The story detailed how Goldman Sachs was planning to sell common stock to raise $5 billion to pay back the $10 billion in money it received through the TARP (Troubled Asset Relief Program) bailout. No where in the story did it talk about paying back the $12.9 billion it received from the bailout of AIG provided by US taxpayers.

Many of the financial institutions receiving TARP money also benefited from the bailout of AIG, which is particularly disturbing to some because it involved trading in over-the-counter credit default swaps. There are many benefits to OTC markets but they are available only to institutional traders because bilateral trading involves taking on counterparty risk. In essence you are declaring, ‘I am a big boy, I am self insured.’

Fed Chairman Ben Bernanke in a speech he made today at Morehouse College cited the reasons for the government bailout of AIG. While he provided an exhaustive list, his arguments were not convincing. Perhaps if there where more bankruptcies and fewer bailouts and forced mergers it would be easier to believe him  when he says that he would prefer to let the market work.

 As an editor, one of the first things I tell my reporters is not to be afraid to ask questions when you don’t understand what a source is talking about. Sounds simple but we are often embarrassed to ask what seem to be elemental questions regarding terms people use or explanations that make no sense when it appears everyone around us knows what the speaker is talking about. Chances are most of the other people are also afraid to ask the simple question for fear of looking foolish or uniformed. In the end you get jargon and other nonsense being tossed about in boardrooms, congressional hearing rooms and business media outlets that very few people understand, if, in fact, it is understandable in the first place.

When we are presented with a crisis, an emergency that requires immediate action, that is when it is particularly important to ask those simple “why” questions. If, in fact, our very financial system was on the brink of ruin, then the specific details and reasons should be made apparent in precise detail. No vague warnings of impending doom.

But did anyone say to Treasury Secretary Henry Paulson or Bernanke when various bailout proposals were first contemplated: “I want you to slowly, with great detail explain why we should provide bailout money to institutions engaged in over-the-counter trading—trading that by definition is less regulated precisely because these institutions are supposed to have the size and wherewithal to weather a failure by a counterparty.” How many in Congress were afraid to ask, “Exactly what will happen if we do not bail these institutions out? How did you come to that conclusion? Is there a way to make funds available directly to the “so called” innocent bystanders avoiding a systemic breakdown and allow the institutions who were wrong to face the consequences of their poor decisions?” Or perhaps, “Given what has occurred, is the system worth saving?”

Individual bank accounts are protected by the FDIC and the actual insurance policies are subject to segregation similar to futures accounts so can we be sure what was being protected wasn’t simply the large institutions themselves. If the point was to avoid the collateral damage caused by a systemic breakdown, why couldn’t the money be directly allocated to those at risk, bypassing those responsible for the breakdown?

How is it that these leaders were so sure of the consequences of not providing a bailout but did not do anything to prevent it when the risk was piling up? If we knew of the interconnectedness of large financial institutions—as Bernanke noted in his speech today — how is it that regulations in recent years were being relaxed instead of tightened? How is it banks were allowed to increase leverage rather than be forced to reduce it?

How else can Congress and the Administration express shock over these bonuses that were known beforehand. Futures Publisher Ginger Szala blogged back in January regarding AIG bonuses yet those whose job it was to look over the details of the various government sponsored bailouts express shock and anger!

The House of Representatives have gone so far as to pass a bill taxing bonuses of firms receiving TARP money at 90%. The 90% tax on Congress people expressing shock and anger over things they knew or should have known apparently is still in committee.

Go back a year to the Bear Stearns blow-up that started this. The Bear Stearns executive bonuses were saved by the Federal Reserve and U.S. taxpayer sponsored bailout. If Bear had been allowed to go into bankruptcy those bonuses would have had to have been returned. Fed Chairman Bernanke and current Treasury Secretary Geithner assured us during Congressional hearings that there was no risk of moral hazard because no one would seek out such a predicament. But seeing that the firm faced bankruptcy or a government backed fire sale, basically a worst case scenario, and executive punishment was a multi-million dollar golden parachute, why would other executives not see this as a viable option?

One wondered at the time why such bonuses weren’t restricted as part of the deal. And surely with that experience in hand, any further government bailouts would be accompanied by restrictions.

                                      New York Times, Jan. 28, 2009, Column by Maureen Dowd, Wall Street’s Socialist Jet-Setters

A couple months ago I wrote a Futures editorial that got a big response, largely because it took on the arrogance of companies and their corporate jets. At the time I was chiding the car makers, but apparently executive self entitlement has spiraled to the point that even when a company is taking public money, it’s willing to buy a corporate jet for $50 million and be shocked when the government, which loaned the company money, steps in and says no.

In Citigroup’s defense I know this thought process isn’t rampant in its rank and file. One of its executives told me once that while traveling with their children, he and his wife had to stay at a lesser star hotel because their hotel of choice was overbooked. His children were angry, and he and his wife were so appalled by their reaction, that for years afterward when they traveled they stayed at Motel 6’s until the kids quit complaining.

That’s what the government has to do with these Wall Street elite. Have them stay at a Motel 6, and hey, why not force them to travel by Greyhound bus too? They have computers and Blackberries and mobile phones they can use to work while they travel, and well, they can get to see the countryside they so helped destroy while they are at it.

In Maureen Dowd’s piece she also says the government should call Wall Street’s bluff on bonuses. When asked by a reporter to explain why he still pushed bonuses for a group that lost billions of dollars, former Merrill Lynch CEO John Thain replied that if you don’t pay, you’ll lose good people. Dowd’s response was, how good could they be? I agree. Obviously there are many good people on Wall Street who have treaded water in these trying times. But there are as many – and perhaps more – who are still demanding bonuses for losing money. Don’t pay them bonuses and let’s see what happens. Will the “smartest guys in the room” take their ball and go away? Let’s hope so.

The latest news hitting Wall Street was the brain trust at AIG that wants to give bonuses despite being on the public dole. This is the same group that kept up pheasant hunting in Great Britain and went spa-ing despite the company’s financial problems. And who would receive said bonuses? Well, the finanical products division responsible for blowing the hole in the AIG bubble to begin with. Now that’s brass.

The S&P 500 dropped 59.01 points, closing at 1,192.69. That’s the biggest single day drop since Sept. 11, 2001.

According to Lehman, none of the company’s broker-dealer subsidiaries or other subsidiaries of LBHI was included in the Chapter 11 filing and all of the U.S. registered broker-dealers will continue to operate. Neuberger Berman, LLC will continue to conduct business as usual.

Lehman’s bankruptcy will reportedly result in the loss of 25,000 jobs, and the liquidation of the company, as negotiations with foreign wealth funds failed when the Federal guarantees failed to materialize. Such guarantees were made for Bear Stearns, when JP Morgan acquired it in March.

In the shadow of events, the Federal Reserve Bank has created the new Term Securities Lending Facility (TSLF), which could provide support and liquidity to the stressed markets. The Federal Open Market Committee announcement is scheduled for Tuesday, as is the Treasury International Capital (TICS) data, which will announce the amount of foreign capital entering or exiting U.S. markets.

Tuesday should be another intersting day.