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Reply #55: Putting lipstick on an AIG [View All]

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Octafish Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Sep-23-08 03:29 PM
Response to Reply #15
55. Putting lipstick on an AIG
Here's an interesting part of the puzzle, the role of Capitalism's Invisible Army in the world of, er, finance:



Putting lipstick on an AIG

Analysis
By Lila Rajiva
Online Journal Guest Writer
Sep 22, 2008, 00:19

Hockey moms arent the only ones wearing Maybelline. Pigs come in cherry gloss too.

Like the porkers at Wall Street lining up with their lips in a pucker behind Washingtons plush behind. Having pigged out at the public trough for years, they now want their sticky little trotters washed down in the righteous waters of the Potomac.

SNIP...

In other words Fannie was a pig, even with the lipstick.

Of course, Goldmans not the only one on Wall Street with a wicked hand for make-up artistry. The ratings agencies havent been too bad themselves, with all that triple A gloss they plastered on gangrenous sub-prime debt. What was that about? A little make- over for the corpse before the public viewing?

Truth be told. Goldman got good at putting lipstick on porkers long before they dabbed it on Fannie and Freddie. They were doing it in 1999 in ole Hanks CEO days. Goldman helped Enrons smart guys conduct massive energy futures trading and its leverage, like Enrons, ballooned. .

Then, in 1993 Goldman invented a special accounting scheme to perk up Enrons books - Monthly income preferred shares (or MIPS) they called it. MIPS let Enron sell fifty-year securities through specially created off-shore companies. To the IRS, Enron described the preferred stock as debt and claimed tax deductions on the interest payments. To shareholders, Enron called the same stock equity and counted it in the companys capital value. Goldman took home massive underwriting fees from the scheme

In one year, Goldman had helped 17 companies besides Enron sell 2.7 billion MIPS. There was an offering every week, each dodging IRS rules with more and more finesse. Average commission and interest rates on MIPS ran much higher than on normal debt - between 1 and 1.2%. Goldman made tens of millions.

When the IRS, Treasury and the SEC decided to plug the loophole that was costing them hundreds of millions of dollars a year, Goldman and Merrill Lynch, along with the industry trade group, the Bond Market Association, began big time lobbying. Then

Goldman CEO Jon Corzine (later a US senator and NY Jersey governor) made sure the legislation got nipped in the bud and Goldmans little accounting number actually ended up a chart-busting hit on the financial circuit.

So when Hank Paulson rushes to put together a bail-out for Merrill Lynch but brushes Lehman aside, hes just remembering who he used to jam with in the old days. (Of course, buying up Merrill shares trading at $17 for $29 might not be most peoples idea of a bail-out. But thats another story).

CONTINUED...

http://onlinejournal.com/artman/publish/article_3772.sh...



You are welcome, Mr_Jefferson_24! Thank you for giving a damn!
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