Fed takes over AIG
dealbook.blogs.nytimes.com
dealbook.blogs.nytimes.com
Nice redefinition of AIG.
where do the Reserve get the money? do they print it? gold reserves? next year's taxes? asia?
a 1982 law lets treasury notes be redeemed with CREATED accounts, as in one of the partner banks of the reserve simply creates a new account by punching in the digits, and they assign it to you
once again, this is law since 1982
this is why US treasuries have 100% certainty inside the USA while the US dollar still exists
I would imagine they would have other alternatives.
From what I understand, this sort of a move is basically done by inflating the dollar causing anyone who has savings to lose out (the people without savings only lose if their wages don't catch up).
On top of that this isn't for the shareholders. It's to keep a financial system from collapsing. You can argue that it wouldn't have collapsed. That this makes it more likely to collapse etc. Sure.
PS: If AIG still had all it's dividends from the last 10 years it would not need any government money.
I, for one, welcome our soverign wealth fund overlords.
Should I invest in stocks via my business?
If I sell, it would be capital gains taxes for an individual (me) who owns the business, not capital gains for the small business, so maybe I'm still misunderstanding what is intended.
All gains for small businesses are capital gains. Treating capital gains (as opposed to wages) differently is a characteristic of personal income tax. So I think they were referring only to individual investment in small business.
The way the document is written is a little creaky, so it does seem to suggest what you thought it did, that there are "business capital gains" that businesses pay a special rate on.
Propping up the credit market is, yet again, screwing savers like me in favor of the spendthrifts.
btw: what's your age now?
Lest we forget that easy credit and living above our means is what got us into this mess in the first place.
The Fed doesn't know what those securities are worth, either, but they can calculate what preventing a collapse of the financial system is worth, and compared to that, $85B is chump change.
It seems naive and narrow minded to think another company won't step in if there is a continued need for the services that AIG provide{d|s}. This new company is likely to make better decisions. First, because they saw AIG fail. Second, because they didn't fail and thus were stable enough to exist while other giant financial companies failed.
But it's unrealistic to think that the vacuum could be filled fast enough to prevent a wave of failures among AIG's clients (banks who bought credit insurance to get around regulatory limits).
There's more detail here: http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/09...
How about limiting the size of companies that are not allowed to die for damage control? Or limiting their ability to become companies not allowed to die?
This article sums up the dilemma Treasury faces, including the whole "too big to fail" problem: http://dealbook.blogs.nytimes.com/2008/09/17/henry-paulsons-...
However AIG obviously isn't an investment bank. A failure of AIG would affect people outside of the financial sector who have purchased AIG insurance products (including me). The pragmatism of the fed bailout is to prevent the financial meltdown from spilling over into the real economy. Believe it or not, GDP growth in the US is surpassing projections (3.3% in 2Q 2008 ahead of a 1.9% estimate - see http://www.iht.com/articles/2008/08/28/business/usecon.4-326...). The real economy isn't doing that badly, and the pragmatic choice would be to protect that.
I only have to cancel and buy it from another company. right?
Have you ever read the guy? It's awful.
Chile had a socialist president 40 years ago. He was overthrown by a military coup in Sep 11, 1973 (note the date)
Now days, Chile is one of South America's most stable and prosperous nations.
Add to that that they have a business friendly environment, land access to the rest of the EU and are big free trade lovers and you've got a pretty good place to settle.
It has everything to do with government's indisputable inefficiency due to a lack of competition.
Your views on the world and government are inherent to where you were "randomly spawned", since they are inherent to the environment and culture you've been exposed to.
My comment was by no means an insult, just an observation.
This: "Patriotism is your conviction that this country is superior to all other countries because you were born in it." is one of my favorite quotes :). I'd argue it isn't a very "American" thing to say, but who knows. Ironically, Shaw was a socialist.
The book "Silicon Dragon" is a fascinating read.
Sweden had a major banking disaster. Their government allowed them to fail. Their banking system is solid now.
You aren't even addressing the given reasoning for the bailouts. Meaningless platitudes don't solve problems.
You don't have to address the other sides reasoning because it's hard to find every flaw in an opponent's argument.
"You don't have to address the other sides reasoning because it's hard to find every flaw in an opponent's argument."
But the other side has put out a public statement explaining their actions. This isn't about predicting how someone is going to make their case. The case has already been made. At the very least, you have to address their justifications.
Also, after actually looking into the example, it looks like Sweden did bail out the banks to end the crisis: "The government rescued the banking system by issuing a general guarantee of bank obligations. The total direct cost to the taxpayer of the salvage has been estimated at around 2 per cent of GDP." (http://ideas.repec.org/a/oup/oxford/v15y1999i3p80-97.html)
Even with a valid counterexample, I think you should still have to explain why the current course of action is wrong, not just why another would be right, which is why I didn't address it in the first place.
