Just Because it's Math Does it Mean No Criminal Charges? - AIG run like a Scam - New York Times

Just because it's one division and they covered it all up with excuses like complex math, or structured finance does it make it less of a scam and a fraud?

The New York Times article Propping Up a House of Cards has gone a little more in depth on precisely what was going on inside AIG and why (supposedly) it couldn't fail (Joe Nocera Journalist).

When you start asking around about how A.I.G. made money during the housing bubble, you hear the same two phrases again and again: “regulatory arbitrage” and “ratings arbitrage.” The word “arbitrage” usually means taking advantage of a price differential between two securities — a bond and stock of the same company, for instance — that are related in some way. When the word is used to describe A.I.G.’s actions, however, it means something entirely different. It means taking advantage of a loophole in the rules. A less polite but perhaps more accurate term would be “scam.”

This was one division repackaging up credit default swaps and using AIG's AAA credit rating to cover up the stink.

Even worse, AIG never put up any capital reserves to cover the assets they were insuring. On top of it, they even wrote into contracts more financial obligations if credit ratings were downgraded.

A huge part of the company’s credit-default swap business was devised, quite simply, to allow banks to make their balance sheets look safer than they really were.

And this piece of news, all of those people trying to claim they just don't know what happened, well according to this report:

Everybody knew the capital requirements were being gamed, including the regulators.

Why aren't they letting AIG go to the dogs and default? Because all of the derivatives, those lovely credit default swaps will blow up and cause global losses.

My question is since it's obviously a ponzi scheme and a scam, how can the U.S. taxpayer be left on the hook to perpetuate the entire system?

Other reports are claiming AIG will be broken up.

Oh yeah, in terms of criminal charges, our government as well as many others made all of this perfectly legal as far as I know. Outraged yet?

Read the entire article in the link, gives great details.

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The Math Equation Did It?

When is someone going to explain to the public exactly how AIG got into this mess . . . fraud or mismanagement. It is always somebody else's fault then these companies fail. Now it's a math equation's fault? At the end of the equation, AIG was the mullet. To learn more go to www.newyorkshockexchange.com

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This is part of class war

And it is not rich vs. middle class and poor. It is a predatory class vs. middle class and poor. This predatory class is what has hijacked our economy.

Robert Johnson said on Bill Moyers Journal that he is very concerned that powerful moneyed interests are influencing bailout policy decisions and so am I. Geithner is going out his way to preserve this failed system.

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Bill Simon, former IMF

Also said that it was financial industry lobbyists and they are still so powerful (which is amazing because they are using taxpayer money) that's why they are not nationalizing the banks and throwing these people out.

Last video in this Friday Night Videos post is his interview.

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Thank you Joe Nocera.

OMG, where to begin. Outraged? Hell yes! Pissed? You betcha! How about we bring back the stocks and put all the bastards in them. Since there are so many of the SOBs, it would probably solve the unemployment problem as well. BTW Robert, did you follow the links to the Times Topics for derivatives and credit default swaps? They answered my questions regarding yesterday's thread on CDOs.

This paragraph really drives home our dilemma:

Here’s what is most infuriating: Here we are now, fully aware of how these scams worked. Yet for all practical purposes, the government has to keep them going. Indeed, that may be the single most important reason it can’t let A.I.G. fail. If the company defaulted, hundreds of billions of dollars’ worth of credit-default swaps would “blow up,” and all those European banks whose toxic assets are supposedly insured by A.I.G. would suddenly be sitting on immense losses. Their already shaky capital structures would be destroyed. A.I.G. helped create the illusion of regulatory capital with its swaps, and now the government has to actually back up those contracts with taxpayer money to keep the banks from collapsing. It would be funny if it weren’t so awful.

