Too bad there are no ...

Oh, never mind.

I get to help their golden parachutists break the fall anyway?

Has anybody mentioned that this really is a welfare-cheat empire yet?

.

and why didn't they save Lehman then? Their lobbyists/connections weren't as good as AIG and the others?

I thought yesterday that Paulson and company were saying the markets had to solve this themselves and the government wasn't going to put taxpayer money at risk.

So much for that.

In a huge game of chicken, it turns out Paulson blinked.

Nice to know who's running the country!

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

got the finger, but AIG got the smoochies?

Is it because they're insurance?

Or at least what the stated rationale is?

I hate all this money stuff, because while I don't get the details of various complex instruments and blah blah, I do get what 'moral hazard' means and am still agog with disbelief it never seemed to occur to anyone that the bubble would burst. I'm sure that's extremely naive-sounding. At this point, I'm not even sure whom to trust with reading up on it, except Krugman and Silber and that's only because people here seem to think they're trustworthy.

Lehman's situation was less f*&ked up and thus less threatening to the global financial system, so Hank & Co. could ignore it. The Lesson is: If you're gonna screw up, screw up big.

There was far less counterparty exposure to Lehman than there is to AIG. As far as I understand it, that means that many, many other investors and investment firms are tied up with AIG toxic waste (investments) through all sorts of derivatives, like credit default swaps. The stated value of those far exceeds the capital on which they are/were allegedly based. If AIG were to declare BK, they would have to make all this transparent, assets would have to be valued somehow according to market levels (as if anyone would want to purchase them), that would expose the house of cards for what it is, and..... Lehman also has a lot of this toxic waste but the amount is smaller both absolutely and relative to their assets.

Regarding how this affects the Average Jane/Joe, myself included, Rhode Island Dept. of Transportation invested $130 million in with AIG in funds it was assured were as safe as Treasuries. RIDOT will very soon need about $90 million of that for the next phase of a major multi-year highway project to relocate I-195 that is only partly finished. Funds for clean water projects are also parked in AIG investments - these support municipal water treatment projects and the like, in other words, rather important basic local services.

Everything I know about this counterparty risk stuff and the condition of particular Investment Banks is from reading Calculated Risk (including the comments), Nouriel Roubini's blog (rgemonitor.com/roubini), the occasional foray into Investopedia, and a few very informative articles with neat graphics in the NY Times and the Wall Street Journal. There's some good stuff out there on the internets.

Also - AIG will pay rather high interest on the money it borrows from the Fed (up to $85 billion). There is a chance, how slight I don't know, that the Fed (i.e. the gubmint) could even make money on this transaction.

Next up, according to the folks at CR: Washington Mutual. Good thing I don't have 100,000 in any bank accounts there. Ha!

I'm with Lambert. I pay taxes in the US, I have shares in an insurance company now. Non-voting shares, but shares. I LOVE MY NEW INSURANCE COMPANY!!!

...I hereby dub this mess the "financial" "industry".

Thanks very much for the explanations (and site recs). Now I have someplace to start, at least.

A few points:

1) The Fed and Treasury have no idea what they're doing at this point. Everything is reactionary. They have no plan, and they're dealing with each episode as it comes. They simply are overwhelmed.

2) AIG could not be allowed to go under, for many of the reasons elaborated above.

3) These measures (Bear, AIG, Merrill, Fannie/Freddie) are basically bandages. They stop the bleeding but don't address the fact that the patient is hemophilic. We need to address the root problem, which is a) mortgage defaults continue rising and are expected to continue rising as housing values continue to drop; and b) there is a lack of transparency on the holdings and true values of mortgage securities, for a number of reasons including the proliferation of off-balance sheet entities, accounting, and counterparty exposure (esp. when the counterparty is a hedge fund or other unregulated party).

4) In the 21st century, the US under Bush is the largest nationalizer of private businesses (much more so than Hugo Chavez's Venezuela or Vladimir Putin's Russia).

