In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan.
The Federal Reserve and Goldman Sachs and JPMorgan Chase had been trying to arrange a $75 billion loan for the company to stave off the financial crisis caused by complex debt securities and credit default swaps. The Federal Reserve stepped in after it became clear Tuesday afternoon that the banking consortium would not be able to complete the deal.
Without the help, A.I.G. was expected to be forced to file for bankruptcy protection.
This is the Hail Mary Pass of the end game. The Fed can't keep jamming bad debt into its portfolio indefinitely.
On an amusing note, this gives whole new meaning to the words "social insurance".
"The Fed can't keep jamming bad debt into its portfolio indefinitely."
I really want to make a joke about all that fed government debt.
There's only one explanation for this. The Fed thinks the whole crisis is much worse than its letting on.
Any wingnuts still expecting big tax cuts from McSame are now officially kidding themselves. Even if he gets elected there will be no tax cuts. Tax hikes are coming, wingnuts! So grease up your guns and get those workplace shoot-up plans ready.
It is amusing! Ain't no communism quite like capitalism.
Randians of the world, explain how this validates what you've thought all along! You have nothing to lose but your intellectual integrity, which you lost long ago.
"There's only one explanation for this. The Fed thinks the whole crisis is much worse than its letting on."
True enough. Meaning that this is hardly the time to elect a left-wing child to govern the country.
Am I feeding a Troll if I respond to what "The American People" just said? Someone help me out here.
Yes, y81, I'd *much* rather have Phil Gramm in the Cabinet. Remind me again about his and Fiorina's economic prowess?
Now that AIG has been nationalized, can we sell off the various components in an orderly fashion and compensate its creditors at x cents to the dollar with the proceeds? You have been suggesting that we need established procedures to engage in an orderly liquidation of divers financial entities like we might a commercial or savings bank. Is it a 'bailout' if the public owners do what a bankruptcy trustee might, but with greater dispatch because of the absence of litigation and judicial supervision?
No, am human.
I am sorry, hrrm, I'll use a more high-falutin tone.
The Fed's (potential) bail of AIG in part of a long-running con, in which reward is privatized and risk is socialized. Why wouldn't the Fed bail out AIG? They have been pulling some variation of this act for more than a decade now.
For those who think ideology does not lead to these situations, consider the phrase "our most economically productive citizens." This is the code GOPers and their ilk use for the bankers and hedge fund managers they coddle, middle class be damned. Now we start paying for it.
How does this new ownership work exactly? Assuming the unlikely that AIG is propped up enough and starts to be hugely profitable again, does the federal government start actually getting a windfall from all this? How about the Bear Stearns fandango? Does the taxpayer have a piece of that now, or do all future profits flow to JP Morgan? This whole bailout phenom might turn into the only really sensible way to fund government in a corporatist state. Or is that just hopelessly delusional and economically impossible? Or worse, is it the highway to the truly corporatist state?
Everybody knows the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows the war is over
Everybody knows the good guys lost.
"Any wingnuts still expecting big tax cuts from McSame are now officially kidding themselves."
But the Obamatons expecting free health care for everyone, plus tax cuts for the bottom 95% comprise the "reality-based community"?
"How does this new ownership work exactly? Assuming the unlikely that AIG is propped up enough and starts to be hugely profitable again, does the federal government start actually getting a windfall from all this?"
Yes.
"But the Obamatons expecting free health care for everyone, plus tax cuts for the bottom 95% comprise the "reality-based community"?"
You're right, Fred! Much, much better to not even try to do anything to improve health care and leave the capital gains tax at 15% so we have a massive deficit. After all, Obama wants to do somewhat more than will probably actually happen! Let's just keep Bush in office instead.
But the Obamatons expecting free health care for everyone, plus tax cuts for the bottom 95% comprise the "reality-based community"?
Well, maybe it's more that the Obamatons would like the vast majority of Americans to have something for the vast amount of money they pour into the system every day, other than the thrill of knowing that people are being slaughtered in faraway places. Maybe, they are saying, sure federal taxation is annoying, but even more annoying is knowing that there is virtually nothing to show for it, ever. Instead it is all about propping up defense contractors and dictators and lobbyists and their masters and lunatic christers and similar whores. Maybe part of that endless stream of billions can be diverted toward some kind of financial and health security for all of us. Is that impossible?
Meanwhile, you can always count on the Brits to keep their priorities in line. At the end of today's BBC article on the global impact of AIG woes, they finally get on to what it means locally:
"In the UK, AIG is best known as the sponsor of Manchester United."
news.bbc.co.uk/2/hi/business/7618430.stm
y81 quotes and writes: ""There's only one explanation for this. The Fed thinks the whole crisis is much worse than its letting on."
True enough. Meaning that this is hardly the time to elect a left-wing child to govern the country."
