The Big Takeover : Rolling Stone - The Diigo Meta page

• 15 Sep 09
  

  1 2

  The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution

• 08 Sep 09
  

  (johan) objektivv

  politics politics-US politics-economy

• 

  John Leclerc

  politics politics-US politics-economy

• 05 Sep 09
  

  Chasjo Mitch

  Taibbi

• 30 May 09
  

  david derouen

  business economics scams shameful readthis

• 09 Apr 09
  

  John Lucero

  pretense finance economics articles

• 03 Apr 09
  

  Katie Day

  Article on the financial crisis with the view that this was a conspiracy of the rich who control the world....

  finance crisis economics 2009 conspiracy_theories

  • The mistake most people make in looking at the financial crisis
    is thinking of it in terms of money, a habit that might
    lead you to look at the unfolding mess as a huge bonus-killing
    downer for the Wall Street class. But if you look at it in purely
    Machiavellian terms, what you see is a colossal power grab that
    threatens to turn the federal government into a kind of giant Enron
    — a huge, impenetrable black box filled with self-dealing
    insiders whose scheme is the securing of individual profits at the
    expense of an ocean of unwitting involuntary shareholders,
    previously known as taxpayers.
  • The mess Cassano created had its roots in an investment boom
    fueled in part by a relatively new type of financial instrument
    called a collateralized-debt obligation. A CDO is like a box full
    of diced-up assets.
  • 14 more annotations...
  • • The problem was, none of this was based on reality. "The banks
      knew they were selling crap," says a London-based trader from one
      of the bailed-out companies. To get AAA ratings, the CDOs relied
      not on their actual underlying assets but on crazy mathematical
      formulas that the banks cooked up to make the investments look
      safer than they really were. "They had some back room somewhere
      where a bunch of Indian guys who'd been doing nothing but math for
      God knows how many years would come up with some kind of model
      saying that this or that combination of debtors would only default
      once every 10,000 years," says one young trader who sold CDOs for a
      major investment bank. "It was nuts."
    • Given a free hand within the
      company, Cassano set out from his offices in London to sell a
      lucrative form of "insurance" to all those investors holding lots
      of CDOs. His tool of choice was another new financial instrument
      known as a credit-default swap, or CDS.
    • What Cassano did was to transform the credit swaps that Morgan
      popularized into the world's largest bet on the housing boom.
    • In a span of only seven years, Cassano sold some $500 billion
      worth of CDS protection, with at least $64 billion of that tied to
      the subprime mortgage market.
    • Initially, at least, the revenues were enormous: AIGFP's returns
      went from $737 million in 1999 to $3.2 billion in 2005. Over the
      past seven years, the subsidiary's 400 employees were paid a total
      of $3.5 billion; Cassano himself pocketed at least $280 million in
      compensation. Everyone made their money — and then it all
      went to shit.
    • The very next year, Gramm compounded the problem by writing a
      sweeping new law called the Commodity Futures Modernization Act
      that made it impossible to regulate credit swaps as either gambling
      or securities. Commercial banks — which, thanks to Gramm,
      were now competing directly with investment banks for customers
      — were driven to buy credit swaps to loosen capital in search
      of higher yields. "By ruling that credit-default swaps were not
      gaming and not a security, the way was cleared for the growth of
      the market," said Eric Dinallo, head of the New York State
      Insurance Department.
    • The blanket exemption meant that Joe Cassano could now sell as
      many CDS contracts as he wanted, building up as huge a position as
      he wanted, without anyone in government saying a word.
    • In the biggest joke of all, Cassano's wheeling and dealing was
      regulated by the Office of Thrift Supervision, an agency that would
      prove to be defiantly uninterested in keeping watch over his
      operations.
    • That same year, as the subprime crisis was exploding, the
      Government Accountability Office criticized the OTS, noting a
      "disparity between the size of the agency and the diverse firms it
      oversees." Among other things, the GAO report noted that the entire
      OTS had only one insurance specialist on staff — and this
      despite the fact that it was the primary regulator for the world's
      largest insurer!
    • When AIG finally blew up, the OTS regulator ostensibly in charge
      of overseeing the insurance giant — a guy named C.K. Lee
      — basically admitted that he had blown it. His mistake, Lee
      said, was that he believed all those credit swaps in Cassano's
      portfolio were "fairly benign products." Why? Because the company
      told him so. "The judgment the company was making was that there
      was no big credit risk," he explained. (Lee now works as Midwest
      region director of the OTS; the agency declined to make him
      available for an interview.)
    • AIG might have been OK had
      it not been for a complete lack of internal controls. For six
      months before its meltdown, according to insiders, the company had
      been searching for a full-time chief financial officer and a chief
      risk-assessment officer, but never got around to hiring either.
    • The reason the number has dropped to nothing is that the Fed had
      simply stopped using relatively transparent devices like repurchase
      agreements to pump its money into the hands of private companies.
      By early 2009, a whole series of new government operations had been
      invented to inject cash into the economy, most all of them
      completely secretive and with names you've never heard of. There is
      the Term Auction Facility, the Term Securities Lending Facility,
      the Primary Dealer Credit Facility, the Commercial Paper Funding
      Facility and a monster called the Asset-Backed Commercial Paper
      Money Market Mutual Fund Liquidity Facility (boasting the chat-room
      horror-show acronym ABCPMMMFLF). For good measure, there's also
      something called a Money Market Investor Funding Facility, plus
      three facilities called Maiden Lane I, II and III to aid bailout
      recipients like Bear Stearns and AIG.
    • In essence, Paulson and his cronies turned the federal
      government into one gigantic, half-opaque holding company, one
      whose balance sheet includes the world's most appallingly large and
      risky hedge fund, a controlling stake in a dying insurance giant,
      huge investments in a group of teetering megabanks, and shares here
      and there in various auto-finance companies, student loans, and
      other failing businesses. Like AIG, this new federal holding
      company is a firm that has no mechanism for auditing itself and is
      run by leaders who have very little grasp of the daily operations
      of its disparate subsidiary operations.
    • As complex as all the finances are, the politics aren't hard to
      follow. By creating an urgent crisis that can only be solved by
      those fluent in a language too complex for ordinary people to
      understand, the Wall Street crowd has turned the vast majority of
      Americans into non-participants in their own political future.
      There is a reason it used to be a crime in the Confederate states
      to teach a slave to read: Literacy is power. In the age of the CDS
      and CDO, most of us are financial illiterates. By making an already
      too-complex economy even more complex, Wall Street has used the
      crisis to effect a historic, revolutionary change in our political
      system — transforming a democracy into a two-tiered state,
      one with plugged-in financial bureaucrats above and clueless
      customers below.
• 02 Apr 09
  

