Everything you need to know about the bailouts

Originally posted 2009-03-22 20:41:56 -0500. Bumped by carol.

in 2 short paragraphs. A relatively long post for Atrios. Wheeeeeeeeeeeeee!

What's The Goal?

Others have made this point in various ways, but if the goal is to bail out the banksters and keep the existing too big to fail financial order in place with the same cast of characters in charge, then all of this sounds like a cunning plan.

If the goal was really to get banks lending again they'd be funneling large sums of money to healthy (mostly smaller) financial institutions who actually made sensible choices over the last few years.

Meanwhile a fire sale is going on:

Lenders have become so overwhelmed by the foreclosure crisis that they are starting to unload properties in bulk to investor groups at steep discounts.

Investors then flip the properties for a profit without necessarily improving the home.

For example, a unit of Citigroup, the troubled financial giant, sold a foreclosure in Temecula to an Arizona investment firm for $139,000 when comparable homes in the area were selling for $240,000 to $260,000.

The firm listed the home for $249,000, received multiple offers and the property has entered escrow, said Amber Schlieder, the real estate agent who handled the listing.

Citi left a 100 grand on the table. This looks like a great way to abuse the taxpayer even more.

I want to know who they are all selling in bulk to.

Remember who else was buying up the mortgages in bulk?

So it may come as a surprise that a dozen former top Countrywide executives now stand to make millions from the home mortgage mess.

Stanford L. Kurland, Countrywide's former president, and his team have been buying up delinquent home mortgages that the government took over from other failed banks, sometimes for pennies on the dollar. They get a piece of what they can collect.

"It has been very successful - very strong," John Lawrence, the company's head of loan servicing, told Mr. Kurland one recent morning in a glass-walled boardroom here at PennyMac's spacious headquarters, opened last year in the same Los Angeles suburb where Countrywide once flourished.

The Treasury has shown a willingness to recklessly toss all of our futures away to keep these "Too Big Failures" operating in their self-entitled comfort zone.

What incentive do the banks have to sell these properties for as much as they can when they can sell them in bulk at a loss to their buddies' companies (or even their own companies) so they can turn a profit on them and doing this knowing the failure bankers can ship off all of the bills for the losses to us? Think about it.

If Geithner were handing these trillions to the smaller more responsible bankers some of us little people would be able to buy these cheap houses...

But this way the elite get to keep all of the assets in their greedy hands and have us pay for their gambling addiction failures too. And then they will turn a profit on selling us these properties AGAIN.

“While some critics are distressed that Mr. Kurland and his team are back in business, the executives say that PennyMac’s operations serve as a model for how the government, working with banks, can help stabilize the housing market and lead the nation out of the recession. “It is very important to the entire team here to be part of a solution,” Mr. Kurland said

Important for Whom? You, maybe, but not me.

I am thinking predatory lenders should already be in jail and that this is a model for more financial disaster for taxpayers. I smell smoke and all I see are bulk fire sales and a bunch of greedy arsonists standing around with their gasoline soaked hands in our pockets...

And, so far, the elite are achieving their goal of bailing out themselves with our money. And they have even found more ways to profit from their own failure. While we foot the bills.

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Some extra food for thought:

Hard Not To Call It Evil

According to people who should know, The Ruling Class is using our money....draining our money, the money we use to survive and feed our children and to actual produce things, to rescue the very structure...that allows them to BE The Ruling Class. The structures that enable them to Rule us by controlling credit, capital, and our pensions and IRA's and 401k's.

And our regulatory agencies and politicians. And so by extension our military. Which is then used in the service and interests of The Ruling Class and their Party of Business, the GOP.

These people, the Ruling Class, are the ones who got us into this financial armageddon. These are the same Ruling Class that took us to war in Iraq, after ignoring the warnings that an attack was coming.

They are the same people who made America into a nation that tortures people they KNOW to be innocent. They are the same people...if they even deserve the name...who are stopping any serious efforts to mitigate a Climate Crisis of incomprehensible scope.

They are the same people that so unprecedentedly had the Supreme Court decide Bush vs. Gore, so they could have Bush cut their taxes and deregulate the very same structures that we are now being called to give OUR money to prop up. Yes, the very same people who are directly responsible for everything that has gone wrong in our world, are the people who are now telling us....not asking us....telling us, that we have to bail them out. While as always, not telling us the whole story, not telling us what they are doing behind the scenes and behind our backs.

