It is time for some tough love and time for the American taxpayers to just say no to more money going to AIG and the banks. Currently we are collectively on the hook for 2-3 Trillion by my last count and we are approaching the edge of the abyss as AIG finds it self-back at the doorstep begging for more cash. Now remember AIG was this corporate giant who one week after getting 150 Billion in cash ran off to a resort with a couple of hundred of their execs to celebrate the great year they had in 09. They were long before John Thain as the bad boys of wasting taxpayer’s money. Lucky for them the parade behind them pushed them out of the lime light quickly and they have basically remained out of sight till now.
Story on AIG Link
http://www.cnbc.com/id/29353282
http://dealbook.blogs.nytimes….
Frankly I believe that if Barack is not willing to take the giant leap and nationalize these companies and send Geitner in with a team to clean them out and clean them up we are destine to see the same parade over and over again. I for one do not believe I want to live through that event again once was enough. So I would suggest it is time to say No to AIG and it’s investors sorry the well is dry and no to Citibank and no to BofA and send the regulators in just as the federal government has done time and time again with small regional and local banks and just as they did with Washington Mutual.
Turning on the faucet dumping dollars into these money pits is now bad economic policy and in all likely hood we will be forced to take the leap any way because they are in capable of one telling us the truth about their needs and unable to right their own ship.
Time for that tough talk, Mr. President, on taking responsibility and direct your comments to the real criminals in this whole disaster the organizations that are bleeding those of us left standing dry if the balloon payments and the rising interest rates and the falling values don’t kill Main street I am certain the debt load of bailing these guys out will finish Middle class America once and for all. Why not give us a break and make the death quick instead of a long torturous end.
As Usual Just my Opinions
But I just have this nagging question: if AIG files for bankruptcy, and consequently defaults on all the kajillions of dollars of insurance contracts, credit default swaps, and other creatures that it has outstanding … what happens? Does that cause a cascading chain reaction that cannot be contained, and that wipes out three quarters of the economy? That would be bad, no?
At what point do will you grasp the depth of this abyss?
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p>http://www.msnbc.msn.com/id/29…
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p>Tim Geitner is already inviting the banks back for more bail out money. What do we do next quarter? or at the end of 2009? With AIG we already own 80% of the company (see the earlier article sites) if roamers are true the numbers suggested in advance of Friday suggest we will have to take stock worth an additional 25% if we value it at the same level we did in December that means the US (or you and me) own 105% of the company. Bernie Madoff is in stitches over that one.
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p>Yes it will hurt yes the markets will fall maybe as low as 5000 on the DOW. Still doing it now means their is something left to rebuild with as time passes and fewer investors are willing to invest when does the tipping point jump up and start biting US treasuries. Can this get worse even if we do nothing? Absolutely it can get far worse we could be on the hook for 10+ Trillion and still have unemployment in double digits and have no US money to help Main Street survive.
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p>No it is time President Obama drank from the same glass he asked us all to drink from last night and step up and feel the pain of making a tough decision and make this right. Delay only makes it tougher. Expecting these leadership teams who got us into this to figure out a way to get us out is proving foolish currently it is like trying to discipline a spoiled child you get no where fast. Time is important if the Stimulus is to have the greatest chance of success. We need the bleeding to stop.
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p>As Usual just my Opinion
Allowing AIG to collapse would have a bad effect on all the banks that have insured debts using Credit Default Swaps through AIG. But it’s worse. Not only would it have a bad effect, it would have an unpredictable bad effect.
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p>Take seriously the threat of bank runs.
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p>Banks, by their very structure, are quite leveraged. They have much less cash on hand than they have deposits. Just looking insolvent threatens a bank run. One thing we do not want to see is a test of the FDIC. If that happens, with the FDIC eating banks by the bushel or paying up enormous quantities of claims, the anxiety about the economy will become immovable.
That the slide will some how stop that suddenly, the investors and traders will find value in what they now consider junk. We are talking about the entire world looking at the insurance that AIG sold as worthless except what they can get from the US government (meaning you and me. What evidence do you have that this will turn around. Taking th e tough pill now and getting on with the rebuilding holds out the hope that investors believe we are serious about rebuilding our economy and brings them back to the table with offers of new investments in the future economy. Waiting and watching and seeing is both uncertain and will not stabilize the markets the proof is in the graphs of the Dow take a look and see the slide has been down down down down.
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p>http://moneycentral.msn.com/in…
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p>AIG is trading under .50 per share it’s a penny stock usually it would have been delisted from the DOW by this time.