  Clay Burell
  • The crisis was the coup de grâce: Given virtually free
    rein over the economy, these same insiders first wrecked the
    financial world, then cunningly granted themselves nearly unlimited
    emergency powers to clean up their own mess. And so the
    gambling-addict leaders of companies like AIG end up not penniless
    and in jail, but with an Alien-style death grip on the
    Treasury and the Federal Reserve — "our partners in the
    government," as Liddy put it with a shockingly casual
    matter-of-factness after the most recent bailout.

  • Suddenly, thanks to this financial seal of approval, banks had a
    way to turn their shittiest mortgages and other financial waste
    into investment-grade paper and sell them to institutional
    investors like pensions and insurance companies, which were forced
    by regulators to keep their portfolios as safe as possible. Because
    CDOs offered higher rates of return than truly safe products like
    Treasury bills, it was a win-win: Banks made a fortune selling
    CDOs, and big investors made much more holding them.

    
    

    The problem was, none of this was based on reality. "The banks
    knew they were selling crap," says a London-based trader from one
    of the bailed-out companies. To get AAA ratings, the CDOs relied
    not on their actual underlying assets but on crazy mathematical
    formulas that the banks cooked up to make the investments look
    safer than they really were. "They had some back room somewhere
    where a bunch of Indian guys who'd been doing nothing but math for
    God knows how many years would come up with some kind of model
    saying that this or that combination of debtors would only default
    once every 10,000 years," says one young trader who sold CDOs for a
    major investment bank. "It was nuts."

  • 2 more annotations...
  • • There are plenty of people who have
      noticed, in recent years, that when they lost their homes to
      foreclosure or were forced into bankruptcy because of crippling
      credit-card debt, no one in the government was there to rescue
      them. But when Goldman Sachs — a company whose average
      employee still made more than $350,000 last year, even in the midst
      of a depression — was suddenly faced with the possibility of
      losing money on the unregulated insurance deals it bought for its
      insane housing bets, the government was there in an instant to
      patch the hole. That's the essence of the bailout: rich bankers
      bailing out rich bankers, using the taxpayers' credit card.
    • In
      essence, Paulson used the bailout to transform the government into
      a giant bureaucracy of entitled assholedom, one that would
      socialize "toxic" risks but keep both the profits and the
      management of the bailed-out firms in private hands.
• 01 Apr 09
  

  sophie black
• 31 Mar 09
  

  Jabiz Raisdana

  rich bankers bailing out rich bankers, using the taxpayers' credit card.

  economics matttaibbi bailout

• 30 Mar 09
  

  John M

  Financial_Crisis_'08

• 

  Mark Ballard

  Bailout AIG finance economy taibbi analysis politics

• 

  Jose Frederick San Roman
• 28 Mar 09
  

  Matti Narkia

  It's over - we're officially, royally fucked. No empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline - a corporation that got rich insuring the concrete and steel of American industry in the country's heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.\n\nThe latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history - some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That's $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second

  2009 January rollingstone news article finance economy economics economical business crisis AIG big takeover wall_street crash power popular

• 

  michael noam

  economics politics bailout economy AIG finance analysis taibbi

• 

  Gerhard Stoltz

  2009 government economy cronyism politics analysis bailout transparency power money debt security

  • in the end, our government had
    no mechanism for searching the balance sheets of companies that
    held life-or-death power over our society and was unable to spot
    holes in the national economy the size of Libya (whose entire GDP
    last year was smaller than AIG's 2008 losses).
  • 
    
    

    Liddy made AIG sound like an orphan begging in a soup line,
    hungry and sick from being left out in someone else's financial
    weather. He conveniently forgot to mention that AIG had spent more
    than a decade systematically scheming to evade U.S. and
    international regulators, or that one of the causes of its
    "pneumonia" was making colossal, world-sinking $500 billion bets
    with money it didn't have, in a toxic and completely unregulated
    derivatives market.

  • 14 more annotations...

  • • 
      

      The mistake most people make in looking at the financial crisis
      is thinking of it in terms of money

    • 
      

      The problem was, none of this was based on reality. "The banks
      knew they were selling crap," says a London-based trader from one
      of the bailed-out companies. To get AAA ratings, the CDOs relied
      not on their actual underlying assets but on crazy mathematical
      formulas that the banks cooked up to make the investments look
      safer than they really were.

    • First, the party selling CDS protection didn't have to post
      any money upfront. When a $100 corporate bond is sold, for example,
      someone has to show 100 actual dollars. But when you sell a $100
      CDS guarantee, you don't have to show a dime. So Cassano could sell
      investment banks billions in guarantees without having any single
      asset to back it up.
    • In the
      10-year period beginning in 1998, financial companies spent $1.7
      billion on federal campaign contributions and another $3.4 billion
      on lobbyists. They quickly got what they paid for.

    • 
      

      That same year, as the subprime crisis was exploding, the
      Government Accountability Office criticized the OTS, noting a
      "disparity between the size of the agency and the diverse firms it
      oversees." Among other things, the GAO report noted that the entire
      OTS had only one insurance specialist on staff — and this
      despite the fact that it was the primary regulator for the world's
      largest insurer!

