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You are here: Home / Looting the corpse

Looting the corpse

by DougJ|  January 27, 201011:09 am| 20 Comments

This post is in: General Stupidity, Good News For Conservatives

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I had a long talk with my friend who’s a higher-up at a hedge fund about TARP and the new TARP tax being proposed. He’s against the tax (though it would be good in a way for hedge funds since they wouldn’t be taxed) because he thinks it would be seen as a form of bailout insurance payment and would just encourage banks to think they’ll get bailed out next time, which in turn would encourage them to lever up on dangerous crap since there’s no consequences when that stuff blows up. He also said that nearly all the banks have paid back their TARP money with interest anyway.

He said that honoring AIG deals at 100 cents on the dollar was the most absurd deal he’d ever seen in lis life and that, in all likelihood, it had something to do with the fact they owed a lot to Goldman and Goldman people were running the Treasury. I was happy to see Congress question this specifically:

In his opening remarks, Edolphus Towns, the chairman of the House Oversight and Government Reform committee, said that the Federal Reserve was too secretive in its handling of the bailout.

“Secrecy leads to distrust and the American people now distrust what happened in these bailouts,” Mr. Towns said. He questioned why the banks who had deals with A.I.G. were paid out at the full value. He pointed out that in private industry, concessions are sometimes made in deals if one of the companies is in trouble. But that’s not what occurred in A.I.G.’s deals with banks like Goldman Sachs and Merrill Lynch.

“The rest of Wall Street came by and looted the corpse,” Mr. Towns said.

Goldman and the others would have happily taken 60 cents on the dollar for AIG obligations (and they would have been lucky to get it). Since Goldman was owed $13 billion from AIG, this would have meant $7.8 billion instead of $13 billion so they would have got $5.2 billion less. That’s about one year’s profit for them so it wouldn’t have killed them.

This isn’t about Matt Taibbi conspiracy theories and nonsense about $24 trillion in government obligations, but there’s no way around the fact that it’s troubling for a Treasury department program run by Goldman people (Paulson, Kashkari) to have given Goldman such a sweetheart deal.

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20Comments

  1. 1.

    libarbarian

    January 27, 2010 at 11:12 am

    OFF TOPIC…. but

    Well, it’s official now: John Kiriakou, the former CIA operative who affirmed claims that waterboarding quickly unloosed the tongues of hard-core terrorists, says he didn’t know what he was talking about.

    ….

    Now comes John Kiriakou, again, with a wholly different story. On the next-to-last page of a new memoir, The Reluctant Spy: My Secret Life in the CIA’s War on Terror (written with Michael Ruby), Kiriakou now rather off handedly admits that he basically made it all up.

    “What I told Brian Ross in late 2007 was wrong on a couple counts,” he writes. “I suggested that Abu Zubaydah had lasted only thirty or thirty-five seconds during his waterboarding before he begged his interrogators to stop; after that, I said he opened up and gave the agency actionable intelligence.”

    But never mind, he says now.

    “I wasn’t there when the interrogation took place; instead, I relied on what I’d heard and read inside the agency at the time.”

  2. 2.

    DougJ

    January 27, 2010 at 11:14 am

    OFF TOPIC…. but

    Thanks! I’ll post on this later.

  3. 3.

    Rick Taylor

    January 27, 2010 at 11:18 am

    One thing I really want to know, that I haven’t heard the answer too, is how much of that money AIG paid out went to cover bets people made on securities they didn’t own. If a company invests in a hedge fund and buys insurance and we pay it off, that’s galling but I can stomach it. If a company makes a wager that a security they don’t own will tank and we pay it off, that’s something else altogether. Not that there’s anything wrong with shorting or speculation, I just don’t see why we should be responsible to pay off the bets.

  4. 4.

    Anton Sirius

    January 27, 2010 at 11:20 am

    he thinks it would be seen as a form of bailout insurance payment and would just encourage banks to think they’ll get bailed out next time, which in turn would encourage them to lever up on dangerous crap since there’s no consequences when that stuff blows up.

    No offense to your friend, Doug, but there’s zero evidence that they don’t still think this way already. Theirs is a consequence-free world.

    That argument has no more logic in it than the one that says congressional Dems shouldn’t do controversial things because the Pubs will then run attack ads against them.

  5. 5.

    DougJ

    January 27, 2010 at 11:22 am

    No offense to your friend, Doug, but there’s zero evidence that they don’t still think this way already. Theirs is a consequence-free world.

    That’s the point! Everything done here needs to be structured in a way that penalizes those who fucked up and makes it so that the penalties are worse next time. (Not all the banks benefitted equally from TARP — some were in okay shape — so why not whack the ones who reaped the most benefit, but not the others.)

