Thursday, October 16, 2008
(Cont'd from above)...

In other words, hedge funds, which had no economic interest in the Lehman Brothers' bonds... in other words, they were trying to insure their own bonds... were allowed to take out huge insurance policies against Lehman. These same hedge funds knew they could push Lehman down, in a battle of encirclement and annihilation... "Kesselschlacht," as I've been talking about... there's no English word for it... So they bought these insurance policies... they're called "credit default swaps"... then they bought put options, and then they shorted the stock down, pressed it down with reckless abandon, and they called the media and they told them people were pulling their money out of Lehman, and then the stock drops some more, the credit insurance policies spiked in value... and then the ratings agencies panicked in reaction to the stock's decline, and downgraded the company. And that was all she wrote... Bye, bye, Lehman Brothers. They torched the darn thing. They torched it.

The hedge funds buying this bond insurance also knew the government wouldn't come to Lehman's rescue, because the federal government foolishly said they were done bailing anybody out, even though this one was "way too big to fail"...

See, that meant it was worth it to buy as much insurance as possible in the house of Lehman... much, much more than the house was worth, and then torch it, set it on fire... knowing that no one could put it out... and then the SEC would give it a good arson seal of approval.

Why bring this up now?...

Because I believe... and it's never been disputed... that American International Group (AIG), the insurance company, was the biggest underwriter on these policies on Lehman's bonds. I believe the U.S. government, which now essentially owns most of AIG, will be forced to cut checks to all of the hedge funds that committed this arson, and the checks are going to be for tens of billions of dollars...

Now, not only is this behavior legal, it gets you a big, fat check from the federal government.

Just wait until you hear the screams about this Wall Street gangster bailout.

This is why, even though I've been negative on AIG since December 13th of 2007, when the stock was at $57.05... I am not just putting it in the "Sell Block" but I am leaving it in solitary and throwing away the key!... And, if it weren't for the darn 8th Amendment, which is almost as bad as the 4th and 5th Amendments, I would be calling for cruel and unusual punishment!

I think the big Lehman insurance payout on Tuesday will wipe out whatever value might be left in AIG's common stock, and owning it here is simply a fool's game! I was giving a speech at Union College in my home county the other day, and two people asked me, "I own AIG, what should I do with it?"... You sell it!

I have to reiterate my negativity pending the payout of these outrageous and irresponsible policies that AIG wrote. Believe me, that will be the story of the day. I'm giving you the headline... The Wall Street gangsters make billions off of you...

Of course, there's already enough hatred to go around when it comes to AIG...

I have said over and over again that the promises made at this December analyst meeting about how little exposure there was to this stuff... they told us it was like $500 million... simply might have been untrue by a factor of 100...

Yeah, I think, when this is all over, AIG will cost you and me $500 billion... $500 billion. That's how much I think AIG is really on the hook for. We know that there were internal reports that spoke of a much higher figure. In fact, maybe Justice should look at this and see if there was a criminal conspiracy to defraud shareholders.

And, not only that, after the government bailout - the cost of which has already come to $123 billion - AIG continue shower its executives with big pay packages and bonuses... costly junkets... and even an overseas hunting party and golf outing. What was the thinking there? Our company could go under, so let's go hunting... We're insolvent anyway, so let's go play some golf? Uh, at the shareholders' and credit holders' expense?...

How a company can spend money like this, after it's been put on federal life support, when it knows all these policies are about to come due, is simply beyond me. How could AIG's management be that dumb?... Can't they see what's coming?... Can't they see that what we're about to have are show trials, and my favorite kind of court... a kangaroo court... coming. And they are... well, let's just say... they are giving the prosecutors enough ammo to make a real kangaroo court out of it.

Oh, by the way... One of my heroes is Andrew Cuomo, New York's Attorney General... because he's launched a probe into AIG's behavior, as all these executive perks alledgedly violated New York State law against corporate insiders enriching themselves at the expense of their creditors, when the company's in danger of being insolvent. And we are cheering him on. Go Cuomo!

What are we talking about here?...

How about a $440,000 trip to a California resort?... A $5 million bonus, along with a $15 golden parachute, to former CEO and Wall of Shamer, Marty Sullivan... the guy who should be taking responsibility for the AIG fiasco... he's getting millions? And, according to Cuomo, an unnamed top executive, and these are his words... who was largely responsible for AIG's collapse... got to keep $34 million in bonuses, after he'd been fired, and kept receiving $1 million a month from the company until recently.

Not only that, AIG's still lobbying state governments, not to mention Congress, to relax some provisions in a new federal law that requires tighter regulation and oversight of mortgage originiators in order to hold them accountable if they engage in fraudulent lending. That would have prevented a lot of the problems we have. A company that's been bailed out by the government, that's essentially owned by the government, is still allowed to keep these lobbyists on the payroll?

You can't make this stuff up. These people have no shame. We should hound them in the supermarket, we should hound them in the ballpark... We should hound them everywhere they are... We should make fun of them, and we should point fingers at them, and we should tell them that, "You have no shame!"

Here's the bottom line...

The Bottom Line!:   On October 21st, we'll find out just how bankrupt American International Group (AIG) really is, when these Lehman insurance contracts have to be paid off. We'll find out the shocking, sickening cost of unregulated credit default swaps blessed by the SEC, and the lack of disclosure about AIG's liabilities, blessed by the SEC... If AIG's behavior is as bad as it looks, some of its executives deserve to be in real "Cell Blocks"...

Read Jim's next Segment here