Replies to post #96468 on Tornado Alley (PROG)

[SoxFan]

Ok now the discussion has changed from letting the banks fail to preventing this crisis. So do you agree that letting the big banks fail at this time would have been the absolutely wrong thing to do at that time?


Now let’s focus on this new subject of preventing this crisis. By the time of that article the cat was already out of the bag as sub-primes already were well on the way out and I don't think the crisis could have been prevented. The trash bonds were already bundled and sold and the mortgage payments were tanking by then. It isn't government getting a hold of Wall St but visa-versa Wall St was getting a hold on the government. Wall St made a fortune on shorting those bonds and who lost - the bond holder's weren't the banks remember. The banks made it coming and going. The banks losses were from the actual mortgages they sold directly (contrary to popular opinion the banks were very good at getting down payments and selling descent mortgages) as it was the Countrywide's and all the other non-bank mortgage sellers that came into existence in a big way with deregulation.

While banks were bundling those mortgages and selling them in 2003-2006/7 they were betting against them (especially Goldman). The toxic assets were already there and like the commercial wave that will crest starting the end of this year and through 2011/12 not much can be done other than brace ourselves for the commercial wave of delinquent payments and foreclosures. Oh the banks losses were coming because of the bad economy and foreclosures of their mortgages (which for the most part were not sub-prime).

So the die was cast and maybe the government might have been able to mitigate some if they eliminated the ability to at the minimum stop bettors going up to the window and shorting derivatives/bonds without the assets to back them up. Oh and the Feds could have tightened the overnight rates by increasing capital requirements and reduced the risk taking. That they haven't done anything to date AND have enabled all the banks to borrow at 0% and then buy Treasuries at 0%+ is criminal.

Give me the very same ability to borrow at 0% and then buy treasuries at 1.5% and I'll do it all day.

[F6]

GEO928 -- so you wrote your first rebuttal to that post ( http://investorshub.advfn.com/boards/read_msg.aspx?message_id=48798302 ), which SoxFan made just before 3p ET this afternoon, this morning? -- and you did so from South Florida, no less ( http://investorshub.advfn.com/boards/read_msg.aspx?message_id=48106977 )? -- yah, sure you did

[Alex G]

wow george... i've read some whoppers in my day but that's a doozy

is this one of Glenn Beck's ridiculous conspiracy theories? or did you make it up all by yourself?

you're right about one thing,, it's good for a laugh, LMFAO!

it has been my contention all along that the fact the "crisis" swept over the nation 40 days before the election was not an accident....it was planned.....and, ONE of it's purposes was to facilitate the public vilification of Wall Street; which with "guilt by association" diminishes Bush and anyone associated with him thereby "wrapping up" the election....and, it gives the left (Obama et al.) the excuse to "take-over" the private financial sector....

[redwards]

fwiw , its called financial leverage, 10:1 or 20;1 or 30;1.

Simply take a $1MM equity position and buy 10, 20, or 30 MM in debt securities with the equity of 1MM.

Just for demonstration sake, drop the value of your 10, 20 or 30 MM portfolios by 10%. In each case look at what happens to your 1MM equity.

Once you do the simply math, ( accounting term: financial leverage) then you will be enlightned .

"did you notice in that link it said that AIG could take a $9+ billion hit.....but, AIG is over $100 billion.....

so, a less than 10% hit puts them out of business? "

answer Yes, because of Financial Leverage.

[fuagf]

UAW Defends Its Share in GM Restructuring
By MATTHEW DOLAN
MAY 28, 2009

Rotflmao! GEO, i see YOU have shifted from 'SOCIALISM!', fear-mongering, OH NO!!!!, to "hybrid-socialism"!, cuteness. Why is that? Lol, and YOUR's has to be uniquely American, too. LOLOL, do you know? Perhaps, the most unique aspect of the hybrid-socialism, (note: some of us have been reminding you over, over and over again, it has been about for decades), of the US, is the lack of a universal healthcare system. Has Obama taken over Wall Street? Nope. More than other presidents have? Nope.

if Obama and the radical left could hijack wall street...as, you see they have done to the Democrat Party and therefore the US government, Obama can create a unique American style hybrid-socialism because he now has a HUGE source of funding (among others...don't forget the auto industry and the corrupt UAW)....

The United Auto Workers is claiming a significant stake in a new General Motors Corp. under a proposed government plan amid criticism that the union's deal will be unfair to the company's shareholders and bondholders.

