[FotoCihasWewb]

Did you see the interest rate on that loan?

11%!!!!

It is not like they are being given a free ride.


I don't know.

Not only that, but in return for the loan the Govt gets a 79% equity ownership in the company. Remember the P&C and liablility businesses which are core to AIG, are still profitable and will eventually be sold off. The taxpayers will likely make out on this one.

Still I get BR's point. All of sudden Govt interruption of free market dynamics ain't so bad.

@ Jasonik

I really like the analogy, but of course it is only partially correct especially as it relates to motivation. Whereas the Mob's motivation is profit, the Fed's motivation to step up is based on a genuine concern of systemic failure on a global scale. Because Money Market managers from all reaches of the Globe are invested in AIG debt, an AIG meltdown would have resulted in catastrophic consequences on the world liquidity marke . I guarantee that more than one fund would have 'busted the book' had AIG failed. The downstream macro economic consequences and global liquidity consequences would have been beyond severe and in fact may have resulted in a worldwide recession.

The Treasury and Fed's approach to bailing out FI's is pretty clear at this point. They will take action in cases where failure will result in system-wide consequences, and will let companies fail where downstream systemic failures are unlikely to result. Let's hope they get it right.

[goldcigarettes]

AC360 had a few on the other night that were also talking about it.

The one woman on there was saying something along the line of these financial intitutions, non-liquid banks and moneyhouses, are not needed as much as cmopared to something like AIG.


I forget the exact terminology she used (sorry) but the gist was, a buisness whose sole purpose was to make money by handling money is not as big a loss as an international insurance agency with, essentially, a stable income base (outside of its stock positions, that is).

[fapourfasiark]

Whereas the Mob's motivation is profit, the Fed's motivation to step up is based on a genuine concern of systemic failure on a global scale.

If you say so.

They're trying to get their hands on as much as they can. Of course you'd have to read a foreign paper to find out.

It's a self fulfilling prophesy. Investors will flee the market with the spectre of a total bank confiscation (without due process or just compensation for deprived shareholders -- of course the US Constitution only limits the government not the Fed's theft through inflation, market manipulation or outright seizure.)

This whole calamity was caused by the Fed's easy money policies that spawned innumerable exotic derivatives which rating agencies blindly rubber-stamped triple-A thereby allowing them to infect balance sheets around the world. The Fed has done their best to keep the light of day off this questionable paper, delaying and impeding the needed downgrading until it was too late, at which point only Fed sponsored conservatorship would do.

The Fed becomes more empowered as a result of its mistakes?

[Quiniacab]

If you say so.

They're trying to get their hands on as much as they can. Of course you'd have to read a foreign paper to find out.

Not sure I buy it. Remember, the Fed's first option was to encourage JPM and Goldman to extend the loan to AIG, and only stepped in AFTER the private sector declined to do so. Also remember, the Fed DID allow Lehman to fail.

I do not think the Fed wants to be in the business of running businesses or speculating on the share price of companies in duress. I think they will be very judicious in executing the tactic going forward.

If you say so.
It's a self fulfilling prophesy. Investors will flee the market with the spectre of a total bank confiscation (without due process or just compensation for deprived shareholders -- of course the US Constitution only limits the government not the Fed's theft through inflation, market manipulation or outright seizure.)

find out.This whole calamity was caused by the Fed's easy money policies that spawned innumerable exotic derivatives which rating agencies blindly rubber-stamped triple-A thereby allowing them to infect balance sheets around the world. The Fed has done their best to keep the light of day off this questionable paper, delaying and impeding the needed downgrading until it was too late, at which point only Fed sponsored conservatorship would do.

The Fed becomes more empowered as a result of its mistakes?

It is important to note that derivatives were introduced in the 1980's as a tool to syndicate and avert risk. The idea was to package a broad spectrum of high and low risk debt instruments so as to diversify exposure and ensure against catastophic loss. Back than, brokerages were high margin businesses who derived the lion share of their revenues by advising and investing other people's money. Today it is much different. The advent of electronic brokerage services and the direct access it has afforded retail investors has undercut the margins of classical brokerage services and necessitated a need for additional revenue sources. Today's brokers are much more leveraged than they were at anytime in the past, and the derivatives they have created and invested in are of higher yield and higher risk than previously. Sub-prime MBS paper is an example.

The Fed's easy money policies are a direct result of the real estate bubble bursting. So much or US growth and wealth over the past 10 years or so has been fueled by over valued real estate. When the bubble burst, credit tightened, and the economy began to slow as companies struggled to gain access to working capital and longer term investment funding. The Fed dealt with it by lowering rates.

And as rates go down and the national debt goes up, the value of the $ suffers. It is a real mess.

[P9CCd35R]

The Fed's easy money policies are a direct result of the real estate bubble bursting. So much or US growth and wealth over the past 10 years or so has been fueled by over valued real estate.

The Fed kept rates down since 9/11. This cheap credit is what allowed housing to take off. If mortgage rates were allowed to rise five years ago there never would have been the speculation spiral and subsequent meltdown.

Downward pressure on mortgage rates allow house prices to rise and conversely rising rates stabilize prices and keep the market honest.

Don't forget that the easy money driving the writing of these subprime loans also supplied investment banks with virtually endless capital to over-leverage and arbitrage themselves to death gorging on high yield instruments.

Lots of people are to blame, but fundamentally the signal sent to the overall capital markets by Fed rates set the tone and enabled this bubble.

[TaliaJack]

And meanwhile, barely an inch of news regarding Afghanistan or Iraq.