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p>We are bleeding out and to date nothing has been able to stop it let alone slow it down I see nothing that suggests to continue on this policy longer will result in a change. Having our President arrive at this conclusion 6 Months from now as a result of more and more bailouts will leave the cupboard bare and few if any resources then to take the hit and deal with the fallout. If AIG had shown it could slow the decline or at least offer a plan I would agree wait and see instead I see a bunch of Frat boys standing with the hands out and saying dare you.
I’m not sure what the best thing to do is for AIG. I think that letting it go bankrupt is a bad option.
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p>Credit Default Swaps were specifically exempted from regulation! Combined with the deflation of the housing bubble, the results are predictable. Letting AIG go bankrupt means defaulting on insurance claims. Even reasonable insurance claims made by prudent but unlucky people. It also tells the rest of the credit market that there is no insurance anywhere. Net result: credit freezes to a few degrees Kelvin.
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p>I don’t know what to do.
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p>Bankruptcy seems like a bad option. Even nationalization looks bad.
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p>Thank you, Ronald Reagan.
… principally, AIG’s problems stem from the CDSs that they now have to pay out. Realistically, this won’t happen in full… it’s too much for AIG alone, for bailed out AIG, or the taxpayer’s general fund. Knowing that this is a conflict of payout between the insurers (AIG) and the banks, we can’t enact a solution that bails one out at the expense of the other. People are going to have to come the the realization that everyone is going to have to lose to some degree or another. That means banks are going to have to accept that they aren’t going to get all of their CDS payouts, either because of intervention or because there just isn’t enough money.
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p>Given this structural situation, I can certainly see how nationalization of insolvent banks can be attractive, but I don’t see how nationalization of an insurer sounds attractive. In the case of banks, the shareholders lose (and they should just accept that… they lose in any alternative also), but the bank can continue operating with debts to the banks restructured as the public sector sees fit to do it. Life continues in this manner (largely at the taxpayer expense… insolvency means that ownership is a loss at some level) with public policy mitigating (to whatever desired degree… including none) fallout to debtors. From there new business is geared toward climbing back into solvency, eventually making the institution attractive enough to invest in, and leading to private ownership again.
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p>Insurance? How would that work? Banks are owed, but can’t collect. Insurers are the opposite… they owe and can’t pay. Any obligation reorganization of an insurance company under nationalization would happen the wrong-way around, no? That is, we’d be exercising control of the debt owed to banks not by controlling the banks but controlling the debtor?
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p>Seems to me that this may not make sense on it’s face. Someone would have to point me in the right direction to understand how this could put the company and the public in a position to mitigate anything.
Simply put the comments are correct nationalizing AIG or some thing that looks like nationalizing an insurer would not work. Which is why I suggest the other alternative.
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p>Yes this would cause a level of chaos considering the loss to the financial industry of their CDS but we cannot ignore the fact that bolstering the banks and AIG is slowly bleeding us into a position of total ownership of the debt slowly but surely.
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p>This is in my opinion is reckless and risks sinking all of our capacity to bond into simply paying off on bad investments and un regulated CDS that the American taxpayer should not be held responsible for in my opinion.
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p>If you take the banks in a nationalization model you could wipe out the CDS they hold relieving AIG to some extent at the same time you can break up and spread their exposure through out the insurance industry thus reducing the risk of collapse of insurance. CDS are a vehicle that originated in the 80’s they are a recent creation, which have not stood the test AIG racked in trillions when all is said and don in their sale that they now can not afford to pay off on. Why and under what scenario would you continue to throw money into their hands and why would you have an expectation of their returning to profitability under the weight of these obligations.
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p>My point was clear the burden of the Banks and AIG and the Auto Industry coming back over and over again, which is a realistic prediction, based on the last 2 quarters and the lack of insight into their true financial health is insane. If you listen to President Obama in any of the speeches he has given over the last 3 months he has talked about responsibility and everyone shares in it. At this point after seeing the anemic offer of aid to limited number mortgagees, I find the new and the discussions of Billions to these banks and AIG insulting to Main Street and contradictory economic policy.
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p>I do realize that taking these steps will inflict pain and it is certain no one is likely not to feel it but so is the constant drone of we need more cash from this companies. Lets not lose sight of the fact that these are for profit entities not a family in a home trying to make ends meet after being bleed by High fuel prices and high food prices and then by credit cards jacking interest rates on good clients as much at 12% above their old limits and others reducing credit with out notice and neighbors losing homes causing neighborhood prices to fall so you can’t get a loan to send a child to college or pay to have the home and car maintained. You are asking all of us to mortgage the future of our children and grand children out of fear of what may happen. I disagree it is time to focus on getting the pain over with and begin the rebuilding. Conserve the ability of our country to borrow to hold Main Street up since Main Street is the addressee on the bill.