1) Korean banks were going to buy Lehman, but backed out after examining their books closely, and after the US government didn't guarantee any of the purchase.

2) Don't watch Fox Business. Even among Wall Street folks (a pretty right wing bunch) it's considered a joke. Watch CNBC and Bloomberg.

which is sort of made by the "they're just reacting" comment above: it's *too late* and all of this is nothing more than kicking the can down the road and not preventing the inevitable.

my investment guru told me: "there's literally not enough money in the world to cover the shitpile." the only thing i'm surprised by here is how fast it's all unravelling; i had thought they'd hold off and dump it on obama, but it seems they can't manage even that.

step back and consider what these financial propaganda terms really mean, to yourself, to your communities. bottom line seems to me to be that while many rich people ("institutional" grade investors) will be protected, regular investors and even those with some voting rights will still get hosed. and that's just the effect this crisis is going to have on the upper middle class. municipalities, states, other large and small entites responsible for the maintainance of the social fabric/contract- also hosed. fine, great, AIG "doesn't go out of business." but what about in two years' time, when some obscene high number of the people and groups it has insurance/investment relations with go under? b/c that's the inevitable consequence of overextending the gov't and running roughshod with the notionn of 'full faith and credit.' not to mention the fact that much of the money is now going to flow ---> out of the country, for good.

hyperinflation, anyone? none of these talking suits and economic 'experts' have to worry about that much; don't think they're even taking that into account as they construct these 'solutions.' small bank failure by the thousands? several are predicing that today, including some CEO i just read over at CNBC.com. (hang on a sec i'll find it) yes, i'm aware the dollar is a bit stronger just now, but believe me when i say that won't last.

this is a ponzi scheme of the ultimate order, and we've got 12-24 months before the full effect of its collapse is apparent to a lot of people who seem to only be looking at this as a matter of "debt." it's so much more than fucking over the future generations; this one is going to feel this crash too.

Got no choice on watching Fox Business for a variety of reasons, and I pretty much ignore the opinions of their house monkeys, whose ideological biases, as I say, are very much out in the open. They are good, however, at limiting the jargon and talking in terms a normal person has a chance of being able to follow, and they require the same of their guests, of which they actually have a wide variety with differing underlying biases.

Nobody should rely on the advice dished out on any of these shows, IMHO.

I have to say I disagree with you. The primary model for the stopgap measures being undertaken by Bernanke/Paulson are 1930s FDR-era programs.

The problems RIGHT NOW are that an over-accumulation of "Big Shitpile", as you and Atrios call it, have led to a meltdown in the financial markets. This is in fact not too dissimilar to the situation faced by FDR when he took over. Failing, undercapitalized banks with overexposure to overvalued (and declining) assets.

HOWEVER, if nothing happens, and we allow the banking system to go under, you know what the consequence is? It's an end of credit. Period. The desperate measures being undertaken by the Fed and Treasury right now are not premeditated (it's absurd to think that GW Bush, who has refused to regulate in a number of obvious areas this year, because he wants his legacy to be the anti-regulatory, pro-market President, would ex ante WANT TO NATIONALIZE the banking system), they're the actions of people who are being literally flooded with crisis after crisis. They are doing anything they can to prevent a shutdown of credit markets. Because that is the doomsday scenario that shuts down this economy, as well as others.

From an informed progressive/liberal perspective, the right answer to the AIG and Bear bailouts is NOT criticizing the bailouts. It is to say, 1) why the fuck were AIG and Bear allowed to get to be too big to fail (answer: deregulation)?; 2) what can we do to make sure that the American working class family emerges the least harmed possible from this debacle?; and 3) what regulations can we put in place (including on the institutions being nationalized) to prevent this from happening in the future?

Also, by the by, to correct a common misconception, these bailouts aren't rewarding the "companies" per se. Stockholders are receiving zero, or close to it, in all of these deals. These are meant to prevent a complete obliteration of lending.

