AIG apparently bailed out; Lehmann down the tubes;

[Pure]

markets in turmoil. leapin' lizards!

i realize the rightwing fringe folks want to talk sex education and baby killing, but anyone have any comments on the economic situation? even greenspan, who helped bring it about says it'd pretty nasty.

nice story here about why merrill survived and lehman* didn't:

http://www.slate.com/id/2200149

*spelling corrected

 

[Katyusha]

markets in turmoil. leapin' lizards!

i realize the rightwing fringe folks want to talk sex education and baby killing, but anyone have any comments on the economic situation. even greenspan, who helped bring it about says it'd pretty nasty?

It's scary.

The only thing I see is only good for bad employers; people who've been wanting to get away from bad job situations now can't, which means that employers who want to keep what's left of their staffs will be able to.

 

[Misty_Morning]

markets in turmoil. leapin' lizards!

i realize the rightwing fringe folks want to talk sex education and baby killing, but anyone have any comments on the economic situation? even greenspan, who helped bring it about says it'd pretty nasty.

nice story here about why merrill survived and lehmann didn't:

http://www.slate.com/id/2200149

I'm not gonna give quotes from economists or politicians....cuz at this point...it means nothing to the average Joe.

I'm just gonna give my opinion as avarege Jane.

Greed...nothing but greed has brought this about.




For years I have been wondering how the fuck can all these people afford McMasions and luxury cars. I mean folks that make my salary or even less. Jeez...I drive a civic, shop at walmart, and only buy stuff I can afford.

I live comfortably....I have no debt. I am financially responsible. But somewhere along the way...ALOT of other folks thought differently. From Joe blow to folks that should know fucking better.

And now, EVERYONE has to pay.



I live by the philosophy...if you ain't got the money to pay for it...don't buy it.

That goes for me all the way up to folks on Wallstreet.



The old saying....if you don't learn from history...you are doomed to repeat it. It applies to financial markets too.

I just wonder what the next "bubble" will be that tax payers have to pay for.


Excuse me for ranting and not giving an intellectual opinion....but my main concern is paying my rent, buying food and gosoline so I can get to work so I can pay my rent and buy food and pay my ulitities bills. So I guess I am only concerned at this point with the little picture....MY survival.

 

[JAMESBJOHNSON]

The real issue is: Elected politicians allow vampires to create financial institutions for exploitation.

 

[Le Jacquelope]

It's scary.

The only thing I see is only good for bad employers; people who've been wanting to get away from bad job situations now can't, which means that employers who want to keep what's left of their staffs will be able to.

That may not be true. Life my get even worse soon.

Those employers may go out of business as people have less and less to spend on their goods and services. Be warned.

http://www.bloggingstocks.com/2008/...ial-meltdown-means-to-you-if-youre-not-in-fin

 

[trysail]

Debt kills; it always has. I'm with Misty— I don't like seeing the consequences of imprudence socialized. The government is (once again) forcing the liquid and the prudent to pay for the mistakes of the reckless and the stupid.

It is the worst form of vote-buying and pandering to a constituency that brought this on itself. I am ever more convinced that democracy inevitably leads to bankruptcy.

Need I say when and by whom the precedent of massive government intervention in the economy was established?

Warren E. Buffett has warned and harranged and preached and lectured about the dangers of derivatives and excessive leverage for more than a decade. Like Cassandra, he was ignored by all— save a small minority of intelligent persons who have been the beneficiaries of the education he has liberally provided over the course of his career. His teachings have always been accessible to anyone who took the trouble to read.
____________________

AIG Gets Up to $85 Billion Fed Loan; Cedes Control
By Craig Torres and Hugh Son

Sept. 16-- The U.S. government agreed to lend as much as $85 billion to American International Group Inc. in exchange for a 79.9 percent stake to save the country's biggest insurer from collapse.

The Federal Reserve ``determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance,'' the Fed said.

The agreement, supported by the Treasury Department, will keep New York-based AIG in business, averting a failure that could have threatened more financial companies and added to chaos in world markets. Losses industrywide could have totaled $180 billion if AIG collapsed, according to RBC Capital Markets. AIG needed the loan after its credit ratings were cut and shares plunged 79 percent since Sept. 11.

The two-year loan will ``assist AIG in meeting its obligations as they come due,'' the Fed said in its statement. The federal lifeline will allow AIG to sell assets in an orderly fashion rather than at distressed prices, said a person familiar with the agreement.

