[Editor’s note: The following article first appeared on the Stockhouse blog Outside the Market on October 31.]
I have little interest in reviewing most of the recent batch of U.S. economic statistics. First of all, with rare exceptions they remain absurd exercises in cranking out low-grade fiction. Secondly, hearing about U.S. economic performance from September, and in some cases, August, has little relevance given how much economic circumstances have changed since then.
However, one headline on CNN's website did catch my eye: “AIG: repaying Uncle Sam.” Since AIG (NYSE: AIG, Stock Forum) is unlikely to ever repay a dime to the Fed (i.e., U.S. taxpayers), I had to find out what kind of BS the propagandists were selling today. The tone changed as soon as I clicked on the link, as the actual title of the article was "AIG's fancy refinancing play."
And once you actually start to READ the article, the truth comes out: AIG isn't "repaying" the Fed - it's mooching even more money, and at MUCH better terms. You see, "officially" the amount that AIG owes (i.e., has already spent) out of the $122 BILLION it originally borrowed actually declined from $90.5 billion to $83.5 billion.
How did this reduction occur? Simple. AIG just "sold" $20 billion in "commercial paper." Who did it "sell" it to? Why, the FED, of course! Translating Wall Street double-talk into English, AIG "repaid" $7 billion TO the Fed - by borrowing $20 billion more, at a much lower interest rate FROM the Fed, and all the Fed got in return was a worthless IOU.
This is so absurd, it's something I could have produced with one of my "Rooter's NEWS FLASHES." When AIG got its enormous emergency loan, just as this once-mighty behemoth was about to fold, AIG was “punished” for its folly and incompetence with a very onerous rate on this debt: 11.7%. Act II of this farce now commences, with AIG borrowing new money, at 1/3 of the previous interest rate, and for every three new dollars it borrows, it's paying off only one dollar of the much more expensive debt.
You hardly need to be a pyschic to know what will happen through the remainder of this Act. AIG will show up at the Fed's door every few weeks to "repay" a little more money (of expensive debt) with one hand, while borrowing much more (at a MUCH lower rate) with the other hand. Ultimately, AIG will be able to increase the amount it has borrowed dramatically, while not incurring any increase in its long-term debt because it's paying so much less in interest.
And don't forget the Fed's new program (one of a thousand) to pay a higher rate of interest for the money it holds "on deposit" for these institutions. For those who missed this beauty, the Fed has "loaned" fat-cat bankers TRILLIONS of dollars (which it will NEVER see again) - including more than 100% of these banks' reserves. So the Fed is essentially paying interest on money it has GIVEN to these banks. And with that interest rate now only 1/3% less than the rate at which companies can BORROW from the Fed, very soon the banksters will be able to borrow money from the Fed - and then have the Fed pay more in interest on these "deposits" than it is charging on its loans.
Even a Wall Street bankster can turn a profit on a scam like that. Try it with you own bank: Tell them you're willing to borrow money from them at 1% - but only if they pay you 1.5% on your savings. I'm guessing you won't be as lucky as AIG has been with its banker.
This would appear to be the only REAL point in the Fed continuing to slash its interest rate, despite the fact those cuts are having no effect on bank lending-rates. By leaving the rate of interest the Fed is paying on "deposits" at its current high level, it can simply keep lowering the rate it charges on loans until it is below that rate, et voila!, the banksters can turn a profit on the trillions they will borrow in the future.
In short, the Fed has come up with so many ways to shovel money into the pockets of banksters that neither the brain-dead media parrots nor the corrupt stooges in the U.S. Congress will have the slightest idea how quickly these trillions pile up. Essentially what has happened is that Bernanke and Paulson looked at the derivatives market - and how Wall Street scammed the world for trillions because no one could understand what they were selling - and came up with the perfect template for how to bail-out those same fat cats today.
When (if?) the hand-outs end, years down the road, expect it to take the government's own accountants twice as long to figure out how much money has been given away as the government actually spent making all those 'gifts'. Ultimately, most of these thieves will be long-dead, and lying in their solid-gold coffins by the time Americans finally learn how much MORE has been stolen from them.
God bless America!
This article was written by a member of the Stockhouse community.
Read more Stockhouse articles by littleguy123.