about spilled milk. , capisce?That’s why there’s a saying about spilled milk
The time to care for the milk is before you spill it. So you are in favor of repealing the entire concept of deregulation, right? Right?
Fuckin spoof piece of crap.
Zifnab25
Who watches the Watchmen?
Zifnab25
@Atanarjuat:
But you’re also emphatically against the tax on bonuses that would reclaim the lost money. So you’re not really anti-bonus so much as you are pro-empty bitching. Good for you.
Brian J
@Cpl. Cam:
If I am reading him correctly, he seems to be saying that taxes on excessive bonuses are fine, but that we shouldn’t make it impossible for people who want to work for what are now government-owned enterprises and do a good job so that the government can make a healthy return. His solution is to offer them options that will pay out well in the future if their actions lead to such a state for these companies. He also says that punitive taxes on these types of compensation are bad, as opposed to, again, immediate cash bonuses. And as he says, anybody who leaves over this must not have confidence in their work and ability to actually make something productive and worthwhile.
Again, this seems very smart. It stops the people who are in this for the quick buck from screwing over the taxpayers while aligning the incentive to do good work with the compensation that many of these people feel they deserve.
Olliander
Left to its devices, the free market roots out the excesses. Lehman Brothers and Bear Stearns don’t exist anymore, having wiped out billions upon billions of equity—that is real wealth that has disappeared. And it wasn’t just the greedy executives at the top.
A friend worked for Bear Stearns the better part of 8 years and developed a sizable 401k plan with the firm. She left a little over a year ago to a PE firm. But BSC imploded before her plan could be rolled over and all her hard work was flushed down the toilet. She didn’t work in their derivatives group, nor did she work in asset management, nowhere near the hedge fund that was loaded with toxic assets that eventually took down BSC. There are thousands of people like her that got swallowed up in the mess and had no idea of the garbage that was going on the derivatives desks.
She asks why Lehman and BSC were allowed to collapse, yet the government still props up the likes of Goldman Sachs and Citigroup (whose portfolio of toxic assets is said to be in the hundreds of billions). The same Citigroup that is led by Vakrim Pandit, whom Robert Rubin once referred to as a "genius".
The government propping up Citigroup is not conducive to anything good, in my opinion.
TheHatOnMyCat
Um, financial crimes, the worst acts in the history of the country?
GTFOH.
Timothy McVeigh? John Wilkes Booth? Ted Bundy? Lee Harvey Oswald? James Earl Ray? Richard Nixon?
Let’s try to keep the hyperbole down at least to the moran level, shall we?
Cpl. Cam
Oh, geez, no shit. Maybe if the going rate for fucking PLANT MATTER that anyone could grow in their own fucking backyard wasn’t black-market inflated to three hundred dollars a fucking ounce people wouldn’t be robbing it. Can’t remember the last big cigarette robbery now can ya, ya fuckin git?
Michael
Empty bitching is what Conservatives do best.
BTW – Lardbaugh had some real dizzy case on a few minutes ago that supports the bonuses and supports Enron – claims that the Enron boys got railroaded and weren’t guilty.
I wish I had recorded it.
kay
@Michael:
Thomas Gober, a former Mississippi state insurance examiner who has tracked fraud in the industry for 23 years and served previously as a consultant to the FBI and the Department of Justice, says he believes AIG’s supposedly solvent insurance business may be at least as troubled as its reckless financial-products unit.
I am worried about that. I know insurance is regulated at the state level. I’m worried that the AIG insurance business is so huge (1.9 trillion in the US) and it’s regulated by 50 different state entities. Can AIG game those regulators? Can they borrow from one entity to claim assets backing another, in another state? How sophisticated are state regulators, and what is AIG’s lobbyist influence at the state legislature level?
Was anyone screwing with state regs re: insurance while we were deregulating everything else?
D-Chance.
Hell, Cole, you’re just figuring out something that Michael Lewis wrote about 20 years ago (complete with "bigger dicks" references)?
jenniebee
Of course this kind of corruption and cronyism emerges in a free market – that’s the whole fucking point of a free market. Everything – government (not just politics and politicians) included – is for sale to the most connected bidder.
