Geithnergate

[Winstonm]

FRBNY staff member James Bergin e-mailed several other FRBNY staff:

 

“I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals – too many counterparties, too many lawyers and advisors, too many people from AIG – to keep a determined Congress from the information.”

 

Concerning the bailout of AIG and how counterparties such as Goldman Sachs was paid 100% on the dollar by U.S. taxpayers. Timothy Geithner, current Secretary of the Treasury, was the head of the Federal Reserve Bank of New York (FRBNY) at the time.

[mike777]

FRBNY staff member James Bergin e-mailed several other FRBNY staff:

 

“I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals – too many counterparties, too many lawyers and advisors, too many people from AIG – to keep a determined Congress from the information.”

 

Concerning the bailout of AIG and how counterparties such as Goldman Sachs was paid 100% on the dollar by U.S. taxpayers. Timothy Geithner, current Secretary of the Treasury, was the head of the Federal Reserve Bank of New York (FRBNY) at the time.

ya not letting these guys fail or at least flounder in their waste was wrong.

 

See moral hazard.

 

:Moral hazard occurs when a party insulated from risk may behave differently than it would behave if it were fully exposed to the risk. In insurance, moral hazard that occurs without conscious or malicious action is called morale hazard."

 

 

 

 

OTOH I think the fed was correct to flood the banking system with liquidity. Granted this creates another issue but one issue at a time.

[Al_U_Card]

There were enough good economists and commentators describing the inflating of the housing bubble and the nefarious creation of securitized mortgage debt to indicate the flagrant need for regulation.

 

When the politicians bow to the power of the financial powers, they hand over their elected powers to individuals who have no one's interests at heart but their own.

 

Rothschild was correct.

[mike777]

There were enough good economists and commentators describing the inflating of the housing bubble and the nefarious creation of securitized mortgage debt to indicate the flagrant need for regulation.

 

When the politicians bow to the power of the financial powers, they hand over their elected powers to individuals who have no one's interests at heart but their own.

 

I disagree. Strongly.

[Al_U_Card]

Tech bubble, securitized mortgage debt, carbon credits....oh yeah, right, that one appears to have fallen through (but that 'green" economy is still nascent) but I am sure they will find something else soon. It is in their best interest to do so. Not so much ours.

[mike777]

Tech bubble, securitized mortgage debt, carbon credits....oh yeah, right, that one appears to have fallen through (but that 'green" economy is still nascent) but I am sure they will find something else soon. It is in their best interest to do so. Not so much ours.

What is a bubble and what proof do you have that one existed?

 

Example if prices rise is that a bubble?

 

Sec. debt has been around for decades and decades.

 

 

With all of that said you might be right but just saying so means nothing.

------------

 

 

If ok let me try another thought experiment approach:

1) Long term housing prices rise about 2% a year

2) for the last 5 years prices have risen about 5-10% a year

3) mtg credit standards have eroded

4) there has not been a recession for quite a while

5) insurance against defaults is cheap in fact it seems very cheap.(otoh many,most, think insurance at almost any level is too expensive)

6) in general no one thinks real estate prices will fall worldwide.

[pdmunro]

If I try to explain it in my own words, I think what happened is the following.

 

People on low incomes were given mortgages through agencies such as Freddie Mac and Fannie May.

 

Goldman Sachs bought "bundled mortgages" from Freddie and Fannie and onsold them to investors, advertising them as, say, AAA, returning, let us say, 10% per annum.

 

The investors who bought these products lost a lot of their money when the people who took out the mortgages (the mortgagers) couldn't make their repayments, house prices collapsed, and the houses, if they could be sold, fetched only say 60% of their original price.

 

At the same time, Goldman Sachs bought insurance policies (called Credit Default Swaps), against the possiblity that the mortgagers would default on their loan repayments. These CDS's operated on the "final fool" principle: they circulated through investment banks and hedge funds, with the financiers skimming off their percentages.

 

Goldman Sachs was a major beneficiary when the sizeable CDS's it had taken out with AIG were stumped up by the US taxpayer. The "final fool" was the US taxpayer.

 

In summary: The system of bundled mortgages, that Goldman Sachs was instrumental in setting up, collapsed, but Goldman Sachs emerged all the richer because (1) it had onsold its bundled mortgages to investors; and (2) it took out bets with AIG that the whole system would collapse, and when AIG lost the bets but couldn't pay up, the US taxpayer paid up instead.

