The first US bail-out failure

[Americano]

AIG is saying the $123B it has received from the government 'just isn't going to be enough'.

http://www.reuters.com/article/americasDealsNews/idUSTRE49M8I720081024

When the treasury first loaned AIG $85B for a 79% share anyone who could read a balance sheet understood AIG's liabilities exceeded asset value to a point where even selling off viable business entities wouldn't solve their problems. So now the US taxpayer is saddled with feeding big chunks of borrowed money to a failed business that should have been liquidated when it reached a point of negative equity with shareholders, not the public, absorbing losses.

[Dominick]

That must be Chapter II of "How to solve a swindle with a scam".

[Americano]

That must be Chapter II of "How to solve a swindle with a scam".

Perhaps that should be put forward as the new slogan of American financial institutions.

[Michael]

AIG is saying the $123B it has received from the government 'just isn't going to be enough'.

http://www.reuters.com/article/americasDealsNews/idUSTRE49M8I720081024

When the treasury first loaned AIG $85B for a 79% share anyone who could read a balance sheet understood AIG's liabilities exceeded asset value to a point where even selling off viable business entities wouldn't solve their problems. So now the US taxpayer is saddled with feeding big chunks of borrowed money to a failed business that should have been liquidated when it reached a point of negative equity with shareholders, not the public, absorbing losses.
Can't say no one saw this coming. I heard it predicted the day the bailout was announced.

AIG was up to their eyeballs in derivatives trading and when a market turns from 'bull' to 'bear', lots of derivative products are going turn into nasty loses. AIG holds billions of them.

[Americano]

Can't say no one saw this coming. I heard it predicted the day the bailout was announced.

AIG was up to their eyeballs in derivatives trading and when a market turns from 'bull' to 'bear', lots of derivative products are going turn into nasty loses. AIG holds billions of them.

They're now on the government teat and that could be endless as I don't ever recall any government admitting to a mistake.

[Greendruid]

You guys wouldn't even need a civil war over this problem. There really aren't that many bankers compared to the general population are there? Why isn't anyone in the populace doing anything to stop this? If they are, why haven't your representatives listened? I can't imagine how our two countries can sit side by each and have such different financial practices build up like this over the last century.

[Americano]

You guys wouldn't even need a civil war over this problem. There really aren't that many bankers compared to the general population are there? Why isn't anyone in the populace doing anything to stop this? If they are, why haven't your representatives listened? I can't imagine how our two countries can sit side by each and have such different financial practices build up like this over the last century.

By now I'd imagine most Bank CEOS are riding in armored limos with bodyguards. The issue has advanced from liquidity problems to a question of solvency.

[Greendruid]

Apparently they're still opening mail. Poor secretaries.

http://www.cbc.ca/world/story/2008/10/24/fbi-letters.html

I suppose this is some sort of action, however it may be viewed. It's a sign of the hostility of the American public at least.

[neorealist]

Let AIG and maybe a few others burn....it will be very very painful, but the lesson LEARNED will be invaluable.

Otherwise, we Americans forget what the moral of the story was...and we tend to forget quickly, which means it will happen again.

but...they should wait to let some of these institutions fail until AFTER I graduate and get my job :cool: That way, there is less competition:lol:

[Americano]

Let AIG and maybe a few others burn....it will be very very painful, but the lesson LEARNED will be invaluable.

Otherwise, we Americans forget what the moral of the story was...and we tend to forget quickly, which means it will happen again.

but...they should wait to let some of these institutions fail until AFTER I graduate and get my job :cool: That way, there is less competition:lol:

I've been reading how the 'labor caravan' (capital) is now traveling from China to lesser developed nations as China follows through with its plan of raising per-capita income (and internal consumption) from assembly to technology production. A foreign language such as Mandarin or Hindu might be a valuable asset in your future plans.

[neorealist]

I've been reading how the 'labor caravan' (capital) is now traveling from China to lesser developed nations as China follows through with its plan of raising per-capita income (and internal consumption) from assembly to technology production. A foreign language such as Mandarin or Hindu might be a valuable asset in your future plans.

:lol: I"ll pass but thanks for the sincere advice

[Michael]

Let AIG and maybe a few others burn....it will be very very painful, but the lesson LEARNED will be invaluable.

Otherwise, we Americans forget what the moral of the story was...and we tend to forget quickly, which means it will happen again.
Agreed. I see no problem with letting private capital enterprises fail. That's how capitalism works. One has to risk a loss when one gambles for profit.

And yes, the American people apparently learned nothing from the Savings & Loan debacle - same 'handsoff' deregulation process produced the same massive financial collapse and the same massive taxpayer bailout (even bigger this time).