Since you voted for the pigheaded simpleton who is currently "in charge," and since your party has selected a geezer and some sort of backwoods manicurist as his understudy, the 47 year old "child" who has more intellectual ability in his skull than your entire family has going back 10 generations will have to suffice.
Wow...what a week!!!
1) Merrill was bought by BoA.
2) Lehman went bankrupt.
3) AIG was bought by the Fed.
All this and it is not even Wednesday yet.
Since you voted for the pigheaded simpleton who is currently "in charge," and since your party has selected a geezer and some sort of backwoods manicurist as his understudy, the 47 year old "child" who has more intellectual ability in his skull than your entire family has going back 10 generations will have to suffice.
Intern, please.
Fred quotes and writes: ""Any wingnuts still expecting big tax cuts from McSame are now officially kidding themselves."
But the Obamatons expecting free health care for everyone, plus tax cuts for the bottom 95% comprise the "reality-based community"? "
Since McCain's "health care plan" involves taxing people for the "value" of their health care plans, he will be raising the tax burden for many people who are fortunate enough to have health care in the first place. Nothing n Obama's plan promises "free health care for everyone," meanwhile. Like your heroes McCain and Palin you're incapable of telling the truth about anything, Fred.
Your name probably isn't even Fred. I'm guessing it's Percy.
Color me a tad nervous.
Megan,
take a stroll on over to your pal, Andrew Sullivan's blog, and you'll find mention, which links to more mention, then further links to yet more mention of something to the effect of "This is the worst financial disaster to unfold since (thunderclap) The Great Depression ... but we really mean it this time!"
I'm wondering, is this all, as I suspect, hyperbole - as seems to be Sullivan's wont these days in regard to matters domestic - or should I really start brushing up on my hobo code?
"You're right, Fred! Much, much better to not even try to do anything to improve health care..."
Giving everyone free health care won't "improve" it. If anything, our health care system will get worse, with poorer quality, less R&D, longer waiting times, etc. Check out Britain's or Canada's for some examples of "improved" health care.
"Well, maybe it's more that the Obamatons would like the vast majority of Americans to have something for the vast amount of money they pour into the system every day"
The vast majority of Americans don't pour a lot of money into the system; they barely cover their own nut, if that.
I don't know -- maybe the taxpayers will make something of a windfall on this deal. After all, the Federal government doesn't have to worry about 'mark to market' or pesky downgrades from S&P and can afford to take the long view, selling off the pieces of AIG when the panic is over and the assets have recovered their values.
Could this be a sort of alternate-universe U.S. equivalent of the Yukos Oil deal?
The American People: Randians would have let all the bailout recipients fail. That Republicans are acting like socialists is just more evidence that sane libertarians have no political party to call home.
As for the candidates for President, anyone who thinks either will act in the public's best interests is honoring hope over experience.
As for tax cuts, well leviathan always grows. It doesn't matter what party is in charge. Taxes or the public debt will rise.
Finally, as for the AIG takeover/bridge loan/bailout well if Lehman caused the market to drop 500 points, an AIG bankruptcy would have knocked at least a 1000 points off the Dow. And they should have let it happen.
Ugh! This is disgusting!
Hooray for deregulation!!!
See, I like reading stuff like this from Joe:
That Republicans are acting like socialists is just more evidence that sane libertarians have no political party to call home. As for the candidates for President, anyone who thinks either will act in the public's best interests is honoring hope over experience. As for tax cuts, well leviathan always grows. It doesn't matter what party is in charge. Taxes or the public debt will rise. Finally, as for the AIG takeover/bridge loan/bailout well if Lehman caused the market to drop 500 points, an AIG bankruptcy would have knocked at least a 1000 points off the Dow. And they should have let it happen.
...because it suggests that libertarians are in pretty much the same political spot right now where Marxist revolutionaries were in about 1980. And while I actually kind of like most consistent libertarians, they are also the real ideological core of the Republican party, which otherwise has no intellectual content anymore. So this makes me hopeful that we're going to see the bullshit start to dwindle.
Does AIG write health insurance policies? Just keep that part running and we've got our national single payer health system.
aMouse quotes and squeaks: "Since you voted for the pigheaded simpleton who is currently "in charge," and since your party has selected a geezer and some sort of backwoods manicurist as his understudy, the 47 year old "child" who has more intellectual ability in his skull than your entire family has going back 10 generations will have to suffice.
Intern, please."
Why pretend you're evenhanded here, Mousey? You'll let crap like "Obamatons" go by all day, but you jump when I get off a great line like "some sort of backwoods manicurist"? Grow up. As John McCain says in between lies and frequent trips to the bathroom, "This is a tough business."
Cool Cal writes: "take a stroll on over to your pal, Andrew Sullivan's blog, and you'll find mention, which links to more mention, then further links to yet more mention of something to the effect of "This is the worst financial disaster to unfold since (thunderclap) The Great Depression ... but we really mean it this time!"
