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Bailouts Are Back!
Did anyone really think they had gone away? The feds are diving back into Wall Street to save AIG, the insurer infamous for its fraudulent practices. Here's the National Post:
In a scramble to avert what would have been the biggest casualty of the credit crisis to date, the U.S. government last night agreed to sweep in and bail out global insurance giant American International Group (AIG).
The dramatic U-turn puts AIG in the government's control in exchange for an emergency loan after the group at the heart of the financial system failed in a drive to raise about US$85-billion from a private consortium, according to people familiar with the deal....
Hank Paulson, the U.S. Treasury Secretary, had steadfastly rejected the idea of a government bailout for Manhattan-based AIG, the largest insurer in the world, with US$1-trillion in assets. He and other federal officials had been pushing AIG and Wall Street banks to come up with a private-sector solution for the billions in emergency financing.
But those attempts came up dry after two days of searching for funds.
Which isn't to say the average AIG shareholder is sitting pretty:
American International Group Inc. lost 44 percent of its remaining value in early trading after investors learned that the U.S. rescue will curb the insurer's dividends and wipe out most of their stake....
The "punitive" interest rate on the two-year loan "makes it extremely clear that this is not a subsidy extended to keep the company afloat but rather a stranglehold that makes AIG unviable while ensuring that its obligations will be met," said Marco Annunziata, an analyst at UniCredit SpA, in a note to clients. "This is to all extents and purposes a controlled bankruptcy."
A better word might be nationalization.
|9.17.08 @ 10:26AM|#
"This is to all extents and purposes a controlled
bankruptcy."
Can anyone who is in the know (which isn't me) chime in on whether
this is complete bullshit?
miche|9.17.08 @ 10:26AM|#
I'm just wondering whether this is the September revamp they told us about in July.
|9.17.08 @ 10:27AM|#
I think this is an outgrowth of more and more peopel getting
into the market. We have an ownership society today. Most people
are invested into the stock market either through a 401K or a
pension fund. The ownership society is sold as a way to get people
to embrace the market and oppose government control of the market.
I think the opposite is going to prove true. As more and more
people are dependent on the market doing well, the political
pressure to ensure that no one loses in the market will be greater
and greater.
Why is the fed doing this and neither side of the political isle
saying anything? One reason I think is that both parties are
terrified of the prospect of pension funds going belley up and
leaving millions of voters without their retirement. People get to
vote with their dollars but they also get to vote with their votes
in elections. To think that millions of people will blythy accept
the ups and downs of the market and not demand that their
politicians step in and do something seems to be pretty naive.
|9.17.08 @ 10:29AM|#
The left is too entranced by romantic idealization of
nationalization and the right is laughing all the way to the bank
with our tax-money.
Suck it, two-party system.
|9.17.08 @ 10:29AM|#
Can anyone who is in the know (which isn't me) chime in on
whether this is complete bullshit?
Its bullshit. Controlled bankruptcies are Chapter 11 bankruptcies.
This is a leveraged buyout by the federal government. Leveraged
buyouts are to bankruptcies like leasing a car is to making an
insurance claim on a car.
Lefiti|9.17.08 @ 10:35AM|#
"A better word might be nationalization."
Yes, it would be. Libertarianism marches on! The state will wither
away! Vote Bob Barr!
|9.17.08 @ 10:35AM|#
I don't like to say I told ya so (OK, I do like to) from
2
days ago -
Check out the first link in
GG | September 15, 2008, 5:22pm.
My prediction immediately follows.
How do you like co-signing a big ass loan for your loser brother in
law?
Elemenope|9.17.08 @ 10:36AM|#
Wow. That new temperance the Fed discovered with Lehman lasted
all of two fucking seconds.
A new record. For longevity.
|9.17.08 @ 10:39AM|#
We have an ownership society today.
This has certainly taken on an ironic twist, no?
|9.17.08 @ 10:41AM|#
"This has certainly taken on an ironic twist, no?"