The union's independent trust fund for retiree health care will control 17.5% of the new GM, with warrants representing the potential for an additional 2.5%. "However, the warrants issued to the retiree Trust fund have terms far less advantageous than those issued to the bondholders," UAW Legislative Director Alan Reuther wrote to members of Congress Thursday.

According to the plan released Thursday, bondholders will receive an initial allocation of 10% of the equity, with warrants that can result in their receiving substantially more.

GM's offer has advantages for the union and bondholders. The UAW would get more shares and fewer warrants than bondholders, so its warrants would likely be of less value than the ones given to bondholders. But the bondholders wouldn't be able to access the warrants until the auto maker's market capitalization reaches a certain level. GM's market capitalization would need to reach $75 billion in order for the union's trust to benefit from the warrants, while the bondholders' threshold to benefit would be a company market capitalization between $15 and $30 billion.

More .. * GM Bondholders Support New Offer .. 05/28/09 ..
http://online.wsj.com/article/SB124352012143262677.html

GM's current market capitalization is $684 million.

In an interview Thursday, UAW President Ron Gettelfinger said the union had wanted an even larger
stake in GM as part of a deal to move the auto company through its government-led restructuring.

"Would we have liked to have a bigger share? Probably. We worked hard to try to get that number up but it is what it is," Mr. Gettelfinger said. One advantage, he said is "we picked up the preferred stock here." But he reiterated that "the government investment is company is going to be a lot more than what was anticipated earlier on."

The bankruptcy plan for GM outlined in a securities filing Thursday would give the U.S. government a 72.5% stake and keep the auto maker closely held for as many as 18 months. The government is set to boost its support for GM by as much as $50 billion through a bankruptcy filing that could come Monday.

"The biggest factor here is the government investment in General Motors," Mr. Gettelfinger said during an interview Thursday. "The government stake is going to be a lot more than what was anticipated."

Mr. Gettelfinger said that the union had accepted a smaller stake than it wanted in order to help ensure a deal could be completed. He said the union doesn't consider a bankruptcy filing for GM inevitable, though the UAW has made plans anticipating that the auto maker will seek protection from creditors under Chapter 11 of the Bankruptcy Code. In a bankruptcy filing, the value of holdings by current common stock owners is likely to be wiped out.

As the government-imposed deadline of June 1 approaches for GM to complete its revised restructuring plan, Mr. Gettelfinger said of bankruptcy, "we're not sitting here flat-footed but I'm not on the side saying it's a foregone conclusion Are we prepared for it in case it does happen? Absolutely."

Mr. Gettelfinger added that as part of the pending labor pact with GM, the auto maker agreed to build subcompact cars in one of its existing U.S. factories, instead of building those vehicles in China and South Korea and shipping them to the U.S. for sale. He estimated that the car would be built in the U.S. in about 18 months, about the same amount of time it will take Fiat to move its small-car production into the U.S.

He added that three idled plants will be kept "in operational mode," adding "we want those plants to be able to get up and go." He said that GM's plans as fashioned by the government are based annual auto sales in the U.S. of 10 million cars and trucks. But he's convinced that the selling rate will increase dramatically. "We're very hopeful that this will take place," he said.

Fighting back against critics who say that the UAW has been given a much better deal
than bondholders, the union pointed to the "relative sacrifices" being made by retirees.

"As a result of the most recent concessions, retirees will incur substantial, immediate reductions in their health-care benefits," Mr. Reuther wrote in a letter Thursday. "When the retiree health-care fund assumes responsibility for providing these benefits on January 1, 2010, it may be forced to make further significant reductions in health-care coverage, depending on the value of the stock received by the fund."

He added that many bondholders purchased their GM holding at a substantial discount. And unlike GM retirees, the bondholders' interests are often more diversified that those relied on by former auto workers to pay for their health-care needs.

—Sharon Terlep contributed to this article.

http://online.wsj.com/article/SB124353536535963477.html

Posted that to you because of some memory of you implying the UAW members got something
for nothing. Whole thing looks like compromise and jobs. Working together. That sort of stuff.

Oh! .. just remembered. Was it you who said you had a piece published online? Misconception of the 21st C, something like that.

Please post it, if you were the one. Surely you have a link to it.

[fuagf]

GEO, did anyone else think it was funny? LOLOL, 'weeird' sense of humor.

Sox's,
..............................................................................................................................................
Quote: With the big banks that's impossible because of all the other businesses they are in
..............................................................................................................................................
reminded me of an article, which mentioned the fact that the "too big to fail" construct doesn't apply to the one firm
itself, but to the global, (lol, there's that word again) connections the firm has. Can't find the article, but this one deals
with it again, as Sox, just did to you. Am posting in toto p.1 of 3, because there are a couple of things mentioned
which we should not forget. Bill Saporito, also repeats some things, Sox, has just mentioned to you and to others.

