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Market Watch
Wednesday, September 17, 2008
AIG has been bailed out to the tune of $85 billion. NPR's international business and economics correspondent Adam Davidson updates the latest.
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For almost 100 years Aig has profited by using its negotiable(less that 2%) underwriting profits to invest in large infrastructure projects, Chinese infrastructure, Vietnamese ports, etc. for greater profits.
Now that the Fed is endorsing AIG's business strategy, will laws need to be written to legalize AIG's risky investments in less than stellar mortgages elsewhere in the world, REITs in Singapore, Thailand, etc.? And what of its premier third world consumer product, life insurance policies cum bank accounts?
Is the Fed betting that by bailing out AIG they will stave off some of the company's riskiest loans ... long enough to liquidate its position? (Doesn't it realize that foreign consumers are smarter than that?)
I sure do hope that our Fed, as it elbows its way into place as the nerve center of our now-government controlled, makes some wise investments to balance w its risky ones. I suggest we the taxpayers buy Mars. Now.
We should not have given incompetent people of AIG $85 Billion of tax payer money.
We are using social security to bail out wall street.
It's a good thing we didn't privatize Social Security.
When does this stop????
Is this a free market? Is this capitalism?????
er, no michaelw, this is not a free market or capitalism.
Comrade Paulson and Benrnanke are here to save us! Soon, we will have the economy of Soviet Russia.
Small guy: Free Market has winners and losers - pull up the bootstraps.
Big Guys: Socialism. Uncle Sam will bail you out.
No,
I do not think we should have bailed out AIG. Let them fall on their faces and let them learn. That is the point of free market and capitalism.
No Tony, actually like China - might be good! Look at the Chinese economy - BOOMING!
Hank Greenberg is an unindicted co-conspirator in the federal fraud investigation of AIG. These people are crooks....and as it turns out... not very bright ones.
seems like it would have been cheaper to bail out the sub-prime mortgage holders (homeowners) in the beginning of this crisis.
Is this bailout really a good thing? It's easy to say this will help/save/help/save/blablabla in the future, but we don't know what will happen in the future, only what has already happened! I don't agree with all this bailing out, which i see as saying to a misbehaving child, now, don't do that again...here's a lollipop anyway.
Doesn't seem all that different from the Yankee Stadium report that came out (shocker) - the public doesn't benefit in any way, but you can't change what has happened already, so all the government says is *oh well* and hopes that the public doesn't understand and will forget. When will our elected officials really step up to the plate and serve the public good?? I also propose that the MSM could do a better job of informing the public, too. (Present talk show excluded.)
Once again, business gets to make huge profits, screw it up and then get bailed out by a government that they wanted out of their business.
Should the bail out have happened, it was probably inevitable, however, suddenly the Federal Government is the largest business in the country. So much for "government getting out of the way of business."
Where's my bail out if I need it?
Whether you like it or not, they bailed them out because they realized they had to. They came to the conclusion that the failure of AIG would be catastrophic.
When will the free market truly be free, and transparent? Wouldn't more complete public knowledge have prevented or lat least reduced the severity of this problem?
How is it that one company has so much power. When does it end? How do you prevent this from happening?
But shouldn't we let the whole economy go to a standstill? We all messed up, we all let the Congress get away with under-regulating, we need to pay for it now (and not take the risk of paying even a higher price later).
The AIG problem is widely misunderstood.
The trigger for its problem was the requirement that it post collateral if its credit rating dropped. The underlying business may well be solid, but when the credit rating dropped to AA, it had contractual obligations to post Treasury bonds to back its swaps and other obligations. It couldn't do that, hence the problem. Keep in mind that AIG may well still be on the good side of its trades-- we just don't know.
Having just commented that AIG 's collapse could have brought down the global economy begs the question,have we allowed certain companies to become too big?
Congratulations to all Americans on their purchase of 2.6 Billionths of AIG.
Corporate Socialism!!!! Woo Hoo!!!!!!!!!
It strikes me if this $85 Billion bailout combined with the costs of taking over Fannie May and Freddie Mac and the Bear Sterns bailout, had we offered it as a grant to home owners defaulting on their mortgage combined with rate re-negotiation we might not be in this mess in the first place.
Banks stop trusting AIG, so AIG can't find funding. So *we* take over AIG because its collapse will threaten the global system. Banks will trust AIG now that it is owned by the US government.
How many times does the US government have to intervene in Wall Street companies, before the US government itself is subject to the same suspicion that ultimately brought down AIG?
This is absurd!!! Insurance companies commonly reject sensible pre-emptive medical claims and medical procedures yet we just bailed them out with huge loan. I think 15% of the population doesn't have health insurance, yet we just bailed out an insurance company and they (insurance companies, politicians, lobyist) can't come up with a comprehensive health insurance plan for all Americans.
repeat after me:
"SOCIALIZE RISK, PRIVATIZE PROFIT"
disgusting.
btw. for anyone who was interested, this was foreseen by a number of people...Buffett, Roubini, et al
Why does every deal such as this get called a "bailout"? This is a *loan.* (Or as Mr. Lehrer says, a line of credit.)
