The federal government gets sued for saving AIG

[Jhhnn]

Maybe you'll believe this report from CNN Money.


In other words, Buffett wasn't going to touch GS with a 10 foot pole unless there was a bail out. No speculation here, just facts. If you can provide any sources to the contrary, please share.

Please. The Greenspan Put had been in effect since the LTCM fiasco in 1998. The recklessness of our financial institutions was executed under that license from the FRB & the Bush Admin.

They knew, all along, that bailout might become necessary & Voila! There it was!

Huge fortunes were won & lost in the pretending of that not being true. Goldman & Buffet were huge winners.

 

[Charmonium]

Please. The Greenspan Put had been in effect since the LTCM fiasco in 1998. The recklessness of our financial institutions was executed under that license from the FRB & the Bush Admin.

They knew, all along, that bailout might become necessary & Voila! There it was!

Huge fortunes were won & lost in the pretending of that not being true. Goldman & Buffet were huge winners.

Well, it was more of a Bernanke put, but sure. Personally, I don't consider paying 10% on preferred stock by GS to be a screaming win. That was half a billion per year that GS was paying Bershire Hathaway. It was a great deal for Warren but not so much for GS.

 

[Jhhnn]

Well, it was more of a Bernanke put, but sure. Personally, I don't consider paying 10% on preferred stock by GS to be a screaming win. That was half a billion per year that GS was paying Bershire Hathaway. It was a great deal for Warren but not so much for GS.

Heh. Goldman posted over $13B in profits for 2009.

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/21/AR2010012101044.html

Meanwhile, huge segments of the industry were going down in flames. When investors hit the door screaming, running for liquidity, Goldman was there to buy assets at fire sale prices with Buffet's money. They also shorted the piss out of anybody they saw going down.

Other savvy players made killings, as well-

http://www.ritholtz.com/blog/2010/04/top-10-hedge-fund-managers-2009-salary/

It wasn't a catastrophe for everybody- just most of the country, a classic boom/bust cycle of capitalism softened by prompt action from the FRB & the govt.

 

[Charmonium]

Heh. Goldman posted over $13B in profits for 2009.

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/21/AR2010012101044.html

Meanwhile, huge segments of the industry were going down in flames. When investors hit the door screaming, running for liquidity, Goldman was there to buy assets at fire sale prices with Buffet's money. They also shorted the piss out of anybody they saw going down.

Other savvy players made killings, as well-

http://www.ritholtz.com/blog/2010/04/top-10-hedge-fund-managers-2009-salary/

It wasn't a catastrophe for everybody- just most of the country, a classic boom/bust cycle of capitalism softened by prompt action from the FRB & the govt.

The original point was that Goldman needed to be bailed out just like all of the other big banks. No one argues that GS wasn't in a better position than most. That probably also applies to JPM. But the fact remains that w/o the bailouts ALL of the banks were going to be sucking some very thick, long dick.

The point is that in 2008 the entire banking industry was one big, incestuous cluster fuck. The idea that any bank was immune to the contagion is just ridiculous. Here, take a look at this 2010 article to get some idea of just how intertwined the operations of every major financial institution were.

Goldman Sachs (GS) received $5.55 billion from the government in fall of 2008 as payment for then-worthless securities it held in AIG. Goldman had already hedged its risk that the securities would go bad. It had entered into agreements to spread the risk with the 32 entities named in Friday's report.
Overall, Goldman Sachs received a $12.9 billion payout from the government's bailout of AIG, which was at one time the world's largest insurance company.
Goldman Sachs also revealed to the Senate Finance Committee that it would have received $2.3 billion if AIG had gone under. Other large financial institutions, such as Citibank, JPMorgan Chase and Morgan Stanley, sold Goldman Sachs protection in the case of AIG's collapse. Those institutions did not have to pay Goldman Sachs after the government stepped in with tax money.
Shouldn't Goldman Sachs be expected to collect from those institutions "before they collect the taxpayers' dollars?" Grassley asked. "It's a little bit like a farmer, if you got crop insurance, you shouldn't be getting disaster aid."
Goldman had not disclosed the names of the counterparties it paid in late 2008 until Friday, despite repeated requests from Elizabeth Warren, chairwoman of the Congressional Oversight Panel.

 

[Jhhnn]

The original point was that Goldman needed to be bailed out just like all of the other big banks. No one argues that GS wasn't in a better position than most. That probably also applies to JPM. But the fact remains that w/o the bailouts ALL of the banks were going to be sucking some very thick, long dick.

The point is that in 2008 the entire banking industry was one big, incestuous cluster fuck. The idea that any bank was immune to the contagion is just ridiculous. Here, take a look at this 2010 article to get some idea of just how intertwined the operations of every major financial institution were.

Which contradicts what I offered not at all. The only reason that Goldman or JPMC would fail is if their counterparties failed. Their only other real danger was irrational short selling of their stock in a general market panic & their deal with Buffet stopped that, put a floor under their stock price. Smart repo lenders waded in right behind Buffet keeping them flush while the rest were gasping for air.

The funds they received in the bailout were cosmetic. The fact that it would happen was as obvious as sunrise in a cloudless sky.

Where would the Repub party & the financial elite be today had there been no bailout?

Fukololo, that's where. Otherwise, the country would have experienced a 1932 style epiphany.

 

[Charmonium]

Which contradicts what I offered not at all. The only reason that Goldman or JPMC would fail is if their counterparties failed. Their only other real danger was irrational short selling of their stock in a general market panic & their deal with Buffet stopped that, put a floor under their stock price. Smart repo lenders waded in right behind Buffet keeping them flush while the rest were gasping for air.