    • The
      situation was so bad that when outside consultants were called in a
      few weeks before the bailout, senior executives were unable to
      answer even the most basic questions about their company —
      like, for instance, how much exposure the firm had to the
      residential-mortgage market.
    • Then, in January 2009, the company did it again. After all those
      years letting Cassano run wild, and after already getting caught
      paying out insane bonuses while on the public till, AIG decided to
      pay out another $450 million in bonuses. And to whom? To the 400 or
      so employees in Cassano's old unit, AIGFP, which is due to go out
      of business shortly! Yes, that's right, an average of $1.1 million
      in taxpayer-backed money apiece, to the very people who spent the
      past decade or so punching a hole in the fabric of the
      universe!
    • The banks generously volunteered to submit to new rules
      restricting them from engaging in excessively risky activity. In
      exchange, they asked to be released from any lending restrictions.
      The discussion about the new rules lasted just 55 minutes, and
      there was not a single representative of a major media outlet there
      to record the fateful decision.

    • 
      

      Market analyst Eric Salzman is more blunt. "If AIG went down,"
      he says, "there was a good chance Goldman would not be able to
      collect." The AIG bailout, in effect, was Goldman bailing out
      Goldman.

    • 
      

      The reason the number has dropped to nothing is that the Fed had
      simply stopped using relatively transparent devices like repurchase
      agreements to pump its money into the hands of private companies.
      By early 2009, a whole series of new government operations had been
      invented to inject cash into the economy, most all of them
      completely secretive and with names you've never heard of

    • 
      

      When one considers the comparatively extensive system of
      congressional checks and balances that goes into the spending of
      every dollar in the budget via the normal appropriations process,
      what's happening in the Fed amounts to something truly
      revolutionary — a kind of shadow government with a budget
      many times the size of the normal federal outlay, administered
      dictatorially by one man, Fed chairman Ben Bernanke.

    • 
      

      "There's definitely a feeling among community bankers that no
      one up there cares much if they make it or not," says Tanya
      Wheeless, president of the Arizona Bankers Association.

    • 
      

      Nonetheless, the lion's share of the bailout money has gone to
      the larger, so-called "systemically important" banks. "It's like
      Treasury is picking winners and losers," says one state banking
      official who asked not to be identified.

    • "This is exactly what the
      financial system needs," said Andrew Feldstein, CEO of Blue
      Mountain Capital and one of the Morgan Mafia. Strangely, there
      aren't many people who don't run hedge funds who have expressed
      anything like that kind of enthusiasm for Geithner's ideas.
• 

  Cappella Adelante
• 27 Mar 09
  

  punchjur

  Bailout_Recession

• 26 Mar 09
  

  Fhar Miess

  A long but very informative piece about the "global economic crisis."

  theDepression theEconomy

• 

  greenup greenup
  • And all this happened
    at the end of eight straight years that America devoted to
    frantically chasing the shadow of a terrorist threat to no avail,
    eight years spent stopping every citizen at every airport to search
    every purse, bag, crotch and briefcase for juice boxes and
    explosive tubes of toothpaste. Yet in the end, our government had
    no mechanism for searching the balance sheets of companies that
    held life-or-death power over our society and was unable to spot
    holes in the national economy the size of Libya (whose entire GDP
    last year was smaller than AIG's 2008 losses).
  • None other than disgraced senator Ted Stevens was the poor sap
    who made the unpleasant discovery that if Congress didn't like the
    Fed handing trillions of dollars to banks without any oversight,
    Congress could apparently go fuck itself — or so said the
    law. When Stevens asked the GAO about what authority Congress has
    to monitor the Fed, he got back a letter citing an obscure statute
    that nobody had ever heard of before: the
  • 3 more annotations...
  • • Accounting and Auditing
      Act of 1950. The relevant section, 31 USC 714(b), dictated that
      congressional audits of the Federal Reserve may not include
      "deliberations, decisions and actions on monetary policy matters."
      The exemption, as Foss notes, "basically includes everything."
      According to the law, in other words, the Fed simply cannot be
      audited by Congress. Or by anyone else, for
    • The relevant section, 31 USC 714(b), dictated that
      congressional audits of the Federal Reserve may not include
      "deliberations, decisions and actions on monetary policy matters."
      The exemption, as Foss notes, "basically includes everything."
      According to the law, in other words, the Fed simply cannot be
      audited by Congress. Or by anyone else, for that m
    • As complex as all the finances are, the politics aren't hard to
      follow. By creating an urgent crisis that can only be solved by
      those fluent in a language too complex for ordinary people to
      understand, the Wall Street crowd has turned the vast majority of
      Americans into non-participants in their own political future.
      There is a reason it used to be a crime in the Confederate states
      to teach a slave to read: Literacy is power. In the age of the CDS
      and CDO, most of us are financial illiterates. By making an already
      too-complex economy even more complex, Wall Street has used the
      crisis to effect a historic, revolutionary change in our political
      system — transforming a democracy into a two-tiered state,
      one with plugged-in financial bureaucrats above and clueless
      customers below.
• 

  A Cairene

  excellent article:
  "And the worst part about it is that we're still in denial — we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American D

  economy economic-crisis finance financial-crisis politics corruption economics business wallstreet liberal

• 

  Sascha M.

  A superb account by Matt Taibbi of the history of the AIG meltdown and the government's (in)actions that enabled it as well as the aftermath of the crash with the Federal Reserve's and the Treasury Dept.'s scandalous secrecy in pumping trillions of dollars to Wall Street firms.

  finance crash history

  • Accounting and Auditing
    Act of 1950. The relevant section, 31 USC 714(b), dictated that
    congressional audits of the Federal Reserve may not include
    "deliberations, decisions and actions on monetary policy matters."
    The exemption, as Foss notes, "basically includes everything."
    According to the law, in other words, the Fed simply cannot be
    audited by Congress. Or by anyone else, for that matter.