Read on...

Follow the Bailout Cash:

In recent filings with the Federal Election Commission, the political action committee for Bank of America (which got $15 billion in bailout money) sent out $24,500 in the first two months of 2009, including $1,500 to House Majority Leader Steny Hoyer and another $15,000 to members of the House and Senate banking panels. Citigroup ($25 billion) dished out $29,620, including $2,500 to House GOP Whip Eric Cantor, who also got $10,000 from UBS which, while not a TARP recipient, got $5 billion in bailout funds as an AIG "counterparty." "This certainly appears to be a case of TARP funds being recycled into campaign contributions," says Brett Kappell, a D.C. lawyer who tracks donations.

A picture is worth trillions of dollars:

The Bailout Tracker

Hat tip to Scissorhead LiberalDemDave, he discovered a handy way to find out how much the freakin’ bloodsuckers are getting out of us.

What’s really interesting is that this program also tells you the company’s market value and the percentage of the funds it received in proportion to the market value.

So, for instance, the market value of AIG is $942 million, and the bailout that they have received is 4246% of their market value. And if that doesn’t tell you everything you need to know…

"Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn't make back its money?

A: Then we have worse things to worry about than government losses on TARP-program money--for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition."

Brad DeLong, The Geithner Plan FAQ 

Read the rest.  It's worth the click.  And let's be careful out there with statistics and numbers.  Remember, we're dealing with trillions of dollars of 'gains and losses' created from thin air, embedded in 'derivative' instruments whose value will rise and fall over the term of the underlying assets.

Trying to set a value *today* on those 'toxic assets' makes nailing jello to a wall look easy.

We may be dealing with over a QUADRILLION "dollars of 'gains and losses'" most of which are "created from thin air, embedded in 'derivative' instruments whose value will rise and fall over the term of the underlying assets."

Dear Friends, according to various distinguished sources including the Bank for International Settlements (BIS) in Basel, Switzerland -- the central bankers' bank -- the amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 Trillion.

The main categories of the USD 1.144 Quadrillion derivatives market were the following:

1. Listed credit derivatives stood at USD 548 trillion;
2. The Over-The-Counter (OTC) derivatives stood in notional or face value at USD 596 trillion and included:

a. Interest Rate Derivatives at about USD 393+ trillion;
b. Credit Default Swaps at about USD 58+ trillion;
c. Foreign Exchange Derivatives at about USD 56+ trillion;
d. Commodity Derivatives at about USD 9 trillion;
e. Equity Linked Derivatives at about USD 8.5 trillion; and
f. Unallocated Derivatives at about USD 71+ trillion.

Quadrillion? That is a number only super computing engineers and astronomers used to use, not economists and bankers! For example, the North star is "just" a couple of quadrillion miles away, ie, a few thousand trillion miles. The new "Roadrunner" supercomputer built by IBM for the US Department of Energy's Los Alamos National Laboratory has achieved a peak performance of 1.026 Peta Flop per second -- becoming the first supercomputer ever to reach this milestone. One Quadrillion Floating Point Operations (Flops) per second is 1 Peta Flop/s, ie, 1,000 Trillion Flops per second. It is estimated that all the data found on all the websites and stored on computers across the world totals more than One Exa byte of memory, ie, 1,000 Quadrillion bytes of data.

Since that post he has corrected the cumilitive number.

Now they are around 1.4 Quadrillion.

And then there is this:

Dear Friends, over the last few days, the US Federal Reserve has opened USD 120 billion (30 x 4) of new swap lines of credit for another quartet of central banks: Mexico, Brazil, South Korea and Singapore.

This brings the number of such lines to 14. Similar credit lines have been issued to the central banks of Australia, New Zealand, Switzerland, Denmark, Sweden, Norway and other members of the G7, of which three -- Germany, France and Italy -- are within the Euro. Ten of the swap lines now amount to USD 255 billion, while those with the European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank are technically unlimited. Global credit markets froze up in late September after the failure of investment bank Lehman Brothers, limiting private sources of dollar funding. The US Fed move comes as central banks worldwide continue to fight systemic weakness in credit and capital markets. Such weakness has undermined economic prospects and led many to fear a long and protracted global recession.