Basically we have put the retirements of millions of people in the
hands of the big bankers and hedgefund creeps. It is not surprising
that when they inevitably fuck it up, they will hold the pensions
hostage in return for a bailout. I am not saying there is a better
sollution, but those are the facts.
|9.17.08 @ 10:42AM|#
What have organizations in critical industries learned? Take any risk! Be crazy! The Feds will save your ass! Woo hoo!
Lefiti|9.17.08 @ 10:44AM|#
Stiglitz: The globalization agenda has been closely linked with
the market fundamentalists -- the ideology of free markets and
financial liberalization. In this crisis, we see the most
market-oriented institutions in the most market-oriented economy
failing and running to the government for help. Everyone in the
world will say now that this is the end of market
fundamentalism.
In this sense, the fall of Wall Street is for market fundamentalism
what the fall of the Berlin Wall was for communism -- it tells the
world that this way of economic organization turns out not to be
sustainable. In the end, everyone says, that model doesn't work.
This moment is a marker that the claims of financial market
liberalization were bogus.
The hypocrisy between the way the U.S. Treasury, the IMF and the
World Bank handled the Asian crisis of 1997 and the way this is
being handled has heightened this intellectual reaction. The Asians
now say, "Wait a minute, you told us to imitate you in the U.S. You
are the model. Had we followed your example we would be in the same
mess. You may be able to afford it. We can't".
John McCain
Lehman Brothers
Barack Obama
Joseph Stiglitz was awarded the Nobel Prize for Economics in 2001.
I spoke with him Tuesday about the Wall Street meltdown. Nathan
Gardels: Barack Obama has said the Wall Street meltdown is the
grea...
Joseph Stiglitz was awarded the Nobel Prize for Economics in 2001.
I spoke with him Tuesday about the Wall Street meltdown. Nathan
Gardels: Barack Obama has said the Wall Street meltdown is the
grea...
|9.17.08 @ 10:44AM|#
Oh, but we are told that we need to have a progressive income tax and that we must have a trillion dollar military and that we need a regulatory stranglehold on private, consensual trade as without these we would be troglodytes.
|9.17.08 @ 10:47AM|#
Hey affenkopf:
A few months ago in one of these threads,
I posted my thoughts upon buying a $20 gold piece
on a whim, back in 2001.
I was immediately hammered as a paleocon 'gold bug'.
The hostility was amazing.
We must be on the right track, unfortunately.
Good luck!
|9.17.08 @ 10:48AM|#
We have nationalized things in the past. That is really what we
did in the S&L bailout back in the 90s. The government took
over the failing S&Ls, liquidated the assets, closed them down,
make good to the depositors and threw the crooks responsible in
jail.
Which kind of nationalization is this going to be? Will it be that
kind or will it be the Labor Brittian kind where the government
comes in and just props up bad and innefficient businesses. If it
is the first kind and the leadership of these companies and
institutional investors suffer a lot of pain and the government
gets out of quickly, this isn't so bad. If it is the second kind,
this sucks.
|9.17.08 @ 10:49AM|#
This isn't a controlled bankruptcy, but it does look like the
loan is intended to give AIG time to sell off some of its assets,
without having a fire sale.
I believe that AIG owns American General, a sizable finance
company. I wonder if that is part of the problem?
|9.17.08 @ 10:52AM|#
I'm surprised by how economically illiterate Reason readers are.
I thought Reason had real economists on the payroll. Yes, it is a
nationalization. But no, nationalization is not always the worst
possible option.
You don't have to take my word for it. The Economist magazine was
advocating the nationalization of Fannie and Freddie back in July.
Contrast this with the way Britain handled Northern Rock. Has
anyone here been paying attention to the chaos in the financial
markets over the past year? No less an authority than Alan
Greenspan called this a once in a century event. Almost everyone
who knows what they are talking about agrees that this is a market
failure of Great Depression proportions.
The comments here fret about what this means for libertarianism. I
count myself a libertarian, but I'm sure that if I were in
Bernanke's or Paulson's position, I would be thinking practically
and trying to prevent a financial catastrophe by any means
necessary; and I believe that is exactly what the Fed and Treasury
are doing.
