Wall Street Banking Crisis (Bear Sterns, Lehman, Merril Lynch, AIG etc)
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Fundamental Inconsistencies in the Treasury's Report to Congress
Fundamental Inconsistencies in the Treasury's Report to Congress
by Casey Mulligan
Thursday, January 1, 2009
Yesterday the U.S. Treasury reported to Congress about its $700 billion bailout program, which it now calls the "Capital Purchase Program."
It claims that the program helped "prevent a financial collapse" (p. 4). At the same time, it admits that “capital [from its CPP] needs to get into the system before it can have the desired effect.” (p. 5)
I find these claims to be fundamentally inconsistent, because (a) most of the CPP money has not yet been received by the banking system and (b) NONE of it had been received as of October 27. How did we survive between September 15 (when Lehman failed and brought on the crescendo of the credit crisis) and October 27? How did businesses make payrolls?
Maybe some credit goes to the Federal Reserve, who (from a different authority) was spending taxpayer dollars throughout September and October. But the whole justification of the $700 billion TREASURY authority reminds me of the supposed WMD in Iraq -- scary but nonexistent. A financial collapse was somehow prevented without the $700 billion.
http://caseymulligan.blogspot.com/2009/01/fundamental-inconsistencies-in.html
Fundamental Inconsistencies in the Treasury's Report to Congress
by Casey Mulligan
Thursday, January 1, 2009
Yesterday the U.S. Treasury reported to Congress about its $700 billion bailout program, which it now calls the "Capital Purchase Program."
It claims that the program helped "prevent a financial collapse" (p. 4). At the same time, it admits that “capital [from its CPP] needs to get into the system before it can have the desired effect.” (p. 5)
I find these claims to be fundamentally inconsistent, because (a) most of the CPP money has not yet been received by the banking system and (b) NONE of it had been received as of October 27. How did we survive between September 15 (when Lehman failed and brought on the crescendo of the credit crisis) and October 27? How did businesses make payrolls?
Maybe some credit goes to the Federal Reserve, who (from a different authority) was spending taxpayer dollars throughout September and October. But the whole justification of the $700 billion TREASURY authority reminds me of the supposed WMD in Iraq -- scary but nonexistent. A financial collapse was somehow prevented without the $700 billion.
http://caseymulligan.blogspot.com/2009/01/fundamental-inconsistencies-in.html
Re: Fundamental Inconsistencies in the Treasury's Report to Congress
None of it was ever needed. Underneath all the fearmongering was a timid admission that it was all about a "better safe than sorry" approach. For some reason every recession is the Great Depression to everyone living through it, so we have to be saved from every recession.
Every quarter, since the recession has been officially declared, has had GDP greater than it was the previous quarter. The third quarter 2008 grew more positive at a slower rate than the second quarter, and for that we are told trillions of dollars needs to be committed. The richest country in the history of the world is apparently being saved from consistently breaking its own record every quarter.
None of it was ever needed. Underneath all the fearmongering was a timid admission that it was all about a "better safe than sorry" approach. For some reason every recession is the Great Depression to everyone living through it, so we have to be saved from every recession.
Every quarter, since the recession has been officially declared, has had GDP greater than it was the previous quarter. The third quarter 2008 grew more positive at a slower rate than the second quarter, and for that we are told trillions of dollars needs to be committed. The richest country in the history of the world is apparently being saved from consistently breaking its own record every quarter.
Re: Fundamental Inconsistencies in the Treasury's Report to Congress
Beyond the implications of your conclusion that we're really much better off than officials are painting the picture (that, despite signs to the contrary, i.e., the unemployment picture) -- I could not help but notice the obvious implications in your highlighted quotes above from your last two posts. Ironic, if not prophetic.
QueEx
Greed said:
Beyond the implications of your conclusion that we're really much better off than officials are painting the picture (that, despite signs to the contrary, i.e., the unemployment picture) -- I could not help but notice the obvious implications in your highlighted quotes above from your last two posts. Ironic, if not prophetic.
QueEx
However, the two fears aren't necessarily comparable since the results of their realization are so different, one involved life and death and the other doesn't. Also, such statements about WMDs are easy to make since we didn't find any, however, after the recession is over, how do we prove that the multipe government stimuli (war) were never needed to neutralize the threat.
I agree, it is not the "Results" that make them comparable or even interesting -- instead, it is the "Origin" -- the Bush administrationh and its cronies, that supplies the similarity as well as the intrique.
QueEx
Well I agree that the origin matters, which is why I'll never forget a Democrat controlled Senate in 2002 that helped faciltate the Iraq War, and I'll never forget the coming $999 billion Obama administration recession spending package. I have no idea why to black people Bush always act alone in apparently everything.
