http://www.forbes.com/2009/03/04/global-recession-insolvent-opinions-columnists-roubini-economy.html News and banks analysts' reports suggested that Goldman Sachs (nyse: GS - news - people ) got about $25 billion of the government bailout of AIG and that Merrill Lynch was the second largest benefactor of the government largesse. These are educated guesses, as the government is hiding the counter-party benefactors of the AIG bailout. (Maybe Bloomberg should sue the Fed and Treasury again to have them disclose this information.) But some things are known: Goldman's Lloyd Blankfein was the only CEO of a Wall Street firm who was present at the New York Fed meeting when the AIG bailout was discussed. So let us not kid each other: The $162 billion bailout of AIG is a nontransparent, opaque and shady bailout of the AIG counter-parties: Goldman Sachs, Merrill Lynch and other domestic and foreign financial institutions. So for the Treasury to hide behind the "systemic risk" excuse to fork out another $30 billion to AIG is a polite way to say that without such a bailout (and another half-dozen government bailout programs such as TAF, TSLF, PDCF, TARP, TALF and a program that allowed $170 billion of additional debt borrowing by banks and other broker-dealers, with a full government guarantee), Goldman Sachs and every other broker-dealer and major U.S. bank would already be fully insolvent today. And even with the $2 trillion of government support, most of these financial institutions are insolvent, as delinquency and charge-off rates are now rising at a rate--given the macro outlook--that means expected credit losses for U.S. financial firms will peak at $3.6 trillion. So, in simple words, the U.S. financial system is effectively insolvent.
This is my hypothesis as well. AIG took the wrong side of too many GS bets. I have said this once, and I'll say it a thousand times....the end to this financial orgy of agony will come on the back of these 3 events: 1. Reinstating of the Glass-Steagall Act 2. Voiding of all current CDS contracts, enacted by US govt, and a return of paid premiums to the sellers of risk 3. Heavy retroactive taxing of past CDS gains People are looking for a means to an end, here it is. It wouldn't be a pretty process, but it would be better than the insanity that we're currently experiencing.
The supposed "assets on the books" which rely on someone elses's paper values and this relationship to "legal solvency" is the real question at hand.... The fact of the matter is that the trickle down values of the total deposits held by banks has been squandered by excessive leverage....The total derivative valuations were utilized throughout the system.... The fact is....."the money has been blown"..... ................................................................................... This means starting over with bandaided zombie banks or starting over with clean slated banks that did the right thing.... The wiping out of pensions, cds, stocks, bonds.... HAS ALREADY HAPPENED.... THIS IS NOT A DRILL.... ......................................................................................... The US financial system simply exists because of government's good will which exists because other governments' good will has shifted down even further on a relative basis.... ...................................................................................... The US now has to rebuild....and needs the best system possible to create individual wealth which would be a major downsizing of government and a dramatic lowering of taxation....such that the US can attract and build a new "real economy"....based on manufacturing ..... The situation is that the ballasts must be released such that the balloon can leave the ground.... The US government has to enable the private sector to make the gains in private net worth in order to become a wealthy nation.... When the government owns it...the people have no wealth....