The problem is not $165 million in AIG bonuses, so stop saying that

The problem is AIG has underwritten $440 BILLION in Credit Default Swaps against mortgage-backed securities.

Worse problem: According to the Bank of International Settlements, the maniacs in the world financial industry have underwritten about $1 QUADRILLION in various kinds of derivatives. If the global economy were to stay stable, a quadrillion dollars is TWENTY YEARS WORTH OF THE GROSS PRODUCT OF THE ENTIRE WORLD!

A quadrillion dollars. That's a one with fifteen zeroes behind it. If you were able to print a quadrillion dollars worth of $100 bills, you could encase the entire Earth in a jacket of money two feet thick.

Compared to $440 billion AIG made up out of thin air, or a quadrillion the world's derivatives community made up the same way, $165 million in obligations is cab fare.

Principle matters. And rewarding gross incompetence and greed with huge handouts is simply not right, especially when needy people in this country are treated like second class citizens.

The bonuses are wrong because of exactly what you pointed out. Look at the enormous mess these people have created. Who wants to reward them with a single penny, much less millions?

The Masters of the Universe managed to sell derivatives that are worth more than all the money that actually exists in the world, to people who didn't own the securities they were written against.

One way to get the problem down to the minimum might be to require anyone who owns a CDS written against an MBS to prove they own the MBS. We declare any CDS that's NOT held by an MBS holder to be invalid. If you buy a CDS without owning the MBS that lies under it, you're betting one or more of the mortgages in the CDS pool is going to default. If this happens, the CDS itself defaults and you collect on your bet. Which is kind of a sick bet if you ask me, but someone thought this was a good idea. If the MBS goes to maturity without any of the securities in it defaulting, the CDS buyers forfeit their premiums. The fact that MBS are written against subprime mortgages means you probably won't forfeit your premium, but the people who buy these things are definitely in the More Balls than Brains Club, High Finance Division.

Now! We know AIG wrote $440 billion in CDS. I think we'll find that $40 billion of these bets were made by the people who hold MBS. The other $400 billion should evaporate.

If we could somehow cause derivatives that are written against other people's money to disappear, that would solve quite a bit of the problem.

it on 60 Mins. "when we lend money to banks, we just go into their accounts and magically add zeroes to the end of their balance" or something to that effect.

http://video.google.com/videoplay?docid=-9050474362583451279

Now once I have studied/thought about this for some time, if occurs to me that WHAT I PRODUCE IS VALUABLE....and can be turned into monetary value.

I posit that america has been castrated. Our manufacturing has been emasulated/torn completely down....

Where are our MEN? Our REAL MEN, who would stand up to this?

Women (mommies) have been covering your asses for a LOOOOONG long time.

GET UP THERE AND STAND UP FOR WHAT IS GOOD & RIGHT & TRUE *dammit*!!!!!

As far as I know, even Krugman, Roubini and Stiglitz admit they don't know.

Lots of different numbers have been thrown together in different ways that count the same things over and over.

It's hard to know what the real number is, but no real economist thinks that the number is anywhere near a quadrillion.

These guys were selling CDS to multiple people against the same security.

Is the real number a quadrillion? Is it TWO? Is it $5 trillion? Who knows? And that's the problem--there is no way in hell anyone can know the extent of the problem, except that it's more fucking money than exists in the world by AT LEAST an order of magnitude.

No, it isn't.

Very few DUers seem to understand what a derivative actually is and therefore can't understand why the numbers are inflated.

Even for the worst derivatives that were like gambling, in most cases, the proper response is, "so what"? It's kind of like saying, do you know the total value of every bet made by every gambler, every football pool, every slot machine, every bookie, etc. in Las Vegas??? There's not enough money in all of Vegas to pay them off!!! Oh noes!!!

But the logical response is, for every bet there's a winner and a loser and an ultimately meaningless transfer from one better to the other better.

But it's not even that severe. The majority of derivatives are intended to simply expire, unused like insurance policies. For example, if I buy 1 share of IBM at $100, I might buy a single put option for a fraction of the price (say $1) of that share in case the share goes down instead of up in value. If it goes up, the put option expires, unused. But even if the IBM share goes down to say $95, and the put option issuer has to pay up, there's almost always and equal and opposite call option that expired (because puts and calls are the exact opposite bets, and the issuer of the put is likely to hedge by also issuing a call), and more to the point, the liability is only $5 ($100-$95), not $100 (which is how the quadrillion number is counting it) The face value liability of the put, the value of one share of IBM stock, becomes meaningless as an actual liability. They are intended to expire without anyone paying anyone anything.