Hells yeah, I’m a soc1alist. Money is power, and I’d like to see that power more evenly distributed. The corresponding redistribution of wealth is not the goal, it is the only meaningful mechanism of returning power to the people.
garyb50
I’m going to cross-pollinate 2 BJ posts & say that, while I’m against the death penalty, I will support it in the case of Phil Gramm.
Martin
Left to its devices, ebola does as well. The question is at what cost? We’re watching the market root out the excesses in much the same way that the police will eventually stop out a criminal by systematically killing every person they find.
I’m not saying the free market won’t be successful, but if bankrupting the nation is the byproduct of that success, I think we’ve seriously missed the plot.
Atanarjuat
@Zifnab25:
When or where did I say such a thing?
Quote me chapter and verse RIGHT NOW, or STFU.
-A
TheHatOnMyCat
In about 1969 I read a booked called The Rich and the Super Rich by Ferdinand Lundberg.
A passage in this book said, basically (paraphrased after 40 years and more than a couple jars of the demon rum) that the big cheeses of big banks and insurance companies spent their lunchtimes, up there in the top floors of their ivory towers, over their catered meals and dabbing their lips with their freshly laundered napkins, sitting around going, "What in the hell are we going to do with all this money?"
We have not exactly recently invented greedy oligarchies, kids.
Michael
Comrade Jake
@Atanarjuat:
Can we quote you guaranteeing a McCain victory along the way, just for giggles?
Olliander
Our virtuous government has bankrupted the nation already. It didn’t need a credit market freeze to do that. It’s just that you can’t see it on a CNBC’s graphs…
TheHatOnMyCat
Oh dear, are we having a spoofy meltdown?
We’ll draw you a nice cool bath.
David Hunt
This pre-supposes that what is individually rational and what is collectively rational are the same thing. That’s not always the case. If someone can make a killing by screwing over a bunch a people without consequence, he’ll do it even if the losses of the group far exceed what he gains. Free market dogmatists who don’t want any regulations on the market are either too stupid/willfully blind/ideological to realize that these situations will come up in a free-for-all market…or they simply think that they’re the ones who are going to end up being able to screw the little guy and end up on top.
guest
@Comrade Jake:
there is more than one way to skin a cat. let’s look to al capone for inspiration. if you can’t get him for murder, bust him for tax evasion. all sorts of creative angles one can pursue in the hunt for accountability.
guest
@The Tim Channel:
i want to know how much revenue can be raised taxing the product. would it help cut the deficit?
TheHatOnMyCat
A good idea, but only if you go after the responsible parties.
That would be the people who created a deregulated financial environment and told you that the market would take care of everything.
Well, they were right, the market took care of everything.
If the government passes a law that says you can sell your neighbor the Brooklyn Bridge without actually having, or conferring, title to the bridge, and you do, and he pays you for some instrument that has no actual value, who is the bad guy? You, or the government? After this happens, do you think the government should come along after the fact and try to invent a way to hold you accountable?
Tell me you are a Republican. Please.
guest
isn’t this pretty much a symbolic gesture, meant to appease the public? i doesn’t carry weight if it’s struck down as unconstitutional.
Zifnab
@Atanarjuat: ORLY?
@Atanarjuat:
That was easy.
Ben Richards
OT – but I am +2 outside in the beautiful Austin sunshine at SXSW. Financial meltdown be damned!
Michael
Free Marketeer dogmatism is nothing more than mental sloth disguised as an economic philosophy.
From the days when we were little more than big-brained hairy apes in caves, we happened to be soft and pink, and had to cooperate in many areas in order to survive.
Our young had to be reared in a cooperative fashion in order to leverage the amount of work to be done. We had to use our big brains to cooperate on hunting, on agriculture, on defense. Our technology isn’t individual, it is an aggregate of knowledge gained over a hundred thousand generations.
As we developed, as primates, we allowed certain people to be leaders. Over time, some grabbed too many prerogatives and claimed kingship – a status we’d mostly overturned.
Free Marketeers and Conservatives*spit* want us to forget that, claiming that every man is an island. As they wage class war by trying to reinstate their own form of monarchy, they insist that our efforts in defense are class war – a classic case of projection.
Ultimately, they want us to just drift along in acceptance of the status quo.
