Citibank and AIG: What do you support?

[JackRiddler]

Further details on Geithner-Bernanke rescue plans are pending, but we've already seen them in action: bailouts as necessary to preserve institutions "too big to fail" and to prevent domino effect.

[Zynx]

1. Banks can't do Chapter 11. They are not even allowed to, but when you think

about it, that wouldn't make a whole lot of sense for them to do so.

[JackRiddler]

11. Okay, receivership for total liquidation it is.

And it's hard to know what these things are - are they really banks, are they hedge funds, are they gambling casinos?

[Junkdrawer]

2. This full AIG story is not known yet, but from what I see, RICO may very well...

be in the cards - if Justice is to be served.

[RUMMYisFROSTED]

3. Other: Temporary nationalization w/ prosecutions.

[ozu]

13. I agree. n/t

[KharmaTrain]

4. Which Is Your Favorite Poison...

Since I have no money or investments in either place, I support neither. I DO support my government and their efforts to fix an economy ruined by 8 years of the booosh kleptocracy.

The obvious only answer is to nationalize...separate the good assets from the toxic ones and sell those back to small banks...rebuilding the once strong local and regional banking system that is more responsive to their communities and able to get the credit flowing far faster than waiting for some fatally wounded megabank try to come back. Stockholders will take a bath and hopefully learn to scrutinize closer in the future...and those who abused laws and the public trust should be investigated and prosecuted.

Geitner's either gotta get tough on Wall Street or President Obama needs to put someone like a Robert Reich in there who can.

[Spoon]

8. Robert Reich is not a bad choice, but I'd rather see someone

like Obama's Economic Recovery Advisory Board Chairman Paul Volcker - who was very much against the repeal of Glass-Steagall Act, which got us into this mess in the first place. Mad experience, and his morals appear to be in the right place.

Regardless, Geitner has to go, like yesterday.

http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html

[ejpoeta]

5. i think this too big to fail crap is bs. they gambled and lost. they should

go under. If they insist on not doing that, then nationalization and get rid of everyone involved. The perpetrators should not financially benefit from any rescuing. If we are saving the companies because of the customers, then the customers will be saved by nationalization. And there should be prosecutions.

[BluePatriot21]

6. Why dont they just do what they did

to World Trade Tower 7 and blow up the buildings of the businesses that failed? It worked then it should work now.

[readmoreoften]

7. Prosecution.

To stop the others.

[stray cat]

9. I really don't know the outcome of any of the alternatives but I hope someone does

[PRETZEL]

10. Some form of restructuring,

these are international organizations.

If the international community isn't going to participate, break them out into national/international segments and let us take care of our part, and have those countries outside the US take care of their part.

[Alcibiades]

12. let it all fail + prosecution

I understand why they are trying to bail out the players who are "too big to fail": unfortunately, it just won't work. They will spend trillions and have to nationalize them all in the end anyway.

[annabanana]

16. If they are "too big to fail" They are too big to exist.

No private concern should ever be so large that it's failure jeopardizes that whole Country.

[Alcibiades]

17. Communist!

Of course, it's not just the size of the institution, but what you do with it. When we have large insurers acting like hedge funds, what did everyone think was going to happen?

[Zynx]

19. There's a difference between "letting it fail" and nationalizing.

Nationalizing isn't just letting the institution go bust and letting the market sort it out. It's taking it over in an ordered way. Letting an institution fail and nationalizing are not the same thing.

[Alcibiades]

24. Right

The current strategy is to write a blank check without true nationalization, which winds us up with the worst of all possible worlds. I am suggesting that they will wind up nationalizing them in the end anyway (when the blank check value becomes some multiple of market cap), so we might as well wait until they are worthless first.

[MercutioATC]

14. Break 'em up, sell 'em off. RICO optional.

[leveymg]

15. Citi is a Saudi-controlled zombie, AIG is a Chinese mortgage derivatives and credit default issuer

Both institutions essentially operated to exploit and crash the American economy.

[JackRiddler]

18. Actually AIG's biggest counterparty is Goldman Sachs.

And I believe Saudis hold less than 10 percent of Citigroup shares. I think you're exaggerating the "nasty foreigners" element.

