Video here from a friend on Facebook. Can you believe this? The Fed cannot answer where $500 BILLION went to overseas. Asked to name the central banks it went to, which was around 14 as cited by Bernanke in the vid, he cannot do so. He says they’re listed in the document. Then as to answer what banks it went to beyond the foreign central banks, he still cannot provide an answer. What? Here’s a thought, when you go to a review committee have the answers on hand.

Congressmen Grayson points out brilliantly how the nominal exchange rate of the US dollar went up 20% at the exact same time the half-trillion dollars was lent out to the foreign markets. He questions if it’s really a coincidence and Bernanke with hesitation says yes but you can see him questioning that response on his face. Not a coincidence??? Riiiiiiight.

Grayson also questions the ability for the Federal Reserve to dole out that kind of money to foreign states without the authorization of Congress (a checks & balances requirement) and the response. Oh, the Federal Reserve Act. The date of this legislation you ask? 1913! Gee, think maybe it’s time to pay attention to the laws that may be outdated before you shovel half-trillion dollars of tax payer money out the door???

I’ve never read up on the libertarian idea of getting rid of the Federal Reserve, despite a few mentions in my Neal Boortz collection. Perhaps it’s time to investigate.

Exit question: Did hell freeze over because I never thought the day would come where I would thank god for C-SPAN 3????

But apparently James “Moufffffffff of the Soufffffff” Carville is. Or so he’d like us all to think. Mr. “It’s the Economy, Stupid!” is now excusing President Obama’s lack of communication luster on the financial crisis as not being the fault of his holy Messiah, but because the topic is too complicated. (via Financial Times) I usually have respect for things Carville says, but this I just have to shake my head in embarrassment.

The essential problem is not how good a communicator he is but the complexity of what he has to communicate. We can argue, ad nauseam, about which forum Mr Obama should use to level with the American people. Should it be on 60 Minutes or Jay Leno? Should he do fireside chats at the White House or predictions for the college sports season on ESPN? But that does not change what he has to communicate.

Now I’m not going to BS here. Derivatives are complicated to understand to the average person who’s never bothered to research them. But guess what – so is trading on ANY level – stocks, bonds, real estate. There are always going to be a few bad eggs or products, but that doesn’t mean the entire lot is then just as rotten. If you applied Carville’s reasoning excuse that would mean people should be afraid also of investing in their mortgage, investing in their 401ks, etc.

As someone who has prided himself on being able to reduce complex problems to simple messages, I am totally stumped by derivatives. After hours of research, they seem to be something rich, greedy bankers thought up to make more money selling them to other rich, greedy bankers. They did not understand what they were selling. Buyers did not understand what they were buying and insurers did not understand what they were insuring.

If Carville had bothered to shut his mouth and actually research derivatives for two seconds, I think he’d see that there is a way to communicate the complexity of derivatives in layman’s terms. The reason I know this is possible – because this is my job every freakin’ day. And I hear the feedback from people at the education events we put on to know that THERE IS a way to break it down in a simple form for ordinary people to understand. But you’ve got to give people a chance to understand, not just say “Uhhh, we’ve got the best economists around, people. Trust us!”

The problem is compounded by the fact that the only people who can explain them are the bankers who created them. It is like relying on a criminal to tell us how he committed a crime – and paying him to do it.

Last time I checked I’m not a banker and let’s see if even I can break it down. Trust me, there are hundreds of smarter men and women who could do a better job, but I’ll give it a try for my readers here. So, what’s a derivative?

Well, most of you probably know that you can buy stock of a company and that makes you a shareholder because you directly own a share(s) in that company. Whatever profit that company makes, you’ll be rewarded dividends based on how well the company did and your share of the reward is dependent on your percentage of investment in the company. If the company’s earning takes a loss, well, you’ll probably start resembling Yosemite Sam when Bugs Bunny got the best of him.