I agree, but 99% of the country fell for the bullshit. Such a shame because of the massive damage that whole scenario has left upon the American political psyche in general and the Black political psyche, in particular. Prior to the Bush Administration pushing an invasion of Iraq in reliance upon shaky if not dubious evidence, there was enough Black mistrust and suspicion of government, not that some of it was unwarranted. Post invasion, however, my unscientific barometer tells me that the level of mistrust and suspicion has risen to dangerous levels where, under some scenarious, its actually harmful to our wellbeing.
Reminds me of that nursery tale about the boy who cried "wolf" one time too many. Somebody could yell out again; nobody moves; and we're all eaten. Who will be talking about republicans and democrats, then ? ? ?
QueEx
Reminds me of that nursery tale about the boy who cried "wolf" one time too many. Somebody could yell out again; nobody moves; and we're all eaten. Who will be talking about republicans and democrats, then ? ? ?
QueEx
1 thing I hope American people realize from this 700 Bn bailout is that Government does not really serve and protect them but these large financial corporations. I knew many self professed republicans who felt betrayed by Bush and the Republicans who passed this and I hope they come to realize that their party is not about free market when it comes to protecting the wealthy corporations.
7:30am central Jan. 30, 2009 is when the Q4 2008 GDP numbers come out. We'll see if this is the quarter where we can see the "death spiral".
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
You trust the government????
And to make matters worse...
you trust government STATISTICS?!!??
Even if you don't want to read every comment I've ever made on this board, at least read what I posted in this thread.You trust the government????
And to make matters worse...
you trust government STATISTICS?!!??
The "Death Spiral":
Now tell me again about this "perilous moment" that needs to put $8 trillion at risk. The long term GDP growth average is close to 2.5%.
The False Alarm of 2008 Continues
The False Alarm of 2008 Continues
by Casey B. Mulligan
Monday, February 16, 2009
Policy makers and political candidates told us at the end of September that the economy was in crisis and that we likely faced a second Great Depression. Yet the Bureau of Economic Analysis showed recently that so far this recession is mild by historical standards. Nevertheless, President Obama's fear-mongering continues.
The economic news headline on January 26, 2009 was that the annualized real G.D.P. growth rate was ‑3.8 percent in the fourth quarter. In plain English: adjusted for inflation, total spending in the United States economy was about one percent lower in October-December than it was July-September. (The fourth quarter performance would have to repeat itself three more times – for a full year – in order for real GDP to actually fall the 3.8 percent in the headline.)
None of us likes to see our purchasing power fall, but it helps to put the one percent drop in perspective. That drop was pretty similar to what happened during the 1990 recession. Real spending has so far done much better than the 1981-82 recession, when it fell three times as much. The Great Depression of the 1930s was far worse.
Another way to understand the headline: spending fell $120 per person.
Normally, a small G.D.P. change is not big news – but it is today, because political leaders of both parties have grossly exaggerated the economy’s problems. October 1 began the quarter, within just a few days of Bernanke’s and Paulson’s telling President Bush “if we don’t act boldly, Mr. President, we could be in a depression greater than the Great Depression.” Then presidential-candidate Barack Obama said that “the credit market is seized up and businesses, for instance, can’t get loans to meet payroll.”
These dire alarms were used to justify hastily giving Paulson the authority to spend $2300 per American to bail out banks. Yet they were speaking about an economy that so far has only dropped by $120 per person. Perhaps the economy has more to fall, but it doesn’t make sense to spend thousands of dollars in order to rescue a few hundred.
The economy is hard to predict, so the alarmists might be excused for thinking that this recession was much worse than previous ones. But the January 26th report finally showed us that so far this recession is a lot like 1990’s: not a happy time, but mild by the standards of previous recessions.
Nevertheless, Congressional Democrats and President Obama persist in sounding economic alarms to justify still more government spending. President Obama said Wednesday that the recession will become “a catastrophe” unless an economic stimulus bill soon becomes law. The proposal now is a stimulus plan costing almost $3000 per American.
Only a few people pointed out last year that chaos for the finance industry does not necessarily mean tragedy for the economy as a whole, so that bailouts and stimulus packages are worth far less than their price tag. Now we know: the economy as a whole continued to maintain high levels of production production and spending. Although the economy should be closely watched in 2009, taxpayers would be better served if their representatives would discern hype from real disaster, and thereby better protect taxpayer wallets from the alarmists.
http://caseymulligan.blogspot.com/2009/02/false-alarm-of-2008-continues.html
The False Alarm of 2008 Continues
by Casey B. Mulligan
Monday, February 16, 2009
Policy makers and political candidates told us at the end of September that the economy was in crisis and that we likely faced a second Great Depression. Yet the Bureau of Economic Analysis showed recently that so far this recession is mild by historical standards. Nevertheless, President Obama's fear-mongering continues.
