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Fed takes over AIG
- Alaric 18y agoI think some questions have to be asked about how risks are mitigated since AIG appears to have a 400bln$ portfolio of CDSs and looks to have been hours from the brink of potentially passing that risk back down through the system. The counterparties of AIG's CDS must be mightily relieved.
- deleted 18y ago[deleted]
- furiouslol 18y agoHere are more complete articles: http://www.nytimes.com/2008/09/17/business/17insure.html?_r=2&hp&oref=slogin&oref=slogin http://www.nytimes.com/2008/09/17/business/17insure.html?_r=... http://online.wsj.com/article/SB122156561931242905.html http://online.wsj.com/article/SB122156561931242905.html
- yamil 18y agoWelcome to socialist states of America
- vitaminj 18y agoI'd prefer to call it the pragmatic states of America. You can't live on ideology alone.
- sethg 18y agoYou obviously missed the LCTM bailout ten years ago. Also the S&L and the Continental Bank bailouts of the 80s. Also the Lockheed and Chrysler bailouts of the 70s.
- nickb 18y agoPartially correct. It's socialism for the rich. If it were socialism, you wouldn't have poor/middle-class people dying from treatable diseases.
- yummyfajitas 18y agoWhat treatable diseases are poor/middle-class people dying of, that could be prevented by socialism?
- sabat 18y agoCancer. Diabetes. Yadda yadda. Do you know how many people are not insured and cannot afford insurance? ("Go to the emergency room" is not a health plan.) Do you know how many people with serious illnesses are turned down by their own insurance companies every year? I'm not saying socialism is an automatic answer, but it'd better than this mess.
- GavinB 18y agoActually, "go to the emergency room" is a health plan. It's just the most inefficient health plan for all involved.
- easyfrag 18y agoand it is also one that treats symptoms and not the underlying conditions.
- jrmurad 18y agoI'm not saying you're wrong that socialism is better than this mess but I will say that capitalism is better than this mess and better than socialism too. Having health insurance provided by the State (i.e. you through your tax dollars after several layers of corruption and bureaucratic waste) does not guarantee quality of care. A competitive free market is more likely to develop better medicine.
- jfoutz 18y agoI'm first to agree efficient markets are fantastic at allocating resources effectively. I'm curios though, how do you guarantee people who are sick/hurt/dying behave as rational actors? I might be mis-remembering but i thought rational actors were a requirement, otherwise they would be to quick to give away money.
- albertcardona 18y agoHasn't the USA been engaged forever in heavy market protection, tariffs for imported goods, and heavy subsidies to internal industries like metal foundries, the car industry and particularly agriculture? Hasn't the USA at the same time demanded open markets of all other economies in which it invested or participated in some way? Hasn't the USA's tax dollars funded most private research, yet the economic benefits have been ripped by private industry? The double standard is just showing a bit more than usual at the moment, but nothing has changed.
- Prrometheus 18y agoWhen you have a $3 trillion entity in an economy, people have the incentive to petition it for favors. Even when the government's budget was a lot smaller, businessmen could still finagle for tax breaks and the like. Rent seeking is in the DNA of democracy.
- netcan 18y agoGovernment owned companies does not mean a socialist country. It's something socialist countries do. Eating grass doesn't make you a sheep.
- helveticaman 18y agoEating grass is still stupid.
- mynameishere 18y agoQuacking like a duck doesn't make you a duck. God, that was too easy.
- mynameishere 18y agoWow. Why did this get downmodded? Just curious. It's 100 percent apropos: http://en.wikipedia.org/wiki/Duck_test http://en.wikipedia.org/wiki/Duck_test ...used the phrase when he accused the Jacobo Arbenz Guzmán government of being Communist. Patterson explained his reasoning as follows: Suppose you see a bird walking around in a farm yard. This bird has no label that says 'duck'. But the bird certainly looks like a duck. Also, he goes to the pond and you notice that he swims like a duck. Then he opens his beak and quacks like a duck. Well, by this time you have probably reached the conclusion that the bird is a duck, whether he's wearing a label or not."
- netcan 18y agoBecause this is the opposite. It's more like 'it drink water like a duck'
- sd 18y agoObviously, it's impossible to determine the effect of any one action on the economy -- but if this $85b prevents the markets from crashing, I'd argue its money well "spent." U.S. market cap has already fallen $4t in the past year. Do you really want to risk losing considerably more?
- ojbyrne 18y agoThat was the argument for Fanny and Freddie. Didn't seem to work, and I bet it won't this time. WAMU is next.