    • 

      Sascha M. on 2009-03-26

      I reckon that the original intent is a good one: a central bank that is independent and free from political influence. In reality though, the central bank has become beholden to Wall Street interests, because it's led by former Wall Street bankers and because of the outrageous influence of a small number of financial institutions over the world's financial system.
  • In
    essence, the bailout accelerated the decline of regional community
    lenders by boosting the political power of their giant national
    competitors.
  • 6 more annotations...
  • • To fix this problem,
      the government should have slowly liquidated these monster,
      too-big-to-fail firms and broken them down to smaller, more
      manageable companies. Instead, federal regulators closed ranks and
      used an almost completely secret bailout process to double down on
      the same faulty, merger-happy thinking that got us here in the
      first place, creating a constellation of megafirms under government
      control that are even bigger, more unwieldy and more crammed to the
      gills with systemic risk.
    • In essence, Paulson and his cronies turned the federal
      government into one gigantic, half-opaque holding company, one
      whose balance sheet includes the world's most appallingly large and
      risky hedge fund, a controlling stake in a dying insurance giant,
      huge investments in a group of teetering megabanks, and shares here
      and there in various auto-finance companies, student loans, and
      other failing businesses. Like AIG, this new federal holding
      company is a firm that has no mechanism for auditing itself and is
      run by leaders who have very little grasp of the daily operations
      of its disparate subsidiary operations.
    • And on the linear spectrum of capitalism to
      socialism, where exactly are we now? Is there a dictionary word
      that even describes what we are now?
    • In fact, most of Geithner's early moves reek strongly of
      Paulsonism. He has continually talked about partnering with private
      investors to create a so-called "bad bank" that would systemically
      relieve private lenders of bad assets — the kind of massive,
      opaque, quasi-private bureaucratic nightmare that Paulson
      specialized in. Geithner even refloated a Paulson proposal to use
      TALF, one of the Fed's new facilities, to essentially lend cheap
      money to hedge funds to invest in troubled banks while practically
      guaranteeing them enormous profits.
    • By making an already
      too-complex economy even more complex, Wall Street has used the
      crisis to effect a historic, revolutionary change in our political
      system — transforming a democracy into a two-tiered state,
      one with plugged-in financial bureaucrats above and clueless
      customers below.
    • These people were never about
      anything except turning money into money, in order to get more
      money; valueswise they're on par with crack addicts, or obsessive
      sexual deviants who burgle homes to steal panties. Yet these are
      the people in whose hands our entire political future now
      rests.
• 

  superlumina

  It's over — we're officially, royally fucked. No empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country's heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.

  economics economy bailout politics AIG finance taibbi

• 

  Eldritch Crank

  While the rest of America, and most of Congress, have been bugging out about the $700 billion bailout program called TARP, all of these newly created organisms in the Federal Reserve zoo have quietly been pumping not billions but trillions of dollars into the hands of private companies (at least $3 trillion so far in loans, with as much as $5.7 trillion more in guarantees of private investments). Although this technically isn't taxpayer money, it still affects taxpayers directly, because the activities of the Fed impact the economy as a whole. And this new, secretive activity by the Fed completely eclipses the TARP program in terms of its influence on the economy.

  economy public policy

• 25 Mar 09
  

  slaquino
• 

  Christos Entheos

  joey talks

• 

  Jennifer Dorman
• 

  Brendan M

  finance

• 

  Nathan Christianson
• 

  Pranesh Prakash

  The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution.

  Matt Taibi economics bailout recession politics Rolling Stone

• 

  scott klepesch

  Financial Crisis

  • People are pissed off about this financial crisis, and about
    this bailout, but they're not pissed off enough. The reality is
    that the worldwide economic meltdown and the bailout that followed
    were together a kind of revolution, a coup d'état. They
    cemented and formalized a political trend that has been snowballing
    for decades: the gradual takeover of the government by a small
    class of connected insiders, who used money to control elections,
    buy influence and systematically weaken financial regulations.
  • ut in the late Nineties, a few years before Cassano took over
    AIGFP, all that changed. The Democrats, tired of getting
    slaughtered in the fundraising arena by Republicans, decided to
    throw off their old reliance on unions and interest groups and
    become more "business-friendly." Wall Street responded by flooding
    Washington with money, buying allies in both parties. In the
    10-year period beginning in 1998, financial companies spent $1.7
    billion on federal campaign contributions and another $3.4 billion
    on lobbyists. They quickly got what they paid for. In 1999, Gramm
    co-sponsored a bill that repealed key aspects of the Glass-Steagall
    Act
• 24 Mar 09
  

  Mike Cane

  In the final three months of last year, the company lost more than $27 million every hour. That's $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second.

• 

  jmuskate

  Finance economics economy bailout taibbi

• 

  harry palmer

  hello-oblivion crash banksters us-politics deregulation glass-steagal aig cassano bailout

  • In the biggest joke of all, Cassano's wheeling and dealing was
    regulated by the Office of Thrift Supervision, an agency that would
    prove to be defiantly uninterested in keeping watch over his
    operations. How a behemoth like AIG came to be regulated by the
    little-known and relatively small OTS is yet another triumph of the
    deregulatory instinct. Under another law passed in 1999, certain
    kinds of holding companies could choose the OTS as their regulator,
    provided they owned one or more thrifts (better known as
    savings-and-loans). Because the OTS was viewed as more compliant
    than the Fed or the Securities and Exchange Commission, companies
    rushed to reclassify themselves as thrifts. In 1999, AIG purchased
    a thrift in Delaware and managed to get approval for OTS regulation
    of its entire operation.
  • By the fall of 2007, it was evident that AIGFP's portfolio had
    turned poisonous, but like every good Wall Street huckster, Cassano
    schemed to keep his insane, Earth-swallowing gamble hidden from
    public view. That August, balls bulging, he announced to investors
    on a conference call that "it is hard for us, without being
    flippant, to even see a scenario within any kind of realm of reason
    that would see us losing $1 in any of those transactions." As he
    spoke, his CDS portfolio was racking up $352 million in losses.
    When the growing credit crunch prompted senior AIG executives to
    re-examine its liabilities, a company accountant named Joseph St.
    Denis became "gravely concerned" about the CDS deals and their
    potential for mass destruction. Cassano responded by personally
    forcing the poor sap out of the firm, telling him he was
    "deliberately excluded" from the financial review for fear that he
    might "pollute the process."
• 

  Jason Mittell
  • As banks and investors of all kinds took on more and
    more in CDOs and similar instruments, they needed some way to hedge
    their massive bets
• 

  Michel Bauwens

  By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is

  Meltdown P2P

• 

  Tarmo Toikkanen

  The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution

  politics economy AIG bailout analysis

  • When Morgan presented their plans for credit swaps to regulators
    in the late Nineties, they argued that if they bought CDS
    protection for enough of the investments in their portfolio, they
    had effectively moved the risk off their books.

