Thursday, October 16, 2008

GET MAD! AIG's ENORMOUS insurance payouts on Lehman bonds will come dueTuesday!

OK Cramer is a wild sounding guy - but he is so often right.

OCT 21 - next Tuesday is the day "insurance" ie credit default swap payouts on defunct Lehman Brother's bonds are due, according to Mr. Cramerica (Mad Money on CNBC.)  He said AIG is most likely the major underwriter and will have to pony up such enormous amounts of money that it will take what little value is left in the stock.  Once that is gone, the government - ie taxpayers -  us, will be writing big fat checks for AIG to very same hedgefund fat cats that acted together to "short" Lehman into oblivion. 

(Shorting is a bet that a stock will go down - and apparently you don't even need to own or even borrow shares of it - to short them. This is called naked short-selling. Though illegal, this rule was almost never enforced under the corrupt Bush SEC  and its fellow travelers in both houses and both parties in congress...)

According to a piece broadcast on NPR a few weeks ago - the thing that makes no sense and is apparently a fact of business is that "insuring"  bonds with credit default swaps is like fire insurance on STEROIDS.   Say you own a barn. You are the one who can insure it. Not so with bonds.  If a barn were a bond you could "insure" it for its full value and so could an UNLIMITED NUMBER of your closest neighbors.  Naturally they have torches and your barn burns while they stand by fanning the flames. That's what happened to Lehman Brothers, according to Cramer. And he has the contacts to know....

What kind of idiot insurance company would insure the same thing for full value over and over?    An un-regulated one.   They didn't call it insurance, either because insurance IS regulated.   Oh AIG!!     WHY would they do it?   Simple -the cost of credit default swaps  for a bond in the billions,  is in the millions! And they could collect those millions over and over again. And there was no requirement for them to have billions in cash on hand to pay up later.  As long as the barn didn't burn - the ponzi scheme continued. Just Thank your congress. Thank Henry Paulson. And remember - thanks to Paulson's AIG bailout - WE get the bill.   Not only for the $150 billion in bonds, but that times however many times the insurance was sold to whoever bought it.  It's nuts. REGULATE THESE GUYS...   and It wasn't just AIG selling this crap or buying - almost every major financial firm had a credit default swap desk with a dozen or more personnel manning it.

Somebody needs to be indicted on this one. There should be a conspiracy investigation of the multple hedgefunds who drove Lehman down while buying "insurance" ie credit default swaps on the bonds that they didn't even own!     What a racket!  AL CAPONE MOVE OVER~

The trouble is, you can't even root for the hedge funds to fail. If they all fail at once the DOW will be at ZERO. There would be so much stock for sale nobody could by it all....