Should the US have let AIG fail like Lehman?

zork

zork

2,500+ Posts
This is wrong. I don't care if the law is somehow twisted so it seems right it is very wrong for this ******* to sue the government after the huge bailout. No way the government should pay.
The Link

What do you think? Should the people from AIG get a second bailout in the form of a judgement?

I haven't read up on this topic too much though but at first glance it seems the gift horse is getting screwed. Or the judge is going to do his crony a positive and get something in the future perhaps?
 
The too big to fail banks had what were in essence, insurance policies with AIG. When the housing market imploded the banks were hemorrhaging billions of dollars and AIG was suppose to make them good. But AIG was bankrupt just as the banks were. So Bernanke, Paulson, Geithner, and the powers that be funneled the money to the banks via AIG. The intent was not to let the public know that the money was intended for the banks.

The entire bailout was morally and probably legally wrong, and the banks ended up getting preferential treatment compared with AIG. But no, AIG should not get a receive a penny. And Paulson, Bernanke, Geithner, and those involve should probably have been removed from their jobs if treason could not be proved.

The bank bailout continues to this day in the form of Zero Interest Rate Policy. It's a stealth taxation paid by savers as their nest eggs erode away from cost of living inflation increases that exceed interest on savings. The difference finds its way to Wall Street and large corporations.
 
When you place your money in an account, you are lending that money to the institution. It only makes sense that you receive some compensation for the use of your money.
 
Stealth tax? Historically low interest rates also mean families are saving sometimes hundreds of thousands of dollars over the life of their mortgages. Home ownership is the rock of wealth creation in America. Would you prefer families earn 0.75% vs 0.25% on our rinky dink savings accounts instead?

And interest rates have nothing to do with TARP. Net Interet Income across all assets are tiny right now...that's a commodity play for lenders. In today's world, bankers have to pay for their coke habits with fees on treasury and checking products (that's a discussion for another day).

Lehman Brothers is one thing, AIG is another. Virtually every mortgage securitized in the market place is insured by AIG. Without AIG no one would invest in mortgages and interets rates would sky rocket as home purchasing liquidity would dry up. The 1%ers would be fine...they will always be fine, but letting AIG default would kill the 99%. Initial down payments would approach 50% and only 780 FICOs would realistically be looked at.

Philosophically, moral hazard and such, I get it. We can't let home lending be hand cuffed to 1 insurance company. Politicans (on the right and left) need to stop being so short-sighted and populist - cultivating an enviornment ripe for a crash. But in 2009, I'd rather be pissed off in a functioning economy where middle-class families can afford to buy a home vs righetous while living in Potterville.

And BTW, just from an ROI perspective, TARP>>>>>>>>Solyndra.
 
I opposed the bailout and still do. We're either capitalists, or we aren't. If you're a capitalist, then you oppose bailouts. If you support them, then you're an economic fascist. (And when I use the term "fascist," I'm not intending to invoke concentration camps, gas chambers, genocide, or anything moral/immoral. I'm only talking about the economics of it.)

As for this lawsuit, I'm reluctant to judge it. I hear dumbasses (mostly on the Right) judge lawsuits all the time without knowing the facts or the law, and I'm going to avoid doing that. The courts should follow the law, whatever it is, and I don't claim to know what it is. If you oppose them following the law, then you're a judicial activist.

Having said that, if AIG is successful, then it certainly "feels wrong." If the law allows them to prevail, then we need to re-write the law. However, if the law allows them to win and the evidence supports them winning, then they should win.
 
Deez,

I can't remember if it's you or another poster that frequently talks about the incrementalism strategy of democrats and how over time, it's an effective way to get what you want. Incrementalism is, by definition, decidedly not absolutism, which seems to be your argument here. As someone that believes in living and governing on convictions versus economic and political convenience, saving capital markets is one of the very few circumstances where I capitulate.

There's also a little paradox with regards to capitalism and AIG. If you allow capital markets to consume itself, capitalism, investment, and economic growth grind to a halt.

On the lawsuit, it's probably crap, but that's not to say that "unreasonable burdens" aren't legally possible in such a situation. Greenberg (through his proxy ownership) may have sought alternatives with better terms, but Paulson put a gun to his head. Who knows? Whatever the decision, it should be based on the facts and merits of the case and not on opinions on TARP.
 