Now a derivative is a financial product whose value is determined in part from the value and characteristics of another security, usually referred to as the underlying security/asset.  The success or failure of a derivative is factored by the performance of the underlying security. The underlying also is a factor in the pricing of a derivative. Sometimes the underlying security is defined as stock. Sometimes it is defined as commodities like oil, corn, etc. Sometimes the underlying is an index. And sometimes the underlying security is a federal-guarantee of bundled mortgage securities from a government subsidy committing accounting fraud like Fannie Mae (Gooooooooooooo, Franklin Raines!)

These derivative industries are also typically heavily regulated and audited. In order to even trade them you have to read and sign off on a ton of disclosure and risk statements acknowledging you know both risks and benefits. So since the derivative is based on an underlying security it is directly impacted by the behavior of said underlying security. If the underlying security is built on accounting fraud and house of cards *cough*mortgage-backed securities*cough* then the derivative that is connected to it could be as well. There is more to it, but we’re talking out the basics here.

Further in his article, Carville does an injustice when he states that Obama can’t explain derivatives to the public because they are too complex, but then himself tries to explain terminology with an executionFAIL. Here’s an example:

To be fair, I thought Mr Obama did a good job on Jay Leno explaining the AIG situation until he used the word “leverage” (translation for laymen: financial shovel that people use to dig themselves into a deeper hole), a term that escapes 97 per cent of the public.

Sound the Alarm!!!

Gee, instead of trying to be fair, Carville, why don’t you try being accurate? Here’s the proper definition of leverage – When you leverage an investment, you use a small amount of money to control an investment that’s worth much more. Example, investors are using leverage when they purchase a derivative lower in cost than if they bought the underlying stock outright, and then profited from a change in the underlying stock’s price.  For a party that’s always bent out of shape on the myth of the wealth gap, it sure seems like you’re purposely missing the point on a strategy that allows smaller investors to make gains on the same level as the bigger investors, even though they have smaller capital to work with.

Now, I’m not saying derivatives are perfect, but they can be great tools for individual investors to minimize risk and maximize gains in the portfolios. And when I say individual investors I’m not talking about George Soros who’s probably benefited the most out of this crisis, thanks probably in part to Obama’s doom and gloom talk. (via PowerLine News)   Next time you hear one of these Pitchfork Dems complaining about derivatives and greedy Wall Street, keep in mind that Soros for YEARS ran a global marco fund where he traded GASP!!! derivatives on stocks, bonds and commodities. And Obama wouldn’t be where he is today without Soros’ help. But I digress.

Anyconspiracynut (LOL), I’m talking about the retired couple down the street or your relative that has a moderate portfolio on the side. Yes, there are people with multi-million dollar hedge funds that use derivatives but so do millions of smaller, individual investors. It’s not just about “greedy” bankers as Carville would have you falsely believe.

I hope this post provides at least a different perspective on derivatives for you. Realize that with any investment there is ALWAYS a learning curve – there are huge risks and benefits with any product. While my brief explanation is by no means the end of this topic, it’s at least a starting point. There is always going to be a debate about the contribution credit default swaps played in the financial crisis, as will there be discussions about mortgage-backed securities. But pundits like Carville should be more ethically responsible in presenting accuracy instead of blanketly throwing all derivatives under the bus. That’s not fair to the many, many decent, regulation-abiding traders out there and it’s doing a disservice to the inquiring public.

Yes, in the case of the credit default swaps the SEC missed the boat in a big way but that doesn’t give Carville a default pass to excuse Obama’s poor communication with taxpayers. Again, Obama wanted the job and sold people on the basis that he was the guy to get it done so the buck stops with him if he can’t explain it to his shareholders. If a company’s stock tanks due to poor performance, it’s the CEO’s job to explain to the angry shareholder’s the revised business strategy. Do you think shareholders would buy the excuse of “Well, in Mr. CEO’s defense it’s that our product is too complicated to explain.”???  Ummm – N-O. So neither should we as taxpayers accept this sad excuse for Obama’s poor communication. If the federal government wants to get into the business of buying up toxic assets then they do goooootz some essssplain’ to do to its revenue-providing taxpayers.

