Saturday, March 21, 2009

Passing the Buck

Harry Truman's Desk at the White House Read "The Buck Stops Here!"
In the age of finger pointing, bailouts, and scandalous-corruption... I wonder if anyone in Washington is wiling to put one of these signs on their desk?

Passing the Buck

As the public screamed about AIG bonuses totaling somewhere in the area of $165 million dollars, it appears as though the media took their eye off the ball. The real story should have been half-witted attempt to recover those funds. Treasury Secretary Tim Geithner demanded that Treasury will deduct $165 million from the BILLIONS of dollars already given to AIG. I am not so sure what the true embarrassment is... discovering that AIG (and other Wall Street firms who received TARP funds) was able to pay bonuses to employees of bankrupt companies, or the fact that Christopher Dodd was able to put the language in a bill and slip in through Congress almost entirely un-noticed!!! If Geithner is successful in "recovering" the AIG bonus money, it will equal .1% of the taxpayer funds that were already distributed. A classic example of government waste and incompetence.

For the record, every time AIG receives an additional cash injection from Treasury, chances are those monies are given to another financial institution. For instance, the credit default swaps (cds for short) were financial instruments insured by AIG. The the big banks are collecting on the obligation side of this transaction. So far, the bailout of AIG has been passed along to such institutions as:
Goldman Sachs 12.9 billion
Societe Generale 11.9 billion*
Deutsche Bank 11.8 billion*
Barclays 8.5 billion*
Merrill Lynch 6.8 billion**
Bank of America 5.2 billion
UBS 5.0 billion*
BNP Paribas 4.9 billion*
HSBC 3.5 billion*
Dresdner Bank 2.6 billion*
*Please note that the * notes foreign banks.
**Refers to a bank that is no longer in existence.
It is hard to believe that one financial institution could have leveraged themselves to the hilt. The fact of the matter is that counter-parties should ave been well-aware of the over-leveraged risk that AIG had assumed. Furthermore, the bailout of AIG really means that the United States is bailing our foreign banks and economies. Note that all settlements were made in full, and not at an amended rate (which is is customary in dealing with bankrupt companies). I wonder where this buck will stop?

The Market at a Glance
According to the Cleveland Plain Dealer, there are relatively few investments which have actually earned money over the last year. Based on $1000.00 dollars invested in a one year period, there are several companies that seemed to have handled the financial meltdown remarkably well.

A Few to the Good
Amgen is up over 21% year to date.
Bristol-Myers is up 1%
Wyeth up 4%
TFS Financial up 2.3%
McDonald's nearly even

Meltdowns include:
Fannie Mae where a 1000.00 investment is now worth 20.77
Royal Bank of Scotland 56.95
Tween Brands 72.03
Fifth Third 95.46
I am sure that I have missed more than a few losers (like AIG 28.43) Bear Stern 0... Merrill Lynch... and LEH... which do not exist.

Even if inflation were to take off, and reflate the stock market (And I do believe this is an earnest goal of Fed and Treasury)... Many companies on Wall Street are down for the count...

1 comment:

AX said...

Merrill Lynch was bought out by BAC, still exists....we are fools if we don't think the AIG bailout was meant to pay off these counterparties, not to avoid "global collapse." Should be interesting tomorrow. Dodd and Frank should both be in jail.