Crony Capitalism in America
Sue the Government!
Why wasn't anyone prosecuted and put in jail? Why didn't we just let the company fail? Why isn't this ridiculous lawsuit being thrown out of court?
The answers, as they usually are when we're talking about politicians and Wall Street, are simple: greed and corruption.
And the implications are monumental: More and more Americans are turning their backs on U.S. politics because the system is obviously broken. Greed and corruption are dragging American democracy into the gutter.
Now, let me introduce you to an incredibly wealthy man who should probably be in jail but isn't. His name is Joseph Cassano. He's basically an insurance salesman. But the kind of insurance he sold earned him $300 million in the eight years between 2000 and 2008 and nearly brought down the U.S. banking system.
You see, Mr. Cassano worked for an insurance company called AIG. He was selling insurance for mortgage-backed bonds. The insurance he sold (called a credit default swap, or CDS) kicked in if the default rate on the mortgages within the bonds hit a certain percentage.
Historically, mortgage default rates are very stable and predictable. So selling insurance on them was like printing money for Cassano and AIG.
But during the financial crisis, default rates on mortgages skyrocketed, and suddenly AIG was on the hook for tens of billions of insurance claims.
Of course, because these insurance policies were virtually unregulated, there was no requirement that AIG had to have any cash on hand in case it had to pay.
So AIG was essentially broke and had to turn to the U.S. government for a taxpayer bailout amounting to $182 billion that was brokered by Tim Geithner of the New York Fed and Treasury Secretary and former Goldman Sachs CEO Henry Paulson.
The first thing AIG did with that taxpayer money was pay out $165 million in bonuses to its executives. The second thing it did was pay the $30 billion it owed to Goldman Sachs and other Wall Street banks.
AIG didn't negotiate its debts like most companies in a bankruptcy situation do. It paid out 100 cents on the dollar — just as Paulson and Geithner instructed, because they wanted to make sure Goldman Sachs et al. had enough money...
As for Cassano, he retired with a $34 million golden parachute. And he continued to work for AIG as a consultant — making $1 million a month.
He was never prosecuted even though he tried to cover up exactly how much AIG was at risk.
Now THEY'RE Suing!?!
Right now, in federal court, the former CEO of AIG and one of its biggest shareholders are suing the U.S. government over the terms of that $182 billion bailout AIG received during the financial crisis.
They say the terms of the bailout — where the Treasury took ownership of 80% of AIG's stock — were unfair.
Unfair like when your company is going belly-up due to risky behavior that the CEO endorsed and needs a taxpayer bailout? Or is this unfair as in the government shouldn't have wanted to get its money back so that the CEO and others could make even more money?
It would be funny if it weren't so damned depressing...
Do you know the term "crony capitalism?" Because that's what's going on here. Crony capitalism describes an economy where success in business is the result of close relationships between businesspeople and government officials.
When you have a Treasury Secretary (Paulson) and a Fed president (Geithner) organizing a bailout that will be used to pay off a former employer (Goldman Sachs), that's crony capitalism.
When not one Wall Street executive gets prosecuted for fraud, covering up fraud, or simply covering up bad investments because they are all generous campaign donors, that's crony capitalism.
And when a former CEO sues the government because the terms of the bailout for his virtually bankrupt company aren't favorable enough — jeez, I'm not even sure what that is... jealousy, maybe? Stupidity?
If I were the judge, I'd throw the S.O.B. out.
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We're On Our Own
Approval ratings for the president and Congress are at all-time lows. And it's because Americans all know that crony capitalism rules. The question is: What can we do about it?
I wish I knew all the answers...
By the time I hit retirement age, which is in about 15 years, I do not expect there to be much “help” waiting for me. That's why I'm taking action now and helping as many individual investors as I can along the way...
Just the other day, one of these investors wrote me to let me know how he is doing. Here's what John S. had to say about the income he's been making:
I have made $1,000.00 per month on a 16,000.00 thousand account the last 4 months since using your service so I THANK YOU!! I have used margin but still a great return. Keep up the good work!!
It's messages like these — from individual investors just like you — that make it a pleasure for me to come to work in the morning.
Sure, it's still frustrating to see the things that make America great get slowly eroded by crony capitalism.
But at least it's still possible to put your money to work generating the type of income you need to make life better.
Until next time,
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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