The U.S. lends money to AIG, and AIG has to pay about 11% interest on it. Plus the govt. owns an 80% stake in AIG. The govt. may actually end up making money on this
transaction if AIG's stock rises, or if the govt. decides to sell off pieces of AIG's business.
I think the problem is letting companies get too big to fail. We are being held hostage by these companies at a time when the US is already in trouble.
While this may be a serious crisis, it is clear to me that Governor Patterson's concern for preserving corporations like AIG does coming full circle to the very tax payers that will pay for the credit line. Governor Patterson, this year, has also approved cutting the budget of the City University of New York significantly. Instead, much more taxpayer money will go to bailing out a company that made huge mistakes. Meanwhile the taxpayers of New York City are getting cuts to the affordable public higher education that should be available to them and better funded.
Too big to fail? What about the American population? How about providing descent education for American children? How about health care?
Why is it that all this came to light over the weekend. Before giving kudos to the governor, ask him where he was in the weeks and months leading up to this since regulating AIG was primarily his responsibility.
disagree w everything this guy is saying. he sounds so panicky and naive -- NONE of this is new! you can't spend money you don't have w out taking a risk -- how is that new? seriously -- trust me whoever made the decisions to take the risk already have their retirement money... and if this were china, and they executed ceos who ruin other folks $, this would NEVER happen in a million years. Level heads folks
The completely ridiculous thing is that in the panic no one seems to be talking to the people who saw this very thing coming years and years ago. There's a flaw in the basic economic multiplier that creates instability when the physical economy is less responsive to stimulus than expected. The long lead forecasting signal of the problem approaching is general diminishing returns on real investment. Despite continual rumors of breakthroughs, that reality is what did it.
I do not agree with rescuing AIG and I believe it was a good decision to NOT rescue Lehman BUT I will say that most of the news outlets haven't reported the fact that the terms of the loans made to AIG are set up to be highly punitive unless AIG is quickly broken up and sold. At least the rescue is relatively intelligent.
@18 Peter
even better would have been not to encourage people to buy homes that they could not afford in the first place
any historian or economist worth a grain of salt could see this coming
fifty years ago, the "FIRE" sector of the economy (finance, insurance, real estate) was a fraction of what it grew to in the last ten years...it is going back to that lower level right now -- a smaller share of our GDP (gross domestic product)
was it smart that NYC thought that this would go on forever? we let the city become dependent on the sector and (cheap-dollar-driven) foreign tourism. stupid.
Excuse me, I meant to write Patterson's concern "does NOT come full circle."
Isn't there a serious security problem in that a couple rogue firms could collapse global capitalism? Maybe the DHS or even UN, G8, WTO, etc ought to get together and put some effort into securing this instead of dropping bombs on Pakistani hicks.
All this means is that someone very high up had a lot to lose if AIG went under!
Regarding the question 'how is a company like AIG allowed to ...?'
Most people are unaware of how incredibly powerful and influential insurance companies are. They control our healthcare system and, now, it seems, the financial markets.
They fly under the political radar and are not characterized as the negative (read: evil) force they are.
"We are Children, We don't know what we are doing"
Yeah right ... these free market capitalist are always crying this crap after they throw us into ruin. I say we take away their toys and stop this cycle of boom and bust that always results in the working people losing their lively hood and the wealthy consolidating even more wealth that we have to bail them out of. I was watching France 24 yesterday where they are openly questioning Capitalism. Thats what we should be doing as well. Smarter regulation ? what an idiot Andrew is.
I think that AIG should have been bailed out b/c if it failed the effects would have hit all of us.
However, I find it ironic that the Republicans who are so against bailing out the poor, ill, and elderly through social programs don't bat an eye when we spend billions on bailing out companies who have been criminally negligent.
So much for the "free" market.
set aside whatever impressions you have of Ron Paul's fitness for POTUS and listen to some of his speeches/testimony on the banking system
it is sobering
http://www.youtube.com/watch?v=A4kxTkhwR_Q&feature=related
http://www.youtube.com/watch?v=ji_G0MqAqq8
for example.
it is SCARY that our elected officials exercise such poor oversight.
All these suits... all these so called experts...
thats right Barack Obama does NOT look like the idiot that has presided over this mess. I think we need to change the composition of who runs America. These idiots LOOK Like they can run everything , but it is apparent that they run everything to ruin instead. It is time to reassess what "competence" looks like. How long will the majority culture Americans fail to see what is quite apparent to the rest of the world?
