Heck Of A Job, Jakey?

Jake DeSantis told us what a great job he did at AIG. Apparently, there is some evidence to doubt that. Felix Salmon writes:

Tyler Durden has a scary post up, connecting banks' profitability in January and February to the fact that those were the months when AIG Financial Products was unwinding an enormous number of its contracts en masse. These trades, initiated by AIGFP, were allegedly enormously profitable for the biggest banks in the CDS market[.]

[More . . .]

. . . If this is true, then (a) the banks still aren't anywhere near sustainable profitability, and (b) those AIG retention bonuses -- paid on the grounds that only the people who got AIG into this mess could get it out -- are even more egregiously untenable than we had suspected. The whole point of having the government take over AIG was that it wouldn't need to enter into panicked unwinds. If it went ahead and did that anyway, the levels of competence and oversight at AIG are even lower than most of us had thought. Which is quite an achievement.

You did a heck of a job, Jakey.

Speaking for me only

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    sure (5.00 / 4) (#1)
    by Jlvngstn on Mon Mar 30, 2009 at 12:02:59 PM EST
    and the banks are sitting on as much cash as possible i.e. not lending to strenghten the balance sheets for the stress tests.

    the economy is in the pisser and it is not getting better this year.  Banks can use the bailout capital to ride the two year storm.  

    Isn't this what I said last year?  So what is the big surprise?  

    Our representatives did not address the job situation in concert with the credit mess ergo the credit mess cannot be resolved with the massive job loss we are seeing.

    90% of people want to pay their bills, and 250 bucks a week from unemployment extended from now until eternity simply does not help.  Who is going to give credit to someone who lost their job and is falling behind on all of their bills and an employment outlook that is simply dismal.

    Our representatives failed us last year, and are failing us again.  

    Lifeboats on the titanic are being reserved for those who were driving the ship, the rest of the passengers are being given socks with balloons in them and being told to hang on, the rescue ship just set sail.

    It really isn't even worth discussing any longer.  The government has ceded 10% unemployment and a dramatic increase in foreclosures to clear out the inventory.  

    We have a long history of accepting collateral damage only this time, the american middle class will see first hand the bodies on the side of the road.    

    Exactly (none / 0) (#2)
    by NYShooter on Mon Mar 30, 2009 at 12:16:15 PM EST
    See what I wrote in "Tough on Detroit, part 2," below.

    thanks will do (none / 0) (#3)
    by Jlvngstn on Mon Mar 30, 2009 at 12:20:07 PM EST
    in the meantime, Wagoner walks away with a 20mm retirement package....

    Well, you know (5.00 / 3) (#5)
    by NYShooter on Mon Mar 30, 2009 at 01:09:05 PM EST
    A contract is a contract; just ask the union workers.

    Suggestion... (none / 0) (#4)
    by santarita on Mon Mar 30, 2009 at 01:08:57 PM EST
    read the comments to the Tyler Durden piece that has been referenced, especially the two long Anonymous comments.  And read the comments at Naked Capitalism where the Tyler Durden piece was cross-posted.

    The major counterparties to AIG were major banks.  AIG is in the process of unwinding its counterparty obligations.  These are huge positions and will have an effect on the counterparties' positions.  
    AIG's actions in undertaking those huge risks were what got it into trouble.  Now it is unwinding those positions.

    But by all means investigate AIG.  But before people jump to conclusions, the facts based on the investigations should be determined.

    Why not tell me (none / 0) (#6)
    by Big Tent Democrat on Mon Mar 30, 2009 at 01:22:14 PM EST
    what new line of defense you have developed as a result?

    Facts First, Hang 'Em Later... (none / 0) (#8)
    by santarita on Mon Mar 30, 2009 at 01:58:32 PM EST
    is my mantra.  

    Rush to judgment, repent at leisure.  

    To me we are watching a giant game of pick up sticks.  The Obama Administration is trying to removing sticks without causing the whole pile to collapse.  Example:  Getting the GM bondholders to agree to a haircut.  Except what do you do with the bondholders that were prudent enough hedge with AIG issued CDS.  They turn right over to AIG and say pay up, pal.  And what do you say to the thousands of Americans who had pension funds with GM bonds in them?

    And I'm only half-heartedly defending the Obama Administration's actions so far.  I'm concerned that they are following the path of the early years of the S & L crisis in the 1980's.  

    Maybe that is the wrong approach.    