The economic news headline on January 26, 2009 was that the annualized real G.D.P. growth rate was ‑3.8 percent in the fourth quarter. In plain English: adjusted for inflation, total spending in the United States economy was about one percent lower in October-December than it was July-September. (The fourth quarter performance would have to repeat itself three more times – for a full year – in order for real GDP to actually fall the 3.8 percent in the headline.)
None of us likes to see our purchasing power fall, but it helps to put the one percent drop in perspective. That drop was pretty similar to what happened during the 1990 recession. Real spending has so far done much better than the 1981-82 recession, when it fell three times as much. The Great Depression of the 1930s was far worse.
Another way to understand the headline: spending fell $120 per person.
Normally, a small G.D.P. change is not big news – but it is today, because political leaders of both parties have grossly exaggerated the economy’s problems. October 1 began the quarter, within just a few days of Bernanke’s and Paulson’s telling President Bush “if we don’t act boldly, Mr. President, we could be in a depression greater than the Great Depression.” Then presidential-candidate Barack Obama said that “the credit market is seized up and businesses, for instance, can’t get loans to meet payroll.”
These dire alarms were used to justify hastily giving Paulson the authority to spend $2300 per American to bail out banks. Yet they were speaking about an economy that so far has only dropped by $120 per person. Perhaps the economy has more to fall, but it doesn’t make sense to spend thousands of dollars in order to rescue a few hundred.
The economy is hard to predict, so the alarmists might be excused for thinking that this recession was much worse than previous ones. But the January 26th report finally showed us that so far this recession is a lot like 1990’s: not a happy time, but mild by the standards of previous recessions.
Nevertheless, Congressional Democrats and President Obama persist in sounding economic alarms to justify still more government spending. President Obama said Wednesday that the recession will become “a catastrophe” unless an economic stimulus bill soon becomes law. The proposal now is a stimulus plan costing almost $3000 per American.
Only a few people pointed out last year that chaos for the finance industry does not necessarily mean tragedy for the economy as a whole, so that bailouts and stimulus packages are worth far less than their price tag. Now we know: the economy as a whole continued to maintain high levels of production production and spending. Although the economy should be closely watched in 2009, taxpayers would be better served if their representatives would discern hype from real disaster, and thereby better protect taxpayer wallets from the alarmists.
http://caseymulligan.blogspot.com/2009/02/false-alarm-of-2008-continues.html
Re: The False Alarm of 2008 Continues
<font size="5">AIG reports fourth-quarter loss of over $61 billion</font size>
MarketWatch
By Steve Goldstein
March 2, 2009
LONDON (MarketWatch) -- American International Group (AIG 0.42, -0.10, -19.2%) , said its fourth-quarter loss widened to $61.66 billion, or $22.95 a share, from the $5.29 billion loss in the year-earlier period. Continued severe credit market deterioration, particularly in commercial mortgage-backed securities, and charges related to ongoing restructuring-related activities weighed down results. Stripping out capital losses and other accounting items, AIG said it would have lost $37.9 billion, or $14.17 a share. Insurance premiums and other considerations declined by 1.9% for the fourth quarter, it added.
http://www.marketwatch.com/news/sto...4142D-BB1D-4E6E-92BB-37E17D00F501}&dist=msr_1
<font size="5">AIG reports fourth-quarter loss of over $61 billion</font size>
MarketWatch
By Steve Goldstein
March 2, 2009
LONDON (MarketWatch) -- American International Group (AIG 0.42, -0.10, -19.2%) , said its fourth-quarter loss widened to $61.66 billion, or $22.95 a share, from the $5.29 billion loss in the year-earlier period. Continued severe credit market deterioration, particularly in commercial mortgage-backed securities, and charges related to ongoing restructuring-related activities weighed down results. Stripping out capital losses and other accounting items, AIG said it would have lost $37.9 billion, or $14.17 a share. Insurance premiums and other considerations declined by 1.9% for the fourth quarter, it added.
http://www.marketwatch.com/news/sto...4142D-BB1D-4E6E-92BB-37E17D00F501}&dist=msr_1
Re: The False Alarm of 2008 Continues
<font size="5"><center>AIG to Get Up to $30 Billion More
in New Bailout After Loss </font size></center>
Bloomberg
By Scott Lanman and Hugh Son
March 2, 2009
American International Group Inc., the insurer deemed too important to fail, will get as much as $30 billion in new government capital in a revised bailout after posting a record fourth-quarter loss.
