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Private Profit - Public Risk
Posted by: McQ on Wednesday, September 17, 2008

I don't think I have to explain my opinion on the bailout of AIG. Again we see irresponsible business behavior rewarded by a bailout. The politicians who give lip-service to "personal responsibility" reject it when it comes to Wall Street and finance companies.

AIG was eyeball deep in very risky investments, and while the times were good, rolling in money. What has happend to them isn't the result of a sudden liquidity crisis, but instead it is a problem that has been building for years and you'd be hard pressed to convince me that they had no inkling it was going to eventually put them in this position.

The excuse given is "well if AIG had failed, x, y and z might have happened". Well yeah, it might have. But that's what happens when poor risks are undertaken. What's the real message here? If you can convince the government you're a vital cog in what it has decided is a "public good" (housing) and your company is big enough that its failure will cause discomfort for the political class (who will claim they saved your company to save their constituents from financial discomfort), then they'll bail you out.

Why AIG and not Lehman Brothers? Why Bear Sterns and not Indy Mac? No rhyme or reason.

And who is thrust forward to save them from their irresponsible business behavior? You.

The same guy who'd be going under right now if he ran his business the same way.

I think Michael Ramirez sums it up pretty well:

The only thing I'd change is putting a government agent in the picture taking her purse.
 
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It seems to me what we have here is the classic case of government intervention in the economy resulting in a crisis, which in turn results in more government intervention, which will result in a greater crisis, which will result in . . . etc.., etc. Until what you get is the final chapters of ATLAS SHRUGGED.
 
Written By: Bilwick
URL: http://
"Why AIG and not Lehman Brothers? Why Bear Sterns and not Indy Mac? No rhyme or reason."

I hate to sound too cynical, but perhaps they have better and more open-handed lobbyists.

Could someone remind me why these business virtuosos deserve millions of dollars in compensation, or why they shoud not have the begeezus taxed out of them?
 
Written By: timactual
URL: http://
McQ: I don’t think the term bailout means what you think it means. Who do you think is getting bailed out? In this case, the Federal Reserve Bank of NY is loaning $85 billion to AIG in return for 80% of the company. This deal was essential to keeping money market funds from ’breaking the buck’ and other big problems. Though unfortunate, I don’t think the Feds had any choice.

The CEO has been terminated. The assets of the company will be sold off by the Feds and the present shareholders will get little or nothing. When a company’s stock is essentially worthless, that’s not exactly a bailout in the classic sense of the term.

Here’s a post that spells out what happened:

http://www.fundmasteryblog.com/2008/09/17/us-to-take-over-aig/

In the broader sense, it would be ideal if the Feds did not have to get involved, but ideal conditions don’t always exist. I hope the Feds quickly sell off AIG and get out of the insurance business. I also hope they get out of the mortgage business quickly by privatizing Fannie and Freddie.
 
Written By: Kurt Brouwer
URL: http://www.fundmasteryblog.com
Another thing is the AIG is a large player in retirement plans for teachers. I would love to know how much pressure was applied by teacher unions.
 
Written By: Crusader
URL: http://www.coalitionoftheswilling.net/
Okay, want to know how serious this is getting. The Fed has now asked for help from the treasury!

The Treasury is setting up a temporary financing program at the Fed’s request. The program will auction Treasury bills to raise cash for the Fed’s use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters.

The news gives a boost to gold prices (+3.0%), as investors seek to preserve their assets in the perceived value of the precious metal.
Does this mean the Fed no longer has the title of lender of last resort?
 
Written By: Lance
URL: http://asecondhandconjecture.com
so much for small government, we believe in free markets only the rich get a bail out while the middle class must pay their bills like good slaves.
 
Written By: slntax
URL: http://
How much Fannie and Freddie stock did AIG own?
 
Written By: coaster
URL: http://
Just a few thoughts

(1) the alternative was too horrible to contemplate
(2) it is hardly a bailout, the stockholders are wiped out and the Officers will lose a lot of their pay (valued in stock and options) and will be swept out.
(3) There was indeed a government failure, but it was not caused by the FED

The biggest government failure (and mostly a Republican party failure) has been the unwillingness in the last 30 years to enforce the anti-trust laws.

AIG should never have been allowed to purchase (on leverage no less) such a huge portion of the insurance capital accounts. Likewise other financial companies should have not been allowed to swallow up so much of the competition.

This resulted in the "too big to fail" phenomenon.

No one firm in any important industry should be allowed to garner much more than a few percentage of the industry, especially if they use excessive debt to do it.
 
Written By: kyleN
URL: http://impudent.blognation.us/blog
AIG is a holding company for insurance companies doing business all over the world. The Fed is acting as Insurance Commissioner of last resort and taking the kind of action state insurance commissioners do every year; a takeover of an insurance company that is likely to fail without decisive action being taken.

The business of insurance companies is to protect policy holders and those companies have a contractual and fiduciary duty to do so. It is this activity that the Fed has taken over, because without this action, policy holders would be harmed without any fault whatever on their part.

That is an interest worthy of protection beyond AIG’s stockholders and employees.
 
Written By: vnjagvet
URL: http://www.yargb.blogspot.com
AIG was eyeball deep in very risky investments,
Hmm, and who was eyeballs deep in AIG stock, our lawmakers, who’ve basically just bailed themselves out.

http://www.opensecrets.org/news/2008/09/aig-government-bails-out-a-hea.html
Of all of the companies facing major transitions over the last week, lawmakers owned the most stock in AIG. Twenty-seven lawmakers owned stock in AIG last year, worth between $6.4 million and $20 million. Rep. Robin Hayes (R-N.C.), one of the richest members of Congress, was at the top of the list of congressional investors, owning stock worth between $2.8 million and $11.5 million, while Sen. John Kerry (D-Mass.) followed with stock valued around $2 million.

Of all the companies making headlines this week, AIG has been the most nonpartisan in its contributions, splitting evenly the $9.7 million it has contributed over time. Sen. Chris Dodd, chair of the Senate banking committee, has racked up the most from AIG, with a total of $281,400, while Charles Schumer (D-N.Y.), a member of both the Senate Banking, Housing and Urban Affairs Committee and the Senate Finance Committee, takes second with $116,400. Presidential candidates John McCain and Barack Obama collected $103,000 and $82,600 from AIG, respectively.
 
Written By: Keith_Indy
URL: http://asecondhandconjecture.com
If I am wrong correct me....but was the AIG bailout/loan sort of goosed along by threats to drop our AAA credit rating down if we didn’t take some strong action?
 
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URL: http://
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