Remember bailout supporters said the funds wouldn't be used for credit-default swaps?

[JackRiddler]

Well, that's exactly what's happened. Predictably. Goldman Sachs executives put on Treasury hats and guided tens of billions of dollars through AIG to Goldman Sachs (and similarly well-placed entities). They had made bets with AIG in the form of credit-default swaps insuring against the failure of bonds they didn't even own (for the most part). The "bailout" was a scam and it remains a scam. Banks make up imaginary numbers they'd like to get in exchange for a given "event" (i.e., the failure of a mortgage-backed security). AIG accepts the bets, even though the total exceeds its ability to pay off the resulting payoffs by a large multiple. The government steps in and covers 100% of AIG's bad bets anyway, claiming that to do otherwise would bring on disaster. Goldman and Co. get hundreds of billions in real dollars in exchange for their imaginary wish-values, and they use the money to buy up other banks and real assets on the cheap. Until the government itself bankrupts, because the total bets now due through AIG and the other derivatives casinos exceed the value not just of the toxic mortgage bonds, but of the world economy itself.

Madoff? Peanuts. A scapegoat, though a deserving one. Cramer? Closer to the truth, since the media and the regulators and above all the ratings agencies, who all profited in various direct and indirect ways from the scam, all played a vital role in granting cover and suckering the original investors in. But the set who were most responsible are the ones still commanding the policy and the treasury: Geithner and his aide Patterson, Bernanke, Rubin, Summers et al., who have been rotated in to replace Paulson, Greenspan, Gramm et al. On the question of the Money Power, nothing has changed. Although everything will, because this system is not even halfway through its crash.

[Junkdrawer]

1. Remember bailout supporters said the funds would be used to buy and unwind....

the CDOs. And then there was a clause that said that the money could be used to buy non-voting shares of the bank. Guess where that money went...

But this time they promise to buy the toxic assets. Pinky swear...

[Hannah Bell]

2. who can keep track anymore, it blends together in one big fat lie.

[JackRiddler]

3. Well, that's a tried-and-true strategy: Overwhelm us.

Nevertheless, I don't think it's working. Increasingly everyone understands the financial sector is one big scam to reduce all to serfdom under the mighty compound interest regime.

[snot]

4. Actually, my recollection is they were vague. Got a link or other source?

[AdHocSolver]

5. Well said. The bailouts are for the crooks who set up the Ponzi schemes.

They are doing nothing to help the "real" economy, which is jobs.

When the stock market collapsed in 1929, the depths of the depression didn't really occur until 1933 when unemployment reached about 25 percent. Roosevelt instituted his "stimulus" package and by early 1937, industrial production increased and unemployment dropped to about 14 percent. Roosevelt then reduced government spending with the expectation that private sector spending would take over. However, that didn't happen, production dropped again, and people lost their jobs. As unemployment grew, people stopped spending money and the economy deteriorated rapidly.

What we learn from this is that supply side economics doesn't work, economies are demand driven, and economic health and stability depend, not on the stock market, but on people having jobs.

The "real" economy depends on high employment. The stock market is little more than a giant Ponzi scheme. Bailing out financial institutions who perpetrated the fraud only bails out the crooks who ran the scams. It doesn't help the real economy.

One other major economic truism. The "real" economy will not recover until the production of goods and services (that is, jobs) that has been offshored the last twenty years is returned to the U.S. The real economy will never be stable until at least 75 percent of the goods and services that we purchase are produced here in the U.S. Even government spending will not help if the money spent winds up going to Asia. An economy depends on the circulation of money within the economy. Money that flows out is of no use.

[AdHocSolver]

6. It would have been cheaper just to pay off the bad loans, rather than bail out the corporations.

The corporate "assets" were just overpriced "funny money" with no real value. From what I have read about it, it seems that the bailout money was really to back the inflated derivatives of the bad loans.

Any corporation that is "too big to fail" is too big to allow to exist.

[JackRiddler]

8. Yes, but that wasn't the point...

The TARP, TALF and FED "bailouts" are not rescues on the ground level, or the government would have stopped the foreclosures in places like Cleveland (which amount to a financial Katrina). The bailouts fulfill the derivatives-level scam -- imagine how many trillions you'd like, then make it materialize thanks to your friends in government. The real investment in the scheme was a mere $5 billion in campaign finance contributions and lobbying fees over 10 years' time by the banking sector. What a payoff!