I have a friend, who's brother at the tender age of 28, just got a 80K bonus from his law firm, and so he is deciding which pair of $1000 shoes he should buy. This "bonus is the equivalent of 2 people's income at a decent wage. Is this kid contributing THAT MUCH economically to the world economy? None of these people are worth this much money and none of them should be allowed to suck up that much from the rest of us. If this lawyer dropped off the face of the earth tomorrow life would probably go on a bit more efficiently. We need to rethink this capitalist culture of greed, Send these interlopers back where they came from and create an economy that is fair and balanced to ALL.
if you dare, watch this series on youTube
"Money as Debt"
it will change your life.
http://www.youtube.com/watch?v=ThXpjmfyiMQ
When asked to name the greatest invention in human history, Albert Einstein simply replied "compound interest."
It appears that there is a level, at which a business failure becomes a threat to the economy of the nation. Is there an apparent answer? Not now, but we must look at this situation and try to learn how to deal with this. One thought I may offer a suggestion, back in the 1930's regulatory laws were passed to protect "the public" and Wall Street has been squirming to escape regulatory oversight. I'm not sure exactly what went wrong, but we must bail presently to get to the shore, and then find out what put a hole in the boat.
Too many lawyers...too much Rush and other fraud reps for the rich...too few people with politcians on their speed-dialers and cell phones...eh, who cares...all is lost as long as the DEMO-CANS and the REPUBLO-CRATS keep getting together to discuss how to...I can't use that word...US!
@41 Richard
please view that linked video "Money as Debt"; I think you will appreciate it.
[fractional reserve banking and loose monetary policy ALWAYS blows up]
I am so glad that people that work in and understand the free market are making the desisions and not politicians. The market place is hard ball, it goes throough cycles and if you don't know your capacity for risk you should not be taking risks you can't handle.
AIG is a truly international business and the goveernment is not giving away the store just like Barkleys Bank is not stupid. They both have made a good deal.
Concerning people who can't pay there morgages:Why should tax payers who are not crooks, but are frugle, savers, wise in there morgage desisions and think conservatively, pay for other morgagees who foolishly bought property they could ill afford. The home owner with no morgage is already paying as he sees the value of a sound investement in property go down. Raising taxes is a mistake. Tightning ones belt when things are bad is the thing to do regardless of the pain of loss its not death in Iraq.
I personally learned many years ago from market experience not to be greedy.
It goes against everything I believe but I do think AIG had to be rescued, at least in part. There must now be strict and smart government regulations to ensure that this wildly speculative insurance firm sticks to the straight and narrow from now on.
Weak Spines: I agree - we had full market greed in the US housing market, and as consumers we were asking the banks to regulate who they extended loans too, and they jumped at the chance to offer bad loans to bad buyers. Before the sub=prime crisis, the banks wouldnt allow people to buy houses they couldnt afford, but they were drooling over the proispects of more intrest revenue.
long story shot : total makret greed = total market faliure.
Not only are ticket prices high, but the Yankees (and Mets) make most of their broadcasts available only to cable tv subscribers. They are hardly civic-minded!
For a very interesting analysis of this whole thing, listen to this morning's DEMOCRACY NOW [http://www.democracynow.org/2008/9/17/us_seizes_control_of_aig_with], with investment banker turned journalist, Nomi Prins, and Michael Hudson, president of the Institute for the Study of Long-Term Economic Trends, who believe this bailout supports the speculative investment firms [creditors - aka gamblers] at the expense of the rest of us [debtors.] The separation between the speculative investment banks and commercial banks that deal with the public, that was put in place during FDR's administration [Glass-Stiegel], is now gone [eliminated by Clinton]. And because the gamblers' debts will now be backed instead of written off, the next president will be unable to write down the debts of homeowners, small business owners and others in real need, or maintain Social Security and pension funds - instead they are locked into supporting the 'sharks.' Plus the Fed is taking on the risk without any strings attached, no requirement that they even find out what they're getting into in terms of risk.
I missed some of the broadcast, but heard that some exec at Merrill Lynch got a huge compensation package.....can anyone enlighten me on who that is, and what the compensation was?
Thanks.
it's the end of the world as we know it!!!!
the new truth is markets are king until they are not then socialism is OK, (in a pinch)
If the Fed's action has really staved off a worldwide economic collapse by extending AIG a 85 bil credit line to do so, I would say that it is a bargain. OK....so credit default swaps were new, not well understood, thought to be a harmless way to make money grow on trees. Ooops....those smart people in suits were wrong....we just hit an iceberg and there are only a couple of lifeboats. If the Fed has just "saved the world" (or at least its banking system) is there someone out there who can figure out a way to get THE WORLD, and not just the US taxpayer to pay for it?!?!?!?!
I'm so tired of hearing journalists being interviewed as experts on the financial crisis. They barely understand what they are talking about. Why can't you find real experts to discuss this instead of other journalists?
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