``The loan is expected to be repaid from the proceeds of the sale of the firm's assets,'' the Fed said. The U.S. government has the right to veto the payment of dividends to common and preferred shareholders.

AIG will replace management as part of the deal, said the person, who declined to be named because not all parts of the agreement were publicly disclosed.

Interest will accrue on the outstanding balance at the three-month London interbank offered rate plus 8.5 percentage points.

 

[Rumple Foreskin]

markets in turmoil. leapin' lizards!

i realize the rightwing fringe folks want to talk sex education and baby killing, but anyone have any comments on the economic situation? even greenspan, who helped bring it about says it'd pretty nasty.

nice story here about why merrill survived and lehmann didn't:

http://www.slate.com/id/2200149

We should all send a "Thank You" note to the nation's biggest Texas Aggie joke, former US Senator and McCain economic advisor, Phil Graham.

Remember, if you liked the Savings and Loan Scandal during the Reagan years, and are now enjoying the current Home Loan Mess brought to us by the Bush administration, just elect the "great de-regulator" John McCain for more of the same.

Rumple Foreskin

 

[neonlyte]

Comment of BBC's Financial Wizzkid - Robert Peston


How banks depend on AIG

* Robert Peston
* 16 Sep 08, 04:40 PM

Ken Lewis, the chief executive of Bank of America, said yesterday that "I don't know of a major bank that doesn't have some significant exposure to AIG".

American International buidling, New YorkSo AIG's need to raise billions in new capital to shore itself up has sent shockwaves through global markets and helped to undermined the share prices of many banks.

But how exactly are banks "exposed" to AIG?

Light is shed by an insightful bit of research by Sandy Chen of Panmure Gordon.

He has found the following paragraph in AIG's US regulatory filing:

"Approximately $307bn (consisting of corporate loans and prime residential mortgages) of the $441bn in notional exposure of AIGFP's super senior credit default swap portfolio as of June 30, 2008 represented derivatives written for financial institutions, principally in Europe, for the purpose of providing regulatory capital relief rather than risk mitigation. In exchange for a minimum guaranteed fee, the counterparties receive credit protection with respect to diversified loan portfolios they own, thus improving their regulatory capital position."

If you managed to read to the end of that, your reaction is probably "you what?"

Well, I'll tell you what.

AIG is saying here that it has insured $307bn of corporate loans and prime residential mortgages that are on the balance sheets of banks, mostly European banks.

The banks have bought this insurance to protect themselves against the risk that these loans would go bad, that borrowers would default.

Their motive for doing so was to reassure their respective regulators - such as the FSA for UK banks - that these loans are of minimal risk.

And the benefit of doing that was that they could lend considerably more relative to their capital resources.

But if AIG is in trouble, then doubts arise about whether it would be able to honour the financial commitments it has made through these insurance contracts (which, for those of you who like to learn the lingo, are called super senior credit default swaps).

In fact, in a wholly mechanistic way, the downgrades of AIG's credit rating that we saw last night automatically increased the perceived riskiness of loans made by banks that have insured credit with AIG.

Which means those banks' balance sheets become weaker - and that could mean that they'll be forced by their regulators to raise additional capital.

So there's a widespread view among bankers that the US Treasury and the Federal Reserve simply can't allow AIG to fail, in the way that they felt that they could allow Lehman to collapse into insolvency.

If AIG went down, a number of banks' balance sheets would be mullered - there would a dangerous risk to the stability of the global financial system.

Or to put it another way, AIG is so pivotal in the global financial system, it can't be consigned to the dustbin of history in a precipitous way.

PS. For those of you who currently have the willies about HBOS, its exposure to AIG is not life threatening.

What's currently doing for HBOS's share price is blindingly obvious: it provides 20% of all UK residential mortgages; the UK housing market is the major vulnerability of the UK economy; if there's a sharp rise in the number of homeowners defaulting on their mortgages, HBOS would incur significant losses, especially on self-cert, buy-to-let and loans with a high loan-to-value ratio.

But HBOS has recently raised £4bn of new capital to cushion itself against the impact of just such a debacle.

So there is more fear than reason underlying the success of the short-sellers in driving down HBOS's share price - although the short-sellers will claim a modest victory in the decision by Standard & Poors to lower HBOS's credit ratings by a smidgeon.

