[Major Matt Mason]

Forgive the small bit of investment advice towards the end, but a pretty good summation of the events of the past month or so and how we got here. This doesn't paint a pretty picture, but inside of chaos is opportunity, I guess.

[rabscuttle385]

A silent bank run was ongoing for months prior to AIG's collapse, noted in Bloomberg reports during this summer that institutional depositors were slowly moving funds out of WaMu after the IndyMac implosion.

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[Travis McGee]

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

---Ludwig Von Mises

“Several brokerage houses tumbled; blue-sky investment companies formed during the happy bull market days went to smash, disclosing miserable tales of rascality; over a thousand banks caved in during 1930, as a result of marking down both of real estate and of securities; and in December occurred the largest bank failure in American financial history, the fall of the ill-named Bank of the United States in New York.”

~~"Only Yesterday: An Informal History of the 1920’s" by Fredrick Lewis Allen

[Doug TX]

Thanks, that was informative and concise.

[devere]

Good article.

[fightinJAG]

Most people never understood how AIG was the linchpin to the entire system. And there's one more secret yet to come out...

AIG's largest trading partner wasn't a nameless European bank. It was Goldman Sachs.

I'd wondered for years how Goldman avoided the kind of huge mortgage-related writedowns that plagued all the other investment banks. And now we know: Goldman hedged its exposure via credit default swaps with AIG. Sources inside Goldman say the company's exposure to AIG exceeded $20 billion, meaning the moment AIG was downgraded, Goldman had to begin marking down the value of its assets. And the moment AIG went bankrupt, Goldman lost $20 billion. Goldman immediately sought out Warren Buffett to raise $5 billion of additional capital, which also helped it raise another $5 billion via a public offering.

The role of Goldman Sachs, and Paulson's ties to the bank, concern me greatly. I would like to see the phone records between those two sooner rather than later. Just curious, yaknow.

BTW, excellent article.

[ColdSteelTalon]

But we should be okay now... The Government says so.

The fact is when people are immoral, the government needs more laws to restrain them.

I once had a COO tell me that as long a we are making money we are not going to question if what we are doing is right or wrong...

With people like that running companies we are going to be in for more regulation and more bailouts.

[Candor7]

This article also posted in CHAT , see comments.

http://www.freerepublic.com/focus/f-chat/2097416/posts

[Paul R.]

So... Would changes in banking and other regulations in the U.S. alone, have prevented this debacle? Or, would the changes have needed to be worldwide?

[DoughtyOne]

I have tended to defend the CEOs of corporations the government demanded extend indefensible loans to people who could never have serviced them.

If it is shown that CEOs and corporations did cook the books and play fast and loose with the rules, I hope the corporate officers involved spend the rest of their days behind bars.

[Gritty]

The American People are now the primary stockholders of AIG after the $85 billion "loan" by the government in exchange for 80% of AIG stock.

Guess which stockholders are going to lose their shirts after they sink a few hundred billion (or trillion?) more dollars into this bankrupt ponzi scheme?

You guessed it!

[GOPJ]

Whatever the computer said AIG was likely to make on the deal, the accountants would write down as actual profit. The broker who sold the swap would be paid a bonus at the end of the first year – long before the actual profit on the contract was made.

With this structure in place, the European bank was able to assure its regulators it was holding only triple-A credits, instead of a bunch of subprime "toxic waste." The bank could leverage itself to the full extent allowable under Basel II. AIG could book hundreds of millions in "profit" each year, without having to pony up billions in collateral. It was a fraud.

And this is why taxpayers had to "hurry and sign the dotted line"? Why we couldn't wait a few weeks to find out why and to who we were giving away our future?

Looks like we bought crack for a crack whore...