Fingering AIG
Congrats to Zero Hedge for the prominent mention in Barron’s via Alan Abelson’s column:
“How did the banks, so many of which seemed to be slouching toward extinction, get their act together to the point where they were in the black in January and February?
In search of an answer, we turned up an intriguing explanation for this magical metamorphosis by Zero Hedge, a savvy and punchy blog focusing on things financial. Not to keep you in suspense, Zero Hedge fingers AIG , that repository of financial ills and insatiable consumer of taxpayer pittances, as the agent of the banks’ miraculous recovery.
But not quite the way you might think. As Zero Hedge explains, AIG, desperate to hit up the Treasury for more moola, decided to throw in the towel and unwind its considerable portfolio of default-credit protection. In the process, the badly impaired insurer, unwittingly or not, “gifted the major bank counterparties with trades which were egregiously profitable to the banks.” This would largely explain, according to Zero Hedge, why a number of major banks actually, as they claimed, were profitable in January and February. But the profits, it is quick to point out, are of the one-shot variety, and, ultimately, they entailed a transfer of money from taxpayers to banks, with AIG acting as intermediary.
Lacking any deep familiarity with the arcana of credit swaps and the like, we can’t swear to the accuracy of this analysis. But shy of conjuring up the Amazing Randi and have him unveil the truth, it strikes us as plausible — and easily as persuasive as many of the various explanations we have come across for the surprising and rather mysterious turn for the better by the banks. If by chance it proves out, it just might act as a sobering influence, and not just on the financial sector.
Very cool . . .
>
Source:
Don’t Bank on It
ALAN ABELSON
Barron’s, APRIL 18, 2009
UP AND DOWN WALL STREET
http://online.barrons.com/article/SB124000857570530541.html
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April 18th, 2009 at 3:46 pm
That AIG has been a conduit for transferring more money to the banks is old news. The exact mechanisms and details of the CDS unwinding may be of interest, however.
April 18th, 2009 at 4:06 pm
OT/threadjacking, but:
Heavyweights Kohn,Volcker Spar Over Inflation Goal
APRIL 18, 2009, 1:55 P.M. ET
Former Fed Chairman Volcker, who along with Kohn was at a conference honoring former Fed governor Dewey Daane, questioned how the Fed can talk about both 2% inflation and price stability.
++++
So Volcker wants an inflation target of what…0%?
There’s your answer to why Volcker has been given a minor role in the administration, Barry. The old man is senile. Someone turn on Matlock and tuck him into bed before that crank falls down the stairs!
http://online.wsj.com/article/BT-CO-20090418-701246.html
April 18th, 2009 at 4:10 pm
I wonder what Charlie Gasparino’s sources are going to have to say about this?
April 18th, 2009 at 4:10 pm
even cooler is the Barron’s article that calls out the bogus “Goldman selling shares to repay TARP” story:
http://online.barrons.com/article/SB124001886675331247.html
Goldman has so far raised $29 billion in FDIC backed debt via the “Temporary Guarantee Liquidity Program(TGLP).” This is government backed debt on which Goldman only pays a 1% fee. That is one massive subsidy! Goldman is trying to use no-strings-attached government cash(TGLP) to repay the government TARP. That’s a farce and I’m glad to finally see someone in the media point that out.
April 18th, 2009 at 4:12 pm
So AIG transformed some of Big Shitpile into Chocolate Covered Cotton ( see my post on Are Credit Markets Reopening )
April 18th, 2009 at 4:15 pm
agree w/ DL- everyone knows the AIG connection- what I find more interesting is the forthcoming release of stress test information- Bloomberg indicates that the Treasury is trying to figure out how to release the information so it isn’t detrimental to the weakest banks- in other words how to put the best spin on it- but- I wish Geithner would wake up and realize- that- “the truth shall set him free”- lay it out- in an honest straightforward manner so every rube with half a brain can understand.
April 18th, 2009 at 4:17 pm
mmmm- chocolate covered cotton
April 18th, 2009 at 4:38 pm
bon appetite American taxpayers !
April 18th, 2009 at 4:40 pm
The banksters love to complain about short sellers. I suspect that what the banksters like even more than complaining about the short sellers is trying to squeeze them.
