Another Government Bailout
 

I say let these companies FAIL!!!!!!!!!! No wonder why we're so much in debt! :evil:

http://news.yahoo.com/s/ap/20080917/ap_on_bi_ge/aig

WASHINGTON - For the second time this month, the U.S. government put taxpayer money on the hook to rescue a private financial company, saying the failure of the huge insurer American International Group Inc. would further disrupt markets and threaten the already fragile economy.
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The Federal Reserve said Tuesday it would provide up to $85 billion in an emergency, two-year loan to rescue AIG, which teetered on the edge of failure because of stresses caused by the collapse of the subprime mortgage market and the credit crunch that ensued. In return, the government will get a 79.9 percent stake in AIG and the right to remove senior management.

The move was similar to government's seizure on Sept. 7 of mortgage giants Fannie Mae and Freddie Mac, where the Treasury Department said it was prepared to put up as much as $100 billion over time in each of the companies if needed to keep them from going broke.

Both moves were bound to raise questions about the use of taxpayer money to bail out private firms.

The Fed said it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy. Although little known off Wall Street, AIG does business with almost every financial institution in the world and insures $88 billion worth of assets including mortgages and corporate loans.

Its failure could also "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in a statement.

The decision to help AIG reversed the government's stance over the weekend, when it refused to use taxpayer money to bail out Lehman Brothers Holdings Inc. Lehman, which filed for bankruptcy protection Monday, collapsed under the weight of mounting losses related to its real estate holdings.

The White House said it backed the Fed's decision Tuesday.

"These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy," White House spokesman Tony Fratto said.

After meeting with Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke in a late-night briefing on Capitol Hill, Congressional leaders said they understood the need for the bailout.

"The administration is approaching an unprecedented step, but unfortunately we are living in unprecedented times." said Sen. Charles Schumer, D-N.Y. "Hearing of these plans, you have to stop to catch your breath. But upon reflection, the alternatives are much worse."

New York officials said the deal helps stave off a fiscal crisis for the state.

"Policy holders will be protected, jobs will be saved," New York Gov. David Paterson said Tuesday night.

The Fed's move was part of a concerted push to help calm jittery markets and investors around the world.

On Tuesday, the Fed decided to keep its key interest rate steady at 2 percent, but acknowledged stresses in financial markets have grown and hinted it stood ready to lower rates if needed.

The central bank also pumped $70 billion into the nation's financial system to help ease credit stresses. In emergency sessions over the weekend, the Fed expanded its loan programs to Wall Street firms, part of an ongoing effort to get credit flowing more freely.

The stock market, which Monday had its worst session since the Sept. 11 attacks, recovered Tuesday after the Fed's decision on interest rates. The Dow Jones industrials rose 141 points after losing 500 points on Monday.

AIG's shares swung violently, though, as rumors of potential deals involving the government or private parties emerged and were dashed. By late Tuesday, its shares had closed down 20 percent — and another 45 percent after hours.

The problems at AIG stemmed from its insurance of mortgage-backed securities and other risky debt against default. If AIG couldn't make good on its promise to pay back soured debt, investors feared the consequences would pose a greater threat to the U.S. financial system than this week's collapse of the investment bank Lehman Brothers.

The worries were heightened Monday after Moody's Investor Service and Standard and Poor's lowered AIG's credit ratings, forcing AIG to seek more money for collateral against its insurance contracts. Without that money, AIG would have defaulted on its obligations and the buyers of its insurance — such as banks and other financial companies — would have found themselves without protection against losses on the debt they hold.

"It might not just bring down other financial institutions in the U.S. It could bring down overseas financial institutions," said Timothy Canova, a professor of international economic law at Chapman University School of Law. "If Lehman Brother's failure could help trigger AIG's going down, who knows who AIG's failure could trigger next."

New York-based AIG operates an insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services. Those traditional insurance operations are considered healthy and the National Association of Insurance Commissioners said "they are solvent and have the capability to pay claims."

Re: Another Government Bailout
 

:roll:

Why should the government bail these companies? Isn't the whole purpose of free enterprise to allow the companies who set their selves up for failure fail and the companies prosper who are doing things the smart way?

