Financials rally product of an AIG-levereged looting scheme?

[solarbird]

Good evening; breaking news on a Sunday. Naked Capitalism is running with a story indicating that the much-touted major-bank profits in January and February came via a taxpayer looting scheme using AIG as an intermediary. (The guest writer's own hangout is Zero Hedge, to read more of their writing.) According to the story, AIG, knowing it would get further Fed bailout, unwound massive numbers of positions in January and February at intentionally huge losses, handing the assets off to banks at levels even lower than market. The banks then could sell the assets at market (or to the Fed or Treasury at an over-market valuation) as part of their bailout. Essentially, it's a money-laundering scheme.

The surprise here isn't that the banks, AIG, et al have found another way to loot - with co-operation from Treasury and the Fed, of course - the taxpayer. The surprise is going to be a couple of months of claimed profits followed by a rather unpleasant and sharp turn south in March, if these trades are now mostly unwound, as claimed. There have been rumblings about unpleasant surprises coming in banking; maybe this is one of them.

This report is whipping around the economic blogs like cocaine-fuled wildfire; it's pushed the story of GM CEO Rick Wagoner's resignation off the radar. Stock futures are down a bit over 1% late night; we'll see what response anyone might have tomorrow.

Comments

[bradhicks.livejournal.com]

I'm going to go along with the first commenter on that Naked Capitalism page: where's the surprise, or the outrage? We're not bailing out AIG because we love AIG. We're bailing out AIG to keep them from dragging the banks down with them. Which means that the faster they unwind their positions, no matter what it costs, the sooner we're done with AIG. These were suicide trades, for AIG; no wonder their division head quit in disgust at being criticized, when he was basically destroying his own job and his own company, on our behalf, and people complained he was getting paid for it.

And as for these deals being insanely (and fictitiously) profitable for the banks, well, d'uh. We've known for a long time that Bernanke, Geithner, Summers, and even Obama are in unanimous agreement that one minimum condition of this process is that under no circumstances must the banks take any losses on it.

[solarbird]

Yeah, well, fuck that guy. Seriously. He was "destroying his own job and his own company" only after he and his group had already destroyed his group, his company, and possibly, the banking sector. C.f. this rather cranky response to that letter over at Smirking Chimp, which goes into rather more detail.