Comrade Stuck
Most certainly this is true. It is also true that lenders who lent money to people to buy houses that they knew couldn’t afford were equally culpable. Make that more culpable. The bad lawmaking was done from a misguided ideology. The bad lending from knowing greed. And it was the bad lending that initially lit the fuse that allowed the schemes to form that drove the CDS and derivative trading thru the gaping holes in the law.
Zifnab
This isn’t the Terri Shaivo Tax Bill here. We’re not talking about legislation that caps the pay of Bob Watson in AIG accounting. We have variable tax rates for all kinds of income classes. There’s a special tax code for railroad workers, a special tax code for the elderly, a special tax code for oil companies, a special tax code for people with kids, a special tax code for the married and the head of household and the emancipated minor. You get taxed differently when you are self-employed or when you do contract work.
Frankly, a tax cap on executives taking bailout money doesn’t just sound like a good idea NOW, it sounds like something we should have had on the books a hundred years ago. I’d go the extra mile and say we should apply this kind of tax on ANY company taking government money. If the US Government is paying a contractor $10 million to do a job and that contractor is paying its CEO $500k… what do you think your tax dollars are being spent on?
We’ve got a payment scheme in the US Government that keeps federal employees from taking home excessive compensation. Clinton and Geitner seem to be making due on less than $200k / year. Why wouldn’t we extend this to private companies working off the public doll?
Rome Again
Barbie’s a hooker?
Oh, you meant the public dole. ;)
Sorry, couldn’t resist.
schrodinger's cat
Completely off the topic:
It is Friday and time for our regularly scheduled Tunch update, including his close encounter with the canine kind yesterday.
Joshua Norton
Oh, you mean Liddy’s a hooker?
Atanarjuat
@Zifnab:
Zifnuts, you’re like a deranged simian with a caved-in skull.
All that shit you quoted said not ONE THING about the increased taxes on the AIG "retention bonuses."
A concern for tax increases on the productive rich IN GENERAL, and disgust at rewarding those who were responsible for cratering the economy are TWO SEPARATE THINGS.
Are you really this incredibly stupid?
Seriously?
You’re so desperate to be knee-jerk contradictory that you wind up making yourself look like a fool.
To wit: increasing taxes on productive wealth = dumb.
A specific, narrow tax increase to PUNISH the idiots at AIG = sweet justice.
Try to slow down that jerking knee of yours next time, Zifnuts. Maybe you won’t look so foolish.
-A
P.S. Comrade Joke. I’m definitely for the AIG bonus tax increase. Please tell me again how you’re going to be on the "opposite" side of this issue. What a joke you are.
Max
Did junior high let out early today?
Rome Again
Only if he’s a free agent. I think he is more akin to a pimp.
Karmakin
@David Hunt:
The modern corporate structure is a breeding ground for that type of attitude. In fact, it’s to a degree where they make absolutely no sense if you think of them as looking to maximize the return to the investor, and make perfect sense if you look at them as an organic grid of individual actors each looking to meet their on particular goals.
TheHatOnMyCat
@Rome Again:
Is this about Liddy Dole?
No, she is not a hooker, that would be an insult to the character of hookers. She’s a Republican. And a moran.
If you guys meant another Liddy, please excuse my interruption.
PS — Liddy Dole is just one of my least favorite people on earth. Next to Barbara Bush.
chuck
Does this Atanarjuat guy ever contribute anything but insults? JC’s got the longest fuse I’ve ever seen.
Rome Again
Oh, Gosh! I didn’t even think about THAT Liddy. ;)
Well, I guess she is the latest incarnation of the public "Dole" huh? Funny, that flew right over my head.
Joshua Norton
Yes. She did things a hooker would think were gross. Like banging Bobdole on Viagra.
Cyrus
@guest:
As for symbolic and unconstitutional, I don’t know, but I don’t think so. A tax picking out employees of American International Group particularly would be unconstitutional, but probably not a tax picking out employees of every company that receives more than $X billion from the government in a bailout.
As for appeasing the public, yeah, that’s definitely the goal. I mean, it’s not being done by the revenue; the bonuses are less than a tenth of a percent of the cost of the bailout.
