… and you might wanna read in full.
Willem Buiter: The Fed’s moral hazard maximising strategy
The reports on the evidence given by the Vice Chairman of the Federal Reserve Board, Don Kohn, to the Senate Banking Committee about the Fed’s role in the government’s rescue of AIG, have left me speechless and weak with rage. AIG wrote CDS, that is, it sold credit default swaps that provided the buyer of the CDS (including some of the world’s largest banks) with insurance against default on bonds and other credit instruments they held. Of course the insurance was only as good as the creditworthiness of the party writing the CDS. When it was uncovered during the late summer of 2008, that AIG had nurtured a little rogue, unregulated investment banking unit in its bosom, and that the level of the credit risk it had insured was well beyond its means, the AIG counterparties, that is, the buyers of the CDS, were caught with their pants down.
Instead of saying, “how sad, too bad” to these counterparties, the Fed decided (in the words of the Wall Street Journal), to unwind “.. some AIG contracts that were weighing down the insurance giant by paying off the trading partners at the full value they expected to realize in the long term, even though short-term values had tumbled.”
…
The organised lobbying bulldozer of Wall Street sweeps the floor with the US tax payer anytime. The modalities of the bailout by the Fed of the AIG counterparties is a textbook example of the logic of collective action at work. It is scandalous: unfair, inefficient, expensive and unnecessary.
.. and criminal.
Bob O'Brian: Random Musings On The End Of The American Experiment
Basically, the gloves are off and the banking establishment – the for-profit cartel of private bankers that is the Federal Reserve – refuses the most basic explanations of where our, and the next several generations' retirements, are going.
Just won't talk. Nope. Shhhhh. It's a secret.
So AIG sells insurance for which it has no collateral, thinly disguising it as credit default swaps, to those with no financial interest in the things being insured (which is illegal if insurance), and you and I get to pay those who bought the swaps and are now collecting big on the destruction of the market and the American way of life. Not a mention of simply making swaps illegal and calling them what they are – illegal insurance, which should be null and void. Nope. Instead, we get to pay out hundreds of billions, to Goldman and the Saudis and whomever else is fortunate enough to be a counterparty – but we can't know to whom the billions are being paid. Again. That's a secret.
I was thinking about how casual the disregard for the rule of law has become on Wall Street, and how confident the money trust is in our apathy and our absence of the will or the means to interfere with their schemes. And well they should be. As nothing has, and likely nothing will.