I'm wondering, is this all, as I suspect, hyperbole - as seems to be Sullivan's wont these days in regard to matters domestic - or should I really start brushing up on my hobo code?"
Let's see... Greenspan says this is the worst situation he's seen in his career, and he's older than John McCain's underpants. Maybe the word "bindlestiff" will come back in fashion. I always liked it.
At this rate we should have collectived agriculture by Thursday.
$85 billion? Pull out of Iraq, and we make that back in a few months.
lampwick writes: "At this rate we should have collectived agriculture by Thursday."
The Dumbya Era revealed for what it was all along - an Eight Year Plan to Fuck Everything Up.
Heckuva job, Dumbya. Medals Of Freedom for everyone!
Here's the question - should all two-time Bush voters be branded on the forehead, or should they have to have 6-inch long crimson horns implanted in their heads? I'd vote for the horns myself.
Brooksfoe,
Do you mean that consistent libertarians will take back control of the Republican party? Or do you mean that the Republican party will fall into decline and go away?
I would have been a Republican when Thomas Jefferson formed the first Republican party because I would have opposed Hamilton and the Federalist.
In the mid 1800s I would have opposed slavery, been horrified by Lincoln's abuse of power and been a man with no party.
In the gilded age I would have opposed high tariffs, but demanded a gold standard and would have been a man without a party.
Today, I want sound money, free trade and small government. I also support gay marriage, actual free speech and a very strict right to privacy. And I am a man without a party.
The Republican party that believes what a good libertarian believes hasn't existed for a very long time, if ever.
Speechless, eh? Anyone who is even remotely surprised has not been paying any attention whatsoever. Perhaps longwinded oversimplistic dismissive glib selfcongratulatory blog items are the culprit.
Megan's description is pretty much correct- the Fed has purchased AIG. I can see no other option here other than an orderly liquidation over the terms of the loan. My only real question is how do you make the creditors take a haircut without a bankruptcy declaration?
At what level of pointless invective does the banning come in anyway?
I'm thoroughly disgusted!
Yeah, Moe, how awful it is that Bush is responsible for the biggest taxpayer bailout in American history, in good part by being in cahoots with the likes of Franklin Raines and James Johnson. Or something.
Joe: Thos. Jefferson would have been shocked to find out that he created the Republican Party. Other than that, heckuva job everyone.
Will Allen writes: "Yeah, Moe, how awful it is that Bush is responsible for the biggest taxpayer bailout in American history, in good part by being in cahoots with the likes of Franklin Raines and James Johnson. Or something."
Tell me again why I'm supposed to give a rat's ass about Raines and Johnson. I don't. If they're in bed with Dumbya they should be dragged off and have the horns implanted in their skulls like all of the other scumbags.
The response of right-wing hacks everywhere is pretty funny in these situations. There's a unanimity of scumbaggery in the GOP, but you all think you can avoid the stink by pointing to various Democrats who share culpability. Get over it. The GOP brand is now a scratch-and-sniff with only one odor attached - pig feces. Live with it.
Re: But the Obamatons expecting free health care for everyone
Um, who has promised "free" healthcare? Obama hasn't even gone so far as promising universal healthcare, which Clinton and Edwards did back in the primary season. The most Obama has suggested is a public health insurance program which the uninsured could buy into: and reread that please: BUY into.
MLJ,
It's a backdoor shot. Raines and Johnson are Obama fundraisers so he's trying to set a cheap trap for you. As though people who were CEOs of Fannie 5-10 years ago take the full blame for this crisis.
Moe, if you want to pretend it is meaningless that the people who fought hardest against reforms which had a chance to head off the the largest taxpayer bailout in history, and paid themselves tens of millions in taxpayer-backed bonuses while doing so, are advisors and campaign chairman to the Democrats' nominee for President, you go right ahead. Any chance Senator Obama will mention the names "Raines" or "Johnson" on the stump, when he rails against huge bonuses paid to executives who are managing failing firms?
There are few things more ironic than when you hurl the label "hack" at anyone. Your brain is such that tribal identity is all that you value. Hack, indeed.
Adam, anybody paying attention to the issue has been predicting for nearly a couple of decades that Fannie and Freddie were disasters waiting to happen. Many Republicans were whores for the likes of Raines and Johnson as well, and helped them fight off reforms, but it is simply a fact that Democrats have been more consistent water haulers for these corrupt entities. You can turn your head away, but that won't change the fact that Obama is a Freddie/Fannie whore, just like he is an ethanol whore.
Aren't all you libertarian types supposed to be hanging out at the Ron Paul blog, whatever it is? He seemed like a nice man.