April 18th, 2009 at 5:27 pm
ZH is great! One more example of the real leading edge, heavy lifting in investigative reporting being done by the blogosphere, and the MSM hitching a ride on that work. The scorecard isn’t even close lately. Those like ZH, Mish, CR, TPC, nc, et al are doing us a great service with their work.
April 18th, 2009 at 6:28 pm
More than plausible, I would say probable. They all had such good trading results. Looks like AIG was the the partner of choice.. Bastards… all of them.
April 18th, 2009 at 6:38 pm
SYSTEMIC RISK, SYSTEMIC RISK,SYSTEMIC RISK…the sky is falling, Paulson pushed Lehman under to enrich GS with AIG as his tool. Now we have Tiny Tim, the Sorcerers Apprentice carrying on the tradition.
April 18th, 2009 at 6:44 pm
Since the Zero Hedge article is not linked, I haven’t read it, but the description quoted makes this assertion–that the unwinding of AIG’s derivatives book = profits–highly suspect. The profits booked on derivative positions with AIG would have been on the income statement regardless of whether or not AIG chose to close out its derivatives positions if they were carried on the balance sheet as held for trading (which they probably were).
While I agree that these profits are ephemeral, like the cherry blossoms in the spring, I’m not sure that AIG caused the big Q1 profits.
The bottom line is that revenues were generally down, which means to me that their core businesses are performing poorly. The proprietary trading is just as likely to be negative in future quarters (unless you believe Uncle Ben divulged the plans by the FRB to purchase long bonds and allowed the big banks to front run, and Uncle Ben and Timmy (TIMMAY!) will continue pass bailout/pseudo bailout insider info to the international banking cartel).
April 18th, 2009 at 6:54 pm
franklin411: “So Volcker wants an inflation target of what…0%?
There’s your answer to why Volcker has been given a minor role in the administration, Barry. The old man is senile. Someone turn on Matlock and tuck him into bed before that crank falls down the stairs!”
********************************************************************************************************
What’s wrong with an inflation target of 0 percent? The Ivory Towers textbooks that I’ve read seem to indicate that consonance in inflation and inflation expectations is much more important than the overall level of inflation. Are you saying that this doesn’t hold when the rubber meets the road?
Why is 2 percent better? Isn’t the use of two percent related to the widespread belief in academia that inflation is typically overstated by 2 percent (i.e., 2 percent in government stats is really 0 percent in real life)?
April 18th, 2009 at 7:02 pm
This shit is getting so old. I remember when Citi coughed real hard in Feb of 07. Now it is coughing up blood and the Treasury and FED want to prop it up and make believe it can run a marathon. What I am really perplexed at is how the mainstream buys into the “next great bull market” theme.
April 18th, 2009 at 7:09 pm
Back in 2007, Barry, I owned a Venezuelan telco, symbol VNT. Chavez announced that he was going to nationalize the telco and I scurried to find any information I could. The mainstream media piled on saying the only PC thing it could, namely what a dictatorial asshole Chavez was. Bob Pisani made the point, a foolish one it turned out, that Mexico gave investors nothing when they nationalized oil companies back in 1936.
The world is so interconnected today that I felt what happened in 1936 could not happen today. But I needed information for reassurance, and the place I got that information was the blogosphere. One blogger said I should hold onto my shares because they were likely to be valuable, and another pointed out that Chavez often gave above market value when he nationalized an industry. So instead of just holding on, I doubled down on the shares, which had plunged 50%, and sure enough the bloggers were right. Chavez came through with a decent offer, and my loss became a very nice gain.
And so today we have Barron’s, arguably the most respected weekly news magazine, devote much of an article to a blogger, and that Barron’s article is the most popular one listed on its website.
The MSM does have access to leaders and does a good job of coming up with a lot of interesting facts. But when I watch CNBC or see business analysis in the MSM, it is always PC. Too often the arguments come back to the Republican v. Democrat issue with the analysts doing their best to attack someone on the opposite team while protecting their own. They aren’t as interested in the truth as making sure their team wins.