Will it be enough? I don’t know. Maybe it will, or maybe TenguPhule is right. (Or maybe there’s a middle ground. That is, maybe this isn’t enough to appease the public, but something far short of guillotines would be. THOMC is right: perspective.)
Rome Again
@chuck:
Who?
Comrade Stuck
@chuck:
That fuse burnt a long time ago and went boom. What you see now is one man’s, and his minion’s, daily struggle for tolerance maintained mostly in quiet desperation. Done solely in honor of free speech.
Martin
You guys are just working that out now? That was obvious 6 months ago. That was half the point of the CDS market. If it was designed to be an insurance pool, as it does function as, then like every other form of insurance, one party would be obligated to hold the asset. CDS (like all derivatives) don’t work like that – that obligation doesn’t exist, and derivatives allow massive leverage relative to what you invest, so the stakes get enormous very quickly.
The reason you aren’t allowed to take out insurance on your neighbor’s car is that a $300 policy on a $25K car provides you with a tremendous incentive to get your neighbor drunk and hand him the keys and when he wraps around a tree, you get paid too. By keeping speculators out of the market, a certain balance is assured. Nobody can game the system very much, but with speculators, everyone in the neighborhood can buy a policy on the 17 year old at the end of the block who just got a Mustang and likes to race. The neighborhood has information that the insurers can’t have, and can overwhelm the system and steer the outcome at the same time.
I suggested that the only way to really fix this is to declare CDSs illegal unless one of the parties holds the asset. Treat it like real insurance. For anyone else, they’ve been betting against an asset they don’t hold – and it is betting. For someone insuring their stuff, they only win if the value of their stuff is reduced or eliminated. That is, they don’t win at all – they at most break even, and their best-case situation is that the insurance never pays out because the value of their stuff doesn’t actually go down.
For the speculator, they can put very little money in relative to the potential payout, and they definitely can win. It’s an all-or-nothing game for them, though. They have a massive incentive to see that the value of what they are betting on goes effectively to zero. That’s what gives them the best payout. In a market where all of the products are inter-related, that’s most likely to happen, because housing prices are based on comps. Whether I am upside-down in my mortgage isn’t based on the intrinsic value of the home, but on the relative worth of similar properties. If they go down, mine goes down. If the million dollar home a mile away goes down, mine will go down to some degree based on all of the intermediate comp comparisons. Housing is a pretty good ‘rising tide lifts all boats’ scenario.
So what that means is that if you can speculate in this market and bet against it almost anywhere, all you need to do is trigger one corner of it to fail, and odds are pretty good that you will see that ripple across the market causing your other bets to pay off. The more money you can convince others to commit to, the more likely it will work because you will overwhelm the insurers and the cycle will feed itself.
All you need is a partner willing to overextend themselves (AIG), pile into them, and then either wait for the market to go your way, or, if you have enough of the money, deny it to the players that will cause the market move that you want to see and then just sit back as it feeds itself.
Rome Again
@Martin:
Investment bankers are bookies?
Hmmm, yeah, I guess you’re right. I never thought of it that way, although I did realize it was an insurance scam.
Atanarjuat
@chuck:
Chuck, my first comment in this thread contains no insults to anyone here. Perhaps my particular view, that AIG should have been allowed to go bankrupt, is of no worthwhile contribution to you personally, but it’s not offensive to state such opinions. Sorry.
However, I will reciprocate when invective is the response I get in return.
I suggest you take your complaint to those other posters who argue very knowingly in bad faith.
Thanks,
-A
Comrade Stuck
@Martin:
So what your saying is the bad CDS’s involving bad loans, mostly subprime mortgages, are mixed in with every other kinds of loans and legitimate insurance policies of the bundles that were sold all over the world and are toxic and whose derivative futures were traded on, that AIG has to honor, and now us the taxpayers?
Jaysus, What a mind fuck this all is.
guest
did my post get scrubbed? i’m not allowed to mention a book?
Rome Again
@Atanarjuat:
Your performance isn’t being judged by your comments on "this thread", your reputation precedes you.
Martin
I wouldn’t say all of them, but the derivatives market is very conducive to that. It can also be a good market to hedge an investment, but given the size of the market, it’s pretty obvious that the majority of the players aren’t hedging, given that the market is many times larger than the value of the planet.