  • What Cassano did was to transform the credit swaps that Morgan
    popularized into the world's largest bet on the housing boom. In
    theory, at least, there's nothing wrong with buying a CDS to insure
    your investments. Investors paid a premium to AIGFP, and in return
    the company promised to pick up the tab if the mortgage-backed CDOs
    went bust. But as Cassano went on a selling spree, the deals he
    made differed from traditional insurance in several significant
    ways. First, the party selling CDS protection didn't have to post
    any money upfront. When a $100 corporate bond is sold, for example,
    someone has to show 100 actual dollars. But when you sell a $100
    CDS guarantee, you don't have to show a dime. So Cassano could sell
    investment banks billions in guarantees without having any single
    asset to back it up.

    
    

  • 7 more annotations...
  • • Unlike traditional insurance, Cassano was offering investors an
      opportunity to bet that someone else's house would burn
      down
    • "If AIG went down,"
      he says, "there was a good chance Goldman would not be able to
      collect." The AIG bailout, in effect, was Goldman bailing out
      Goldman.
    • That's the essence of the bailout: rich bankers
      bailing out rich bankers, using the taxpayers' credit card.
    • No one knows who's getting that money or exactly how much of it
      is disappearing through these new holes in the hull of America's
      credit rating. Moreover, no one can really be sure if these new
      institutions are even temporary at all — or whether they are
      being set up as permanent, state-aided crutches to Wall Street,
      designed to systematically suck bad investments off the ledgers of
      irresponsible lenders.

      • 

        Tarmo Toikkanen on 2009-03-24

        And what's the global impact of the US "wasting" all these trillions? Will it help other countries to compete economically, or will US collapse and bring down everything else?
    • According to the law, in other words, the Fed simply cannot be
      audited by Congress. Or by anyone else, for that matter.
    • Which, when you think about it, is insane: What had brought us
      to the brink of collapse in the first place was this relentless
      instinct for building ever-larger megacompanies, passing
      deregulatory measures to gradually feed all the little fish in the
      sea to an ever-shrinking pool of Bigger Fish. To fix this problem,
      the government should have slowly liquidated these monster,
      too-big-to-fail firms and broken them down to smaller, more
      manageable companies. Instead, federal regulators closed ranks and
      used an almost completely secret bailout process to double down on
      the same faulty, merger-happy thinking that got us here in the
      first place, creating a constellation of megafirms under government
      control that are even bigger, more unwieldy and more crammed to the
      gills with systemic risk.
    • It might not bode well that Geithner, Obama's Treasury secretary,
      is one of the architects of the Paulson bailouts
• 

  Susan Bradford

  politics economy analysis

• 23 Mar 09
  

  Morris Pelzel

  finance

• 

  Mike Fruchter
• 

  Chuck Brands
• 

  J Mills
• 

  Frank Sanders
• 

  Rajan Datta

  Rolling Stone with another in-depth piece. This time - the aftermath of the Economic crisis

  economics

• 

  Mike Thomsen

  economics AIG politics economy bailout rolling stone taibbi analysis news

  • no empire can survive being rendered a permanent
    laughingstock
• 22 Mar 09
  

  Richard Fahey

  AIG economy bailout rollingstone

• 

  Steve Simpson

  politics economics rollingstone

• 

  Damon Snyder

  economy housing crash aig

• 21 Mar 09
  

  Dan Ancona

  econ taibbi

• 

  Leigh Blackall

  The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution

  econmics depression

• 

  Larry K

  rollingstone article bailout commentary analysis economy

• 

  T. Rex Bean

  taibbi rollingstone article bailout commentary analysis

• 

  Carol Wheeler

  politics AIG

• 

  J Phil Glockner
• 

  Tracy Viselli

  Great, including amusing comments from a free-marketer claiming that none of this would have happened without any regulation at all.

  politics economics tarp talk geithner paulson economy cdo cds aig government transparency fed treasury

• 

  ken meece

  ReadItLater

• 

  Kenneth LeFebvre

  The language is a bit raw in some places, but this is an outstanding article about the power plays in Wall Street and Washington that have designed our current economic woes, in order to profit a very few.

  Economics Government Corruption Politics United States

  • The global economic crisis isn't about money - it's about power.
  • The latest bailout came as AIG admitted to having just posted
    the largest quarterly loss in American corporate history —
    some $61.7 billion. In the final three months of last year, the
    company lost more than $27 million every hour. That's
    $465,000 a minute, a yearly income for a median American household
    every six seconds, roughly $7,750 a second. And all this happened
    at the end of eight straight years that America devoted to
    frantically chasing the shadow of a terrorist threat to no avail,
    eight years spent stopping every citizen at every airport to search
    every purse, bag, crotch and briefcase for juice boxes and
    explosive tubes of toothpaste. Yet in the end, our government had
    no mechanism for searching the balance sheets of companies that
    held life-or-death power over our society and was unable to spot
    holes in the national economy the size of Libya (whose entire GDP
    last year was smaller than AIG's 2008 losses).
  • 41 more annotations...
  • • So it's time to admit it: We're fools, protagonists in a kind of
      gruesome comedy about the marriage of greed and stupidity.
    • we still
      think this is some kind of unfortunate accident
    • something that
      was created by the group of psychopaths on Wall Street whom we
      allowed to gang-rape the American Dream

      • 

        Kenneth LeFebvre on 2009-03-21

        It wasn't just Wall Street. It was born in Washington; Wall Street was just a tool.
      • 

        Mike Thomsen on 2009-03-23

        Excellent point!
      • 1 more sticky notes...
      • • 

          palindrome emordnilap on 2009-03-24

          It seems that there is no effective difference between them.
    • a huge chunk of
      your taxpayer dollars in this particular bailout scam will be going
      to pay off the other high rollers at its table
    • The reality is
      that the worldwide economic meltdown and the bailout that followed
      were together a kind of revolution, a coup d'état. They
      cemented and formalized a political trend that has been snowballing
      for decades: the gradual takeover of the government by a small
      class of connected insiders, who used money to control elections,
      buy influence and systematically weaken financial regulations.
    • Given virtually free
      rein over the economy, these same insiders first wrecked the
      financial world, then cunningly granted themselves nearly unlimited
      emergency powers to clean up their own mess.
    • But if you look at it in purely
      Machiavellian terms, what you see is a colossal power grab that
      threatens to turn the federal government into a kind of giant Enron
      — a huge, impenetrable black box filled with self-dealing
      insiders whose scheme is the securing of individual profits at the
      expense of an ocean of unwitting involuntary shareholders,
      previously known as taxpayers.
    • thanks to
      Washington's deregulation

      • 

        Kenneth LeFebvre on 2009-03-21

        It's not about "deregulation." It's about Washington's collaboration with the crooks.
    • These guys look for holes in the
      system, for ways they can do trades without government
      interference.

