Hedge Funds – What They Are, The Economic Collapse & How The Funds Are Getting Our Bailout Dollars

While the Polticians distract the American public with the Political theatre in Washington over the $165 Million in AIG bonuses, an even greater travesty, the theft of Billions of Taxpayer dollars, through the bailout program is going unnoticed.

Taxpayer money is being channelled through the AIG Bailout and into the pockets of the Millionaire Hedge Fund Managers that helped create the fraudlent “Real Estate Bubble” that has brought down the US economy. Yes, Hedge Fund Managers like Bernie Madoff and Allen Stanford. Billions.   

Imagine the outrage – if the Public is upset over $165 Million in bonuses – what might happen if Washington had to answer for the Billions being taken out the AIG back door and paid to the Millionaire Hedge Fund operators.

Is this being made possible by simple incompetence? The Government’s continued failure to properly supervise the expenditure of Billions of Taxpayer dollars or is this incomepetence by design – a design that allows the Washington Bureaucrats  ready cover and plenty of opportunity to claim ignorance and shift blame.

BACKGROUND

We all know that the Congress and White House have entered into 4 separate agreements to “bailout” AIG and “recapitalize” the company or replace the money it lost on worthless subprime mortgages and, in addition to the mortgages, money lost on “other products” designed to “repay” AIG’s Client’s or “Trading Partners” for losses they may have sustained on their “bad bets” in the “mortgage marketplace”. Some of these “Client’s” may not have lost any money at all, they may have simppoly “bet” on the collapse of the “housing industry”. That is right …. read on.  

The Congress promised the American people complete transparency in these transactions – even to the extent of placing everything on line, “like a checkbook”, so the entire country could see who was being paid, the what and when.  As we now know this promise was a hollow one. The current Administration’s staffers (Staffers in both the Federal Reserve and the Treasury Department) have appeared before Congress and refused to provide information identifying the who, what or where. AIG was equally uncooperative. News organizations, most notable FOX News, had to go to Federal Court and obtain a Court order to obtain what should of been “Public Information”. While the information disclosed so far is alarming, the investigating is far from complete. http://money.cnn.com/2009/03/04/news/aig.transparency.fortune/index.htm

Let me offer a quick primer on the language used in the articles below:

Hedge Fund: A hedge fund is an investment fund open to a limited range of investors that is permitted by regulators to undertake a wider range of activities than other investment funds. Hedge funds are typically open only to a limited range of professional or wealthy investors. This provides them with an exemption in many jurisdictions from regulations governing short selling, derivative contracts, leverage, fee structures and the liquidity of interests in the fund. The net asset value of a hedge fund can run into many billions of dollars, and this will usually be multiplied by leverage. Leverage – in addition to money invested into the fund by investors, a hedge fund will typically borrow money, with certain funds borrowing sums many times greater than the initial investment. If a hedge fund has borrowed $9 for every $1 received from investors, a loss of only 10% of the value of the investments of the hedge fund will wipe out 100% of the value of the investor’s stake in the fund, once the creditors have called in their loans. In September 1998, shortly before its collapse, Long Term Capital Management had $125 billion of assets on a base of $4 billion of investors’ money, a leverage of over 30 times. It also had off-balance sheet positions with a notional value of approximately $1 trillion. Hedge funds are exempt from regulation in the United States. Hedge Funds, first established in 1949. have never been subject to regulation in the US.   http://en.wikipedia.org/wiki/Hedge_fund  .

The most nortorious Hedge Fund Managers in the news today are Bernie Madoff http://www.telegraph.co.uk/finance/financetopics/bernard-madoff/3834483/Bernard-Madoff-fraud-Hedge-funds-need-closer-supervision-ex-SEC-boss-says.html 

and Allen Stanford, both of whom are currently under federal indictment. Stanford operated his own set of Hedge Funds and he also was the exclusive sales manager for a Hedge fund operated by the family of Vice President Biden. http://www.reuters.com/article/newsOne/idUSBNG36866620090224

THE GROWING SCANDAL

AIG Cash May Reach Hedge Fund’s Coffer – Update
3/18/2009

Wednesday, in a new twist to the ongoing saga of beleaguered American International Group, Inc. the Wall Street Journal said that a portion of the billions of dollars paid by the U.S. Government that provided a lifeline to AIG might, in fact, reach the hedge funds that ironically stand to gain by speculating on a fall in the housing market.