How AIG Became Too Big to Fail
By Bill Saporito Thursday, Mar. 19, 2009

Treasury Secretary Tim Geithner had every reason to think he had seen all of AIG's dirty laundry. The government owned 80% of the company, and Geithner had just orchestrated AIG's most recent handout — its fourth, if you are keeping score, for $30 billion on March 2 — to prevent the teetering insurance giant from going over the cliff and taking the rest of the global financial system with it. AIG had already cost the taxpayers some $170 billion, mostly to repair the damage done by one of its units, AIG Financial Products (AIG FP), which last year alone piled up $40 billion in losses related to its dealings in complex mortgage bond derivatives.

Then Geithner's staff made the discovery that would infuriate nearly everyone in Washington. On March 10, the Secretary learned, 10 days after his staff first got wind of it, that AIG had paid out $165 million in retention bonuses to executives at the unit that compelled the U.S. to bail out the company in the first place. It took Geithner until 7:40 the next night to place what must have been a tense phone call to AIG's newish CEO, Ed Liddy. The bonuses were not tenable; they had to be canceled, he demanded. Liddy, a dollar-a-year man

INSERT: Liddy is doing his bit, as are a few other rich are. A new group who lately
offered something in regard to the Bush tax cuts, i think. Sorry, forget the details.

who took over the company after the bonuses had been promised, replied that AIG's lawyers had decided that the contracts could not be broken without even bigger costs to taxpayers. Geithner sent Treasury's lawyers searching for a way out, but they couldn't find one. (See 25 people to blame for the financial crisis.) .. http://www.time.com/time/specials/packages/article/0,28804,1877351_1877350,00.html

On the balance sheet of debacles caused by this economic crisis — the $700 billion Troubled Asset Relief Program (TARP), the stock-market swoon, the credit crunch and the ongoing global recession — $165 million is small change. But the revelations of the AIG bonuses, like nothing else, seemed to finally tip the mounting public furor over corporate malpractice into a full-scale rebellion. Yet Geithner, embarrassed for discovering the bonuses so late, plans to dock AIG that much out of the next $30 billion in bailout funding when it is delivered — which amounts to a mere 0.1% of the total AIG has received. Assorted Senators, from New York Democrat Chuck Schumer to Montana Democrat Max Baucus and Iowa Republican Chuck Grassley, have proposed a number of tax and legal schemes to snatch back the bonus bucks from AIG FP executives — 73 of whom got payouts of $1 million or more, according to New York State attorney general Andrew Cuomo. (Read "Treasury Learned of AIG Bonuses Earlier Than Claimed.") .. http://www.time.com/time/business/article/0,8599,1886138,00.html

With all the political theater and populist grandstanding, though, the bigger issue has been obscured. And that is, Just what is AIG doing with the $170 billion? Does the company's strategy, which is to wind down its exposure to toxic assets and sell some of its profitable insurance divisions to help pay off the government debt, stand a good chance of succeeding? And if it does, will the world avert financial Armageddon?

Those questions have taken on greater urgency, since it turns out that AIG has become the banking industry's ATM, essentially passing along $52 billion of TARP money to an array of U.S. and foreign financial institutions — from Goldman Sachs to Switzerland's UBS. Those firms were counterparties to the credit-default swaps (CDSs) that AIG FP sold at least through 2005, and the companies were collecting on the insurance-like derivatives. AIG paid out an additional $43.7 billion to many of the same banks, which were also customers of the securities-lending operation run out of AIG's insurance division. In this case, AIG managed to take a business specifically designed to be low risk, low return and amp it into another dicey venture — with taxpayers on the hook.

The outrage will pass, and when it does, we're going to have to focus on whether keeping AIG afloat is preventing a sharp recession from becoming a prolonged one. The reason AIG has cost taxpayers $170 billion — and the reason the Obama Administration seemed willing, at least at first, to hold its nose and accede to bonuses for the company's managers — is that it's too big to fail. It's an often heard phrase, but what does it really mean? (See the top 10 financial collapses of 2008.) .. http://www.time.com/time/specials/2008/top10/article/0,30583,1855948_1864602,00.html

The idea is that in a global economy so tightly linked that problems in the U.S. real estate market can help bring down Icelandic banks and Asian manufacturers, AIG sits at some of the critical switch points. Its failure, so the fear goes, would set off chains of others, rattling around the globe in short order. Although some critics say the fear is overblown and the world economy could absorb the blow, no one seems particularly keen on testing that approach.

