please explain the gov't bailout actions to me.
 

They take over Freddie and Fannie, essentially putting them in the investment banking business as well as being the country's wholesale bank. But they don't want Lehman. Then they "buy" AIG but apparently leaving the management system in place. I haven't yet read all the details.

From the AIG thread:

My same thoughts.

An undocumented statement from the WSJ,

We are in a deep dark depression.

My same thoughts.

I think the country would be better off if a big bank fails, we took the hit, let the market slide into a correction back to where it should be, then letting the market grow at a reasonable rate from there. Investors would then be more careful looking at the basic fundamentals before carelessly tossing money at shakey investments.

Propping up an overinflated market is not sustainable. Very short-term thinking.

The government has bailed out Lehman.

They have just funneled the money through J. P. Morgan to cover Lehman's defaults.

The government is lying to the public, pretending that "they won't bail out everyone" in an attempt to placate those critical of these bailouts.

Read here:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aX7mhYCHmVf8&refer=home

i have been in a cave...(called work hell). none of this bail out money will ever trickle down to the lowly consumer, correct? mom with four kids, dead bead ex, about to get foreclosed on doesnt get a reprieve right?
i have a hard time wrapping my mind around it.

put it tthis way... if they didn't bail out these institutions the capital markets would have ceased to exist the way we know it.

This means that even your hard earned savings were at risk. Everything is at risk of being wiped out.

So the single mom with four kids won't see any of the cash, but her bank account will not be wiped out.

Is this right? NO
Is this the single mom's fault? NO (at least not as much as some greedy bankers)
Are there any alternatives? If you have one I think Mr Bernake and Mr Paulson would love to hear from you.

Again let the evil banks fail is not an alternative unless you want the govt to control the WHOLE financial mkt in the US

thanks. I didn't know about that little diddy. How does the gov't expect to recoup that? Lay it on us as a whole instead of screwing the investors?

You know where I stand. Buy junk bonds and other so called securities in an inflated market and you take the risk, not me. If your answer to my question is lay it on us as a whole, you can bet I will never pay a cent in taxes that aren't automatic (like sales tax, and I'll avoid that by buying out of state on the Net).

I'm through supporting a nation of fools and greed.

GTFO!! That would be socialism!

Bingo.

In a nutshell, from what I understand, AIG's problem is not that they are insolvent, or their businesses aren't profitable. They have a liquidity problem. They are profitable, but are highly leveraged. In simple terms, if everyone they owe money to comes to collect, they won't be able to make the payments, and will default. What the Gov't is doing is guaranteeing the debt. That will prevent creditors from rushing in and causing a collapse.

They guaranteed it alright. They bought 79% of the thing. Now Uncle Sam is insuring my house. Great.

Stinks of FEMA even if AIG continues to operate independently.

That is what Chapter 11 is supposed to be used for.

AIG is being bailed out -- this bailout is actually allowing assets at AIG's "Main Street" divisions to be used to pay for losses at their "Wall Street" divisions.

If AIG had filed Chapter 11, the "Main Street" assets would have been better protected, but that would have left "Wall Street" with virtually all the losses.

Paulson is bailing out his "buddies" on Wall Street with this move.

This is criminal action. Millions of AIG customers are being screwed with this bailout.

OK this may very well turn out to be a thread about AIG. No problems here, but I suspect the iceberg is bigger than what we see.

Tell me, does AIG buy policies from brokers or smaller ins cos? IOW, are they the Freddie of the ins biz? I have to agree that we're being screwed, but exactly what form does this take? Where do I fight back from strictly a personal point?

It's twofold:

1. Privatize profit/socialize risk. In other words, favors to deep-pockets/big-business backers who have a lot of clout and (perhaps most importantly) can contribute a lot of $$$ to political campaigns.

2. Creating/upholding the illusion of an "ownership society". Politicians want to be able to say superficially good-sounding things like "more people own their own homes today than ever before" or "we've issued tax rebates to the people" or "the U.S. economy is fundamentally sound and has the full confidence and backing of the government". The problem is that anyone with half a brain (which unfortunately is the minority of people out there) who peels back the top layer of the onion and looks closer is going to realize that we fundamentally have very serious problems (i.e. we DON'T have an "ownership society", we have huge sustainability problems, we owe a schitpile of money to everyone else on earth and we're getting choked to death with socialist tax programs). In other words "feel-good spin-doctoring".

That's how I see it.

All I can say is that the finacial controls in place in France would absolutly prevented the housing bubble, which is the root cause of this debacle. An enlighten from of mild socialism (oh the horror! )prevents the deep lows and allows the honest highs.

All of the deregulation foisted upon the US public has only allowed:

Real wages to stagnate for the last 25 years

A continuing cycle of boom and bust (S&L failure, Dot Com bust, two housing bubles)

The flight of our base industries to foreign soil

Allowing in millions of illegals (just 'cause they're cheap labor)

A "phony" finacial magic trick of selling our future to pay for today

All this and now the bailouts which will make the tax payers take it in the shorts again. This mess will take years to clean up and sort out. As a US citizen, I am so happy that I have set up an income stream that is as isolated as possible from the failure of the US government (both Dems and Reps.) to protect the honest and hard working masses from ruin.