The report indicated that back in 2005, hedge funds identified trouble that would brew in the U.S. housing market in the long run. [TROUBLE? As is the fact that providing loans to people who could not repay them was not a sustainable business strategy]  In a bid to encash [make money] the same by going short against securities backed by mortgages to unworthy borrowers, the hedge funds signed up transactions with investment banks. [placed bets that the subprime market would collapse]

For their turn, investment banks such as Goldman Sachs Group Inc. and Deutsche Bank created and sold complex financial instruments to hedge funds that allowed hedge funds to bet that mortgage defaults would rise. The financial instruments were basically credit default swaps, similar to insurance that pays in the likelihood of a debt default.

Investment banks that sold those credit default swaps to the hedge funds wanted to remain unscathed in the eventuality of a down turn in housing markets. With a laser sharp accuracy, the investment banks were methodical in creating a perfectly legal way to stay in safe heaven.

The German banking major Deutsche’s securities division created a bouquet of offshore investment vehicles known as collateralized debt obligations or CDOs. The word “START” marked the names of those investment mediums, which stood for STAtic ResidenTial CDO. Deutsche neutralized its exposure to the speculation of hedge funds’ by purchasing swaps from START on the same securities its clients were betting against.

As per the Journal’s report, which claims to have reviewed the documents, START held assets from a series of failed lenders namely Bear Stearns, Countrywide Financial and New Century Financial who were part and parcel of the subprime crisis.

New York-based AIG, in 2005, became the scapegoat by offering to take a pie of the mortgage risks held by START. AIG’s derivatives arm consented to pay up to $1 billion under two of the START vehicles, if value of underlying assets deteriorated or the insurer’s own credit rating fell below a certain mark.  [So the Hedge Funds “bet” with the Investment Banks that subprime mortgages would collapse, the Banks “insured” their end of the bet with AIG – AIG lost the bet and now the American taxpayer “pays” AIG, AIG “pays” the Investment Banks and the Investment Banks Pay the Hedge Funds – so that is how the subprime mortgage scam worked – I want to know which Hedge Funds are being rewarded and who owns a piece of the action. Which members of Congress and the Adminstration are cashing in here – at Taxpayer Expense] 

In doing so, AIG was set to gain less than a penny each year for every dollar of protection it sold, or less than $10 million annually on the $1 billion in insurance. [Isn’t this an indication that the “real money” wsa being made in some other fashion?]

A close look at the transaction reveals that AIG was gambling on a strong housing market. When the housing market went downhill, Hedge Funds rang the cash counters of bank who in turn called on AIG for compensation.                             http://www.rttnews.com/Content/BreakingNews.aspx?Node=B1&Id=886860%20&Category=Breaking%20News

As per the reports, AIG paid about $800 million to START after its credit rating was cut. The funds are held in the escrow and will be used to pay off Deutsche’s swap contracts if mortgage defaults if the portfolio rises above a certain level. Deutsche may pass on some of the bucks to the hedge fund clients.

AIG, in case of a recovery in the housing market, is set to receive back the cash it transferred to START. With the assets of START to which AIG provided cover being downgraded to “junk” status from triple-A by Standard & Poor’s, the outcome cannot be predicted. [See the articles below – the possibility of the American Taxpayer being completely repayed by AIG is just about “zero”] 

The report, citing people familiar with the matter, revealed that the mortgage pool “Abacus”, insured by AIG Financial Products, created by Goldman, have common features with START CDOs. [The Hedge Funds placed their bet with Goldman – Goldman “insured the bet, we, the American Taxpayers, lost and we didn’t even get to cut the cards]   

These mortgage pools were also made up of credit-default swaps tied to individual mortgage securities. When the assets value deteriorated, AIG had to post collateral with Goldman. The report anticipates some of this money to reach hedge-fund clients of Goldman.

AIG and the government had paid $5.4 billion to Deutsche and $8.1 billion to Goldman under credit default swap contracts written by the insurer.

AIG had insured many of the assets linked to subprime mortgages. Following the collapse of high-risk mortgages, AIG had to place billions of dollars in collateral, mostly to the banks.

Thus, AIG had to sell its protection on securities backed by physical assets. The company also sold positions almost entirely backed by other financial bets.

The report, quoting a senior investment banker whose firm bought credit protection from the insurer, showed AIG as the single largest ultimate taker of risk in the subprime mortgage CDO space until 2006.

