The Big Takeover

Firstly, a warning that there is some bad language in the article. The author seems pretty angry (rightly so I imagine) and does not hold back.

I hadn't see this posted on here yet. I think it's a pretty good read. He does a pretty decent job of explaining the whole AIG thing in layman's terms, and had some stuff in there I hadn't read before, such as Joseph Cassano. It's eight pages, but it's worth the read I think.

The Big Takeover

S & F & a pan of homemade lasagna for you, Pimpish...

Glad you posted this; I read it yesterday when my RS came in the mail.
Please, everyone, take the time to read the article...it's long, but well worth your while.

Linky:
www.rollingstone.com...

Here's a little exerpt from the article:


"On September 14th, according to another person present, Treasury officials presented Blankfein and other bankers in attendance with an absurd proposal: "They basically asked them to spend a day and check to see if they could raise the money privately." The laughably short time span to complete the mammoth task made the answer a foregone conclusion. At the end of the day, the bankers came back and told the government officials, gee, we checked, but we can't raise that much. And the bailout was on.

A short time later, it came out that AIG was planning to pay some $90 million in deferred compensation to former executives, and to accelerate the payout of $277 million in bonuses to others — a move the company insisted was necessary to "retain key employees." When Congress balked, AIG canceled the $90 million in payments.

Then, in January 2009, the company did it again. After all those years letting Cassano run wild, and after already getting caught paying out insane bonuses while on the public till, AIG decided to pay out another $450 million in bonuses. And to whom? To the 400 or so employees in Cassano's old unit, AIGFP, which is due to go out of business shortly! Yes, that's right, an average of $1.1 million in taxpayer-backed money apiece, to the very people who spent the past decade or so punching a hole in the fabric of the universe!"
Written by Matt Taibbi, Rolling Stone Issue 1075


Ezzi








[edit on 21-3-2009 by ezziboo]

I just did a search for The Big Takeover and this didn't even come up.... gotta love the search button.

Nice post and I think that most people should do themselves a favor and read it. It is a very no nonsense summary of our current situation, who did it and how we got here.

I hope more people read this.

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

[edit on 24-3-2009 by Karlhungis]

I love this article. Matt Taibbi is great. The thing that strikes me most about it is that it's written in straight-forward Gen X / Gen Y terms, there's no Boomer angst or moral relativism.

An excerpt from the RS link:

The most galling thing about this financial crisis is that so many Wall Street types think they actually deserve not only their huge bonuses and lavish lifestyles but the awesome political power their own mistakes have left them in possession of. When challenged, they talk about how hard they work, the 90-hour weeks, the stress, the failed marriages, the hemorrhoids and gallstones they all get before they hit 40.

"But wait a minute," you say to them. "No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Actually, come to think of it, why are we even giving taxpayer money to you people? Why are we not throwing your *snip* in jail instead?"

But before you even finish saying that, they're rolling their eyes, because You Don't Get It. These people were never about anything except turning money into money, in order to get more money; valueswise they're on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties. Yet these are the people in whose hands our entire political future now rests.

i liked the article despite the raunchy words scattered in there...

i would have liked to read more about the double-talk that the
likes of Hank Paulson, then Tim Geithner, along with Bernanke
have been stumbling to talk around ...

i.e.: the MBS securities are just a $550bn 'problem'
but in truth....the CDOs, CDSswaps/ interest swaps, other 'betting' derivatives are the $550Trillion calamity that is collapsing the system...

[...]
In 1999, Gramm co-sponsored a bill that repealed key aspects of the Glass-Steagall Act, smoothing the way for the creation of financial megafirms like Citigroup. The move did away with the built-in protections afforded by smaller banks. In the old days, a local banker knew the people whose loans were on his balance sheet: ...

The very next year, Gramm compounded the problem by writing a sweeping new law called the Commodity Futures Modernization Act that made it impossible to regulate credit swaps as either gambling or securities.
Commercial banks — which, thanks to Gramm, were now competing directly with investment banks for customers — were driven to buy credit swaps to loosen capital in search of higher yields.
"By ruling that credit-default swaps were not gaming and not a security, the way was cleared for the growth of the market," said Eric Dinallo, head of the New York State Insurance Department.

The blanket exemption meant that Joe Cassano could now sell as many CDS contracts as he wanted, building up as huge a position as he wanted, without anyone in government saying a word. "You have to remember, investment banks aren't in the business of making huge directional bets," says the government source involved in the AIG bailout.
When investment banks write CDS deals, they hedge them.
But insurance companies don't have to hedge. And that's what AIG did. "They just bet massively long on the housing market," says the source. "Billions and billions."

In the biggest joke of all, Cassano's wheeling and dealing was regulated by the Office of Thrift Supervision, an agency that would prove to be defiantly uninterested in keeping watch over his operations. How a behemoth like AIG came to be regulated by the little-known and relatively small OTS is yet another triumph of the deregulatory instinct. Under another law passed in 1999, certain kinds of holding companies could choose the OTS as their regulator, provided they owned one or more thrifts (better known as savings-and-loans). Because the OTS was viewed as more compliant than the Fed or the Securities and Exchange Commission, companies rushed to reclassify themselves as thrifts. In 1999, AIG purchased a thrift in Delaware and managed to get approval for OTS regulation of its entire operation.

