Blog on the Run: Reloaded

Thursday, January 28, 2010 9:24 pm

We wuz robbed; or, “These CDOs have ‘cliff risk,’ as in falling off of one.”

On Wednesday, an unredacted list was finally released of what toxic assets the New York Federal Reserve took off AIG’s hands in 2008 for 100 cents on the dollar of our money. Financier Janet Tavakoli has reviewed the list and tells us what we can learn from it.

How badly did this deal screw taxpayers? Horribly:

… at the time of the November 2008 buyout, some CDOs had implied prices of around 60 cents on the dollar. Others had implied prices of around 20 cents on the dollar. Not revealed by the new report is that many of the assets backing some of the CDOs have a high risk of severe or total principal loss (many have actual losses). These CDOs have “cliff risk,” as in falling off of one. (There is currently no reliable secondary market, and similar CDOs have traded as low as one penny.) [To clarify, that’s not one penny on the dollar, that’s one penny per security — Ed.]

Among her other findings:

  • Although AIG’s Joe Cassiano has claimed that the company was out of the mortgage-security protection business by the end of 2005, about 14 percent of the CDO tranches, nominally constituting $21 billion of the $62 billion in assets the New York Fed bought from AIG, originated later.
  • Although Blackrock’s managed investments included a AAA-rated June 2007 CDO that had deteriorated to C (junk) status by December 2008, Blackrock got no-bid contracts to manage investments that the New York Fed bought from AIG.
  • The high-dollar bailout of AIG, the insistence that the situation was too critical to allow for negotiations, and the subsequent secrecy all directly and significantly benefited Goldman Sachs.

She adds:

The fact that the Fed and SEC suppressed potentially explosive facts is bad enough, but the delay in making the information public has given interested parties a window of opportunity to cover their tracks by dumping the worst of the assets, thus hiding them forever from public view.

Suppressing the details of AIG’s trades made it easier for AIG’s counterparties to cover-up profiteering and then exploit public funds. If details of these trades had been made public in September 2008, a reasonable negotiator would have demanded that the billions of dollars that had been extracted from AIG (including the $7.5 billion Goldman extracted by then) should be recharacterized as a loan.

Instead, the Fed gifted tens of billions of dollars to banks that supplied the financing for bad loans that damaged the U.S. economy. More than that, these banks engaged in suspect deals that covered up losses and allowed them to continue to report apparent “profits” and pay inflated bonuses. Meanwhile, their securitization activities continued to harm the economy during a period at which the United States was at war.

Goldman is not solely responsible, but it had a large role in AIG’s crisis and a unique position of conflicted interest and influence over the terms of the bailout. Now that the crisis is over, this issue should be reopened, and billions in collateral should be clawed back to pay down public debt, before Goldman Sachs pays more than $16 billion in taxpayer subsidized bonuses to its employees.

And this, folks, was only one bailout.

During his State of the Union address Wednesday night, President Obama reportedly said, “I don’t want to punish the banks.” I think MikeElk speaks for roughly 300 million Americans when he asks why the hell not.

I’ll go a step further: Mr. President, I don’t give a damn what you don’t want. What matters is what we want and what the law says we are owed: Investigations. Indictments. Convictions. Restitution. You want to stimulate the economy? Create the biggest freakin’ law-enforcement task force in this country’s history and turn them loose on the banksters.

Oh, and one other thing we want, Mr. President: fines so big those jackals will never get out from under them. Because tens of millions of Americans will never get out from under what they did. They ought to know, at least, what that feels like.

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Tuesday, December 15, 2009 10:50 pm

Odds and ends for 12/15

A way to balance the budget?: For the second straight month, the U.S. Treasury auctioned 1-month T-bills at 0.0% interest. The national budget gets significantly smaller if you whack out interest on the national debt, y’know.

All I want for Christmas is a repeal of Gramm-Leach-Bliley.

BOHICA: As part of “paying off” its multi-billion-dollar loan from the taxpayers, technically insolvent bank holding company Citigroup gets to keep $38 billion in tax credits that regulations normally would require it to give up. That figure will easily overshadow any profit the taxpayers may get from selling Citigroup shares. Merry. Freaking. Christmas.

But maybe Christmas is coming early; or, Who are you and what have you done with Sen. Jim Bunning?: Remember those 15 questions that the Cunning Realist suggested should be asked of Fed Chairman Ben Bernanke during his reconfirmation hearings? Unbelievably, a senator asked them. Even more unbelievably, the senator in question was Jim Bunning, heretofore a leading candidate for the title of Biggest Waste of Carbon in the U.S. Capitol.

You may now kiss the D.C. City Council: The District of Columbia has legalized gay marriage. Congress, per the Constitution, gets 30 legislative days to review the law once D.C.’s mayor has signed it, but the Democratic leadership will keep that puppy bottled up until the deadline has safely passed.