The irony is that the bail out money intended to limit foreclosures and fuel housing market may end up in the hands of those investors who had taken contra positions with respect to the housing prices and mortgage holders. [Individuals who bet on the collapse of the mortgage market or in some cases, individuals who actively undertook activities to promote a collapse in the mortgage market will not only be made whole but will also profit from their reprehensible behavior, all at the expense of the US Taxpayer]  

The report says that it is unclear as to how much government money might eventually flow to hedge-fund investors. The government has committed up to $173.3 billion to bail out AIG. Of that amount, AIG’s housing-related bets have cost U.S. taxpayers some $52 billion, the report suggested. [That number now excceees $125 Billion, with the Treasury and Congress having pledged an additional $75 Billion for a current total of $200 Billion committed to AIG’s bailout]

The hefty losses were the result of AIG moving out of its primary business which is selling standard insurance policies to businesses and individuals. Martin Weiss of Weiss Research, an investment consultant in Jupiter, Florida said, “AIG’s financial-products division went heavily into the business of speculation and its gambling debts are what taxpayers are paying off right now.”

http://www.rttnews.com/Content/BreakingNews.aspx?Node=B1&Id=886860%20&Category=Breaking%20News&pageNum=2674_5367_5480_2

So the money trail looks like this – As yet unidentified Hedge Fund Managers approach what the Government and AIG describe as “AIG Trading partners” – These trading partners, a group composed of other financial firms like Goldman Sachs, Deutsch  Bank, Societe Generale of France and Barclay’s Bank. The Hedge Funds “purchased” certain contracts related to the Hedge Funds Mortgage Business, those contracts were later “sold to” or “insured” by AIG. Specifically, the bailout dollars are traveling from the US taxpayer to the US Government, from the Government to AIG’s trading partners and through those trading partners to the Hedge Fund Managers.

Additional Articles:  Where is the transparency? http://money.cnn.com/2009/03/04/news/aig.transparency.fortune/index.htm , 

 http://www.msnbc.msn.com/id/29728732    “AIG likely won’t be able to pay taxpayers back. Ties to foreign partners siphoning off some of the $170 billion lent to it.  Pressure is mounting on the government to revise its bailout of AIG to ensure that taxpayers are repaid as much as possible of the $170 billion lent to the troubled insurer. Experts warn we shouldn’t expect to get much back. Mark Williams, a former Fed examiner and finance professor at Boston University, said the AIG wind-down inevitably will cost taxpayers money. And he thinks it will take much more money — perhaps an additional $200 billion [$400 Billion Total] — to finish winding down AIG’s financial dealings so its core businesses can be sold off.”No longer can we call it an investment,” he said. “We just have to call it what it is — and that’s sinking money in a hole.” http://www.msnbc.msn.com/id/29728732/page/2/

NEW YORK, March 15 (Reuters) – American International Group Inc disclosed on Sunday that U.S. and European banks have been among the biggest beneficiaries of the up to $180 billion U.S. taxpayer bailout of the insurer. [Who have, in turn, passed the money on to Hedge Funds]  http://www.reuters.com/article/fundsFundsNews/idUSN1546365820090315

Time to Unravel the Knot of Credit-Default Swaps :  Credit-default swaps are insurancelike contracts that Wall Street created in the early 1990s.  In recent years, these contracts became a haven for speculators who were doing nothing more than betting on whether a debt issuer would survive.  The $150 billion rescue of the American International Group, for example, came about because of swaps the insurer had written on mortgage securities. And the $100 billion taxpayer backstop handed to Bank of America on Jan. 16 had a good bit to do with soured credit-default swaps that the bank inherited when it acquired Merrill Lynch.               http://www.nytimes.com/2009/01/25/business/25gret.html?scp=1&sq=gretchen%20morgenson%20c.d.s.&st=cse                                                                                                     

I don’t support the payment of $165 Million in Bonus or Retention payments, however, I don’t want to dwell on that topic while the Congress shovels money in the front door of AIG to have Hedge Fund Managers sneak it out the back. For every dime of “bonus” paid by AIG the Hedge Funds are getting away with a $100 Bill. I want AIG to drop the dimes – but I also want Congress to ID the guys running of with the hundreds so we can get that money back too and while they are at it – I want Congress to shut that back door and lock it. It’s time to escort AIG to the Bankruptcy Court door steps.    

