Where Did the Money Go?

All of it. From the real estate bubble, to AIG.

But with AIG, the part we're dealing with is little more than a pass through at this point. Is the money we're giving AIG being used to make good on credit-default swaps, or de facto insurance policies AIG had with various banks and financial institutions? If that's the case, then why are the banks and mortgage lenders still failing? AIG was insuring the toxic assets. So who are the counter-parties? Who's getting the money. Seems to be a big secret. What about the banks? Where did all the money go? The companies that sold us stock for our 401k's... where did the money go?

Nobody has it, except for a few shrewd investors who sold all of their holdings before the markets started to tank.

how does money "evaporate"?

It was paper profit; artificially high valuation for securities and property. The only way to turn it into real money is to sell it to some sucker when the market is at its peak.

I have ten comic books. You have five toy cars. And our very rich friend Billy doesn't have either. Suppose Billy says, "I will pay you a million dollars for each comic book you sell me." Each of my comic books is now worth a million dollars. Suppose I am willing to trade you two comic books for your toy car. Your toy car is now worth two million dollars. I am worth ten million dollars, as are you. So long as I know Billy is good for the million-bucks-per-comic book, I would feel comfortable telling Joe down the street that I would happily buy his GI Joe action figure for three million dollars. Joe sees this and thinks of selling me his action figure for three million dollars. So I take his GI Joe and give him three comic books. Joe then decides to take the comic books down to the local store to buy three million dollars worth of candy. Realizing that his three million dollars in assets aren't any good unless they're liquidated and turned into cash, he goes to Billy. As it turns out, Billy is not rich; he is a liar and I am gullible. Joe's three million dollars disappear as soon as I find that out. So does your ten million dollars. So does my seven million. Our assets are worth far less now than they were when we thought Billy was willing to back them with cash. Our millions have evaporated.

In the real world, money evaporates because like in our neighborhood above, money does not exist with value except by common consensus that it does. When it turns out that one of the things backing money is not valuable, value is lost into the aether.

Comic books have real value. So do GI Joe figures. And so do toy cars.

I have no idea how or why Credit Default Swaps were ever considered to be of monetary value.

But other than that, what an excellent analogy for considering this whole economic distress situation. :toast:

worth of mortgages in CDO's and buys a policy from AIG that says it will pay off $1B if they default. Market goes screwy, no one is buying and mark to market says Citi has to write that down to 500,000K.

They've loaned out 30 to 1 on "assets" - so now they need cash to cover their outstanding loans - $15B that they went to Uncle Sam for and withdrew from TARP account. FDIC doesn't step in and take them over, they're breathing another couple days.

Meanwhile, they hit up AIG and say "we've got a claim" and AIG has to pony up the $500,000,000 (or maybe entire $1B depending on contract). They're still broke, so they sell some portion of themselves to Uncle Sam to get the cash to pay Citi.

I think the question is - what has Citi done with the money and why are they (and rest of banks) still in so much 'trouble' when AIG has been paying off all these billions? Weren't we told that we had to take over AIG because they were underpinning the entire financial sector?

That's $15-16B in real money that didn't just disappear - unlike the paper profits based on stock prices. So where is all this money gone to? (TARP, other Fed Reserve programs that we don't know much about, AIG bailouts)

my guess is that a WHOLE lot of it made its way to the Caymans, and is patiently waiting there for the wizards of wall street to claim it..

The clever ones will wait a while, until the furor dies down (and it WILL..trust me), and they will start to "move" to other things, and places, and retire...

Much of the money was just numbers in spreadsheets.

When I move money from my accounting spreadsheets, I have to enter a damn good reason... and it's reviewed and approved on multiple levels.

That's where accounting completely loses touch with reality for me.

Absolute. Black and red. When it isn't, there must be a reason.

"Whomever the recipients are, they should be investigated for their roles in the crash and, to the extent possible, be made to pay for the bailouts."

Seems to me there's a lot of double-dipping going on. Banks and those who insured the toxic loans are being given money to fill the gaps, but they are still looking to get that same money from people. How far-reaching is the bailout? Does it extend to those who are in one of these toxic loans and barely hanging on by the skin of their teeth? If AIG is paying off on insurance claims to these banks, and this is the reason they are failing, then why the need for the US to give the banks more money on top of their insurance claim payoff?

and represented only a numbers game played by a bunch of smart guys to increase paper profit that existed only in the wildest dreams of the avaricious.

I'd liken it to value depreciation, but it's really not all that similar. This whole situation seems more like just taking your currency and throwing it into a flaming pit. It's just gone.

Where is the explanation?

Well, I mean, there was fraud, but that's unrelated to the problem. The basic problem is that everyone was operating under the assumption that certain mortgage-backed securities were valuable, when in fact they were incredibly risky, since they were based on subprime loans that were unlikely to be repaid. When it turned out that those securities were worthless, all the value that was tied to them disappeared, since that value actually never existed.

A first year MBA student could have told us that these investments were worthless. Some of us who just happened to refinance during the time, and were offered "stated income" based loans, knew full well there was a problem. The talk of the real estate bubble bursting began long before many of these loans were written.