As far as Sweden's banks go, I think you should check again. They have losses in US mortgages (it wasn't just US and Chinese banks buying those securities) to cover and are also feeling the heat on over-exposure to Baltic loans that are starting to go sour. The Swedish bank takeover was somewhat akin to the US S&L takeover in the 80s, except in the US case it did not eat 4-5% of GDP...
http://www.nytimes.com/2008/09/17/business/17insure.html?_r=...
And, what's value? A change in market price of stocks does not imply a change in the underlying compant. (For a very technical meaning of 'imply'.)
http://video.google.com/googleplayer.swf?docid=-905047436258...
Do you know how many people are not insured and cannot afford insurance? ("Go to the emergency room" is not a health plan.)
Do you know how many people with serious illnesses are turned down by their own insurance companies every year?
I'm not saying socialism is an automatic answer, but it'd better than this mess.
Having health insurance provided by the State (i.e. you through your tax dollars after several layers of corruption and bureaucratic waste) does not guarantee quality of care. A competitive free market is more likely to develop better medicine.
I'm curios though, how do you guarantee people who are sick/hurt/dying behave as rational actors?
I might be mis-remembering but i thought rational actors were a requirement, otherwise they would be to quick to give away money.
I think those who want socialized medicine have to justify aggression (initiating force through taxation, regulation, etc.) They also have to convince us that the masses (in the case of a democracy) can make better decisions than the individuals directly involved in each particular situation. They have to explain how people would be motivated to innovate in a system lacking competition and guaranteeing equality of outcome (this, is what I'm assuming is meant by "socialism", by the way).
I think these questions are of interest to us and the "hackers" of other disciplines... we want an environment where people are free to try new things. Mitigating the risk of failure should can also be managed by the market through insurance, which, getting back to the original point is privilege not a right because one has no "right" to the goods/services of another.
So, sure, it would be a great idea for everyone to contribute to a large pool for health insurance... but on a voluntary basis. Those who decline to or cannot pay will have to rely on charity if something happens. I can feel bad for them but I would not feel justified in putting my gun (or a tax collector's) to someone else's head to make them pay for it.
This is all assuming that both insurance and healthcare costs will both decrease dramatically when America rids itself of the heavy regulation of and handouts to the respective industries by going to either a completely socialist or capitalist system.
But at the same time, I think that people should HAVE to put into the pot, or you end up with a Tragedy of the Commons. No-one pays, because they don't like to think they'll get sick.
And then when they do, well, it's too late.
(I should note that I am biased towards socialized medicine, being an aforementioned sick person)
rational = utility maximising utility defined by consumer choice
Basically, they pay anything because it's worth anything.
It's an easy topology exercise to prove that if preferences are transitive, then a utility function exists (I think you may also need to assume a countable number of goods/services).
The American freemarket system clearly doesn't work very well.
I think that your comment splendidly proves my point.
The graphs alone should open the eyes of any who defends the current US system.
Of course Cuba and the US are both outliers. But realistically the US should be able to get results that are much closer to other first world countries.
Table 10 on page 200 measures "attainment", which is something along the lines of (actual health improvements due to health care) / (best possible health improvements given spending level). That's a very different quantity than quality of care, which is what the original poster was talking about.
(It's actually more complicated, education levels are somehow worked in and details are described elsewhere.)
Rankings and indices are great, but it helps to know what you are actually ranking.
IMO, there's a good case to be made for a baseline of mandatory basic healthcare (i.e. no dying in the streets, no choosing food this week over a visit to the doctor), which should be tax-funded for families below a certain income threshold.
The other end of the stick is the hospitals and doctors themselves, and there is absolutely nothing that suggests that they become more efficient or cheaper, if they are made public employees. Quite the contrary, I'd argue.
Well, yes & no. A free market does develop good medicine in much the same way as it develops good everything else. But what you are usually measuring something essentially different when evaluating medicine.
You could say that a free market system should produce more medicine. But (as free markets do) this is distributed unevenly among the population. that's OK when you are talking about shoes. Your free market will produce more shoes then a nationalised shoe industry. But a lot of those will end up in the closets with 20+ pairs or in the form of $500 shoes. Same with medicine.
The US is a good place to go if you want $10m surgery. But if you are measuring public health: life expectancy, infant mortality, death from preventable diseases, & such a $1 at the bottom goes a lot further then $1 at the top. The gains made from flattening the system, generally outweigh the lost effeciency.
Essentially, this is a highly tangled problem and a simple solution won't do.
Bingo. There's a nice discussion of just a bit of the economics involved in health care in "The Undercover Economist". It's really a very complicated subject because it is not your typical market for something like shoes, to use someone else's example. Pure capitalist systems will leave at least a few unfortunate individuals to die or suffer from easily/cheaply curable diseases. Pure state run systems throw out all the useful information that a market provides and introduce inefficiencies of their own.
You guys keep thinking about this as if the economy existed in a world where buzzwords & their associated connotations are absolute. You are not choosing between US 2008 & 1963 Soviet Russia. The most radical model likely to ever be proposed in the US is something like the UK's.