[depakid]

7. The whole purpose of bailing out AIG was to keep them from defaulting on CDS'

and other financial instruments to prevent a wider systemwide collapse.

[JackRiddler]

9. That's what's said now that we know the counterparties, yes.

Don't you wonder why they kept the counterparties secret for months?

Most of the CDS bets with AIG were not even against bonds that the bettor (the CDS policy purchaser) held. They just came in and said, if that fails, we'd like this much -- and AIG obliged them with a "contract," knowing as they did it that the sum total of contracts would be as high as 1.6 trillion just in AIG's case (estimates vary, the figure is from the Bank of International Settlements). They did it because the premiums were so nice to collect in the meantime, and because the traders didn't care because even though they were killing a 6-ton elephant, they knew they'd get the 50-lb. tusks, so screw the elephant and screw the world because Uncle Sam can cover that shit.

Remember, the total value of CDS contracts globally prior to deregulation and the housing bubble was less than a trillion. Most of them in fact were created in the final phase when the end of the bubble was foreseeable.

[hugo_from_TN]

10. I don't remember anyone say that.

Link?

[JackRiddler]

11. Well, I do, in discussions here, and so do others...

It's not a very controversial statement, even if you weren't among them. I remember several posters saying the bailout would only be for mortgage-backed securities, not bets on tertiary derivatives related to these.

But you're absolutely right. Let's stay relevant and concrete: Do you support the government paying the nominal value of CDS contracts issued by AIG and purchased by Goldman Sachs? A simple yes or no question to start.

[JackRiddler]

12. Anyone else? Simple question...

Let's stay relevant and concrete: Do you support the government paying the nominal value of CDS contracts issued by AIG and purchased by Goldman Sachs? A simple yes or no question to start. What about other CDS contracts?

[JackRiddler]

13. Anyone here in support of government covering AIG's credit-default swaps?

How about the Geithner plan -- covering 80 to 100 percent of failed bonds with expectations of 35 percent return?

What a great time for high rollers to run up astronomical tabs at the casino, eh? Everything's house insured!

[JackRiddler]

17. Waiting... one did say so, approximately, below... (nt)

[C......N......C]

14. The main game doesn't change. It is about gathering money.

No matter how compacted it may seem, if you resolve it to the basics, it is about a lot of money going to a few. Denying help to the many.

[alcibiades_mystery]

15. Uh, yeah...

The bailout funds were there to allow companies to honor their counterparty obligations. This is news?

If AIG couldn't pay off its obligations, it would have to declare bankrupcy, which would void a whole shitload of trillions in insurance contracts. It would also drive numerous counterparties to also declare bankruptcy, since their books depended on the solidity of AIG's ability to pay. Thos bankruptcies would produce many more in a cascading fashion, and money would stop flowing, preventing people from making payroll or engaging in any new spending. As a result, most of us would lose our jobs, and two things would be worthless: contracts and a little thing we call money.

What the fuck did you think the bail-out was for?

[JackRiddler]

16. your key word is trillions...

most of which is in wish-value bets that can never be covered, as they exceed the value of all assets on the planet.

It was uncoverable then, it is uncoverable now.

Anyone can come up with a nightmare scenario and try to scare people into compliance, which is what you are doing. My nightmare scenario is that the government throws eight or ten trillion dollars better spent elsewhere down a hole to reward the gangster banking class who have commandeered control of the Treasury and Fed. The people pay to the Nth generations in the form of crushing debt or a dollar meltdown, all to preserve the false sanctity of a big lie (what you call the free market or "contracts." I'd like a contract that pays me a trillion if the Mets lose, by the way, but AIG wouldn't give it to me).

Your scenario is an argument for rewarding the criminals and inviting them to do worse to us next time. The whole sequence of dominoes you want to prop up was set up by operators who changed the rules first and claimed it was all for the "free market." By that "free market," they should die as businesses. As for the supposedly disastrous consequences, such a crash would be the world's best hope. Capital and labor would be freed from the hands of these private empires who want only and ever more, and who have burned the planet down. The trillions the taxpayers are putting up and the Fed is printing could go instead to establishing a new nationalized banking sector, unburdened by debt, which finances new businesses and a new economy in effecting the necessary transformations for sustainability in energy, transport, farming and health care.

Just keep dreaming that the bailouts are anything other than the last bust-out operation (gangster term you may be familiar with) of a failed model. The financial crash is not even halfway through yet.