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Fed to Loan A.I.G. $85 Billion in Rescue

Kernel Sanders

Kernel Sanders

Norville Rogers
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Source [NY Times | Fed to Loan A.I.G. $85 Billion in Rescue]

WASHINGTON — Acting to avert a possible financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an $85 billion bailout that would give the government an ownership stake in the troubled insurance giant American International Group, according to people briefed on the negotiations.

The decision, only two weeks after the Treasury took over the quasigovernment mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history. [...]

What frightened Fed and Treasury officials was not simply the prospect of another giant corporate bankruptcy, but A.I.G.’s its role as an enormous provider of financial insurance, which effectively requires it cover losses suffered by other institutions in the instance of defaults of securities that they have purchased. That means A.I.G. is potentially on the hook for securities that were once considered safe.

If A.I.G. had collapsed — and been unable to pay all of its insurance claims — institutional investors around the world would have been instantly forced to reappraise the value of billions of dollars in debt securities, which in turn would have reduced their own capital and the value of their own debt.

“It would have been a chain reaction,” said Uwe Reinhardt, a professor of economics at Princeton University. “The spillover effects could have been incredible.”
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Smart move, it's Bush's fault.
 
Yah, it's Clinton's fault, just like 9/11 :yawn:
 
Mentork said:
Yah, it's Clinton's fault, just like 9/11 :yawn:
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The lesson is obscured by focusing on who to blame.

What you would be better doing is figuring out how not to allow it to happen again!

There's a political root cause to this mess that we ignore at our peril. If we blame the wrong culprits, we'll learn the wrong lessons. And taxpayers will be on the hook for even larger bailouts down the road.

But the government-can-do-no-wrong crowd just doesn't get it. They won't acknowledge the law of unintended consequences from well-meaning, if misguided, acts.

Obama and Democrats on the Hill think even more regulation and more interference in the market will solve the problem their policies helped cause. For now, unarmed by the historic record, conventional wisdom is buying into their blame-business-first rhetoric and bigger-government solutions.

While government arguably has a role in helping low-income folks buy a home, Clinton went overboard by strong-arming lenders with tougher and tougher regulations, which only led to lenders taking on hundreds of billions in subprime bilge.

Market failure? Hardly. Once again, this crisis has government's fingerprints all over it.
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http://www.ibdeditorials.com/IBDArt...rials.com/IBDArticles.aspx?id=306370789279709
 
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Bush is not responsible for the meltdown. Bush is responsible for putting the top people in that company in the front of the welfare line. That is Socialist.
 
Its actually more Reagan's fault than Clinton's or Bush's, as the present form of sub-prime lending (which started the whole issue) was made possible due to deregulation in the early 1980s.

As for A.I.G... the fed had no choice.. A.I.G can not fail period. The ramifications of a failed A.I.G would be so huge.. would be like the Fed going belly up (but in the insurance industry).
 
PeteEU said:
Its actually more Reagan's fault than Clinton's or Bush's, as the present form of sub-prime lending (which started the whole issue) was made possible due to deregulation in the early 1980s.
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Deregulation may have made it possible but it can't be faulted for the failures of administration in imposing unnatural/unwise regulations on the industry or unwise practices with regard to individual industry leaders.

PeteEU said:
As for A.I.G... the fed had no choice.. A.I.G can not fail period. The ramifications of a failed A.I.G would be so huge.. would be like the Fed going belly up (but in the insurance industry).
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YouTube - APPLAUSE


I knew it would happen some day. You got one right!

Congratulations!

:mrgreen:

:yes:
 
bhkad said:
Deregulation may have made it possible but it can't be faulted for the failures of administration in imposing unnatural/unwise regulations on the industry or unwise practices with regard to individual industry leaders.
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Err your comment makes no sense.

Deregulation, aka a LACK of regulation made it possible as you state.

However then you claim that the administration (I am guessing the Clinton administration, even though it started with Reagan administration) is at fault for imposing unnatural/unwise regulations on the industry. What regulations, that's the whole freaking problem! There is next to no regulations in the market that made Lehmann fold, and that is exactly the problem. There is next to no regulation on the financial derivatives market, something that Phil Gramm was behind big time back in the day.

The deregulation from 1980 and up to today provided the legal framework for the industry to create a trillion dollar unregulated market of highly risky loans between financial institutions. Again, as I have stated before in other threads, the kids were let loose in the candy factory and have tummy problems big time now. The finance industry's credit market instruments accounts for 15 TRILLION last year. At its peak last year, investment banks had borrowed on average 32 dollars per 1 dollar of assets.

I know American's hate regulation, but in this case, its the LACK of regulation that has cause the so called free market to run amok with greed. For peak sake we have had financial institutions backing billion dollar lines of credit, yet only having assets of a few hundred million dollars... again the 32 dollars per 1 dollar an asset issue.

