US may spend up to two trillion to save banks: report

[lucy]

From Porter Stansberry....

"I wrote a lot about this in The Digest, but I never officially recommended shorting Goldman in my newsletter because I literally couldn't figure out how Goldman Sachs was doing it. I couldn't find the smoking gun... but I knew a giant fraud would be discovered there, eventually.

In October 2008, I figured out part of the big secret: Goldman had insured all of its subprime exposure via AIG. This allowed it to book huge profits on its subprime investments long before they were actually paid off because the bonds were insured. Of course, it was all a sham – AIG didn't have nearly enough money to pay off any of the insurance. (See the October issue of PSIA for more details.) A source close to the company even told me how big the exposure to AIG really was – $20 billion. That's roughly 100% of the profit Goldman claimed in 2006 and 2007, at the height of the credit bubble. Goldman completely denied my report and claimed it had zero exposure to AIG.

As was subsequently revealed in the spring of 2009, my report was right on the money. Goldman had roughly $20 billion in exposure to AIG and received roughly $14 billion of money the federal government used to bail out AIG.

But I completely missed one big part of the story... And once this fact becomes common knowledge, it will probably mean jail time for several leading Goldman executives and the end of the firm. What did I miss? The entire Goldman-AIG relationship was a complete sham. Let me explain...

Goldman eventually admitted it had insured roughly $20 billion worth of subprime CDOs with AIG and had major exposure to the firm. But the New York Federal Reserve and Goldman Sachs never revealed this critical fact: Goldman didn't merely buy insurance on a bunch of random subprime CDOs. It actually bought insurance on special CDOs it had put together and sold to its own clients. In other words, Goldman knew more about these CDOs than anyone else. Goldman bought insurance on these CDOs because it knew they'd collapse.

This is tantamount to building a house, planting a bomb in it, selling it to an unsuspecting buyer, and buying $20 billion worth of life insurance on the homeowner – who you know is going to die!

These facts all came to light because of research done by the office of Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform. These new documents will certainly lead to a full investigation of the Goldman-AIG dealings and the subsequent $180 billion bailout led by the New York Federal Reserve. My bet? Heads will roll. If you own Goldman Sachs, you'd better sell."

This is why the FED has to be audited and why we have to return to sensible banking policies.....

[lucy]

Another interesting bit of information...

"Bizarre? Now this is bizarre!
Submitted by Michael Nystrom on Thu, 02/25/2010 - 14:27
in

    * Daily Paul Liberty Forum

From yesterday's exchange between Ron Paul and Ben Bernanke:

Ron Paul: ...a lot of cash was passed through - and a lot of people suppose it was passed through the Federal Reserve - when there was a provisional government [in Iraq] after the 2003 invasion. That money was not appropriated by the Congress as required by law...

Ben Bernanke: Congressman, these specific allegations you've made are absolutely bizarre, and I have no knowledge of anything remotely like what you just described.

Let's ask Henry Waxman (July 2009)

Henry Waxman: In a 13 month period from May 2003 to June 2004, the Federal Reserve sent nearly $12 billion in cash, mainly in $100 bills from the United States to Iraq. To do that, the Federal Reserve Bank in New York had to pack 281 million individual bills ... onto wooden pallets to be shipped to Iraq. The cash weighed more than 363 tons and was loaded onto C-130 cargo planes to be flown into Baghdad... "


link  http://www.dailypaul.com/node/127060

[Pepsi]

Yes, this story about the cash being doled out in Iraq was out there back when it happened.   

[lucy]

http://www.rollingstone.com/politics/story/32255149/wall_streets_bailout_hustle/print%29

[makesenseplease]

http://www.rollingstone.com/politics/story/32255149/wall_streets_bailout_hustle/print%29

It's been obvious from the start, Lucy.

For strange reason, everyone here refuses to see it even though it can't get any more transparent.

 

[lucy]

It is amazing.

And this....http://finance.yahoo.com/news/AIG-posts-89-billion-rb-4019897031.html?x=0&sec=topStories&pos=1&asset=&ccode=

And now AIG wants billions more....seems I remember some very fat bonus checks that were written recently after the bailout.

I suspect more than meets the eye here. Why should AIG not be allowed to just go BK and restructure with transparency?

[johnhp]

The should be forced to go through restructuring and the company needs to be held in receivership.  And since companies are now people, send the board of directors and major stockholders to jail for fleecing the public.  And no federal minimum security pen.  Lock them up in prison with crack dealers, rapists and murderers, and other people who have destroyed lives.