American People:
"The best form of government that has ever been devised for protecting the rights of the people has been found to be the republican form. While not perfect, it nevertheless gives a voice to the people and allows them to correct the course of government when they find it moving in a wrong direction." Thomas Jefferson
Both Jefferson and Hamilton left their offices during Washington's first term. Jefferson became the leader of the Republican Party, Hamilton of the Federalist. Jefferson was elected vice president in 1796 and served under President John Adams, a Federalist. From PBS: http://www.pbs.org/wgbh/amex/duel/peopleevents/pande07.html
It was also called the Democratic Republican party although when it was formed it was called the Republican party or the Jefferson Republican party. It was the forerunner of the party that became known as the Democratic party.
I said the first Republican party nitwit. Don't come without facts a**hole.
Well, sure, Will, because the Democrats do actually believe in the ideal of large-scale prosperity, including widespread home ownership, and the Republicans do not give a shit, ever, about that ideal. So it was easy to take money from the Macs and Maes and whoever, yes, for political self-interest as well as principal (an irresistable combination always). It's like saying Republicans are bigger whores for defense contractors. OF course they are. They love war and political contributions, so the combination is irresistible.
Fine, Boots, than let's have Obama change his stump speech to "Yes, the largest taxpayer bailout in American history, which will be largely paid for by the overwhelming majority of you who have kept current on your mortgages, is in good part due to whores like me who were pursuing self interest while also pursuing the principal of providing credit to people who had a much larger chance of default than other people did."
Look, if Obama and his supporters want to just keep their mouths shut about the financial developments of late, fine, and in that case there is little reason to raise the issue of their whoring for Freddie and Fannie. If they are going to try to make campaign fodder of recent debacles, however, then the fact that they whored themselves out to the largest debacle-makers needs to be noted.
Fine, Boots, than let's have Obama change his stump speech to "Yes, the largest taxpayer bailout in American history, which will be largely paid for by the overwhelming majority of you who have kept current on your mortgages, is in good part due to whores like me who were pursuing self interest while also pursuing the principal of providing credit to people who had a much larger chance of default than other people did."
Well, let's focus-group that.
In the meantime, how bout the rest of us try to get that neither party is all pure, and try to get toward the most widespread prosperity possible (not just some vague abstraction like GDP growth, but actual, results-oriented, most people are now better off than they were four years ago stuff), and vote accordingly.
The New Central Bank
Turns out the FOMC meeting was just a diversionary tactic. The important Fed action Tuesday was all in New York, where the central bank agreed—this still sounds almost unbelievable—to take an 80% stake in AIG in return for an $85 billion loan.
And while we were fussing over how the markets would react to the FOMC decision to hold rates at 2%, the financial crisis was taking a new and dangerous turn. A money-market fund broke the buck—declaring its net asset value to be less than $1. If this spreads, it would the modern equivalent of the millions of ordinary savers who lost their money during commercial bank runs in the early 1930s. Deposit insurance was the government's cure for that sort of thing happening again. But there's no FDIC for money-market funds.
I bet this is what Hank Paulson was talking about this evening on Capitol Hill to an all-star lineup of Congressional heavyweights from both parties. A nation of middle-class people taking haircuts on their safe-as-cash money-market funds is a prospect that, like a hanging, will focus the mind of any legislative incumbent.
Boots, without at least a stab at honesty, it can't be done, since past misdeeds will then simply be repeated.
Obama and McCain are pathological liars of the greatest magnitude. Which one is worse than the other is pure guess-work. May as well play "odd" or "even" on a roulette wheel.
Obama and McCain are pathological liars of the greatest magnitude. Which one is worse than the other is pure guess-work. May as well play "odd" or "even" on a roulette wheel.
Well, I'm gonna guess McCain based on his reversals of every significant position he ever took before this presidential season.
Also, I'm gonna take a chance on the party that hasn't completely fucked up everything it's touched in the past eight years.
And you? What's your plan?
The Fed can't keep jamming bad debt into its portfolio indefinitely.
Sure they can. One thing the Fed actually does have the authority to do is print money. Assuming arguendo they have the authority to buy things with it (evidence: OMOs), it matters little what happens to those things. Buy out an insurance company that owes on a lot of claims? Big deal, just crank up your digital balance and write some checks! Bunch of securitized mortgages floating around, going into default? Buy em all up and eat the loss! Sucks for inflation, sucks bad, but 100% possible. The real problem isn't even the inflation, the real problem -- as I'm sure you guessed -- is the moral hazard.
"Am I feeding a Troll if I respond to what "The American People" just said? Someone help me out here."
Oh, honey. Don't worry. Feed away. Megan has apparently completely abandoned her stern comments policy long ago.
If you run fast enough in one direction in here, you'll bounce off a padded wall and hopefully someone will give you a nice shot of thorazine and the wingnuts and Obamatons will go away.
Never. You can't quit us Obamatons. We are your destiny.
