4 ms·

Fed Readies A.I.G. Loan of $85 Billion for an 80% Stake

6 points by iamelgringo 18y ago

fusionman 18y ago
This is really starting to bother me. These giant financial institutions make tons of money by taking RISKS. When things go well they make lots of money, people get big bonuses and the rest of society gets to read about "Talented Bankers and Their $50mil Bonuses" on the latest cover of Forbes. When things don't go well, the government gives them a loan to bail them out or else our economy will collapse. What choice do we have? I don't know the answer here, but I don't like this. At least in Venture Capital and startups, we understand that risk is risky, and we take the good with the bad.
- tptacek 18y ago
  Doesn't this deal basically amount to the orderly liquidation of AIG?
  - fusionman 18y ago
    It would appear so. The government isn't an investment fund, so I am curious as to what their exit strategy is for this "investment". I'm sure they'll come out OK. I wonder where their profit (assuming there is a profit) will actually go.
- andrewf 18y ago
  Risks are borne by owners, not employees. AIG shares are in the crapper and now the government is taking 80%. The owners are being punished.
nazgulnarsil 18y ago
thomas jefferson warned against the pillars of finance being allowed to conglomerate into these giant institutions we have today.
- dfranke 18y ago
  Citation, please? I think you're thinking of his opposition to the national bank, on constitutional grounds. I don't think Jefferson or his contemporaries ever dreamed of the existence of something like Lehman or AIG. Banking in his day was a simple concept: borrow money at a low interest rate, lend it at a high one. If we still stuck to that model, we wouldn't be in this mess.
  - nazgulnarsil 18y ago
    banking in his day was NOT a simple matter: "Our public credit is good, but the abundance of paper has produced a spirit of gambling in the funds, which has laid up our ships at the wharves as too slow instruments of profit, and has even disarmed the hand of the tailor of his needle and thimble. They say the evil will cure itself. I wish it may; but I have rarely seen a gamester cured, even by the disasters of his vocation." --Thomas Jefferson to Gouverneur Morris, 1791. ME 8:241 "I own it to be my opinion, that good will arise from the destruction of our credit. I see nothing else which can restrain our disposition to luxury, and to the change of those manners which alone can preserve republican government. As it is impossible to prevent credit, the best way would be to cure its ill effects by giving an instantaneous recovery to the creditor. This would be reducing purchases on credit to purchases for ready money. A man would then see a prison painted on everything he wished, but had not ready money to pay for." --Thomas Jefferson to Archibald Stuart, 1786. ME 5:259
shawndrost 18y ago
"[Credit default swaps] are not securities and are not regulated by the Securities and Exchange Commission. And while they perform the same function as an insurance policy, they are not insurance in the conventional sense, so insurance regulators do not monitor them either." This whole affair is like looking through hosed legacy code and finding comments like "I have no idea why this dirty, dirty hack works".

6 points by iamelgringo 18y ago

This is really starting to bother me. These giant financial institutions make tons of money by taking RISKS. When things go well they make lots of money, people get big bonuses and the rest of society gets to read about "Talented Bankers and Their $50mil Bonuses" on the latest cover of Forbes. When things don't go well, the government gives them a loan to bail them out or else our economy will collapse. What choice do we have? I don't know the answer here, but I don't like this. At least in Venture Capital and startups, we understand that risk is risky, and we take the good with the bad.

tptacek 18y ago
Doesn't this deal basically amount to the orderly liquidation of AIG?
- fusionman 18y ago
  It would appear so. The government isn't an investment fund, so I am curious as to what their exit strategy is for this "investment". I'm sure they'll come out OK. I wonder where their profit (assuming there is a profit) will actually go.
andrewf 18y ago
Risks are borne by owners, not employees. AIG shares are in the crapper and now the government is taking 80%. The owners are being punished.

nazgulnarsil 18y ago

thomas jefferson warned against the pillars of finance being allowed to conglomerate into these giant institutions we have today.

dfranke 18y ago
Citation, please? I think you're thinking of his opposition to the national bank, on constitutional grounds. I don't think Jefferson or his contemporaries ever dreamed of the existence of something like Lehman or AIG. Banking in his day was a simple concept: borrow money at a low interest rate, lend it at a high one. If we still stuck to that model, we wouldn't be in this mess.
- nazgulnarsil 18y ago
  banking in his day was NOT a simple matter: "Our public credit is good, but the abundance of paper has produced a spirit of gambling in the funds, which has laid up our ships at the wharves as too slow instruments of profit, and has even disarmed the hand of the tailor of his needle and thimble. They say the evil will cure itself. I wish it may; but I have rarely seen a gamester cured, even by the disasters of his vocation." --Thomas Jefferson to Gouverneur Morris, 1791. ME 8:241 "I own it to be my opinion, that good will arise from the destruction of our credit. I see nothing else which can restrain our disposition to luxury, and to the change of those manners which alone can preserve republican government. As it is impossible to prevent credit, the best way would be to cure its ill effects by giving an instantaneous recovery to the creditor. This would be reducing purchases on credit to purchases for ready money. A man would then see a prison painted on everything he wished, but had not ready money to pay for." --Thomas Jefferson to Archibald Stuart, 1786. ME 5:259

shawndrost 18y ago

"[Credit default swaps] are not securities and are not regulated by the Securities and Exchange Commission. And while they perform the same function as an insurance policy, they are not insurance in the conventional sense, so insurance regulators do not monitor them either." This whole affair is like looking through hosed legacy code and finding comments like "I have no idea why this dirty, dirty hack works".