Guest Post: Busting Out The Joint

Tyler Durden's picture

Submitted by Gonzalo Lira

Around 1990, I saw “Goodfellas” when it first came out. Scorcese’s quasi-nostalgic take on the Italo-American gangster culture of the 1960’s and ’70’s was like a tricked out Cadillac convertible: Eye-catching and glittery, and very very memorable.

    One of the scenes that struck me—and a film-school textbook example of how to stage a tracking shot—was the scene where the mobsters “bust out” a neighborhood restaurant. The camera dollied sideways as it first showed a long line of delivery men bringing in an obviously excessive amount of goods and supplies to the restaurant, then it showed how mobsters were taking those supplies out of the restaurant through the front door and loading them onto the back of a truck, all in one smooth motion.

    This was called “busting out the joint”.

    In mob parlance, as per Scorcese, “busting out” a restaurant or other business means buying supplies on credit, then stealing those supplies and leaving the business holding the bag. When the credit ceiling of the business is reached, the business is declared bankrupt and the creditors are stiffed. The mobsters, of course, walk away with all the supplies that were bought on credit and sell them off for a 100% profit. The beauty of the scam is that the business (and the business’ owners) are the ones stuck with the legal responsibility, while the creditors are stuck with the tab.

    Beu-di-ful!, as the mobsters would call this racket. Not so “beudiful” for the business owners or the creditors—which is why of course there are laws against this sort of thing: Racketeering laws. Laws against fraud. This kind of planned bankruptcy is explicitly illegal, as per 18 U.S.C. §152, as well as 18 U.S.C. §157, both of which cover bankruptcy fraud, which is the use of bankruptcy in order to aid in or conceal the commission of a fraud or theft.

    I would argue that that is exactly what has happened to the U.S. economy, at virtually all levels.

    Let’s look at a couple of cases.

    •AIG: This insurance giant did what insurance companies do—it sold insurance, including insurance on financial instruments, specifically credit default swaps (CDS). When the day came due on these unregulated CDS insurance contracts—because that’s what they were, unregulated insurance contracts—AIG found that it did not have the financial cushion to weather the storm.

    Now these CDS insurance contracts were suicidally dangerous—Warren Buffett years before had called them “weapons of mass financial destruction”—and Buffett has never been one to make hyperbolic statements just to stir the pot. Writing CDS insurance contracts delivered big profits to the fool stupid enough to write them precisely because they were so dangerous. Anyone asking the obvious question—“But what happens when there’s a downturn?”—would instantly realize how dangerous they were. But AIG kept writing and writing them, cheerfully taking on massive exposure while careful never to allow CDS insurance contracts to be categorized as insurance contracts per se, so as to avoid regulation.

    Well, we all know that movie ended, if not in its details then in a good-enough outline: The market tanked, the CDS insurance contracts came due, and the Federal Government/Federal Reserve stepped in and propped up AIG, making everyone in the financial services sector “whole”, while leaving the taxpayers, well, “in the hole”. In return for this bailout, of course, AIG promised to work off the debt and “pay back the American people”. AIG expects to repay the bailout a couple of days before the Apocalypse. Or at least they hope it’s some time before Armageddon: They’re not making any promises or anything, just crossing their fingers and really really hoping.

    However, Maurice Greenberg, who ran AIG before it crashed, and who pushed for the aggressive expansion of the CDS business which ultimately led to AIG’s (not-demise) zombie-fication, suffered no pain from AIG’s collapse.

    Why did he feel no pain? Because he had already left the business—with quite a tidy sum.

    His actions beg the question: As the head of AIG, wouldn’t Mr. Greenberg be in a position to know exactly how risky the business was, and whether or not it was healthy or not?

    Answer: Of course he would—just like a mobster knows when the neighborhood restaurant he’s busting out knows when it’s time to go.

    Mr. Greenberg left mere months before the AIG meltdown/collapse. He missed out on all the fun!

    And now that the party’s over and AIG effectively is an endentured slave to the government, tiredly paying off its bailout, Mr. Greenberg is recruiting away the best people from the company in order to set up a new shop.

    Insurance companies, by definition, are businesses of almost pure added value: All that’s necessary are people, capital, and phones. If an insurance company has no people—or at least none of the people who know the business—then the business is nothing but an empty husk with a balance sheet. And if that balance sheet is for all intents and purposes insolvent, well then…

    By setting up a new shop, Mr. Greenberg is basically cloning AIG, while leaving behind the empty bankrupt shell of AIG to the hands of the suckers who bailed it out—namely, the government, and ultimately, the people. In other words, Mr. Greenberg will wind up with a new AIG sans the insolvency, sans the government oversight (minimal though it is), sans the “bad reputation” of AIG, and on top of that, he will keep all the money he made off the CDS that AIG underwrote.

