Monday, March 16, 2009

Hey buddy, want to buy a credit default swap?

You might have read about AIG, the insurance giant who bet big on credit default swaps and lost. It seems like the guys who bet your rent money on a losing nag now want you to cover their bar tab, too, and these guys insist on nothing but top shelf.

Now, you may be asking
1. "What the fuck is a credit default swap and what does it have to do with me?"
2. "When do we get set up Dr. Guillotine's famous blade in Time Square?"

Let's take question number 1. Credit Default Swaps are these miraculous things invented by financial whiz kids that always make money. Except when they don't.

Think of it this way. I'm A Big Motherfucking Corporation (ABMC, Inc.) and I issue bonds to raise money. My bonds have always paid off because I'm ABMC, Inc. and I've never defaulted on a bond in my corporate life.

So you are A Big Motherfucking Bank (ABMB, Member FDIC) and you buy my bonds, expecting a solid 5% return, no risk. But just in case, you want some insurance because hey, you never know.

AIG says, we'll insure that bond. It's a hell of a lot better way to make money than insuring lives or homes or cars because we pay zero money out and get premiums all day long. Besides, the chances of ABMC going toes up are next to zero.

Other people see AIG raking in all this easy money and decide they too want in on the action too. It's a hell of a lot easier than actually working, or making shit. You just buy and sell CDSs and roll around like Scrooge McDuck in all that lovely dough.

By the end of 2007, Credit Default Swaps are doing roughly $60 trillion in business around the world. Unfortunately, a lot of those bonds being insured were big old balls of sliced and diced subprime mortgages. Shiny on the outside, rated triple-A by the ratings brains, but on the inside they were, of course, big slimy wads of crap.

Things start to go south. Mortgages are revealed to be built on very shaky foundations and, because I have invested in other people's bonds, suddenly, I don't feel too good. For the first time, my corporate corpus is looking more like a corporate corpse and I can't pay on my bonds, the ones that you, Mr. ABMB, bought from me.

But no worries, you just ask AIG to pony up on their insurance policy. In fact, all your banker friends are asking AIG to fork it over and the whiz kids at AIG respond from their summer homes in the Hamptons with "Pay? What is the meaning of this word pay?"

AIG looks into its capital coffers and finds it has no way to pay. The dominos start to tumble and AIG, who holds so many of these CDSs from all over the world starts to bring everything crashing down, inlcuding the bank where you have your savings, the stocks where you have your investments, and your company where you have your job.

The government steps in and pays the giant AIG a lot of money so it doesn't collapse and crush all the little people scrambling to get out of the way. AIG says thanks and gives a chunk of that money - your money - to pay bonuses to the same fucks who dreamed up complex financial shell games like CDSs and subprime lending in their MBA-induced, easy-money fevers.

This is like your brother Lenny losing his mortgage money at the track, you give him your mortgage money to help him out, he loses that money too, you lose your house and the next time you see Lenny he's driving around in a brand new Porsche. Fucker.

Which leads me to question 2. Sorry, I don't have an answer for that.

14 comments:

Anonymous said...

Bravo David, not only accurate but so well stated that we all can understand!! I'm ready to fire up that Guillotine and do some test drivin' on Wall St if you know what I mean.

Beneath the Carolina Moon said...

Yah know, if yah did this to the wrong "family" the Guillotine would look like mercy. But, we're just law abiding tax payers.

Dread

Charlie Stella said...

Davey, Davey, Davey ... like I always say, you're a humanitarian ... Guillotine my ass.

I say we use a dull butterknife ... but soon after the clowns who took bonuses for collapsing the economy are skirt stakes, can we start on ALL the morons who signed over that money WITHOUT any STIPULATIONS that they CAN'T TAKE BAILOUT MONEY FOR BONUSES?

It is unbelievable to me that our new President is "angry" the bad guys didn't do the right thing.

WTF?

Is this guy really smarter than the last guy?

I'm no longer so sure.

