Please, if you don’t think you understand the financial meltdown and why Obama rescued Wall Street and what they were rescued from, please know this very simple explanation of what has not been explained:
1. Everyone, I think, understands car insurance:
you pay an annual premium to an insurance company so that if you have a car accident, they will pay to get it fixed or replaced.
2. The owner of the car is the only person allowed to buy insurance for that car. What this means is that if you’re a terrible driver and all your friends and relatives know that you are going to drive off a cliff some day soon, they are not allowed to buy insurance on your car to get a several thousand dollar pay off when you go off that cliff.
3. What Wall Street did - was allowed to do with taxpayer insured deposits - was to buy insurance from AIG Insurance Company on Lehman Brothers, a billion dollar company.
There were trillions of dollars of insurance purchased from AIG against the event that Lehman Brothers and others? would go down the tubes.
4. Just before the bailout of AIG - which gave AIG the money to pay off Goldman, Citi, JP Mgn and all the others who “placed a bet” with AIG that Lehman would crash and burn - there were $70 trillion dollars worth of bets outstanding against sellers of this type of insurance, like AIG.
$70 trillion dollars is greater than the world GDP.
A loss of that amount would tear through the world financial system like a hot knife through butter.
That casino bet - made with taxpayer insured dollars - was called CDS or Credit Default Swaps.
U.S. banks weren’t always allowed to gamble with depositor money. After the great depression - caused in part by risky bets with bank deposits - wiser heads prevailed and legislation was passed to protect depositors and stock holders. The Securities and Exchange Acts of 1933 and 1934 and The Glass Steagall Act which separated commercial banks from investment banks.
Commercial banks were allowed to receive deposits and to lend money to qualified borrowers. Investment banks used their own capital to invest in what they pleased.
In 1998, a Republican Congress passed a repeal of the Glass Steagall Act and President Clinton signed that bill.
Within less than 5 years of the repeal, banks were gambling in unregulated markets with depositor money and treating it like monopoly money and within 5 more years, they succeeded in placing bets with insurers like AIG that so far exceeded the ability to pay them off that it was threatening to destabilize the entire world financial system.
Why are the geniuses who ran the banks and still run these banks and were probably slapping their thighs with glee over setting AIG up to pay sums that were known to be beyond their ability to pay - why are these geniuses even now still getting away with bending this Congress to their will?
They are willing to risk the very stability of the markets they run and they scheme to rip people off at every turn. Until recently AIG and Goldman Sachs owned a piece of the San Francisco docks and fought the unions to get more.
http://www.sfchronicle.com/...
When Obama came into office in 2009, he was faced with the mess of the likelihood of the collapse of the world financial system and depression.
The President, the Secretary of the Treasury, and the Fed decided that to stabilize the world financial system they had to bail out the idiots who had taken the bets and order that they pay off the bad insurance bets they made, using taxpayer money in order to prevent what they saw as a looming, world-shaking financial catastrophe.
Keep in mind, that the CEO of AIG in a CSPAN recorded Congressional hearing on AIG’s role in the mess, the CEO of AIG had no clue what was going on in the little office that was writing these CDS and seemed to have no comprehension what they were or how they worked except that money was pouring in to pay for the toxic bets that AIG was taking on but would not be able to pay off.