AIG

[rwarn17588]

In case you haven't heard, the Fed just agreed to float AIG an $85 billion (with a "B") loan. The government also will assume an 80 percent stake in the company.

My question is this, and it's not rhetorical: Why shouldn't we simply let AIG simply go bust and let some other company swoop in and take over its assets for cents on the dollar? You know ... good old-fashioned winner-takes-the-spoils stuff.

I keep hearing how letting AIG fail would be so bad for the country, but I haven't heard any compelling reasons why. Maybe someone here with more "inside baseball" info in banking or investing can explain why.

In the meantime, I'm darkly amused to see all of the so-called conservative politicians who constantly harp on the glories of "free markets" suddenly throw taxpayer money to an insurance company.

[Hoss]

This really cracks me up.  For all the complaining that so many Republicans (and some Democrats) make about the government subsidizing business and creating a Socialist state, what have we gone and done?  Given an $85 billion subsidy to a company we should have let go tits up.

I'm sick of the gubmint bailing out these big corporations.  Let 'em fail, I say.  We shouldn't be the ones paying to bail 'em out.

[sgrizzle]

The problem when insurance companies go south is that the policy holders can be left with no coverage.

[Hoss]

So does that mean that widget company a that is the only company that creates widget a should be bailed out because of that?

While I understand the point, I, as a taxpayer, am growing sick and tired of bailing out companies who are not financially responsible.

So what's the deal?  Are companies bypassing Sarbanes-Oxley all of a sudden?

[CoffeeBean]

When people lose their jobs, they can be left without coverage too.  

What is your point?

[iplaw]

quote:Originally posted by rwarn17588

In case you haven't heard, the Fed just agreed to float AIG an $85 billion (with a "B") loan. The government also will assume an 80 percent stake in the company.

My question is this, and it's not rhetorical: Why shouldn't we simply let AIG simply go bust and let some other company swoop in and take over its assets for cents on the dollar? You know ... good old-fashioned winner-takes-the-spoils stuff.

I keep hearing how letting AIG fail would be so bad for the country, but I haven't heard any compelling reasons why. Maybe someone here with more "inside baseball" info in banking or investing can explain why.

In the meantime, I'm darkly amused to see all of the so-called conservative politicians who constantly harp on the glories of "free markets" suddenly throw taxpayer money to an insurance company.

I haven't heard any politicians on either side of the asile say that these bailouts are a good thing.  I think they see them as inevitable at the moment.

I don't think we have any business bailing out these companies, but what are the unintended consequences of doing nothing?  I really don't know...

[rwarn17588]

quote:Originally posted by iplaw

quote:Originally posted by rwarn17588

I haven't heard any politicians on either side of the asile say that these bailouts are a good thing.  I think they see them as inevitable at the moment.

But *why* is it inevitable?

BTW, I'm not arguing with you, iplaw. But it seems like the folks in power who are making the decision are not trying very hard in explaining why they should do so.

bokworker? Anyone?

[swake]

We have a massive and cascading problem in the economy, and I don't mean the US economy, it's impacting the world economy.

It started (and continues) in the US housing market with high-risk mortgage lenders. When interest rates spiked (due to inflation in the economy largely due to energy prices) it caused the cost of a lot of sub-prime mortgages to go up to unaffordable levels creating a lot of foreclosures. When people stopped paying on these loans there were two main, very bad, impacts to the economy. First, the companies that made these loans started to fail. The impact was larger than these companies because they bundled these loans and sold them on the bond market. This caused the bond market a lot of pain, a lot of the buyers of these bonds started to have problems, banks, insurance companies, foreign governments (China, Japan). The other impact was that there was a sudden glut on the housing market which depressed prices.

Depressed home prices had a couple of impacts, first, people could not sell their homes (which further increased foreclosures, but this time bleeding into standard mortgaged homes) and depressed the economy overall by impacting the home building sector of the economy. An economy that was already tightening due to energy costs. A tightening economy means job losses which means more foreclosures (in all types of loans) and means a slowdown in the retail sector. The retail sector's real estate market is impacted, and that sector is also heavily sold on the bond market. At this point mortgage banks are failing and the bond market is really hurting.