The loss widened to $61.7 billion from $5.29 billion in the year-earlier period, the New York-based insurer said today in a statement. The government will also exchange its $40 billion in preferred stock for new shares that “resemble common equity,” the Treasury and Federal Reserve said. AIG was paying a 10 percent dividend on the preferred stock.
The insurer, first saved from collapse in September with a package that grew to $150 billion last year, had to ask for help again after failing to sell enough subsidiaries to repay the U.S. Firms including banks relied on AIG to back more than $300 billion of assets through derivative contracts as of Sept. 30, making the company a “systemically significant failing institution” that has to be propped up, the Treasury said.
“The government has accepted all the downside with little chance of upside,” said Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore. “They are trying to protect the global financial system from a complete meltdown.”
AIG agreed to turn over two units, American Life Insurance Co. and American International Assurance Co. AIG will pay down the federal loan, valued at about $38.9 billion on Dec. 31, partly by putting the life units in trusts and giving the government rights to the cash flow from tens of thousands of life insurance policies.
More Capital
The role of the U.S. has shifted from that of short-term lender -- entitled to interest at the 3-month London Interbank offered rate plus 8.5 percent for a two-year loan under the first bailout -- to a longer-term equity investor.
“We priced their capital punitively and forced them to sell things fast; that hasn’t worked either so we’re having to pump in more capital,” said Haag Sherman, who helps oversee $8 billion as chief investment officer of Houston-based Salient Partners. “This probably won’t be the last time AIG has to come to the trough.”
AIG will also separate the unit that provides property and liability coverage for commercial clients and may sell a 19.9 percent stake to the public within 12 months, a person familiar with the matter said. That business, which was previously intended to be the core of AIG after the U.S. rescue, may get a new brand to distance itself from AIG, said the person, who asked not to be identified.
Aircraft Leasing
AIG sought a revised bailout after the global decline in financial firms thinned the pool of potential buyers for units, increasing the chance that auctions wouldn’t raise enough money to pay back AIG’s loans. Under the new plan, AIG will be under less pressure to divest assets as it continues to seek buyers for operations including an aircraft-leasing business, an auto insurer, and a retirement-services operation.
The insurer had been in talks in the past week with regulators to restructure its bailout to stave off credit-rating downgrades that would have caused further costs tied to credit- default swaps. AIG got an $85 billion federal loan in September after credit-rating downgrades left the company facing more than $10 billion in potential payments to debt investors who bought swaps from the insurer to protect against losses.
Downgrades by Moody’s Investors Service and Standard & Poor’s would force AIG to post more than $7 billion in collateral to counterparties, the insurer said in a November filing. AIG’s units may also lose access to the U.S. commercial paper program if they are downgraded, the company said.
Chief Executive Officer Edward Liddy, appointed by the government to run AIG in September when the insurer agreed to turn over an 80 percent stake to the U.S., had struck deals to raise about $2.4 billion through asset sales. Under Liddy’s plan, revealed in October, AIG was to emerge as a firm mostly providing property-casualty coverage to businesses.
Road to Recovery
Liddy said AIG was on the “road to recovery” after securing a bailout valued at $150 billion in November. That package included the $60 billion credit line, a $40 billion capital investment and $50 billion to wind down liabilities tied to mortgage-backed securities the insurer owned or backed through swaps. Liddy said then that terms of the original rescue, disclosed a day after Lehman Brothers Holdings Inc. collapsed, were unsustainable.
AIG is winding down the trades and closing the unit that sold the swaps. The unit is under investigation by the U.S. Department of Justice, the Securities and Exchange Commission and U.K.’s Serious Fraud Office. The U.S. probes involve how AIG executives valued its swap portfolio and disclosed information about the contracts to investors, AIG said in a November regulatory filing.
Planes, Ships
AIG, once the world’s largest insurer, operates in more than 100 countries, providing protection to individuals and businesses. It insures against some of the biggest risks, covering planes and commercial shipping and providing protection against terrorist attacks.
The biggest insurers in North America posted more than $150 billion in writedowns and unrealized losses linked to the collapse of the mortgage market from the start of 2007, with AIG representing more than a third of that total. The company has units that insure, originate and invest in home loans.
The U.S. Senate’s banking committee has scheduled a hearing for March 5 to discuss AIG’s bailout and the government involvement. New York Insurance Superintendent Eric Dinallo and Donald Kohn, vice-chairman of the Federal Reserve Board of Governors, were scheduled to testify.
To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Scott Lanman in Washington at slanman@bloomberg.net.