As stated the problem started in 1980 when the border between banks and financial institutions was broken down. Banks need a certain assets (as per the regulation) to provide loans for. Financial giants like Lehman, Bear Stearns and others do not have live up to this. So they are basicly living off credit trading, often having far more risk on the books than they have assets and that gives problems, when banks start NOT loaning money because of a financial crises like the Sub-prime market collapse.

If the financial institutions like Lehmans and Bear Stearns lived under the same or similar solvency rules as banks, then they would not have been in the problems they were, but on the flip side, they would never have gotten so big so fast.
 
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PeteEU said:
Its actually more Reagan's fault than Clinton's or Bush's, as the present form of sub-prime lending (which started the whole issue) was made possible due to deregulation in the early 1980s.

As for A.I.G... the fed had no choice.. A.I.G can not fail period. The ramifications of a failed A.I.G would be so huge.. would be like the Fed going belly up (but in the insurance industry).
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Actually, it started under Jimmy Carter. He pushed and signed the Community Reinvestment Act in 1977 that pressured banks and other lenders to approve more mortgage loans to low income, risky borrowers. The banks were graded on how many mortgage loans they made to risky borrowers that could not get loans through conventional means.

The Community Reinvestment Act was strengthened under Clinton, requiring banks to make even riskier loans that they knew would probably never be repaid.

If the banks refused, they faced penalties from the federal government. If they complied, they knew they would suffer from defaults on loans. The mortgage industry found themselves in a Catch 22 position. Trapped by government regulation, the lenders only hope was that housing prices would continue to rise. Of course, increasing housing prices couldn't go on forever, so we find ourselves in the mess we are in today. Started by Jimmy Carter and exacerbated by Clinton.
 
First off, you all misunderstood what I meant about Bush. Second, deregulation does not mean there is a lack of regulation. Where do you get these preposterous notions? Pete, you go out of your way to be intellectually dishonest, which is exactly what led to the latest meltdown on this site. You are so partisan sitting over there in Spain, it's pretty sick. You never saw a liberal or liberal policy you didn't love. Centrist my arse.
 
Goldenboy219 said:
How can the downturn of the entire economy be the fault of one man?
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Good point, too much credit is given to the prez for good or bad economies.

Can one argue that imposing regulations on the finanical instutitions could of prevented the current problems we are having?

Or, are we just going through a cycle that will hurt us some more but get better if we leave it alone.

Personally, it piss' me off that may tax dollars are going to bank and insurance bail outs.
 
Ok, arguments can be made that Carter, Reagan, and Clinton all had a hand in the failure of the market, more specifically sub-prime lending practices, we are currently experiencing. However, the Republicans had control of the White House and Congress for 6 full years and did NOTHING to help prevent this. We all should have seen it coming and steps should have been taken earlier on before our economy was behind the eight ball.

As much as I hate that tax payers are now shouldering the responsibility of bailing out AIG, government had absolutely no choice but to step in. The fall of AIG would not have only collapsed our economy, but it would've had a disastrous effect on the global economy as well. Sure, this is only a temporary fix, but it had to be done.

Let's just hope that in the coming days, months, and years our leaders find a responsible way to regulate Wall St. and prevent this from happening again. And, I'm sorry, regulation is the only way. Greed must be kept in check.
 
Gill said:
Actually, it started under Jimmy Carter. He pushed and signed the Community Reinvestment Act in 1977 that pressured banks and other lenders to approve more mortgage loans to low income, risky borrowers. The banks were graded on how many mortgage loans they made to risky borrowers that could not get loans through conventional means.

The Community Reinvestment Act was strengthened under Clinton, requiring banks to make even riskier loans that they knew would probably never be repaid.

If the banks refused, they faced penalties from the federal government. If they complied, they knew they would suffer from defaults on loans. The mortgage industry found themselves in a Catch 22 position. Trapped by government regulation, the lenders only hope was that housing prices would continue to rise. Of course, increasing housing prices couldn't go on forever, so we find ourselves in the mess we are in today. Started by Jimmy Carter and exacerbated by Clinton.
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Actually, that was not the cause of the financial meltdown at all. To understand why we are in the mess we are in now, we have to look back to 1933, during the Great Depression, when banks were failing by the thousands.

Before the Great Depression, banks and investment brokerages were pretty much one and the same. The Glass-Steagall Act was passed in 1933, and split the banking and investment sectors apart, so that, in the future, if there was chaos in one sector of the economy, it would not carry over into another sector and cause a financial meltdown, like what happened in 1929.

In 1999, Phil Gramm of Texas and James Leach of Iowa rammed through a bill, called the Gramm-Leach-Bliley Act, that repealed the portions of Glass-Steagall which had effective walled the banking and investment sectors from each other.

As a result, the mortgage crisis affected the investment sector, and all the bad investments affected the banking sector, thus the problems of one sector exacerbated the meltdown of the other sector, and creating the mess we are having today.

Although Republicans came up with the bill, it was signed into law by Bill Clinton, a Democrat, and the bill was also supported by Democrats in the House and Senate. There is plenty of blame to go around on both sides of the aisle.
 