Deregulating something and then having to bail it out with taxpayer money due to the failure of deregulation (and fraudulent abuse) is not something that ought to be repeated as often as it is in the USA.

[Michael]

GM, Chrysler request $10 billion in aid: sources

By Jui Chakravorty Das and Kevin Krolicki

NEW YORK/DETROIT (Reuters) - General Motors Corp and Cerberus Capital Management have asked the U.S. government for roughly $10 billion in an unprecedented rescue package to support a merger between GM and Chrysler LLC, two sources with direct knowledge of the talks said on Monday.

The government funding would include roughly $3 billion in exchange for preferred stock in the merged automaker, according to one of the sources, who was not authorized to discuss the matter publicly.

The U.S. Treasury Department is considering a request for direct aid to facilitate the merger and a decision could come this week, sources familiar with the still-developing government response said earlier on Monday.

An injection of $3 billion in equity to support a GM acquisition of Chrysler would be roughly equivalent to the current, depressed value of the top U.S. automaker.

Source (http://www.reuters.com/article/topNews/idUSN2735477920081028?feedType=RSS&feedName=topNews)

Please keep in mind that Congress passed a $25 billion dollar loan package for the 'Big Three' automakers just a couple of days before they passed the $700 billion bailout package.

Apparently, that $25 billion was just to tide them over for a few weeks...

And now if this goes through, the US government could own GM and Chrysler outright. :eek:

Though I suppose the government is quite unlikely to actually run these companies any worse than they have run themselves...

Again, people will argue that GM and Chysler are too big to fail, but I think these companies are too far gone to expect a recovery. They've both had dozens of chances over the last 25 years to change and they've never even considered it. They just keep plowing on with the exact same corporate strategy they've been following for the last forty years.

Chrysler's only "new model" for 2008 is a brand new version of their full-size Dodge pickup truck - the one category of vehicle that has suffered the most in the last 18 months in the marketplace. This shows that Chrysler just doesn't have a clue.

Btw, if this merger doesn't go through and the government gives no further aid to GM, GM will be forced to declare bankruptcy within 18 months (based on their cash-burn rate).

[Americano]

I'm getting awfully tired of the 'too big to fail' rationalizations of socializing risk for private gain. GM's incompetence has been proved time and time again, as has that of Chrysler and Ford. With the industry in a global mode, there simply isn't enough domestic market share for the questionable products of three high volume domestic manufacturers. Something needs to dissolve, and I view it as domestic operations of Chrysler, Ford, GM or two of the three.

On that note, Porsche Automobil Holding announced over the weekend that it would seek a 75% stake in VW, pushing Volkswagen to the world's largest company by market capitalization, passing oil giant Exxon Mobil.

http://www.marketwatch.com/news/story/vw-passes-exxon-mobil-worlds/story.aspx?guid={9EB788D5-6606-49A4-B458-293EFF940E6E}&dist=msr_13

[Greendruid]

... Hitler would be proud! :eek:

[Michael]

The U.S. Federal Reserve’s balance sheet expanded to a record high this week, after continued efforts to shore up the financial system through large cash infusions helped push $2.058 trillion onto the Fed’s book through Nov. 5, compared to the $1.953 trillion on the Fed’s books one week earlier. The data came from an update on reserve balances on Thursday afternoon.

Source (http://www.housingwire.com/2008/11/07/bailout-update-fed-balance-sheet-reaches-2-trillion/)

The same article mentions that Obama and the Democrats are looking at playing this game again with a 'stimulus package' that seems focused on tax cuts.

For those curious about the effectiveness of these 'stimulus' packages, here's a good chart to go by. As you can see, proposed tax-cuts are not very effective response to a recessionary downturn. As John Maynard Keynes suggested long ago - extra government spending is the best way to deal with a recession.

[Michael]

Looks like the financial services industry views Washington's $700 billion bailout package as little more than a feeding frenzy to lobby for.

Source (http://www.washingtonpost.com/wp-dyn/content/article/2008/11/07/AR2008110703987_pf.html)

Its 'boom time' in Washington for the pig-trough.

[neorealist]

This is worth a read:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aatlky_cH.tY&refer=worldwide

....information like this only affirms why the bailout was not a good idea IMO. Whenever the gov't needs to push through legislation, there are always slips and buried items that sneak through.

[Americano]

Looks like the financial services industry views Washington's $700 billion bailout package as little more than a feeding frenzy to lobby for.

Source (http://www.washingtonpost.com/wp-dyn/content/article/2008/11/07/AR2008110703987_pf.html)

Its 'boom time' in Washington for the pig-trough.

Looks like they made work for those out-of-work due to incompetent business decisions. Paulson's 'team' will chew through more money than is used to reward stockholders for their ignorance.