To avoid an economic collapse and a depression. These "companies" are the backbone of our economy, and as such, their failure could cause a huge ripple effect. Pretty self explanatory.

I guess you've never read about the depression? The S&L collapse? Do you even know what AIG is?

The media has done a really bad job reporting this.

First you see the words "$85 billion dollar bailout" implies they're getting money.

They're not, it's $85 billion dollars in a "line of credit" (that pays 11% BTW) that's also backed by warrants that equal 80% ownership.

If they do not pay, the warrants are executed and the government gets their(your) money back that way.

There is a massive transfer of wealth taking place, right before your very eyes.

It would not surprise me that if the truth be known, our own gov't has been manipulating the oil markets from off shore accounts.

Make the market, suck in big money from wealthy entities, including foreign gov't, then, un-make the market.

As for housing and sub prime, I believe the gov't compelled lenders to lend to to unqualified buyers. Greenspan let the money flow freely and cheaply, stoking the flames.

Then, an uptick in interest rates topple the adjustable rate mortgage borrowers, and the gov't owns housing, banking, insurance, investment, ect.

All backed with the good faith of the tax payer.

Freddie and Fannie are nothing but political slush funds. Ask barnie frankie.

You have no say. You are chattel.

They cannot mismanage things so badly, without a purpose.

IT'S A CONSPIRACY!!!!!


:lol:

Let them fail. Do you remember the bail out of Bear Stearns? And how well that turn out for Lehman Brothers. Here is the timeline. [/quote][/b]

You need to see how this came to pass. The government allowed these banks and investment companies to grow at unprecedented rates, crossing state lines and pretty much doing what they want. It is much better to have a number of smaller banks fail than a single mega bank. The bigger any entity becomes the less efficient it operates.

The corporate reputation will have a customer satisfaction impact. In other words not many people would want to do business with a Co. held to together with Government cheese. If they are not doing well with current clients it is going to be nearly impossible to get new clients.

It wouldn't surprise me if Sirius/XM ends up in trouble, they have alot of debt coming due 2009. Thanks Mel for destroying XM and it's stock price! They were doing just fine without you and your washed up shockjock.

I've read and studied the great depression, I never heard of the S&L collapse. All I know about AIG is that they're an insurance company.

Are you talking about when Mike Myers, Adam Sandler, Chris Farley and Dana Carvey all left SNL? :lol:

They do a little more than just insurance.

They do a lot more than just insurance. They aren't State Farm. :lol: They are the 18th biggest company in the world.

What we are seeing right now isn't all that different than the dot com boom of the 90's. Those who knew, got in early. Everyone else followed suit. When those who knew started getting out, everyone else saw it too late and panicked. Those who knew, got into commodities (oil, gold, etc.) and real estate. Everyone else followed suit. Those who knew pulled out. Now, everone else is following suit. The government and the banks made it easy for everyone to get in by making it easy to get money. Everyone just assumed it would last forever. They thought the same thing about the dot com boom. Heck - Clinton built an entire surplus around it.

History is simply repeating itself over and over again. Those who know, will go into something else, and everyone will follow suit eventually. After they are finished whining about how they lost everything, of course. Just like the dot com bust.

There was no single "cause" of the Great Depression; however, there were a number of reasons thought to be the combined cause, one being bank failures. Other reasons were...stock market crash, reduction in spending (people were not buying "luxury" items or requesting credit lines to purchase these items), the imposition of high import taxes in order to protect American companies (which lead to less foreign trade/economic retaliation)and other non-econimic issues such as drought conditions in the Mississippi Valley (thus indirect consequences which lead to extreme losses such as people giving up land at no profit to themselves and many people not even being able to afford to pay debts or taxes period...).

There are a lot of eerily similar circumstances right now. These conditions and fears are what give rise to extremism (such as that which occurred in Germany and lead up to World War II). Hopefully, we will not fall victim to another depression.

There is not a lack of supply of the things we need to survive...the opposite is true...there are huge inventories of all kinds of commodities. The problem is that nobody can afford these things and that is when all hell breaks loose. And, apparently, that can happen fast.

