Maybe Mr Wyden should have thought about that before he voted for the TARP, or better yet come up with a better solution.

OK, you're right, I stand corrected in that he voted with mostly Rs against the TARP. However, I ond't know if finding the counterparties is going to get him anywheres.

AIG wrote insurance on debt instruments. This allowed lenders to make loans at lower rates to poor credit borrowers (this means a lot of low income people) to buy homes. The counterparties are the ones making claims on valid insurance policies. It'd be like if Allstate wrote property insurance and then the west coast of Cali fell in the ocean. Allstate would probably be wiped out without some kind of govt help.

The option would have been to charge these borrowers "real" rates which means they wouldn't have qualified and then we'd hear screams of prejudice by not allowing the dream of home ownership to everyone - at leat this is what Congress was pushing FNMA to do.

Hower, I wish him good luck on his search.

In fact, every Oregon Democrat in Congress except Hooley (now retired) voted against TARP, while Smith and Walden supported it. Schraeder and Merkley, of course, had not yet been elected, but Merkley spoke against it during his campaign stops.

I look a the budget problems Oregon is facing, shortfalls being experienced in almost every state in the country, problems which, as usual, put children, seniors and the poor most at risk. And then I look at the trillions of taxpayer money now going to AIG and others on Wall Street and I cannot believe the choices Congress has made.

As for Senator Wyden, at least he was consistently against TARP. There have been two votes on the Wall Street bailout. He voted against it first under Bush in October despite the support of many of the Senate Democrats (and almost all Republicans) for the bailout. Then, he voted against the second $350 billion of TARP after the election, despite the near-unanimous Democratic support in the Senate. I think DeFazio joined him in the second no vote, but I'm not sure if any other Democrat did (Walden did, but that was a partisan, anti-Obama vote).

We need to camp on their doorstep, shut down business as usual until this is resolved.

More grandstanding by Wyden. It's a cheap and easy move on his part. So, we get to find out all the financial institutions at home and abroad that are insolvent. We get to find out how close the international financial system is to total collapse. I'm sure it will make everyone feel better.

And then I look at the trillions of taxpayer money now going to AIG and others on Wall Street and I cannot believe the choices Congress has made.

What else can we expect with Obama's economic team of Rubin, Summers and Geithner, all Wall Street players who played prominent roles in getting deregulation passed to help grease the skids for the current economic disaster? Then there are the 2010 elections with so many politicians in Congress soliciting funds for re-election and Wall Street still a good source of packets containing 30 pieces of silver. And let's not forget the enablers who vote these corrupt politicians back into office.

Robert Scheer on Billions Dished Out in the Shadows

On the other hand, other real economists (i.e., not people like me!) continue their strong frustration with Bernanke et al....

Bernanke has given sufficient evidence to consider him part of the cabal along with Rubin, Summers and Geithner that is taking care of Wall Street with utter disregard and contempt for Main Street. This last point is understandable when we consider that the people on Main Street have shown they will go along with whatever crap Wall Street and Washington throw at them.

One piece of evidence was on display in a recent Frontline program when the program claimed Bernanke went along with Paulson on some issue despite Bernanke having reservations. This suggests among the Wall Street Mafia, Paulson outranked Bernanke. In any event, anyone operating at these levels has to be part of the conspiracy.

The creation of deregulated, exotic financial instruments may be responsible for the depth of this crash but the crash was bound to occur due to the under-valuing of systemic risk. And the architects of all this are the people who are now designing Obama's economic policies, as Bill B said. (Dean Baker suggested that it's like appointing Osama bin Laden to run the so-called "war on terror".)

Maybe I was wrong about Obama. I thought he was a smart guy who was ideologically challenged, but maybe he isn't so smart after all. (At least he's anti-war.)

The counterparties are the ones making claims on valid insurance policies. It'd be like if Allstate wrote property insurance and then the west coast of Cali fell in the ocean. Allstate would probably be wiped out without some kind of govt help.

The counterparties weren't necessarily buying insurance. They were gambling. Your analogy would be correct only if many people without an insurance interest in the fate of California property were making bets on California falling into the ocean. The failure to regulate the insurance element of credit default swaps as insurance (with reserves put aside in case of potential claims) or as gambling (with each side putting up the total amount of the bet) was unforgivable. It left massive exposure to loss without any means of satisfying counterparty claims.

On the same topic, I heard an analyst on one of the financial programs say that much of the money the government has given to AIG actually went to European banks and to others outside the U. S. Does anybody have more info on this?

Let's just let AIG go under and move on.

Further analysis here: http://www.ricoexplainsitall.com/politcs-economy/2009/3/4/the-irrational-aig-bailout.html

...an economist colleague of mine on one of the key Congressional committees agrees...