Contact your Senator and Congress Person and demand that the “true recipients” of the bailout cash be identified. Not one penny more for these Hedge Fund Managers.  http://www.usa.gov/Contact/Elected.shtml

The relationship of  $1 Billion Dollars to $1 Million Dollars is the same as a $100 bill to a dime.  Lets not only focus on the dimes while they make off with the hundreds by the fist full.  

By the way – when the Government talks Trillions instead of Billions, it’s the same.  A Billion is a dime to the Trillion being a $100 bill.  The Government acts like it’s spending dimes, but they’ll be collecting our $100 bills.

FUTURE POST: Government “overpays” AIG Trading Partners

AIG was a hedge fund attached to a stable insurer, says Bernanke

Federal Reserve chairman Ben Bernanke was widely quoted as criticising AIG in a Senate hearing yesterday. “I think if there’s a single episode in this entire 18 months that has made me more angry, I can’t think of one, than AIG,” he said, according to various press reports. He added that was angry about the way AIG had strayed from its core insurance business and took unmonitored and unnecessary risks through its financial products unit, describing AIG Financial Products as a hedge fund attached to a large and stable insurance company.         http://www.creditflux.com/Structured/2009-03-04/AIG-washedge-fund-attached-tostable-insurer-says-Bernanke

Update: Global Warming – Temperatures Constant Within Expected Variation – CO2 Level Is Irrelevant

The IPCC’S Failure In Predicting Temperature  Change During The First Decade Of The New Century  (2000 – 2009)

Syun Akasofu
International Arctic Research Center
University of Alaska Fairbanks
Fairbanks, AK 9977507340

The global average temperature stopped increasing after 2000 against the IPCC’s prediction of continued rapid increase. It is a plain fact and does not require any pretext. Their failure stems from the fact that the IPCC emphasized the greenhouse effect of CO2 by slighting the natural causes of temperature changes.

The changes of the global average temperature during the last century and the first decade of the present century can mostly be explained by two natural causes, a linear increase which began in about 1800 and the multi-decadal oscillation superposed on the linear increase.  There is not much need for introducing the CO2 effect in the temperature changes. The linear increase is the recovery (warming) from the Little Ice Age (LIA), which the earth experienced from about 1400 to 1800.

The halting of the temperature rise during the first decade of the present century can naturally be explained by the fact that the linear increase has been overwhelmed by the superposed multi-decadal oscillation which peaked in about 2000.*

This situation is very similar to the multi-decadal temperature decrease from 1940 to 1975 after the rise from 1910 to 1940 (in spite of the fact that CO2 increased rapidly after 1946); it was predicted at that time (50’s – 60’s) that a new “Big Ice Age” was on its way. [McAuley’s World – In fact, at that time, there were those who attributed the coming “Big Ice Age” to rising CO2 levels and yes, their were those who called for massive and immediate Government intervention to save the planet – the majority of whom had a hidden financial agenda in doing so]

The IPCC seems to imply that the halting is a temporary one.  However, they cannot give the reason.  Several recent trends, including the phase of the Pacific Decadal Oscillation (PDO), the halting of sea level increase, and the cooling of the Arctic Ocean, indicate that the halting is likely to be due to the multi-decadal change.

The high temperatures predicted by the IPCC in 2100 (+2~6°C) are simply an extension of the observed increase from 1975 to 2000, which was caused mainly by the multi-decadal oscillation.  The Global Climate Models (GCMs) are programmed to reproduce the observed increase from 1975 to 2000 in terms of the CO2 effect and to extend the reproduced curve to 2100.

It is advised that the IPCC recognize at least the failure of their prediction even during the first decade of the present century; a prediction is supposed to become less accurate for the longer future.

For details, see http://people.iarc.uaf.edu/~sakasofu

* The linear increase has a rate of ~ +0.5°C/100 years, while the multi-decadal oscillation has an amplitude of ~0.2°C and period of ~ 50-60 years, thus the change in 10 years is about ~ -0.07°C from the peak, while the linear change is about ~ +0.05°C.

https://i0.wp.com/rankexploits.com/musings/wp-content/uploads/2009/02/anomaliessince1980.jpg

For a larger image of the graph, place cursor over graph – when “snap shot” appears  click on “shap shot” or visit the “Watts Up With That” Link Below.  

