Structuring a bankruptcy where the US ensured counterparties were paid as “secured creditors” (full faith and credit of our tax money), AIGFS was put out of business and the profitable parts of AIG’s Insurance business were either packaged (in whole) or sold (in parts) was the best option. As you may know, bankruptcy provides inummerable options related to creditors and debts-one of which would have been to take the bonuses off the table- end of issue. I don’t buy the argument AIG’s CDS portfolio was too complex for anyones else but current staff to manage.

Instead, we have rushed into gratuitous bailout after bailout based mostly on the so-called “confidence risk” to the market (this is Bernanke’s familiar refrain lately, as he wrings his hands and says there was no choice). Forgive me if based on the aforementioned this tact appears to be a strawman, merely constructed to give politicians cover for their incompetency and slight- of- hand trickery.

Overall, I would posit most politicians knew exactly what was happening and why (especially the Financial Services Committee and NY Senators lke Schumer). The big lie is their feigned outrage over bonuses which probably represent less than 1% of total bailout money.

Structuring a bankruptcy where the US ensured counterparties were paid as “secured creditors” (full faith and credit of our tax money), AIGFS was put out of business and the profitable parts of AIG’s Insurance business were either packaged (in whole) or sold (in parts) was the best option. As you may know, bankruptcy provides inummerable options related to creditors and debts-one of which would have been to take the bonuses off the table- end of issue. I don’t buy the argument AIG’s CDS portfolio was too complex for anyones else but current staff to manage.

Instead, we have rushed into gratuitous bailout after bailout based mostly on the so-called “confidence risk” to the market (this is Bernanke’s familiar refrain lately, as he wrings his hands and says there was no choice). Forgive me if based on the aforementioned this tact appears to be a strawman, merely constructed to give politicians cover for their incompetency and slight- of- hand trickery.

Overall, I would posit most politicians knew exactly what was happening and why (especially the Financial Services Committee and NY Senators lke Schumer). The big lie is their feigned outrage over bonuses which probably represent less than 1% of total bailout money.

Key words here: contract; before.

They make it a lot easier for us to make our rants and raves more logical.

“I think the people who were given contractual agreements for bonuses are not the criminals here.”

Until I see proof of behavior on their part that’s either illegal, unethical, or immoral, I’m not joining the mob and my pitchfork is staying home.

With BILLIONS in their personal bank accounts.

I should be so dumb.

Who can blame them for not looking too closely when they were being rewarded so lavishly.

Seriously – they have to be contenders for the greatest criminals in the history of mankind.

Steal Billions with no chance of being held responsible…

We hold the bag and get Obamanomics as out bonus.

What a deal

But again, these things weren’t contracts on any single mortgage.

To use your analogy, they would have written a single flood insurance contract that covers all the flood losses for every house in Mississippi. Because there are so many houses in Mississippi, the premium per house would have been small, but the total was huge. They would expect to have less than 1% of all those houses flood in any given year and could easily pay out whatever claims were made and still make a huge profit. They didn’t allow for something like a CAT 5 hurricane coming along to wipe out 20% of the houses and their premiums don’t come anywhere close to the actual loss.

Save a banker, eat a politician. Vent over.

i’ll do some research on my own, too.

If subprime does well, you win on your portfolio but lose on your CDS.

If subprime does poorly, you lose on your portfolio, but offset your losses from the CDS gains

You are making the case they are really, really stupid instead of criminals.

Taking your side..

Either they thought a housing run up would last forever and people could just keep on refinancing their way up forever

OR

They never bothered to really look at what they were guaranteeing.

Stupid either way.

If an Insurance company writes a policy on house in a part of the MS river that floods every 20 years and never considered it, THEY ARE STUPID.

Sorry, criminals (most likely) or idiots.

What they had was an understanding of the idea of tranches (conglomerate the loans into a pool and divide the pool into different risk profiles so that any 1 loss wasn’t a hit to only 1 bond, since you know computers it’s somewhat like the idea of raid). They also had rating agencies that said the bonds were AAA rated. They had historical references that said that mortgage default rates were very low. And they had people offering big money for them to write “insurance” to cover the bonds in the event of a default.

They weren’t exactly dumb, but they did have a blind spot to the risk of a complete collapse in housing. It was just something they didn’t consider a likely occurrence. Turns out the very thing they didn’t expect to happen was exactly the thing that DID happen. Again back to the computer analogy, it’s like having your data on a raid set with backups on tapes in the next room. You think you’re data is safe, but you didn’t consider the risk that the whole building would be destroyed in a fire so you didn’t move any backups offsite.

We are very rapidly approaching the event horizon, and our Republican leaders are rearranging the deck chairs.

1) a stupid guy wouldn’t realize that someone making $40k/year can’t afford a half million dollar house even if they can keep it by refinancing in a housing run up. But a criminal would realize know but wouldn’t care

3) a stupid guy wouldn’t know a housing run up can’t go on forever. But a criminal would know that by the time it ended they would have billions in their bank accounts.

They have to be either criminals or the dumbest people ever allowed to manage money and should never be allowed to even remotely touch someone else’s money for the rest of their lives.

The simple and obvious explanation is usually the correct one.

By the way, the AIG guys weren’t doing the actual loan approvals. That was done at the mortgage issuer level. They were writing what I’d loosely call insurance contracts on the CDO’s which were supposed to be low risk bonds backed by pools of mortgages. Their failure was to miscalculate the “low risk” label and they ended up backing FAR more of these things than they could ever hope to pay off if they all crashed at once. They just never thought all that AAA paper would drop to next to nothing in value. As I said, I suspect they never expected to pay off on even 1% of these contracts.

What did anyone expect? You loan a bunch of money to a public company and management remained intact. Of course they are going to conduct business as usual.