But HBOS's ratings remain pretty strong. And the rating cuts shouldn't lead to a sharp increase in the cost of its finance or to an exodus of those who provide that finance.

UPDATE 19:25

I suspect that Sandy Chen has found only a part of AIG's credit protection business, since I am told that US banks are more exposed to AIG than are European banks (which is not what the regulatory filing spotted by Chen shows).

And here's a compelling wrinkle. AIG writes its credit default swaps contracts (its loan insurance business) through a French banking subsidiary.

Even so, the possible collapse of AIG isn't a French problem. What AIG needs to obtain is financial support from the American taxpayer at the top holding company level in the US - and it would then use these funds to recapitalise the French bank it owns.

What this shows is the fearful complexity of AIG's corporate structure, which just adds to the difficulty in negotiating a rescue.

 

[trysail]

... the Savings and Loan Scandal ...

With respect, the S&L fiasco erupted well after Reagan was out of office. Its antecedents lay in the Federal government's guaranty of deposits. That guaranty permitted crooked and incompetent operators to attract/purchase consumer deposits by paying the highest (and usually imprudent) interest rates— all underwritten by deposit insurance paid for by you (assuming you pay taxes) and me.

People were no longer responsible for selecting banks on the basis of their safety and soundness. The discipline of the marketplace was eliminated and the ultimate result was predictable.

Similarly, today's financial mess is directly traceable to an assumption by consumers that government will always ride in to rescue them from the consequences of their folly. Borrow now, repent later.

Don't misunderstand me, the bankers are hardly blameless. They lent money to people who needed it— that's bad practice.

 

[Rumple Foreskin]

A clear chronology of the "S&L Crises" can be found on the FDIC site: http://www.fdic.gov/bank/historical/s&l/

The following excerpt is from Wiki. Here's a link to the full article: http://en.wikipedia.org/wiki/Savings_and_loan_crisis


The savings and loan crisis of the 1980s and 1990s (commonly referred to as the S&L crisis) was the failure of 747 savings and loan associations (S&Ls) in the United States. The ultimate cost of the crisis is estimated to have totaled around USD$160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government—that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts[1]—which contributed to the large budget deficits of the early 1990s. The resulting taxpayer bailout ended up being even larger than it would have been because moral hazard and adverse selection incentives compounded the system’s losses. [2]

The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990-1991 economic recession. Between 1986 and 1991, the number of new homes constructed per year dropped from 1.8 million to 1 million, the lowest rate since World War II.

--

In an effort to take advantage of the real estate boom (outstanding US mortgage loans: 1976 $700 billion; 1980 $1.2 trillion)[citation needed]and high interest rates of the late 1970s and early 1980s, many S&Ls lent far more money than was prudent, and to risky ventures which many S&Ls were not qualified to assess. L. William Seidman, former chairman of both the FDIC and the Resolution Trust Corporation, stated, "The banking problems of the '80s and '90s came primarily, but not exclusively, from unsound real estate lending." [4]

--

Sound familiar?

Rumple Foreskin

 

[Misty_Morning]

Sound familiar?

Rumple Foreskin

Yep.


Same tune...different verse.


Greed.

 

[neonlyte]

UK Barclays Bank pays $250m to aquire the profitable parts of Lehmans and thus become the third largest Investment Bank in the USA.

No wonder Barclays walked away from Lehman on Saturday night, they picked up the Lehmans Investment Banking business (and guaranteed 10,000 jobs) for a snip last night. They also paid $1.5bn for Lehmans New York HQ and its two processing centres in NJ - I wonder if they needed a mortgage

Not sure how they pulled this off under USA noses but it is quite a coup.

 

[Elianna]

So I'm thinking I better drop my insurance with AIG and go to USAA (good benefit for being a brat). Don't want someone to total my car and the insurance company to go under or anything.

They were just so damn... cheap. *sigh*

 

[colddiesel]

UK Barclays Bank pays $250m to aquire the profitable parts of Lehmans and thus become the third largest Investment Bank in the USA.

No wonder Barclays walked away from Lehman on Saturday night, they picked up the Lehmans Investment Banking business (and guaranteed 10,000 jobs) for a snip last night. They also paid $1.5bn for Lehmans New York HQ and its two processing centres in NJ - I wonder if they needed a mortgage

Not sure how they pulled this off under USA noses but it is quite a coup.