The system tries to provide internal pressure to reform (just like big companies do). There will probably be a decline in mean medical care from an economic utility standpoint (to the extent that term has any meaning - I think very little) There will be a dramatic improvement in health to the bottom 25% -30% resulting in huge gains to life expectancy & similar indicators.
As a bonus that the fear Americans have of being left without health cover will lift.
Capitalist evangelists of various sorts are always quick to point out there are no good example of command economies performing well. That's fair. But there are plenty of examples of 'socialist' health care systems that work. They perform well on any meaningful scales at a cost lower then the US's. From Cuba (an outlier but a very interesting one) to the UK to Japan. Pick one.
If not, then the answer to your question is "yes".
When you say "socialism" what exactly do you mean? I think it is one of those words that has lost its meaning since there are so many different definitions of it and we're not always on the same page.
edit: :( what did i do?!
If you're upset about being downmodded, I'd suggest
1) Carefully re-read your comment, looking for ambiguities or excessive partisanship.
2) Look for patterns in the rest of the comments--I'd expect downmods on a "government actually handles [common scenario] pretty well" post in a thread full of mises.org and lew rockwell references; and just resolve to live with it.
3) Just wait. Sometimes there's two or three quick, reflexive downmods that can dent your self-esteem, but often your comment's opinion-o-meter will rise hours later, and leave you feeling rather silly if you added another comment just to complain about downmods.
I would rather die form cancer at home with my family than in a hospital with people who are only pretending to treat me.
Now for the first one, there is a clear and self-interested argument for public health measures that even the most laissez faire libertarian could get behind. Namely, that the prevalence of flu amongst the lower classes means that you and your precious sprogeny are more likely to die of it.
For the other two we have to rely on those outmoded and declassé ideals about compassion and bettering the human condition, and the tediously earnest argument that the less suffering there is in a society, the better off everyone in that society is...
But, really who cares; I mean you've got yours, or you are on the way to getting yours and the rest of the human race is of no concern to you other than as service providers or as customers right?
With such large confounding factors, how can you draw the conclusion you seem to be implying?
No, since nobody would be middle-class or above, it would only be poor people dying from treatable diseases.
Hasn't the USA at the same time demanded open markets of all other economies in which it invested or participated in some way?
Hasn't the USA's tax dollars funded most private research, yet the economic benefits have been ripped by private industry?
The double standard is just showing a bit more than usual at the moment, but nothing has changed.
Rent seeking is in the DNA of democracy.
Eating grass doesn't make you a sheep.
God, that was too easy.
http://en.wikipedia.org/wiki/Duck_test
...used the phrase when he accused the Jacobo Arbenz Guzmán government of being Communist. Patterson explained his reasoning as follows:
Suppose you see a bird walking around in a farm yard. This bird has no label that says 'duck'. But the bird certainly looks like a duck. Also, he goes to the pond and you notice that he swims like a duck. Then he opens his beak and quacks like a duck. Well, by this time you have probably reached the conclusion that the bird is a duck, whether he's wearing a label or not."
Obviously, these bail outs have their costs, such as the value of money lent as well as increased moral hazard, but it's worth considering whether this is worth the potential cost of a market collapse to the whole economy.
To make the pro-bailout argument more clear, here is one reputable economist predicting that if we had let the FMs default, the dollar would drop about 30% and unemployment would double, in about a week.
http://www.marginalrevolution.com/marginalrevolution/2008/09...
For what it's worth, my day job and my main part-time job are both entirely dependent on the market, so I sure hope the market doesn't need to crash. I agree with David Einhorn (who, by the way, has been short Lehman for a while): the stock market is okay, but the credit market is way overpriced.
it won't. this loan doesn't unwind the terrible decisions aig (and others) made, nor the hedges they tied to those decisions, and the hedges they tied to those hedges, and the hedges they tied to those hedges.
the derivatives unwind cannot be stopped short of a repudiation of all global currencies. the amount of leveraged capital in hedge deals is still north of $100 trillion. no one has the money to pay that out. it would be easier just to erase the USD dollar than to circulate $100 trillion in new fiat wealth...the effect would be the same anyway...worthless dollar
There are entire industries that are heavily subsidized and regulated, Telecom, Healthcare, Energy, Transportation, etc... Our countries national roadway system came about more or less as an assistance to the automotive industry. The 401k laws have been a huge boon to the stock market.
And, now, the government is making a big move into finance and investment banking.
They are getting the loan at LIBOR + 8.5%. That's downright punitive.
LIBOR + 8.5% is not a rate at which a company with AIG's business model could survive at. AIG lends to people at around LIBOR + 4% for mortgages or LIBOR + a lower % to insure BBB to AA rated borrowers.
They'll probably have to sell off their assets in a hurry at below fair value. The longer they wait, the more pain the high interest inflict on them.
Amazing.
<i>"The Philippines is less vulnerable. It’s in a stronger position to withstand these events due to sensible and prudent fiscal response of the government." </i>