    What facts have you gleaned? (5.00 / 1) (#11)
    by Big Tent Democrat on Mon Mar 30, 2009 at 03:12:53 PM EST
    why do you not understand that after the trillion id gone, there is no getting it back?

    That Was Yesterday's ... (none / 0) (#12)
    by santarita on Mon Mar 30, 2009 at 03:51:00 PM EST

    You and I disagree on whether or not to nationalize troubled banks now.  Ok.

    And there are plenty of reasons to think that the Obama Administration is not looking to do more than return us to the status quo albeit with more regulations and better supervision.  And to criticize Obama and his Administration for that.  By and large, I support that.  

    I just don't know how worthwhile it is to take events like AIG payments to counterparties and spin it into criminal behavior without much more than "Look at how much XYZ Bank got paid with taxpayer money".


    Criminal behavior? (none / 0) (#13)
    by Big Tent Democrat on Mon Mar 30, 2009 at 04:03:43 PM EST
    Pretty sure I did not do that.

    I've called it a "backdoor bailout" for a while.


    I guess I'm looking ... (none / 0) (#16)
    by santarita on Mon Mar 30, 2009 at 04:33:34 PM EST
    at some of the wild theories out there on the internet.

    would it be criminal behaviour (none / 0) (#17)
    by cpinva on Tue Mar 31, 2009 at 12:01:30 AM EST
    to have falsified the risk status of the securities thus insured?

    this, in fact, appears to be the basis for so much of the "toxic" assets involved: the standard rules of risk analysis were ignored, in order to get those loans approved, and then package and sell them to others.

    that strikes me as an overtly fraudulent act, close to providing false and misleading "audited" F/S's.

    in the case of GM, their biggest problem is that their current business model just sucks. they produce vehicles that no one wants to buy. you can do all the fancy dancy financial wheeling and dealing you want, if your core operating activity is ultimately flawed, you're still circling the drain.


    I'm trying to understand what Durden is saying (none / 0) (#7)
    by lilburro on Mon Mar 30, 2009 at 01:50:23 PM EST
    he says:

    For those to whom this is merely a lot of mumbo-jumbo, let me explain in layman's terms:
    AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the U.S. Treasury Secretary Tim Geithner disclose the real extent of this, for lack of a better word, fraudulent scam.

    A commenter says:

    AIG was basically intentionally losing money, since the losses were on the taxpayer's nickel. And Treasury was happy to have AIG do it because that funneled money to banks that are insolvent and need money to service their massive debt loads.

    Why are we letting this happen?  How is this the best possible outcome and preferable over nationalization?

    Read some of the other .. (none / 0) (#9)
    by santarita on Mon Mar 30, 2009 at 02:05:06 PM EST
    comments to that piece.  Presumably AIG is unwinding its huge CDS positions  at the direction of the USGovernment.  This unwinding is benefitting the counterparties, which are most of the major banks but  AIG is contractually obligated to the banks.  I suppose the government could insist that AIG take actions to force haircuts on the banks.  But at that point more banks start tanking.     Of course the USG could say let 'em tank.  At that point the banks' counterparties start tanking.  Etc.

    Cuomo (none / 0) (#14)
    by bmc on Mon Mar 30, 2009 at 04:20:08 PM EST
    Presumably AIG is unwinding its huge CDS positions at the direction of the government...

    But, at least one AG is questioning how they are unwinding them. He's issued subpoenas.

    Could this latest revelation be why?

    http://www.businessinsider.com:80/new-aig-scandal-cuomo-wants-to-know-how-cds-are-being-unwound-2009 -3


    I Hope Someone Is ... (5.00 / 1) (#15)
    by santarita on Mon Mar 30, 2009 at 04:31:34 PM EST
    looking at what AIG is doing and I hope that Cuomo publishes the results of his investigation in a clear manner.  The Congressional Inspector General Barofsky hopefully is doing his own investigation.

    Part of the problem is that at the start the government was not  very clear about what level of control it is exercising over AIG and what the mission is.  Geithner has been more forthcoming but until the government gets a little more transparent, people are going to be coming up with accusations, some justified and some not.


    isn't Tyler Durden (none / 0) (#10)
    by of1000Kings on Mon Mar 30, 2009 at 03:03:23 PM EST
    the name of the character from Fight Club...

    when I think of Tyler Durden (or something similar to that) I think of blowing up empty buildings that contain all the financial and credit information...

    put everyone back to zero...