Adam writes: "It's a backdoor shot. Raines and Johnson are Obama fundraisers so he's trying to set a cheap trap for you. As though people who were CEOs of Fannie 5-10 years ago take the full blame for this crisis."
I've seen enough of Will Allen's posts to know what he is - he's a gape-mouthed open gullet swallowing anything the GOP spurts out, and he always has beentTo watch his posts you'd think the Dems have been running things these past 8 years. It's a tough thing figuring out if he's more stupid than insane or vice versa.
His "point" about Obama and fundraising is especially stupid given Obama's unprecedented success at raising money from ordinary people, but facts will never get in the way of party hacks like Will Allen and their sick, sad agendas. Let's remember that Will Allen is primarily interested in torture remaining an official US policy. That's his main concern.
Will Allen again: "Obama and McCain are pathological liars of the greatest magnitude. Which one is worse than the other is pure guess-work. May as well play "odd" or "even" on a roulette wheel."
How utterly bogus. Will Allen is a kneejerk con and his major complaint about McCain is that he's too liberal.
Oh, Little Boots, I really hope not, but I'm still waiting for my shot. Given what has happened in the past few days, I am still trying to work myself out of the cute white jacket with the sleeves in the back, and am typing with my nose.
Too much regulation, lack of regulation, Clinton, Bush, capitalism, creeping socialism, whatever. The economy just got royally effed and I'm really cheesed at the folks at the top who have already or are slated to pull in tens of millions despite, what are now in hindsight, stupid decisions. Please tell me the consequences for this crap won't only be felt by those who can't sell off a yacht to make the mortgage.
I guess all the "evil" hedge funds shorting stocks like Lehman were right. Too bad no one listened and simply excoriated them for being cynical and trying to "ruin" the company.
Megan
The Fed's loan is attracting interest of LIBOR + 850bps. They aren't bailing AIG out. They are executing it slowly so that other market participants can have a chance of unwinding their positions (CDS / portfolio mortgage insurance / etc) with AIG and replacing them from somewhere else.
In the meantime, AIG's healthy assets will be snapped up by cashed up buyers (and there is liquidity out there) and the Fed will recoup most, if not all, of its principal.
No financial institution (or conglomerent) can withstand that sort of funding cost. Call it an orderly demolition. I don't like the Fed's intervention. The build up of moral hazard in the financial markets is a large part of what got us here. But if AIG went under precipitously, mark my words, it would make the Great Depression look like a cakewalk. As evidence of that, notice that LIBOR jumped ~330 bps as the market bet AIG's liquidity gap would not be met and the Fed would do nothing either.
In summary this is the long and short of the credit crunch: Bear Sterns, Lehman, AIG are all gone. I predict (with little evidence) that Freddie and Fannie are going to disappear within the next decade. And that superbanks will dominate over the next five and then begin to demerge (to "unlock shareholder value"). The world's central banks will cede greater amounts of control to private banks. This is a good think IMHO.
In the meantime, asset prices are going to fall further. We need inflation now. Instead CPI is giving us signs of deflation. The next few years are going to be tough.
I think the Fed can buy as much as it wants, it makes money, remember? It didn't get a 1t balance sheet from Santa.
You know, I've never been an "abolish the Fed" type, and I tend to think such folks are a little crazy, but now I'm reconsidering. Nobody in their right mind would want to invest in AIG's bad portfolios, so what fucking right do these assholes have to force *me* to?
Of course, I exaggerate. I'm not really being forced to invest in bad portfolios. No, I'm only being forced to pay for them. If somehow some of those portfolios managed to turn around and make a net profit, I wouldn't see a cent.
By the way Megan, I see you've had the misfortune of getting some of the sewage that spilled out when Ross closed his comments section. I honestly feel bad for you. MoeLarryAndJesus in particular brings the general tenor of discussion down about IQ 50 points.
I suppose the counterpoint would be that if AIG did fail it would be too expensive for everyone regardless of whether we are at fault?
I have no idea if this is true, but I assume/hope that was the thought process.
Sure it's not consistent with you look at lehmen etc, But I don't necessarily want someone who is consistent making decisions out of their personal committment to a principle necessarily. I'd rather have them flex back and forth between interference and non-interference if they can determine that interference is the best course.
The problem is, is it the best course?
I dunno. But I'm pretty sure tanking the market even further is not the best course?
Would I rather see the dollar devalued more or the stock market tank more? Are those the two large consequences of (in)action in this case?
Il Duce says: "MoeLarryAndJesus in particular brings the general tenor of discussion down about IQ 50 points."
In English that would be "50 IQ points." Thanks for your amazing tenor uplift here, Duce. As always, your whiny taxpayer slant is a real revelation.
This election is presenting the next president with a historic opportunity to re-shape the nation.