 

This gave Goldman Sachs a $16 billion windfall to distribute amongst its executives.

[mike777]

If I try to explain it in my own words, I think what happened is the following.

 

People on low incomes were given mortgages through agencies such as Freddie Mac and Fannie May.

 

Goldman Sachs bought "bundled mortgages" from Freddie and Fannie and onsold them to investors, advertising them as, say, AAA, returning, let us say, 10% per annum. 

 

The investors who bought these products lost a lot of their money when the people who took out the mortgages (the mortgagers) couldn't make their repayments, house prices collapsed, and the houses, if they could be sold, fetched only say 60% of their original price.

 

At the same time, Goldman Sachs bought insurance policies (called Credit Default Swaps), against the possiblity that the mortgagers would default on their loan repayments.  These CDS's operated on the "final fool" principle: they circulated through investment banks and hedge funds, with the financiers skimming off their percentages.

 

Goldman Sachs was a major beneficiary when the sizeable CDS's it had taken out with AIG were stumped up by the US taxpayer.  The "final fool" was the US taxpayer.

 

In summary: The system of bundled mortgages, that Goldman Sachs was instrumental in setting up, collapsed, but Goldman Sachs emerged all the richer because (1) it had onsold its bundled mortgages to investors; and (2) it took out bets with AIG that the whole system would collapse, and when AIG lost the bets but couldn't pay up, the US taxpayer paid up instead.

 

This gave Goldman Sachs a $16 billion windfall to distribute amongst its executives.

NO

 

 

you basic premise is false, start over.

 

No

 

Your second premise is false, start over.

 

 

No

 

Your third premise is false, start over.

[mike777]

If I try to explain it in my own words, I think what happened is the following.

 

People on low incomes were given mortgages through agencies such as Freddie Mac and Fannie May.

 

Goldman Sachs bought "bundled mortgages" from Freddie and Fannie and onsold them to investors, advertising them as, say, AAA, returning, let us say, 10% per annum. 

 

The investors who bought these products lost a lot of their money when the people who took out the mortgages (the mortgagers) couldn't make their repayments, house prices collapsed, and the houses, if they could be sold, fetched only say 60% of their original price.

 

At the same time, Goldman Sachs bought insurance policies (called Credit Default Swaps), against the possiblity that the mortgagers would default on their loan repayments.  These CDS's operated on the "final fool" principle: they circulated through investment banks and hedge funds, with the financiers skimming off their percentages.

 

Goldman Sachs was a major beneficiary when the sizeable CDS's it had taken out with AIG were stumped up by the US taxpayer.  The "final fool" was the US taxpayer.

 

In summary: The system of bundled mortgages, that Goldman Sachs was instrumental in setting up, collapsed, but Goldman Sachs emerged all the richer because (1) it had onsold its bundled mortgages to investors; and (2) it took out bets with AIG that the whole system would collapse, and when AIG lost the bets but couldn't pay up, the US taxpayer paid up instead.

 

This gave Goldman Sachs a $16 billion windfall to distribute amongst its executives.

yes, the taxpayer bailed out GS, bailed out in the sense, the counterparty would not/could/might not, who knows, not pay in a timely fashion but the usa taxpayer did.

 

that is why I bought GS. I wanted to be an owner. Somehow you seem to think this is bad. I mean as an owner I want a windfall, I dont not want to buy companies that do not have windfalls.

 

Stop think about this,,,you only want to be an owner in companies that suck.

[Al_U_Card]

I only want to own companies that don't suck....the life out of the economy to store it in the hands of speculators and peddlers of influence.

 

I want to own companies that produce real, durable goods that improve my lifestyle and that of my co-owners, clients and workers.

 

I don't want to pretend that our products have value when they have only intrinsic value added to them, based on the hope that they will increase in value because gamblers are willing to play musical chairs with them in a less than zero sum game.

 

I want value for money and not money for indebtedness.

[Winstonm]

http://finance.yahoo.com/banking-budgeting...5&asset=&ccode=

[Al_U_Card]

"We're following the TARP crimes," he said.

 

Sounds like a plan. :)