Financial manipulation alert: Did AIG bailout money secretly prop up banks?
Financial blogger Zero Hedge has a provocative post that will raise your blood pressure this morning. This is worth fist-pounding and investigation in Congress:
Exclusive: AIG Was Responsible For The Banks’ January & February Profitability
It’s complicated, but it boils down to this: Banks bragged about their wonderful performance the first two months of the year. The market responded positively. But Zero Hedge makes the case that the profitability was illusory — and that the feds surreptitiously funneled money to the banks via AIG.
ZH writes:
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.
In simple terms think of it as an auto dealer, which knows that U.S. taxpayers will provide for an infinite amount of money to fund its ongoing sales of horrendous vehicles (think Pontiac Azteks): the company decides to sell all the cars currently in contract, to lessors at far below the amortized market value, thereby generating huge profits for these lessors, as these turn around and sell the cars at a major profit, funded exclusively by U.S. taxpayers (readers should feel free to provide more gripping allegories).
What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner’s (and thus the administration’s) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.
For banks to proclaim their profitability in January and February is about as close to criminal hypocrisy as is possible. And again, the taxpayers fund this “one time profit”, which causes a market rally, thus allowing the banks to promptly turn around and start selling more expensive equity (soon coming to a prospectus near you), also funded by taxpayers’ money flows into the market. If the administration is truly aware of all these events (and if Zero Hedge knows about it, it is safe to say Tim Geithner also got the memo), then the potential fallout would be staggering once this information makes the light of day.
…This wholesale manipulation of markets, investors and taxpayers has gone on long enough.
***
Surprise, surprise: Geithner Says Some Banks Need ‘Large Amounts’ of Assistance
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This is NO surprise. I’m sure the foreign banks were equally ” profitable”.
I work in the securities industry. If I did this I’d lose my license and most likely face jail time. Period.
Next, Hedge funds will be given billions too.
Unlikely, now a days…
I’ve been saying for years that this country was on the precipice of fascism.
Sometimes I hate it when I’m right.
About the only good thing to come out of this is that we can no longer claim with a straight face that large corporations are capitalists.
The anarchists at G20 are complaining that capitalism caused the current meltdown. It should be clear that it’s the facist/socialist welfare system at all levels that caused this mess.
But it is easier to blame something that died long ago…
Our economy has been nothing but an illusion for years.
Just more smoke and mirrors, at the taxpayers’ expense. This should be no surprise to anyone who’s been paying attention.
Wow! That does explain how major banks, many of them head-deep in suspect securities and wavering derivatives, could even come close to reporting profits so early in a year where the economy is yet to bottom out in many lead key-indicators.
It should not have been a secret to anyone who has been paying attention to this attack on our capitalist society. Dying companies should be allowed to die a natural death, let the up and comers take their place. We the people win. Get the government OUT OF PRIVATE INDUSTRY NOW!
Of course – do you trust any reporting the gov’t does?
The gov’t collects and publishes all sorts of data. I’ve been skeptical for quite a while about the integrity of presented data, but with the continued decline in the value of honesty (both those in the government and the citizenry), ANY report should be taken with a grain of salt.
I was curious as well about the supposed profitability of the banks in Jan/Feb. I guess we’ll see in a few months what their statements look like after all this money is gone.
yeah… Soros is already practicing his dr. evil laugh
I keep getting emails that claim AIG is the insurer of Congressional pensions. I generally don’t rely on random angry emails for Due Diligence, but this would fit the profile of Congressional CYA while screwing all other American businesses and citizens. Any Malkin poster have definitive Yes or No on this?
I have also heard it rumored that they could indeed be the banking resource for a large number of black ops and other “hidden” resources of the US government but I have not seen any proof of any of this. Personally, I do not care. The government needs to get its danged nose out of the private sector before it gets bloodied. I do not care if it is something so complex as national security funds or something so simple as campaign contributions, the government needs to get the heck out of the way and let the free market run its course.
Are you telling me that there was dishonesty???
And that the government was involved??
REALLLYYYY?????
I don’t see this reported/quoted anywhere yet but when Geithner said that the free market won’t get us out of this – I almost lost my breakfast.
The Free Market WOULD get us out of this if the Bubba Gubmint machine would get out of the way and let it do its job. But alas, this is what we get for so many generations of career welfare recipients being allowed to vote … and no, that is not directed at any single race.
Round up the usual suspects. ACORN to the rescue.
AAAAhhhh, noot to worry- Obama gonna fix evieting.
Not to toot my horn, but I was linking to articles and blog posts the last week or so saying that AIG was bailed out to save politically connected banks and investment houses.
He’s been laughing for a while. Ever since he got his bought-and-paid-for Senator Schumer to crash IndyMac so he could buy it up at fire sale prices. Now he’s making a mint.