And it’s not just that they are bookies, but they can also influence the outcome of the game at the same time. That’s harder to do in a market with a large number of small players. That’s easier to do in a market that has consolidated into a few monster companies.
Once again, the free marketeers overlook that free markets demand a LOT of competition or else they stop being free and start requiring regulation. Consolidation should be anathema to free marketeers, yet they embrace it. The reason is that they aren’t free marketeers at all – they’re corporatists, and this is the result you get.
The Tim Channel
This is the worst FINANCIAL crime in history.
Our torture regime is not the worst in history, so I guess we’re suppose to give it a pass? On a pass/fail system, torture fails and it’s a war crime to boot.
Enjoy.
Miriam
You know, everyone is really missing the important thing which is that the AIG bonuses are just a tip of the iceberg.
I really recommend that people read Matt Tiabbi’s article in Rolling Stone. John linked to it above.
This is a much more serious situation than just taxing bonuses.
Comrade Stuck
@The Tim Channel:
YOur reception is a lot fuzzy, as in WTF? are you blathering about.
Brachiator
@Michael:
Alan Greenspan was even more naive than this. In a New Yorker Magazine review of "The Lords of Finance," John Lanchester notes: Greenspan, who more than anyone else was central to this system, told the House Committee on Oversight and Government Reform on October 23rd that the crisis was prompted by “a once-in-a-century credit tsunami,” which had arisen from the collapse of a “whole intellectual edifice.” “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity—myself especially—are in a state of shocked disbelief,” he said. This failure of self-interest to provide self-regulation was, he said, “a flaw in the model that I perceived as the critical functioning structure that defines how the world works.”
The market has to be accomodated. CEOs wanted guaranteed profits. You seem to be suggesting that the little guy should be insured against ever losing his stake. Both desires are fanatasies.
Odd. While all this political theater is going on, I keep waiting for the Obama Adminstration or Congress or someone to actually propose some regulations which will bring order, transparency and fairness to the financial industry. But for some reason all the people who taklk about regulation don’t appear to be able to actually do anything.
Huh? This is confused on so many levels, it’s hard to know where to start. Railroad workers, the elderly, people with kids ARE NOT income classes. And the self-employed and people who do contract work are largely treated the same for tax purposes.
But apart from this, a punitive tax on the bonuses earned by AIG workers while allowing Wal-Mart workers to simply include their bonuses in ordinary income does veer dangerously close to the "Terry Schiavo special rules for people we like or don’t like" school of ignorant governance.
Zifnab
@Atanarjuat:
So you’re only interested in taxes as a punishment? Perhaps that is why you have such a low opinion of them. Besides, I still don’t know what "productive wealth" is. Do you mean productive as in blue collar car company union workers? Or productive as in salaried employees at the local office? Or productive as in the immigrant worker making ten cents an hour picking tomatoes down in Florida?
Who are these productive wealth folks that are getting overtaxed? And how will lowering the top income bracket help them?
liberal
@Atanarjuat:
LOL!
Much wealth is not productive.
Of course, there’s real capital out there, which is real productive wealth, which is a good thing.
But there’s also a huge chunk of wealth which is just rent collection. Like land. (Viz, the landowner didn’t produce it.)
liberal
@Zifnab:
Well…commercial banks which aren’t directly taking government bailout money are still minting money off of a government-granted privilege: to wit, the right to create money out of thin air, lend it out, and pocket the resulting interest.
liberal
@TheHatOnMyCat:
Uh, the people who paid off Congress to pass those laws—the FIRE sector—are the same folks as the ones who benefit from those laws—the FIRE sector.
Rome Again
@Martin:
I get the feeling many of these jokers were just trying to relive those crazy teenage days when nobody could bet them at Monopoly.
It seems every time I turn around, some deep dark aspect of American life can be attributed to a fucking Board Game.
Rome Again
It’s usury, it’s not what good neighbors and citizens do to one another, but it is a huge part of the financial climate and reality we live in currently. We live in a world that thrives on "screw your neighbor" tactics.
Martin
I don’t know if it’s mostly subprime, though it may well be. In terms of dollars, subprime is not responsible for most of the housing losses – that would go to prime ARMs, but it certainly may be the case that most of the CDS contracts are against subprime.
