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Yes, in 2010, a lot of these companies have been able to pay back the government. But in 2008 the whole system of credit was seizing up because lenders and inv

by sethg 16y ago

Yes, in 2010, a lot of these companies have been able to pay back the government. But in 2008 the whole system of credit was seizing up because lenders and investors, not knowing when the next pile of shit would hit the fan, were panicking. We can’t send a time machine back to 2008 and announce, “we are from the future and we certify that you can lend to these guys at 5%”.

hga 16y ago
Indeed; contra dasil003, it's very clear to me that the perception of counterparty risk had gotten so high that extreme measures like the Paulson stunt and TARP were required to prevent a repeat of the cascading bank failures that in the Great Depression was triggered by this failure: http://en.wikipedia.org/wiki/Creditanstalt http://en.wikipedia.org/wiki/Creditanstalt And so given all that, I'm not so exercised about either the "bailouts" or the "excessive executive compensation" (Does anyone want 3rd raters to run these institutions?) Sweden pulled off something like what dasil003 recommends, and while I like it in principle I'm utterly unconvinced our political ruling class had any chance of pulling it off.
anamax 16y ago
> But in 2008 the whole system of credit was seizing up because lenders and investors, not knowing when the next pile of shit would hit the fan, were panicking. That's true, but it doesn't imply that Wells Fargo, to pick one example, needed a bailout in 2008. Note that much of the potential for panic came from a regulatory decision to exempt certain obligations from normal bankruptcy rules. That made an orderly shutdown of Lehmann impossible.
- hga 16y ago
  It's hard to imagine any "orderly shutdown" that would have resulted in their bonds being worth much, especially during the process (that's Leahman's commercial paper AKA ordinary borrowing, not anything exotic or toxic they were selling). The Reserve Primary Fund's inexplicable overexposure to Lehman bonds then caused them to "break the buck" which started the cascading failure of the world's financial system.
  - anamax 16y ago
    Lehman's bonds went to 0 because all of its assets went out the door with its derivatives. If the derivatives had had the same status as other debts, including said bonds, those bonds would have been worth >0.
    - hga 16y ago
      Are you really sure Lehman's bonds went to zero? No one was willing to take a chance they'd be worth something when everything was sorted out? I doubt that and would like to see some evidence of it. The problem for the Reserve Primary Fund was that their value dropped precipitously; I suspect it wouldn't have mattered if they ended up at 0, 1, 5 or 10 cents on the dollar. As for the derivatives, when it came time to settle them, as widely predicted they mostly canceled out with only (from memory) 6 billion US$ changing hands.
      - anamax 16y ago
        > Are you really sure Lehman's bonds went to zero? The official story is that market essentially froze, that no one would buy. I'd have bought everything I could get my hands on at fractions of a cent (and possibly more), but they didn't ask me. (After they let individuals back in, I thought that all of the bargains were gone, so I didn't go bottom fishing. Big mistake. The great deals were gone, but there were still some opportunities left even when I got around to looking.) The money that left with the derivatives may have kept the bonds at 70-80 cents. Unless Reserve Primary was 100% Lehman, that might have been enough. > As for the derivatives, when it came time to settle them, as widely predicted they mostly canceled out with only (from memory) 6 billion US$ changing hands. Yup, but no one knew that when the derivatives were being made whole while everyone else waited to see what was left.

by sethg 16y ago

hga 16y ago

Indeed; contra dasil003, it's very clear to me that the perception of counterparty risk had gotten so high that extreme measures like the Paulson stunt and TARP were required to prevent a repeat of the cascading bank failures that in the Great Depression was triggered by this failure: http://en.wikipedia.org/wiki/Creditanstalt http://en.wikipedia.org/wiki/Creditanstalt And so given all that, I'm not so exercised about either the "bailouts" or the "excessive executive compensation" (Does anyone want 3rd raters to run these institutions?) Sweden pulled off something like what dasil003 recommends, and while I like it in principle I'm utterly unconvinced our political ruling class had any chance of pulling it off.

anamax 16y ago

> But in 2008 the whole system of credit was seizing up because lenders and investors, not knowing when the next pile of shit would hit the fan, were panicking. That's true, but it doesn't imply that Wells Fargo, to pick one example, needed a bailout in 2008. Note that much of the potential for panic came from a regulatory decision to exempt certain obligations from normal bankruptcy rules. That made an orderly shutdown of Lehmann impossible.

hga 16y ago
It's hard to imagine any "orderly shutdown" that would have resulted in their bonds being worth much, especially during the process (that's Leahman's commercial paper AKA ordinary borrowing, not anything exotic or toxic they were selling). The Reserve Primary Fund's inexplicable overexposure to Lehman bonds then caused them to "break the buck" which started the cascading failure of the world's financial system.
- anamax 16y ago
  Lehman's bonds went to 0 because all of its assets went out the door with its derivatives. If the derivatives had had the same status as other debts, including said bonds, those bonds would have been worth >0.
  - hga 16y ago
    Are you really sure Lehman's bonds went to zero? No one was willing to take a chance they'd be worth something when everything was sorted out? I doubt that and would like to see some evidence of it. The problem for the Reserve Primary Fund was that their value dropped precipitously; I suspect it wouldn't have mattered if they ended up at 0, 1, 5 or 10 cents on the dollar. As for the derivatives, when it came time to settle them, as widely predicted they mostly canceled out with only (from memory) 6 billion US$ changing hands.
    - anamax 16y ago
      > Are you really sure Lehman's bonds went to zero? The official story is that market essentially froze, that no one would buy. I'd have bought everything I could get my hands on at fractions of a cent (and possibly more), but they didn't ask me. (After they let individuals back in, I thought that all of the bargains were gone, so I didn't go bottom fishing. Big mistake. The great deals were gone, but there were still some opportunities left even when I got around to looking.) The money that left with the derivatives may have kept the bonds at 70-80 cents. Unless Reserve Primary was 100% Lehman, that might have been enough. > As for the derivatives, when it came time to settle them, as widely predicted they mostly canceled out with only (from memory) 6 billion US$ changing hands. Yup, but no one knew that when the derivatives were being made whole while everyone else waited to see what was left.