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p>I see no improvement, I see no change in behavior, I see no justification to continue,
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p>As Usual just my Opinion
The point of an orderly bank organization combined with debt renegotiation is so that the institution can be preserved and that the public sector can be able to ease the debt obligation’s of the bank’s debtors (if so desired). But such renegotiation is precisely because with new terms there need not be “total ownership of the debt” for the public sector.
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p>Your right though, that these issues would be easier to deal with if given direct control. It’s time to accept that insolvency is insolvency.
Not sure why you’re blaming Reagan for not regulation CDS, if so, then I blame Bush, Clinton, Bush, you and Charley … yeah, especially Charley, because all those peoople also did not regulate CDS.
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p>Greenspan was the key opinion on CDS nonregulation. He strongly advocated that they not be regulated probably because during his tenure the CDS saved the banking industry from fallout during the ENRON and Worldcom chaos. The ENRON and Worldcom defaults were hedged significantly by private CDS and less so by the banks.
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p>Frankly, I’m not sure how it’s even possible to regulate them. I mean, if I sell my house to Joe and take back his promise to pay me $200K over 30 years. Then, if I walk up to you on the street and pay you $1000 to guarantee payment if Joe defaults from bankruptcy, then you and I have just entered into a simple CDS. How do you easily regulate that transaction, a private contract? Make it illegal without disclosure?
… for putting the culture of ‘all regulation bad’ into the GOP. Knowing the supply-siders behind his campaign(s), I don’t doubt that he would have kept them at least as unregulated as Clinton did.
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p>They can and should be regulated as insurance because that is what they are. That means maximum leverage ratios.
I suppose. Seems that if the 2000 Modernization Act which Clinton signed, didn’t specifically regulate CDS, then you’d blame Clinton, you know, for signing the bill. Instead, you’re blaming Reagan for influencing Clinton.
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p>I blame Howard Taft. I’m sure that as a president, he was so weak that Wilson was elected, and because Wilson was elected we fought WWI, which inevitably led to WWII and ramped up the size of Government, that led to the Reagan backlash which influenced Clinton to sign that darn bill. Kevin Bacon.
…for the act and the Reagan for the culture that made the details of under-regulation palatable. I also blame campaign finance.
or maybe your stuck in the box what ever. First off a CDS can and should and will be regulated from this point forward, this I am certain off.
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p>Now how do you do it simple how do we regulate banks today we allow them to extend credit based on the amount of deposits with a % in reserve to cover day to day transactions then we insure them wit FDIC and in Credit Unions case Private insurance which in fact is stricter.
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p>Now open your eyes wide and see the forest AIG who wrote a lion share of the CDS’s is being swallowed up by the inability to make good on them. Part of the reason I have suggested that we let street justice take care of them for writing what they could not back up. We laugh At Bernie Madoff promising high returns that were pie in the sky and as it turns out he was living the high life off of the people he could dupe into giving him money. Well how is what AIG did any different? I would like to point out that even the most pessimistic report still only has foreclosure and mortgage defaults at 10-12% how should an insurance company who can not handle a 10% casualty loss be in business and why are we the American Taxpayers so willing to bail them out but not GM who did not run up red ink playing a ponzi scheme.
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p>Who is to blame here again you got it wrong CDS were the design child of Paul Volker and Secretary Rubin back in the early 80’s yes they were a vehicle used to help free up capitol to lower interest rates that were at historic highs. They worked initially because they were used for one purpose and one purpose only and were being watched closely at that time. Point of fact very few people even knew they existed. But like all things that are unregulated (Ronald “I never saw a regulation I liked” Reagan) we had a generation who when they became aware of this system took it and ran wild with it. The results are in the headlines daily. Yes under BushI, Clinton and BushII we got the following collapse I would point out though that if you look closely at the time lines of Mortgages taking off and CDS used to clear the books of the large banks which were tied to mortgage companies you will see the lion share are post 1994 when the Republicans ruled the roost, certainly you would be correct in pointing a finger at Al Greenspan and even he has admitted that he screwed up in this manner because he expected grown ups would act in a grown up fashion. We now know they did not.
