Taibbi breaks down AIG

[Tuco]

Who is to blame? Who should we wag our fingers at? Who should we allow to be punished? Who should we try to change?

1. The millions of home owners who acted irresponsibly by getting a house they could not afford?
2. The hundreds of thousands of loan officer / bankers who made a profit out by selling loans that they did not think the borrowercould afford, knowing that they, the loan officer, had no risk by making the deal?
3. The hundreds of leaders of financial institutions who profited by dealing in bad loans?
4. The one government whose laws allowed these kinds of deals to go down and created a supposed black hole of debt to be made at places like Fannie Mae that eventually imploded cause a domino affect?

The answer is we have to blame all 4. We can't really punish 1 or 2. 2 Is completely out of reach, 1 will be hurt naturally because of their credit score, and all home owners going through this bubble will be much more cautious in the future until we hit another bull market in the housing sector. 3 could possibly be punished but it's very unlikely.

And what about change? The only one we can effectively change is #4, because people will always be stupid and greedy.

How can we change the government and laws such that this kind of catastrophe does not occur? That's the article I want to read.

[Dumar]

you're not gonna see those laws changed. at best, you'll see tighter regulation in certain areas like derivatives.

it really makes me sad to say this, but it seems to me our country is too far gone. too much influence has already been bought and sold.

had these huge firms failed, i think we would've had a chance to recover our government, but not now.

[Rad]

Originally Posted by Phoenix

Well shit next youre going to tell me going and getting a payday loan is a bad idea? Intelligence, is quickly becoming a rare commodity in these days. Instead of people being allowed to make mistakes and learn from them, we simply pat them on the back while erasing whatever mess theyve caused while blaming someone else. Its fucking pathetic nowadays, nothing is anyone's fault anymore. Oh its not your fault that you bought a $500,000 house with a ARM on $40,000 salary! Its those damn greedy evil bankers who suckered you in! Give me a fucking break. No one was ever forced to do anything they didnt want to do. No one was forced to buy that particular house.

Implied trust.

The problem is that the banks and loan officers slanging these loans failed to educate the people they were giving them to. They treated them like they were selling them a new pair of shoes. I'm an insurance agent and the majority of people I talk to think they know what the hell they are doing however are completely naive to what they are actually buying/doing. Which is ok, that's why you have specialized job roles, we cannot be expected to know everything. But banks took advantage of that aspect and threw common fucking sense out the window to make the bills.

[Heylel Teomim]

Originally Posted by Phoenix

Oh its not your fault that you bought a $500,000 house with a ARM on $40,000 salary!

Regular folks didn't get mortgages like that, stop being inflammatory. Someone making 40k might have been offered a mortgage on say, 160-180k, not 500k. That's still too high, but people were being convinced by their bankers that the loans were repayable. People have to be able to rely on their advisors giving them sound advice. But hey, you're one of those pompous fucks who knows everything right?

I really, really hope one day you fail big time and no one is there to help you.

[Phoenix]

Originally Posted by ToeMissile

Part of the equation yes, but not deserving the majority of blame. One persons stupidity doesn't justify/exonerate an others greed/wrong doing.

I never said its all the home owner's fault, in my first post I said its a 50/50 problem. Banks should of known that these policies are economically infeasible and that the American tax payer in the end would be the one responsible for it all.

i dunno what you expect though. we live in a society where people aren't expected to be experts on everything. you can do research on a loan, but why not ask your banker? i mean, that's their job. their job isn't to con you. it's to insure that you secure a loan you can pay.

Expert? I didnt know being able to add 1+1 to get 2 requires mental expertise. The math required to learn whether or not a house is within your budget is something every single person learned in 3rd grade. Being able to figure out if a $1500 mortage excedes your monthly income is not rocket science. Thats what it comes down to, a lot of people either didnt care, or where too dumb to figure that little math problem out, and thats not a problem anyone but the home owner and bank should have to pay for.