Well, after having enough of cleaning up AIG’s mess and getting paid literally squat, zip, zero now thanks to the unconstitutional (yes, unconstitutional) retroactive tax on his bonus, one guy has done just that – said adios to the boss. Some may say, well he didn’t deserve the bonus! People used their house mortgage like an ATM and now can’t pay it back – where’s your sympathy??? Where’s my sympathy? Ummm – Whaaaaaaaaa. See my thumb and middle finger rubbing together – yes, I’m playing the world’s smallest violin.

Here’s the deal, the folks at AIG were contractually entitled to their retention bonuses. If they stayed on to meet the goals set by AIG and the Treasury to clean up the mess, they would get the bonuses. Now that they’ve met those pre-defined goals and were awarded the bonuses, Washington is saying not so fast, Jack. How is that fair? Even though their bonuses were due based on the contract approved agreement set by Senator Chris Dodd (DEMOCRAT) and The Great Geithner at the Treasury (DEMOCRAT), oh AND let’s not forget Captain Kool-Aid himself (DEMOCRAT).

Also, let’s not forget that most of the people at AIG receiving these bonuses were not responsible for the financial mishaps involved with the credit default swaps – those people ARE. LONG. GONE. So invoking a retroactive tax on the retention bonuses is not sticking it to those who were responsible for the mess you’re yammering on about. This retention bonus was not architected and approved by AIG but by the following –  Dodd, Geithner and Obama themselves!!!

Sorry, as much as you want to believe in your Hope ‘n Change! t-shirt, Democrats do not ensure transparency and no more imperialism in government. What these buffoons have done is the classic example of imperialistic government behaviors.

The problem with this is that it took him a couple of days — and he still got it wrong. If you’ll recall, Obama and his team first claimed to know nothing about the bonuses, and then modified that claim to knowing nothing about the amendment in the omnibus plan that allowed them to get paid. Subsequently, we discovered that not only did Tim Geithner and Congress discuss the bonuses on March 3rd (and that Geithner wrote an e-mail about them while with the New York Fed in November), but that it was Geithner and his staff that directed Chris Dodd to make the necessary changes to the amendment that enabled the bonuses. In otherwords, Outraged Obama made the bonuses possible.

So I guess Jake DeSantis just didn’t want to break his back over 15-hour days for literally nothing. He put in his notice, via an Op-Ed in the NYT. Good one, Jake. Read the whole thing if you can, it’s a good one.

DEAR Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

You and I have never met or spoken to each other, so I’d like to tell you about myself. I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute’s generous financial aid enabled me to attend. I had fulfilled my American dream.

I started at this company in 1998 as an equity trader, became the head of equity and commodity trading and, a couple of years before A.I.G.’s meltdown last September, was named the head of business development for commodities. Over this period the equity and commodity units were consistently profitable — in most years generating net profits of well over $100 million. Most recently, during the dismantling of A.I.G.-F.P., I was an integral player in the pending sale of its well-regarded commodity index business to UBS. As you know, business unit sales like this are crucial to A.I.G.’s effort to repay the American taxpayer.

The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That’s probably why A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees.

That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts “distasteful.”

That may also be why you authorized the balance of the payments on March 13.

At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress.

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

So what am I to do? There’s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

This choice is right for me. I wish others at A.I.G.-F.P. luck finding peace with their difficult decision, and only hope their judgment is not clouded by fear.

Mr. Liddy, I wish you success in your commitment to return the money extended by the American government, and luck with the continued unwinding of the company’s diverse businesses — especially those remaining credit default swaps. I’ll continue over the short term to help make sure no balls are dropped, but after what’s happened this past week I can’t remain much longer — there is too much bad blood. I’m not sure how you will greet my resignation, but at least Attorney General Blumenthal should be relieved that I’ll leave under my own power and will not need to be “shoved out the door.”

Sincerely,

Jake DeSantis