Cds: implicitly sanctioned ponzi scheme?

oh my. don’t read this article unless you want to feel completely murderous towards our greater financial community. financial folks: are these “side letters” – which apparently came about in the 80s under reagan’s deregulatory madness – actually common practice, or is this just wonk hysteria?

here’s a fun clip, anyway:

The key point is that neither the public, the Fed nor the Treasury seem to understand is that the CDS contracts written by AIG with these various non-insurers around the world were shams - with no correlation between “fees” paid and the risk assumed. These were not valid contracts as Fed Chairman Ben Bernanke, Treasury Secretary Geithner and Economic policy guru Larry Summers claim, but rather acts of criminal fraud meant to manipulate the capital positions and earnings of financial companies around the world.

Indeed, our sources as well as press reports suggest that the CDS contracts written by AIG may have included side letters, often in the form of emails rather than formal letters, that essentially violated the ISDA agreements and show that the true, economic reality of these contracts was fraud plain and simple. Unfortunately, by not moving to seize AIG immediately last year when the scandal broke, the Fed and Treasury may have given the AIG managers time to destroy much of the evidence of criminal wrongdoing.

Only when we understand how AIG came to be involved in CDS and the fact that this seemingly illegal activity was simply an extension of the reinsurance/side letter shell game scam that AIG, Gen Re and others conducted for many years before will we understand what needs to be done with AIG, namely liquidation. Seen in this context, the payments made to AIG by the Fed and Treasury, which were then passed-through to dealers such as Goldman Sachs (NYSE:GS), can only be viewed as an illegal taking that must be reversed once the US Trustee for the Federal Bankruptcy Court for the Southern District of New York is in control of AIG’s operations. – awesome bill moyer interview with william k. black. yikes just yikes.

All of that seemed pretty apparent over the course of the crisis. I wish people like Black would get more traction, rather than loons like Glenn Beck. There’s a pretty good interview with Greewald and Goodman after that where Greewald has some interesting insights into the media which partly plays into Black’s question of why isn’t the facts being brought out in the financial crisis. Goodman is earnest but only hits the stereotypical points about the role of media without the insightful observations. Edit: Though, she made one good point in relation to her arrest at the Republican convention.

One thing that’s also important to remember is that many people have just given up on finding out the truth about what’s going on. I’ve tried to send some information and discuss these issues with friends and such and they say they’re just too busy with work to read up on the issues.

Wow. If William K. Black is accurately representing the situation, then it looks like the financial markets was an excellent attractor & aggregator of dim-witted fools, ready for the fleecing.

I went into the wrong line of work a couple years ago.

If? o.O sigh

That Black fellow seems to really know his shit, and he’s not going to take any from the Goldman & Sachs’ of the world. I like that he hammers home his point that a handful of elite bankers were to blame, and were knowingly guilty of fraud. I’d like to see this guy hammer those CEO’s and investment bankers in a courtroom where their assets are stripped and redistributed to the people.

That interview was good stuff. Thanks for posting it.

Yeah, this was pretty good. Thanks man.

All good, but what in this is new at all? I guess what I’m asking is what this interview adds to the info out there. Hasn’t all of this been known for a while now?

Nothing really new, I just like the reporting/interviews that point out how deeply complex the situation is and present it in understandable terms to idiots like me. This American Life, Planet Money, and this interview have been helpful.

And it draws attention to the systemic problems we have which need to be addressed. The day-to-day news handles that stuff… poorly.


…aaaand simon johnson (formerly chief econ duder for the imf) weighs in:

it’s a shame the whole thing is so complicated, because americans should be a LOT madder than they are.

I think Americans are too busy being scared to be mad. But maybe it is just a failure of information, as you say. I mean is it REALLY that complicated? I know nothing about this stuff, and I was able to educate myself on the main issues through reading up on it a bit. Like most issues that take place in an industry that is not their own, most of America simply hasn’t bothered to figure out why it happened. Most of the info in your links is publically available to anyone who wishes to look it up. And it’s not even hidden.

Part of the problem is also that the people which are saying it are purposefully marginalized or drowned out by the talking heads on 90% of cable news and broadcast TV. I think the other thing is that we are just starting to see lucid examinations of the interlocking systemic problems from beginning to end in the same piece. Six or nine months ago, I was able to piece of much of this info together, but it was various vantage points and seemingly messy and difficult to explain mostly because there’s so many pieces and arcane sounding names that people’s eyes tend to gloss over.

The information from the first link Doug posted* isn’t widely known at all. I mean, you can find it in blogs on the Intarwebs or filing statements, but IIRC it’s not been widely reported in the MSM, and it wasn’t at the time that AIG was originally in trouble.

As for CDS’s, CDO’s, et al, they’re broadly easy to explain. Specifically why they can screw up so badly takes a bit of time even with some knowledge of finance, financial history, and even some real history.

*If you don’t read the IRA, you should, and dig back through some of the back-stock. It’s Really That Good.

William Black’s fixes:

  1. Fire the CEO’s and CFO’s who failed.
  2. Hire new people who have a track record of success, not failure.
  3. Find out the truth about what happened, so we have good info on which to base our decisions.

This this this.

I’m only involved in the application of it at a very basic level, but I have to wonder, what was the point of the Sarbanes-Oxley legislation given the shenanigans coming to light by organisations that presumably were subject to it.