If I buy a stock, and it turns out the company had invested heavily in an investment portfolio that had purchased credit default swaps for mortgage-backed securities that were falsely rated AAA, it is not my fault, nor is it the company's fault, nor is it really the investment portfolio's fault. The fault is in the credit rating agency that failed to consider the systemic risk of subprime mortgages; nobody beyond them had any realistic way of knowing which securities were valuable and which were not.

The people orchestrating this fiasco knew full well, and this is what we are talking about.

the credit default swap contracts.

And there's nothing to show for it.

:evilgrin:

Dark Pools of Liquidity that we aren't hearing enough about.

snip

Goldman Sachs will today launch a "dark pool" equities platform in Hong Kong, the latest sign of rising competition in Asia between promoters of off-exchange block- trading facilities.

The bank's trading platform, known as Sigma X, has grown into a significant supplier of liquidity in the US, where it was launched in 2005. It also operates in Europe.

The development of dark pools in Asian markets has been slow by comparison, although several platforms have recently been launched in Hong Kong as a result of the city's more liberal structural and regulatory environment.

Dark pools allow the anonymous trading of large blocks of shares away from the "public order book" on an exchange or alternative trading platform. Prices are only made public after trades have been matched.


http://www.ft.com/cms/s/0/e4253cf4-06ca-11de-ab0f-000077b07658.html

It turns out that "money" is more than mere cash -- which is merely one kind of IOU. :shrug:

we have a winner!!!

:kick:

All that money has been funneled to the wealthy.

Things can loose value - like land, or dollar deflation....

Someone upthread said it too... it's sitting offshore, waiting for the next scam.

"Money has been funneled to the wealthy" does not really hold water, considering that the wealthy have lost the most in this crisis. The only reason it seems they have not is that they have so much money a lost million or two doesn't hurt their standard of living.

For every transaction - someone sells and someone buys. The Dollars are transfered.

And what data shows the wealthy have lost the most? I am not wealthy and I lost 30-45 percent in my portfolio.

And the truly wealthy have offshore accounts that can't be touched by this.

1. Dollars are only one of many types of asset. They are not backed by anything in the real world. They are like stock certificates, or like credit securities. They gain and lose value according to what the market consensus of their value is.

2. Moreover, many transactions do not directly involve dollars. Most, in fact, do not. Rather, they involve credit, which is only the possibility of dollars. A man who has a billion dollars in assets does not actually possess a billion dollars; he possesses assets that the market agrees may be exchanged for a billion dollars. If it turns out that the market suddenly decides that his assets are only worth half as much, he is now worth only five hundred million dollars. The other half-billion has simply disappeared. Nobody else "has it."

Yes most money is tabulated in 'statements' as to what you have. You are basically transferring $ amounts in transactions. That is money that cannot be
destroyed.

But when you talk about the 'value' of an asset - that does indeed change and that 'value' can evaporate. And one only loses that value when that
asset is Sold.

when that asset is used as collateral for a loan, for instance- and it loses value, the bank calls in the loan.

been some very wealthy investors that "cashed out" at the right time, before the bust--and actually realized incredible profits when they sold their CDSs for cash at wonderfully inflated prices. But, greed being what it is, I'll bet many of the wealthy that were playing this game ended up stuck with a lot of worthless paper. Unfortunately, much of that worthless paper ended up not in the hands of wealthy investors, but on te balance sheets of big greedy banks that were thrilled at the new way they had invented to make money. And of course, it is these institutions that we the taxpayers are bailing out today.

over 90% of the rich own this country

and we are just tent people living on their land

soon we will be told we must vacate the country

I'm waiting for Bernanke to make the announcement
and Pelosi to shake her bobble head and say YES

those tent people and poor are such a eye sore

on certain assets, like mortgages, with the assumption that values would continue to go up,
so the only money changing hands would be fees for the policies.

When values crashed and the defaults started, those insurance payments came due. Suddenly real
money needed to be paid on instruments that were based on "market" values.

Had the insurance policies been priced correctly in the first place, fewer would have been sold,
and this mess would not be quite so large.

How is it that insurance companies can insure things without having the money to back it up?

And never were. Not under Clinton, not under Bush, or anyone before them.

All that deregulation on top of the things that never were, but should have been regulated.

don't worry- the republicans aren't hoarding it all.

There were two main reasons for AIG & banks to fail.
First, the (bundled) mortgage backed securities - the world wide investors liked this b/c it was safe and yeilded a higher rate (than the federal reserve was willing to give on safe bonds) so they went wild for them. When there was no more REAL mortages to buy, the suppliers got creative and started giving mortgages to anyone with a pulse - so the world wide investors were buying nothing. The money went to the guy selling these mortgages (who lived like pop stars) - this caused the housing bubble so money went to anyone selling a home & builders (and the real estate people).

So, the banks are now in trouble by buying something for a lot that is worth nothing and will fail.

Second, the Credit Default swaps. Here (in this unregulated market), everyone is betting on a failure of some institution and it's happening because of reason number one (above). So, now, AIG is owing money like crazy. Where is the money going? To the guys who bought the CDS. Who are these people? I have no clue - but I'm guessing they were the guys who knew the banks would fail (could they be the same guys selling the fake mortgages??).

The money did go somewhere. If my little understanding of this mess is wrong, let me know...