- sd 18y agoJust to clarify, I meant that the other course might result in much more massive decline than has already happened. Think 22 sigma level -- like the '87 crash. Bailing out distressed financial firms is almost expected now. Thus, if it doesn't happen, then a lot of market participants may reevaluate their choice to invest in firms with heavy debt. Obviously, these bail outs have their costs, such as the value of money lent as well as increased moral hazard, but it's worth considering whether this is worth the potential cost of a market collapse to the whole economy.
- helveticaman 18y agoThe market collapse of a whole economy? How's Google going to get torched by this? Or Boeing? Or most exporters?
- quasimojo 18y agobecause they are part of an integrated economy. where will google's advertizers find their ad budgets in a stagnant economy? boeing is no different. would these firms be as adversely impacted as wamu? no. but everyone suffers.
- ojbyrne 18y agoMore directly related to Boeing, according to the NYT (http://www.nytimes.com/2008/09/17/business/17aig.html http://www.nytimes.com/2008/09/17/business/17aig.html), AIG has an aircraft leasing division that was planning to buy 73 aircraft this year.
- iamelgringo 18y agoThe US has actually had a much more mercantile approach to business than socialistic. They are capitalistic up to a point, but the governent tends to step in and manage, regulate, bailout, give tax cuts to companies and industries when they deem necessary. There are entire industries that are heavily subsidized and regulated, Telecom, Healthcare, Energy, Transportation, etc... Our countries national roadway system came about more or less as an assistance to the automotive industry. The 401k laws have been a huge boon to the stock market. And, now, the government is making a big move into finance and investment banking.
- eru 18y agoI hope they get some international competition.
- pmorici 18y agoIsn't this called fascism?
- DenisM 18y agoWhoever modded you down needs to know that collusion of state and big business is a distinct attribute of fascism.
- netcan 18y agodistinct?
- aaronblohowiak 18y agohttp://en.wikipedia.org/wiki/Corprotism http://en.wikipedia.org/wiki/Corprotism
- davidw 18y agoThis is exactly the kind of comment that I feared we would see when articles like this start gaining traction. It's a cheese puff comment: it's got some taste, but it's empty. It has nothing to back it up, no content, no reasoning, no well crafted argument. It's just an empty "rah rah" type of slogan of the type that politicians regularly regurgitate. There is nothing new or clever about the comment, it's the sort of thing that's made the rounds elsewhere 100's of times. Being such a cheap, throwaway comment, it mostly/usually doesn't lead to particularly interesting discussions, as we can see here, despite a few good comments, but more zingers, one liners and similar "go home team!" cheering for one political side.
- steveplace 18y agoFreedom.
- netcan 18y ago!!!
- yamil 18y agoMy comment was one of the first reaction to the post (16 hours ago) it was a spontaneous reaction to the somehow shocking news that the US government is taking (again) over a private company in the financial sector. When I wrote "socialist" it was for the irony of the situation, the financial market in the past has been very hostile to any regulation and it is the most visible flagship of liberalism as we know it since Reagan. People who read about economy (check comments bellow) know exactly what I was talking about, this is a well known topic about the contradiction between "less government, less regulations" and "the need of government help in time of troubles". Some more clever and much more articulate people wrote about it and their conclusion is the the current crisis is a direct consequence of lack of proper regulation in the first place. Go read the source it's free, it's online, it's better than expecting Techie guys to spend 30 minutes of their precious time writing a "reasoning" and "well crafted" comment a topic which is only one of their many "hobbies"
- furiouslol 18y agoAIG is getting badly punished for this. They are getting the loan at LIBOR + 8.5%. That's downright punitive. LIBOR + 8.5% is not a rate at which a company with AIG's business model could survive at. AIG lends to people at around LIBOR + 4% for mortgages or LIBOR + a lower % to insure BBB to AA rated borrowers. They'll probably have to sell off their assets in a hurry at below fair value. The longer they wait, the more pain the high interest inflict on them.
- icey 18y agoWell, thanks to you I just learned something. I had no idea the US government used the London index to figure out rates for loans. I actually went and looked it up; and you're totally correct. Amazing.
- jcl 18y agoWhat happens to them if they fail to pay it off?
- furiouslol 18y agoThe taxpayers suffer. You have to eat the loss.
- krschultz 18y agoSo if big companies can't fail what prevents them from taking a risk that ends up this way in the future? Small companies have the advantage of being able to risk it all, big companies have the advantage of large sums of capital. To upset that balance is to increase the barrier of entry for small players.
