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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?

Let’s recap on Americas recent conversations with Henry Paulson regarding the $700+ billion dollars we’ve given him.

(Transcript started September 22, 2008…)

America: Good morning Henry.

Paulson: The sky is falling.  Give me $700 billion dollars immediately or we won’t have an economy tomorrow.

America: Wait, what?

Paulson:  Yes, the end is near and unless you give me this money no questions asked it’s over for all of us.

America: This sounds serious.  What are you going to do with the money?

Paulson: Buy toxic debts from the banks to help stabilize the banks and keep people in their homes.

America: So you’re doing this for us, not your friends on Wall Street and bankers in Charlotte right?  You want to help all Americans?

Paulson: Yes.  No more questions.  Write the check.

America:  Alright Henry.  Do right with our money.

(Jump to 11/13/08…)

Paulson: You remember those toxic assets I was going to buy to help you and the banks?

America: Yes.

Paulson: Forget it.  I’m giving it all to the banks.

America: What?  Why?

Paulson: Because the situation has changed.

America: In what way?

Paulson: Quit asking questions.  The situation changed and I’m adapting.  That’s it.  And I’m not apologizing.

America: By changed you mean the toxic mortgages were bundled into securities too complex to sort out for government acquisition, as you were warned?

Paulson: No.  The situations changed.  What did I tell you about the questions?

America: So exactly what are you going to do with our money?

Paulson: Ah, another question.  I see you’re paying attention.  Like I said, I’m giving it to the banks.

America: Sorry but this is $700 billion we’re talking about.  We’re asking questions.  Why are you giving it to the banks?

Paulson: So they’ll start lending again.

America: But few of us have any money.  We Americans can’t afford to pay the debts we have.  Why would we want to borrow more money?

Paulson: Because it creates jobs.

America: So consumers borrowing money they can’t afford to repay creates jobs?

Paulson: Yes.  You and you’re incessant questions…

America: Well maybe bank jobs and collections jobs but what about other struggling industries?  Like auto?

Paulson: No.  Nothing for them.  They were mismanaged and need to regroup on their own or fail.

America: By mismanaged you mean like the bank officers who loaned money to people who couldn’t pay it back?  Or companies who over sold credit default swaps and could not meet obligations on even the lowest spreads?

Paulson: No.  Nothing like that.  Enough with your questions.  The Federal government is buying shares in these banks and that’s the end of it.  We don’t have to answer to you.  Haven’t I explained that?

America: Well, isn’t this like starting socialism?

Paulson: No, it’s supporting the free market.  Now go away, you’re starting to annoy me.

America: The land of the free, owned by the banks and their political cronies who are ruining the world in the name of wealthy shareholders everywhere.

This Bloomberg article uses the headline phrase a couple of times to detail the economic woes of General Motors. Here’s the deal: If they manufacture unattractive, over priced cars no one wants to buy then the company will fail regardless of another government bailout. The big question is: How is bailing out GM, using tax payer dollars, going to make people want to buy their unfordable autos in a time people are struggling and can’t assume a new car payment even if they qualify for an elusive loan? Simple, it won’t.

Enough with the bailouts. STOP THE MADNESS. No company is “too big to fail”.

On another note related to this article: Obama I like. Pelosi can burn. Don’t be surprised if they do not get along.

David Kelly, chief market strategist for JPMorgan Funds is proof positive that the guys in the best paying chairs at investment banks are out of touch. He was quoted this morning as saying “The market is in a manic phase…It’s like a kid throwing a tantrum. At some point you have to let them cry themselves out because there’s no reasoning with them. Eventually, the market will respond more to fundamentals.”

Uh, David, the market is responding to fundamentals. Low and stagnant wages, growing unemployment, the rising costs of goods and services. Does any of this sound familiar? David must be talking about the same “strong fundamentals” McCain was preaching about as late as September. His statement personifies the main problem our country faces finding a consensus agreement on fixing this economy. The rich want to fix the problems effecting their precious portfolios but fail to realize it won’t happen until the micro economy is repaired first. But creating jobs and wages is a more complicated problem than analyzing stock values so the mighty trust and hedge fund managers don’t want to go there. Furthermore, God forbid, it might cost money.

Wall Street pundits haven’t hit the point of not being able to afford Doctor’s visits or put gas in their $50K SUV’s. They are so far insulated from the financial crisis on Main Street that they turn their heads as if to keep from watching a bloated African kid eat dirt and swat flies. They stay in denial using Wedgwood china to create a happy place. Retail sales are going to be real bad around the holiday’s this year. People could start losing their very ability to take care of their families day to day. Meanwhile a segment of trust fund honchos will continue to sit around debating whether or not we’re in a recession. John McCain should be flat out embarrassed that he endorses this Save the Yacht Club through his campaign.

Understand this Senator McCain: Main Street is not concerned about making sure you and your rich friends continue to prosper. Your prosperity is not helping the MAJORITY of Americans who do not share in your wealth. Many struggle day to day and week to week. And this word “struggle” is not just feel good campaign jargon. For you to argue that it’s “wrong” to “spread the wealth” because so many wealthy Americans “worked hard” for all they’ve accumulated is bullshit sir. To this end I will challenge you to provide provide me one example of truly “hard work” your wife performed that is deserving of her wealth during her tenure on this planet. I will counter with an offering of a day labor job that would probably kill her. That’s right, I brought your Beer Heiress wife into it.

Nobody’s asking for a handout John. People are demanding fair pay for a fair days work. The “take it or leave it” offer of low wages for serious labor is no good for the working men and women of America. Like so many other wealthy Americans the trust funds your children will inherit are the benefit of your wife’s good fortune – not her hard work.