The big question is not even the Citi and AIG shareholders - chump change, less than 10 billion dollars - but the endless mountains of derivatives written by AIG and Citi management with counterparties all over the place (Goldman, banks, hedgefunds, Europe, Asia, the works). They in turn relied on credit-default swaps to lower their own reserve requirements and bet more elsewhere, and their bets went bad, too. It's a huge cluster fuck of obligations stemming from many bad runs at the casino.

That's what the government has actually been covering - the obligations to counterparties. It's not AIG they're keeping afloat, but the counterparties. Again, the biggest one being friggin' Goldman Sachs, a.k.a. Government Sachs.

And back of it all is the reality that if foreign counterparties end up screwed, they might stop buying T-bills!

All that being said: the system was a fraud, and taxpayers can't possibly cover for this shit forever. All actors in the derivatives system made irresponsible bets. Many engaged in outright fraud and must be punished. The conflicting paper obligations are many times greater than the value of all underlying assets and cannot possibly all be honored.

Let the paper crash! Use the taxpayer funds to set up a new, separate credit system that provides capital for energy and transport conversion and refinancing offers to mortgage holders, etc. (Yes: Print money if you have to, if no one wants the T-bills, but make sure it's going to finance energy and transport conversion.) Write down debts generously all around.

NATIONAL BANK. NEW DEAL.

[leveymg]

29. We essentially agree about the nature of the problem and solutions

There's a difference in how much stress I put on the extra-territorial control of the key institutions involved in the crash. Goldman may have been the largest counter-party, but here's a list of the other big banks, and MOST are non-U.S.:

(Source: WSJ research):
Goldman Sachs
Deutsche Bank
Merrill Lynch
Société Générale
Calyon
Barclays
Rabobank
Danske
HSBC
Royal Bank of Scotland
Banco Santander
Morgan Stanley
Wachovia
Bank of America
Lloyds Banking Group

http://johnbatchelorshow.com/jb/2009/03/aig-conspiracy-...

It's not just the European banks - AIG and HSBC are Hong Kong (Chinese) investment vehicles. This payoff of foreign Credit Default Swaps holders is extortion money to prevent a run on the Dollar by way of a threatened huge sell-off of treasuries, moneymarket funds, and other Dollar-denominated holdings.

We're in a position where our foreign debt is so huge that China and a half dozen other big sovereign wealth funds could destroy the US currency and economy. Of course, they would destroy themselves in the process. It's the private jackals, the hedge funds, that worry me more. Some sharp operator with a big stash of options and insiders knowledge of the secondary markets for treasuries and currency could engineer another ruinous fail in the Repo market, setting off a Sum of All Fears type economic war, and think they could come out owning the world.

[JackRiddler]

30. I see what you're saying but "foreign" actually means "global"...

and it's a system that the US government (steered by a banking lobby) very much imposed on the world.

Seriously, I think this nuance matters: to speak of "extortion" by one side for expecting their contractual payments, when it has so manifestly been a mutual system for decades, with the advantage to the US, skews it. Who's been posing threats to everyone over everything?

Anyway, it looks like we agree rougly on the necessary measures. Unless we can come up with another planet as collateral (and sadly we cannot rule that out as an idea our imperial planners would like to implement, so beware sudden calls to new wars), AIG's counterparties cannot be paid at face value and that's just reality. Gamblers lost.

In other words, "let it crash" isn't even the half of it: it has crashed. Stop pretending it isn't and use the tax money US is giving away to bankers and their counterparties to instead create new public-sector banking entities unburdened by debt and dedicated to the necessary energy, transport and economic conversion to a sustainable system. And if there's a shortfall in T-bills as a result, cover it with crisp new dollar notes and be conciliatory as hell to the foreign nations in offering a new common way forward for the world, a way that is no longer this high finance capitalist scam.

Invite the other governments to join in the game because we all need a new game.

Otherwise:

There's a difference in how much stress I put on the extra-territorial control of the key institutions involved in the crash. Goldman may have been the largest counter-party, but here's a list of the other big banks, and MOST are non-U.S.:

As one might expect after 30 years of huge US trade and federal deficits. We receive the world's production surplus, we give them dollars, and US offers them T-bills (to pay for US wars). And they play by the rules of this game. And at the same time the USG and US economists demand they adopt all ways American, and many of them do. And then Wall Street comes along with all these exotic derivatives fraudulently labeled AAA, and they buy that crap because they're greedy suckers and anyway, they have to do something with all the dollars they have. And that crap is contracts, including the insane sums of CDS bets by third-parties. And then these obligations come due when the system finally contracts (because, o deadly miracle, housing prices don't go up forever!).

