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I've got a question for the repeated assertions that "JP morgan / GS / etc repaid their bailout money"... They only repaid that money because the bailed-out AI

by jbooth 14y ago

I've got a question for the repeated assertions that "JP morgan / GS / etc repaid their bailout money"... They only repaid that money because the bailed-out AIG paid off their credit default swaps, right? So isn't it only true in the most narrow sense that they paid it back, considering that the gov't totally ate it on AIG?

tedunangst 14y ago
Yes, but if you want to take a narrow view, you can't blame Chase for AIG's mistakes. "Bailout" money is tracked in the account of the entity that receives it, but I don't think it's reasonable to continue tracing it as it moves around. Bailout dollars are just as green as regular dollars. If someone at Chase buys a car with bailout dollars, then the car salesman buys lunch with his commission, are you going to claw back the bailout dollars from the waiter? Debts are owed by the people who receive the money, not the guy left holding the hot potato.
- jbooth 14y ago
  Sure you can. You buy a bond, you're not guaranteed 4% interest, you're gambling that the entity who's indebted to you will still be around long enough to pay you. Same with these credit default swaps. If the government doesn't step in, AIG folds and Chase doesn't get paid for those CDS contracts. Nobody paid the government back for AIG.
  - tedunangst 14y ago
    And the government insured AIG. that doesn't move the debt from AIG's books to Chase's books.
    - jbooth 14y ago
      The government did not back those credit default swaps, until they did of course. But the fact that the government stood behind other forms of insurance at AIG doesn't mean that they were obligated to pay back the CDSs. Again, until they did so after the fact.
mcknz 14y ago
Yes, and worse, they repaid it through government-sponsored arbitrage: bank "holding companies" borrowed from the Fed discount window at ultra low rates, and loaned to others at a higher rate. A bailout paid with a bailout, which tells us nothing about the health or viability of these financial institutions.
jcampbell1 14y ago
Goldman had bought credit default swaps on AIG (which were never paid because of the bailout). They were quite neutral. The other banks, not so much. Also, the government is projecting a profit on the AIG bailout.
- jbooth 14y ago
  Do you have a cite on the CDSs never getting paid? Not saying I don't believe you, just couldn't find it on my own. I checked on the projected profit, and it's quite a projection, based on the fact that the gov't is currently selling off from 70% ownership of AIG to 61%. So basically, that seems to me that all of AIG's operating profits are going to buying back stock from the government. Which is great. But the government still ate it on the initial bailout and if those CDSs were paid out and kept the banks afloat, it was done with government money.
  - jcampbell1 14y ago
    See the letter in this article. AIG didn't default on its obligations (thanks to the government), so there was nothing to trigger payment to GS. http://articles.businessinsider.com/2009-04-14/wall_street/30055605_1_aig-bailout-credit-default-hedges http://articles.businessinsider.com/2009-04-14/wall_street/3...
  - jcampbell1 14y ago
    You seem to be clinging hard to the notion that the bailed out banks were able to pay the money back largely because AIG was bailed out, and the government is going to lose big on AIG, which was really a backdoor bailout to the other banks. Two years ago, I would have agreed with that 100%. AIG has recovered far better that I would have expected, and the government will likely get the money back from AIG, albeit much slower than the banks.
  - tedunangst 14y ago
    I think it's worth noting that the people who really ate it are the original AIG shareholders. They lost a lot more than the taxpayers will.

by jbooth 14y ago

tedunangst 14y ago

Yes, but if you want to take a narrow view, you can't blame Chase for AIG's mistakes. "Bailout" money is tracked in the account of the entity that receives it, but I don't think it's reasonable to continue tracing it as it moves around. Bailout dollars are just as green as regular dollars. If someone at Chase buys a car with bailout dollars, then the car salesman buys lunch with his commission, are you going to claw back the bailout dollars from the waiter? Debts are owed by the people who receive the money, not the guy left holding the hot potato.

jbooth 14y ago
Sure you can. You buy a bond, you're not guaranteed 4% interest, you're gambling that the entity who's indebted to you will still be around long enough to pay you. Same with these credit default swaps. If the government doesn't step in, AIG folds and Chase doesn't get paid for those CDS contracts. Nobody paid the government back for AIG.
- tedunangst 14y ago
  And the government insured AIG. that doesn't move the debt from AIG's books to Chase's books.
  - jbooth 14y ago
    The government did not back those credit default swaps, until they did of course. But the fact that the government stood behind other forms of insurance at AIG doesn't mean that they were obligated to pay back the CDSs. Again, until they did so after the fact.

mcknz 14y ago

Yes, and worse, they repaid it through government-sponsored arbitrage: bank "holding companies" borrowed from the Fed discount window at ultra low rates, and loaned to others at a higher rate. A bailout paid with a bailout, which tells us nothing about the health or viability of these financial institutions.

jcampbell1 14y ago

Goldman had bought credit default swaps on AIG (which were never paid because of the bailout). They were quite neutral. The other banks, not so much. Also, the government is projecting a profit on the AIG bailout.

jbooth 14y ago
Do you have a cite on the CDSs never getting paid? Not saying I don't believe you, just couldn't find it on my own. I checked on the projected profit, and it's quite a projection, based on the fact that the gov't is currently selling off from 70% ownership of AIG to 61%. So basically, that seems to me that all of AIG's operating profits are going to buying back stock from the government. Which is great. But the government still ate it on the initial bailout and if those CDSs were paid out and kept the banks afloat, it was done with government money.
- jcampbell1 14y ago
  See the letter in this article. AIG didn't default on its obligations (thanks to the government), so there was nothing to trigger payment to GS. http://articles.businessinsider.com/2009-04-14/wall_street/30055605_1_aig-bailout-credit-default-hedges http://articles.businessinsider.com/2009-04-14/wall_street/3...
- jcampbell1 14y ago
  You seem to be clinging hard to the notion that the bailed out banks were able to pay the money back largely because AIG was bailed out, and the government is going to lose big on AIG, which was really a backdoor bailout to the other banks. Two years ago, I would have agreed with that 100%. AIG has recovered far better that I would have expected, and the government will likely get the money back from AIG, albeit much slower than the banks.
- tedunangst 14y ago
  I think it's worth noting that the people who really ate it are the original AIG shareholders. They lost a lot more than the taxpayers will.