The only place to get decent and honest analysis these days is on the web and the blogosphere in particular. And for that, I just wanted to say thank you for the honesty and I hope you and all the bloggers keep up the good work.
April 18th, 2009 at 7:13 pm
Could someone explain to me again why nationalization would be too expensive?
April 18th, 2009 at 7:48 pm
BR, did you see Eric Oberg’s piece on theStreet.com, “AIG Bailout: Not a Gift to Goldman”? Wondering if you thought it made a good case for the other side of this issue.
April 18th, 2009 at 8:01 pm
edhopper-
good question- It comes down to protecting bond holders and preferred shares, held typically by other banks and pension funds- I can’t say I agree with protecting any class of investors – but- read this for an introduction:
http://seekingalpha.com/article/120762-why-bank-nationalization-will-never-happen
April 18th, 2009 at 8:16 pm
re: nationalizing banks, aka receivership >>It comes down to protecting bond holders and preferred shares<<
Exactly. And that’s why it’s fought tooth and nail by those parties and they use the socialist bogey man to get the average Joe to rail against it.
We’re not talking about the Hugo Chavez type of nationalization, and it’s completely disingenuous to suggest that. As we all know we’re just talking about a short term receivership to restructure them and make them functional again for the long term.
These institutions that are vital to our financial system are dysfunctional due to completely irresponsible and greedy management. They should be bankrupt by all rights. And in the long run they need to be split up again, making the banking function highly regulated; basically a utility. Then the I bankers can run their business separately, with a modicum of regulation so they don’t blow us up again. Just like the good old days.
April 18th, 2009 at 8:30 pm
The Finger to AIG?
I have long since gave the Finger to the whole fucking sorry-ass lot. They all suck and should be held accountable for their greedy self-centered and selfish actions.
Look what they have done to honest hard-working Americans. Retired Americans on fixed-incomes earning 1% to 2%. 401-k’s which are now devastated. Look at what they have done to our Country.
The Banks, along with AIG are all the sorriest of Americans, who pre-planned this whole damn thing and have no problem robbing millions of people and still they sleep like babies.
I hold the Mafia in higher regard than that of the Wall Street crowd.
April 18th, 2009 at 8:41 pm
@Matt:
Because mild inflation is a product of growth. The only way to have 0% inflation is to have a static (stagnant?) society. And the obsession with inflation-fighting has caused more economic crises than it has solved (if any).
April 18th, 2009 at 8:54 pm
franklin411:
This whole time, I was under the impression that inflation is always and everywhere a monetary phenomenon.
April 18th, 2009 at 9:05 pm
franklin-
growth at all costs- great plan- dude- you’re really a republican
April 18th, 2009 at 9:06 pm
@franklin411 –
While I think that everyone would agree that mild inflation is a product of growth in the money supply, given constant V and Q, I think it is not so apparent that an increase in P (inflation/deflation) necessarily implies an increase in Q (MV = QP).
Unless you have some references that authoritatively show otherwise …
April 18th, 2009 at 9:12 pm
“Because mild inflation is a product of growth.”–franklin
“inflation is a product of growth” has to be of the Cask of Kool-Aid 151
franklin, do us a favor–Show us your Premises for such a Conclusion–you know, for a Change..
April 18th, 2009 at 10:04 pm
Country Joe & the Fish Live at the Monterey Pop Festival ’67
http://bit.ly/vpBQd
Country Joe & the Fish delivered a fully formed, uncompromising, and yet utterly accessible — in fact, often delightfully witty — body of psychedelic music the first time out.
Ranging in mood from good-timey to downright apocalyptic.
April 18th, 2009 at 10:15 pm
The banks are nets that caught taxpayer money flowed through AIG and ultimately claimed it as income,.. AND the market cheered in a self-serving feeding frenzy fueled by a quant fund squeeze and aided and abetted by a desperate administration trying to turn perception with circumstantial evidence piling over on itself that their fingers are in practically all markets, overtly and covertly. …. Ya, that sounds like a solid foundation for a new bull-market. I feel a need to short the bloody phone book. GS rallying high enough to then re-issue stinks beyond high heaven.