It isn't necessary to be an economist to question what Congress is up to. A little "street smarts" or an absence of party blinkers would suffice. Among other examples it was obvious the fix was in when Paulson, Bernanke and Cox presented a three-page proposal for the original 700-billion bailout with absolutely no oversight, and they were the only witnesses allowed to speak before the committees chaired by Chris Dodd and Barney Frank. No dissenting voices allowed from the likes of Joseph Stiglitz, Paul Krugman, Dean Baker, Paul Craig Roberts and others not part of the Wall Street-Congressional duopoly cabal.

"That is so not the case. Read the relevant articles."

OK let's use Wikipedia for credit default swaps.

http://en.wikipedia.org/wiki/Credit_default_swap

There they compare it to insurance in the sense that portfolio buyers buy the coverage from someone like AIG in case the portfolio defaults. None of what AIG has done is being called illegal. It is very complex, yes, but that is not illegal.

UNfortunately, most banks did not retain servicing on lonas they originated. Rather they preferred to package them and sell them for value. By purchasing (if you don't want to call it insurance) a device that would guarantee a certain risk level in the portfolio. This allowed them to sell at an effective interest rate less than the real interest rate they yielded.

THe problems arose when some of the loans in the portfolio defaulted calling into doubt the remaining loans. THe question then became is 1 out of 1000 loans bad or 500 out of a 1000 loans? The AIG swap was intended to cover this until it got swamped.

All of the above, affected the marketability of these portfolios. Since banks only make money when it changes hands, if you have $100M portfolio with an uncertain value, you can't determine a price to sell it at. THus banks lock up.

I mean if we name the counterparties, then what? They legally bought this coverage they the tried to enforce.

"Top Wall Streeters who raked in tens of millions of dollars a year for more than a decade have now effectively eviscerated the pension fund savings of millions of middle-class American workers and destroyed millions of Main Street jobs"

I is progressive, what is CDS?

Another former Goldman CEO was a top Citi official and also a former Treasury Secretary. I am not suggesting anything so crude as corruption.

Why not? The whole system has been corrupt for years, with deregulation bought and paid for by Wall Street lobbyists being one of the major factors.

First, my position on the TARP was it seemed like a good idea originally. However, I’d be the first to admit that in execution it failed. Just writing banks a blank check means like with anyone that they will not spend (or loan) it unless absolutely necessary. You somehow need to get something in exchange for each $ we give.

Having said that, we are kind of at the point where we are dealing with a known alcoholic who got in an accident while driving drunk. We could sit and argue the morality, but the issue is keeping him alive. We can point the finger at him, the people at the party that let him drive or the hostess that over-served him, but he is still sitting in surgery. Are they all contributory (or in the case of everyone from the borrower getting a house they can’t afford to the Lehman guy selling these things – greedy)? Yes.

My main point is that no one (D or R) has come up with a solution that reaches the end goal of freeing up money for investment. Since our society is build on borrowed capital, this is key to any economic recovery. In addition, the numbers look huge, but no one knows exactly what the liabilities are which is what is tanking the market now. Is it only 1 out of 1000 loans bad or 500 out of a 1000?

Anyways, we have this ocean of loan/debt portfolios that no one can put a value on. The idea of the AIG swaps was to set a floor so at least we’d have a minimum value for the paper. The people who bought these swaps (I’ll refrain from using the word insurance) got them assuming they’d be covered. This is the disconnect with the US throwing pots of money at AIG and assuming it goes to the people who bought the swap and in turn makes the debt marketable again which is the primary issue – getting investment cash moving and available to business.

They are very complex (and yes, unregulated), but does that make them illegal? I’m open if you can make a case, but I don’t see it based on law (I am not a lawyer, so I’ll profess my ignorance.) It’d be nice if they had regulations, but you look at a place like the SEC or Congress and they have never caught a money scheme before it blew up. They are great lawyers, but not very sharp financially.

In sum, I think we need to keep feeding the system cash, but have some further oversight to make sure it is getting used.

PS - Thank you for taking the time to follow this. I appreciate when we can talk about the issues without name calling.

Wu voted against TARP in the first round (when it failed in the House), but changed his vote in round two.

Also, I'd like to say that "socialism" is the most over-used and erroneously-used word these days. A government propping up big business is a characteristic of fascism.

Here's an amazing summation of the situation:

www.bloomberg.com/apps/news?pid=washingtonstory&sid=aGq2B3XeGKok

The total commitment from the Treasury, FED & FDIC is $9.7 trillion dollars. Now, the FDIC is designed as an insurance entity, so I don't really quibble with that expenditure (although I don't think the limits had to be changed- $100K is good enough for 99.9% of the depositers).

Bloomberg points out that $9.7 trillion would cover a payment of $1,430 to EVERY PERSON ON EARTH. Or, about $35,000 to EVERY MAN, WOMAN & CHILD IN THE U.S.! Even subtracting the FDIC portion, the numbers are beyond staggering. Words fail.

The government ought to really have gone socialist and just created its own banks to lend to businesses and consumers at a low rate. We'd have been a lot better off! I am just beyond rage that the majority of federal pols think the Treasury & Fed are obliged to cover these bad loans and derivatives thereof!