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Wednesday, March 18, 2009

AIG Bonuses and Bailouts

There's been a lot of discussion about AIG paying top executives millions of dollars in bailouts, while receiving Federal bailout money. My attitude is "That again! Is it really worth writing an article about that!" It's been discussed so much that I feel obligated, even though I'm not making any new points.

A pro-State troll says:

These bonuses are part of their contract. AIG has an obligation to pay.

If AIG declared bankruptcy, then the bankruptcy judge has discretion to forbid the payment. The executives would become creditors in bankruptcy court just like everyone else.

AIG should be treated as a corporation in bankruptcy reorganization, even though it was bailed out. Contracts signed before the bankruptcy aren't necessarily enforceable.

These executives are brilliant leaders. We must pay them fair market value. Otherwise, they would switch jobs.

These executives are responbible for billions of dollars in losses.

In case you haven't noticed, the financial industry is a mess right now. Who's going to hire away these "brilliant" executives? What are these executives going to do? Get a job where they actually have to produce something useful?

Anybody who's eager to hire away those parasites deserves what they get.

We must bail out AIG, lest the financial system unravel!

If necessary, the government could provide bankruptcy financing. Instead of a bailout, the government could provide debtor-in-possesion financing to ensure an orderly bankruptcy.

In bankruptcy, it would be 100% public who was exactly receiving bailout money.

The "advantage" of a bailout is that there's no public disclosure. Suppose Goldman Sachs purchased $50B of credit default swap insurance from AIG. AIG receives $50B in bailout money, and then immediately uses that money to pay off Goldman Sachs. Goldman Sachs is the actual recipient of the bailout. When Goldman Sachs bought credit default swap insurance from AIG, they were also taking the risk that AIG itself would become insolvent.

In a true free market, when purchasing insurance, the buyer should ask "Is the insurer going to be bankrupted?" By bailout out AIG, the Federal Government says "When you buy insurance, you don't have any obligation to make sure that the insurer is solvent!" The bailout means that it doesn't pay to operate a business that isn't "too big to fail".

We must bail out the financial industry, lest there be hyperdeflation!

This is the Compound Interest Paradox. With debt-based fiat money, new money is created only when someone borrows. Only the principal is created and not the interest. If banks stop issuing new loans, then the house of cards starts crashing. Old loans are repaid, but no new loans are issued. There is a crisis, because the total amount of debt is far greater than the total money supply.

The solution is "Bail out the insiders!" rather than "Reform a fundamentally corrupt monetary system!"

Politicians are not saying "**** you! No more bailouts! We're letting you go broke!" This is evidence of their corruption. Instead, they are "negotiating" the terms of the next installment of the bailout. Politicians are confused about how gifts work. If A gives money to B, then A gets to make up the rules for how the money is spent, and not B. Also, it's the productive workers' money and not the politician's money. People pay the cost of the bailout via inflation which erodes their salary and savings.

The entire purpose of government is to loot and pillage. During an inflationary boom, insiders benefit because they get to print and spend new money. During a deflationary bust, insiders benefit because they qualify for a bailout. The bailout can be indirect, in the form of a Fed Funds Rate cut. In this case, the bust is severe enough to justify a direct bailout.

Government creates no new wealth when it prints and spends new money. By printing new money, the parasite class steals from the productive class.


thomasblair said...

This AIG bonus thing is a red herring. What questions aren't being asked because the media are busy sucking each other off with their self-righteous indignation? The sum of money itself is a pittance--a mere 1/12th of 1% of the money given just to AIG alone--compared with how much has been funneled to the financial industry.

What questions aren't being asked?

I have a feeling this national firestorm of anger over these bonuses means that the plan to distract people from what's really happening is working beautifully.

fritz said...

Its smoke and mirrors..A redirection. These f**ks have the public looking at where did a few million in bonuses go. Instead of, why are you printing and spending a couple of trillion?

The future of the federal reserve note is at stake. The future of our economy is at steak. Money is being stolen from all of us with each dollar printed. And most people are running around saying "I cant believe those guys got such big bonuses"

I think its time for me to start my snake oil business , I have been waiting for the right time!!


Hakuna Matata said...

On September 15, 2008 in a matter of minutes more than 500 bln USD (in deposits) changed hands, shifted both financial power and political momentum (Obama won, as he was backed by the boys which we don't see behind the Fed walls).

Skynews and other media suppressed, covered it up and later in September public attention was shifted by deception into "bailout" hype.
The story of AIG floated on the surface.

However, the academic paper from the Bank of International Settlements
can give us insight what was really happen and how the the recent biggest public wealth expropriation
have been executed.

Later.. "Hedge Funds May Get AIG Cash" published by WSJ recently, mention only Deutsche Bank AG.

Another deception from WSJ to shift attention of of street invetostor from the big boys behind the curtains of the Fed.

Caribbean and other hedge funds are not fools. They bought bets on falling house markets as they spotted the bubble and perverted fundamentals, and they bought it from Bank of NY Mellon, JP Morgan (and Merry Lynch) and in the same time they bought CDS against them from other sources.
AIG is only a middleman, and hedgers did not expose them with the bugger.

In the summmer 2008 the hedger's options exercised (Freddie and Fanny), then most likely the crooks from NY Mellon and JP Morgan defaulted on their obligations, so hedgers start withdrawing bonds and cash from US money market.

The Fed and gov faced a dilemma:
full collapse of the whole system, along with NY Mellon, JP Morgan and BOA, or to sacrifice some goats (Lehman Bros) and pay some money back via AIG.

Before that they trying pressing on Europe to low their banks (Deutsche Bank) and mounting political assault on Swiss, but it did not work as the Fed expected.

Now.. This is all Dr Devil's Fed you might say, it is known for expropriation of our grandpas gold, and secret gold price manipulations and ops from the Fort Knox dungeons. Besides, the Fed was spotted by shredding our hard earned cash at nights!

The Fed, ironically named "Reserve", along with FOMC, deliberately misleading name "Open Market" are nothing more than negotiating platform (by arbitraging) between the government and the private money.
Either calls to save the Fed or abolish the Fed is nothing more then deceptive flush from the big boys (private money).
The Fed is also acting as diplomat channel from them to the government, allowing to obscure this channel from the public. Thus, you can't save the Fed, it will be always another Fed as long current socio-economic model exist.
Abolishing or changing of the Fed means open confrontation between the government and private money, it can trigger a social revolution when either party appeal to the public for ultimate judgement.

Anonymous said...

Interesting read.

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