As a country, we do need a "government" influence. It has proven to work well for us (much better than other governments in other countries). I feel a certain level of confidence when the government backs something. We do have some laws that do get enforced. But the failure of the backbone of this country is not a good thing...it may "serve them right" but we cannot cut off our nose to spite our face...it WILL reach out and touch us.

Then you need to read more (or just watch 'It's a Wonderful Life' :wink: ). People panicked and started taking all of their money out of S&L's and Banks causing many of them to fail. Many now believe that IF the Government had stepped in then, the Great Depression could have been avoided.


AIG is a lot more than just an Insurance Company. If it fails it will take a lot of the economy with it.


Next year, in College, take an Economics class. :wink:

I hate government intervention, but sometimes, for the greater good of the economy, it is necessary.

I can accept the AIG intervention, solely based upon the stipulation that the government has control of upper management, and can fire at will.

X2

So far it appears a "good deal" the gov't. made. Expensive money for AIG @ around 11. something percent. And the gov't can fire top management. I doubt there will be a wholesale house cleaning though, and it will be interesting to see if the top management keeps their "golden parachutes." The disturbing part is that they tried to raise "private" money and had no takers. Thus the gov't necessity to step in. Like the Rev. said, those that know got out, and it seems they werent willing to risk "their" money to jump back in no matter how attractive the deal "appears."
The problem arose from Wall Street and coprorate greed. Government agencies with oversight responsibilities totally "asleep at the switch." And a failure of Congress to act against those that stuff thier pockets full of money. It was a failure just waiting to happen.
Next up Washington Mutual.

Economics is apart of the curriculum for my management degree. :wink:

I just made myself look like a total dofus! :oops: Now I remember what S&L means, stocks and loans. :oops: One of my teachers in school was telling our class that we'll never have a depression as great as the 30's. I think it was our Government or history class I don't remember off the top of my head. Don't jump on my case for what someone else said I didn't say I believed them or not!

We are in the midst of that economic shift right now. This one is far worse than the dot com balloon of the 90's, because this one deals with tangible overvalued items rather than imaginary overvalued items. The market will correct itself eventually, which you are seeing happen right now. Oil is on the decline, and I expect that gold will soon follow. What we have to worry about this time around is massive deflation. It will happen (it's been happening for a few years already in the housing sector), but hopefully it can be controlled. Government assistance, like this AIG "bailout", are an attempt to control it.

Sorry, wrong answer. Try searching "S&L crisis". Good reading.

I thought this AIG buyout was just another government attempt of wasting money and saving a company that should fail cause they got themselves in this mess.

It's anything but.

I didn't get a chance to read about this yet, didn't even know it happened. Now you know schools only teach about past history. It seems like they start at the 1800's and never get past the 1960's. Dang near all the text books from a few years ago are updated to atleast Sept 11, 2001.

I believe this current crisis will be around longer than most of the Wall Street "experts" are willing to admit. The trouble is going to find the market value of so many properties with "exotic" loans. Then find the potential exposure some institutions have with the over leveraged CDO's they are holding based on the same overvalued "exotic" loans, hoping the insurers can pay before they go under. It will be a most complicated task and the final numbers may be anyones guess at the moment.

Then around next spring the credit card debt. Closing in on a cool TRILLION dollars now. Maybe more than that now.

The concept that corporations are solely to blame for this is very foolish.

How many people stretched their income, or lied about it, to get the biggest possible home mortgage?

There HAS to be some amount of personal responsibility in this. There are people out there that owe 500k, with no house, it's THEIR responsibility. Nobody lined their pockets off of that.

How many people took teaser mortgages that for 2 years had a really low rate, knowing they couldn't afford the larger payments, so essentially they HAD to sell in less then 2 years. Doesn't matter if the market is up or down.

