Goldman Sachs, AIG, Collapse - Explained

[WhiskeyGirl]

How did it all come apart so quickly? Here are the pieces Mr. Greenberg says he sees falling into place. In 2005, a trade group called the International Swaps and Derivatives Association got together and drafted new standards for the kinds of credit default swaps AIG had been writing.

Previously, Mr. Greenberg explains, losses to the underlying securities were paid off at maturity. Now, cash payments would have to be forthcoming to cover any drop in value or credit downgrades even before any losses were realized.

"I don't know whether Goldman Sachs was the force behind the ISDA change or Deutsche Bank," Mr. Greenberg concedes. "That's something investigative reporters are going to have to spend time digging out."

The next piece fell into place, he says, with recent reports in the press about how, at the top of the housing bubble, "a couple of people there [at Goldman Sachs], bright guys, decide the housing market is going to collapse." Goldman went to work creating new subprime housing-backed derivatives , Mr. Greenberg says, and "began marketing the hell out of them and at the same time shorting them" (or betting they would fall in value).

Bingo. When the housing boom imploded, Goldman demanded giant cash collateral payments from AIG on a "mark to market" basis for housing-backed securities whose price was plummeting even if the underlying payment streams were intact. True, Goldman was hardly the only one demanding cash, but Mr. Greenberg is suspicious about the size of the payments Goldman demanded based on Goldman's own "marks" (i.e. estimate of the securities now-depressed value). "Goldman had the lowest marks on the Street by everything I hear," he says. "There was no exchange. Where was the price discovery? It was all in the eye of the beholder."

In short, it added up to a perfect trap for AIG. As panic spread through the financial sector, impossible amounts of cash were required of the firm under insurance contracts that had years to run and (as Mr. Greenberg argues and events seem to be showing) would likely end up performing adequately in the long run.

Most of all, he cannot fathom why Treasury and the Federal Reserve let billions of dollars in taxpayer cash fly out the backdoor to Goldman and other firms. Washington could simply have ordained that AIG's debts were the government's debts and so no collateral was due give Uncle Sam's bulletproof credit rating.

A very iteresting article, read more here - http://online.wsj.com/article/SB10001424052748704130904574644693895033518.html?mod=rss_Today's_Most_Popular

Did  Goldman Sachs  make money disappear overnight?

How might a Treasury, Congress, or Federal Reserve without ties to Goldman Sachs have handled this situation?

[WhiskeyGirl]

From the same article -

On AIG, however, he keeps plugging away. "I don't give up easily. What was done, in my view, was done, as Paulson said, to liquidate the company. I think that was wrong. And I think it's important to fight against things that are wrong. A lot of people at AIG lost their life savings. They spent year after year building the greatest insurance company in history and we owe it to them to fight to help make the company great again and get back some of the value that was lost."

The same can be said for folks who lost everything when Obama seized GM & Chrysler.  Lots of folks also lost, or will be losing their jobs.

Lots of folks lost their 401K and other retirement investments.  They lost their homes, their jobs, and mortgages.

Why aren't the White House, Congress, Treasury, Federal Reserve, and all those regulatory agencies working FOR Americans?

Why does it seem like they stay up late at night thinking up ways to make it harder for Americans on Main Street?

Why does it seem like they stay up late at night thinking up ways to send more jobs overseas?

Why does it seem like they stay up late at night thinking up ways to give more jobs, welfare, and benefits to illegal aliens?

Why does it seem like they stay up late at night thinking up ways to tax honest hardworking Americans?

Why does it seem like they stay up late at night thinking up ways to make Americans pay for illegal aliens healthcare, education, and 'American Dream' while the American Dream for citizens and those here legally is fading fast?

Why does it seem like they stay up late at night thinking up ways to destroy the dollar, and destroy the economy?

[WhiskeyGirl]

Let me be real clear - Goldman Sachs did not rip-off the taxpayers...

Let me be clear - Tim Geithner works for taxpayers...

Let me be cear - Our economy is safe...

[WhiskeyGirl]

What is the ISDA?

ISDA, which represents participants in the privately negotiated derivatives industry, is the largest global financial trade association, by number of member firms. ISDA was chartered in 1985, and today has over 830 member institutions from 56 countries on six continents. These members include most of the world's major institutions that deal in privately negotiated derivatives, as well as many of the businesses, governmental entities, investment managers and other end users that rely on over-the-counter derivatives to manage efficiently the financial market risks inherent in their core economic activities.

http://www.house.gov/apps/list/hearing/financialsvcs_dem/pickel.pdf

Fox suggesting security for the hen house? 

Fox working with predators and guarding the hen house?

Conflicting interests?

Insiders? 

[WhiskeyGirl]

Who does the ISDA advise?

Civil society, parliamentarians and organisations
OECD has been engaged with civil society since its creation, notably through the Business and Industry Advisory Committee to the OECD (BIAC) and the Trade Union Advisory Committee to the OECD (TUAC).