Reposted From : Watts Up With That http://wattsupwiththat.com/2009/03/20/dr-syun-akasofu-on-ipccs-forecast-accuracy/

UPDATE Fom “Watts Up With That” : Originally I posted a graph from Roger Pielke Jr. via Lucia at the Blackboard because it was somewhat related and I wanted to give her some traffic. As luck would have it, few people followed the link to see what it was all about, preferring to question the graph in the context of the article above. So, I’ve replaced it with one from another article of hers that should not generate as many questions. Or will it? 😉 – Anthony (graph above)

AIG Cash Channelled To Hedge Fund Millionaires

While the Polticians distract the American public with the Political theatre in Washington over the $165 Million in AIG bonuses, an even greater travesty, the theft of Billions of Taxpayer dollars, through the bailout program is going unnoticed.

Taxpayer money is being channelled through the AIG Bailout and into the pockets of the Millionaire Hedge Fund Managers that helped create the fraudlent “Real Estate Bubble” that has brought down the US economy. Yes, Hedge Fund Managers like Bernie Madoff and Allen Stanford. Billions.   

Imagine the outrage – if the Public is upset over $165 Million in bonuses – what might happen if Washington had to answer for the Billions being taken out the AIG back door and paid to the Millionaire Hedge Fund operators.

Is this being made possible by simple incompetence? The Government’s continued failure to properly supervise the expenditure of Billions of Taxpayer dollars or is this incomepetence by design – a design that allows the Washington Bureaucrats  ready cover and plenty of opportunity to claim ignorance and shift blame.

BACKGROUND

We all know that the Congress and White House have entered into 4 separate agreements to “bailout” AIG and “recapitalize” the company or replace the money it lost on worthless subprime mortgages and, in addition to the mortgages, money lost on “other products” designed to “repay” AIG’s Client’s or “Trading Partners” for losses they may have sustained on their “bad bets” in the “mortgage marketplace”. Some of these “Client’s” may not have lost any money at all, they may have simppoly “bet” on the collapse of the “housing industry”. That is right …. read on.  

The Congress promised the American people complete transparency in these transactions – even to the extent of placing everything on line, “like a checkbook”, so the entire country could see who was being paid, the what and when.  As we now know this promise was a hollow one. The current Administration’s staffers (Staffers in both the Federal Reserve and the Treasury Department) have appeared before Congress and refused to provide information identifying the who, what or where. AIG was equally uncooperative. News organizations, most notable FOX News, had to go to Federal Court and obtain a Court order to obtain what should of been “Public Information”. While the information disclosed so far is alarming, the investigating is far from complete. http://money.cnn.com/2009/03/04/news/aig.transparency.fortune/index.htm

Let me offer a quick primer on the language used in the articles below:

Hedge Fund: A hedge fund is an investment fund open to a limited range of investors that is permitted by regulators to undertake a wider range of activities than other investment funds. Hedge funds are typically open only to a limited range of professional or wealthy investors. This provides them with an exemption in many jurisdictions from regulations governing short selling, derivative contracts, leverage, fee structures and the liquidity of interests in the fund. The net asset value of a hedge fund can run into many billions of dollars, and this will usually be multiplied by leverage. Leverage – in addition to money invested into the fund by investors, a hedge fund will typically borrow money, with certain funds borrowing sums many times greater than the initial investment. If a hedge fund has borrowed $9 for every $1 received from investors, a loss of only 10% of the value of the investments of the hedge fund will wipe out 100% of the value of the investor’s stake in the fund, once the creditors have called in their loans. In September 1998, shortly before its collapse, Long Term Capital Management had $125 billion of assets on a base of $4 billion of investors’ money, a leverage of over 30 times. It also had off-balance sheet positions with a notional value of approximately $1 trillion. Hedge funds are exempt from regulation in the United States. Hedge Funds, first established in 1949. have never been subject to regulation in the US.   http://en.wikipedia.org/wiki/Hedge_fund  .

The most nortorious Hedge Fund Managers in the news today are Bernie Madoff http://www.telegraph.co.uk/finance/financetopics/bernard-madoff/3834483/Bernard-Madoff-fraud-Hedge-funds-need-closer-supervision-ex-SEC-boss-says.html 

and Allen Stanford, both of whom are currently under federal indictment. Stanford operated his own set of Hedge Funds and he also was the exclusive sales manager for a Hedge fund operated by the family of Vice President Biden. http://www.reuters.com/article/newsOne/idUSBNG36866620090224

THE GROWING SCANDAL

AIG Cash May Reach Hedge Fund’s Coffer – Update
3/18/2009

Wednesday, in a new twist to the ongoing saga of beleaguered American International Group, Inc. the Wall Street Journal said that a portion of the billions of dollars paid by the U.S. Government that provided a lifeline to AIG might, in fact, reach the hedge funds that ironically stand to gain by speculating on a fall in the housing market.