The Republicans, ironically, are nationalizing -- or at least socializing -- the nation's financial industry.
The precedent is being set that the government has the authority and even obligation to regulate and even supervise such critical parts of the economy. That means, for example, the healthcare industry, the oil companies and other energy companies, the defense industries, automobiles, heavy industry and the like.
If Obama and the Democrats take control, a system of governmental oversight and planning -- a national economic plan -- could be put into effect. All of these leading industries' leading minds could voluntarily help design the plan -- or face a kind of "draft." Help or find yourself unable to find work.
Time to get tough, and screw these people out of power, yank them out of their gated communities, drain off their unreal financial gains and make them work for a living.
Plus, the Obama administration could cherry-pick among the Bush-enabled "security" measures to keep tabs on those business renegades who'd try to undermine the system, while freeing most Americans from unwarranted scrutiny.
Electing McCain means that the same cowboys will ride roughshod over the rest of us, under the guise of some toothless "reforms." That will lead to chaos and possibly martial law, imposed by a neofascist government.
That's our choice.
The Fed just basically acquired 80% of AIG in the form of preferred shares paying Libor + 850 for $85 billion.
If the AIG issue really is one of liquidity and not solvency, then the Fed could actually make a tremendous amount of money if it allows the company to weather the storm and takes it public again.
Haven't run any numbers (if someone has, would love to see them) but I would think the taxpayer could make a killing.
Acually, Moe, you illiterate, I never said anything about fundraising. I said that that the people who successfully staved off any chance that the taxpayer's exposure to the Freddie and Fannie bailouts would be reduced are advising Obama, and helping him wih things like selecting his running mate, while Obama purports to be outraged by what has happened. Obama is a liar, and so are you.
Boots, my plan is to plainly describe what execrable characters Obama and McCain are.
Moe, perhaps you titanic intellect can explain what is "liberal" about asserting that Congress may pass a law which bans the dissemination of certains words, at certain times prior to an elecion, and not violate the 1st Amendment, which is is my most bitter objection to McCain's positions.
You really have no idea what common words mean, do you?
Congratulations. America is now technically more socialist than Canada. Even the Canadian Government doesn't actually OWN the banking system.Scary.
What the Fed can buy the Fed can also sell. I'm being optimistic, but do you think this is a realistic option: 1) We weather the mess. 2) We implement policies to make sure we don't get into the mess again. And 3) once we have confidence in AIG, the Fed sells it.
The Dems have been called "Tax and Spend" party but the GOP ought to be the "Borrow, tax, and Spend" party. With each bail out and each day spent in Iraq our indebtedness to China grows. I am speechless at the depth of their short sightedness. It will take us generations to recover, if we ever can.
JTL: This is what we're hearing as well from insiders - AIG remains a viable business but does not have the cash for day-to-day operations, and cannot raise it the usual way (i.e. through the markets), so it still made sense for the Fed to step in. Whereas Lehman was apparently a goner no matter which way they looked at it.
Apparently B of A was given the choice of getting Lehman for nothing or Merrill Lynch for $29/share, and they preferred to pay.
I still want to know how us regular folk can keep our money safe - we don't have much, and don't want to lose the little we have.
Let's see, Bushco has nationalized more in two weeks than the powt-WW2 Labour government did in England in six years. And the Republicans say they're in favor of less government?
To all of you people who are insulting the "Randians" or Ron Paul supporters, you are missing the key point of their monetary policy - the gold standard.
The problem here is that the government can print as much money as they want - which causes inflation (also known as the "hidden tax"). With a gold standard, things wouldn't have been able to get as out of control. This allows the Fed and the Treasury to enrich their friends in the banking industry at the expense of everyone else.
I am not a complete gold standard freak, but the advantages of taking money creation out of the hands of the government are worth considering.
DBX, what happened with Fannnie and Freddie last week just made official what has been tacit for a very long time. Anyone who says they didn't see it coming a long, long, time ago is a moron. Or a crook. Or Barney Frank. Sorry for the redundancy.
That's GOP governance for you. The taxpayer doesn't get health insurance, we just get to pay for it.
Thanks, McCain.
Few things amuse me more than watching randroid propeller-heads attempt to stuff actual events into ideologically prescribed containers.
In the days to come, Megan's fixed ideology will require her to explain how this whole mess is solely the fault of government intervention. Whether that's actually true or not is beside the point; Megan is required to say so regardless.
Mark, I'm not for a gold standard either, but the sort of people who make disparaging remarks about free market ideologues, in the wake of inevitable bad decisions made by central planners at the Fed, are not the sort of people who one can engage in rational dialogue with. One may as well try to have a discussion about Shakespeare with your Labrador retriever.
Thanks for proving my point, nobi.