Go forward a little and Fannie and Freddie, which are not normal companies and hold about five trillion dollars in mortgages in the US are hurting on the government mandated side of their businesses (mortgages) but are absolutely taking a bath on the other part of their business, selling bonds on those mortgages. These are massive and were supposedly very stable businesses whose large institutional owners were foreign governments, investment banks and insurance companies. Fannie and Freddie were their "safe" investments. At this point our economy was likely also in the middle of the second scariest economic situation a nation can have, stagflation (hyperinflation being the worst) due to energy prices. The government could not let Fannie and Freddie fail, they alone are one of the world largest economies. I heard a European finance minister on NPR what he thought would happen if they failed, he said that the world banking industry would "seize" and stop to function. Banks would not lend money and would call loans and the world economy would stop. So, we "saved" them. Wall Street was really stupid and saw this as a good sign and went up. But they missed something. The former owners of Fannie and Freddie (shareholders) were largely wiped out in the takeover. We saved the banking industry but it was a killer blow to a lot of large investment banks, insurance companies and foreign governments. So we see a bailout of AIG (who really did nothing wrong), a buyout for pennies on the dollar of Merrill Lynch and the failure of Lehman. And more to come. Now, these stocks are wiped out and now the stock market is seeing what is happening and is tanking. This is where we are today. The stock market has just lost hundreds of billions of dollars on value.

What does this mean? I don't know, one really scary outcome is that other countries pull their money out of the US. China and the middle east are already taking a bath in our bond markets, stock markets and real estate markets. We were always the safe haven for money. Now we aren't. If they stop placing money in the US that would mean that the Federal Government would have a hard time selling bonds to finance our debt. What does that mean? A huge spike in interest rates as the government tries to sell bonds, basic supply and demand, more borrowers chasing fewer and fewer available dollars.

That would help the bond market in the short term, but, it also means that companies that already having a hard time finding financing will find it even harder. A lack of liquidity would further cause the economy to shrink while a suddenly stronger bond market also would suck even more money out of the stock market. Stagflation again. Lots of companies will fail as their worth in stock is suddenly erased creating balance sheet bankruptcies.  Banks will fail as companies fail and former employees can't pay their mortgages and credit cards. A crash becomes really likely. It's very possibly 1929 all over again. We have a lot of safeguards in place today we didn't then, but we also have a massive government and personal debt working against those safeguards.

Not bailing out these companies is unthinkable, it would mean the general collapse of the world economy. These companies largely have done nothing wrong, they are at the mercy of economic conditions not of their making. Bailing these companies out is keeping the banking industry and stock markets from collapsing, for now, is it enough? We will see.

[Conan71]

Wipe that smirk off your face, Hoss. [] Last I checked, there's a Democrat majority in the HOR and Senate who don't seem to be complaining too loud.  

This most definitely is not fiscal conservatism.  This crop of Republicans in DC haven't been fiscal conservatives in any way, shape, or form.  

I have not researched AIG real close to see who their customer base is and who would be affected by their collapse.  I tend to be more of the persuasion that the laws of nature should prevail in business.  Let the weak and dumb ones succumb and the stronger ones thrive.

Here is something which might be telling, Dodd leads the list of beneficiaries again:

Name                 Office         Total Contributions

Dodd, Christopher J (D-CT)  Senate  $104,300

Obama, Barack (D-IL) Senate $45,111

McCain, John (R-AZ) Senate $41,200

Clinton, Hillary (D-NY) Senate  $36,831

Baucus, Max (D-MT) Senate $24,750

Biden, Joseph R Jr (D-DE) Senate $19,975

Romney, Mitt (R) Pres  $19,950

Sununu, John E (R-NH) Senate $15,950

Sounds like we need some SERIOUS campaign and lobbying reform in D.C. not just more lip service (or lipstick...[] )

I really don't see how Chris Dodd can't acknowledge the appearance of a conflict of interest in his contributions.  I posted that he was at the top of the Fannie and Freddie slug trail as well.

