THE FED BAILS OUT AIG FOR 85 BILLION
Breaking news here:
http://www.msnbc.msn.com/id/26746909
The Fed now becomes the world’s biggest hedge fund manager? Maybe a stretch–I heard some mainstream news kooks say it–but they are now in control and liable for over 300 billion dollars in default loans–most of which as of late…. And you know where that’s going to come from, right?
Can someone show me where the free market’s at? It ain’t here. No one I know was buying an Oldsmobile Alero when they knew the company was about to be non-existent in the coming year…
Let the rubbish fall by the wayside.
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17. September 2008 - 09:55 Uhr
and don’t forget about this:
http://www.cnbc.com/id/26746448
17. September 2008 - 18:16 Uhr
I heard today on CNN how Americans should be grateful to the government for using OUR money to bail out an insurance company that was paid a BILLION dollars to sponsor Manchester United at one point.
WE should be grateful. Once again, the average american foots the bill for hugely inflated corporate CEO severance packages that go well into the hundreds of millions of dollars.
And this most current situation also highlights how American financial failure can most definitely and directly cause failures worldwide. These Band Aids will only last for so long. You can drop interest rates all you want but when they start having to go back up, that’s when we’ll see the serious bleeding occur.
17. September 2008 - 18:47 Uhr
While I understand that people are against the government bailing out companies that ran themselves into the ground - as the money will come out of the tax payer’s pockets - but, what else are they suppose to do?
If they didn’t bail out AIG the market would/could have gone totally shit house - potentially setting in motions the mechanics needed to start a great depression.
Ya I know, there’s something fundamentally wrong with helping out greedy, mismanaged corporations but, sometimes we have to take it in the ass for the greater good.
Eric,
While agree with many of your views I think I have to disagree with you, a bit, on the free market.
For those that don’t know, under a free market system buyers and sellers are left to do business, freely, between themselves (http://en.wikipedia.org/wiki/Free_market). Under this system sellers would compete with each other, in order to gain more buyers.
In theory, the free market is a great ideology but, in practice some government intervention is often needed. The reason why government intervention is often needed is because buyers and sellers are often not on equal ground and thus giving one party an advantage. A great example of this is when Ontario (a Province in Canada) employed a free market strategy for electricity supply. In Ontario, the government has always regulated the price of energy but, to save money on government spending, they decided to employ a free market strategy. To make a long story short, The electric companies figured out that it is better for all energy companies if they didn’t compete on price and,in essence, formed an oligopoly.
My point, free markets don’t necessarily work as designed and Government intervention is needed. No different in the government having to step in, for the better good of the country.
17. September 2008 - 18:59 Uhr
Don,
I feel your pain and I share your anger. I think there’s nothing more stupid than paying people you fire or want to leave because they can’t get the job done, a job you hired them to do.
But, like I’ve mentioned in my post above, you can’t hang the people that get caught in the cross fire. If the government didn’t bail out AIG they would have sank the millions of middle class families that have interest in AIG. Would letting AIG sink really teach the rich? I doubt it, but I’m sure it would have major negative impact on the middle class.
Now, I know you’re going to say that having the tax payers pay,is just as harmful and yes to some degree it is. But I would bet the majority of people would rather avoid a depression than have to foot this bill.
18. September 2008 - 00:11 Uhr
Burn baby!! Crash and Burn…..somebody hit the reset button on this country….Please!!!
18. September 2008 - 01:38 Uhr
SC,
Read below, an article from Schiff that explains it much better than I could:
September 17, 2008
Comrade Bernanke Does it Again
By nationalizing nearly 80% of AIG for $85 billion, the Fed is doing a lot more than simply flushing taxpayer money down the toilet. The greater wrong is allowing the agency that has the power to print money to take control of a private enterprise, especially without the approval of the company’s shareholders. The move represents the largest lurch toward socialism that this country has ever seen, and signals the end of the vibrancy of America’s once vaunted free market economy. Since there is no limit to the amount of money the Fed can create, there is no limit to the number of assets they can acquire.
The “line in the sand” that the Government seemed to draw by refusing to bail out Lehman Brothers was erased in just two days by the very next wave of financial panic.
While Fannie and Freddie were arguably quasi-government agencies that deserved special protection, no such status exists with AIG. Where does the Fed get the authority to use the money it prints to take over private companies? Congress never gave such authority and, even if it had, it would be unconstitutional, as Congress itself has no such authority to delegate. What about the shareholders? Why didn’t they get to vote on this acquisition? Whatever happened to private property rights?
Where does this stop? What other troubled companies will the Fed nationalize, and how much will it cost? Why stop at troubled companies? If the Fed can buy into a sick company, why not a healthy one? Now that we have allowed the Fed to take over any asset it wants, private property rights are meaningless. When oil prices get really high, why bother with a windfall profits tax when the Fed can simply nationalize Exxon-Mobil with a few cranks on its printing press. Who needs Bolsheviks when you have the Fed?
