Dexia and the Second Bailout: No lessons learned

OK, the time has come for some real riots. I mean, after learning of Dexia recently and reading this article in the NY Times this weekend, my stomach actually hurts.

This is the 2nd bailout for Dexia in 3 years and this one is the equivalent of another AIG, not only in scale but in principal, where the government IE; taxpayers, are literally being called upon not to protect their savings in a regulated financial institution, what their tax dollars should be doing when needed (and the financial institution be allowed to fail), but to make counter parties in unregulated derivatives whole!!! The same old names come up, Goldman Sachs, Morgan Stanley, Commerzbank etc. as taxpayers are put on the hook for another 90 Billion Euros on top of the massive bailout that took place in 2008 of the same bank during the original financial crises.

I am sick, I am nauseous, I am bleeding inside, I want to Occupy Wall Street, Occupy Washington, DC, Occupy Belgium, Occupy France, Occupy the planet until these kinds of "deals" are stopped.

These are the actions of our governments that got the Occupy movement started and it is high time we find a way to put an end to them now.

Blackrock Takes the Cake

You must know how many Washington insiders have migrated to the Blackrock "umbrella" over the years. Well today Marketwatch.com published a short story on their overwhelming influence handling the government sponsored cleanup of the financial bailouts and derivative mess created by the financial institutions "we" know own.

The story states some of the many roles Blackrock has been "hired" to take care of on behalf of the taxpayers who will be paying them and the labyrinth of conflicts that have resulted. For example the article states:

BlackRock was hired to manage the portfolios of Bear Stearns Cos. and American International Group Inc. . BlackRock also is responsible for valuing hard-to-price assets at Fannie Mae and Freddie Mac . It manages a $46 billion fund for the New York Fed that buys assets underlying credit-default swaps written by AIG, an assignment at the behest of the New York Fed.

This is only part of their many roles. The bottom line is how on earth can you have a company responsible for winding down collapsed financial institutions worthless derivatives on one hand then have them valuing assets many of the derivatives were written on the other hand and not expect them to "game" these two responsibilities to maximise the profits they could potentially make by "being" both sides of the market?

Our government is run by worthless weans who are clueless and impotent. Shame. We all will pay, only this time it will truly break our economy.

AIG and Attitude

I came across this comment from "White House Economist" off the Dow Jones Newswire today referring to an article in the Washington Post.

I find it objectionable that AIG has a new CEO with anywhere near the attitude he has. I don't care if the guy thinks Washington is clueless about business or esp. running his business. On this front he is more than likely correct. It is very unfortunate we (the American Taxpayer) own 80% of the blasted company. I would prefer we own 0% and have never owned any at all and don't give a darn if AIG would have imploded. Personally I think it did not implode because of the number of "well connected" wealthy bank running CEO's and "investors" that would have lost a fortune if it did called their "friends" running the Treasury and said, "Bail out AIG or we will loose a fortune". So the American Taxpayer paid to make sure that Goldman Sachs can pay it's employees $700,000 in bonuses each this year.

Besides the fact this is the biggest financial crime ever perpetrated against the American people, mind you done without any approval from our impotent legislators, the guys running the show at AIG should have better taste than say such things in public about the idiots in Washington. I mean how many people in the entire Government are qualified to run a sprawling 100 + country "insurance" operation, let alone all the other crazy divisions they own? There are not many people in the world that understand AIG enough to "run" it.

Obviously Hank Greenberg was running an operation with "Enron" financing. It has been reported he was moving money around to skirt the US regulators (Partly allowed because of the arcane and completely outdated insurance regulation in the US which is still state by state and completely out of touch with the fact that the industry is national and international in scope) and pad his accounts to hide the billions of dollars in risk and losses he began to accumulate when they kicked him out over one reinsurance deal which was caught.