Lenin used to talk about the inherent contradictions of capitalism or some such, and it was always a load of nonsense. But we have something similar happening now: the inherent contradictions of GOP policies. Those policies are excessive deregulation of structural parts of our economy. This is a way for the Bush administration to rid itself of responsibility and to minimize the amount of governing work required. At the same time, ultimately the GOP depends on voters to keep them in office, and unlike most GOP policies, voters are not completely insane. So, ultimately, the GOP-run government must take urgent action at the last second that is far, far, far more "collectivist" than reasonable preventive regulations been kept in place.
In other words, a little regulation 15 years ago could have prevented the vast nationalization of industry the GOP is practicing today. When people say that Roosevelt saved capitalism from itself, they aren't kidding. Well designed regulations of all kinds will save capitalism from itself, and will minimize the kinds of soclialism that usually result from massive failures and risks like these. A GOP now in favor of nationalizing industry is a lot of fun to behold but this really was unnecessary. Ideologically hidebound, unthinking, irresponsible rightwing fanatics like Megan were successful in making minor interventions impossible to put into place when they could have really helped. I would call this kind of thing "good government" but that concept is roundly lampooned by people like Megan, so I won't do that.
Will, I wasn't really talking to you. I try to avoid debates with ideologues because they just repeat the same things over and over.
The interesting question is what policies could have prevented these failures (or at least minimized their impacts enough to make federal intervention unnecessary), and what we should do now that the Fed is in the insurance business. To be interesting, such a discussion would need to be held between two people interested in answering those questions, rather than in beating ideological horses. You may beat your horse as energetically as you like but that's not my game.
Just for the record, even people who disagree with Barney Frank on most issues claim to believe he's probably the smartest member of the House. Not that truthfulness was your objective or anything...
Deuce - You are being forced to buy AIG because you're a taxpaying citizen of a country, and countries tax people and then use the money for things that are never suppored by 100% of the taxpayers. Those who disagree are, definitionally, being forced to pay for things they disagree with.
One of the hard parts about growing up and being a fullfledged adult is accepting basic and unavoidable facts about life. This is one of them. Another one is that you will die one day. A third one is that there's no Santa Claus.
There are places you could move (not many, but a few) that lack government, and this means they're places where you won't be taxed and therefore won't be forced to pay for the x% of policies you don't agree with. In the western hemisphere we're basically talking Haiti but in the eastern hemisphere there's a wider variety of failed states for you to consider.
Golly, nobi, since you were the one who introduced a purely ideologically based ad hominem insult, in the face of undeniable facts which undermine the insult, perhaps you should look in the mirror before hammering on the keyboard like a baboon.
Yes, yes, I know Barney Frank is the sort of Congressional genius who has denied all along that Fannie and Freddie were disasters waiting to happen, and thus worked to thwart any and all efforts to minimize the taxpayer's exposure to Freddie and Fannie. This informs us as to what it takes to be regarded as a genius on Capitol Hill. I'm sure Lenin would have scored well on an I.Q. test as well
"How does this new ownership work exactly? Assuming the unlikely that AIG is propped up enough and starts to be hugely profitable again, does the federal government start actually getting a windfall from all this?"
Of course not. They would sell it back for 85 billion plus interest.
"Few things amuse me more than watching randroid propeller-heads attempt to stuff actual events into ideologically prescribed containers."
"I try to avoid debates with ideologues because they just repeat the same things over and over."
Raising the tenor of the debate then? Well done, nobi.
Lots of liberal rage about government intervention here. Great, let's just hope they draw the right conclusion. ("Ummm ... more government?")
ObserverBE saith:
This is what we're hearing as well from insiders - AIG remains a viable business but does not have the cash for day-to-day operations, and cannot raise it the usual way (i.e. through the markets), so it still made sense for the Fed to step in.
Color me dubious. If AIG were "viable" business, then there surely would be private suitors out there willing to purchase it and run it. The word for a business that does not have the money to conduct its day-to-day business and cannot convince anyone to lend it money is not "viable"; it is "failed" or "bankrupt." How it "makes sense" for the Fed to do what capital markets refuse to do -- other than as a desparate finger-in-the-dike measure to stave off an overall crisis -- is a mystery.
This is not a bail-out. It is a Fed-run fire sale. The Fed will endeavor to sell of any pieces of AIG that can be sold as going concerns. The rest of the assets will be liquidated. It is in essence a bankruptcy proceeding without bankruptcy lawyers feasting on the corpse (which should save a few bucks). It is not some kind of clever investment that will net the Fed a profit. With luck and skill, the Fed can keep the losses down. That's about it.
Yeah, that's about it Sebastian; it's a bankruptcy proceeding run by the Fed instead of a bankruptcy court. I guess we'll find out whether it is a better way to break up and/or liquidate a company. Given the reality of AIG's global presence, it may be, in this instance.