      • 

        Kenneth LeFebvre on 2009-03-21

        They're not "looking for holes in the system." They lobby their favorite paid-off government official to *craft* the loopholes together, and then they send a kick-back to their government collaborator in the form of campaign contributions or lobbyist support for pet projects.
    • The problem was, none of this was based on reality. "The banks
      knew they were selling crap," says a London-based trader from one
      of the bailed-out companies. To get AAA ratings, the CDOs relied
      not on their actual underlying assets but on crazy mathematical
      formulas that the banks cooked up to make the investments look
      safer than they really were. "They had some back room somewhere
      where a bunch of Indian guys who'd been doing nothing but math for
      God knows how many years would come up with some kind of model
      saying that this or that combination of debtors would only default
      once every 10,000 years," says one young trader who sold CDOs for a
      major investment bank. "It was nuts."
    • Therefore, they
      argued, they should be allowed to lend more, without keeping more
      cash in reserve.

      • 

        Kenneth LeFebvre on 2009-03-21

        This is also directly related to the Fed's manipulation of the money supply, to lower interest rates and create more "money" for these banks to lend.
    • Unlike traditional insurance, Cassano was offering investors an
      opportunity to bet that someone else's house would burn
      down, or take out a term life policy on the guy with AIDS down the
      street. It was no different from gambling, the Wall Street version
      of a bunch of frat brothers betting on Jay Feely to make a field
      goal. Cassano was taking book for every bank that bet short on the
      housing market, but he didn't have the cash to pay off if the kick
      went wide.
    • Wall Street responded by flooding
      Washington with money, buying allies in both parties.
    • smoothing the way for the creation of financial megafirms like
      Citigroup.

      • 

        Kenneth LeFebvre on 2009-03-21

        True deregulation doesn't make it easier to create megacorporations. It's hard work to build a big business.
        
        The kind of deregulation they're talking about here, is SELECTIVE DEREGULATION. They relax certain regulations to make it easier for big companies to get bigger, while still keeping the foundational regulations in place, that keep the competitors small.
        
        If we erased ALL of the regulations, there would be more competition, everyone would be smaller, and the big corporations would find themselves too big to compete with the smaller companies.
    • The move did away with the built-in protections afforded
      by smaller banks. In the old days, a local banker knew the people
      whose loans were on his balance sheet
    • Among other things, the GAO report noted that the entire
      OTS had only one insurance specialist on staff — and this
      despite the fact that it was the primary regulator for the world's
      largest insurer!
    • The only
      relevant government office that wasn't represented was the
      regulator that should have been there all along: the OTS.
    • making up things like credit-default swaps and
      collateralized-debt obligations, financial products so complex and
      inscrutable that ordinary American dumb people — to say
      nothing of federal regulators and even the CEOs of major
      corporations like AIG — are too intimidated to even try to
      understand them.

      • 

        Kenneth LeFebvre on 2009-03-21

        This kind of fiction can only be hidden amidst a maze of government regulations.
        
        In a truly unregulated market, everything would be simple enough for these "ordinary American dumb people" to understand, because these ordinary people are the market that must be satisfied for any business to succeed.
    • the top five investment
      banks
    • a commission
      of seven people

      • 

        Kenneth LeFebvre on 2009-03-21

        A Free Market would not allow a mere 7 men to supervise only 5 companies.
        
        In a Free Market, decisions would be made by thousands of companies, supervised by millions of customers and stockholders.
    • That's the essence of the bailout: rich bankers
      bailing out rich bankers, using the taxpayers' credit card.
    • The people who have spent their lives cloistered in this Wall
      Street community aren't much for sharing information with the great
      unwashed. Because all of this shit is complicated, because most of
      us mortals don't know what the hell LIBOR is or how a REIT works or
      how to use the word "zero coupon bond" in a sentence without
      sounding stupid — well, then, the people who do speak this
      idiotic language cannot under any circumstances be bothered to
      explain it to us and instead spend a lot of time rolling their eyes
      and asking us to trust them.
    • That roll of the eyes is a key part of the psychology of
      Paulsonism.

      • 

        Kenneth LeFebvre on 2009-03-21

        And this same psychology is exactly how the government manipulates all of us into "trusting" them to do what is best for us (uh, really, for them).
    • the Fed had
      simply stopped using relatively transparent devices like repurchase
      agreements to pump its money into the hands of private companies.
    • By early 2009, a whole series of new government operations had been
      invented to inject cash into the economy, most all of them
      completely secretive and with names you've never heard of.
    • While the rest of America, and most of Congress, have been
      bugging out about the $700 billion bailout program called TARP, all
      of these newly created organisms in the Federal Reserve zoo have
      quietly been pumping not billions but trillions of dollars into the
      hands of private companies (at least $3 trillion so far in loans,
      with as much as $5.7 trillion more in guarantees of private
      investments).

      • 

        Kenneth LeFebvre on 2009-03-21

        This is why we NEED Rep. Paul's bill to audit the Federal Reserve!!!
      • 

        Tarmo Toikkanen on 2009-03-24

        I wonder how much more is still left uncovered. Seems every month something new turns up that's been brewing under the wraps.
    • In essence, the Fed was telling Congress to lay off and let the
      experts handle things.
    • When one considers the comparatively extensive system of
      congressional checks and balances that goes into the spending of
      every dollar in the budget via the normal appropriations process,
      what's happening in the Fed amounts to something truly
      revolutionary — a kind of shadow government with a budget
      many times the size of the normal federal outlay, administered
      dictatorially by one man, Fed chairman Ben Bernanke.
    • To this date, no one knows exactly what
      criteria the Treasury Department used to determine which banks
      received bailout funds and which didn't — particularly the
      first $350 billion given out under Bush appointee Hank Paulson.