[Americano]

This is worth a read:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aatlky_cH.tY&refer=worldwide

....information like this only affirms why the bailout was not a good idea IMO. Whenever the gov't needs to push through legislation, there are always slips and buried items that sneak through.

I did get a laugh out of this (from the article):

"Banks oppose any release of information because it might signal weakness and spur short-selling or a run by depositors, said Scott Talbott (http://search.bloomberg.com/search?q=Scott+Talbott&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), senior vice president of government affairs for the Financial Services Roundtable (http://www.fsround.org/), a Washington trade group."

Public corporations allowed to conceal borrowing to keep them out of the tank is, transparency?

[Michael]

This is worth a read:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aatlky_cH.tY&refer=worldwide

....information like this only affirms why the bailout was not a good idea IMO. Whenever the gov't needs to push through legislation, there are always slips and buried items that sneak through.

Nov. 10 (Bloomberg) -- The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Why should we be surprised here? This is still the Bush Administration that we've all come to know so well. This is in keeping with Bush Administration practice on all other matters. Probably on 'Fourth Branch' Cheney's orders. :D

[Americano]

Why should we be surprised here? This is still the Bush Administration that we've all come to know so well. This is in keeping with Bush Administration practice on all other matters. Probably on 'Fourth Branch' Cheney's orders. :D

They're going to get the contracts signed with every special interest that can hitchhike to DC in the new bailout bubble. Accountants, lawyers, media people, managers at a low-end billing rate of $300/hr up to much higher rates. And it's expected to last for many months. With a minimum of $700B to be spent, that's real plunder.

[Michael]

Interestingly enough, some honcho at AIG (no doubt the PR department) has been doing some 'outreach' at dKos and is going to be answering some questions posed by dKos members.

This is a very interesting development, if only from a 'new media' perspective. Traditionally corporations with problems just throw bribe money at other media corporations to get good press coverage. This always seems to work, but the old school media outfits that are traditionally so easy to bribe are no longer particularly influential.

It is the blogosphere that is most influential now and they are difficult to bribe. Only information itself can be peddled there. Could be interesting to see how this plays out.

[Americano]

Interestingly enough, some honcho at AIG (no doubt the PR department) has been doing some 'outreach' at dKos and is going to be answering some questions posed by dKos members.

This is a very interesting development, if only from a 'new media' perspective. Traditionally corporations with problems just throw bribe money at other media corporations to get good press coverage. This always seems to work, but the old school media outfits that are traditionally so easy to bribe are no longer particularly influential.

It is the blogosphere that is most influential now and they are difficult to bribe. Only information itself can be peddled there. Could be interesting to see how this plays out.

Unless it's a 'deep throat' scenario where the information is validated but source unidentified you know it'll be carefully prepared PR designed to enhance the AIG image. That's the PR department's job.

[Michael]

Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.

Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.
Source (http://www.washingtonpost.com/wp-dyn/content/article/2008/11/12/AR2008111202846.html?hpid=topnews)

This is how the Republicans have always played the government game in Washington. Just ignore the provisions of the bill you don't like - or delay so long the action becomes meaningless.

I'm sure they will eventually appoint the overseer position just in time to sign off on the last dollar. And they will assert that its no good to review the deals that are already done since that would foster 'uncertainty'. And voila, done deal - $700 billion given away without oversight, despite a legal requirement of oversight.

Keep moving along. Nothing new here folks, nothing to see.

[Americano]

Source (http://www.washingtonpost.com/wp-dyn/content/article/2008/11/12/AR2008111202846.html?hpid=topnews)

This is how the Republicans have always played the government game in Washington. Just ignore the provisions of the bill you don't like - or delay so long the action becomes meaningless.

I'm sure they will eventually appoint the overseer position just in time to sign off on the last dollar. And they will assert that its no good to review the deals that are already done since that would foster 'uncertainty'. And voila, done deal - $700 billion given away without oversight, despite a legal requirement of oversight.

Keep moving along. Nothing new here folks, nothing to see.

It takes a lot of effort to line up the right special interests to blow $700B of borrowed public money on in 90-days.

[Michael]

U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit

Nov. 24 (Bloomberg) -- The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.

The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.
Source (http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=arEE1iClqDrk)

This is turning from a big waste of taxpayer's money into mind-boggling proportions.

The amount of money being 're-distributed' from middle class tax payers to the richest people in America in this scheme is enormous.

The US inequality numbers are going to jump even bigger next year. Just remember that the prime beneficiaries of all these financial bailouts all belong to the top 1% richest people in America.

[The Drunk Guy]

Source (http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=arEE1iClqDrk)

This is turning from a big waste of taxpayer's money into mind-boggling proportions.