<font size="5"><center>AIG to Get Up to $30 Billion More
in New Bailout After Loss </font size></center>
Bloomberg
By Scott Lanman and Hugh Son
March 2, 2009
American International Group Inc., the insurer deemed too important to fail, will get as much as $30 billion in new government capital in a revised bailout after posting a record fourth-quarter loss.
The loss widened to $61.7 billion from $5.29 billion in the year-earlier period, the New York-based insurer said today in a statement. The government will also exchange its $40 billion in preferred stock for new shares that “resemble common equity,” the Treasury and Federal Reserve said. AIG was paying a 10 percent dividend on the preferred stock.
The insurer, first saved from collapse in September with a package that grew to $150 billion last year, had to ask for help again after failing to sell enough subsidiaries to repay the U.S. Firms including banks relied on AIG to back more than $300 billion of assets through derivative contracts as of Sept. 30, making the company a “systemically significant failing institution” that has to be propped up, the Treasury said.
“The government has accepted all the downside with little chance of upside,” said Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore. “They are trying to protect the global financial system from a complete meltdown.”
AIG agreed to turn over two units, American Life Insurance Co. and American International Assurance Co. AIG will pay down the federal loan, valued at about $38.9 billion on Dec. 31, partly by putting the life units in trusts and giving the government rights to the cash flow from tens of thousands of life insurance policies.
More Capital
The role of the U.S. has shifted from that of short-term lender -- entitled to interest at the 3-month London Interbank offered rate plus 8.5 percent for a two-year loan under the first bailout -- to a longer-term equity investor.
“We priced their capital punitively and forced them to sell things fast; that hasn’t worked either so we’re having to pump in more capital,” said Haag Sherman, who helps oversee $8 billion as chief investment officer of Houston-based Salient Partners. “This probably won’t be the last time AIG has to come to the trough.”
AIG will also separate the unit that provides property and liability coverage for commercial clients and may sell a 19.9 percent stake to the public within 12 months, a person familiar with the matter said. That business, which was previously intended to be the core of AIG after the U.S. rescue, may get a new brand to distance itself from AIG, said the person, who asked not to be identified.
Aircraft Leasing
AIG sought a revised bailout after the global decline in financial firms thinned the pool of potential buyers for units, increasing the chance that auctions wouldn’t raise enough money to pay back AIG’s loans. Under the new plan, AIG will be under less pressure to divest assets as it continues to seek buyers for operations including an aircraft-leasing business, an auto insurer, and a retirement-services operation.
The insurer had been in talks in the past week with regulators to restructure its bailout to stave off credit-rating downgrades that would have caused further costs tied to credit- default swaps. AIG got an $85 billion federal loan in September after credit-rating downgrades left the company facing more than $10 billion in potential payments to debt investors who bought swaps from the insurer to protect against losses.
Downgrades by Moody’s Investors Service and Standard & Poor’s would force AIG to post more than $7 billion in collateral to counterparties, the insurer said in a November filing. AIG’s units may also lose access to the U.S. commercial paper program if they are downgraded, the company said.
Chief Executive Officer Edward Liddy, appointed by the government to run AIG in September when the insurer agreed to turn over an 80 percent stake to the U.S., had struck deals to raise about $2.4 billion through asset sales. Under Liddy’s plan, revealed in October, AIG was to emerge as a firm mostly providing property-casualty coverage to businesses.
Road to Recovery
Liddy said AIG was on the “road to recovery” after securing a bailout valued at $150 billion in November. That package included the $60 billion credit line, a $40 billion capital investment and $50 billion to wind down liabilities tied to mortgage-backed securities the insurer owned or backed through swaps. Liddy said then that terms of the original rescue, disclosed a day after Lehman Brothers Holdings Inc. collapsed, were unsustainable.
AIG is winding down the trades and closing the unit that sold the swaps. The unit is under investigation by the U.S. Department of Justice, the Securities and Exchange Commission and U.K.’s Serious Fraud Office. The U.S. probes involve how AIG executives valued its swap portfolio and disclosed information about the contracts to investors, AIG said in a November regulatory filing.
Planes, Ships
AIG, once the world’s largest insurer, operates in more than 100 countries, providing protection to individuals and businesses. It insures against some of the biggest risks, covering planes and commercial shipping and providing protection against terrorist attacks.
The biggest insurers in North America posted more than $150 billion in writedowns and unrealized losses linked to the collapse of the mortgage market from the start of 2007, with AIG representing more than a third of that total. The company has units that insure, originate and invest in home loans.