Would anyone care to dispute that the chair of the Senate banking committee doesn't have a potential corruption issue on his hands?  I don't really give two ****s whether or not Dodd is a Dem or Rep, that's irrelevant, he's a public servant and it's looking more and more like he has helped stave off stiffer regs for some of these companies.

More thoughts from NYT:

http://www.nytimes.com/2008/07/06/business/06view.html

AIG used subsidiaries to grease the campaigns of Pataki and Spitzer as well as other NY politicians, read on:

"The donations in recent years include totals of $50,000 to the gubernatorial campaign of Attorney General Eliot Spitzer; $335,000 to those of Gov. George E. Pataki; $34,300 to the campaign of Lt. Gov. Mary O. Donohue; and $25,000 to the 2006 campaign of Comptroller Alan G. Hevesi.

Often, the subsidiaries' identities give no hint of their affiliation with A.I.G., making it difficult to determine the extent of A.I.G.'s giving. For example, 10 companies — with names like Green Hills Corporation and Yosemite Insurance — gave $5,000 checks to Mr. Spitzer's campaign on a single day in December 2003. The only clues that the checks came from a common source were that they all had sequential numbers and bore an address of 70 Pine Street in Manhattan, A.I.G.'s headquarters.

Those contributions were made before Mr. Spitzer's office began investigating insurance industry practices, including those of A.I.G., in mid-2004. A.I.G. has made no further contributions to the Spitzer campaign since then."

http://www.nytimes.com/2006/09/19/nyregion/19donate.html?ref=nyregion

[Conan71]

Wipe that smirk off your face, Hoss. [] Last I checked, there's a Democrat majority in the HOR and Senate who don't seem to be complaining too loud.  

This most definitely is not fiscal conservatism.  This crop of Republicans in DC haven't been fiscal conservatives in any way, shape, or form.  

I have not researched AIG real close to see who their customer base is and who would be affected by their collapse.  I tend to be more of the persuasion that the laws of nature should prevail in business.  Let the weak and dumb ones succumb and the stronger ones thrive.

Here is something which might be telling, Dodd leads the list of beneficiaries again:

Name                 Office         Total Contributions

Dodd, Christopher J (D-CT)  Senate  $104,300

Obama, Barack (D-IL) Senate $45,111

McCain, John (R-AZ) Senate $41,200

Clinton, Hillary (D-NY) Senate  $36,831

Baucus, Max (D-MT) Senate $24,750

Biden, Joseph R Jr (D-DE) Senate $19,975

Romney, Mitt (R) Pres  $19,950

Sununu, John E (R-NH) Senate $15,950

Sounds like we need some SERIOUS campaign and lobbying reform in D.C. not just more lip service (or lipstick...[] )

I really don't see how Chris Dodd can't acknowledge the appearance of a conflict of interest in his contributions.  I posted that he was at the top of the Fannie and Freddie slug trail as well.

Would anyone care to dispute that the chair of the Senate banking committee doesn't have a potential corruption issue on his hands?  I don't really give two ****s whether or not Dodd is a Dem or Rep, that's irrelevant, he's a public servant and it's looking more and more like he has helped stave off stiffer regs for some of these companies.

More thoughts from NYT:

http://www.nytimes.com/2008/07/06/business/06view.html

AIG used subsidiaries to grease the campaigns of Pataki and Spitzer as well as other NY politicians, read on:

"The donations in recent years include totals of $50,000 to the gubernatorial campaign of Attorney General Eliot Spitzer; $335,000 to those of Gov. George E. Pataki; $34,300 to the campaign of Lt. Gov. Mary O. Donohue; and $25,000 to the 2006 campaign of Comptroller Alan G. Hevesi.