Making matters even more hilarious, AIGFP — a London-based subsidiary of an American insurance company — ought to have been regulated by one of Europe's more stringent regulators, like Britain's Financial Services Authority. But the OTS managed to convince the Europeans that it had the muscle to regulate these giant companies. By 2007, the EU had conferred legitimacy to OTS supervision of three mammoth firms — GE, AIG and Ameriprise.

That same year, as the subprime crisis was exploding, the Government Accountability Office criticized the OTS, noting a "disparity between the size of the agency and the diverse firms it oversees." Among other things, the GAO report noted that the entire OTS had only one insurance specialist on staff — and this despite the fact that it was the primary regulator for the world's largest insurer!

"There's this notion that the regulators couldn't do anything to stop AIG," says a government official who was present during the bailout. "That's bulxxxx. What you have to understand is that these regulators have ultimate power. They can send you a letter and say, 'You don't exist anymore,' and that's basically that. They don't even really need due process. The OTS could have said, 'We're going to pull your charter; we're going to pull your license; we're going to sue you.' And getting sued by your primary regulator is the kiss of death."

When AIG finally blew up, the OTS regulator ostensibly in charge of overseeing the insurance giant — a guy named C.K. Lee — basically admitted that he had blown it. His mistake, Lee said, was that he believed all those credit swaps in Cassano's portfolio were "fairly benign products." Why? Because the company told him so. "The judgment the company was making was that there was no big credit risk," he explained. (Lee now works as Midwest region director of the OTS; the agency declined to make him available for an interview.)

In early March, after the latest bailout of AIG, Treasury Secretary Timothy Geithner took what seemed to be a thinly veiled shot at the OTS, calling AIG a "huge, complex global insurance company attached to a very complicated investment bank/hedge fund that was allowed to build up without any adult supervision." But even without that "adult supervision," AIG might have been OK had it not been for a complete lack of internal controls. For six months before its meltdown, according to insiders, the company had been searching for a full-time chief financial officer and a chief risk-assessment officer, but never got around to hiring either. That meant that the 18th-largest company in the world had no one checking to make sure its balance sheet was safe and no one keeping track of how much cash and assets the firm had on hand. The situation was so bad that when outside consultants were called in a few weeks before the bailout, senior executives were unable to answer even the most basic questions about their company — like, for instance, how much exposure the firm had to the residential-mortgage market.

III. THE CRASH

Ironically, when reality finally caught up to Cassano, it wasn't because the housing market crapped but because of AIG itself. Before 2005, the company's debt was rated triple-A, meaning he didn't need to post much cash to sell CDS protection: The solid creditworthiness of AIG's name was guarantee enough. But the company's crummy accounting practices eventually caused its credit rating to be downgraded, triggering clauses in the CDS contracts that forced Cassano to post substantially more collateral to back his deals. ...etc etc

the article has too many points to focus on... its almost overwhelming

I'm glad a few people responded, I love to hear other peoples takes on this sort of thing since I am really not all that financially savvy.

I think the eight pages might be a bit daunting to some people, but when you have the time it is definitely worth the read.

People, read it!

Crazy good article which will explain a good many things to you.

Printer friendly version & easier to read:
www.rollingstone.com...

yes i enjoyed this article .......it has been out for a bit now.......and i read all 8 pages........talks about the CDS in layman's terms..and it's great to get this into a mainstream magazine painting this as planned takeover ...i think part of it is but also a large (if not larger part for firms was more like a last hurrah that they knew they would get bailed out over.....)

on a side note i was reading a paper that is almost as good ......by institutional risk analysis (I think christopher whalen) and they were wondering WHY IN THE HELL AiIG which was a pretty conservative business and succesful for a long time........why would the board and CEO allow cassano to take such risk's

institutional risk analysis says....

In fact, our investigation suggests that by the time AIG had entered the CDS fray in a serious way more than five years ago, the firm was already doomed. No longer able to prop up its earnings using reinsurance because of growing scrutiny from state insurance regulators and federal law enforcement agencies, AIG's foray into CDS was really the grand finale. AIG was a Ponzi scheme plain and simple, yet the Obama Administration still thinks of AIG as a real company that simply took excessive risks. No, to us what the fraud Bernard Madoff is to individual investors, AIG is to the global financial community

so when they say AIG was a fraud like Madoff was they are not talking just about CDS's.....they are talking about the last 10 years and the re-insurance ponzi that collapsed which may have motivated them to take the risk with CDS's

........and this is the only issue i have with the article (by Matt in rolling stone) because he says that cassano basically said you guys (Board Of Directors, ceo's ,etc) .....you do what you guy's do and let me do what i do.......and thus .....he unknowingly (to them) took all the risks ......but the Institutional Risk article suggests.......that AIG had been in deep trouble for a few years prior to the time they decided to launch these (CDS's) do to bascially spelling out how the Insurance Industry was depending on their previous ponzi like Reinsurance policy scheme to make a large % of it's profits.......and they realized that they were pretty much dead in the water........and were like "let's make a quick hundred billion on this shady CDS deal (if someone goes down....cassano can take the hit....we...say we knew nothing".......and hell .....nobody will concentrate on the reinsurance nonsense that sealed our fate year's earlier all the talk will be on subprime and CDS....

us1.institutionalriskanalytics.com...