The U.S. Senate’s banking committee has scheduled a hearing for March 5 to discuss AIG’s bailout and the government involvement. New York Insurance Superintendent Eric Dinallo and Donald Kohn, vice-chairman of the Federal Reserve Board of Governors, were scheduled to testify.
To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Scott Lanman in Washington at slanman@bloomberg.net.
The more I learn about banking, finance, debt, contracts, law, monetary policy, and commerce...
the more sickened I become.
How in the world (or better yet, why) do you bailout a bank?
That's a concept I still don't understand.
This a f***ed system!
Everyone lives under a really stupid global monetary scheme that is destined to collapse.
the more sickened I become.
How in the world (or better yet, why) do you bailout a bank?
That's a concept I still don't understand.
This a f***ed system!
Everyone lives under a really stupid global monetary scheme that is destined to collapse.
Last edited:
Don't ge too sick. It is a conspired plan to end the present currancy, and introduce a global currency.
Its only paper, not to be confused with real wealth (Your time)
Without banking system, your economy is doomed anyway...
relax..
Re: 40 Billion more... MSNBC
You have to be kidding me right.
Just out of curiosity, What power do you think Obama has?
You have to be kidding me right.
Just out of curiosity, What power do you think Obama has?
The history of the currency in the United States points to a consolidation of currencies between neighboring sovereign states (Canada and Mexico) in North America.
This will cause another decrease in the standard of living of those citizens in the United States (and probably Canada) to the benefit of the powerful Jew/honkey conglomeration.
It will happen unless people decide to stop it, which I am not expecting.
Yes, it is paper that people willingly accept in exchange for wealth (time). Why? The force of the courts, the police and the jail.
If you refuse to accept government paper, they will seize your wealth (time) through arrest, imprisonment, or litigation.
A banking system is not necessary for a healthy economy. In fact, I say it impedes economic prosperity.
It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning - Henry Ford
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs - Thomas Jefferson
The cracka may have had slaves but that cracka know money. Research the Federal Reserve - The Constitution states that only gold & silver shall be legal tender. Gold & Silver are instruments of wealth, Federal Reserve Notes are instruments of debt.
Can US let AIG fail?
<font size="5"><center>
Can US let AIG fail? </font size><font size="4">
Public outrage could force the Treasury Department
to reconsider which financial giants pose
a ‘systemic risk’ to the economy.</font size></center>
Christian Science Monitor
By Mark Trumbull
Staff writer
March 22, 2009 edition
Outrage about employee bonuses at AIG has put new focus on a larger question: whether saving the economy also means saving all the largest financial firms.
Economically, the financial crisis may have moved into a phase where the risk of a total meltdown, should a major financial corporation go through something like a government-managed bankruptcy, is not as great as it was last fall.
Yet it remains a sensitive moment. Treasury Secretary Timothy Geithner is expected to announce this week a strategy to deploy more dollars to purchase bad loans from banks. It’s part of a plan to keep troubled firms afloat without taking them under federal control. But anger at AIG has begun to ripple outward into a wider reluctance to rescue tottering financial giants.
“The political reality has changed,” says Simon Johnson, a former chief economist at the International Monetary Fund who is now at the Massachusetts Institute of Technology.
The new bailout climate is troubling, Mr. Johnson says. It could make it difficult for the Obama team to sell its plan. Moreover, it could also thwart a key fallback option: putting troubled firms into government receivership and spending money to clean them up so that they can be privatized again.
Without significant new public spending on banks, he says, the recession could go on longer and a recovery will be slower.
Governing out of anger?
President Obama is scrambling to keep his options open. He’s been aligning himself with public opinion – declaring his own outrage at the AIG bonuses – while also trying to redirect it. He warns that it would not be responsible to “govern out of anger.”
Last week, anger was rising, not waning. In an AIG-related hearing on Capitol Hill, lawmakers voiced the frustration of their constituents, and not just about some $165 million or more in employee bonuses. It was also about the full cost of rescuing AIG, with more than $170 billion in public funds now on the line there.
“There remains a possibility that AIG will come back for additional [federal] funds associated with the $1.6 trillion in your derivatives portfolio,” Rep. William Lacy Clay (D) of Missouri told AIG chief Edward Liddy. “Can you convincingly illustrate to us why this is not an exercise in staving off the obvious collapse or prolonging the agony?”
Another Democrat, Joe Donnelly (D) of Indiana, said it was “incredibly distasteful” that the bailout so far used public funds so that AIG can pay off customers on products that Donnelly likened to casino bets.
The products, credit-default swaps, are so-called derivative products that are part investment, part insurance contract. Buyers can use the products to protect against the default of a bond they own, or as a bet on the possible default of bonds they don’t own.
Republican lawmakers, meanwhile, are calling for an exit strategy from corporate bailouts.