      • 

        Kenneth LeFebvre on 2009-03-21

        This is exactly why National City was bought by PNC. They gave TARP money to PNC and refused it to NCC... why?
    • The situation with the first TARP payments grew so absurd that
      when the Congressional Oversight Panel, charged with monitoring the
      bailout money, sent a query to Paulson asking how he decided whom
      to give money to, Treasury responded — and this isn't a joke
      — by directing the panel to a copy of the TARP application
      form on its website.
    • Another member of Congress, who asked not to be named, offers
      his own theory about the TARP process. "I think basically if you
      knew Hank Paulson, you got the money," he says.

      • 

        Kenneth LeFebvre on 2009-03-21

        PNC has a board member that used to be a Federal Reserve Bank chairman. NCC had no personal ties to the "Insiders Club".
    • "It's like
      Treasury is picking winners and losers," says one state banking
      official who asked not to be identified.
    • It might not bode well that Geithner, Obama's Treasury secretary,
      is one of the architects of the Paulson bailouts; as chief of the
      New York Fed, he helped orchestrate the Goldman-friendly AIG
      bailout and the secretive Maiden Lane facilities used to funnel
      funds to the dying company.
    • Neither did it look good when Geithner
      — himself a protégé of notorious Goldman alum
      John Thain, the Merrill Lynch chief who paid out billions in
      bonuses after the state spent billions bailing out his firm —
      picked a former Goldman lobbyist named Mark Patterson to be his top
      aide.
    • In fact, most of Geithner's early moves reek strongly of
      Paulsonism.
    • Strangely, there
      aren't many people who don't run hedge funds who have expressed
      anything like that kind of enthusiasm for Geithner's ideas.
    • By creating an urgent crisis that can only be solved by
      those fluent in a language too complex for ordinary people to
      understand, the Wall Street crowd has turned the vast majority of
      Americans into non-participants in their own political future.
    • As complex as all the finances are, the politics aren't hard to
      follow.
    • By making an already
      too-complex economy even more complex, Wall Street has used the
      crisis to effect a historic, revolutionary change in our political
      system — transforming a democracy into a two-tiered state,
      one with plugged-in financial bureaucrats above and clueless
      customers below.
    • "But wait a minute," you say to them. "No one ever asked you to
      stay up all night eight days a week trying to get filthy rich
      shorting what's left of the American auto industry or selling $600
      billion in toxic, irredeemable mortgages to ex-strippers on work
      release and Taco Bell clerks. Actually, come to think of it, why
      are we even giving taxpayer money to you people? Why are we not
      throwing your ass in jail instead?"
    • they're rolling their
      eyes, because You Don't Get It.
• 

  Jimmy Breeze

  economics finance business

  • The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution
  • Yet in the end, our government had
    no mechanism for searching the balance sheets of companies that
    held life-or-death power over our society and was unable to spot
    holes in the national economy
  • 13 more annotations...
  • • The reality is
      that the worldwide economic meltdown and the bailout that followed
      were together a kind of revolution, a coup d'état. They
      cemented and formalized a political trend that has been snowballing
      for decades: the gradual takeover of the government by a small
      class of connected insiders, who used money to control elections,
      buy influence and systematically weaken financial regulations.

    • A CDO is like a box full
      of diced-up assets. They can be anything: mortgages, corporate
      loans, aircraft loans, credit-card loans, even other CDOs. So as X
      mortgage holder pays his bill, and Y corporate debtor pays his
      bill, and Z credit-card debtor pays his bill, money flows
      into the box.

      
      

      The key idea behind a CDO is that there will always be at least
      some money in the box, regardless of how dicey the individual
      assets inside it are. No matter how you look at a single unemployed
      ex-con trying to pay the note on a six-bedroom house, he looks like
      a bad investment. But dump his loan in a box with a smorgasbord of
      auto loans, credit-card debt, corporate bonds and other crap, and
      you can be reasonably sure that somebody is going to pay
      up. Say $100 is supposed to come into the box every month. Even in
      an apocalypse, when $90 in payments might default, you'll still get
      $10. What the inventors of the CDO did is divide up the box into
      groups of investors and put that $10 into its own level, or
      "tranche." They then convinced ratings agencies like Moody's and
      S&P to give that top tranche the highest AAA rating —
      meaning it has close to zero credit risk.