The report indicated that back in 2005, hedge funds identified trouble that would brew in the U.S. housing market in the long run. [TROUBLE? As is the fact that providing loans to people who could not repay them was not a sustainable business strategy]  In a bid to encash [make money] the same by going short against securities backed by mortgages to unworthy borrowers, the hedge funds signed up transactions with investment banks. [placed bets that the subprime market would collapse]

For their turn, investment banks such as Goldman Sachs Group Inc. and Deutsche Bank created and sold complex financial instruments to hedge funds that allowed hedge funds to bet that mortgage defaults would rise. The financial instruments were basically credit default swaps, similar to insurance that pays in the likelihood of a debt default.

Investment banks that sold those credit default swaps to the hedge funds wanted to remain unscathed in the eventuality of a down turn in housing markets. With a laser sharp accuracy, the investment banks were methodical in creating a perfectly legal way to stay in safe heaven.

The German banking major Deutsche’s securities division created a bouquet of offshore investment vehicles known as collateralized debt obligations or CDOs. The word “START” marked the names of those investment mediums, which stood for STAtic ResidenTial CDO. Deutsche neutralized its exposure to the speculation of hedge funds’ by purchasing swaps from START on the same securities its clients were betting against.

As per the Journal’s report, which claims to have reviewed the documents, START held assets from a series of failed lenders namely Bear Stearns, Countrywide Financial and New Century Financial who were part and parcel of the subprime crisis.

New York-based AIG, in 2005, became the scapegoat by offering to take a pie of the mortgage risks held by START. AIG’s derivatives arm consented to pay up to $1 billion under two of the START vehicles, if value of underlying assets deteriorated or the insurer’s own credit rating fell below a certain mark.  [So the Hedge Funds “bet” with the Investment Banks that subprime mortgages would collapse, the Banks “insured” their end of the bet with AIG – AIG lost the bet and now the American taxpayer “pays” AIG, AIG “pays” the Investment Banks and the Investment Banks Pay the Hedge Funds – so that is how the subprime mortgage scam worked – I want to know which Hedge Funds are being rewarded and who owns a piece of the action. Which members of Congress and the Adminstration are cashing in here – at Taxpayer Expense] 

In doing so, AIG was set to gain less than a penny each year for every dollar of protection it sold, or less than $10 million annually on the $1 billion in insurance. [Isn’t this an indication that the “real money” wsa being made in some other fashion?]

A close look at the transaction reveals that AIG was gambling on a strong housing market. When the housing market went downhill, Hedge Funds rang the cash counters of bank who in turn called on AIG for compensation.                             http://www.rttnews.com/Content/BreakingNews.aspx?Node=B1&Id=886860%20&Category=Breaking%20News

As per the reports, AIG paid about $800 million to START after its credit rating was cut. The funds are held in the escrow and will be used to pay off Deutsche’s swap contracts if mortgage defaults if the portfolio rises above a certain level. Deutsche may pass on some of the bucks to the hedge fund clients.

AIG, in case of a recovery in the housing market, is set to receive back the cash it transferred to START. With the assets of START to which AIG provided cover being downgraded to “junk” status from triple-A by Standard & Poor’s, the outcome cannot be predicted. [See the articles below – the possibility of the American Taxpayer being completely repayed by AIG is just about “zero”] 

The report, citing people familiar with the matter, revealed that the mortgage pool “Abacus”, insured by AIG Financial Products, created by Goldman, have common features with START CDOs. [The Hedge Funds placed their bet with Goldman – Goldman “insured the bet, we, the American Taxpayers, lost and we didn’t even get to cut the cards]   

These mortgage pools were also made up of credit-default swaps tied to individual mortgage securities. When the assets value deteriorated, AIG had to post collateral with Goldman. The report anticipates some of this money to reach hedge-fund clients of Goldman.

AIG and the government had paid $5.4 billion to Deutsche and $8.1 billion to Goldman under credit default swap contracts written by the insurer.

