That deep skepticism I felt in February over the recovery bill, TARP, TALF, et al. has wooshed back with a vengeance this week.
Not that this is a surprise to me, but it seems like too many powerful interests have their hands in the cookie jar - the cookie jar that you and I pay into and will be paying into a lot more in the future.
The debacle with AIG and with what seems like taxpayers making AIG's counterparties (read Goldman Sachs and the like) whole on its varied Credit Default Swaps (CDS) is an outrage.
Meanwhile, that cheek clencher is being obfuscated by Barney and the blowhards dressing down AIG's CEO, Edward Liddy (a former Board member of Goldman by the way), over $165 million in retention bonuses.
Bare in mind that these bonuses were being contractually paid to people like this: http://www.nytimes.com/2009/03/25/opinion/25desantis.html?_r=1 The witch hunt is a complete joke.
I was criticized earlier for saying the involved parties needed to be forced to the table and work something out. Even if the counterparties settled for five cents on the dollar and some went out of business, that would be fine. The government could have just facilitated the orderly workout of AIG's other assets and liabilities, and sounder entities should have taken over custody of said assets and liabilities.
The notion that an orderly end to AIG would create financial Armageddon needs explaining to me. For example, if I have a life policy at AIG and AIG is going to fail, why couldn't the associated asset and liability on AIG's balance sheet for that policy be moved to another insurer that wants it? We could go policy by policy through AIG's book protecting the taxpayer and unsuspecting customer. Granted, the consumer may not be made completely whole, but wouldn't this be better than the mound of debt and reward for bad behavior that is being created currently?
Then there is this: http://online.wsj.com/article/SB123776518094909023.html
Spending layered on top of permanent spending increases is not the way we want to go. It just becomes increasingly clearer that government cannot seem to establish targeted programs in a time of economic crisis, instead it is using the crisis to put its programs (for better or worse) into place without a way to pay for it.
On top of that, it seems like we may just skirt the usual democratic process and use something called Reconciliation to pass everything that the administration wants: http://news.yahoo.com/s/bloomberg/20090318/pl_bloomberg/ai5mx_2yfz7s_1 I cannot make this up.
I know the ranting about spending and the like gets old (I'm the one pounding my head into the desk), but at this point of potential pivotal change, we need real work done to solve these problems - not just try to appease as many political agendas as possible because in the end it just weakens our position in the globabl market place. I am still looking for the person or entity that can provide the assist!
-2outof4
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I know it's a day or two late now but a few comments on AIG. The first is it is becoming more and more apparent to even a bozo like me that the AIG bailouts (both last year and this year) are nothing more than a means of laundering money through AIG to their counterparties - many of whom are investment banks that already recieved funds under TARP. This is troubling because (1) the money that the banks receive from AIG doesn't have the strings attached to it that TARP or other money coming from the government does; (2) some of the counterpaties are foreign banks; and (3) it at least looks slightly improper that more money was funneled to Goldman by then Treas. Secretary Paulson who probably had just a bit of stock in that entity left over from his days as CEO.
ReplyDeleteMy second comment is with regards to your hypothetical life insurance policy. I think it is important to understand that it is AIG the holding company that is insolvent. All or nearly all of AIG's insurance subsidiaries are solvent. Actual insurance companies are subject to very strict regulation and while the industry as a whole has been affected by the economic crisis there has not been a high profile insolvency of an actual insurer...yet. Further, it is worth noting that insurance policies in all 50 states are protected by a Guaranty Association up to certain statutory limits. So even if your life insurer went under the guarantee association could step in and take care of you. As you point out, often when an insurer becomes insolvent the state appointed receiver moves the policies to solvent insurers who can take the business.
Definitely interesting insights. I'd point out that Mr. Paulson probably made one of the all time trades when he took the Treasury job, and one could argue it might be why he took the Treasury Job. You see, it is likely his Goldman stake was minimal by the time he reached the Treasury:
ReplyDeletehttp://www.forbes.com/2006/06/01/paulson-tax-loophole-cx_jh_0602paultax.html
Your point re insurers is a great one, and just emphasizes that AIG could likely have been wound down with limited pain to regular and unsuspecting taxpayers.
-2outof4
Yeah no question in my mind that the AIG think is a farce.
ReplyDeleteAnd I think you're right about Paulson - he saw the writing on the wall.