    It could even happen that, if and when this new Cloned-AIG goes broke again on credit default swaps or some other clever bit of financial engineering, Mr. Greenberg will again leave it to its fate just before it bankrupts. After all, life is a wheel, endlessly repeating . . .

    •Simmons Mattresses: Simmons was a fairly average manufacturing business, producing several top-selling lines of mattresses. It was quite successful, providing consumers with a dependable product, employees with a dependable income, local governments with a dependable tax income.

    In 2003, Simmons was purchased by Thomas H. Lee Partners, a private equity firm. Over the next six years, TLP paid itself lavishly from Simmons bank accounts for the privilege of taking it over, while at the same time loading Simmons with debt. In point of fact, according to the New York Times, TLP and the other private equity and investment bank firms involved in the Simmons deal, have made something like $750 million off the company, through fees and special dividends.

    In 2009, Simmons declared bankruptcy, with a debt of $1.3 billion.

    Uh . . . I know sometimes people find accounting a little intimidating, but—uh . . . $1.3 billion in liabilities on the one hand, contrasted with $750 million in fees and special dividends to the private equity firms feeding at the trough . . . do I really have to explain what this means? Or does everybody get the picture?

    These two examples aren’t isolated—there are inumerable others like it—one could argue that the U.S. Treasury bond market is structurally no different—and they all add up to pretty much the same thing: The United States economy itself was and is being gutted and busted out.

    By whatever means, executives found themselves in control of fairly successful businesses. They had the businesses gorge on credit, while simultaneously paying themselves exorbitant fees and “special dividends”, or else they had the businesses take on suicidal levels of exposure at commesurately huge profit, which they siphoned to themselves in the form of salaries and bonuses. And when inevitably there was a dip and the businesses found themselves unable to pay . . .

    These businesses were busted out—just like the mobsters in “GoodFellas”.

    There are laws against this, of course: I enumerated them above, 18 U.S.C. §152 and §157, and they are very clear and unambiguous. They were written for exactly this sort of thing. When this sort of fraud occurs, you break out the lawyers, load them up with caffeine and righteousness, and send them off to do battle. We’ve got the prisons, we’ve got the evidence—this stuff is in the New York Times, for crying out loud.

    Based on evidence gathered in the NY Times and Bloomberg—neither of them exactly Conspiracy Theory Central—you could successfully prosecute Maurice Greenberg and Thomas H. Lee Partners and their cronies for what they did to AIG and Simmons respectively. And in all the other cases going on, where Wall Streeters have walked away with obscene pay packages while leaving broken businesses behind, there’s practically a plaintive wail of retribution begging to be assuaged.

    Only thing is—nobody is prosecuting anybody.

    In the Scorsese movie, the gangsters don’t get hassled by the cops because—as the mobsters themselves tell it—the cops are in on the scam. The cops aren’t merely bribed, they’re brought in as partners. So the cops never bother chasing after the mobsters—why would they? They’d be biting the hand that feeds them.

    Today, Timothy Geitner is the Secretary of the Treasury, having succeeded Hank Paulson, late of Goldman Sacks—which directly benefitted from the AIG both in the run-up to its collapse, and in the bailout orchestrated by . . . Paulson. And the other bureaucrats in government who are supposed to be policing the financial services sector, they all have deep ties to it, to such an extent that their present and future careers depend on maintaining those ties.

    Just like the corrupt cops in the movie.

    In the Scorcese movie, once the neighborhood restaurant was completely bankrupt, but before the insurance policy expired, they torched the joint so as to collect on the insurance—and then they went to dinner at a nice club, confident that their scam would never cause them to be hassled by the police or anyone else.

    Today, Maurice Greenberg is happy, busy building his Cloned-AIG. Thomas H. Lee is happy on Beacon Hill or wherever he lives, sitting on his mountain of money, unmolested. Countless other fraudsters and hucksters who did, in outline, the exact same thing as these individuals are walking around, breathing free air, eating at restaurants you and I cannot afford, drinking $1,000 bottles of scotch, probably sleeping peacefully—I won’t venture to guess on what brand of comfy, durable, dependable mattress from a company that is no more.