I see your point but believe (strongly) that socialism is NOT the answer. The problem in this country is that we like to pretend we have a free market economy, but implement the socialist "protections" only after-the-fact when it looks like people might actually have to eat the consequences of their bad choices/decision (oh the horror!) In order to placate the masses and uphold the illusion of security, stability and housing/SUVs/plasma HDTVs for all, our elected officials don't let the most important tool of capitalism work and do its thing - which is to FORCE ACCOUNTABILITY.

So the choices are either to be capitalist, meaning we're more brutal in forcing people to deal with the consequences of their choices (even if it makes our society look less "cushy" as a result) or we become outright socialist and put everything in control of Big Brother. Given a choice I'd much prefer #1. It's ultimately more honest and ANY socialist system (whether implemented before or after the fact) is ultimately unsustainable and doomed to fail. History has borne this out time and time again...

But there's also an expectation that we should be able to be lazy, fat, dumb and happy. Until people in this country grow a backbone and begin demanding policies aligned with this mentality from our "leaders", we will continue down the path to "socialized risk" self-ruin.

Economies are cyclical. Over the last 100 years, 400 years of American history and way before that..

In the past 25 years we invented the Internet, had a "dot com" boom that went bust, but we are still left with the Internet. And more is actually done over the Internet than at the hight of the "boom" and we have all of its productivity gains and conveniences.

Just because this housing bubble and fellow travelers are imploding, it does not mean the economy is all bad - or that all of our ills are directly linked.

Huh? AIG is not playing claims on policies? That who AIG customers are - policy holders.

As for AIG stock holders - they owned - or did own the firm. Nobody forced anyone to own AIG stock.

POP you are taking the extreme veiw. I am not talking about or promoting extreme socialism (and certainly not communism!), but a mild form of socialism in certain sectors.
I will admit to being a social liberal, but I am also a fiscal conservative. Neither party has an approach that appeals to me very well.

Let's look at what socialism exists in the US now. We have a common defense, social security, medicare, church group food banks, public schools, etc. To make a statement that all socialism is bad is utter nonsense. The complete lack of socialism has never existed in the US from day one. So let us not tar the whole concept with the record of the extremes.

In France one cannot obtain a mortage (except in certain commercial cases) without having 20% down from a verifiable source (no gifts, loans, etc.) and the mortage payments must be less than 25% or your monthly net income. With such finacial rules in place by the government, you prevent all bubbles and virtually all foreclosures. Why would this type of social control be bad?

Richard - supplant "socialism" with "more regulation" and they still come to the determination of socialism.

Hopefully, come Nov. those folks who believe this will no longer be in power.

That's fine if French voters want it that way. Here, for a little longer at least, the gov't. doesn't tell investors they can't make bad decisions. Some risky decisions by investors actually pay off handsomely while making home ownership possible to people who would never qualify under French rules, but who, nonetheless, will probably turn out to be responsible homeowners. Government loans here are still far looser than the guidelines you mention in France and that has a political aspect to it. In this country, if FHA, VA and Fannie/Freddie were to adopt those French rules, there'd be howls of racism and discrimination from all corners. I'm not saying I agree with it. But the Americans here know that's how it would go. So we let the private sector run the show, while the gov't. guarantees certain types of loans designed to help those most likely to belong to a government-favored demographic - aka poor credit risk, low earner, minority, immigrant.

We did let the private sector run the show, at least with very little oversight. And look what happened! Even McCain calls the system "corrupt."

A system that rewards the smart, savvy and bold will always be superior to one that rewards (or guarantees) equal wealth, return and privilege to people who are dumb, lazy and timid.

One system makes us stronger over time, the other makes us weaker and drags us collectively down. Think of it as economic Darwinism.

Nobody's saying that we should eliminate ALL programs (although that's an interesting debate too), rather that the "guarantees" should be minimal and special case - help those with disabilities, that are really in disadvantaged situations, victims of crimes, casualties of layoffs to get back on their feet, etc. All I'm saying is that the standard should be low and the government shouldn't see it as its NannyState duty to provide everything for everyone - which is ultimately where this stuff leads.

This is really just another one of a countless number of discussions trying to answer the question "what should be the role of government?" My response is "as little as possible, limited to the very narrow and specific roles outlined by the framers of our Constitution". We've gotten way, way, way too far removed from that.

How "...establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty..." has become misinterpreted to mean "give handouts to illegals, guarantee half-million-dollar luxury houses to $8-an-hour WalMart cashiers, allow 22-year-old waitresses to drive $40,000 SUVs and bail out any business we like with taxpayer money" is a mystery to me. It's a real reach and it's way far removed from the intentions of our framers.

Back to basics.