The funds they received in the bailout were cosmetic. The fact that it would happen was as obvious as sunrise in a cloudless sky.

Where would the Repub party & the financial elite be today had there been no bailout?

Fukololo, that's where. Otherwise, the country would have experienced a 1932 style epiphany.

As you said before, 'that's just speculation'. You can't provide any sources to support that conclusion.

But you were right about counterparties. Did you read the article I linked to? A deleveraging event like 2008 takes everyone down. It's not an issue of people shorting stocks or even about wholesale dumping but insolvency due to a lack of liquidity.

 

[Darwin333]

If a corporation is allowed to become too big to fail (jail) then what risks wouldn't you take once you've reached the requisite size? By not forcing oligarchs through the same system as lowly unwashed serfs like you and I they are creating a new aristocracy with at least the implicit guarantee of federal protection (on our backs). All of this while finance grabs a larger share of GDP and centralizes in to fewer banks (which can't be allowed to fail).

So very much this.

 

[Darwin333]

There were no losses...AIG paid everything back including billions in interest. What more do you want...jail sentences for being stupid?

No, jail sentences for committing massive numbers of criminal offenses and the removal of their charter after all of their business is winded down because they are obviously too incompetent to wield that much power. That would be a start.

 

[Darwin333]

If anyone needs to go to jail, first in line should be those in our government who's duty it was to provide oversight and regulation of the banks and financial markets.

So the people who were supposed to be watching them are more guilty than the people committing the crimes??? Foe real dawg?

 

[Darwin333]

I'll play devil's advocate. AIG, as I understand it, was solvent. In other words, their liabilities were good quality, they just couldn't cope with the liquidity crunch, a unique marketplace phenomena that the government tacitly acknowledged though their interventions.

They required a loan that was over 10 times AIGs market value or some shit. When you need a loan that is 10 times total lifes worth you are at the mercy of the lender if you can somehow convince you to lend you the money in the first place.

It would be like me walking into a bank with $100,000 in assets and asking for a million dollar loan because I made a bunch of fucked up business decisions (kind of a bad sign already if you are the lender) and expecting the prime rate on the loan. Or maybe it's more like loaning $100,000 cash to a heroin junkie who just went through a 3 day detox system so now he is reformed, what could possibly go wrong with that right?

If he didn't like the terms of the bailout he, being the majority stockholder, should have been more vocal about not writing insurance that totaled a few 1000% of what they could possibly pay if shit went the wrong way. I don't recall him bitching or moaning when he was raking it in hand over fist from all the underwriting they were doing that they couldn't possibly pay (that would be called fraud). Hell their entire scheme was akin to letting your neighbor take out fire insurance on YOUR house, giving said neighbor a huge incentive to burn your house down.

Fuck him and everyone that looks like him.

 

[Jhhnn]

It's not that these guys are too big, it's that they're allowed to create unnecessary risk from which they can profit. AIG never should have been allowed to take on that kind of risk. Nor should any of them. With a free market financial sector, they inevitably will. It's the nature of the beast.

That's why the whole New Deal banking system was established- to limit the risk of catastrophe. It served us well for over 70 years, less every time we tinkered with it. Without something as effective wrt the future, we're just setting ourselves up for more of the same.

Why will the financial elite take such risks? Because losing only affects the lifestyles of a lot of other people, not theirs. Bet that Greenberg never missed a meal over it, something that can't be said for a lot of people caught up in the results of financial recklessness beyond their control.

 

[werepossum]

Hank Greenberg wins - and loses. The appeal should be fun.

That is awesome. "I find for the plaintiff, and award him no damages because he's an asshole." Hope they didn't get expenses.

I'll play devil's advocate. AIG, as I understand it, was solvent. In other words, their liabilities were good quality, they just couldn't cope with the liquidity crunch, a unique marketplace phenomena that the government tacitly acknowledged though their interventions.

While it's true that they would have gone under without government intervention, that' also true for a lot of other firms that received government assistance without such onerous terms.

I'll try to draw a crude analogy:

Lets say you have a house with a mortgage. You have a steady job, and assets in the bank. One month, the morgage comes due, but your bank goes belly up and you have no access to your money to pay it. You're going to lose the house before your FDIC insurance claim arrives. The government steps in and says "We'll provide temporary funding, but in exchange for doing so, we're going to take 80% of the equity you have in the house." With no other options, you take the deal.

Your neighbor is in the same situation, and gets the same deal from the government, but they only take 60% of his equity. Is that fair?



That's fucking horrible.

I'll agree that AIG was probably solvent except for the liquidity crunch, but not that AIG was definitely solvent. There was a huge amount of uncertainty at the time, and if no one is willing to loan you what you need to stay in business, are you really solvent? You do have a point about fairness - especially considering the incestuous nature of so many banks with government - but equity isn't a uniform commodity. Everyone was playing games with true value too, so it was even worse than normal. Therefore 80% equity in one company might well be worth less (per nominal dollar kicked in) than 60% equity in another company.

My problem isn't with the bailout, but with the way we did it. I would have preferred that we forced them into pre-approved structured bankruptcies. Everyone knew they were being bailed out, and "too big to fail" should not mean "too big to not get our bonuses". I can accept that the people (mostly Team Obama) doing that did so in good faith, but for G-d's sake, if we have to bail out a company because it's too big to fail, break it up.