This isn't socialism for the rich as one idiot here commented. Go
home, crack open an economics or history textbook, and post
something intelligent.
|9.17.08 @ 10:53AM|#
Belay my last. We didn't just co-sign a loan, we bought our
brother in law's business that he drove into the ground.
I should have at least scanned the post rather than misinterpring
the headline.
*hangs head in shame*
|9.17.08 @ 10:56AM|#
Fuck AIG. Fuck Treasury. These AIG bastards rejected a private
leveraged buyout (from J.C. Flowers & Co) in favor of a gov't
one so the board could save their jobs/bonuses. Not to mention
those same snakes sold out Greenberg when Spitzer came rattling
sabres at them for some ridiculous charges. Shame on Paulson and
Bernake for subsidizing these sorry bastards. If Treasury has this
much money to throw into the financial industry,then they have too
much money laying around. Where's my damn rebate?
The worst part? We are all now sponsors of Man U.
|9.17.08 @ 10:56AM|#
We've been running a junkie economy since the 2001 Farm Bill.
Every time the economy feels bad, the gubment shoots up some more.
We've been shooting up more and more just to feel less and less
bad. I'd like to think we're hitting our bottom, but it's an
election year and both candidate are prescribing more heroine. At
the very best, we still have to go through withdrawal. But I don't
see that happening anytime soon.
doom
Dooom
DOOOOM
|9.17.08 @ 11:01AM|#
My money has been safely converted to Zimbabwean currency. It looks like a sure thing to me.
JT|9.17.08 @ 11:03AM|#
The point is that Bernanke and Paulson should not be in this
position to begin with. If you believe in truly free markets, then
you should believe that when people make lousy decisions, they
should fail. This is how free markets correct themselves. The
measures being taken now will not avert catastrophe, merely delay
it.
Once again the American taxpayer must foot the bill for fat, rich
bastards idiot choices.
|9.17.08 @ 11:05AM|#
I heard a few psychologists suggest that we first learn to laugh
when something scary proves to be benign. When the scary hands in
the front of the face is revealed to the comforting face of you
mother, the dissonance of realization causes a giggle to form. Or
when we are thrown up into the air and experience the frightening
sensation of falling, only to be caught safely in the arms of your
father.
If we want these companies to stop making stupid decisions, maybe
it's time to let them all fall instead of just giving them the
giggles. They are been caught so many times they no longer carry
about teetering along the edge of the roof.
|9.17.08 @ 11:06AM|#
Its the same Republican plan as always: socialism for big business and social darwinism for the rest...
The Extispicator|9.17.08 @ 11:08AM|#
I heard on the radio this morning a quote from an Obama speech
to the effect that this proves the hands-off, free market economic
philosophy doesn't work.
Yeah.
Cause that's what we've had. An unregulated free market
economy.
|9.17.08 @ 11:10AM|#
Lets look at the track record: After the Carter Administration: a small national debt/deficit, after the REAGAN Adminstration: A MASSIVE debt/deficit, After the Bush I Administration: An increasing National Debt/Defecit, after the Clinton Administration: a balanced budget and massive surplus and again back to a Republican Administration: A Massive debt/deficit...Since when are Republicans fiscal conservatives?
Elemenope|9.17.08 @ 11:12AM|#
Suck it, two-party system.
Sugarless, I think you've got it backwards. I do believe that was
the two-party system telling *us* to suck it.
And like it, too.
An Ottawa Reader|9.17.08 @ 11:13AM|#
We have nationalized things in the past. That is really what
we did in the S&L bailout back in the 90s. The government took
over the failing S&Ls, liquidated the assets, closed them down,
make good to the depositors and threw the crooks responsible in
jail.
And we have a winner!
The is not about maintaining the orderliness of the market, which
is perfectly orderly if you leave it alone. This is about saving
the skins of a few thousand pampered white men who know very well
that if justice is served the only career prospects they'll enjoy
in the next several years is as cell-block whores.