AIG is not a bank; it is not even an investment bank. The “lender of last resort” power was supposed to apply only to banks, to prevent runs. It was not meant to apply to any company that had been declared “too big to fail”.
I suppose the Fed is trying to get around some of the more obvious illegalities by having the new AIG shares issued on behalf of the Treasury. What happened to the concept of an independent Fed? Here you have the Fed seizing a private company and ceding control to the U.S. Treasury. Rather then acting independently, the Fed and the Government are merely partners in crime.
On the economic side, the Fed expects us to believe this is a smart investment. Does anyone really think that officials at the Fed and Treasury are suddenly private equity experts? These are the guys who missed both the tech and housing bubbles, and who assured us that subprime problems were contained. I would not trust them to run a lemonade stand, let alone one of the largest insurance companies in the world.
The idea that this bailout was necessary given that the alternative would be worse should by now be fully discredited. All of today’s financial problems are the direct consequence of Fed policy that was designed to weaken the recession that followed the bursting of the tech bubble and the shock of September 11th. Of course, the tech bubble itself resulted from the Fed’s actions to sooth the pain following the collapse of LTCM, the Russian debt default, the Asian crisis, and Y2K.
I suppose the precedent for all of these actions was established back in 1979 when the government guaranteed Chrysler’s debt. It sure would have been a lot better and a whole lot cheaper if we had simply let Chrysler fail. The road to financial hell, or in this case socialism, is certainly paved with “good” intentions. Today’s historic surge in the price of gold shows that at least a few investors are refusing to march in the parade.
For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.”
18. September 2008 - 18:54 Uhr
Eric,
Thanks for posting the article by Peter Schiff - great stuff. I’m no economics specialist and will never be smart enough to understand the economy like Peter Schiff. From what’s I’ve heard from Schiff’s approach and from what I know about the basics of economics, he makes perfect sense and there’s nothing much I would really disagree with.
If you don’t know who Peter Schiff is or don’t know what he’s about, do a google - his approach/ideas make great sense, heck he predicted this economic downturn long before others.
With that said, what I would ask Mr. Schiff and others that follow his line of thinking is, what do we do now? Yes, continually printing money will kill the value of the dollar. Yes, saving AIG is something that the Government shouldn’t (nor have the right)to do - see the articl Eric posted above. Yes, American’s got into this problem because many were reckless in their spending - see Schiff idea on how consumerism was what really cause this problem.
But, what do we do now? Mr. Schiff, do we just let everything burn - like suggest above?? Are you, and people that believe in your ideas, willing to just let the thousands of American go down? Are you willing to let everyone fall, just to prove that you’re right?
I understand the concern about the socialism issue and ya it’s definitely a concerning but, are you willing to watch a country fall because of an ideology? If so, isn’t that just like starting wars over the democratic ideology - except this time you’re willing to fight your own? Isn’t this argument about socialism the same argument that prevent the US from having a health care system?
IF you’re willing to let the US “burn” - which is exactly what would happen if the Government didn’t help these big institutions - I got news for you, ideologies don’t always work the way they are suppose to, look at communism. Don’t be fooled, just because the idea of the free market seems good, doesn’t mean it would work - don’t you think there’s a reason why there are no total free markets in the world today?
Now, before people think I’m a socialist or against Schiff ideas, let me say, I’m not. Mr. Schiff makes great sense but, his ideas seem to ones that need to be implemented from “ground zero”. I’m simply asking how do we implement his ideas without having to “burn” everything. I would also like to keep pointing out that the idea of free market is great but, often a bit of government intervention is needed.
18. September 2008 - 19:18 Uhr
SC,
Believe me, I hear you. the LAST thing i want to see is people struggling, and in my position as an editor of a magazine that depends on people having expendable income, this is DEFINITELY the last thing i want to see…..
BUT,
if we never experience the true repercussions of a serious crash and keep bailing everyone out all the time, how will the people ever learn to change their ways? It doesn’t seem like they ever will, because someone will always be there to rescue them. And that’s where socialism ultimately fails, the nanny state becomes stronger, and eventually we become slaves. History does indeed repeat itself.
18. September 2008 - 19:51 Uhr
I hear you too, I know exactly where you’re coming from.
I think we need to find a happy medium - why do things need to be either one way or the other? Aren’t we smart enough to find a solution that incorporates the best of different ideologies - I think so. We just need someone to take charge and have the will to fight for it. We need someone to put the country first and their job second, but who will that be?
It’s funny, I think our discussion on this board has been more focused and concerned than the discussion taking place on the campaign trail…Thanks again Eric for putting great post forward
20. September 2008 - 21:45 Uhr
At least i still have a job…for now.
20. September 2008 - 21:48 Uhr
Oh shit, I forgot they employ you! Sorry, Dan. Tell mom and pops to start planting veggies in the backyard though! See you in a few days.