AIG had insured many of the assets linked to subprime mortgages. Following the collapse of high-risk mortgages, AIG had to place billions of dollars in collateral, mostly to the banks.

Thus, AIG had to sell its protection on securities backed by physical assets. The company also sold positions almost entirely backed by other financial bets.

The report, quoting a senior investment banker whose firm bought credit protection from the insurer, showed AIG as the single largest ultimate taker of risk in the subprime mortgage CDO space until 2006.

The irony is that the bail out money intended to limit foreclosures and fuel housing market may end up in the hands of those investors who had taken contra positions with respect to the housing prices and mortgage holders. [Individuals who bet on the collapse of the mortgage market or in some cases, individuals who actively undertook activities to promote a collapse in the mortgage market will not only be made whole but will also profit from their reprehensible behavior, all at the expense of the US Taxpayer]  

The report says that it is unclear as to how much government money might eventually flow to hedge-fund investors. The government has committed up to $173.3 billion to bail out AIG. Of that amount, AIG’s housing-related bets have cost U.S. taxpayers some $52 billion, the report suggested. [That number now excceees $125 Billion, with the Treasury and Congress having pledged an additional $75 Billion for a current total of $200 Billion committed to AIG’s bailout]

The hefty losses were the result of AIG moving out of its primary business which is selling standard insurance policies to businesses and individuals. Martin Weiss of Weiss Research, an investment consultant in Jupiter, Florida said, “AIG’s financial-products division went heavily into the business of speculation and its gambling debts are what taxpayers are paying off right now.”

http://www.rttnews.com/Content/BreakingNews.aspx?Node=B1&Id=886860%20&Category=Breaking%20News&pageNum=2674_5367_5480_2

So the money trail looks like this – As yet unidentified Hedge Fund Managers approach what the Government and AIG describe as “AIG Trading partners” – These trading partners, a group composed of other financial firms like Goldman Sachs, Deutsch  Bank, Societe Generale of France and Barclay’s Bank. The Hedge Funds “purchased” certain contracts related to the Hedge Funds Mortgage Business, those contracts were later “sold to” or “insured” by AIG. Specifically, the bailout dollars are traveling from the US taxpayer to the US Government, from the Government to AIG’s trading partners and through those trading partners to the Hedge Fund Managers.

Additional Articles:  Where is the transparency? http://money.cnn.com/2009/03/04/news/aig.transparency.fortune/index.htm , 

 http://www.msnbc.msn.com/id/29728732    “AIG likely won’t be able to pay taxpayers back. Ties to foreign partners siphoning off some of the $170 billion lent to it.  Pressure is mounting on the government to revise its bailout of AIG to ensure that taxpayers are repaid as much as possible of the $170 billion lent to the troubled insurer. Experts warn we shouldn’t expect to get much back. Mark Williams, a former Fed examiner and finance professor at Boston University, said the AIG wind-down inevitably will cost taxpayers money. And he thinks it will take much more money — perhaps an additional $200 billion [$400 Billion Total] — to finish winding down AIG’s financial dealings so its core businesses can be sold off.”No longer can we call it an investment,” he said. “We just have to call it what it is — and that’s sinking money in a hole.” http://www.msnbc.msn.com/id/29728732/page/2/

NEW YORK, March 15 (Reuters) – American International Group Inc disclosed on Sunday that U.S. and European banks have been among the biggest beneficiaries of the up to $180 billion U.S. taxpayer bailout of the insurer. [Who have, in turn, passed the money on to Hedge Funds]  http://www.reuters.com/article/fundsFundsNews/idUSN1546365820090315

Time to Unravel the Knot of Credit-Default Swaps :  Credit-default swaps are insurancelike contracts that Wall Street created in the early 1990s.  In recent years, these contracts became a haven for speculators who were doing nothing more than betting on whether a debt issuer would survive.  The $150 billion rescue of the American International Group, for example, came about because of swaps the insurer had written on mortgage securities. And the $100 billion taxpayer backstop handed to Bank of America on Jan. 16 had a good bit to do with soured credit-default swaps that the bank inherited when it acquired Merrill Lynch.               http://www.nytimes.com/2009/01/25/business/25gret.html?scp=1&sq=gretchen%20morgenson%20c.d.s.&st=cse                                                                                                     

I don’t support the payment of $165 Million in Bonus or Retention payments, however, I don’t want to dwell on that topic while the Congress shovels money in the front door of AIG to have Hedge Fund Managers sneak it out the back. For every dime of “bonus” paid by AIG the Hedge Funds are getting away with a $100 Bill. I want AIG to drop the dimes – but I also want Congress to ID the guys running of with the hundreds so we can get that money back too and while they are at it – I want Congress to shut that back door and lock it. It’s time to escort AIG to the Bankruptcy Court door steps.    