Just so you know what your money is flowing towards supporting:

In an article on FinancialSense.com on September 9, Daniel Amerman maintains that the government's takeover of Fannie Mae and Freddie Mac was not actually a bailout of the mortgage giants.  It was a bailout of the financial derivatives industry, which was faced with a $1.4 trillion "event of default" that could have bankrupted Wall Street and much of the rest of the financial world.  To explain the enormous risk involved, Amerman posits a scenario in which the mortgage giants are not bailed out by the government.  When they default on the $5 trillion in bonds and mortgage-backed securities they own or guarantee, settlements are immediately triggered on $1.4 trillion in credit default swaps entered into by major financial firms, which have promised to make good on Fannie/Freddie defaulted bonds in return for very lucrative fee income and multi-million dollar bonuses.  The value of the vulnerable bonds plummets by 70%, causing $1 trillion (70% of $1.4 trillion) to be due to the "protection buyers."  This is more money, however, than the already-strapped financial institutions have to spare.  The CDS sellers are highly leveraged themselves, which means they depend on huge day-to-day lines of credit just to stay afloat.  When their creditors see the trillion dollar hit coming, they pull their financing, leaving the strapped institutions with massive portfolios of illiquid assets.  The dreaded cascade of cross-defaults begins, until nearly every major investment bank and commercial bank is unable to meet its obligations.  This triggers another massive round of CDS events, going to $10 trillion, then $20 trillion.  The financial centers become insolvent, the markets have to be shut down, and when they open months later, the stock market has been crushed.  The federal government and the financiers pulling its strings naturally feel compelled to step in to prevent such a disaster, even though this rewards the profligate speculators at the expense of the Fannie/Freddie shareholders who will get wiped out.  Amerman concludes:

"[I]t's the best game in town. Take a huge amount of risk, be paid exceedingly well for it and if you screw up -- you have absolute proof that the government will come in and bail you out at the expense of the rest of the population (who did not share in your profits in the first place)."4

The other two are older and for some perspective.

In the fianacial times and, as the buzzflash submitter noted, these self-etntitlement morons that broke the world economy are not trying to be funny here:

Bankers on Wall Street and in the City have struck back against moves by US lawmakers to slap punitive taxes on bonuses paid to high earners at bailed-out institutions.

Senior executives on both sides of the Atlantic warned of an exodus of talent from some of the biggest names in US finance, saying the "anti-American" measures smacked of "a McCarthy witch-hunt" that would send the country "back to the stone age".

There were fears the public backlash triggered by AIG's payment of $165m (£114m) in bonuses to executives at the unit responsible for losses that forced a $170bn taxpayer-funded rescue would have devastating consequences for the US's largest banks.

"Finance is one of America's great industries, and they're destroying it," said one banker at a firm that has accepted public money. "This happened out of haste and anger over AIG, but we're not like AIG."

An example of an idiocratic financial leadership that doesn't realize, yet, that we know how stupid, incompetent and greedy they are. You can leave your bonus on the table as you leave and we may, yet still, clawback your paychecks that amounted to a rape of the economy. The other option is taking  a pound of your flesh closest to your greedy heart...

See, among others:  Credit Default Swaps 101: A Primer On Legal Remedies [Robins, Kaplan, Miller & Ceresi LLP].

This firm seems to have one of the better overviews of current rulings in U.S. courts regarding CDSs.  Part of that overview clearly shows that absent an 'unwinding' of the complex webs of CDSs, 'value' may be a moving target.

with legalese? I may need another pot of coffe before trying to plow through something like that... lol

it's shorter than what you've linked to here, and they do a good job keeping it clear.  'Course if you read the few cases (they're out there), it's probably best to brew the coffee double strength.  

Jane Hamsher sees the same problem I do, regarding who can buy the houses, with the bailout... Every single little piece of info we get makes this bailout stink even more and more.

There is no doubt in my mind that we have gone from a failing plutocracy to a kleptocracy.

It is no longer about what is good for America but only what is good for the elite and what will keep them in power. No matter what angle I look at all of this from I can not find any upside - none whatsoever - for the average American in this bailout.


I started reading that story now. At least they avoided the legalese... lol

Longman's take on the Hamsher piece.

 I was having trouble with Jane's piece but couldn't put my finger on why. I didn't have time to poke around and find out more. Good find.

To make it simple: Private bailouts are done by individuals who do it because they are passionate about the bailout and feel that it needs to be done in order to secure the future for the "bailoutee". Public bailouts are done by the government using incoming government revenues for the same reason. Both are risky and debateable.

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