  6. 6.

    Zifnab

    January 27, 2010 at 11:31 am

    This isn’t about Matt Taibbi conspiracy theories and nonsense about $24 trillion in government obligations, but there’s no way around the fact that it’s troubling for a Treasury department program run by Goldman people (Paulson, Kashkari) to have given Goldman such a sweetheart deal.

    Troubling, but not in the least bit surprising.

    The revolving public-private door in this country is probably the single most abusable aspect of the political system. Honestly, I can’t fathom why people deride “career politicians” as those people seem to be the least likely to be on the take in the current environment.

  7. 7.

    Zifnab

    January 27, 2010 at 11:35 am

    @DougJ:

    (Not all the banks benefitted equally from TARP —some were in okay shape—so why not whack the ones who reaped the most benefit, but not the others.)

    How do you structure a long term tax or fee that singles out banks which committed sins in the previous decade? Wouldn’t it be better to just levee a one-time Windfall Tax on any bank that received money from AIG or another institute that wasn’t able to repay it’s debt?

    We could call it a Derivative Fee or something else cheeky.

    And even beyond that, when you’ve got this rock bottom 15% capital gains tax that’s supposed to encourage long term investments but gets exploited to shield rapid-turnover short term gains, a transaction fee tax makes a whole lot of sense.

    Taxing rapid stock flipping and other extremely short term speculation would be a good thing, in my mind. Who cares if it hurts some disproportionately to their fault in this particular crisis?

  8. 8.

    Cat Lady

    January 27, 2010 at 11:36 am

    “The rest of Wall Street came by and looted the corpse”

    All that looting has hollowed out key sectors of the economy and with consumers pulling back, all that looted idle capital will need to flow somewhere in another pump and dump scheme. The question that remains is where is the next bubble likely to form? I guess if you’re Lloyd Blankfein you’re working on that as we speak.

  9. 9.

    bayville

    January 27, 2010 at 11:37 am

    Doug your friend is correct. Compare what AIG got with what Bear Stearns got (2-3 cents on the $$$ I believe). In fairness though AIG, is/was a much more significant Corp. than Bear but that is an example of a similiar bailout of a major bank.
    At the beginning of this crisis, Goldman would have been “happy” to get 60-cents on the dollar. As your friend predicted the banks are back to doing what they did prior to 2008.

    One other thing, it is apparent to me while watching these House hearings with Geithner that so few of these Congressmen still don’t understand the specifics of the bailout and why Geithner was summoned to THIS hearing. It’s about his non-disclosure practices while running the NY Fed in regard to bailing out AIG.
    It’s like watching children – specifically Burton, Mica, Cummings, Panjorski – and we are only 90 minutes in.

  10. 10.

    Tsulagi

    January 27, 2010 at 11:41 am

    He said that honoring AIG deals at 100 cents on the dollar was the most absurd deal he’d ever seen in his life and that, in all likelihood, it had something to do with the fact they owed a lot to Goldman and Goldman people were running the Treasury.

    Ya think?

    so they would have got $5.2 billion less. That’s about one year’s profit for them so it wouldn’t have killed them.

    You’re thinking oh so pre-Geithner. That $5.2 is about one quarter’s profit now.

    For fourth quarter 2009 their profit was $4.95B. Another way to look at it is the 5.2 would be not quite one-third of the $16.2B in bonus money Goldman has set aside for last year’s performance.

  11. 11.

    Evinfuilt

    January 27, 2010 at 11:57 am

    @Cat Lady:

    The question that remains is where is the next bubble likely to form? I guess if you’re Lloyd Blankfein you’re working on that as we speak.

    Cap and Trade. Goldman wants it to pass, they’ve got the legislation written for them so they can inflate and destroy it much like they did with rice and other commodities a couple years ago. Who cares if it bankrupts the middle class and allows the R’s to return to full power (oh hold on, that’s their plan, sabotage cap and trade, allow their party back in and then profit again as cap and trade is removed, then move onto the next bubble they’ll create.)

    @Tsulagi:

    Wow, they’re nearing Exxon profit levels and they don’t even produce anything but profit for themselves.

  12. 12.

    Cat Lady

    January 27, 2010 at 12:14 pm

    @Evinfuilt:

    Ugh.

    If you’ve already platinum plated your light switches and fur lined your sock drawers, then it’s just about the game now. The SOB’s need to understand fear, and only fear of death is going to change the game. If only.

  13. 13.