You can’t really call any of the CDSs legitimate insurance policies because they aren’t regulated, but a percentage of them are used in that way. They’re hedges. By trading some of my risk with you, if my investment gets killed, you pick up part of the loss. Conversely if yours gets killed I agree to pick up part. Assuming certain default rates, it helps to ensure that one party doesn’t luck out and get clobbered by all the defaults. Look at a market like New Orleans. If local banks held all of those mortgages, they surely would have gotten wiped out when Katrina hit, but they could trade some of their risk with banks in California, minimizing their exposure to something like a hurricane in exchange for accepting exposure to something like an earthquake. It’s risk pooling, and that a good thing, and those players should be protected here and I think the taxpayers would generally be okay bailing them out.
But once you let other players dominate the market, it’s not pooling any more – it’s wagering, and it can be rigged wagering at that. If you get involved early enough, as happened in places like Florida and SoCal, you front a loan originator to run up the prices by expanding access to credit and expanding demand and then bet against the same homes when the bubble is about to burst. I live in one of those areas and at the peak, median home prices were 9x median household income. You couldn’t tell which exactly homes would default but you knew that the market would have to fall by about half to be sustainable and you see which homes were most likely to find themselves upside down, because you were holding those mortgages, which you would sell. But because you were helping fuel the runup in prices by dumping money into the market, you knew that once you turned that off, credit would tighten, buyers would become scarcer, and prices would level off and start to drop. Once the defaults started, prices would go down faster, the swaps would pay out, reducing available capital for more loans, driving the prices down faster, causing more defaults, paying out more swaps. The fewer players in the market and the more money you can pile into specific places, the more reliable the scenario will play out.
Rome Again
@Rome Again:
bet, was supposed to be beat.
Apologies.
Rome Again
World finance has turned into Las Vegas on a larger scale. Good analogy.
Tax Analyst
I think singling out a certain group of people for a special tax is probably unconstitutional, and I think many of the Congress-critters and Senators flogging the issue are doing so for posturing points. That said, I would probably feel a warm, rosy glow inside to hear that most of this AIG bonus money ended up back in our Treasury.
But we probably shouldn’t set tax policy based on populist anger and a desire to create some type of equitable vengeance. The IRC Code could use a lot of cleaning up, but the laws themselves should certainly not be punitive or confiscatory in nature. Where the "punitive" ought to come in is willful violation of whatever cleaned up IRC Code results from the clean up.
TheHatOnMyCat
@The Tim Channel:
Your rage-fu is not strong today.
First of all, whatever AIG did was pretty much legal. There was no crime.
If there was badness, it would have been on the part of lawmakers and lobbyists who arranged regulatory laws and loopholes that allowed toxic things to happen, and allowed them to happen under the radar.
Madoff was a financial crime, but Madoff isn’t why you are going to see double digit unemployment. For that, you have to look at who in the government cooked up an unregulated financial system.
Between unregulated finance, and YOYO healthcare, the stage has been set for shittitude on a grand scale.
Justin
How many bad laws has America passed in its History: A million.
But this law, all of a sudden the elites don’t like.
Fuck ’em.
I’ll take my chances with the bad law.
Steve J.
at what point some of the assholes who caused this mess are going to see jail time. Probably never.
Some of the people at the ratings agencies may do some time:
S&P Email: ‘We Should Not Be Rating It’
By AARON LUCCHETTI
August 2, 2008; Page B1
WALL STREET JOURNAL
Problems keeping up with the surging growth of mortgage-related debt products were particularly acute at Standard & Poor’s Ratings Services, according to a draft version of a Securities and Exchange Commission report on bond-rating firms.
In one email, an S&P analytical staffer emailed another that a mortgage or structured-finance deal was "ridiculous" and that "we should not be rating it." The other S&P staffer replied that "we rate every deal," adding that "it could be structured by cows and we would rate it."
Meanwhile, an analytical manager in the collateralized debt obligations group at S&P told a senior analytical manager in a separate email that "rating agencies continue to create" an "even bigger monster — the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters.;O)"
cia
Think Paul Giamatti in the ‘Nanny Diaries’ and you’d have the personality about right.
Comrade Kevin
That’s some amazing work from Taibbi, he really nails it.