    Just like in GoodFellas, the gangsters have busted out the joint, and now there’s nothing left of what used to be a fine establishment.

    I remember quite clearly walking home in 1990 after seeing “GoodFellas” and wondering why such obviously clever people as the gangsters portrayed in the movie would resort to crime to get ahead. Why not just apply that cunning to legitimate work, and make a legitimate living—even a legitimate profit.

    Now I know where all the gangsters went: They went to Wall Street.

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gridlocked's picture

If the Feds ever used the RICO act against Wall Street we'd have to build a few new prison to hold all the bums.


Never happen though because the next stage in that evolution would be to use the RICO act on themselves.

geopol's picture

I'm getting tired of all these well reasoned analysis of how crooked this snake pit really is..


We need to napalm wall street before sunset..Put the orders in Col.Paulson..Hank......Hank where are you ...hello Hank.....Just can't get good help anymore.

sgt_doom's picture

Then the next time you are on vacation in NYC, invest in a remote-control model airplane (carrying "you know what") and a remote-control model car (also carrying "you know what") and have a blast! (That would be in the vicinity of Broad Street!)

Cognitive Dissonance's picture

By the time the barbarians got to the gates of Rome or (insert name of any declining city/state throughout recorded history) it had already been looted from within by the wealthy and powerful.

The oldest tricks are the best tricks.

Danz Gambit's picture

Which reminds me ... I vaguely remember seeing Eric Holder being sworn in as Attorney General, has he started work yet?



geopol's picture

If he starts to push , however unlikely,, he will undoubtedly end up on the wrong airplane.

sgt_doom's picture

Sure thing, dood, Eric Holder, a k a Mr. Chiquita, had a memorable first action as AG: he directed his staff to go after the whistle-blower on Riley's staff (Riley was that crook who stole the election from Gov. Siegelman and illegitimately sent him to jail with the assistance of Karl Rove's friends).

Yup, I'm sure we can depend on all of Obama's toxic appointments (Diana Farrell, Larry Summers, Laura Tyson, and the rest of the Bretton Woods Committee/Peterson Institute/G30 gang).

Rainman's picture

Excellent. Especially the part about the cops being in on the scheme.

Fuggitabout the drugs and prostitution, the street pushers and pimps. Too grimy. Wall Street is where the action is. Always wear the silk tie when you gotta' lie.

geopol's picture

Yes, and no need to use the daily fishwrap to hide your face.

Total immunity

Cerulean's picture

This payment of dividends by borrowing in the bond market has been a feature of the junk bond market for ever.

I was always baffled as to why investors would buy these issues ( which were clearly labeled correctly). They did not do it stealthily: it was written in black and white.

The answer as always was greed, the extra yield. See where it lead us.

Everybody was on it. As a matter of principle , I have always refused to buy these particular issues and I think I was part of a club of 1



geopol's picture

I never did either, make it 2...If you look at a flow chart of the CDS  and the flow of cash it becomes clear why the rating agencies where scard shit to lower AIG..

nopat's picture

Rule: Bulls and bears make money; pigs go to slaughter.

1st Corrollary: when everyone is on one side of the trade, time to start taking the opposite bet.

Great article, but pointing out every single instance of malfeasance becomes counterproductive.  What's the next step?

mmlevine's picture

Somebody, anybody save our country before it's too late.

Cognitive Dissonance's picture

My friend, the (somebody, anybody) is just about down to us, meaning you and me and our neighbors. This is not a personal challenge or a slap in your face. But if you're not willing to do anything, why would anyone else?

I've had some interesting conversations with individuals in law enforcement and the judiciary, those you would think would be the "someone" to save our country. They feel as helpless as you and I do.

They are in the same boat as everyone else. They risk life, limb and retirement if they rock the boat and move against the vested interests. If we don't rise up as one and support them BEFORE they move, they will not move. 

geopol's picture

CD, I've been involved in many of these efforts in the past and I have to tell you, the problem is mobilization. You can't get enough head count, sustained. France, Spain, many countries have had general strikes, with success.. I can't see how the American people will give up what they think is a cushy lifestyle in order to strike without assurances of success. You talk about cops no wanting to risk this kind of effort,,,,well I guess we should ask our founding fathers if they had assurances of success....

Difficult problem. CD

Cognitive Dissonance's picture

Combine the "head" lock the MSM media has on the average Joe with the understanding that he/she has been deep captured long ago by way of their 401(k), IRA and pensions and is it any wonder he/she is asleep at the wheel?