The CDS contracts should have never been issued, of course, and that's whose fault? Ultimately the lack of regulation, which goes back to the (mainly US) banking lobby takeover of Congress and the Executive and SEC. And also the ratings agencies for having given the AAA imprimatur, central to the scam.

And at the same time all of this is being steered by players in a class that is global (not "foreign").

It's not just the European banks - AIG and HSBC are Hong Kong (Chinese) investment vehicles. This payoff of foreign Credit Default Swaps holders is extortion money to prevent a run on the Dollar by way of a threatened huge sell-off of treasuries, moneymarket funds, and other Dollar-denominated holdings.

Actually, that works both ways. I more than quibble with this language. The extortion is being practiced by the richest few against the populations of all of these countries. The CDS buyers were aggressively recruited by the CDS issuers. The issuers (like AIG) were well aware they were writing CDS contracts with notional payoffs in the trillions on underlying assets in the low billions. And the buyers were also aware of it, but kept buying, and used CDS contracts as hedges to circumvent reserve requirements. See what I mean, when it's total wild west, you can't call that "extortion."

CDS holders are just asking for their due under the rules that Washington and Wall Street established, although this is IMPOSSIBLE. And they're the ones who also fear extortion, since a dollar devaluation cuts into THEIR savings.

Dollar devaluation may be the only way out of the US debt.

We're in a position where our foreign debt is so huge that China and a half dozen other big sovereign wealth funds could destroy the US currency and economy. Of course, they would destroy themselves in the process.

Right. Or they could convert their own dollar holdings to a new BRIC-EU basket currency, and who could blame them?

It's the private jackals, the hedge funds, that worry me more. Some sharp operator with a big stash of options and insiders knowledge of the secondary markets for treasuries and currency could engineer another ruinous fail in the Repo market, setting off a Sum of All Fears type economic war, and think they could come out owning the world.

Understand what you're saying but seriously: It's the situation in Washington and other capitals that should worry, the political obeisance to banks, because that's where the difference can be made. Politicians need to learn very fast or be replaced, and we don't have a non-banking party to vote for. (You want frightening? The Republicans are sooner or later going to pretend they are the anti-banking party, because that's all they have left. What if they can ride that back into power?)

.

[leveymg]

35. There is the tendency to point fingers. "It was that guy, over there; my partner, but he's foreign"

Case in point: A good article yesterday at, of all places, ABC News "Good Morning America"(GMA): http:abcnews.go.com/Business/Story?id=7045889&page=2

In a 21-page memo marked "strictly confidential" and obtained by ABC News, AIG pleaded for an additional $30 billion in federal aid last month by warning the Treasury Department that the "failure of AIG would cause turmoil in the U.S. economy and global markets and have multiple and potentially catastrophic unforeseen consequences."

Sir Alan Sugar, often referred to as Britain's Donald Trump, told "GMA" that you can't blame London for the AIG problems.

"It may have started here, but it's an American company," Sugar said. "It just happened to be their place where plots were threaded."

Sugar said that British Prime Minister Gordon Brown -- a "good friend of mine," he said -- "secretly blames the American businesses, banks that Europe looks up to."

Sugar described the American fiscal atmosphere before the crisis as "over enthusiasms in business, greed. You maxed out over there, as you say."

"You went mad, financial Disney World, slot machine in Vegas and every time you pulled a lever someone won, and it usually was a bank executive."

You're right about that, and it has long been so. Hitler got a big chunk of his finance from Wall Street. Then, units in the World War Two Luftwaffa painted Mickey Mouse as a mascot on their warplanes. Global, it is.

[JackRiddler]

37. This London unit was like a suicide bomb strapped to an otherwise rational company.

There ought to be a law against insurance companies holding investment bank units. Why isn't there?

Oh.

There was, and then the bankers paid off Democrats and Republicans alike to repeal it. And the most predictable things in the world happened.

[European Socialist]

20. The current policy of controlled collapse is no good. If we made ...

it through 911 and Katrina, we should be able to survive a Citi/AIG meltdown

[defendandprotect]

22. We made it thru 9/11 and Katrina . . . ??? No we didn't . . .!!!

9/11 MIHOP was used to take us into Iraq and Afghanistan and bankrupting the Treasury ---

45,000 private conractors in Iraq! A Taj Mahal of a US Embassy --

Not to mention destruction of Iraq --- 200,000+ dead -- how many refugees....???