No room to talk: Panthers defensive backs Chris Harris and Chris Gamble need to STFU about Patriots WR Randy Moss. While they are having good years, and they did shut Moss down on Sunday, they apparently chose to ignore Wes Welker’s presence on the field. And what really matters is that yet again, the Panthers have failed to achieve consecutive winning seasons, while the Pats almost certainly are going to the playoffs.

Wardrobe police: Is Roy Williams gonna have me thrown out of North Carolina for wearing a Panthers jersey in Chapel Hill?

Shorter Janet Tavakoli: Except for Paul Volcker, the bankers don’t get it.

Brother can you spare your Visa card?: The Miami Herald, which recently laid off 199 people, is now attaching to each article a link through which people can contribute money online … to the paper, not the laid-off employees. The last time I can remember anything like this happening was when I was a kid and Ted Turner went on the air in Charlotte to ask people to send him money to keep Channel 36 on the air. (Yes, that’s Turner Broadcasting’s Ted Turner, and, yes, he repaid it.)

CBS Sports: “If any of our announcers talk about Tiger Woods, we’ll shoot this dog fire them.”

Best banking idea I’ve heard in a while: If Barney Frank has his way, only retail banks will be able to borrow from the discount window. At worst, this gets some banksters off the federal teat. It may even significantly ease the current credit crunch.

Quote of the day: “You’re either part of the solution or you’re a tool of ACORN.” — Conservative Brown, Boy Detective, by Tom Tomorrow.

Smarter Washington Post, please: The Post publishes a bunch of contextually challenged nonsense regarding the national debt. Economist Dean Baker rips them a new one. Yes, the national debt is too high and rising, but the bigger and more urgent problem is joblessness. The Post wants to scrap Social Security and Medicare but just doesn’t have the stones to say so.

Smarter Washington Post, please, cont.: Charles Lane criticizes colleague Ezra Klein’s criticism of Joe Lieberman … while also conceding that Klein’s factual claim is correct. Idiot. All you need to know about Lane is that he was Stephen Glass‘s editor. All you need to know about Klein is that Joe Lieberman finds him bothersome. (But here’s useful background on the contretemps.) Also, I posted the one-word comment “FAIL” on Lane’s blog post earlier; as of 10:30 p.m., it had been deleted, which fact I shortly thereafter commented upon. We’ll see if the 2nd comment stays up.

Smarter judges, please: U.S. District Judge William Duffey tells two Muslim defendants at a sentencing, “I’ll say this, our Gods are very different.” Uh, no, infidel; Christians and Muslims worship the same God.

If you like what Joe Lieberman is doing to health-care reform, wait’ll you see what he has planned for Social Security and Medicare.

Terminated; or, Cue the Limbaugh smears in 3 … 2… 1 …: Arnold Schwarzenegger throws Sarah Palin under the (hybrid?) bus.

Jerome “Swiftboat” Corsi asks,”Could it be that President Obama intends to bankrupt the USA in order to destroy free-enterprise capitalism itself?” Sounds like fun! Let’s play! Could it be that Jerome┬áCorsi is a paranoid psychotic? Could it be that Jerome Corsi wouldn’t recognize the destruction of free-enterprise capitalism THAT’S NOW GOING ON, LED BY INVESTMENT BANKS, if it bit him in the ass? Could it be that Jerome Corsi has a financial motivation to misrepresent what the president is trying to do? Hey, this is fun! I could do this all day!

Paying for your wars: The Greatest Generation, so revered by conservatives, had no problem with this concept; indeed, they inculcated it in their children. So why do today’s Congressional leaders have such a problem?

Why is private health insurance such a bad idea? Let me the Main Street Alliance draw you a picture:

Back from the dead and ready to incriminate?: Some 22 million White House e-mails from the first Bush 43 administration have been “found,” four years and change after they “went missing.” In a perfect world, Karl Rove will be going to prison as a result for having 1) outed undercover CIA agent Valerie Plame and 2) obstructed a criminal investigation into the outing thereof. In the world we live in, we’ll probably find out that the missing $12 trillion in U.S. wealth, much of it sucked out of the home values and retirement savings of the middle class, is now in some Nigerian barrister’s bank account.

Math: About fifteen times as many people die in the U.S. every year as a result of lack of health insurance as died in the 9/11 terror attacks.

No methaqualone for you, says the Methaqualone Nazi!: The new Republican Party-sponsored Web-link shortener, GOP.am, includes this in its terms of use: “If you use it for spamming, illegal purposes or to promote lude content, your GOP.AM URL will be disabled.” Earlier, bloggers and commenters for Balloon Juice were using the site to provide links to bondage sites. Hee.

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