I've said it before. Until the average Joe has nothing left to lose, they won't act as if they have nothing left to lose. The masters of the universe act like desperate men and women. Average Joe needs to do some catching up in this department.

Anonymous's picture

It will have to get worse before it gets better

: (


Problem Is's picture

Let us see what happens when a couple million more sheeple are fired and foreclosed on...

2010 looks to be a stellar year for both. We should have a peak of 12.6% U3 unemployment by Q3 2010 with U5 at ~15% and U6 which counts PT underemployed at 21%.

2010 will be record foreclosure-rama. Even with the banks delaying, extend and pretend NOD and foreclosure action to avoid the massive mark downs on the bad loans.

2009 estimates of foreclosures is 3.5 million after a whopping 938,000 in Q3 easily beating 2008's record 2.3 million. 2010 could easily break the 4 million foreclosure threshold.

So the American public are not outraged simply because they have not eaten a big enough shit sandwich off of Wall Street and their worthless bought off politicians yet...


A foreclosed on, homeless, unemployed, Palin lovin', abortion protestin', teabagger with the right to bear automatic weapons...

Is a dangerous foreclosed on, homeless, unemployed, Palin lovin', abortion protestin', teabagger loading his automatic weapons...

Cognitive Dissonance's picture

I agree. Eventually, when the pain level gets higher (much higher) average Joe will put the beer down, shut off the TV and get active.

Then martial law is rolled out.

geopol's picture


Militarized police, pentagon troops/foreign troops, no shit folks  end of Posse Comitatus.

geopol's picture

Non related BULLETIN: 8 Billion of Hilton Hotel debt carried by the FED as part of the Bear Sterns bailout.


News to me

sgt_doom's picture

Problem with those teabaggers, is they are too f**ktard to ever figure out who the real enemy is and will forever take their marching orders from the wrong turds.

Now what was Greenberg doing in between A.I.G. and his latest insurance fraud venture?

Why, he was in charge of the Starr Foundation, supporting all those shows 'splaining how those "wise men of Wall Street" pulled us back from the brink, and they just happened to walk away with millions, billions and trillions.

It all "just happened"  --- it was "unintended consequences"  "accidental"  --- and your teabagger morons eat it up.....

sgt_doom's picture

Back in the '60s, there was actually pushback by a few fellows: John F. Kennedy (whacked!), Malcolm X (whacked!), Rev. Martin Luther King (whacked!) and Bobby Kennedy (whacked!).

Now, during the Bushie years, several intelligence analysts were thrown off buildings, the former head of Ex-Im Bank (who was about to give an interview to a reporter) experienced a most bizarre "suicide" (you'd have to read it to believe it), and those Delta guys who tipped off Seymour Hersh about the escape of bin Laden at Tora Bora ended up "killing their spouses or girlfriends, then committing suicide" (right, all that Delta team freaked out at the same time frame!).

But you got to pay attention, dood.  There be heroes, and they are still being whacked!

Cognitive Dissonance's picture


The most important lesson from those years was that everyone was vulnerable, including the President.

Especially the President.

Since that time, puppets have held the office. Agree to support the system and you are "allowed" to make some token changes and enter the history books.

geopol's picture

President is a puppet post. Poverty pimp

Anonymous's picture

Brilliant piece. I actually made same analogy weeks ago...

Anonymous's picture

We must CLAW BACK remaining TARP funds that was authorized by Congress to be used by the Treasury (in one of the all-time GUTLESS moves ever) can be rescinded and taken back. I just spoke to my Congressman's office and they said Congress has the authority to pull back the remaining TARP funds, if they wish to do so. It's time to hold these cowards responsible for writing A BLANK CHECK for the Treasury to disperse as it sees fit WITHOUT ANY CONGRESSIONAL OVERSIGHT. Congress did this in order to use the Treasury as a scapegoat if things blew up in their face. They can simply blame Geithner and accept no responsibility for the HORRIBLE decsions made to bailout auto manufacturers, their finance arms, and failed overleveraged, insolvent banks. While they can say it wasn't their fault for specific decsisions made by tax cheat Geithner- they cannot shun responsibility for giving him the blank check in the first place, nor can they credibly argue that they had no reason to take the funds back, after the obvious breach of fiduciary responsibility exhibited by Treasury.

CALL YOUR SENATOR AND REPRESENTATIVE to find out where they stand on this and DEMAND they claw back OUR MONEY from the Treasury, before it is FOREVER LOST to more bailouts.