They will probably do better than that. Lehmans overseas business(certainly Asia) which I know reasonably well was operationally closely integrated with HQ in NY. Now Barclays have the heart of the business expect them to cherry pick the remainder. There are some nice morsels in Tokyo, Seoul and probably elsewhere. These are probably worth more to Barclays than any one else.

 

[cantdog]

So I'm thinking I better drop my insurance with AIG and go to USAA (good benefit for being a brat). Don't want someone to total my car and the insurance company to go under or anything.

They were just so damn... cheap. *sigh*

Well, if they are gone, they are wicked unlikely to pay out a claim. Just sayin'.

 

[colddiesel]

Four letter Words

Iraq and Debt.

These two words will define the history of the Bush administration. It's a little tough hanging all the debt problems on Bush because all Western Governments have been on a debt binge for the last 20 years. However tax reductions for the wealthy coupled with rampant over expenditure, not only on the war have now been exposed. With the nationalisation of Freddie and Fannie plus that of AIG the real balance sheet of the USA looks proportionately like Italy's, ie. awful.

Sub prime debt has wacked Lehmans and will claim a few more as yet unidentified scalps . But what next? Private equity in various structures has in the last few years bought assets at inflated prices, loaded them up with debt and planned to on sell them to the next mug in line. BUT, where's the sale? Borrowed money is largely unavailable and the value of the underlying assets has slumped . Expect a shake out with our friends the cashed up oil producers being the ones that pick up cheap assets in the inevitable fire sales.

And a reminder about the average Joe. There's a mountain of private debt out there on credit cards, cars, appliances you name it. Joe you're on short time , sorry now you've lost your job and that's the reposession man just knocking on the door.

Whoever 'wins ' the election is going to have a helluva time with the economy. Taxes will be increased as will unemployment and bankruptcies. Life is going to be very tough for a couple of years at best.

At worst does any body know?

 

[cantdog]

Iraq and Debt.

These two words will define the history of the Bush administration. It's a little tough hanging all the debt problems on Bush because all Western Governments have been on a debt binge for the last 20 years. However tax reductions for the wealthy coupled with rampant over expenditure, not only on the war have now been exposed. With the nationalisation of Freddie and Fannie plus that of AIG the real balance sheet of the USA looks proportionately like Italy's, ie. awful.

Sub prime debt has wacked Lehmans and will claim a few more as yet unidentified scalps . But what next? Private equity in various structures has in the last few years bought assets at inflated prices, loaded them up with debt and planned to on sell them to the next mug in line. BUT, where's the sale? Borrowed money is largely unavailable and the value of the underlying assets has slumped . Expect a shake out with our friends the cashed up oil producers being the ones that pick up cheap assets in the inevitable fire sales.

And a reminder about the average Joe. There's a mountain of private debt out there on credit cards, cars, appliances you name it. Joe you're on short time , sorry now you've lost your job and that's the reposession man just knocking on the door.

Whoever 'wins ' the election is going to have a helluva time with the economy. Taxes will be increased as will unemployment and bankruptcies. Life is going to be very tough for a couple of years at best.

At worst does any body know?

Debt, for a government, is not a real issue.

Average Joes? Yes.

It's the debt of average people which has fueled the current collapse.

 

[cantdog]

Whoever 'wins ' the election is going to have a helluva time with the economy. Taxes will be increased as will unemployment and bankruptcies. Life is going to be very tough for a couple of years at best.

At worst does any body know?

We all knew, going in, that the incredible, bottomless mess left by the Bush admin was going to constitute an insurmountable task for the successsor administration.

Whoever wins will surely, therefore, disappoint. It is sure as time. Sure as death and taxes.

No possible human agency can set to rights this unholy clusterfuck.

So Obama will FAIL. McCain will FAIL. Get used to the idea.

 

[trysail]

The fundamental problem is this: the mortgage business is, at bottom, an unnatural creation of the politicians. Because there is no natural pool of capital with an appetite for long-term (which, because of prepayment options have no determinable maturity), fixed-rate loans large enough to supply the demand by various constituencies, the politicians first fabricated an utterly unnatural industry out of whole cloth (the savings and loan business, bastard child of The New Deal), they then went on to mandate Fannie Mae and Freddie Mac. Fannie and Freddie eventually become the ultimate bagholders (meaning, of course, Mr. and Mrs. Taxpayer). The pols did what any self-respecting body of demagogic pols always do: they engage in magical thinking, wave a wand, bamboozle the credulous mob and play pretend. Nobody knows what the maturity on those mortgages is. Would you invest in something without knowing when it matures? I know I damn well wouldn't.

