Here's a simple picture to help you understand what went on with some of the synthetic derivatives that AIG blew up with. Remember, the taxpayers are on the hook for $180 billion due to the AIG bailout.
Imagine that you sell a very expensive car with faulty brakes to some unsuspecting car buyer. You know the car will eventually crash because you actually set up the brakes to fail. You find an insurance company that will allow you to buy an insurance policy on the car that will pay you a million dollars when the car crashes.
Let's also say that the insurance company that sells you this policy doesn't have a million dollars to pay your claim. You know that they only have $100,000 and not the million dollars to pay. But you have connections in Washington and you get the government to bailout the insurance company so that they can pay you the full million dollar insurance claim on a car that crashed because you made sure that the brakes were bad.
Wouldn't this be outrageous? Wouldn't you want me to be locked up for life? Wouldn't you want to tar and feather me? Wouldn't you be upset if the government knew exactly what happened but went out of their way to cover it up?
Read the Bloomberg storyand keep this analogy in mind to help you get through the technical terms.
Take time to read Karl Denninger's analysis and commentary here and here.
Do you still think the bailout was a good thing? The premise was to save the banks so that they could lend money to the masses. Think about it for a second.
If you want to get money to the common person to help them out, why do you need to funnel it through banks? Why not cut out the middle man and just suspend the income tax for a year? That would give people money to spend immediately and therefore you wouldn't have to grandstand and try to browbeat the banks to start lending.
Maybe the true purpose of the bailout was to bailout the well connected on Wall Street. Is that so far fetched? Do you maybe see why people are getting a little mad and trying to find outlets such as Tea Parties to voice their outrage?
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