April 18th, 2009 at 10:18 pm
http://3.bp.blogspot.com/_qFiyjwMlP0Y/SeoCf0bvG6I/AAAAAAAAAtg/aESSI7DgscY/s1600-h/2868465185_a4d066c11f_o.jpg
Luv it!
April 18th, 2009 at 11:50 pm
Did someone here call Volcker senile? I beg you, which chairman of the Fed was a better guardian of the value of the currency? Greenspan? Please piss off. Bernanke? You are on drugs. I understand that Obama is a lawyer, and is not a numbers guy, but maybe just maybe, the reason he has Volcker waiting in the wings is because Obama knows the dollar might need some down-home defense when the Geither/Bernanke machinations are apparent as a fail.
April 19th, 2009 at 12:51 am
the real question is how much are the bankers getting paid in bonus for these “profits”?
April 19th, 2009 at 7:10 am
Zero Hedge looks like just another gloom and doom, end-of-the-world blog to me. Personally it feels like the short side has gotten so over-crowded at this point, it’s completely uninteresting. All the blogs make the same arguments. Really, at this point everyone knows that the world banking system is in tatters along with the U.S. government’s finances and Chuck Prince has made off with all the loot.
I’m with Fleck, the long side has got to be more profitable at this point. Just have to find the niches in which to make money. I’m thinking the commodities trade which did so well until the past year is probably back on. Other than that, I have no real ideas. Any help would be appreciated.
April 19th, 2009 at 7:46 am
@ clownposse-
and . . . the networks are telling the whole story? blogs happen because they cannot believe what they are hearing so they put out their own take on things, usually with much more thoughtful analysis. Thus you get ZH, TBP, NC, CR, etc. providing a much needed counterbalance to the other mass consumed information that is readily available over the airwaves. To answer your question:
Commodities, sure- unless the world economy continues to contract. Gold- sure- unless there is continued deflation. Tech/retail/financials, sure- assuming their is demand- which there isn’t- the consuming American has wound down and is not grazing in the vast fields of retail space looking for something to buy and finance.
April 19th, 2009 at 10:05 am
Here we are, nearly 1/3 done with Q2. Reported bank earnings should be interesting (as in the old Chinese proverb you don’t want to incur). This quarter, there will be no missing month kitchen sinks, no amazing trading profits, and no gains on debt write down.
Just money from traditional banking. How’s that looking?
Mark to market gains from revaluation are possible. While I personally think the original mark to market rules were written for more normal times, I can’t help but wonder if desperation will make this gimmick the sole bastion of bank profits in Q2. Will the debt be revalued due to logical reasoning or will the spinmeisters be asked to justify higher valuations based on creative exposition?
If banks can’t even muster up credible mark to market gains (holding justification constant), then what does this say about economy wide Q2 earnings and the overly anticipated early Q3 market explosion to the upside? Unless credit soon flows like water from the Rockie’s snowcaps, the market will very likely look like the right side profile of Mt Fuji. Possibly to and past S&P 685.
This is an excellent time to hold as much cash as possible until the truth is known in a couple of months.
April 19th, 2009 at 10:19 am
Re the zero Hedge speculation:
To make money, AIG would have to sell at a loss. The trading gain wold be either of the mark to market variety or recognized gain due to a conspiracy. For example AIG sells to X at a loss and Y buys from X, providing X with a cash gain. Both would essentially be a fraudulent conveyance with the US Treasury as a participant. The fraud would be to manufacture profits and fool tax payers, investors and creditors using a transaction that was not arms length. If true, this may be a criminal offense.
April 19th, 2009 at 10:35 am
How to prove the above:
It would be relatively easy for someone with regulatory authority to trace these transactions, if they occurred. If X marked to market, then why would it value trash above cost. If X profited by selling to Y above X’s cost, then the entire transaction needs to be laid out for a clear view in the sunlight.
April 19th, 2009 at 10:39 am
@born2code:
Goldman has apparently already set aside 4.7B for bonuses this year – as in 50% of revenue for the quarter…
http://blogs.wsj.com/deals/2009/04/13/goldman-sachs-profits-are-up-salaries-are-also-up-take-that-treasury/