I saw Greenberg last night on Charlie Rose, giving what was no doubt a self-serving assessment of the situation. It may be true, however, that he would not have bet the company on swaps, as did the succeeding management. I guess it doesn't make any difference now, other than to possibly add to the list of bad things that Eliot Spitzer did.
Tom: Not necessarily "more" government, but better, smarter government would be helpful.
We are witnessing a massive and costly government intervention that appears to be justified by the conviction that the ripple effects from a "disorderly" liquidation of an insurance giant -- which got into trouble by insuring mortgage-backed securities -- would send the national and global economies into a secular decline. It comes at a great price and with huge risks. To get some perspective, the tab for the Fed bailouts this year runs to about $900 billion. The Fed's reserves: about $900 billion. That's why Paulson was brought on board, to print lots of money to be pumped into the Fed so that it can keep running. The risks -- to the dollar, to the value of the Treasury's paper -- are astronomical. All because of the appetite for deregulation from Reagan forward.
There are a lot of antecedent events leading up to this pass. Simplifying things somewhat: (1) underregulated lenders (banks and mortgage brokers) decided to start taking bigger risks in selling mortgages; (2) those risks were amplified by underregulated credit reporting agencies that permitted their reporting systems -- on which lenders rely -- to be gamed such that people with poor credit history could purchase higher credit scores; (3) investment houses -- many of which are merged with the commercial banks that were doing the risky lending, thanks to the repeal of the Glass-Steagall restrictions on commercial depository institutions -- bought up huge amounts of those mortgages, and thanks to a lax regulatory environment, bundled them into arcane, opaque securities; (4) those securities flooded the market and received higher ratings than they should have by the two big rating agencies (whether Moody's and S&P's were bamboozled or in on the scam is an open question); (5) investors, big and small, bought tons of those securities, having no idea that they were backed by no-document liar loans issued to people who were unlikely to make more than 6 months' worth of payments; and (6) large insurance institutions insured those securities.
Smarter government intervention -- in the form of sound regulation up front of the banking industry, mortgage brokers, credit reporting agencies, investment houses, securities-rating firms -- could have helped avert this awful house-that-Jack-built. And it might well have avoided this highly costly and risky $85 billion gamble.
But why let all that get in the way of libertarian sloganeering?
$80B for 80% of a company values it at $100B. AIG traded around a $160B market value (@$60/share) for several years. The company generated $30B in net earnings during the three years 2005-2007. I predict the Treasury/Fed comes out ahead on this over a five year horizon, probably much less.
Same for Bear Stearns, I'll bet, and Fannie & Freddie, and WAMU if it comes to that. Their prices are depressed by liquidity concerns - once that goes away the asset values will recover.
As long as the existing shareholders are wiped out I'm not too unhappy about this arrangement from a libertarian perspective. Should I be?
Sebastian, I missed the libertarian meeting in which it was asserted that fraud was not a prosecutable crime. But don't let anything get in the way of the anti-libertarian sloganeering.
"In the UK, AIG is best known as the sponsor of Manchester United."
And the first match of this season was a draw against Newcastle United, sponsored by Northern Rock. At least Cristiano Ronaldo and Micheal Owen don't have to worry about getting paid.
How about getting more sensible in evaluating the situation AIG is in,and trying to save this great Insurance Co.If we all started to re-invest in AIG and start to buy the stocks that have fallen so drastically, we might bring back some dignity to a Company that has lasted this long and at the same profit ourselves of the eventual gain it could bring. We got to help now that times are hard, and if enough of us start buying the stocks we can advert a bigger fall and maybe bring it back asthe company that has grown for so many years into such giant. What more do we want? To destroy is not a solution; once must gard from fast decisions...so, let's rebuild AIG to its past glory! The government intervention with its loan is finally the beginning of a wise idea. So let's all follow and start buying to stop an avalange that can predict nothing GOOD in a long term.GOD BLESS AMERICA AND ALL ITWS GOOD PEOPLE.
Well if the government had let it fail, maybe I'd actually have enough money to get into the stock market myself!
Oh wait. No wonder why they want to keep the price of the economy artificially high. Benefits all the people who are already good in on it.
To be fair, international markets would've had a fit if AIG died... maybe we should, ya know, stop borrowing money from them?
QUOTE: "There's only one explanation for this. The Fed thinks the whole crisis is much worse than its letting on."
Oh, it is indeed far worse than anyone expects. This is just the beginning. Any sane person should be getting out of the market and out of dollars.
I have a 403k in the amount of 173,000. Is my money gone??
"At least Cristiano Ronaldo and Micheal Owen don't have to worry about getting paid."
On a important note for a change.
Even if AIG goes bankrupt there are plenty of companies to replace them to sponsor the champions of country and Europe,I always find there logo on United shirts quite rubbish anyway.
Viva Ronaldo
He runs on the wing
And United sings
Viva Ronaldo