Zero Hedge on Cowboy Capitalism

This is a fascinating letter that the excellent financial blog Zero Hedge, has posted from a guy who works at Deutsche Bank. I found his comments on the firms interaction with AIG the most fascinating:

As these losses have grown, taxpayers are being forced to absorb these losses. As an example, my firm recently received nearly $12 billion from American International Group (which has effectively been nationalized with $180 billion in taxpayer funds). Essentially, every American household sent my firm a check for $105. The reason for this payment: my firm bought credit default swaps from A.I.G. In plain-speak, we bought unregulated “insurance” from A.I.G. to cover losses from bad trades. What did taxpayers get in return?

Nothing. Taxpayers simply paid an I.O.U. triggered by our gambling losses. (Note: This $12 billion payment was more than 50 percent of our market capitalization at the time of its disclosure).

Note what he is saying here. Deutsche Bank made poor bets on the financial markets, AIG guaranteed those bets. The bets went sour. Deutsche Bank had a lot of gambling losses, and the U.S. Taxpayers made all the losses good. It's that simple, and that unbelievable.

AIG: Thanks for the Bailout...Now for Our Bonuses

I have GOT to get a job in the financial industry. Where else can you be so incompetent that you threaten to bring the economy down, then get bailed out by the government, and then award yourselves millions of dollars in bonuses for your incompetence?!? Although to be honest, I'm not sure I could be as incompetent as these guys.

30 Billion AIG Bailout of the Week

AIG is up to $180 billion from the government and counting (perhaps $100 billion more to go). Joe Nocera has the best summary of what AIG (abetted by lax regulation from the SEC) was up to. Short answer: Gaming the system for billions while assuming assets would never drop in price. Nice of us to hand them even more money.

AIG Gains Deck Chair on Titanic!

Wow, I have to say I am so shocked, shocked! that the truth is coming out about AIG (hint: that $150 billion investment, most likely a total loss for taxpayers).  I really believed the Feds when they said it was an "investment" (hahahahahahahahah, oh, so sorry, that just slipped out).  

AIG Vaporizes (Even More) Money

Reading between the lines this news report, I'm assuming that AIG has blown through $150 billion dollars and is out of airspeed, out of ideas. What to do? Head to the Fed for more cash.

AIG Vaporizing (Even More) Money

Wow! I must say, I am shocked! Shocked! that the government is handing AIG even more money (up to 150 billion now...and there will be more). What is delicious about this article in Bloomberg is the way it is spun, it will "allow the government time to make some money on the deal." Hahahahahahahaha. Very funny. The terms of the deal were extended because it was obvious to all parties that AIG wasn't going to meet the original terms. Yahoos!

``It makes a lot of sense to renegotiate the terms,'' said Andrew Kligerman, a New York-based analyst at UBS AG, in an interview before the disclosure. By giving AIG more time to sell units, the government ``has a better opportunity to recover its capital,'' he said.

Yeah, right. Let me offer you some swampland in Florida to "recover your capital" Mr. Bush.

AIG Vaporizes More Money

Wow! Even I didn't have an imagination for the amount of cash that AIG is vaporizing. It has gone back to the government for another 21 billion bringing it's "loan" (which will never be repayed, I suspect) to a total of $143 billion in just over a month! This is all to pay off bad bets on Credit Default Swaps. Way to go, AIG! Sounds like they were the sole counter-party to every CDS.

Of course this is NOTHING to worry about because the U. S. only has to borrow $2 trillion next year. Let me see, we owe $11 trillion, so basically we have to take our total government debt built up over 50 years and add another 18% in 1 year. Sounds like we are fiscally insane....oops, I meant slightly over-extended. This would mean that in the conservative, Republican years, we will have increased the government debt by oh, 60% or so! Now that is what I call, conservative, fiscally responsible government, baby! Congratulations George Bush!

AIG Vaporizing Money at Astounding Rate

AIG has blown through $90 billion of the $123 billion that the government gave...oops, I mean "loaned" them (like we're ever going to see that money paid back), in a month. Even for Wall Street that is an impressive burn rate. So what were they doing? Nothing more than rolling the dice and losing in the world's biggest casino:

AIG has borrowed $90.3 billion from the Federal Reserve's credit line as of yesterday, the bulk of it to pay off bad bets the company made in guaranteeing other firms' risky mortgage investments.

Yep, that's it, they weren't producing anything, they weren't lending money for production, they were merely counter-parties in huge, unregulated bets made by hedge funds and Wall Street investment firms.

Oh...and did I mention that if they go down, the whole financial system will implode?

Weapons of Financial Mass Destruction

Credit Derivatives lie at the heart of the financial implosion that we are experiencing. This is a very good (slightly technical) discussion of how they were invented, how they went unregulated, and why Warren Buffet was correct when he called them "weapons of financial mass destruction."

AIG Saved! For Now (Attention Government Shoppers!)

Well, well, well, Lehman is thrown to the wolves, but AIG gets a government bailout (do I need to point out that again taxpayer money is used to salvage a private company with no public or Congressional input at all? Another step on the road to serfdom).

Obviously the powers that be felt that they were a "systemic risk" to the financial system. Which in a way is funny because all of their actions so far in committing literally trillions of dollars to "save" the banking system have done little but kick the can further down the road. They tried this before in France and it was a total failure. The day of reckoning was moved further down the road, but when it came it was only worse.

All of this only proves what these guys say, which is that if you are going to make risky bets, make sure you don't make mediocre risky bets, make sure you make bets that will bring down the financial system, so that when they fail, the government will bail you out. Lehman's problem wasn't that they made risky and foolish bets; its problem was that they weren't risky enough and foolish enough, which is the lesson from AIG and Bear Stearns.

Black Sunday on Wall Street

What does it all mean? Glad you asked. For a very short explanation check out this interview. Summary - It's bad. Really bad. 100 year storm bad.

For tongue in cheek lessons on the financial crisis check out this post. Funny, but they are spot on in their comments. If you want to be bailed out by the Fed, then apparently you have to aim not for just mediocre incompetence, but rank, over-the-top, super-incompetence.

Which brings us to AIG. The Fed will be desperate to save AIG (for the time being, one might argue they are merely staving off the inevitable) without appearing to make it a government bailout. I suspect that AIG will get their "loan" from JP Morgan and Goldman-Sachs (courtesy of the government strong-arming them). Between that and the Fed accepting equities! as collateral for loans (what a joke that is, you can now give the Fed equities for Washington Mutual for instance which is rapidly heading for zero, and the Fed will give you actual (fake) money in return. I wish I had part of that action), AIG will be "saved" for the immediate future so that the financial system will implode later on. Anything but today.