Much of Wall Street is forecasting a profitable first quarter of 2009, which is quite a feat in the midst of the worst financial crisis of the last 80 years. However the news might not be as good as it seems. According to
Zero Hedge a significant amount of that profit is coming from American International Group Inc.'s rush to unwind its massive credit default swap positions.
An AIG employee writes to the blog explaining AIG's moves "could have easily been $1 billion - $2 billion per bank" in the first quarter:
AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG....
What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.
After already
shelling over $75 billion to Goldman, Sachs & Co., Merrill Lynch & Co., Morgan Stanley, Bank of America Corp., France's Société Générale SA, Germany's Deutsche Bank AG and Britain's Barclays plc its good to know that AIG remains everyone's favorite counter party. -
George White See Zero Hedge postSee Deal Pipeline story on AIG bailout funds
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Thanks for the prior and continuing coverage of this specific issue. It would be great if "the public" were patient enough to learn a bit of this.