Hank still gets "answers" when he make calls to Washington and as far as I can tell he is a one man lobbying effort right now to "save" his old company. He has said himself "all of his wealth" is tied up in AIG shares (though he sole enough to pay some bills) and he obviously thinks he can influence "Washington" to loosen up credit terms and allow AIG five years or so to "unwind" loosing positions and rescue the company's balance sheet.

It is not going to happen. AIG should be "gone" as we know it and unfortunately, not unlike the "bad banks" the Chinese created after bailing out their banking industry about a decade ago, the American Taxpayers will NEVER see the $160 billion sunk into the company. This is reality. But the bankers, hedge funds and other "investors" that benefited from the taxpayer bailout "got theirs" and they are living large off what is left of the crumbled institution's lousy contracts.

Shame. Mr. Robert Benmosche should be fired. AIG wound down, sooner rather than later.

Mr. William Poole's Comment on Goldman

Funny, the former president of the St. Louis Fed, William Poole, makes comment about Goldman's raking AIG over the coals before their collapse. His comment:

It’s not the responsibility of any private firm to determine what the public interest is -- that’s why we have a government.

Strange when someone who basically resigned because of his interest in Goldman was seen as a complete contradiction to his job "protecting" the financial system, hence the citizenry, would make such a comment.

I have been arguing for years now that the reason the credit markets and the hugely profitable unregulated, opaque derivative markets have not been regulated is because those that have a hand in regulating were just making to much money off the same markets they supposedly regulated to do anything about it. Look at the impotent SEC, Fed, Treasury, Legislative bodies and White House over last 8 years and you get the picture.

Now, for someone who is no longer in their highly powerful and influential position to come out and say, "Hey, I know I was in government when all this was happening and I know we did not do shit about it, but that is tough cause it's nobody else's responsibility either." is kind of a joke.

CDS's and their Twisted Incentives

I love this stuff. I wrote some time ago about how the CDS market was dictating the rates that companies were forced to pay when trying to borrow money. This implied the CDS market knew best which is a dangerous president.

Today Henry Sender of the FT reported about how lenders who covered their loans through the CDS market are actually pushing their own borrowers into default so they can collect the CDS payoff instead of negotiating with the borrower. This is perverse and brings to light again the reality that these "derivative" contracts are insurance and if enough companies with significant debt are forced into bankruptcy, there will be great strains on companies who sold these products and we could see more "bail outs" in the near future if the government is stupid enough to continue throwing money after the idiots who wrote them.

The articles (may require subscription) states in part:

Credit default swaps, the derivatives instruments that have figured prominently in the global financial crisis, are now being blamed for playing a role in two bankruptcy filings this week.

Bankers and lawyers involved in restructuring efforts say they are concerned some lenders to troubled companies, such as newsprint producer AbitibiBowater and mall owner General Growth Properties, stand to benefit from a default because they also hold default swaps, which entitle them to payments in such events.

“We have seen CDS becoming a significant factor” when negotiations on out-of-court restructurings fail, said Alan Kornberg, the partner in charge of the bankruptcy practice at Paul, Weiss, Rifkind, Wharton & Rice, speaking generally. “We used to talk about the practice theoretically but now we see cases where it is hard to get lenders to agree to tender or to compromise and then you find out that these holdouts had significant CDS protection.”

Such exchange offers require the support of a significant number of lenders, 97 per cent in the case of bondholders in this case. But those who withhold support often have powerful incentives to do so, either because they hope to be made whole or because they are seeking to force a filing that would trigger payments under their credit protection agreements, bankers and lawyers say.

So lend with abandon because you can "cover yourself" with some of those profits from writing the loans by buying "protection" from whatever idiot is crazy enough to write a contract on the debt. This reality has much to do with why we are in the mess we are in and how our US spineless government continues to fail to regulate this industry or it's players and instead shoves cash into the accounts of incompetent idiots who wrote the contracts for the benefit of those who purchased the contracts. Now the government owns the banks that benefited from the bailout and the company of the largest number of idiots who wrote them. Is there a conflict here? Are there conflicts everywhere? Can the government "be the market"? Hell no.