OECD also maintains close relationship with civil society and parliamentarians in member countries, notably through its close and long-standing links with the Council of Europe and its Parliamentary Assembly, and with the Economic Committee of the NATO Parliamentary Assembly.

OECD has official relations with other international organisations and bodies, such as the International Labour Organization, Food and Agriculture Organization, International Monetary Fund, World Bank, International Atomic Energy Agency, and many other United Nations bodies. OECD also co-ordinates with the International Transport Forum, an independent body linked to OECD that deals with issues of improvement of all forms of transport.

Who are members?

The 30 member countries of OECD are:
Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece,  Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg,  Mexico, the Netherlands, New Zealand,  Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States.

http://www.oecd.org/pages/0,3417,en_36734052_36761800_1_1_1_1_1,00.html

US should increase spending to help young people amid rising unemployment, says OECD
07-Dec-2009
The US should raise significantly federal funding on jobs programmes for young people in order to limit the impact of the economic downturn on the current generation of school leavers, according to a new OECD report. Given the pressure on public finances, this may require some reallocation of federal funding towards youth programmes.

http://www.oecd.org/country/0,3377,en_33873108_33873886_1_1_1_1_1,00.html

What about the older unemployed?

The OECD recommends the US introduce measures, including:
• Temporarily relax unemployment benefit eligibility criteria for youths with some work experience, but apply strict job-search requirements;
• Expand existing early-childhood education programmes and provide more support for parents and children when they go to primary school;
• Extend vocational training by rolling out nationwide Career Academies, small learning establishments within high schools combining academic and technical education;
• Broaden the role of the Office of Apprenticeships to include funding responsibilities and introduce subsidies and sub minimum wages for apprentices in order to promote the use of apprenticeships in SMEs and for teenagers and at risk youths;
• Favour summer jobs programmes for at risk youths who are still at school;
• Expand the Job Corps programme for young adults and encourage teenagers to stay on the programme longer and do more vocational training.
Jobs for Youth: United States is the latest in a series of OECD reports on youth employment policies that now covers 14 countries.

http://www.oecd.org/document/18/0,3343,en_2649_39023495_44208658_1_1_1_37419,00.html

What about creating jobs?  New businesses?

Evolution
In order to contribute to the development of the world economy, OECD’s focus has progressively broadened to include a growing number of other countries, in addition to its 30 members. It now shares its expertise and accumulated experience with more than 70 developing and emerging market economies.

What next
In a rapidly-changing globalised economy, OECD is changing too. The Organisation is reforming its management and addressing such issues as burden-sharing in the context of the OECD budget, rules on decision-making and how to respond to changes in the global economic environment by enlarging its membership.
It has also renovated its Paris headquarters and built a new conference centre. All these efforts are directed towards making OECD a more effective instrument of international co-operation.

http://www.oecd.org/pages/0,3417,en_36734052_36761863_1_1_1_1_1,00.html

Doesn’t sound like anyone is looking out for Americans…

[WhiskeyGirl]

From October of 2009, and 'analysis' of the failure.  AIG, no Goldman

http://www.newamerica.net/sites/newamerica.net/files/events/FinalAsiaArticle.pdf

An interesting read.

Imagine having all the answers in October 2009?  Maybe we could have prevented the AIG pass-through?

Imagine, if someone understood (like Barney) how shaky and how much fraud came from low quality mortgages and the American dream...years earlier...

[WhiskeyGirl]

WASHINGTON _ The use of credit-default swaps, or private, insurance-like contracts, exploded in recent years into a murky, $60 trillion worldwide market with little government scrutiny.

…

When it came to subprime mortgage securities, the swaps market morphed into a way for major banks to pass huge risks around like loaves of bread, especially in offshore deals that skirted the disclosure requirements of U.S. securities laws.

Swaps added a new twist to offshore deals called collateralized debt obligations, or CDOs, in which banks attracted foreign investors by offering high-yield structured securities backed by bundles of mostly investment-grade U.S. debt that often included subprime loans to borrowers with weak credit.

Beginning around 2005, some of these deals took on a different look…

More commonly, Goldman Sachs and other investment banks designed hybrid deals. In most of these, 80 percent or more of investors' money went into high-yield securities, just as before. The balance, however, was used to provide swap protection. As in the deals built entirely around a swap, the hybrid deal wouldn't buy the securities being insured, but would only track their performance, on which the bet was riding.

Investors got what they thought would be safe returns on mostly Triple-A rated investments, a premium from the swap buyer and a nice yield on the money they put up to cover the swap _ a handsome return, many may have thought. A default, however, could require investors to pay the other party the face value of the swap.

…

When the U.S. housing bubble burst, so did the underlying securities on many Cayman Islands deals. Losses on the CDOs and the swaps are estimated to be in the hundreds of billions of dollars, but few of the losers have surfaced publicly.

Who are these losers?  Are they getting Obama bucks?  Stimulus bucks?  Pork payments?

Is this why Obama keeps spending and borrowing?

More here – http://www.americanchronicle.com/articles/yb/139452333