Swaps are undertaken in order to balance risks and have nothing to do with increasing assets or increasing profits because it is a value-neutral operation. A swap is called a swap because the two "swappers" exchange securities or assets of similar or equal value. Essentially one company trades a short-term asset for a long-term asset while the other company trades a long-term asset for a short-term asset.
When you have short term liabilities and long-term assets, what happens if you have a sudden liquidation of the short term liabilities? You cannot easily sell off long-term assets to pay for them. So what banks do is to perform swaps with other companies in order to make their assets and liabilities similar in term. Some companies like Lehman and AIG are buyers of mortgages. Agencies like Fannie Mae and Freddie Mac are buyers and sellers of mortgages.
Swaps have nothing to do with the government. Companies like AIG believed the mortgages sold to them by Fannie Mae were safe investments. Perhaps they didn't do their due diligence to find out if those loans were risky or perhaps they did but still believed they were safe. I'm not in the AIG conference rooms to find out their thought processes. In any case, they purchased many risky loans and paid the price when those loans defaulted.
When Clinton is to blame, I'll blame him. If not, I won't. For instance, I don't hold him in the least bit responsible for the dot com bust and the resulting economic problems. He had nothing to do with it. But we do have his fingers in the pie when it came to the Community Reinvestment Act and with his cronies running Fannie Mae and Freddie Mac. Democrats hold a huge amount of blame in this financial mess but are getting a free pass in the press, as usual. McCain and Bush get no credit for trying to fix the problem (Democrats torpedoed the attempts to fix them led by Christopher Dodd and Barney Frank), yet get all the blame for the mess now.
Meanwhile we have Obama sitting there as a Senator who failed to support McCain's bill, which would have placed additional oversight over FM/FM (Fannie Mae/Freddie Mac), quite possibly uncovering the true extent of the pending disaster before it took down so many banks. And Obama has as his chief advisors three of the people directly involved in Fannie Mae's gross mismanagement. Jim Johnson and Franklin Raines were ex-CEO's of the failed company while Jamie Gorelick was the Vice-Chair of the board of directors. She pocketed $75 million while Raines pocketed $90-100 million (couldn't find out how much Johnson got) all while they were running Fannie Mae into the ground with fraud and Enron-style accounting and non-existent controls on the lending process.
It's quite interesting you posted that article about Richard Fuld taking hundreds of millions while destroying Lehman. Raines, Gorelick, and Johnson could be soul mates with Fuld as they did the same with Fannie Mae. And somehow Obama gets away with saying how he'll fix the problem when he failed to act when McCain warned his colleagues and while the architects of the problem are standing right next to him as he slams Bush for being culpable. It would be the height of irony if this financial mess somehow got Obama elected since people automatically blame the sitting president and his party regardless of actual culpability. I fear for the financial systems in the future with these people in charge because you know these three will get high profile jobs in any Obama administration. Raines would likely be Obama's pick for Treasury Secretary, as he was rumored to be John Kerry's choice for that position, so the fox would be in charge of the henhouse after the fox has already eaten most of the chickens.