Often, the subsidiaries' identities give no hint of their affiliation with A.I.G., making it difficult to determine the extent of A.I.G.'s giving. For example, 10 companies — with names like Green Hills Corporation and Yosemite Insurance — gave $5,000 checks to Mr. Spitzer's campaign on a single day in December 2003. The only clues that the checks came from a common source were that they all had sequential numbers and bore an address of 70 Pine Street in Manhattan, A.I.G.'s headquarters.

Those contributions were made before Mr. Spitzer's office began investigating insurance industry practices, including those of A.I.G., in mid-2004. A.I.G. has made no further contributions to the Spitzer campaign since then."

http://www.nytimes.com/2006/09/19/nyregion/19donate.html?ref=nyregion

[bokworker]

quote:Originally posted by rwarn17588

quote:Originally posted by iplaw

quote:Originally posted by rwarn17588

I haven't heard any politicians on either side of the asile say that these bailouts are a good thing.  I think they see them as inevitable at the moment.

But *why* is it inevitable?

BTW, I'm not arguing with you, iplaw. But it seems like the folks in power who are making the decision are not trying very hard in explaining why they should do so.

bokworker? Anyone?

We have had a number of internal discussions regarding the recent spate of action by the Fed and Treasury. "To big to fail" is hard to define.... I guess it is similar to the definition of porn... we know it when we see it but it can't be describe it in advance.

As to AIG in particular (which I think falls under the definition of to big to fail)... the credit facility set up for them appears to be structured in a way that we, read taxpayers, could actually make money. First, the rate on the loan is priced at LIBOR +850 basis points. I think all of us would like to invest at such a rate. Second, we now have a 79.9% stake in the company so we not only have first call on the revenues generated by the sale of assets to repay the loans, we also have a majority call on the profits generated by said sales. And last, but not least, AIG is a solvent company where asset values exceed liabilities. Given time I believe AIG will be able to profitably deal with their current issues and repay the Fed in full.

Stepping back from AIG and looking at the larger picture it doesn't take long for the delineation of "to big" and "not to big" to get murky. I think BSC (Bear Stearns) happened so suddenly that the Fed acted properly.... when it came to Lehman the decision was there had been enough time for counterparties to assess and reduce their risk. If a company or person still had Lehman as a counter-party after what has happened in the last 6 months then there was no one to blame besides that company or person. Hence, they let Lehman fail. Merrill probably saw the handwriting on the wall and quickly agreed to be bought by Bank of America... good deal? Maybe, probably... but not a sure thing for BAC holders.

I do not extrapolate recent events ad infinitem into the future to where this all ends in a "canned goods and ammunition" end game... and there is enough DNA on this to lay blame on either political party..... we have been through times like this before and survived. And we will survive this as I believe there is still no greater country and economic system in the world..... far from perfect but where else would you want to live? Changes may need to be made but as any business owner will tell you, trying to write policies and procedures to protect you from every conceivable event is like herding cats... it cannot be done. We'll still try but we will never remove all risk from our economic system.... and besides, if we did then it is not a system we want.

[swake]

Wow,

Just plain wow. This is about the worst economic news yet. The Federal Reserve is having a liquidity crunch and is borrowing money to shore up banks and AIG.

http://www.tulsaworld.com/news/article.aspx?articleID=20080917_13_WASH373124

[Gaspar]

quote:Originally posted by rwarn17588

In case you haven't heard, the Fed just agreed to float AIG an $85 billion (with a "B") loan. The government also will assume an 80 percent stake in the company.

My question is this, and it's not rhetorical: Why shouldn't we simply let AIG simply go bust and let some other company swoop in and take over its assets for cents on the dollar? You know ... good old-fashioned winner-takes-the-spoils stuff.

I keep hearing how letting AIG fail would be so bad for the country, but I haven't heard any compelling reasons why. Maybe someone here with more "inside baseball" info in banking or investing can explain why.

In the meantime, I'm darkly amused to see all of the so-called conservative politicians who constantly harp on the glories of "free markets" suddenly throw taxpayer money to an insurance company.

