Monday, August 31, 2009

Must Read: Lies, Lies, and Financial Reporting

http://www.nakedcapitalism.com/2009/08/more-bogus-bailout-reporting-as-big-banks-repay-bailout-money-us-sees-a-profit.html

Monday, August 31, 2009 Naked Capitalism
More Bogus Bailout Reporting: “As Big Banks Repay Bailout Money, U.S. Sees a Profit"

This article helps dispel the half truths and outright deceptions in 2 articles, one in the NYT and the other in the Financial Times.

Here are some of my personal observations and questions.

First, how is it that U.S. banks are repaying the U.S. Government?

The Federal Reserve is providing U.S. reserve banks with very low interest rates (i.e., "free money") that allow the banks to earn money to repay the government. So, the banks' profitability is in some degree dependent upon their preferential treatment.

Second, what role does AIG have in allowing banks to repay Government loans? One has to wonder whether the U.S. Government is getting back the money funneled to banks through AIG.

In March 09 Reuters reported that Goldman Sachs and a variety of European banks were the “major beneficiaries of $93 billion in payments from AIG”
http://www.reuters.com/article/topNews/idUSN1548789520090316

The NYT reported that “Financial companies that received multibillion-dollar payments owed by A.I.G. include Goldman Sachs ($12.9 billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion).” http://www.nytimes.com/2009/03/16/business/16rescue.html

In April 09 the Treasury chief watchdog probed whether AIG paid more than necessary to banks. http://www.bloomberg.com/apps/news?pid=20601103&sid=aINWOYTgy2zk

So, are U.S. banks repaying the U.S. Government using money received from the Government via AIG? Additinally, are the bank still getting money from AIG?

The NYT article today reported that “The government still faces potentially huge long-term losses from its bailouts of the insurance giant American International Group, the mortgage finance companies Fannie Mae and Freddie Mac, and the automakers General Motors and Chrysler. The Treasury Department could also take a hit from its guarantees on billions of dollars of toxic mortgages.”

In closing, my question is how is it that the banks, many of which are still technically insolvent if they were forced to acknowledge losses, are paying back the U.S. Government?

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