Even worse, these crazy "quadrillion" numbers come from counting the value of all the trades of the deriviates. So if that one little put option that cost $1 is traded 50 times, the "quadrillion" number counts that as 50 x $100 or $5,000, all for a little $1 hedged insurance that is likely to expire unused.

The main concern is the number of credit default swaps that were issued against mortgage backed securities and other asset backed securities. That's the number we have to worry about. And we only have to worry about them to the extent that these mortgage backed securities actually all default.

If Obama can stabilize the housing market, that's not going to happen.

as you say, then your conclusion "that it's more fucking money than exists in the world by AT LEAST an order of magnitude," doesn't follow. It's hyperbole, and so is the entire OP.

We're trying to assess the real scope of the problem as best we can without falling for the hype on both ends of the spectrum, you see?

I remember thinking what a paltry sum that was when I heard it.

Still, it's getting some results.

"collateral needed for other transactions" wtf are they buying?




"tie the rest to performance" sounds like shafting 6,400 working class employees to me.

Billions and billions to the Predator Class, but the teevee and the complicit politicians want us frothing over a few million doled out to working class finance people who probably make shitty wages to begin with.

Whatever.

a real difference or not I am willing to fight for every penny (well million) those bastards are trying to steal.

That's some data you provided. So what happens if we let AIG fail? Who will have to produce the quadrillion dollars?

swaps!

They are getting paid BONUSES for running the economy of the entire planet into the ground while decent hardworking Americans are not only not getting bonuses but also getting fired while being asked to pay for those AIG snakes bonuses so HELL YES it is the 165 million in bonuses. These guys deserve to be crucified not get another golden parachute!

The REAL workers don't have much more to lose. So, let's all start on an even playing field ~ that's HONEST!

hehe.....just give me two minutes with those 'boyz' on a even field.......

how's about those slave shops in China, Indonesia, the Phillipines, Macao, Thailand, etc., etc........

The problem is the system. The system has always been fraudulent. It doesn't work. It has just been exposed by people making the wrong bet.

It is all based on lies.

no matter how much money you lose for the company we promise to give you an averge $110,000.00 bonus for your efforts. Quite bizarre.

You can't write $684 Trillion in derivatives you can never pay, and at the same time pretend that they carry full value on the balance sheets for all the connected parties.

The bell has rung, and it is time to sort out which entities owe $$ to each other and how much. And the problem is that everybody knows the assets they have been carrying on their balance sheets were fabricated, and once publicly known we can identify those who are insolvent.

All this 'talk' about toxic assets and how borrowers caused the economic crisis by buying more house than they could afford is a cover for the real cause --derivatives.

the borrowers, who believe the person trying to get them into a loan when they are told that they can afford it. yeah, right. You have people who don't understand what they are getting themselves into who figure that the lender wouldn't make them a loan if they didn't think they could pay it. People who should have been in a standard mortgage getting suckered into those subprime ones. Were there folks who were trying to flip houses and such.... sure there were. but most of the people that ended up in these loans just wanted a house of their own. and they were sold a bill of goods.

the mortgage backed securities wouldn't have been a time bomb if the people making the loans were responsible and made sure that the people getting loans could afford the loans and to pay them back. I don't know how you can blame the people being led to believe that they could afford to pay back the money when the lenders knew they couldn't for the mess. That's like blaming the kid when the teacher tells them that they can cheat on a test or something.

You would think that someone would know and understand the terms of their new loan immediately after closing on the new home, right? These people knew they had entered into an adjustable rate loan at a low initial interest rate, but they could not tell the interviewer what the terms would be after the initial teaser rate period ended.

IT was all about making the sale ... keeping the focus on the teaser rate and off the likely pmt rate thereafter. And to close the deal, mortgage brokers told borrowers if the rate goes up you can refinance or sell as the value of the house goes up.

Even so, this had little to no effect on Big Banks like hundreds of millions of derivatives sold with little to no actual value.

The fact that the liability on the credit swaps is a huge problem does not change the fact that the $165 million is a big, big problem. The population understands how wrong the $165 million is. They don't understand the credit swaps, and further, if AIG goes belly up, the problem of the CDS's becomes someone else's.

That's why I've said let AIG fail since day one. They need to fail, to go into liquidation.

I got pretty much the same responses you're getting. "Follow the red herring!" :torchesandpitchforks:

they don't want you to notice? hmmm.....