I don't just mean the bankers who fear any number of indictments
for fraud. Paulson is understandably afraid that the first act of
an Obama administration will be to throw the book at Bush's
cronies, including himself. I sincerely hope that's the case.
robc|9.17.08 @ 11:18AM|#
James,
Clinton Administration: a balanced budget and massive
surplus
Never happened. We havent run a surplus in any year since the
50s.
Clinton had a PROJECTED surplus, but we never had one. Or a
balanced budget.
And, of course, thats using bogo-accounting, not GAAP accounting.
Using GAAP, the numbers would have been freakin' scary.
In other words, James, you are either a sucker or an idiot. I will
leave the call to you.
|9.17.08 @ 11:23AM|#
Little quibble with the Post article; AIG had buyers interested. They just chose to refuse the offers because they figured that the government would bail them out if they let things go, allowing the board to keep their plum jobs and vote themselves golden parachutes on their way out.
|9.17.08 @ 11:25AM|#
When I see No less an authority than Alan Greenspan I
stop reading.
Sorry. Does that make me illiterate?
|9.17.08 @ 11:27AM|#
While I share (almost) everyone's discomfort with this buyout, I
should point out that this is not 'socialism for the rich'. I don't
know how many of us have retirement savings in AIG accounts, but
I'm sure there are millions of middle class folks who do. Maybe it
will teach us a lesson not to trust our money to one of the largest
investment companies in the world, but if size and reputation are
insufficient, I wonder what other indicators we might use.
Just thinking out loud, and pretty sure I don't have money in AIG
at the moment.
|9.17.08 @ 11:36AM|#
Check this out:
AIG said late Tuesday it would not reduce capital at any of its
subsidiaries or tap into Asian operations for liquidity.
AIG's life insurance, general insurance, and retirement services
businesses, including its large Asian operations, continue to
operate normally, remain adequately capitalized and are capable to
meeting obligations to policyholders, the company
explained.
Awesome. Glad to see they won't take use any of their own money for
this. The US Gov't is happy to bend over for them. Excellent work,
gentlemen.
Old Joke - A guy in Vegas is approached by a bum. The bum asks if
him for $100. The man asks "How do I know you just won't spend this
at the tables?" The bum answers "Because I already got gamblin'
money!"
We just got suckered, people.
|9.17.08 @ 11:37AM|#
"Clinton had a PROJECTED surplus, but we never had one. Or a
balanced budget.
And, of course, thats using bogo-accounting, not GAAP accounting.
Using GAAP, the numbers would have been freakin' scary."
True enough, but my point still remains, Democratic adminstrations
have been far more proficient at governance. 5 of the 8 years of
the Bush Adminstration have been the top 5 budget deficits in U.S.
History. And yes, that is without accounting for the
Iraq/Afganistan conflict or subtracting the addition of the social
security surplus...
Rhywun|9.17.08 @ 11:39AM|#
I should point out that this is not 'socialism for the rich'.
The company's customers are not the ones being bailed out. Rather,
the federal government is propping up the jobs of AIG executives
(i.e. "socialism for the rich") instead of letting them fail like
every other (non-Fortune 500) business in the country.
robc|9.17.08 @ 11:41AM|#
James,
Democratic adminstrations have been far more proficient at
governance.
Ummm...this is a libertarian site. Being better than republicans
gains you zero credit. I dont grade politicians on a curve. An F is
an F even if the rest of the class is an F-.
Answer honestly, how would a libertarian administration with a
libertarian majority congress done on budgetary issues? Yeah, thats
what I thought.
Of course, budgeting is constitutionally entirely within the realm
of congress (other than an easily overrid veto), so judging
administrations by budgets seems insanely stupid.
robc|9.17.08 @ 11:42AM|#
if size and reputation are insufficient, I wonder what other
indicators we might use.