Those waiting for the bonuses at AIG, had we let the company default, would've had to sue to get blood from a stone. So our government goes and hands them a cash printing press with a direct feeder to our taxes/lives. I'm sure those living in tent cities really appreciate it.

And if the butterknife is too much, let's just do what I've been asking for the last few months or so ... which is to line them up and shoot them ... all and anybody who voted for these "bailouts" without protecting the people

deangc said...

Mr. Stella:

It is unbelievable to me that our new President is "angry" the bad guys didn't do the right thing.

WTF?

Is this guy really smarter than the last guy?


You seem to be trying to blame the AIG bailout (and the terms thereunder) on the Obama administration, when in fact that bailout happened under the Bush administration.

It is unbelievable to me that our new President is "angry" the bad guys didn't do the right thing.

But you're angry that the bad guys didn't do the right thing. So which is it? Is being angry the right thing or the wrong thing?

Help me out here, I'm confused.

Charlie Stella said...

Here's the deal, Deangc ... Bush proposed the bailout and Congress (which Obama was part of) couldn't sign it fast enough (so Obama went along with a Bush proposal twice--once as a Senator and then as President). I was being sarcastic when I said Obama is angry the "bad guys" didn't do the right thing. SOMEBODY somewhere should've protected us (taxpayers) and made damn sure there were no loopholes for AIG types to sting us further (but Obama, et al) didn't bother with the "oversight" they claim they demanded from the prior administration.

In my book, signers of this mess from both parties should be shot (for real).

I'm blaming the bailout on both parties because the Democrats couldn't get in line fast enough to support a guy they bashed for 8 years. Suddenly Bush was an economic genius? The Democrats could've blocked the original bailout (the way it was written) with some basic protection for the taxpayers ... such as NO MORE outsourcing or REVERSE the outsourcing that had occurred ... no bailout bucks for BONUSES to people who bankrupted the system ... how about letting us suckers have a deferrment on trying to do something with our 401K money before the banks make it all vanish (we lost 50% of ours).

It isn't rocket science to even guess what those AIG clowns were going to do with all that "FREE" money ... but somehow the Messiah's new found anger is supposed to appease taxpayers who were screaming about this before the original bailout.

Hopefully, I didn't further confuse you, brother. In short, they're all to blame. Nobody did the due diligence for taxpayers. This was big business for big business and we're just about back to the 1930's with how big business is treating the workforce (no raises ... be happy you have a job ... reduced sick days ... more outsourcing) ... it's just annoying to see and hear the back and forth bickering (and the taking of sides as if one is better than the other) between two parties that do NOTHING for the people they represent.

Beneath the Carolina Moon said...

And what have I always said? All politicians... ALL ALL ALL POLITICIANS... four flushing, scumbag, sewer slurpping, rip off, flim flam, phoney bologna, bottom dwelling...never mind.'

The ten most feared words in the english language: "We're from the government and we're here to help you.

Charlie Stella said...

Beneath ... you're my hero!

Gerard Saylor said...

Does Charlie Stella ever work?

Charlie Stella said...

7 days a week, buddy:

Mon-Fri 9-5
Sat & Sun 9-9

But since there's no business and the inbox is empty, I get to hang with you, pal.

You think this is bad (my haunting the left), wait'll I'm laid off.

Gerard Saylor said...

You think this is bad (my haunting the left), wait'll I'm laid off.

I dread that. I'll have to buy a copy of Mafiya to mollify you.

Charlie Stella said...

Don't do it, brother. It'll put you to sleep for weeks at a time.

Read something good. Richard Yates (I'm embarrassed to say I just discovered him--the guy who wrote Revolutionary Road). Great author. I'm just about finished wiht his entire collection ... he's up there with Steinbeck and Malamud (for me). Great writer.

Don't waste you time on penny ante crap like mine. Go for the gold.

Gerard Saylor said...

I'm running through Victor Gischler's oeuvre at the moment. That's French. I'm sophisticated.

Charlie Stella said...

Okay, Victor's a good choice. When you're done with him go straight to Yates or else I take a third job with nothing to do.

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