If it weren't for a massive attack on the US Embassy in Yemen the Mid-East would be completely out of view.

And Chris Matthews keeps screaming, "Where is President Bush? He's pulling another Katrina!! We've lost a TRILLION Dollars in value!!!! Why doesn't Bush come out and talk to the American people?!?!"

Maybe Bush is too busy with his money guys, figuring out scenarios for other crises-to-come -- and ways to keep the American people scared and confused.

[Onervemurce]

^^^ Posts: 18,000

[zibTefapparia]

^ whoah gratz

[Psymoussy]

Bush and his cronies continue to raid the Treasury to feed the avarice of corporate greed and mismanagement. Look for a negative balance to be paid over the next century.

September 18, 2008

Federal Aid to Detroit Seems Likely

By DAVID M. HERSZENHORN
WASHINGTON — After a series of government interventions in the private markets, one seemingly more astonishing than the next, lawmakers found themselves confronted on Wednesday with the question of when and where to draw the line on future aid.

But with billions of dollars in financial backing already authorized for Wall Street, and with Election Day fast approaching, Congressional leaders seemed uninterested in denying help to large employers of blue-collar Americans.

Even as lawmakers in both parties unleashed a barrage of questions about the wisdom of a government rescue for the American International Group, support seemed to be growing quickly on Capitol Hill for $25 billion in loan guarantees to assist the ailing auto industry.

Both presidential candidates, Senator John McCain of Arizona and Senator Barack Obama of Illinois, have voiced support for the loan guarantees — an unsurprising stance given the critical importance of the main auto-producing states, Michigan and Ohio, to the electoral map this fall.

The chief executives of the three big American automakers — General Motors, Ford and Chrysler — met on Wednesday afternoon with House Speaker Nancy Pelosi.

When they emerged, they expressed optimism that the loan guarantees would be included as part of a budget resolution that is needed to finance government operations through the end of the year.

“The support that we got was again very encouraging,” said Robert L. Nardelli, the chairman of Chrysler. “The conversations I have had all day on the Hill have been very encouraging, very candid, very straightforward and so as we conclude the day, I would say it was successful.”

Alan R. Mulally, the chief executive of Ford, was even more upbeat. “It was a great day,” he said. When a reporter asked what Mr. Mulally might say to people who viewed the loan guarantees as a bailout, he replied in a chipper voice, “I would characterize it as an enabler.”

Ms. Pelosi sharply criticized the Bush administration on Wednesday over the $85 billion bailout of A.I.G., saying it was evidence of mismanagement by President Bush. But she expressed strong support for the automakers’ loan guarantees, which would be used to help the companies meet new fuel efficiency standards that Congress adopted last year.

“We see that as a way to rebuild and strengthen the technological base of America,” Ms. Pelosi said at a news conference in the Capitol. “It would certainly help people in the auto industry, but it’s not only about the auto industry, it’s about the auto industry, it’s about our economy, it’s about America’s work force.”

She added: “We consider this a major investment in innovation.”
Republican Congressional leaders, too, said they were in favor of helping the automakers. Representative Adam Putnam of Florida, the third-ranking House Republican, said at a news conference that it was up to auto executives to convince lawmakers of the need for government assistance.

“It’s incumbent on them to make the case to Congress that it is a loan guarantee, that it is a wise investment of taxpayer dollars, and I think that they are on the Hill this week making that case,” Mr. Putnam said.

“The reports that I have heard from my colleagues is that they have been fairly persuasive.”

The Senate majority leader, Harry Reid of Nevada, expressed his own support for aid to the automakers at a news conference on Wednesday morning. Mr. Reid said the loan guarantees, which would cost taxpayers $7.5 billion, were needed.

“I think it’s extremely important that we try to do something,” he said. “These are jobs. These are cars that we should be selling — or manufacturing in America, not someplace else.”

Still, some fiscal conservatives reacted angrily to the prospect of more taxpayer money being used to prop up private companies.

“The federal government’s propensity to bail out failing companies in struggling industries ought to be troubling to all taxpayers,” said Representative Jeff Flake, Republican of Arizona. “Aside from the fiscal impact of spending money that the federal government doesn’t have, these bailouts will likely have the opposite of their intended effect.”

Mr. Flake added: “Federal bailouts may stave off short-term economic damage, but the long-term economic outlook will be much worse if the market is not allowed to make its own adjustments. While the Bush administration certainly shares blame for these bailouts, this Congress may designate itself as the ‘Bailout Congress’ if we follow through on a rumored bailout of the auto industry.”

But such skepticism was likely to be overshadowed by the huge stakes in the presidential race. Mr. McCain, the Republican nominee, had seemed cool to the idea of loans for the auto industry last month, but at a campaign stop on Wednesday at an auto plant in Orion, Mich., he sounded like a staunch supporter.

“It’s great to be here today with the assembly workers of this G.M. plant,” he said. “I’m here to send a message to Washington and Wall Street: We are not going to leave the workers here in Michigan hung out to dry while we give billions in taxpayer dollars to Wall Street. It is time to get our auto industry back on its feet. It’s time for a new generation of cars and for loans to build the facilities that will make them.”

Bill Vlasic contributed reporting from Detroit and Michael Cooper from Orion, Mich.





Copyright 2008 The New York Times Company

[inve.tment]

AIG's Hank Greenberg was on Charlie Rose last night, before the news of the government's "loan" to AIG was announced, and he looked as grey and dreary as one might expect.

Tonight he is back on Rose's show, post-"loan", and he looks thirty years younger. Positively Rosey

Amazing what the news of a bit of solvency will do to a fellow.