Fat Cats Part II

What A.I.G. Did - One of the most notorious intermediaries of financial lunacy in the perverted post Glass-Steagall era was A.I.G. This insurance company underwrote reckless financial policies (known as credit default swaps) for commercial and investment banks. A.I.G. did this because it collected what it thought were generous premiums that were generating huge underwriting profits for the company. And Wall Stret investment houses thinking A.I.G. was capable of actually hedging trillions of insane bets, escalated the scheming and became practiacally drunk with emboldenment. Virutally every New York-based investment house borrowed and bet as much as it could on flimsy mortgages.
    The trouble with A.I.G. was that it behaved too much like Wall Street’s bonus-seeking executives. A.I.G.’s management team also suffered from greed-induced delusions. As the inevitable mortgage defaults began to mushroom, credit default swap claims against A.I.G. began to mount. Since the company was hardly sufficiently reserved for this sort of colossal-sized folly, before long it was unable to fulfill its obligations.

    New York, Washington D.C. and Corruption - For decades large commercial banks have provided a steady flow of campaign contributions to the re-election war chests of most elected officials in Washington. Ten years ago the payoff for commercial banks wasn’t more banking fairness and less bank risk taking as Presdient Clinton claimed. Instead, it was the end of the taxpayer protections provided by Glass-Steagall for decades.

    As A.I.G. catapulted towards complete insolvency it was clear to C.E.O.’s at the largest commercial and investment banks that they were trapped. Having unwisely borrowed to buy flimsy mortgage securities, they too were at the point of insolvency. And as their sense of greed receded and their sense of reality set in, these C.E.O.’s quickly secured the ears of their former colleagues (Treasury Secretary Hank Paulson and others), who just happened to be working in the Bush Administration as high level banking system regulators.

   The goal of Wall Street C.E.O.’s in the late summer of 2008 was to QUICKLY gain access to taxpayer guarantees and cash injections for mistakes they made that should have required wipeouts of their stock and bondholders. To gain access to the seemingly infinite resources of the taxpayers, C.E.O.’s injected a gigantic dose of FEAR for both public and public official consumption. The extraordinary government intervention they sought had to be labeled as an effort to “Save the American Financial System from Catastrophe.”

    Astonishingly, the first step our government officials took in the process of “saving the system,” was to loan an insolvent A.I.G. billions of taxpayer dollars. These dollars were then allowed to be immediately passed through in the form of full face value credit default swap settlements to various high profile investment and commercial banks on Wall Street. Though this was only the beginning, many well-informed Americans knew immediately that a corrupt bailout based completely on false premises and false choices was being perpetrated. The truth being that the government interventions Wall Street successfully maneuvered for, were targeted specifically to save selected commercial bank stock and bondholders from catastrophe.

Fat Cats Part II