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p>The Challenge now is how do you put the genie back in the bottle and how in the world to you restore confidence in a system of Frat boys run amuck. Well you need to first weed out the worst cases of Frat boy actors and make them pay then you need to put in regulations that the market feels will not allow the current outcome to happen again then you need to chip in with your own money and prove to them the water is safe. To date we have only chipped in the money and the world is waiting to see if we are willing to jump in with the sharks we forgot to clean out first. AIG needs to become and example yes we will need to produce regulations to prevent it from happening again and we will have to leave their bones to be picked through to find the value left to satisfy the mob then we need to let Citibank and B of A stand or be nationalized here again to clean house of leadership that ran them into the ground regulate them for a time put our money into them and then turn them out to the free market when they are ready to stand on their own. Any thing less is simply a hope that if we do just enough maybe the ship will stay afloat and passengers will return. Look at the charts and stories and the market and tell me do you think any one is really returning or are they simply souvenir hunters jumping on grabbing a piece and jumping off? We will be stripped clean at this rate before we hit bottom and it will take in my opinion 5 times the amount to repair.
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p>As Usual Just my Opinion
In “blaming” Reagan, I don’t want to excuse Democrats. Mr. Lynne summarizes it accurately. Sensible people* would have wanted regulation of CDSes.
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p>This is like a projectile set in motion. The impetus came from the Reagan Revolution (with another kick from Gingrich et al.) The friction of prudence that should have slowed it down was greased by campaign contributions. Democrats sadly went along.
*Amusingly, such people only seem sensible now in retrospect.
Thank You KBusch
Your question about whether they can be regulated at all is interesting. Would it be different if you and I were banks rather than people on the street?
Can anyone telll me what the estiamted cost would be of allowing BOA and Citigroup to fail? Given the 250,000 dollar insurance provided by the FDIC, what would it cost taxpayers to cover potential losses? And what is the international political fallout of AIG going under. As I recall, the Chinese government had a pretty strong reaction to the hint of AIG failure last time, and there were lines of people ready to riot in Asia unless they were paid out. Any thoughts?
If any organ of our government starts to ask this question publicly, even that will have bad consequences.
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p>This looks quite bad, no?
BofA and Citibank would be taken over as any bank that has had its reserve incapable of supporting deposits so the cost is no greater today then it will be tomorrow. We are still on the hook for depositors. We will not be on the hook for are those people who are invested in the stocks and bonds of the bank they would be left with nothing. What this does though is allows bank regulators to go in clear out the bad debts and reorganize the leadership of the banks sell off what they need to possibly divide up the bank into regional entities or some such sell off assets to raise capital. We are also not talking about taking the 10,000 employees and laying them off likely we would se about 1-3 % cut from the top of the corporation including the board. This is the way we handled banks back in the 80’s and 90’s and even Washington mutual last year. Unlike Washington Mutual we would not be looking for a buyer for the assets and liabilities we would have either the FDIC or the treasury appoint a new team to run the banks and the treasury would recapitalize it with bailout money and begin to set policy make loans conduct business.
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p>AIG is an American based Corporation with international subsidiaries what would happen here would be the corp. under bankruptcy would be forced to satisfy its investors likely 10 cents on the dollar or less and the CDS would likely be worth less and thus be taken as a loss by those companies that hold them Yes including some banks. But this would effectively purge the system of those vehicles that none of the named companies have the capital to pay off on currently why do you think we are bailing them out?
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p>Until we clear the book in my opinion we are slowly but surely going to pay off these debts anyway and we will do it at a premium. Let’s say the risk is as a result of the Trillions likely to be borrowed to accomplish this, we will eliminate the capacity to maintain a stimulus to the balance of the economy and we seriously risk run away de-flation. This is a worst-case scenario, but well with in the realm of possibility considering the events of the last 3 months. We as a nation and an economy can not risk creating de-flation on this wide a scale with out threatening a decades long depression and if ever lack luster recovery crippled by hyper-inflation.
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p>We have failed in anticipating the events that are unfolding before us. We have talked about the why, the who’s and what fors and now we need solutions that crasp the issues and begin to control events at this stage we are controlling absolutely nothing. What we now must face is preventing this from getting out of hand the longer we wait the harder it will be to slow, stop and reverse the effects. You bring up a great point about China but what do you do when we are heading into our 3-4-5 year of a depression and we can not borrow any more to pay off the remaining owed CDS?
The estimate is 10 Trillion dollars are on the AIG books what happens then and 3-4-5 years of idle factories in China with no economy to buy their production? We cannot continue to look for and easy way out we are talking about survival of our economy and having the resources to get it going again.
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p>As Usual just my Opinion