AIG sold credit default swaps they did not have the money to repay to all of those who purchased them. A credit default swap is basically investment insurance that can be bought by any savvy investor who does not even need to own the underlying security or credit instrument it is insuring. So for the buyer it’s betting that a certain loan instrument or security will default and the owner of the CDS will get a payout. AIG sold them to almost any investor as they backed speculative hedge funds. For AIG it’s gambling that mortgage backed securities would not fail and they would reap the rewards of credit default swap payments for years to come.
Then the foreclosure crisis emerged. Bearers of credit default swaps came to AIG to collect their insurance (or spread) on the defaulted loan instruments. Most of these collectors did not even have a stake or vested interest in the failed instrument they were collecting on because they were buying through specualtive hedge funds. AIG went bust. They can’t pay out on all of the default swaps. Hell, they couldn’t even pay out the spread on securities deamed least likely to default. Whoever will save failed AIG from their stupid mistake spurred by greed?
Enter Henry Paulson. “Don’t worry”, he says “We’ll use the tax payers money”. And summarily hands AIG over $130 billion dollars. Ah the luxury of being a financial institution in America. You can get so big through moral and financial negligence that when it comes time to pay up you can put a political crony in your pocket and use tax payer dollars for decades to come to keep your employees happy.
What a damned scam. And the real problem is most Americans don’t understand one bit of this even as it’s spelled out in this post. All they hear is their “trusted” politicians telling them they are working to make everything alright. As far as I’m concerned Henry Paulson is the most corrupt human to ever walk the face of the earth. He professes his concern for the economy while his only real objective is saving banks through hard times and wealthy investors. The rest of us be damned.
Henry Paulson will be one of the greatest skid marks in the Bush administration legacy. Possibly even greater than Iraq. He is a man who cares nothing about creating jobs (oh yes Henry, please tell us more about how giving billions to banks helps create jobs) and feels the road to our economic salvation is for banks to start lending? Is that really what we need Mr. Asshat? More consumer debt? I thought that’s exactly what got us hear in the first place.
WE DON”T NEED MORE CONSUMER DEBT. We need an increase in wages and job creation, through realistic means, so that people can pay the debts they already have. Until this fundamental fact is addressed this economy will struggle until death. This is not a rainy day we’re heading into. Through his continued misuse of tax payer dollars and the manipulation of Congress, Henry Paulson and his political cronies are driving us into a class 5 fire tornado full of dead cats and razor blades. We’re all going down. How well do you bounce?