The measures you're talking about would throw out the baby with the bathwater. You'd destroy the economy to prove a point about bailouts. How about instead, we use these bailouts to argue for more bailouts in the area that really matters: keeping families in their homes, and stabilizing the housing markets.

there's two steps that need to be taken here.

1) get through this crisis.

2) figure out how to prevent it from recurring, punish those responsible, and align future incentives and regulations.

At the end of the day, lib/progs will be able to point to this credit crisis as a wonderful lesson on the incredible inanity of deregulation and the laissez-faire attitude. Ideally, we should be able to cite the credit crisis in implementing a wide array of progressive economic programs, much as FDR did.

HOWEVER, IN THE MEANTIME, we need to do our best to ensure that our economy doesn't melt down. Calling me a suit or implying that I've bought into propaganda doesn't change the fact that EVERY informed observer (including Krugman, the folks at liberal credit/economic thinktanks, etc.) agrees with the following two propositions: 1) we are in exceedingly dangerous times, thanks to the proliferation of accumulated risk by financial institutions; and 2) an end to credit lending would be catastrophic for the US and global economy.

It's the largest insurer, probably the largest *re*insurer (which means all those people expecting to get claims paid from hurricanes need AIG to stay afloat). It has its fingers in every major construction project worldwide, which means that if it fails, projects can't go forward because they can't get insurance.

It's so big it got a slap on the wrist when it colluded with insurance brokers to rig policy bids (and may you never, ever get fucked again, Spitzer, for not keeping it zipped and not having the discipline to blow open all this corruption before it was too late).

It's so big Greenberg's kids rode roughshod over the rest of the insurance industry when he found them jobs at other firms. And now Greenberg wants to complain about how bad things are? He, and Greenspan, and all the jokers who made their bank knowing how bad the fundamentals are, would be in a more decent culture in prison by now.

You know, I understand why we have to bail these companies out and while I don't like it, I agree we have to do it.

But I'd feel a helluva lot better about it if I were also hearing about Grand Jury investigations and watching CEOs being hauled off in handcuffs instead of playing fucking golf. Because I simply do not believe that all of these Masters of the Universe had no idea that what they owned and, more importantly, were selling was worth less than shit (shit can at least be used for fertilizer). I don't buy the nobody knew. People knew, they just pretended they didn't.

As bad as bailing out the mess is, it's the lack of accountability for making it that's making me teh angriest. You want to talk about "moral hazards"? I got your solution to moral hazards - prison, restitution orders, forfeiture. Put enough of these rich, untouchable bastards in jail, take their money, and maybe the next generation will think twice before raping and pillaging the financial markets because they need to make $100 million and not just $50 million. Then, of course, regulate the crap out of them just to make sure.

these other firms--and condoning their behavior by backing them all up--no?

They insured bundling and reselling of subprime and prime stuff, bad paper, accounting games, crimes, etc--no?

And now we have to pay to keep them around? They're like a reverse Good Housekeeping Seal of Approval.

BDB, I'd like to see CEOs being hauled off from the golf courses and then thrown in jail.

The whole thing needs more visuals. Krugman keeps talking about po-mo bank runs, but it's all too abstract. MSM needs footage! Some protest group would be smart to stage a run on a brick-and-mortar bank, complete with wrought-iron gates clanging shut, to really drive the point home.

We can create a reality show to do just that. I need a hook for it though. Roving teams of Citizen Arresters tagging miscreants in palatial homes and luxury island retreats? Although I suppose that sounds a bit too French Revolution The Terror-ish, doesn't it? Except it's not based on a status (just being rich/royal), it'd be based on fault. Yeah, yeah, I can live with that. Keep your Scarlet Pimpernel! Not worse than anything else in the whole reality genre, anyway.

But we can use the enormous ad revenue to help bailout the bailouts.