Bad thing, bad idea, bad government.
WWRD?

[Hoss]

quote:Originally posted by Conan71

Wipe that smirk off your face, Hoss. [] Last I checked, there's a Democrat majority in the HOR and Senate who don't seem to be complaining too loud.  

This most definitely is not fiscal conservatism.  This crop of Republicans in DC haven't been fiscal conservatives in any way, shape, or form.  

I have not researched AIG real close to see who their customer base is and who would be affected by their collapse.  I tend to be more of the persuasion that the laws of nature should prevail in business.  Let the weak and dumb ones succumb and the stronger ones thrive.

Here is something which might be telling, Dodd leads the list of beneficiaries again:

Name                 Office         Total Contributions

Dodd, Christopher J (D-CT)  Senate  $104,300

Obama, Barack (D-IL) Senate $45,111

McCain, John (R-AZ) Senate $41,200

Clinton, Hillary (D-NY) Senate  $36,831

Baucus, Max (D-MT) Senate $24,750

Biden, Joseph R Jr (D-DE) Senate $19,975

Romney, Mitt (R) Pres  $19,950

Sununu, John E (R-NH) Senate $15,950

Sounds like we need some SERIOUS campaign and lobbying reform in D.C. not just more lip service (or lipstick...[] )

I really don't see how Chris Dodd can't acknowledge the appearance of a conflict of interest in his contributions.  I posted that he was at the top of the Fannie and Freddie slug trail as well.

Would anyone care to dispute that the chair of the Senate banking committee doesn't have a potential corruption issue on his hands?  I don't really give two ****s whether or not Dodd is a Dem or Rep, that's irrelevant, he's a public servant and it's looking more and more like he has helped stave off stiffer regs for some of these companies.

More thoughts from NYT:

http://www.nytimes.com/2008/07/06/business/06view.html

AIG used subsidiaries to grease the campaigns of Pataki and Spitzer as well as other NY politicians, read on:

"The donations in recent years include totals of $50,000 to the gubernatorial campaign of Attorney General Eliot Spitzer; $335,000 to those of Gov. George E. Pataki; $34,300 to the campaign of Lt. Gov. Mary O. Donohue; and $25,000 to the 2006 campaign of Comptroller Alan G. Hevesi.

Often, the subsidiaries' identities give no hint of their affiliation with A.I.G., making it difficult to determine the extent of A.I.G.'s giving. For example, 10 companies — with names like Green Hills Corporation and Yosemite Insurance — gave $5,000 checks to Mr. Spitzer's campaign on a single day in December 2003. The only clues that the checks came from a common source were that they all had sequential numbers and bore an address of 70 Pine Street in Manhattan, A.I.G.'s headquarters.

Those contributions were made before Mr. Spitzer's office began investigating insurance industry practices, including those of A.I.G., in mid-2004. A.I.G. has made no further contributions to the Spitzer campaign since then."

http://www.nytimes.com/2006/09/19/nyregion/19donate.html?ref=nyregion

You might be surprised a little Conan.  Although I might be left leaning on most everythning, when it comes to two things: fiscal responsibility and immigration, I am most decidely conservative and am not afraid to admit it.

This is just plain stoopid.  We're now at the point that instead of 'sorta robbin' Peter to pay Paul' were stripping Peter bare.

Why can't the government stay out of it?  In certain cases (shoring up airlines following 9/11) it makes sense.  But not now.

[Conan71]

quote:Originally posted by swake

Wow,

Just plain wow. This is about the worst economic news yet. The Federal Reserve is having a liquidity crunch and is borrowing money to shore up banks and AIG.

http://www.tulsaworld.com/news/article.aspx?articleID=20080917_13_WASH373124

Wow, just wow.  Read the entire article.  Are you hoping your employer buys into the "whole economy is ****ed" thing?  I'm sure not.  Good way to wind up out of a job.

"Treasury officials said the action did not mean that the Fed was running short of resources but simply was a way for the government to better manage its financing needs."