Billions of dollars were at stake when 21 executives of Goldman Sachs and the American International Group convened a conference call on Jan. 28, 2008, to try to resolve a rancorous dispute that had been escalating for months.
A.I.G. had long insured complex mortgage securities owned by Goldman and other firms against possible defaults. With the housing crisis deepening, A.I.G., once the world’s biggest insurer, had already paid Goldman $2 billion to cover losses the bank said it might suffer.
A.I.G. executives wanted some of its money back, insisting that Goldman — like a homeowner overestimating the damages in a storm to get a bigger insurance payment — had inflated the potential losses. Goldman countered that it was owed even more, while also resisting consulting with third parties to help estimate a value for the securities.
After more than an hour of debate, the two sides on the call signed off with nothing settled, according to internal A.I.G. documents and an audio recording reviewed by The New York Times.
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Read the rest here
There's a problem with this article that the NY Times fails to point out. Karl picks it up from here:
You Had Better Cage The Monster CONgress (AIG/GS/CDS)
I've been writing about this now over a year in regard to the mess that became of AIG, their "financial products" unit, and what I believe is culpability not only of certain financial parties but more importantly our regulators of these firms.
Now The NY Times has published a new article that makes clear that my clarion call for major changes in these areas of the market were not only spot-on, but are even more necessary today than they were back then.
A.I.G. had long insured complex mortgage securities owned by Goldman and other firms against possible defaults. With the housing crisis deepening, A.I.G., once the world’s biggest insurer, had already paid Goldman $2 billion to cover losses the bank said it might suffer.
A.I.G. executives wanted some of its money back, insisting that Goldman — like a homeowner overestimating the damages in a storm to get a bigger insurance payment — had inflated the potential losses. Goldman countered that it was owed even more, while also resisting consulting with third parties to help estimate a value for the securities.
Read that carefully. The NY Times is making this sound like AIG had insured losses against securities Goldman was holding. That's what insurance is, right?
Here's the problem: Goldman didn't own the securities.*
In addition to offering to cancel its own contracts, Goldman offered to buy all of the insurance A.I.G. had written for several other banks at severely distressed prices, according to three people briefed on the discussions.
Negotiating with Goldman to void the A.I.G. insurance was especially difficult, Federal Reserve Board documents show, because the firm did not own the underlying bonds. As a result, Goldman had little incentive to compromise.
Now do you see the outrage in these so-called "protection devices"?
...... They were raw bets. Very highly-leveraged gambling instruments that had a very low cost at origination - a cost all out of proportion to their eventual potential return.
We do not let "just anyone" buy insurance. You must have an insurable interest. That is, I can't buy fire insurance on your house. If I could, I might - and so might 20 of my best friends. We might even target those homes we think might have fires. We could even bribe the folks doing a controlled burn nearby to be a little less careful than they ordinarily would. Or, in the extreme case, one of us might just set a fire on purpose!
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Read the rest here
* Editor's note: emphasis added is mine
5 COMMENTS:
Wait til this group pushes the people over the edge....
If people just sit back and do nothing these TBTF's will rollover you with the same thought that a tank gave at tiananmen square..
The problem is also that the U.S. has signed WTO agreements that have given the keys to the too big to fails, and have neutered their regulators. Even if some politicians tried to stand up to Wall Street - or even if we "through out all of the bums" currently in political roles - the U.S. would still be locked into the WTO's scheme for helping the financial giants to grow ever bigger and to take ever-bigger and ever-riskier gambles.
Indeed, the financial giants are pushing hard for further deregulation, demanding that the WTO's "Doha round" of agreements be signed.
Many people assume that they just have to hang in there until things improve. But the powers-that-be are grabbing more and more power and - unless we stand up to them - they will take it all.
As highly-regarded economist (Michael Hudson, Distinguished Research Professor at the University of Missouri, Kansas City, who has advised the U.S., Canadian, Mexican and Latvian governments as well as the United Nations Institute for Training and Research, and who is a former Wall Street economist at Chase Manhattan Bank who helped establish the world’s first sovereign debt fund) said:
"You have to realize that what they’re trying to do is to roll back the Enlightenment, roll back the moral philosophy and social values of classical political economy and its culmination in Progressive Era legislation, as well as the New Deal institutions. They’re not trying to make the economy more equal, and they’re not trying to share power. Their greed is (as Aristotle noted) infinite. So what you find to be a violation of traditional values is a re-assertion of pre-industrial, feudal values. The economy is being set back on the road to debt peonage. The Road to Serfdom is not government sponsorship of economic progress and rising living standards, it’s the dismantling of government, the dissolution of regulatory agencies, to create a new feudal-type elite."