Katrina -- we may have survived . . . how well did residents survive?

How much of the money has been stolen -- ?

[European Socialist]

33. Good points--I'm just saying the USA can take a hit--especially...

with Obama as president.

[defendandprotect]

34. Rather than surviving catastrophe, let's think in terms of progress . . .

and get back to helping victims of Katrina -- etal.

Bush sure created a lot of new victims!!

Like your "European Socialist" --- are you European or just in sympathy?

[European Socialist]

36. I'm not European, but heard John McCain use the term...

European Socialist as an insult. I thought that's a very good description of my political views, and how can you be against a people that have created such a high standard of living for all their citizens.

[defendandprotect]

21. Not clear to me which choice would be nationalizing, permanently . . .

keep on workers -- and break up monopolies ---

NO re-privatization!

And PROSECUTIONS . . . . including outing all of those in Congress who

supported overturning New Deal and regulation of capitalism.

[JackRiddler]

23. You're right, somehow I missed that option.

You mean buy all shares in these companies and keep them permanently under the same name (at least at first), I guess. I should have included it, since that's what people normally mean by "nationalization." Sorry!

My answer is: not for that. Let them fail completely, sell off whatever can still be sold to pay bondholders first and CDS bettors never, round up fraudsters. That would mean many people

It should not be tragic about the employees, the financial sector is ridiculously oversized and parasitic. The point is to see them employed again for enterprises that do something useful elsewhere.

The distorted way labor and capital are allocated is the root of the problem. Let the old structures fail by the market, as their ideology holds. Do not prop them up!

Open a national bank to finance startups and conversions of old companies to the alternative energy and transport industries, environmental clean up, infrastructural repair, and other new enterprises that will employ people doing things that work. Start supporting the credit unions, which have not failed during this crisis, as local sources of capital for individuals and small businesses.

.

[defendandprotect]

25. You don't have to keep the name . . . just the workers . . . .

For instance, take over the auto plants -- let management go --

and put workers to making electric cars and redoing gas-guzzlers

turning them into hybrids???


The problem is capitalism, itself --- a ridiculous King-of-the-Hill System.

Capitalism was created to move a nation's wealth and assets from the many to the few.

UNREGULATED capitalism is merely organized crime!


In bailouts, we have welfare for the rich ---

free enterprise for the workers being laid off!

$8.6 TRILLION in bail outs --- with $2-3 TRILLION more being asked for.


Most importantly, bail out home owners going under --- restructure the mortgages.

Start prosecutions against bankers for reckless investments and reckless lending

schemes---!!!

[defendandprotect]

26. You don't have to keep the name . . . just the workers . . . .

For instance, take over the auto plants -- let management go --

and put workers to making electric cars and redoing gas-guzzlers

turning them into hybrids???


The problem is capitalism, itself --- a ridiculous King-of-the-Hill System.

Capitalism was created to move a nation's wealth and assets from the many to the few.

UNREGULATED capitalism is merely organized crime!


In bailouts, we have welfare for the rich ---

free enterprise for the workers being laid off!

$8.6 TRILLION in bail outs --- with $2-3 TRILLION more being asked for.


Most importantly, bail out home owners going under --- restructure the mortgages.

Start prosecutions against bankers for reckless investments and reckless lending

schemes---!!!

[scarletwoman]

27. k&r for an excellent thread. Oh, and I voted "let them all fail". (nt)

[JackRiddler]

32. Thanks & you're the greatest scarletwoman!

[Mike 03]

28. This is the first really intelligent OP on this issue I've seen in a long time, so thanks for that.

AIG and CITI are different.

AIG cannot fail.

CITI can.

Thank you for this poll and post. I'm glad somebody is actually thinking about what is going on here. Many people here don't even know that Citi and AIG do different things, as corporations. It's amazing.

[JackRiddler]

31. Thank you, kind Mike 03.

AIG and CITI are different, but have an important similarity.

Both have failed, and obligations to their counterparties cannot be covered. Not by the Federation of Planets, let alone the US Treasury.

So "biting the bullet" is exactly what we'll do. The bailouts seem necessary, but they are denial. The patient of financial capitalism is already dead. We have to be open about this and figure out new cooperative ways to move forward out of the ruins, in concert with other countries. No more fooling ourselves is the first step.

Thanks again.