So far, large chunks of the AIG money – about $20 billion – have passed through AIG to pay off on those derivatives to financial firms including Goldman Sachs, and a host of European banks.
The rationale for such moves from the get-go has been what economists call “systemic risk.” This is the notion that some firms are so large in themselves, and so intertwined with other important firms, that their failure would put the whole financial system at risk.
When the AIG rescue began in mid-September, the firm was facing the prospect of collapse. Credit markets were in a state of high uncertainty because Lehman Brothers had gone into bankruptcy just months after a similar investment bank, Bear Stearns, had received government help to avoid that outcome.
Many economists say that, in that environment, letting AIG fail without a federal lifeline of some sort would have been catastrophic. As it was, with the firm’s rescue and an ensuing program to begin propping up US banks, the economy has deteriorated sharply since then.
Managing systemic risk
But some experts question the way the bailout has been managed – or argue that concerns about systemic risk no longer justify a pay-all-customers approach to the risky contracts that AIG made, outside its traditional regulated insurance business.
Since September, governments have put new protections into place for bank depositors and financial counterparties. And strains in credit markets have eased.
<font size="3"><center>The government could put AIG into bankruptcy without
sparking a broad meltdown, argues Lucian Bebchuk, a
Harvard University law professor who focuses on corporate
issues. That would allow traditional insurance customers to
be protected. This way, taxpayers would not be on the hook
for paying off AIG’s derivatives customers at 100 percent,
although the government could arrange a middle ground,
shielding against some of those losses if it chose.</font size></center>
This is similar to the choice the Obama administration faces on bank rescues. So far, the government has avoided an outright nationalization or bankruptcy for AIG, just as it has for large troubled banks such as Citigroup.
Mr. Bebchuk argues that the government can save taxpayers a lot of money by shifting gears and no longer trying to protect shareholders and bondholders in the large banks from losses.
“As long as depositors are fully protected, a system meltdown is not to be feared,” he says in an e-mail interview.
Geithner’s approach to rescuing banks faces pressure not just because taxpayers are growing weary of bailouts. The next part of his plan, to be announced soon, involves trying to incentivize private firms to partner with the government in buying so-called toxic assets from banks.
Congress’s recent moves – from tar-and-feathers hearings to consideration of a retroactive tax to seize the AIG bonuses – have made financial firms believe that partnering with the government comes with unknown risks.
In the Geithner plan, buying toxic assets helps the banks clean up their books, while another part of the plan involves injecting new capital into banks that need it, through government investments.
Critics say that the plan to rid banks of bad loans comes with risk to taxpayers. The government would loan money to private firms to buy those assets. If they go up in value after that, the government gets paid back. If they go down in value, preliminary news reports about the plan suggest that the investors would have the option of defaulting on the loans and handing the dud assets to the government.
Taking over troubled banks is not without its own problems. It could take several years, potentially, before a large bank were ready to be reprivatized.
And under any of the scenarios, the bad loans need to be written off, probably at some cost to taxpayers.
http://features.csmonitor.com/economyrebuild/2009/03/22/can-us-let-aig-fail/
<font size="5"><center>
Can US let AIG fail? </font size><font size="4">
Public outrage could force the Treasury Department
to reconsider which financial giants pose
a ‘systemic risk’ to the economy.</font size></center>
Christian Science Monitor
By Mark Trumbull
Staff writer
March 22, 2009 edition
Outrage about employee bonuses at AIG has put new focus on a larger question: whether saving the economy also means saving all the largest financial firms.
Economically, the financial crisis may have moved into a phase where the risk of a total meltdown, should a major financial corporation go through something like a government-managed bankruptcy, is not as great as it was last fall.
Yet it remains a sensitive moment. Treasury Secretary Timothy Geithner is expected to announce this week a strategy to deploy more dollars to purchase bad loans from banks. It’s part of a plan to keep troubled firms afloat without taking them under federal control. But anger at AIG has begun to ripple outward into a wider reluctance to rescue tottering financial giants.
“The political reality has changed,” says Simon Johnson, a former chief economist at the International Monetary Fund who is now at the Massachusetts Institute of Technology.
The new bailout climate is troubling, Mr. Johnson says. It could make it difficult for the Obama team to sell its plan. Moreover, it could also thwart a key fallback option: putting troubled firms into government receivership and spending money to clean them up so that they can be privatized again.
Without significant new public spending on banks, he says, the recession could go on longer and a recovery will be slower.
Governing out of anger?
President Obama is scrambling to keep his options open. He’s been aligning himself with public opinion – declaring his own outrage at the AIG bonuses – while also trying to redirect it. He warns that it would not be responsible to “govern out of anger.”