Then why were mortgage loan companies "offering" these "exotic" motgages in the first place? Answer: Because these people couldn't qualify for anything else except a exotic "smoke and mirrors" type loan. Mortgage companies don't make any money unless they write loans. Then they packaged the "loans" and sell them to someone else. They made their money, now it is up to the other person to collect.
Now add in Wall Street, creating new forms of derivatives from these loan packages, that can be bought, sold, traded, insured and leveraged. Making commissions all the way through, although it seems now no one bothered to mention the risks involved.
Of course add in the speculators also that helped drive the prices artifically higher also. They also took the "smoke and mirrors" loans, never intending to keep the property, but to flip it and make a small killing in the process.
A game of last one holding the bag.

Sounds just like the oil market.....

Starting about next year, if Obama gets elected. Raise taxes and reduce the money that people can spend will put even more corps out of business, reduce jobs even more, And, McCain's idea of breaks and incentives to corps won't do any good either. Let the companies keep on making things, then, because we don't have the money to buy any of them, the companies get to spend their tax breaks and incentives on warehouses to store their products for the next how many years.

Actually, Bush did have the right idea, but without control of the energy costs, it was doomed to failure. OPEC was formed in order to use oil as an "ECONOMIC WEAPON", and it's working because there is nothing in place to give the international oil industry any competition. What we're facing has been coming for the last 50 years, but it's only just coming to a head now. And, without a viable competitor for oil, it isn't going to stop.

My personal opinion is that OPEC has less to do with it this time around (unlike the shortages of the 70's), and the speculators are driving up the price.

I am beginning to think now what maybe the Fed and Gov't. are trying to do is a keep a more orderly collapse to the financial system. The concenus is that there are more failures are to come.
A lot of regular investors, reitrees, pension funds, and other institutional investors are going to take a big hit on the AIG bailout. This was a $100 stock a year ago.
Hopefully someone in Congress will have the guts to order a serious investigation into these failures, and put a few CEO's, and top manangers in jail if they find the usual accounting errors, insider trading and stock manipulation.
Puts a whole new perspective on our so called "strong economy" the last 8 years, as it now seems it was all based all on a sophisticated "shell game."

Again, no different than the "strong economy" of the 90's. The investors are the ones who control everything. What they control has simply changed. This is mainly due to the fact that the United States manufactures very little anymore.

As I said. " OIL NEEDS COMPETITION". Beef competes with chicken and pork. Chevy competes with Ford and Dodge, and now all the rest too. But, what competition does oil have? Soy bean oil? Alcohol? Not enough to do any good. They're used as suppliments, not a competitive supply. Electric cars won't do much either. It won't take long for people to realize that when they come home on a hot day after rush hour traffic, and plug their electric cars in for the morning rush, and the power grid goes into melt-down because of all the cars being charged, that will go by the wayside too, just like the hydrogen cars that were never intended to work out. But I have a couple of letters in mind that may shake things up a little. :twisted: :twisted: :twisted:

Code enforcement stopped by today. I have one week to remove my installation in the back yard. I guess he drove through last night about 1 AM, and saw the flame where all the excess hydrogen is being burned off. Not visible during the daylight hours, but at night you can see it. The first thing out of his mouth was that "THIS IS A RESIDENTIAL AREA, NOT ZONED COMMERCIAL, OR RESEARCH." But, I did have to agree that he had a point when he started talking about liability in case of an explosion. I don't have enough to do a lot of damage, but windows would rattle for a couple of blocks. So, I've already shut it down and started taking things apart. If he stops by tomorrow, he'll see that I've started to dismantle it, and he said that would be okay since I'm a truck driver and not home much. But, I thought it was really curious when he asked if I could put one in his back yard for him to use. :?: In case of an accident, he's not liable, but here, I am????

I told him that it was a brand new super secret process and can not be made available to anyone until the patent office is done, and that I had planned to have it shut down much earlier, but was not able to get the time. That I had put it together to prove the concept, then wanted to get it taken apart before anyone saw it and tried to copy it.

I don't know if he believed me, but he didn't say anymore and left.

Latest thing I read about is the CEOs of Ford, GM, and Dodge are in Washington, lobbying for $58 billion in loans because the domestic auto industry is in the worst shape it has been in the last 30 years.

And, I'm afraid we're only seeing the start of it.

Canada has had "Exotic" mortgages for years now.

The difference is, we treat our house as shelter, not an investment.