How We Got Here

AIG seems an unlikely candidate for the company that could bankrupt the planet. Founded 90 years ago in Shanghai, AIG moved its headquarters to New York City as the world headed toward war in 1939. After Maurice R. (Hank) Greenberg took over in 1967, AIG consolidated its global empire. By the time Greenberg was forced out in an accounting scandal 38 years later, AIG had become one of the world's biggest public companies, with sales of $113 billion in 2006 and 116,000 employees in 130 countries, from France to China.

AIG says it has written more than 81 million life-insurance policies, with a face value of $1.9 trillion. It covers roughly 180,000 small businesses and other corporate entities, which employ approximately 106 million people. That makes AIG America's largest life and health insurer; second largest in property and casualty. Through its aircraft-leasing subsidiary, AIG owns more than 950 airline jets. Just for good measure, AIG is a huge provider of insurance to U.S. municipalities, pension funds and other public and private bodies through guaranteed investment contracts and other products that protect participants in 401(k) plans. "We have no choice but to stabilize [it] or else risk enormous impact, not just in the financial system but on the whole U.S. economy," said Fed Chairman Ben Bernanke.

The risk is not in any one business but in the connections among them and in the industries in which they compete. As AIG has pointed out in its own analysis, "The extent and interconnectedness of AIG's business is far-reaching and encompasses customers across the globe ranging from governmental agencies, corporations and consumers to counterparties. A failure of AIG could create a chain reaction of enormous proportion." Among other effects, it could lead to mass redemptions of insurance policies, which would theoretically destabilize the industry; the withdrawal of $12 billion to $15 billion in U.S. consumer lending in a credit-short universe; and even damage airframe maker Boeing and jet-engine maker GE, since AIG's aircraft-leasing unit buys more jets than anyone else.

While AIG's holdings are diverse, nearly all its losses centered on AIG FP, which until March 2008 was led by its high-rolling president, Joseph Cassano,
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
[INSERT]: see also .. http://investorshub.advfn.com/boards/read_msg.aspx?message_id=45317971&txt2find=joseph|cassano .. and, clip ..

February 23, 2010 "Bloomberg" -- When a congressional panel convened a hearing on the government rescue of American International Group Inc. in January, the public scolding of Treasury Secretary Timothy F. Geithner got the most attention.

Lawmakers said the former head of the New York Federal Reserve Bank had presided over a backdoor bailout of Wall Street firms and a coverup. Geithner countered that he had acted properly to avert the collapse of the financial system.

A potentially more important development slipped by with less notice, Bloomberg Markets reports in its April issue. Representative Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform, placed into the hearing record a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.

These were the deals that pushed the insurer to the brink of insolvency -- and were eventually paid in full at taxpayer expense. The New York Fed, which secretly engineered the bailout, prevented the full publication of the document for more than a year, even when AIG wanted it released.

That lack of disclosure shows how the government has obstructed a proper accounting of what went wrong in the financial crisis, author and former investment banker William Cohan says. “This secrecy is one more example of how the whole bailout has been done in such a slithering manner,” says Cohan, who wrote “House of Cards” (Doubleday, 2009), about the unraveling of Bear Stearns Cos. “There’s been no accountability.”
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=47070905&txt2find=joseph|cassano
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
a tough-talking Brooklyn, N.Y., native who in the past eight years banked $280 million in cash compensation, or exactly $115 million more than the bonuses at the center of the current controversy. Cassano, who helped found the AIG FP unit in 1987, built his money machine not on anything fraudulent but on what's been described as regulatory arbitrage. As Bernanke explained recently, "AIG exploited a huge gap in the regulatory system. There was no oversight of the Financial Products division. This was a hedge fund, basically, that was attached to a large and stable insurance company."

See the worst business deals of 2008. .. http://www.time.com/time/specials/2008/top10/article/0,30583,1855948_1864555,00.html

See pictures of the recession of 1958. .. http://www.time.com/time/photogallery/0,29307,1850639,00.html

P.2 .. http://www.time.com/time/business/article/0,8599,1886275-2,00.html

http://www.time.com/time/business/article/0,8599,1886275,00.html

Sox, asked you, "So do you agree that letting the big banks fail at this time would have been the absolutely wrong thing to do at that time?" .. http://investorshub.advfn.com/boards/read_msg.aspx?message_id=48808929&txt2find=agree

Do you agree that letting AIG fail then or now would have been the absolutely
wrong thing to do? Would you have been happy to test it? Clop, from above ..