The days where you give a loser a trophy and pat on the back just for "trying" are over. Let the winners win, and the losers fail. E-FUCKING-NUFF already.

Also, we need to AUDIT THE FED NOW. Here's how:

mmlevine's picture

Tell me where a serious, non-political, non-talk show host sponsored "rise up" will be and I will make it.

Cognitive Dissonance's picture

Start one yourself. Someone must lead. I will follow.

No one wishes to stick their head up into the line of fire. Can you blame them? Can you blame us? Can I blame you?

Considering that you would have both political parties, the vested money interest and the MSM arrayed against you, one would have a mighty tall mountain to climb.

sgt_doom's picture

I'm in Chicago at the moment, just finished threatening and swearing at a bunch of bankster turds.  Didn't happen to see you here, mmlevine.

Did I miss you??????

Anonymous's picture

Goodfellas is one of my favorite movies and I have read Pileggi's book several times. There is one incredibly telling passage in the book where Henry Hill describes stealing bearer bonds and then selling them to people from Wall Street. After they were sold for pennies on the dollar, Hill found out the Wall Street investment houses were shipping the stolen bonds overseas as collateral on loans - and he figured they were worth significantly more than the suits had paid them. Even the mob gets taken by Wall Street.

geopol's picture

That's funny ,but true..


vanderrook's picture

The mob never gets taken; recall, the bust out (and your example of the bonds) yields 100% profit- no matter what that profit is.

There is also an interesting episode of the Sopranos where they have set up an outfit to push penny stock- the classic "pump and dump", which also sounds very familiar these days.

None of these shenanigans would be possible without "the cops"


In the begining, the Mafia modeled itself on government- but in the end, the government always ends up modeling itself on the Mafia.


rhinotrader's picture

The best post I have seen that explains to the average American what just happened. Now go get your shine box!!!

geopol's picture

Now go get your shine box!!!

Very appropriate

Ya the definition of democracy, Two wolves and a sheep deciding what to have for dinner.

Anonymous's picture

April 15th. March on Washington, single file as taxpayers deposit 1040's into a massive paper shredder. Shredex ought to set up local stations for people to "deposit" 1040's. Would be GREAT publicity for Shredex, and would certainly get the attention of the treasonous politicians who fear someone might "Fargo" their asses.

Anonymous's picture

Wasn't Greenberg forced out of AIG? This makes it sound like he left voluntarily.

Anonymous's picture


The entire derivatives market is just a scam to avoid banking and accounting regulations.........they should give the scumbags x amount of time to unwind their positions and then CLOSE IT ALL DOWN.


virgilcaine's picture

Excellent article.

Gordon_Gekko's picture

Bingo! Extremely well written post. Once you understand the basic principles upon which the US Economy and US Government today operates - i.e. theft, robbery and crime - the rest is easy. It becomes so fucking EASY to predict "market" moves, it's not even funny. All the high-sounding economic gobbledygook is bloody nonsense.

Internet Tough Guy's picture

Some of us are still on Main St. I even give better loan rates than credit card companies.

Anonymous's picture

From another movie (Pretty woman)
H(ooker): what DO you do for living
B(usinessman): i buy companies, break them apart, and sell off the pieces
H: like a car thief? steal a car, and sell it as parts?
B: yes, sort of, but *LEGAL*

curbyourrisk's picture

When you can use PIK notes or anything PIK related to operate a business......failure is eventual.  Was Simmons using PIK financing???????? 

Cursive's picture

Excellent post and I couldn't agree more.  Wall Street = New Jack City.

Anonymous's picture

Good fellas love the crime, they love more getting away with it, loved best getting away in broad daylight with the cops on the take, and then sensationalizing it with every minute detail fully explained to the victim.

They delight in hunting down innocent, defenseless prey, gutting them while holding their severed still alive head to view the carnage. And then the lights go out.

Welcome to the final chapter in the great American experiment.

Used to be shirtsleeves to shirtsleeves in three generations.

Transformed into slaughterhouse floor to slaughterhouse gutter in two.

Anonymous's picture

Wrong business model. The best body armor is a wall street suit and connections.

chet's picture

Good post.  I think if I had to choose between going after the big flashy cases like AIG, or the much more common rape of good companies by private equity, I'd rather shut down the latter.  I think that current PE practices are a cancer on our nation.

Anyway, this post has my blood pressure up.  We really live in sad times.  Our leaders either don't understand any of what you've explained here, or just look at each other and scratch their heads.  We have no protection any more.