George Soros is shorting our country and through his network of bought-and-paid-for politicians, having the deck stacked in his favor.
AIG is the name of a business. Much like a gun, it cannot take independent action. It takes a person to pull the trigger. Why don’t we get the names of those involved (aside from T.G.) in creating this deal, if indeed it is true?
Vilification! Yeah, they continue to create villains to distract America from what’s really going on…the systemic de-capitalization of private business, and the consolidation of absolute power by the Obama Administration.
By the time the citizens realize what has happened, there will be no more “We The People.”
1) The MSM…in the bag.
The military…he is the “lawful” Commander in Chief.
2) Liberal domination in Congress…in the bag.
3) Conservative talk radio…working to eliminate it.
4) Conscription of the U.S. financial markets…in the bag.
5) Justice Department…in the bag.
6) SCOTUS…working on it.
7) Outlawing lawful gun ownership…in the works.
What’s it look like to YOU?
Can someone please identify a large non-politically connected bank or investment house for me? I’m having trouble finding one, because when you get large, you HAVE to be politically connected.
This type of hysteria isn’t going to help the problem, it’s just going to make things worse.
We have no choice but to clean up the mess. We either pump federal money into the system to let it unwind via the private market driven deals, which is what is really going on with AIG, or we nationalize everything and essentially zero out all their transactions under one roof….the government owned financial system roof.
Its one or the other, take your pick. The notion that we can just let the entire shebang fail is sort of insane. The more people complain about how the system unwinds, the more likely we’ll get federalization of the system. Be careful what you complain about.
AIG was a very profitable and well run company until the whore-mongering Elliot Spitzer threatened the company with criminal prosecution, as he had done to many other companies to shake down campaign contributions, and forced the Republican CEO out…
Bear Stearns- nowhere near as politically connected as Goldman Sachs.
One was sold off to JP Morgan, and one wasn’t.
Lehman Brothers isn’t around anymore either…
Ed……Both Bear Stearns or Lehman were politically connected. Undeniable. It would not matter who is gone or who is left standing, you would be pointing to those connections and making the same argument…that some “insider” is screwing the rest of us.
I also find it ironic that you are slamming political connections, but at the same time complaining about Spitzer ousting Greenberg. Hank Greenberg was one of the most politically connected of the bunch.
One huge money-laundering scam, under the auspices and sponsorship of our Government.
Even liberals, like Michael Goodwin of the NY Daily news, are finally getting it:
Follow the Money
I don’t know why this comes as a shock or a surprise. What part of “insure” don’t you understand???? What did you think the money was for?????
One of the banks to which AIG funneled our tax dollars is UBS, which has made fortunes helping tax evaders and money launderers get away with it.
So long as the game requires that we all assume that this is just a crisis in investor confidence, nothing will get fixed and we will continue to dump taxpayer money into the abyss never to see it again.
You would think that with all the talk of disclosure and accountability, we would be getting disclosure and accountability.
This is the biggest organized looting of public wealth in history by far.
Not exactly communism, is it? It’s almost like we’re getting ripped off by politically connected rich people.
How about we do neither of those things? Pumping money into the system is being done to stop it unwinding. If we ever want things to really resolve themselves we need to stop pumping money into these companies.
Yes, but private industry will fight you every step of the way in doing that.
There are no atheists in foxholes, and there are no free-marketeers in bankrupt corporations.
You’re correct, as long as you understand that the biggest welfare recipients of all are on Wall Street.
“(readers should feel free to provide more gripping allegories).”
How about AIG sells off “troubled” thousand dollar bills at 5% of face value to other financial institutions also “too big to be allowed to fail”.
Favored financial institutions resell “troubled” thousand dollar bills at 15% of face value and pocket lots of “profits”, while holding press conferences about return of profitability (spiking their stock prices upwards). Whoever bought these is going to have to go through whatever legal battles to recover the value, and suffer whatever losses occur to whatever part is not recoverable.
Taxpayers replace AIG’s “troubled” thousand dollar bills at face value.
Two winners
One maybe winner yet to play
Only one nonwinner, and if the maybe wins they can be attacked for winning at taxpayer expense and the profits “recovered” for “the people”.
HOW ARE WE GOING TO STOP ALL THIS??
I have a friend on Wall St. Here’s what he told me:
(edited for naughty word.)
i tried to explain to lgm and chappie last week as the stock market was going up that it was all end of quarter short covering, and after the month end, look out. well the dow has fallen 400 plus points in the last 2 days. by the end of this week as obama gets his ass kicked in europe, the market will be back at 6500.
Yep..it is a matter of degree of connection, not sane financial practices
Capitalism can’t die any more than gravity can die. You can temporarily overcome gravity with brute force, but it will triumph in the end. The same with capitalism. It might just take a while.