Geithner, Congress, Wake Up!: Before Bonuses, Goldman Should Pay Me Back the $30B Laundered Through AIG

Wall Street mythologists, and their sycophants at CNBC, are now spinning the yarn that Goldman Sachs ("Goldman") paid back the money it took from taxpayers and thus ought to be free to award enormous bonuses to their senior executives.

That calculation is off by about $30 billion. Goldman still owes me $30 billion (+interest, thank you).

Although Goldman took "only" a measly $10B in TARP money to remain solvent, it magically received 100-cents on the dollar for its defaulting Credit Default Swaps (CDS), 3 trillion cents, to be precise. AIG, itself a Ponzi scheme that even Madoff could not match, with no cash reserves backing the financial products it agreed to insure, served as the conduit for that money to Goldman. Without it, AIG and Goldman would be, as they say in Alaska, belly-up -- i.e., no bonuses, no corporate jets, no office building, nothing, nada, zip, zorch.

The last I knew, you and I had provided AIG with $175 billion. When Goldman pays us its $30 Billion back (+interest), the cost of their chicanery will be reduced to a cool $145 billion in directly outlays, plus the incalculable damage to the economy.

I know, of course, that AIG took our money in order just to "fulfill" its contracts to Goldman and others So what? Our $30B, laundered through AIG, rescued Goldman from oblivion, and now that Goldman is making money hand-over-fist, it should pay us the $30 Billion (+ interest)-- directly, and not re-launder it through AIG.

Does anyone really need to ask "why"? Because if the $30B spends even a nanosecond at AIG, then AIG will probably award itself bonuses out of our money.

To paraphrase some popular jargon, "I know how to spend my money much better than the executives at AIG and Goldman".

Comments

[GroundhogBoy]

Would you like all the recipients of AIG insurance payments to give back the money that they "laundered?" I'm sure there are some well-off wives out there whose husbands died and they received insurance payments from AIG. Should they give their money back, too?

BTW, where are you getting $30B from. I believe it's $12.9B

[Paul Abrams - Huffpost Blogger]

AIG's life insurance business was regulated by each state; consequently, they had adequate capital to pay their claims. No TARP money paid their life insurance obligations.

By contrast, AIG's financial products' insurance, i.e., CDSs, was unregulated. Indeed, AIG lobbied to prevent regulation by the SEC. They kept no capital to pay off potential claims, and thus expanded the business very rapidly--if a company can write insurance with a capital base of zero, expansion can be unlimted.

When the mortgages that underlay the securities (mortgage-based securities, or MBS) that were purchased by third parties, and for which banks like Goldman and others purchased insurance from AIG, began defaulting, AIG (and, because of their unlimited expansion with a capital base of zero) and the institutions that relied upon them such as Goldman-Sachs, became vulnerable to default.

It was a very high risk, very high reward gambit. The paper profits enabled rise in share prices and high bonuses to employees. When the bet imploded, the company was potentialy bankrupt, "settlements" usually involve a discount on the amount owed. Not for these boys. AIG received 100% of the money it needed at the time to pay 100% value on those obligations. ($30B, has been widely reported. If it is $12.9B, he same principle of repaying applies).

The two securities--life insurance and financial products insurance--are two different instruments, one solvent and the othe not, one highly regulated by the states, the other not regulated at all.

[drymartini1]

Just because CDS exists in an unregulated market doesnt mean its laundered money if a payout occurs.

The only way AIG can crawl out of those contracts is go bankrupt. Why isnt the govt. letting AIG go bankrupt? I dont want to hear "too big to fail".

Let AIG fail, the CDS contracts take care of itself. but you want it both ways.

[YeWight]

Sometimes, it's too bad we live in a democracy. In some other countries, these guys would be hanging by their feet in some downtown square as an example to others who might be thinking about coming up with a similar scheme. Hey, AIG and Goldman-Sachs, don't you love America?

[Beamreach]

Since we are borrowing the money from China to pay Goldman Sachs off, we might want to consider how they deal with these situations:

"Capital punishment is applied flexibly to a wide range of crimes, some of which are punishable by death in no other judicial system in the world. Economic crimes such as tax fraud have appeared routinely among the dockets of those receiving the death sentence, as have relatively small-scale drug offenses. Capital punishment is also imposed on inchoate offenses, that is, attempted crimes which are not actually fully carried out, including repeat offenses such as attempted fraud. The recidivistic nature of the offenses, not their seriousness per se, is what is adjudicated to merit the capital sentence." see http://en.wikipedia.org/wiki/Capital_punishment_in_the_People's_Republic_of_China

Not saying we should adopt these penalties, but I do doubt they have widespread corporate fraud breaking the back of the populace these days.