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SouthernDemocrat said:
I agree, its more the fault of Republican ideas in action. ;)
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Democrats liked the bill too, and don't forget that it was also a Democrat that signed it into law. Might as well have been the Democrats' idea, the way they supported it.
 
bhkad said:
The lesson is obscured by focusing on who to blame.

What you would be better doing is figuring out how not to allow it to happen again!
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Thats very true. The easiest way to keep this from happening again would be to take the Republicans, and all of their policy failures that lead to this, and throw them out of Washington.
 
I'm inclined to put the blame on the bankers rather than politicians. While it is true that more or different regulations could have prevented the crisis, I blame those who made bad decisions rather than those who failed to make those decisions illegal to make
 
SouthernDemocrat said:
Thats very true. The easiest way to keep this from happening again would be to take the Republicans, and all of their policy failures that lead to this, and throw them out of Washington.
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Yeah, those Dems have really cleaned up the mess in the past two years haven't they??
 
Goldenboy219 said:
How can the downturn of the entire economy be the fault of one man?
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Because he is the Leader and steer-man of our country. He controls a paddle that is way bigger than mine or yours when it comes to the fate of this country. And he definately did not HELP it at all.
His crisis is now here.
Good luck with the elections.
Im not too heart broken because I wasnt going to participate in this sham election anyways.

Flickr Photo Download: AIG
 
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danarhea said:
Actually, that was not the cause of the financial meltdown at all. To understand why we are in the mess we are in now, we have to look back to 1933, during the Great Depression, when banks were failing by the thousands.

Before the Great Depression, banks and investment brokerages were pretty much one and the same. The Glass-Steagall Act was passed in 1933, and split the banking and investment sectors apart, so that, in the future, if there was chaos in one sector of the economy, it would not carry over into another sector and cause a financial meltdown, like what happened in 1929.

In 1999, Phil Gramm of Texas and James Leach of Iowa rammed through a bill, called the Gramm-Leach-Bliley Act, that repealed the portions of Glass-Steagall which had effective walled the banking and investment sectors from each other.

As a result, the mortgage crisis affected the investment sector, and all the bad investments affected the banking sector, thus the problems of one sector exacerbated the meltdown of the other sector, and creating the mess we are having today.

Although Republicans came up with the bill, it was signed into law by Bill Clinton, a Democrat, and the bill was also supported by Democrats in the House and Senate. There is plenty of blame to go around on both sides of the aisle.
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Thanks for the insight.
 
Gill said:
Yeah, those Dems have really cleaned up the mess in the past two years haven't they??
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No they have been lousy. But, lets not forget the Dems had GW to work with for the last two years, so nothing they did was going to get passed or fixed, Karl Rove and Dick Cheney would have prohibited.

What amazes me is that someone from the right likes using the "Dem have ruled congress for the last two years" argument; yet, they fail to recognize or admit that when the GOP rule congress from 2000 to 2006, nothing was done, except get us in an unneccessary war and debt.

AND, they fail to bring up that when they took power in Congress in 1994, Clinton was the Prez, and they both work on balancing the budget, getting people off welfare, etc.,

So, what is the common factor that has occurred when both a GOP and Dem Congress were/are lousy.........................................................
.....................................................................................................
...............................................................................GW Bush

Do you on the DP site really like Bush??????????????

Come on, be honest??????????????????????????????????????
 
Kernel Sanders said:
I'm inclined to put the blame on the bankers rather than politicians. While it is true that more or different regulations could have prevented the crisis, I blame those who made bad decisions rather than those who failed to make those decisions illegal to make
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Good points, but don't you think that the Eron and S and L debacle (sic), that the gov't should have tighten up regs. I understand gov't being too big because it costs too much, but were paying for it now?
 
TBone said:
No they have been lousy. But, lets not forget the Dems had GW to work with for the last two years, so nothing they did was going to get passed or fixed, Karl Rove and Dick Cheney would have prohibited.

What amazes me is that someone from the right likes using the "Dem have ruled congress for the last two years" argument; yet, they fail to recognize or admit that when the GOP rule congress from 2000 to 2006, nothing was done, except get us in an unneccessary war and debt.

AND, they fail to bring up that when they took power in Congress in 1994, Clinton was the Prez, and they both work on balancing the budget, getting people off welfare, etc.,

So, what is the common factor that has occurred when both a GOP and Dem Congress were/are lousy.........................................................
.....................................................................................................
...............................................................................GW Bush

Do you on the DP site really like Bush??????????????

Come on, be honest??????????????????????????????????????
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And you seem to forget that it is impossible to pass a bill in the Senate unless you have a super majority. The Dems blocked any bill they didn't like in the Senate. The Republicans are doing the same thing now.

Clinton did push his Dem buddies to allow some legislation through during his term, but he also didn't allow some very good bills to pass.

That's what scares me the most about Obama. He's so far to the left of Bill Clinton, that he's not even in the same room. Obama does not know what the word bipartisan means. He also has NEVER gone against his own party on anything. That is very scary!
 
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