Regular folks didn't get mortgages like that, stop being inflammatory. Someone making 40k might have been offered a mortgage on say, 160-180k, not 500k. That's still too high, but people were being convinced by their bankers that the loans were repayable. People have to be able to rely on their advisors giving them sound advice. But hey, you're one of those pompous fucks who knows everything right?

I really, really hope one day you fail big time and no one is there to help you.

I agree, banks where pushing loans to completely unqualified individuals that should of never of gotten them at all. On the flip side though the person receiving the loan should of been able to realize that they cant afford it. Its just like anything else though, companies try and sell you everything in the world on outrageous terms and this is no different.

[Mimirswell]

The key difference here is that if the banks had not over-leveraged themselves and made what amounts to essentially a giant bet that the housing market wouldn't collapse, then the bad mortgages would be mostly irrelevant to the global economy and this collapse would of been a more typical localized housing bust. Those taking the bad mortgages ruined themselves, they didn't ruin us. The banks (and our government) did that.

[ToeMissile]

Originally Posted by Phoenix

The math required to learn whether or not a house is within your budget is something every single person learned in 3rd grade.

This is unfortunately not true. The education system in the US is very uneven. A lot of the people who got themselves into these loans are the same people who are from poorer areas where schools are especially neglected. The overall state of the country is one big clusterfuck, and it's going to take more messed up stuff than the housing 'crisis' to get people to wake up and not be greedy selfish assholes.

[Dr. Funkenstein]

I like how the article blames AIG for getting bailout money.

If our elected morons didn't give AIG bailout money, they wouldn't need it. They'd either get out of the mess on their own, or fall apart and let others benefit from the pieces.

Oh I know I know, they're too big for us to allow to fall apart. Right. Keep selling that then whining about the result of the sale.

[Snugglebear]

People still haven't adapted to turn down free money. Eventually people realize not to take loans from the Mafia. Well, they still haven't realized that getting a $625,000 mortgage because your banker said you can might be bad. Maybe if the bankers wore track suits it'd be easier, I don't know.

[Lleauaric~EW]

Allow AIG to fail? You have no idea what that entails.

This money is passing THROUGH AIG. It, as an insurance holder, is using the money to pay out to holders of Credit Default Swaps.

We through this term around, but its important to know what a CDS is, be ready to be disgusted.

Remember way back in the day, people with money would go down to skid row and find a bum, pay that bum 20 bucks, have the bum take out an insurance policy for $10,000 with the rich dude as the beneficiary. The rich dude would then dutifully pay the premium and wait for the bum to die, or get em really drunk and walk them into traffic or off a bridge.

Well, thats basically what a CDS is. You can take one out on anything really. Now in our case the CDS, fucking billions of dollars worth of them, were taken out on high risk, subprime mortgages. The bankers were gonna win either way. People pay? Great! People don't pay? Great!

Well, not great actually, because the $$ you get back is less than the value of the mortgage. If a bank took this out, its called "Hedging" (yes, as in funds, which is why Hedge Fund people got stupidly rich over the last few years as nobody was losing, so there were no losses to cushion, all profit. Today, they are all failing)... they take a loss, but its not as dramatic. If a third party entered the equation, then the CDS was taken out as "speculative" (see dead bum)

Now the problem.

See, banks went crazy overboard with the money they were putting out. They were using CDOs (Collateralized Debt Obligations). This is a pretty complicated pile of dog shit, but let me try to make it simple.
A CDO is where a company creates a smaller profit generating company and then sells tiny parts of that profit to investors. (you can also create a CDO out of a CDO, called a synthetic CDO. Many believe that Citi and BoA are hiding losses in these way off the book spawns of hell.)

In our case, the CDO was created out of mortgages. Johnny and Susie Homeowner X 60,000 pay their monthly bill to their lien holder, who in turn sells off chunks of that to people. Mortgages became a commodity, like Pork Bellies in Trading Places.

