It also can’t hurt to remind them that the taxpayers pay their salaries, pensions, and healthcare benefits, while the bankers only pay for their campaigns.

It’s game-over. The bankers have won.

And you’re gonna just love the new economy they’ve spun from the mess they made. Millions of useless private and public sector jobs will be created to keep them safe from you and well-fed from the blood and sweat of your toil.

And all of these millions of useless jobs will merely serve to amplify the dysfunction and rot that is so pervasive in our greatest institutions.

So get back to work you slackers, you’ve got a lot of useless work to do, and generations of debt that you owe to these bankers.

“Of course, i’m painting broad strokes, and there is a very annoying caveat to the story: the middle men between John Paulson and AIG (GS, MS, etc.) still paid themselves bonuses, which they would have been unable to do without the taxpayer support. Even AIG itself paid out bonuses despite its egregious risk management techniques. This is obviously annoying, but I’d rather this, than every end investor who thought they’d hedged themselves against a downturn, be completely screwed.”

I’m sorry, but that’s a less-than-cogent argument for NOT letting the middleman go down. (As Joey Heller wrote somewhat tongue-in-cheek in “Catch-22″, why not eliminate the middleman?)

If, in fact, we are funneling money to pension funds, wouldn’t it be more transparent, democratic, and efficient to give the money to them DIRECTLY and have let Goldman Sachs, AIG, et cetera to die as the free market mandated they should?

Of course, i’m painting broad strokes, and there is a very annoying caveat to the story: the middle men between John Paulson and AIG (GS, MS, etc.) still paid themselves bonuses, which they would have been unable to do without the taxpayer support. Even AIG itself paid out bonuses despite its egregious risk management techniques. This is obviously annoying, but I’d rather this, than every end investor who thought they’d hedged themselves against a downturn, be completely screwed.

All I’m saying is that before people criticize CDS and other derivatives, they should try and figure out the entire picture. A CDS can be a very dangerous instrument because its a “contingent liability,” ie, for the seller it can result in losses far greater than the premium earned. But we’ve had contingent liability type derivatives for decades….they are called options. The options market is very liquid, transparent, and well-functioning, and thats primarily because of the elimination of counterparty risk. The CDS market isn’t dangerous because of the “contingent liability” aspect – its dangerous because the market hasn’t dealt with margin and counterparty-processes correctly. In the options market everyone, dealers and investors alike, have to post margin to a clearinghouse. This limits the implicit leverage in the system. In the credit markets, margin was only posted “one-way,” as in hedge funds posted margin to dealers, but not the other way around. So the implicit leverage in investment-banking credit desks was much higher than for hedge funds. As well, the entire market could be screwed by the collapse of a single counterparty (AIG). But if the options market operated in the same way, it would be just as dangerous. Some wise guy at an insurance company would have realized that he could sell some 1100 puts on the S&P and boost his division’s revenue by a tidy amount. September comes around and he’s driven his firm bankrupt.

If CDS moves to a clearinghouse, and there’s two way margin-posting, I argue that it becomes just as useful and necessary an instrument as a stock option.

http://zerohedge.blogspot.com/2009/03/exclusive-aig-was-responsible-for-banks.html

We’ll wait while you catch up.

http://www.nakedcapitalism.com/2009/03/duh-hedge-funds-bought-aig-credit.html

When the welfare system has been sucked dry, these guys are going to have to find another sucker to play the game. So far their customer have been torched and the federal govt’s getting tired of being the patsy (Congress is becoming increasingly restive in approving more tunneling, … er … funneling, … er … what exactly would this be called? It’s certainly not capitalism.