Christmas Greetings from AIG and the Federal Reserve

This time of year is particularly a dangerous time for us taxpayers. It is a time when those in Washington can slip out bad news but, chances are less people will notice it. The reason for this is because everyone is running around for the Christmas holidays. Even most of the media empties out of this town for the next week or so. Not me. I am looking for the bad news leaked out. I think I found it in today's Washington Post. It concerns AIG and how it was able to get some of those nasty credit default swaps off it's books. Here are the money quotes:"American International Group retired $16 billion in credit default swaps, the contracts that almost caused the company's collapse, after buying the underlying securities with help from the Federal Reserve."

"The fund created by the Fed and AIG to protect the insurer's customers from losses has now purchased collateralized debt obligations with a face value of about $62.1 billion, the firm said in a statement."

"The business guaranteed more than $70 billion in securities created by pools of different kinds of debt, including sub prime mortgages, that plunged in value. The federal government committed $150 billion to bail out AIG and prevent losses at investment banks that bought protection on fixed-income securities from the insurer."

Whoa! AIG only guaranteed $70 billion in securities. But, we taxpayers gave them $85 billion and then another $65 billion in loans? What wrong with this picture?

Song for Citibank with the Paulson Subprime singers

From today's Washington Post:


"The Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. announced just before midnight Monday that they will protect Citigroup, one of the nation's largest banks, against potential losses on a $306 billion pool of troubled assets. "


How are we to account for this turn of events? The answer is in this video.

Eating the Bear

Last night I was on the Amtrak heading back to Washington D.C. reading the weekend Financial Times. There are a few articles about the Bear Sterns bailout. But, what struck me was the timeline one of the articles had. It traces the demise of some of these geniuses of Wall Street but, more importantly the amount of money we taxpayers have been pumping in to correct the mess so far:

Timeline

Jul 2007 Bear reports hedge fund losses of $1.6bn
Aug 5 Warren Spector quits as Bear co-president
Aug 10 Fed provides $38bn of liquidity to the market
Aug 17 Fed cuts discount rate by 50bp
Sep 11 Joe Lewis, a British billionaire, buys 7 per cent of Bear
Oct 4 Bear cuts 310 more jobs
Oct 29 Stan O'Neal ousted as head of Merrill Lynch
Nov 2 Bond insurers' troubles emerge
Nov 4 Chuck Prince quits as CEO of Citigroup
Dec 8 Joe Lewis raises Bear stake to 8 per cent
Dec 21 Bear reports Q3 loss of $859m
Jan 7 2008 Jimmy Cayne resigns as chief executive
Jan 21 Fed makes emergency 75bp interest rate cut
Mar 7 Fed injects $200bn into market
Mar 10 Bear shares start plunging
Mar 11 Fed delivers an additional $236bn rescue

Along with this money when you add the $156 billion from the "stimulus bill" you can see pretty soon we are talking about some real money that we fellow taxpayers are laying out because these masters of the universe of Wall Street never questioned the words "sub prime". And it's not over yet. File this under "Hola Suckers" taxpayers.

What does this mean?

"President Bush and congressional leaders moved closer to agreeing on a compromise economic rescue package yesterday, fending off fresh protests from both the right and the left as they rushed to respond to a cascading series of economic troubles and to head off a potential recession." -Washington Post

I was boarding the Amtrak train at Union Station in Washington yesterday. When I looked up and saw a rainbow in the late afternoon sun. Is it just a coincidence that this rainbow appears after the Federal Reserve lowers the interest rates. Speaking of pots of money at the end of the rainbow. Here is another money quote:
" As markets roiled from a sharp sell-off around the world and the Federal Reserve cut interest rates at home, Bush met with House and Senate leaders to work out a package of tax breaks for consumers and businesses. In an important concession to Democrats, Treasury Secretary Henry M. Paulson Jr. signaled that he is open to including breaks even for those who pay little to no income taxes. "
I just hope that the Democrats and Bush mean that they will make sure that this money they want to give to people "who pay little of no income tax" will be Americans and not illegal immigrants who will send this money off to Mexico and other countries instead of it being spent here in the United States for our economy.

Fear, greed and tears

"The Federal Reserve cut a short-term interest rate yesterday to try to keep problems in the housing and mortgage markets from dragging the nation into recession, but Wall Street judged the move as too timid and financial markets tanked. "-Washington Post

Only on Wall Street can good news be looked on as bad news because greed seems to know no bounds. Meanwhile:

"The chief executives for two of the nation's dominant mortgage-finance companies traveled to Wall Street yesterday and delivered competing words of regret for having to take painful steps to shore up their businesses.
The two government-chartered firms recently cut the dividends they pay shareholders and borrowed billions of dollars of relatively costly capital to stay in compliance with regulatory requirements and ride out the turmoil in the housing market.
"We wanted to dilute the common shareholders like we wanted to shoot ourselves in the head with a gun," Richard F. Syron, Freddie Mac chairman and chief executive, told a gathering of investment analysts.
"I wanted to cut off both my arms, and both my legs, and my head and my kidney," Fannie Mae chief executive Daniel H. Mudd said later in the day. "

TRANSLATION: We felt bad all the way to our second homes.