The amount of money being 're-distributed' from middle class tax payers to the richest people in America in this scheme is enormous.

The US inequality numbers are going to jump even bigger next year. Just remember that the prime beneficiaries of all these financial bailouts all belong to the top 1% richest people in America.
And you know what the repercussions will be? Everything will be ignored. We'll keep letting the bastards dip into our pockets without a fight because we're fat, complacent cows. :mad:

[Michael]

AP study finds $1.6B went to bailed-out bank execs

Banks that have their hands out in Washington this year were handing out multimillion-dollar rewards to their executives last year.

The 116 banks that so far have received taxpayer dollars to boost them through the economic crisis gave their top tier of executives nearly $1.6 billion in salaries, bonuses and other benefits in 2007, an Associated Press analysis found.
Source (http://www.examiner.com/a-1757528~AP_study_finds__1_6B_went_to_bailed_out_ba nk_execs.html?cid=rss-Politics)

Now this is not particularly surprising. Washington is well known for giving away taxpayer money with no strings attached.

What is particularly interesting is the juxtaposition between this issue and that of the Big Three automakers. Apparently, the automakers have to get ride of corporate jets and unions have to take a paycut to get a few billion. But Wall Street doesn't have to do anything at all to get ten times as much.

Interesting double-standard is becoming rather obvious here. Odd.

[Michael]

Citigroup, the recipient of $45 billion of taxpayer money so far, is still fielding "an army" of Washington lobbyists, according to the New York Times. Its lobbyists are working on a host of issues, including the bailout. In the fourth quarter of 2008, when it got its first infusion of bailout money, Citi spent $1.77million on lobbying fees. During the last three months of 2008, at least seven other firms receiving bailout funds (American Express, Capital One, Goldman Sachs, KeyCorp, Morgan Stanley, PNC and Bank of New York Mellon) lobbied the government about the bailout.

Would it not be a reasonable condition for receiving additional bailout funds -- from TARP II -- that a firm cease its lobbying activities and campaign contributions (as well as any contributions it makes indirectly through its executives) at least until it fully compensates taxpayers what we have provided it?
Source (http://tpmcafe.talkingpointsmemo.com/2009/01/26/how_you_and_i_are_paying_wall_street_to_lobby_cong/)

Indeed. Good question. Giving taxpayer money to private companies who turn around and use that money to lobby Congress to get more money (or to fight against proposed regulations) is just an insult to the taxpayer.

It is small issues like this that make the whole thing smell rotten. Billions for billionaires is the policy here. There is no public policy benefit if there is no oversight.

[Americano]

Source (http://tpmcafe.talkingpointsmemo.com/2009/01/26/how_you_and_i_are_paying_wall_street_to_lobby_cong/)

Indeed. Good question. Giving taxpayer money to private companies who turn around and use that money to lobby Congress to get more money (or to fight against proposed regulations) is just an insult to the taxpayer.

It is small issues like this that make the whole thing smell rotten. Billions for billionaires is the policy here. There is no public policy benefit if there is no oversight.

Did you read what Thain formerly of Merrill Lynch did before BofA closed the shotgun acquisition? Unbelievable arrogance at public expense.

http://www.ft.com/cms/s/0/48d87ca4-ec8d-11dd-a534-0000779fd2ac.html

[Michael]

Did you read what Thain formerly of Merrill Lynch did before BofA closed the shotgun acquisition? Unbelievable arrogance at public expense.
WOW! :eek:

No suprises that US financial industry is a mess. With so many criminals like that running the show, I'm surprised that the situation isn't much worse.

[Americano]

WOW! :eek:

No suprises that US financial industry is a mess. With so many criminals like that running the show, I'm surprised that the situation isn't much worse.

With the Fed now funding corporate bonds, overnight lending and loaning against bad paper I don't think anyone really knows how bad it is. All the toxic loans sitting on balance sheets are still there, with TARP money originally approved to retire those non-performing assets being used to buy equity in failing banks and failed vehicle manufacturers. Insanity at best.

[Michael]

I've come to the conclusion that any 'bailout' of the US banking system is ultimately a pain worse than the disease.

The US banking sector is probably two or three times larger than it ought to be. The ONLY way to fix that problem is to let these rotten and corrupt institutions go bankrupt (as they are indeed, bankrupt already).

There is no economic gain to paying tax subsidies in order to maintain uneconomic jobs in the banking sector.

I say nationalize all the US banks (or rather, the 25% of the US banking market that hasn't been nationalized yet), slice them up into viable parts and put them all out for auction. What doesn't sell ought to be liquidated.

[Americano]

Same problem as Chrysler and GM. 'Too big to fail' is nonsense.