If I were the administration, I would get out in front of this tsunami and start speaking frankly, now! The people who perpetrated this scam need to be brought into the sunlight and absolutely, unmercifully grilled and prosecuted. The continued assurances, platitudes and non-speak from Bernanke, Geithner and Summers will not suffice. I would think that Congress will be compelled to start investigations real soon.

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CDOs vs. CDSes

I'm not sure what the question was yesterday but the New York Times has written a host of articles explaining the details.

The Origins of Subprime, derivatives is one of the top read posts on EP and is really long, going into the history of derivatives and some of these vehicles. (A professor did a drive by post and it appears reposted her article here).

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Obligation to future generations

We need to bite the bullet and end this failed financial system and start over. It is not worth saving.

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Historical precedent.

Michael Hudson is an excellent economics historian, and a former Wall Street economist. He published an interesting essay recently at Counterpunch which supports your recommendation and explains why it is so important to do so.

Prof. Hudson was interviewed in London recently relating to this as well (h/t Barry Ritholtz).

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Time to Preserve the Healthy

I think it is time to preserve the segments of the financial system that are relatively healthy and write-off the rest. It is over for the financial conglomerates.

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överenskommet!

I think we should all do Swedish. I'm referring to Sweden taking the swiftest action for nationalization, they wiped out the shareholders, fired all of the executives and they sure didn't pussyfoot around...and they had the least damage to their overall GDP.

But when a world is built on fiction it will melt down but I am starting to think this "oh we would have a global financial meltdown, the world will end as we know it", was a mistake, unless they are decoupling this mess behind the scenes before they "blow up the building" on institutions like AIG and Citigroup....but it sure does not look like that's what is going on.

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Damn Statistics!:-)

The quality of a derivative instrument is only as good as the actually data it consists of. All the other analytics are "derived" from that underlying data. Now, it may not have been 100% fraud, but a lot of things go into scoring a mortgage besides Fair Issac. School district, employer size, security, demographic composition. Many of these statistical methods are never used at the mortgage committee level. It's basically unregulated, making more art than science.

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Economists like to call that

an abstraction. This way they can mask the parts that don't necessarily produce the outcome they like. (ex. Real GDP, Core Inflation)

It has always been about class warfare.

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Welcome to 3rd world economics

since it's obviously a ponzi scheme and a scam, how can the U.S. taxpayer be left on the hook to perpetuate the entire system?

People in the 3rd world have been dealing with this dilemma for decades. Their corrupt leader takes on enormous amounts of foreign debts, sometimes to fight useless wars, most times to just line their pockets. Then the impoverished public is left with a government that provides no services, but taxes them mercilessly to pay interest on the debt.
It's immoral to make these poor people pay for these debts, but America has often sent its army in if they refused to pay.

Now the game has come home to the developed world. But things aren't going to work the same, because an entire world that is impoverished and in debt servitude is a very unstable world. There will be violence.

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There will be violence

Once again...as Ed McMahon would say, "You are Correct, Sir!" Look forward to various forms of Balkanization in the future happening in a neighborhood not too too far from you.

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300 Year Old Con

It must be dawning on most people now that the whole financial services sector is simply one big ponzi scheme - a long running scheme whereby surplus value can be extracted from the rest of us by the global financial elites with little effort. Examples like AIG, the stanford ponzi, Madoff, etc are merely the tip of a much bigger iceberg. Greed prevailed and the illusion of financial value has been stripped bear. The infinite growth of debt has now come up against the finite limits of the earths resources.

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Valuations

One also wonders if using earnings multiples methods to valuate companies now is not also part of the problem. It is hard not to question the underlying assumptions such a system relies on. Again, what is the nature of real value?

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credit ratings agencies - JV comment?

I'm not so sure about P/E ratio, JV would be good to comment on this but in terms of credit ratings agencies, such as S&P, Moody's, they are clearly a major part of the problem and scant attention is upon their methods.

Some of the tricks on how AIG could have a AAA credit rating when about to cause a global financial meltdown have been mentioned but reforms, I have not read much!

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