Saturday, September 20, 2008

Interlocking Lies

In this morning's Saturday Radio Address, President Bush said,

Our free enterprise system rests on the conviction that the Federal government should intervene in the marketplace only when necessary.

Proof of this, of course, is seen in the fact that the Federal goverment did not bail out Lehman Brothers like it did Bear Stearns. Richard Adams, writing in the UK Guardian, shows that the big AIG bailout is simply taking care of all the other bailouts that didn't occur because the government was "exercising restraint."

the US investment bank Lehman Brothers leased a million square feet of office space in London, for which it paid about £40m-£50m a year. Lehmans paid its rent to a property company, the Canary Wharf Group - which in turn is controlled by another company, Songbird Estates.

Simple enough so far? Here's where it gets complicated. The rent that Lehman Brothers paid forms part of the income behind a
£2.5bn securitisation package (that is, corporate bonds sold to outside investors, mortgaged against a stream of future earnings) through a holding company named Canary Wharf Finance II PLC. The securitisation's income was insured by the US company AIG. So when Lehman Brothers filed for bankruptcy on Monday, that meant AIG will be in the hole for the £200m that Lehmans would have paid in rent for the next four years. But AIG itself would probably have gone under yesterday or today, except that the US government effectively nationalised AIG last night in loaning it the $85bn that it needed to keep going. HT

The concept of a "securitization package" was exposed in the video at the bottom of this previous blog post.

The government is bailing out an interconnected chain of special interests, not protecting the "general welfare."

Let's imagine another interconnected chain of special interests in the next post.

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