    Why oh why

    January 27, 2010 at 12:14 pm

    This isn’t about Matt Taibbi conspiracy theories and nonsense about $24 trillion in government obligations, but there’s no way around the fact that it’s troubling for a Treasury department program run by Goldman people (Paulson, Kashkari) to have given Goldman such a sweetheart deal.

    Well that is exactly what Taibbi is saying then. As for that “$24 trillion” number, Taibbi is wrong to repeat it without explanation, but the truth is that the Fed and the Treasury are on the hook on an unknown number of trillions in the so-called “toxic assets”, and they won’t tell anyone (not even Congress) what is on their books.

    In practice, this really is like handing out X trillions of dollars in taxpayer money to the big banks, where X will be known in a few decades.

  14. 14.

    Don

    January 27, 2010 at 12:16 pm

    I still don’t know what to make about the AIG support and wonder if we ever will. Knowing enough about the CDSes and how intertwined they’d made the whole market I am inclined to give some credit to the idea that there really was a need to prop them up lest there be a complete cascade failure.

    Clearly that’s unprovable given the OTC nature of credit default swaps.

    I’m also inclined to give some benefit of the doubt to claims that the AIG support was predicated somewhat on concerns about their global nature and how complete CDS failure could have destabilized some marginal nations. The complete credit freeze was an unattractive threat but I’d take it over renegade nukes and failed states.

    I realize the above would be more credible if I could be arsed to google up some of the supporting links and theories but I’m so sick of the subject right now that I can’t bring myself to research stuff purely for monday morning quarterbacking purposes.

  15. 15.

    seabe

    January 27, 2010 at 12:29 pm

    Doug, AIG was hedged, so if they only offered 60 cents on the dollar, Goldman would have gotten the rest from AIG’s hedged counterparties. Goldman would have gotten 100 cents on the dollar no matter what.

    I don’t see the issue here.

  16. 16.

    J. Michael Neal

    January 27, 2010 at 12:32 pm

    Once again, the front pagers are ignoring the foreign policy aspect of this problem.

    They also continue to ignore the collateral problem.

    However, I’ve gone over these so many times that I’m not going to do it again, because I can only conclude that they have chosen to deliberately ignore these issues in order to be righteously angry.

  17. 17.

    scarshapedstar

    January 27, 2010 at 3:10 pm

    This isn’t about Matt Taibbi conspiracy theories

    In all seriousness, if Matt’s “inside deal” narrative is a silly conspiracy, then I assume you never raised an eyebrow when the Cheney administration gave hundreds of billions of no-bid dollars to Halliburton?

  18. 18.

    JC

    January 27, 2010 at 5:44 pm

    Talking to a buddy at another insurance industry, fyi, the money that AIG received, they were able to use in ANY WAY they wanted to.

    Which means, one of the things they did, is they turned around and used some of that money to offer cheaper insurance policies, for their regular insurance division, with the TARP money, cushioning the bottom line, so that they are ABLE to lower the insurance quotes.

    However – companies that are ‘regular’ insurance companies, and that DIDN’T do the speculation/leveraging game – of which my buddy is one – were not ABLE to offer the significant discounts on the insurance, and so lost business to AIG, on the year.

    Talk about rewarding failure!!

  19. 19.

    GG

    January 27, 2010 at 7:21 pm

    Thought from the headline that this was about John.

  20. 20.

    postmodernprimate

    January 28, 2010 at 3:07 am

    I had a long talk with my friend who’s a higher-up at a hedge fund about TARP… He said that nearly all the banks have paid back their TARP money with interest anyway.

    I hope he isn’t suggesting that paying back TARP with interest covers even a pittance of the cost of the bailout programs, subsidies, giveaways etc… being engineered by the fed and treasury in their desperate attempt to rebuild bank balance sheets. The bailout was far more than TARP despite PR efforts to reduce it to just that.

    “Taxpayers currently subsidize banks with cheap money supplied by the Federal Reserve. Even banks that nearly crashed our economy borrow at nearly zero interest rates, while some consumers pay nearly 30% on credit card debt. Banks enjoy a Term Asset-Backed Securities Loan Facility (TASLF) that allows them to borrow against problem assets. New banks have each issued tens of billions in FDIC guaranteed debt through the Temporary Liquidity Guarantee Program (TLGP). Banks get interest payments on the excess reserves they keep with the Fed. Accounting rules were changed in March 2009, so banks make up their own prices for assets and more easily hide losses. These are only a few of many newly-created hidden subsidies. Taxpayers are paid only peanuts in fees for these massive subsidies while being squeezed with high interest rates and mortgage foreclosures–after our economy was devastated chiefly by several banks’ malicious mischief.” – Janet Tavakoli

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