Competence?
robc|9.17.08 @ 11:45AM|#
I don't know how many of us have retirement savings in AIG
accounts
On another issue, this doesnt matter at all. If you own stocks
within those accounts, you would still own them after AIG crashed
and burned. If you had cash, they are FDICerly protected (or
protected by private insurance), I believe, so unless you had huge
cash positions, you would be okay. Other than owning AIG
stock/bonds itself, I dont see how having your account with them
would matter, other than you would have to transfer your assets to
another company.
squarooticus|9.17.08 @ 11:49AM|#
If you had cash, they are FDICerly protected (or protected by private insurance), I believe
Money market funds are not FDIC protected. I suspect most cash
people hold in brokerage accounts are in money market funds.
robc|9.17.08 @ 11:51AM|#
squarooticus,
Good point about money markets. Hence my, or private insurance,
comment. I know the cash in my investment account is protected up
to $10 million. Not that I need that protection, but I like that it
exists. I assume AIG has a similar policy in place.
|9.17.08 @ 11:57AM|#
Check out the thread on Dealbreaker about this. The profanity is
brilliant and inspiring.
http://dealbreaker.com/2008/09/fed-may-offer-bridge-loan-to-a.php
|9.17.08 @ 12:31PM|#
Hey, P Brooks, whether or not you agree with Alan Greenspan, you must agree he's qualified to judge the severity of this crisis. You shouldn't of stopped reading; you should have started thinking. I'm tempted to answer your question, but I'll let you be the judge.
|9.17.08 @ 1:19PM|#
My illiterate opinion is that Alan "Git 'cher free money here!" Greenspan should be dangling from a lamppost in front of the Federal Reserve Bank in DC. He *somehow* went from the guy who was supposed to take the punchbowl away, to the guy pouring Everclear into it.
|9.17.08 @ 1:25PM|#
Economic illiterate:
One who thinks that nationalizing any industry or company is
good.
|9.17.08 @ 1:29PM|#
If one has retirement money in AIG and AIG fails, one loses his retirement money. If the federal government bails out AIG or nationalizes it, one may retain his retirement money-at the taxpayers' expense. If that is not socialism, what is?
|9.17.08 @ 1:36PM|#
Thinking practically means you acknowledge that socialism sucks and does not work.
Invisible Finger|9.17.08 @ 6:49PM|#
Can anyone who is in the know (which isn't me) chime in on
whether this is complete bullshit?
It's not bullshit. The Fed is trying to keep joe sixpack's accounts
from being frozen. In order to do that they have to have time to
sell AIG assets properly rather than a way-below-market fire-sale
prices. The crap that's worth 5% of stated value will sell for 5%
of stated value, the Fed is just trying to keep from selling the
properly-stated-value assets from selling at 5% of stated
value.
In some sense AIG probably has more joe twelvepack accounts than
joe sixpack, but joe breweryowner is going to have pay a shitload
of interest on the time he's buying. AIG has enough performing
assets that the taxpayer probably won't be holding the bag.
|9.17.08 @ 6:54PM|#
NO, NO, NOOOOO! This is great. Let the guv'ment nationalize ALL
business, issue each citizen common stock, and then we can have
some really hilarious stockholder meetings....er, um.
Pro Libertate
I believe that AIG owns American General, a sizable finance company. I wonder if that is part of the problem?
From what I know of American General, they mostly deal in small,
piss-ant "payday" types of loans. I could be wrong, though.
Invisible Finger|9.17.08 @ 6:54PM|#
If the federal government bails out AIG or nationalizes it,
one may retain his retirement money-at the taxpayers'
expense.
But that's not what is happening. AIG is being forced to sell
performing assets (they have plenty) to cover losses stemming from
non-performing assets. The Fed is selling AIG time (at very high
interest) so they can realize near-market prices on those assets
rather than bankruptcy-sale prices.
It's much closer to Putin-style nationalization, except that Putin
has/had every intent to keep the company running whereas the Fed
seems to be looking to sell off AIG in pieces over two years.
media kingdom|9.19.08 @ 7:49PM|#
from a historical standpoint it's hard to object to the government's mass bailouts since similar debt-producing methods were put into action to save the U.S. from the Depression; maybe we're all socialists at heart and don't want to admit it...
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