Now this is something you aren't gonna hear like this from any other place that I can see. Its a little long but I tried to write it as if I am having a conversation with you.
Back in the day, I used to buy AAA bonds at say a spread of say 50 and then simultaneously "sell" that risk via a type of insurance product called a credit default swap, for 10 and pocket a nice 40. When you multiply that by billions and billions that can turn out to be a nice number in the old profit statement. The only risk you really run is if the guy you sold that risk to ain't around when you go to collect on your insurance. Got it?
Well this went on not just for me but other places including a fine firm named Goldman Sachs. What was kind of cool in my mind was I found out that the Goldman entity doing the exact trade I was doing was their "proprietary trading desk" which in layman's terms means the partner's money. You can imagine the smile when I knew these "titans" of Wall Street thought so much of this trade that the partners, who liked their money, felt these were big money makers.
As I said, the only problem with these trades was if your counterparty on the hedge was still around to pay you off if something went haywire. Well who were these counterparties? Um AMBAC, MBIA mostly and then after awhile.........AIG! You know who Goldman did a lot of these trades (we called them negative basis trades) with? Ding Ding. AIG. You know who the CEO was when a lot of this was going down? Treasury Secretary Hank Paulson. You know who was waiting in the wings as the head of trading? Current Goldman CEO Lloyd Blankfein.
Well when AIG was gonna go bust before the Fed surprisingly bailed them out, they were on the hook for a lot of money on these VERY trades to a bunch of guys. You know who numbers 1 and 2 were? Goldman Sachs for $20billion and Merrill Lynch for $8billion. Merrill of course being headed by FORMER big Goldman executive John Thain.
Now before your blood starts really boiling, lets be clear about why politics needs to be thrown out of these discussions. Paulson is obviously in the Bush Administration. Lloyd Blankfein current head of Goldman? HUGE Democrat. Like I bet he has Obama's cell phone number. I am not kidding.
So this guy Ed Liddy is on the Goldman board and gets appointed by the FED to run AIG after they get a $75bn+ loan from you and I the taxpayer. Smell anything yet. As we've said before Ed's first act? To drawn down $37bn of that dough to pay off its "collateral calls". $20bn goes to Goldman. $8bn goes to Merrill. As Eric has noted before the old "chums" Paulson and Blankfein met on September 15 by themselves. You think it was to play bridge? I call bullspit. I cleaned that up.
Well you know what I've done? Alerted one of the biggest bulldogs in the media who is ALL over this. As you can see, its NOT a political thing. Now I'm sure if we went to Goldman and said, "look assclowns, Paulson took $75bn of our *%&%(*(^(^&*(#%^^@ money as taxpayers and gave it to AIG so his "blind trust" could get its money back and you Blankfein and your merry men and women in the partners fund could get paid back from these busted down negative basis trades you messed up on," they would say there's nothing further from the truth. But that's ok you may be telling the truth. Thats why we'll be going to AIG now since that is part of the bailout deal with them right? We get to know where our money is going as taxpayers. I'm sure they'll be happy to tell us right?
Sorry if we find out bad news folks and if it is the case, boy is it REALLY gonna be hard to pass this $700bn bailout. Cause then it really does look like its going to bailout fat cats. Hey Warren Buffett you must've pissed yourself yesterday when this thing didn't go through. Oh and maybe Lloyd Blankfein did too if he figured, "hey if this $700bn bailout goes through who the hell is gonna care about some measly $75bn number to AIG." Well its too late for that homeys. I'll be damned if you 2 self-proclaimed Democrats who "always" want to help the little people (Blankfein, Buffett,) and Paulson who did a nice turnabout on helping AIG when he heard his own dough might be in trouble, get away with this without the highest authorities hearing about it.
Now if a bolt of lightning should come down and strike me as I walk to my favorite watering hole tonight, my family will not forgive. Neither will the media guy who might put this story on his show tonight. Cheers.