Monday, March 30, 2009
AIG as a laundering vehicle
... in layman's terms:
AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the U.S. Treasury Secretary Tim Geithner disclose the real extent of this, for lack of a better word, fraudulent scam.
... What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.
i don't think the postulation that AIG was being used by the government as a vehicle by which a recapitalization of the banks which are AIG's counterparties is new, but this letter from a trader working for one of the major banks does indeed give substance to the allegations by providing a framework. and that framework may be enough to get this story outside the realm of insider understanding and into the public zeitgeist -- to the probable chagrin of treasury secretary timothy geithner.
but the amount of money claimed to be involved, while substantial and of aid in raising capital, isn't enough to alter the economics of the banks significantly.
perhaps we've already hit outrage fatigue and it will slip by unnoticed.
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