    • Suddenly, thanks to this financial seal of approval, banks had a
      way to turn their shittiest mortgages and other financial waste
      into investment-grade paper and sell them to institutional
      investors like pensions and insurance companies, which were forced
      by regulators to keep their portfolios as safe as possible. Because
      CDOs offered higher rates of return than truly safe products like
      Treasury bills, it was a win-win: Banks made a fortune selling
      CDOs, and big investors made much more holding them.
    • The problem was, none of this was based on reality. "The banks
      knew they were selling crap," says a London-based trader from one
      of the bailed-out companies. To get AAA ratings, the CDOs relied
      not on their actual underlying assets but on crazy mathematical
      formulas that the banks cooked up to make the investments look
      safer than they really were. "They had some back room somewhere
      where a bunch of Indian guys who'd been doing nothing but math for
      God knows how many years would come up with some kind of model
      saying that this or that combination of debtors would only default
      once every 10,000 years," says one young trader who sold CDOs for a
      major investment bank. "It was nuts."
    • As banks and investors of all kinds took on more and
      more in CDOs and similar instruments, they needed some way to hedge
      their massive bets — some kind of insurance policy, in case
      the housing bubble burst and all that debt went south at the same
      time. This was particularly true for investment banks, many of
      which got stuck holding or "warehousing" CDOs when they wrote more
      than they could sell. And that's were Joe Cassano came in.
    • In its simplest form, a CDS is just a bet on an outcome. Say
      Bank A writes a million-dollar mortgage to the Pope for a town
      house in the West Village. Bank A wants to hedge its mortgage risk
      in case the Pope can't make his monthly payments, so it buys CDS
      protection from Bank B, wherein it agrees to pay Bank B a premium
      of $1,000 a month for five years. In return, Bank B agrees to pay
      Bank A the full million-dollar value of the Pope's mortgage if he
      defaults. In theory, Bank A is covered if the Pope goes on a meth
      binge and loses his job.
    • When a $100 corporate bond is sold, for example,
      someone has to show 100 actual dollars. But when you sell a $100
      CDS guarantee, you don't have to show a dime. So Cassano could sell
      investment banks billions in guarantees without having any single
      asset to back it up.
    • Secondly, Cassano was selling so-called "naked" CDS deals. In a
      "naked" CDS, neither party actually holds the underlying loan. In
      other words, Bank B not only sells CDS protection to Bank A for its
      mortgage on the Pope — it turns around and sells protection
      to Bank C for the very same mortgage. This could go on ad nauseam:
      You could have Banks D through Z also betting on Bank A's mortgage.
    • In a span of only seven years, Cassano sold some $500 billion
      worth of CDS protection, with at least $64 billion of that tied to
      the subprime mortgage market. AIG didn't have even a fraction of
      that amount of cash on hand to cover its bets, but neither did it
      expect it would ever need any reserves. So long as defaults on the
      underlying securities remained a highly unlikely proposition, AIG
      was essentially collecting huge and steadily climbing premiums by
      selling insurance for the disaster it thought would never come.
    • In the old days, a local banker knew the people
      whose loans were on his balance sheet: He wasn't going to give a
      million-dollar mortgage to a homeless meth addict, since he would
      have to keep that loan on his books. But a giant merged bank might
      write that loan and then sell it off to some fool in China, and who
      cared?
    • When investment banks write CDS deals, they hedge them.
      But insurance companies don't have to hedge. And that's what AIG
      did. "They just bet massively long on the housing market," says the
      source. "Billions and billions."
    • The following February, when AIG posted $11.5 billion in annual
      losses, it announced the resignation of Cassano as head of AIGFP,
      saying an auditor had found a "material weakness" in the CDS
      portfolio. But amazingly, the company not only allowed Cassano to
      keep $34 million in bonuses, it kept him on as a consultant for $1
      million a month.
    • What sank AIG in the end was another credit downgrade. Cassano
      had written so many CDS deals that when the company was facing
      another downgrade to its credit rating last September, from AA to
      A, it needed to post billions in collateral — not only more
      cash than it had on its balance sheet but more cash than it could
      raise even if it sold off every single one of its liquid assets.
      Even so, management dithered for days, not believing the company
      was in serious trouble. AIG was a dried-up prune, sapped of any
      real value, and its top executives didn't even know it.
• 

  KO -

  america economics

• 20 Mar 09
  

  Larry Yang

  politics meltdown money collapse economics

• 

  Michael Weller

  AIG bailout elite capitalism injustice

Public Stiky Notes

• 
  palindrome emordnilap on 2009-03-24
  It seems that there is no effective difference between them.
• 
  Mike Thomsen on 2009-03-23
  Excellent point!
• 
  Kenneth LeFebvre on 2009-03-21
  It wasn't just Wall Street. It was born in Washington; Wall Street was just a tool.
• 
  Kenneth LeFebvre on 2009-03-21
  It's not about "deregulation." It's about Washington's collaboration with the crooks.
• 
  Kenneth LeFebvre on 2009-03-21
  They're not "looking for holes in the system." They lobby their favorite paid-off government official to *craft* the loopholes together, and then they send a kick-back to their government collaborator in the form of campaign contributions or lobbyist support for pet projects.
• 
  Kenneth LeFebvre on 2009-03-21
  This is also directly related to the Fed's manipulation of the money supply, to lower interest rates and create more "money" for these banks to lend.
• 
  Kenneth LeFebvre on 2009-03-21
  True deregulation doesn't make it easier to create megacorporations. It's hard work to build a big business.
  
  The kind of deregulation they're talking about here, is SELECTIVE DEREGULATION. They relax certain regulations to make it easier for big companies to get bigger, while still keeping the foundational regulations in place, that keep the competitors small.
  
  If we erased ALL of the regulations, there would be more competition, everyone would be smaller, and the big corporations would find themselves too big to compete with the smaller companies.
• 
  Kenneth LeFebvre on 2009-03-21
  This kind of fiction can only be hidden amidst a maze of government regulations.
  
  In a truly unregulated market, everything would be simple enough for these "ordinary American dumb people" to understand, because these ordinary people are the market that must be satisfied for any business to succeed.
• 
  Kenneth LeFebvre on 2009-03-21
  A Free Market would not allow a mere 7 men to supervise only 5 companies.
  
  In a Free Market, decisions would be made by thousands of companies, supervised by millions of customers and stockholders.
• 
  Kenneth LeFebvre on 2009-03-21
  And this same psychology is exactly how the government manipulates all of us into "trusting" them to do what is best for us (uh, really, for them).
• 
  Tarmo Toikkanen on 2009-03-24
  And what's the global impact of the US "wasting" all these trillions? Will it help other countries to compete economically, or will US collapse and bring down everything else?
• 
  Tarmo Toikkanen on 2009-03-24
  I wonder how much more is still left uncovered. Seems every month something new turns up that's been brewing under the wraps.
• 
  Kenneth LeFebvre on 2009-03-21
  This is why we NEED Rep. Paul's bill to audit the Federal Reserve!!!
• 
  Sascha M. on 2009-03-26
  I reckon that the original intent is a good one: a central bank that is independent and free from political influence. In reality though, the central bank has become beholden to Wall Street interests, because it's led by former Wall Street bankers and because of the outrageous influence of a small number of financial institutions over the world's financial system.
• 
  Kenneth LeFebvre on 2009-03-21
  This is exactly why National City was bought by PNC. They gave TARP money to PNC and refused it to NCC... why?
• 
  Kenneth LeFebvre on 2009-03-21
  PNC has a board member that used to be a Federal Reserve Bank chairman. NCC had no personal ties to the "Insiders Club".

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