And Foreign Policy magazine ran an article entitled "The Next Big Thing: Neomedievalism", arguing that the power of nations is declining, and being replaced by corporations, wealthy individuals, the sovereign wealth funds of monarchs, and city-regions.
We either stand up, or we slip back into a darker age.
http://tinyurl.com/yz7mgsd
re:"even if we "through out all of the bums" currently in political roles - the U.S. would still be locked into the WTO's scheme for helping the financial giants to grow ever bigger and to take ever-bigger and ever-riskier gambles."
And
"to create a new feudal-type elite".
That's certainly possible. Yet what they, nor us, do not know is how all this will play out. Predicting the future is a very tricky business.Everything in my life has shown that even the best laid plans end up differently than I had originally envisioned it. I work for a company that has to adapt to new technologies constantly. At any moment, a game changing technology could put us out of business. If they manage to roll back the New Deal, I believe they will only end up destroying themselves. Personally, I think that the USA will simply cease being the imperial power it is today and take on a lesser role that has to listen the rest of the world. Maybe that is what this New World Order will be all about.
If what you say is true, the elite are underestimating how fragile their existence is. Anyone can be gotten to if one is willing to give their life in that cause as 9/11 has shown. If things get bad enough, heads will roll. Unfortunately, I don't know whether that would be a good thing or a bad thing. Are we really civilized or would we descend into chaos? Would good really triumph over evil?
At the very least, we should start with throwing them all out and see how that works out. Saying everyone should "stand up" is kinda directionless. The Tea Party can't agree on any one message and is totally unfocused. Second, we're pretty much preaching to the choir here. We need to spread a cohesive and focused non-partisan message to our friends and family in a way that manages to bring the two parties together in a single cause. Suggestions?
Read the comments:
Another Wall Street Retread Rehired
http://trueslant.com/matttaibbi/2010/02/08/another-wall-streer-retread-rehired/
http://trueslant.com/matttaibbi/2010/02/08/another-wall-streer-retread-rehired/#comment-7106
"Many people assume that they just have to hang in there until things improve. But the powers-that-be are grabbing more and more power and - unless we stand up to them - they will take it all."
A good statement from Anonymous in the first comment.
Therein lies our problem which demands more focus and attention for us all.
The recent Supreme Court ruling only enhances that "power" by giving the "elite" more ability to rule through a guise of "free democratic elections".
The "power" rests with The Federal Reserve owned by a group of "international" so called bankers. More understanding of our Federal Reserve along with total transparency of it will allow us, as a nation, to deal with the issues and problems we are and will continue to face.
RobertM saya:
"At the very least, we should start with throwing them all out and see how that works out. Saying everyone should "stand up" is kinda directionless. The Tea Party can't agree on any one message and is totally unfocused. Second, we're pretty much preaching to the choir here. We need to spread a cohesive and focused non-partisan message to our friends and family in a way that manages to bring the two parties together in a single cause. Suggestions?"
Yes, i advocate "throwing them all out, in fact, in a post on our sister site, I advocated not only cleaning the halls of Congress but the White House as well.
Attempting to bring the two "major" parties closer together accomplishes nothing. They are already to close together. They are the same head on a two sided coin. '
The Tea Party movement has been hijacked and in my opinion has lost an opportunity to truly represent the people as a true grass roots effort.
So as to a "suggestion" on how to begin to correct our problem:
1. Expose the Fed
2. Eliminate the Fed as that is where the problem and power begins.
3. Return the printing and issuing of money back to our Treasury (where we have the control).
4. Create a true third party and give that party equal standing and time. People from both "major" parties would probably participate. Perhaps we can call it the Democratic Republican Party (sound familiar?)
5. End campaign spending. Go back to the equal time approach in the media.
When something is broken you must fix it or replace it. Our system is broken and hijacked so we must fix it and replace it.
To do so would be easy. We have a blue print to follow. It is called The Constitution - the original version.
re:"Attempting to bring the two "major" parties closer together accomplishes nothing. They are already to close together. They are the same head on a two sided coin.'"
I don't think I was clear in what I was saying. I meant bringing the people of the two parties together (and all the rest as well) into promoting the solutions you suggest, as well as getting the message out in a way that the lamestream media can't ignore. Put another way, I was looking for suggestions on how to bring people together in a common cause, not on the solutions themselves as we already know the answer to the problems (restore Glass-Steagall, campaign finance reform, jailing the fraudsters,etc.,etc.)
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