"Although some critics say the fear is overblown and the world economy could
absorb the blow, no one seems particularly keen on testing that approach."

Seriously, my laugh with your post did not arise from any good sense of humor. ROTFLMAO. Chuckle. Clip, clop.

[SilverSurfer]

GEO928, please don't give politicians that much credit. Wall Street was in control not Obama or the Dems, Bush and the Repugnants only dupes in the most effective "crisis" transfer of wealth scam ever perpetrated. This was the culmination of plans imagined in 1913 when Wilson allowed the Central Bank to take control of our money and by proxy the fate of our nation, on Christmas Eve when most of Congress was out on break and the people of knowledge were not paying attention. An outrage ensued but to no avail as our dye was cast, or should I say fiat mint was printed. Since then we have had one perpetrated crisis after another engineered by the complicit govs so they could "Save" us from the terrible blown out of perportion fates they levied. Currency in control of the worlds power brokers and an income tax (also 1913 not coincidently) to guarantee the interest is paid on the money they create out of thin air. The best way to surge debt being WAR after mindless WAR. hge

[Alex G]

SEC: CoxSlackers & BushWackers Fiddled While Wall Street Burned
By: bmaz Friday April 23, 2010 2:14 pm Tweet4 Share14

The big outrage de jour making the rounds in the media currently is the porn scandal at the Securities and Exchange Commission (SEC). This report from the Washington Post is typical of the reporting coming out of the main media:

Republicans are stepping up their criticism of the Securities and Exchange Commission following reports that senior agency staffers spent hours surfing pornographic websites on government-issued computers while they were supposed to be policing the nation’s financial system.

California Rep. Darrell Issa, the top Republican on the House Oversight and Government Reform Committee, said it was “disturbing that high-ranking officials within the SEC were spending more time looking at porn than taking action to help stave off the events that put our nation’s economy on the brink of collapse.”

He said in a statement Thursday that SEC officials “were preoccupied with other distractions” when they should have been overseeing the growing problems in the financial system.

Would it be too much for the media to actually think for a moment before they perform stenography for alarmist Darrell Issa? Because even a moment’s pause would yield the realization that Republican outrage on this is absurd and duplicitous. In fact the SEC – IG report produced for another of the Republican howlers, Iowa Senator Charles Grassley, proves the pornification of the SEC was born and grown during the Bush/Cheney Administration and the leadership of Republican stalwart and longtime Issa colleague and friend Chris Cox. The IG Report also demonstrates quite clearly that the vast majority of the incidents occurred during Cox’s reign during the second Bush term, although there were some that continued on during the Obama Administration.

But it is not just that the problem was born and matured under Bush and Cox, it is the fact that it is symptomatic for the emasculation and gutting of the SEC which occurred at their hands and express direction. It was not a bug, but a feature. As Bloomberg News reported last year:

Under former SEC Chairman Christopher Cox, the agency instituted policies that slowed cases and led enforcement-unit lawyers to conclude commissioners opposed fining companies, the Government Accountability Office said in a report today. An unidentified attorney said it was “widely felt” commissioners prevented the division from “doing its job,” according to the report.

“Some investigative attorneys came to see the commission as less of an ally in bringing enforcement actions and more of a barrier,” the GAO said. Cox’s policies “contributed to an adversarial relationship between enforcement and the commission.”

The non-partisan GAO report on the Bush/Cox SEC found poor management, determination to not pursue cases, lack of transparency, and collusion with business interests. It was the Republican philosophy and direction which neutered the SEC. It is little wonder they took to surfing the net for porn, they literally had nothing else to do under Republican “leadership”.

So perhaps the media stenographers ought to remember this when suddenly howling duplicitous Republican shills like Issa and Grassley want to tar, feather and undermine the SEC now that Democratic leadership, led by Mary Schapiro, have cleaned the agency up, turned it around and put it back to work doing its oversight and enforcement job.

On a related note in things financial, our friend Selise is going to be along in comments to discuss her Seminal Diary on financial reform and the commendable Fiscal Sustainability Conference and Teach-In occurring next week in Washington DC. This is a worthy effort and is supported by a variety of progressive interests including Jamie Galbraith and my friend and former colleague, Ian Welsh.

http://emptywheel.firedoglake.com/2010/04/23/sec-coxslackers-bushwackers-fiddled-while-wall-street-burned/