Contact your Senator and Congress Person and demand that the “true recipients” of the bailout cash be identified. Not one penny more for these Hedge Fund Managers.  http://www.usa.gov/Contact/Elected.shtml

The relationship of  $1 Billion Dollars to $1 Million Dollars is the same as a $100 bill to a dime.  Lets not only focus on the dimes while they make off with the hundreds by the fist full.  

By the way – when the Government talks Trillions instead of Billions, it’s the same.  A Billion is a dime to the Trillion being a $100 bill.  The Government acts like it’s spending dimes, but they’ll be collecting our $100 bills.

FUTURE POST: Government “overpays” AIG Trading Partners

AIG was a hedge fund attached to a stable insurer, says Bernanke

Federal Reserve chairman Ben Bernanke was widely quoted as criticising AIG in a Senate hearing yesterday. “I think if there’s a single episode in this entire 18 months that has made me more angry, I can’t think of one, than AIG,” he said, according to various press reports. He added that was angry about the way AIG had strayed from its core insurance business and took unmonitored and unnecessary risks through its financial products unit, describing AIG Financial Products as a hedge fund attached to a large and stable insurance company.         http://www.creditflux.com/Structured/2009-03-04/AIG-washedge-fund-attached-tostable-insurer-says-Bernanke

Obama Budget Deficit Grows – Now 400% Bigger Than Bush Deficits – By MSNBC

Projected deficit threatens Obama’s plans

Auditors say budget would produce $9.3 trillion in red ink over next decade

Additional Spending Plans To Be Announced: Additional Bank Bailout Funds – Additional Auto Bailout Funds – Additional Health Care Spending – Deficit Could Grow an additional $6 Trillion Dollars Under Proposed Obama Plans

By the auditors’ calculation, Obama’s budget would generate deficits averaging almost $1 trillion a year of red ink over 2010-2019.

WASHINGTON – President Barack Obama’s budget would produce $9.3 trillion in deficits over the next decade, an eye-popping figure that should threaten his ambitious goals to overhaul health care and explore new energy sources, congressional auditors said. There is, however, no indication the Administration intends to slow it’s reckless spending spree.

The new Congressional Budget Office figures that emerged Friday offered a far more dire outlook for Obama’s budget than the new administration predicted just last month — a deficit $2.3 trillion worse. [As recently as September 2008 that amount was estimated at  $2.3 Trillion – “The CBO’s estimate for the cumulative deficit over the next 10 years is now $2.3 trillion.” http://money.cnn.com/2008/09/09/news/economy/cbo_budget_update/index.htm?cnn=yes ]                 

This is a prospect even the president’s own budget director called unsustainable.

In his White House run, Obama assailed the economic policies of his predecessor, President George W. Bush. But the dismal deficit figures, if they prove to be accurate, would amount to more than four times [400%] the deficits of Bush’s presidency and raise the prospect that Obama and his Democratic allies controlling Congress would have to consider raising taxes after the recession ends.

 Even Peter Orszag, White House budget chief, acknowledged that if the CBO projections prove accurate, Obama’s budget would produce deficits that could not be sustained.

 “Deficits in the, let’s say, 5 percent of GDP range would lead to rising debt-to-GDP ratios that would ultimately not be sustainable,” Orszag told reporters.

 By the auditors’ calculation, Obama’s budget would generate deficits averaging almost $1 trillion a year of red ink over 2010-2019.

http://www.msnbc.msn.com/id/29791927

In 2008 the deficit was $407 Billion – http://money.cnn.com/2008/09/09/news/economy/cbo_budget_update/index.htm?cnn=yes  Obama and the Democrats sees nothing wrong with a $9 Triilion dollar deficit. Whats the difference between $9 Trillion and $407 Billion. If one were to be leaving a tip for a waitress after having a cup of coffee, the $400 Billion would be a 40 cent tip, while the $9 Trillion would be a $9 tip. Think of trillions as $100 Bills and think of Billions as dimes.

The Obama Administration acts as if they are spending dimes – but they’ll need to collect our $100’s to pay for it. 

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