Last week, anger was rising, not waning. In an AIG-related hearing on Capitol Hill, lawmakers voiced the frustration of their constituents, and not just about some $165 million or more in employee bonuses. It was also about the full cost of rescuing AIG, with more than $170 billion in public funds now on the line there.
“There remains a possibility that AIG will come back for additional [federal] funds associated with the $1.6 trillion in your derivatives portfolio,” Rep. William Lacy Clay (D) of Missouri told AIG chief Edward Liddy. “Can you convincingly illustrate to us why this is not an exercise in staving off the obvious collapse or prolonging the agony?”
Another Democrat, Joe Donnelly (D) of Indiana, said it was “incredibly distasteful” that the bailout so far used public funds so that AIG can pay off customers on products that Donnelly likened to casino bets.
The products, credit-default swaps, are so-called derivative products that are part investment, part insurance contract. Buyers can use the products to protect against the default of a bond they own, or as a bet on the possible default of bonds they don’t own.
Republican lawmakers, meanwhile, are calling for an exit strategy from corporate bailouts.
So far, large chunks of the AIG money – about $20 billion – have passed through AIG to pay off on those derivatives to financial firms including Goldman Sachs, and a host of European banks.
The rationale for such moves from the get-go has been what economists call “systemic risk.” This is the notion that some firms are so large in themselves, and so intertwined with other important firms, that their failure would put the whole financial system at risk.
When the AIG rescue began in mid-September, the firm was facing the prospect of collapse. Credit markets were in a state of high uncertainty because Lehman Brothers had gone into bankruptcy just months after a similar investment bank, Bear Stearns, had received government help to avoid that outcome.
Many economists say that, in that environment, letting AIG fail without a federal lifeline of some sort would have been catastrophic. As it was, with the firm’s rescue and an ensuing program to begin propping up US banks, the economy has deteriorated sharply since then.
Managing systemic risk
But some experts question the way the bailout has been managed – or argue that concerns about systemic risk no longer justify a pay-all-customers approach to the risky contracts that AIG made, outside its traditional regulated insurance business.
Since September, governments have put new protections into place for bank depositors and financial counterparties. And strains in credit markets have eased.
<font size="3"><center>The government could put AIG into bankruptcy without
sparking a broad meltdown, argues Lucian Bebchuk, a
Harvard University law professor who focuses on corporate
issues. That would allow traditional insurance customers to
be protected. This way, taxpayers would not be on the hook
for paying off AIG’s derivatives customers at 100 percent,
although the government could arrange a middle ground,
shielding against some of those losses if it chose.</font size></center>
This is similar to the choice the Obama administration faces on bank rescues. So far, the government has avoided an outright nationalization or bankruptcy for AIG, just as it has for large troubled banks such as Citigroup.
Mr. Bebchuk argues that the government can save taxpayers a lot of money by shifting gears and no longer trying to protect shareholders and bondholders in the large banks from losses.
“As long as depositors are fully protected, a system meltdown is not to be feared,” he says in an e-mail interview.
Geithner’s approach to rescuing banks faces pressure not just because taxpayers are growing weary of bailouts. The next part of his plan, to be announced soon, involves trying to incentivize private firms to partner with the government in buying so-called toxic assets from banks.
Congress’s recent moves – from tar-and-feathers hearings to consideration of a retroactive tax to seize the AIG bonuses – have made financial firms believe that partnering with the government comes with unknown risks.
In the Geithner plan, buying toxic assets helps the banks clean up their books, while another part of the plan involves injecting new capital into banks that need it, through government investments.
Critics say that the plan to rid banks of bad loans comes with risk to taxpayers. The government would loan money to private firms to buy those assets. If they go up in value after that, the government gets paid back. If they go down in value, preliminary news reports about the plan suggest that the investors would have the option of defaulting on the loans and handing the dud assets to the government.
Taking over troubled banks is not without its own problems. It could take several years, potentially, before a large bank were ready to be reprivatized.
And under any of the scenarios, the bad loans need to be written off, probably at some cost to taxpayers.
http://features.csmonitor.com/economyrebuild/2009/03/22/can-us-let-aig-fail/
Re: Can US let AIG fail?
YES!!!!!
With the government running something like that, it's doomed to fail.
The only thing the government can do right is FIGHT A WAR, and deliver a fucking post card.
I KNOW because I deliver them fucking post cards!!!
YES!!!!!
With the government running something like that, it's doomed to fail.
The only thing the government can do right is FIGHT A WAR, and deliver a fucking post card.
I KNOW because I deliver them fucking post cards!!!
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