[Velleity]

Why should AIG not be allowed to just go BK and restructure with transparency?

Because they saw what happened after they let Lehman collapse. Your prescription would be catastrophic. It could even start WW III.

[lucy]

Why?

[Velleity]

Why?

What happens when the demand for money becomes infinitely inelastic?

[lucy]

You've said yourself that money is merely an abstraction....it doesn't matter. Just print more of it/right?

But, that still doesn't answer the question about AIG. Why would it cause WWIII to allow AIG to go BK and restructure? They've already wasted the bailout funds they received, more or less...and GS was given 100% of its derivative exposure from the US taxpayers...so, just give me a straight answer on this. AIG is not that all-powerful in the universe, is it?

[Velleity]

You've said yourself that money is merely an abstraction....it doesn't matter. Just print more of it/right?

I never said there weren't consequences to printing money. I have tried to explain to you my understanding of how the markets work and why you're ideas were overly simplistic and plain old wrong.

I could very well be wrong but you haven't haven't given me any good arguments to that effect.

It makes no real difference, though, whether you monetize the debt or keep it on the books. Either way it's going to effect the other markets and work out the same way. You don't seem to want to understand or appreciate that, as you continue to use your loose, undefined terms like "value" and "wealth" to somehow justify your handwringing.

Lucy, you have to understand what the economy is. There is no magic involved. The economy is simply a mechanism for distribution of goods and services. You have to start from there. People need goods and services. Right? Isn't that what it's about?

But, that still doesn't answer the question about AIG. Why would it cause WWIII to allow AIG to go BK and restructure? They've already wasted the bailout funds they received, more or less...and GS was given 100% of its derivative exposure from the US taxpayers...so, just give me a straight answer on this. AIG is not that all-powerful in the universe, is it?

Because you're talking about crashing the whole financial market in one fell swoop. I don't know whether that would cause WW III but I do know that our government got a lot of adamant requests to not allow that to happen.

But don't take my word for any of that. If you can expand your horizons beyond your von Mises and Ron Paul sources you will find a lot of really good stuff out there. You should really start with that amazing essay, The End of Lassaize Faire Capitalism, that I posted. Keynes had an absolutely amazing mind. He was actually speaking to the Ayn Rands and Milton Freidmans back in 1926, before there really was an Ayn Rand or a Milton Friedman.

[lucy]

AIG going BK would not cause a global crash. This is absurd. No company is that powerful.

You seem to play each way. First, printing money is okay because money is just about availability of such to allow the economy to keep functioning, but then, you say, no--printing money out the wazhoo is not okay, etc....


I know that the US debt-load is dangerously high and investors have too much power over our future. I also know that most of our personal income taxes are used merely to pay interest on that debt, and that bothers me, my friend.

[Velleity]

AIG going BK would not cause a global crash.

You don't know that.

This is absurd.

Except that our best and brightest say that it isn't absurd, and I have seen no good reason to disbelieve them or believe your bare assertion.

No company is that powerful.

In this instance apparently one is that "powerful."

You seem to play each way. First, printing money is okay because money is just about availability of such to allow the economy to keep functioning, but then, you say, no--printing money out the wazhoo is not okay, etc....

You just don't understand what I'm saying or how things really work. You look at one facet and say "OMG, that's going to give us 'hyperinflation' or some other item in a parade of horribles.

It doesn't work like that. The economy is a very elaborate tapestry. Pull on one thread and you will affect many others and changed the overall appearance, but it doesn't mean the whole thing unravels. There are a lot of other variables at play.

If you don't look at the whole tapestry you really don't know anything, and aren't saying anything.

I know that the US debt-load is dangerously high and investors have too much power over our future. I also know that most of our personal income taxes are used merely to pay interest on that debt, and that bothers me, my friend.

Ridiculous. Show me where you derived this ridiculousness from. Then I'll show you better sources to show you why you're being ridiculous.

[lucy]

"It doesn't work like that. The economy is a very elaborate tapestry. Pull on one thread and you will affect many others and changed the overall appearance, but it doesn't mean the whole thing unravels. There are a lot of other variables at play."

Vel


AIG is just one little bitty thread in that big tapestry, Vel. Its finances need to be made transparent. Something doesn't add up.

It doesn't take a Maynard Keynes to figure that out/