Now, because of asshole buddy relationships, these CDOs were given the highest quality rating. This in spite of the fact that they were loaded with NINJA loans (no income, no job, no address needed, aka ARMs or Subprime) because getting money to loan out from China or overseas was as easy and addictive as crack in Harlem. Get the easy money, find a sucker to take it, pack it all in with some good risk to try to hide it, and sell off the profit stream for top dollar. Oh yea.. btw, you can hire a firm to hedge all this, don't worry if they are overleveraged 36 to 1.
Why people aren't in jail for this, I have no fucking idea.

So AIG insures this entire fucking mess. (remember the Bum) And it all falls apart. People look at AIG for their insurance, and AIG doesnt have it.

Bank fucking panic and stop any money going out as they now are looking at 100% loss on their investments, rather than a hedged loss. So the government stepped in, and allowed AIG to pay out its debts. Cash is infused into the system through traditional means.

Now assume that AIG is allowed to fail. Ok fine, banks eat a pile of shit and nobody can get a loan for 5 years... that can be lived through.
What you don't realize is that if AIG fails and doesnt pay its debt, that debt doesnt disappear.
Somebody becomes responsible.
Because of the fantastically complictated intanglements of our finacial system, nobody has a clue who that entity would be. The thing it would fall on has no idea. And it would take some time to shake out.
As a result, nobody would invest in anything.
How can you? You dont know if you are going to wake up tomorrow and find the company you put money into is now part of a structure that is saddled with 5 trillion in debt. The government took on this instead of allowing this game of Russian Roulette play out.

So, when you say "We should have let AIG fail"... what you are really saying is "I don't think there should be any lending or any investing for the next few years, I want a couple more industries to fail and I want our entire economy to shut down"

[Designz]

I say AIG is the bum, and the rich dude is Cassano!

[Lucane Darkseraphim]

Originally Posted by Lleauaric~EW

So, when you say "We should have let AIG fail"... what you are really saying is "I don't think there should be any lending or any investing for the next few years, I want a couple more industries to fail and I want our entire economy to shut down"

Your brain will thank you if next time you choose to not try and emulate a poorly written piece of writing. Mine will thank you too.

Regardless, I commend you for at least grasping the necessity in not allowing these companies to fail. As cheesy as it sounds, we are saving them for the good of the world.

[ChewieTobbacca]

Saving them without putting in the necessary reform though - we might be better off letting shit shut down til people fix our fucked up financial system.

[Requiem]

Phoenix, do you have some kind of meaningful point? For the sake of argument let's go with your 50/50 notion.

Ok, and? Turns out people are that stupid. Lots of them. Are you saying the sky shouldn't be blue? What the fuck is your point? It's like you're sitting here blaming gravity for suicide jumpers dying when they hit the ground.

Guess what, that's how it is. Who fucking cares if people shouldn't have made poor decisions? That's a real breakthrough you've made there, thanks for that incredible insight. Here's what you don't seem to be getting here though: They did, they have in the past, and they will again. And it turns out that we DO have a solution to this problem! We supposedly elect smart people to watch out for them via legislation and regulation, and this system had worked quite well in the past, up until a certain group of people raped that whole system, removed any power it had over them, and then proceeded to abuse the financial system to the point of failure at the expense of stupid and smart people alike all around the world.

Let me show you some simple math of my own to demonstrate my point.

1=1.
People are stupid.

Are you suggesting that if only 1=2 then we'd be just fine? That's great, but it doesn't.

You know, I think you've stumbled upon the root problem with everything that's wrong with the world. This is pure genius, you're really on to something here. Carbon dioxide shouldn't be a greenhouse gas. The world's largest oil fields should be in the USA. Actually fuck that, our cars just shouldn't require fuel. Or better yet, we should be able to transport ourselves anywhere with a thought. The middle east should be at peace.

My god man, you're fucking brilliant. You got a newsletter?

[Arbitrary]

Originally Posted by Requiem

The world's largest oil fields should be in the USA.

Not a problem sir.



Yeah, and he's from my district.