Posts Tagged ‘the bailout’
More on AIG
The company claims any failure by the government to [back all of AIG’s obligations] would have catastrophic consequences. This claim is exaggerated. Serious consideration should be given to forcing AIG’s partners in derivative transactions — which are mainly buyers of credit default swaps from the company — to take a substantial haircut.
More on AIG: “AIG Still Isn’t Too Big to Fail,” by Harvard Law’s Lucian Bebchuck. Via Josh Marshall, who provocatively writes:
These are derivatives, in many cases high-stakes bets on underlying assets the purchasers did not themselves own. So, you insure your house for fire damage. And I insure it too, even though it’s not my house. Your house burns down and you get the policy payout to rebuild your house. But I just want my money because a deal’s a deal. I have no problem with old-fashioned gambling. And if people want to play with their money this way, I’ve got no problem with that. But if the casino itself goes bust, don’t come to me and talk about having moral claim on your winnings that I need to cover.
Going After AIG
New York Attorney General Andrew Cuomo is apparently going after the AIG bonuses. He’s already got some details on who got paid:
The highest bonus was $6.4 million, and six other employees received more than $4 million, according to Mr. Cuomo. Fifteen other people received bonuses of more than $2 million, and 51 people received bonuses between $1 million and $2 million, Mr. Cuomo said. Eleven of those who received “retention” bonuses of $1 million or more are no longer working at A.I.G., including one who received $4.6 million, he said.
Meanwhile, Josh Marshall has been looking into various claims that failure to pay the bonuses could constitute a “default event” under the ISDA Master Agreement that would trigger AIG’s trillion-dollar liabilities immediately. Sounds as if that’s not probably not the case, though Geithner may have been fooled. (Or “fooled.”)
When are these people going to jail?
27 Ways of Looking at a Financial Crisis
27 Ways of Looking at the Financial Crisis. At FlowingData.
Wednesday Links
Time for a quick linkdump.
* Even Lex Luthor needs a bailout.
* Two for fans of last night’s comics archetype times table: A Sketch Towards a Taxonomy of Meta-Desserts and Fun to Draw.
* Is this the end of capitalism? David Harvey and The Nation‘s Alexander Cockburn report. (This time for sure.)
Buying the Bezzle
North Carolina’s Rep. Brad Miller (the Fightin’ 13th!) is trying to figure out what the banks are up to. More at MetaFilter.
John Kenneth Galbraith wrote that embezzlement is “the most interesting of crimes” for an economist. Embezzlement is almost always eventually discovered, but for a time results in “a net increase in psychic wealth,” when the embezzler “has his gain” and the victim doesn’t miss it. Galbraith called the undiscovered and therefore unfelt loss “the bezzle.”
According to Krugman, the stock in banks that are solvent only by virtue of an “optimistic” valuation of their assets “isn’t totally worthless,” but the stock’s value is “entirely based on the hope that shareholders will be rescued by a government bailout.” The “huge gift to banks shareholders at taxpayer expense,” Krugman said, was likely to be “disguised as ‘fair value’ purchases of toxic assets.”
So maybe insolvent banks are stalling for time, hoping that the economy turns around, that home prices will go back up, or that sick borrowers will get well and unemployed borrowers will find jobs. Maybe they want to enjoy the “psychic wealth” of paper solvency for as long as possible.
And maybe they’re hoping we’ll buy their bezzle.
TEotFWaWKI
How does this happen? How can the person in charge of assessing Wall Street firms not have the tools to understand them? Is the S.E.C. that inept? Perhaps, but the problem inside the commission is far worse — because inept people can be replaced. The problem is systemic. The new director of risk assessment was no more likely to grasp the risk of Bernard Madoff than the old director of risk assessment because the new guy’s thoughts and beliefs were guided by the same incentives: the need to curry favor with the politically influential and the desire to keep sweet the Wall Street elite.
And here’s the most incredible thing of all: 18 months into the most spectacular man-made financial calamity in modern experience, nothing has been done to change that, or any of the other bad incentives that led us here in the first place.
The end of the financial world as we know it, in the New York Times. Widely linked this morning, but I first saw it on MetaFilter.
Krugman Will Save Us
Krugman in the New York Review of Books explains what we need to do.