As is ever the case when politicians attempt to force square pegs into round holes, the result is a mess. The only thing they ever succeeded in doing was creating an artificial game of "hot potato" or "musical chairs."

The political solution to an insufficient supply of mortgage loans? Pass laws repealing natural forces. It works— for a little while— but is ultimately doomed to fail; that's exactly what has transpired.

I had forgotten that Fannie Mae was a creation of Roosevelt and the New Deal. I should have known— it bears all the hallmarks: innumeracy, ignorance, demagogic politicians, gullible voters, world savers, wishful thinking, Santa Claus, the tooth fairy and a multitude of Pied Pipers. It figures.

It has turned into one of the most colossal government boondoggles of all time and a preview of what lies in the future for BOTH Social Security AND Medicare.

All politicians are natural meddlers. Washington, D.C. is full of 'em. I live close enough to that sinkhole to have witnessed (in the course of my lifetime) its transformation from an insignificant stinking backwater swamp where no self-respecting individual would reside to a hellish urban nightmare populated entirely by pinguid, oleaginous, fast-talking snake oil peddlars. Its residents have no otherwise marketable skills for earning a living.

If you don't think government borrowing and fiscal discipline matters, you're only kidding yourself. Ask a German about the Weimar Republic.

 

[rgraham666]

Um, until this year Canada's government has been very much in the black.

The we voted in a Bush clone and this year we're back to a deficit.

Quelle surprise.

 

[colddiesel]

Debt, for a government, is not a real issue.

Average Joes? Yes.

It's the debt of average people which has fueled the current collapse.

Have to disagree Cant'.

The response of most governments to debt is that they print or cheapen money. They say they won't but then find excuses anyway. Even now the default setting of most western governments is to keep the basic interest rates low. Why , because it looks good with the voters. The so far unmentioned elephant in the room is INFLATION. It's already with us and I for one will give a gold plated guarantee that governments will feed it one way or another with cheap money (through the printing presses or artificially low interest rates).

The real answer is to take the pain which will involve unemployment and more expensive money. Neither Obama nor Mc Cain will want to sing that song before November 4th and probably not after either.

There's a bumpy ride ahead and as I said I think government debt is a major problem.

 

[rgraham666]

So every time a credit company issues a credit card, or a bank makes a loan that they haven't the capital to back, isn't inflation?

Only governments can cause inflation?

 

[colddiesel]

Only governments can cause inflation?

Not what I said RG.

Governments feed inflation because they lack the courage to make the harsh and sometimes electorally terminal courage to deal with it. Usually the medicine includes:-

1 Less credit at higher prices.(an increase in interest rates)
2 Higher taxes
3 Reduced government spending, ie.less services.
4 Restictions on access to credit .
5 Not printing 'new money'
6 No Wars, notoriously inflationary.

Not too many votes in that lot.

Most governments in the western world are also the originators for between 35 and 45% of expenditure within their economies. No other entity comes remotely close to a major government in their capacity to promote or prevent inflation.

 

[rgraham666]

Oh I understand that. But it seems to me you're overlooking the private contributions to inflation.

My own read on inflation is that it is a diagnostic tool, not a problem. Rather like a human being's body temperature it can give some indication of other problems.

Unfortunately our understanding of economics is at the same level as when 'bodily humors' were responsible for illness. And our treatment is at the same level as bleeding the patient to 'restore the humors' balance'.

It causes more problems than it prevents.

 

[Pure]

note to try

while there is something to be said for your analysis of freddie and fannie, insofar as they may have provided incentives for crooked deals, what you propose below is bizarre.

further, i'd remind you that in at least a majority of cases, federal guarantorship of mortgages facilitated ordinary responsilbe people getting enough'credit' to buy a home. there has never yet been a good scheme that hasn't provoked some to try to exploit it (consider the claims to the 9-11 victims compensation fund)



try: People were no longer responsible for selecting banks on the basis of their safety and soundness. The discipline of the marketplace was eliminated and the ultimate result was predictable.

PURE: i think i prefer some variant of the existing system. I DO NOT want banks to be like restaurants or worse. no one can know the solidity of these institutions and make good choices. state and federal charters and oversight are necessary and used in every developed country.

"free market" and "anyone can open a bank" works only in your utopia.