Throughout the history of capitalism great companies have fallen for whatever reason. There has always been other competitors that took advantage of the opportunity to grow. It seems very anti-capitalistic to prop up failing companies with government money. It basically insures that there will be no turnover and that the large companies of today will be the large companies of tomorrow. Bailing them out basically scews all the smaller up and comers that could have had their business. Look at the first companies that made up the Dow. Should the government have bailed them out along the way so that they could still be in business today or would that stifle competition? Many were bought up by other compaines and I sugges that option should have been the only option in 2008. If no takers then adios mofo.

Initial components

Dow calculated his first average purely of industrial stocks on May 26, 1896, creating what is now known as the Dow Jones Industrial Average. Of the original 12 industrials, only General Electric currently remains part of that index.[10] The other 11 were:[11]
American Cotton Oil Company, a predecessor company to Bestfoods, now part of Unilever.
American Sugar Company, became Domino Sugar in 1900, now Domino Foods, Inc.
American Tobacco Company, broken up in a 1911 antitrust action.
Chicago Gas Company, bought by Peoples Gas Light in 1897, now an operating subsidiary of Integrys Energy Group.
Distilling & Cattle Feeding Company, now Millennium Chemicals, formerly a division of LyondellBasell, the latter of which recently emerged from Chapter 11 bankruptcy.[12]
Laclede Gas Company, still in operation as the Laclede Group, Inc., removed from the Dow Jones Industrial Average in 1899.
National Lead Company, now NL Industries, removed from the Dow Jones Industrial Average in 1916.
North American Company, an electric utility holding company, broken up by the U.S. Securities and Exchange Commission (SEC) in 1946.
Tennessee Coal, Iron and Railroad Company in Birmingham, Alabama, bought by U.S. Steel in 1907; U.S. Steel was removed from the Dow Jones Industrial Average in 1991.
U.S. Leather Company, dissolved in 1952.
United States Rubber Company, changed its name to Uniroyal in 1961, merged with private B.F. Goodrich in 1986, bought by Michelin in 1990.
 
Larry,

It's 2009. We let AIG fail. Who's stepping up to replace them? Who does the market trust as a counterparty on these credit default swaps? When are they stepping up/How long does that take? That's THE question. Will there eventually be other insurers? Sure...but it may take 10 years for capital markets to function at a just normal basis again. The damage would be huge during that gap.

The PUF, pension plans, everyone's 401k goes in the crapper as banks pull every callable loan in the economy as their liquidity tumbles. It's a bank run, except in the interconnected globalized economy we live in today, the damage it's not just isolated on the Bailey Brothers Building and Loan on the corner...it's affects everyone.

RE: The point about American Tobacco and American Sugar - There's no such thing as a tobacco or sugar run which would paralyze a community...much less an entire country.

And the large monolith money center financial institutions are what the free market and the public have demanded. Large well-capitalized banks are able to underwrite the associated high risk for the economic growth demanded. I don't see the appetitte of the public for that changing anytime soon.
 
ok, but with the huge generosity of the taxpayers now we get ******* sued? BS I say.
 
If it fails it fails, if the world goes dark because of it we only have ourselves to blame, electing those that allowed those loans.......take your lumps and deal with it!
 
maybe it is only that it was trillions in the first bailout? this is just a piddly little 10-25 billion dollar deal/lawsuit? **** that.
 
My thoughts were focused on interest rates with all other factors equal (although I didn't say this). Of course I agree with you that the health of the economy with respect to median income etc. is very important because it helps create demand. If you look at the chart, it shows price income increasing in the '97 to '06 regardless of the fluctuations is interest rates.

But there are other factors. Even in the periods where interest rates were rising, variable rate mortgages were being sold in large numbers, thus skirting the effect of higher payments that would be reflected in fixed rate mortgages. So while interest rates rise, if enough buyers choose adjustable rate mortgages, they can qualify for loans. Demand stays high and prices rise. Only in later years does the affordability effect them when their payments rise. Then you have defaults and asset deflation. See 2007-2009 or so.

Looking ahead, the median wages for Americans is stagnant at best and probably declining when looked at in terms of real inflation. If this doesn't change, the demand for housing is going to fall. It's been propped up the past few years by institutional purchases (for cash) and a concerted effort by the FED to keep interest rates low. Also, there is a push to lower qualifying standards for buyers. I guess the goal is to ignite another bubble. I don't think it will work this time.
 
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