- sethg 18y agoWell, the government is buying the company out (and, one hopes, firing the CEO and board) and diluting the existing shareholders' stake, so it's more like "big company sucks up insolvent small company for pennies on the dollar" than "government helps cronies by pouring money into badly-run business".
- nickb 18y agoPennies on a dollar? Do you mean negative dollars because for this "loan", the government has "bought" a two trillion dollar debt, at the very minimum.
- sethg 18y agoIIUC, one reason we're in this mess is that nobody has any idea what the securities at the bottom of this house of cards are really worth; the risk models that were constructed during the inflation of the bubble have been discredited but nobody knows what to replace them with. So private banks weren't willing to hang $85B of their own capital out on the hope that they didn't get any more surprises. The Fed doesn't know what those securities are worth, either, but they can calculate what preventing a collapse of the financial system is worth, and compared to that, $85B is chump change.
- reynolds 18y agoIs the Federal Reserve part of the government?
- deleted 18y ago[deleted]
- deleted 18y ago[deleted]
- ckinnan 18y agoI want a bridge loan for my startup. Instead, I get to pay taxes to pay for this nonsense.
- steveplace 18y agoIncorrect. You get to pay taxes for this someday. The bailouts are financed with debt, not cash. I, for one, welcome our soverign wealth fund overlords.
- run4yourlives 18y agoMore correct, your grandchildren will pay taxes for it someday. (Hey, we're being specific after all)
- sethg 18y agoI am happy to report that one element of Obama's tax plan (http://www.barackobama.com/pdf/taxes/Factsheet_Tax_Plan_FINAL.pdf http://www.barackobama.com/pdf/taxes/Factsheet_Tax_Plan_FINA...) is to "eliminate capital-gains taxes for entrepreneurs and investors in small business".
- ok1111 18y agoSo if he's elected, and that's not what happens, will I be able to hold him accountable to this internet PDF?
- ericb 18y agoHow will eliminating capital gains taxes help me as a small business owner. Lower corporate income tax rates would be intuitive, but lower capital gains taxes is kind of a head-scratcher. Should I invest in stocks via my business?
- zach 18y agoWere the company you founded to be bought out, it would be very helpful. Then again, at that point you would no longer be a small business owner. Bit of a paradox, that.
- sethg 18y agoSomewhere, the ghost of Karl Marx is saying "WTF? They're nationalizing an insurance company?"
- eru 18y agoKarl Marx did not tend to write that clearly. Add some dialectic materialism. Have you ever read the guy? It's awful.
- aston 18y ago"The Federal Reserve plans to offer an $85 billion bridge loan to the American International Group in return for control of the ailing insurance giant..." Nice redefinition of AIG.
- mtw 18y ago$85billion!!! where do the Reserve get the money? do they print it? gold reserves? next year's taxes? asia?
- nazgulnarsil 18y agoall of the above.
- quasimojo 18y agowhere does the treasury and fed get the money? THEY PRINT IT a 1982 law lets treasury notes be redeemed with CREATED accounts, as in one of the partner banks of the reserve simply creates a new account by punching in the digits, and they assign it to you once again, this is law since 1982 this is why US treasuries have 100% certainty inside the USA while the US dollar still exists
- azharcs 18y agoWouldn't that increase inflation.
- albertcardona 18y agoInflation is yet another form of taxation. A subtle, criminal one, that undermines your savings while you sleep.
- corentin 18y agoPrinting money is by definition inflation (so, yes).
- steveplace 18y ago
- jmatt 18y agoWhat harm is there in letting a company that made bad decisions go bankrupt? I don't see how it's pragmatic to pass this burden on to tax payers and the general public. I admit that I am idealistic about such things. I don't see how government is going to solve any of these problems. The government will lessen the pain but that same behavior will also slow any rebound and future growth. It seems naive and narrow minded to think another company won't step in if there is a continued need for the services that AIG provide{d|s}. This new company is likely to make better decisions. First, because they saw AIG fail. Second, because they didn't fail and thus were stable enough to exist while other giant financial companies failed.
- netcan 18y agoIn the long run we're all dead.
- dpapathanasiou 18y agoIt seems naive and narrow minded to think another company won't step in if there is a continued need for the services that AIG provide{d|s}. But it's unrealistic to think that the vacuum could be filled fast enough to prevent a wave of failures among AIG's clients (banks who bought credit insurance to get around regulatory limits). There's more detail here: http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/09/how_banks_depend_on_aig.html http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/09...
- jmatt 18y agoThanks, this is the first reason that I've heard that makes sense. It's part of the world financial infrastructure.