McCain wouldn't know the first thing about any kind of mortgage. Anyone running for office ain't the voice of reason when it comes to fixing financial problems. But fine, let the government get back into the game and regulate everything. Sure, it'll prevent another bubble, but will also kill homeownership growth. And you know the gov't. will then start making all kinds of exceptions for the grievance group members, while our tax dollars insure those loans.

Guys, you are sliding down the political slippery slope. Read my question again each time before you reply or send this into the P&R deal. I'm looking for the economic side of this, not who to wag a finger at. (OK wag your finger at the economists ;))

As much as it is a PITA, this is either a quasi intellectual discussion or just more mud slinging. I guess we can't have both.

Well, the same that were making millions off the bubbles, and are now broke, will become the indigent when regulation helps get them into a home. What comes around goes around, I guess...

In the case of AIG, they're huge. At one point, 1.1 trillion in assets. Insuring the subprime mortgages was what killed them as they had to pay out billions of defaults. The reason for the 85B loan from the U.S. Govt, was because no one else wanted to buy AIG's assets. Plus AIG was interwoven in almost every American investment imaginable. All those would have gone belly up if the government didn't come in to basically cover Joe Blow's portfolio.

Their will always be the howls of racism and discrimination from some sector. But a comprehensive policy of mandating small low income houses mixed with more upscale houses in every city has had very good success where it has been tried. Mixed race, mixed income housing is a solution that goes begging. Why? Is it possiblly based on the racism and discrimination that sounds like just an excuse from those excluded?

And I am very familar with the US policy of VA, FHA and FM/FM loan parameters. That is part and parcel of the problem that our elected government officals have built for us. This "promise them anything and give them nothing" is in its totallity a failing policy, the last 25 years illustrate that quite well. It is all politics and very little critical thinking and honesty.

I do agree with POP as to the accountability aspect. It is lacking in the US from the top down. Here is an example of personal accountability in France: You can pay for anything anywhere in France with a personal check (no ID required!). There is very, very little bounced check fraud in France. Why? Two reasons, 1) check fraud is severely punished by jail time, and 2) if you bounce a check in France your bank account is closed and you cannot open a bank account anywhere in any French based bank for 5 years. This too is a socialist type of control. But it is not bad.

In short, I am not saying the US is all bad and somewhere else is all good. Far from it. But I feel the US is much much better than the last 25 years have provided. We can do so much better than we have.

Deregulation has allowed some market sectors to promote risky programs to sell the consumer. If the consumer is not savvy, their investment is at risk (e.g. typical banking and savings customer). This is where adequate consumer laws can prevent fraud and/or deception.

Deregulation, or the lack of adequate limits, combined with economic variables has resulted in this latest fiasco in the mortgage finance industry. The govt., in response to its effect on such a massive scale, steps in to limit the damage to the rest of the economy. The result; the govt. is now bailing out some of these lending institutions. In other case, institutions are bought out by larger fish. Meanwhile, consumers and investors are left with less than what they started with.

This cycle will repeat itself unless someone (the govt.?) places limits (regulations) on these companies. In other times, regulations were called laws and policy. Those that promote deregulation only have self-interest agendas in mind (maximum profit) - there's a fine line to keep both corporations and consumers safe and happy, but that line has to be drawn by neither of those parties. That leaves the govt. who is supposed to watch both their backs for the welfare of the country.

As long as the govt. provides bailouts, risk to these companies is minimized, especially for CEOs and CFOs who are allowed golden parachutes in spite of ignoring their fiduciary duties. I'd suggest jail time as suitable reimbursement. They use to do this when they held those responsible accountable for their actions or inactions.

Here's a list of govt. depts. whose responsibilities relate to the financial stability of this country. One would expect, with this number, they'd generate enough signals and alerts to congress and the administration. Maybe they did and were ignored.

http://www.answers.com/topic/public-finance-taxation-and-monetary-policy

<<
ORGANIZATION AND STRUCTURE
The organizations responsible for public finance, taxation, and monetary policy can be divided into two categories: government agencies and legislative committees. The various agencies and departments are primarily responsible for implementing policy measures.

The most important agencies are the Commerce Department, the Congressional Budget Office, the Council of Economic Advisors, the Federal Reserve System, the Internal Revenue Service, the Office of Management and Budget, Small Business Administration, the Treasury Department, and the U.S. Trade Representative. The most important legislative committees ......
>>

The Commerce Department.
The Congressional Budget Office.
The Council of Economic Advisors.
The Federal Reserve System.
The Internal Revenue Service.
The Office of Management and Budget.
The Small Business Administration.
The Treasury Department.
The U.S. Trade Representative.

The various legislative committees are responsible for setting economic policy through legislation. A brief discussion of each of the committees follows:

The House Banking, Finance, and Urban Affairs Committee.
The House Budget Committee.
The House Ways and Means Committee.
The Joint Economic Committee.
The Joint Taxation Committee.
The Senate Banking, Housing, and Urban Affairs Committee.
The Senate Budget Committee.
The Senate Finance Committee.

(Dept. description and responsibilities deleted for brevity. See the website for more info)

Sherwood