- wenbert 18y agogod! this will affect the economy here in the philippines -- an the rest of asia. makes me sad :(
- pageman 18y agofrom Thomas Crouch, Thomas Crouch, deputy director general of ADB’s Southeast Asia department: <i>"The Philippines is less vulnerable. It’s in a stronger position to withstand these events due to sensible and prudent fiscal response of the government." </i> http://www.bworldonline.com/BW091708/content.php?id=004 http://www.bworldonline.com/BW091708/content.php?id=004
- fallentimes 18y agoSerious question that is actually very related: if you had to move to a foreign country and work on your internet start up, where would you move? Why?
- krschultz 18y agoNew Zealand - why - because it is gorgeous. Don't know if it is any good for business though.
- iamah 18y agoIts number 2 according to cnn http://money.cnn.com/galleries/2008/smallbusiness/0809/gallery.best_countries_for_business.smb/2.html http://money.cnn.com/galleries/2008/smallbusiness/0809/galle...
- ashu 18y agoYour question should be an independent Ask YC thread. I want to know the answers too. (and I have none!)
- fallentimes 18y agoAll you; I've been a post whore this week. I don't want people to get sick of me :P.
- helveticaman 18y agoChile, because it is a capitalist country. Costs are similar to India, but the weather is Californian and taxes are really low. Still, though, SV is a better choice. Don't move to Chile to start up.
- fallentimes 18y agoI'm asking in case it ends up not being the best choice in the future :). Also, giving 40% of one's earnings to the government is _always_ unacceptable. So hopefully that never happens here.
- thomasmallen 18y agoThis is just the finance world's Tower of Babel of credit and cheap money falling over, and will mostly affect rich bankers. I think that the everyday economy will be the same but with fewer imports as the dollar weakens.
- rrf 18y agoWhilst excessive risk taking is probably the root cause of the recent financial collapses, I think it’s also worth noting the role hedge funds have played in stirring up investor panic by short selling highly geared or mortgage exposed companies around the world. Britain’s largest mortgage lender, HBOS, had 30% wiped off its value yesterday, attributed to short selling - http://www.marketoracle.co.uk/Article6277.html http://www.marketoracle.co.uk/Article6277.html
- eru 18y agoHow can short selling wipe out value? If it helps find the right price faster, isn't that a good thing?
- lallysingh 18y agoWhat's the right price?
- eru 18y agoSomewhat above the price Warren Buffet buys at. And, what's value? A change in market price of stocks does not imply a change in the underlying compant. (For a very technical meaning of 'imply'.)
- deleted 18y ago[deleted]
- rsheridan6 18y agoIf these companies are too big to fail, and we have to bail them out to avoid returning to the Stone Age or whatever, how about some for the people who created this situation? Maybe it's not ok to let the system collapse to punish a few people, but "heads I win, tails the taxpayer loses" is also unacceptable.
- tortilla 18y agoThey should allow these companies to fail. The world would not of ended. If there's a need (market), new companies would have sprouted up. Stronger, better, and more transparent companies to fill the void. Sweden had a major banking disaster. Their government allowed them to fail. Their banking system is solid now.
- natrius 18y ago"If there's a need (market), new companies would have sprouted up." You aren't even addressing the given reasoning for the bailouts. Meaningless platitudes don't solve problems.
- helveticaman 18y agoI don't think he/she has to address the reasoning for the bailouts, or that he/she used meaningless platitudes. He/she even cited an example. You don't have to address the other sides reasoning because it's hard to find every flaw in an opponent's argument.
- natrius 18y agoIf you ignore the the actual reasons why the bailouts happened, how can you argue against them? Sure, the bailouts preserved weak companies, which is a bad thing, but you can't just ignore the benefits of the bailouts and say they shouldn't have happened. That in no way resembles an argument, though "meaningless platitudes" may have been an incorrect characterization. "You don't have to address the other sides reasoning because it's hard to find every flaw in an opponent's argument." But the other side has put out a public statement explaining their actions. This isn't about predicting how someone is going to make their case. The case has already been made. At the very least, you have to address their justifications.
- furiouslol 18y agoI don't wish to make light of the situation but Paulson has moved the US Treasury from nowhere to the top of the M&A league table in just 1 year,
- indiejade 18y agoThis news reminds me of an interesting video I happened across last year. From it, draw what conclusions you wish: http://video.google.com/googleplayer.swf?docid=-9050474362583451279&hl=en&fs=true http://video.google.com/googleplayer.swf?docid=-905047436258...