…and removes all doubt.
…and is utterly, completely underwhelming.
“The truth is I don’t know what the bailout is yet,” Biden said Wednesday afternoon in Maysfield, Ohio. “It looks like they’re lending them a little bit of money. I don’t know what they’ve done, I haven’t had a brief on it. I haven’t spoken to the Secretary of the Treasury.”
…and these are the people we’ve been waiting for?
Gee Joe, the economy is the political issue now. Ya’ think y’all might wanna get schooled on the subject?
Truth is, the Democrats don’t know anything about “The Economy, Stupid.”
…and blaming the “suffering” of the middle class on Bush’s policies is political dejecta.
The federal government is loaning AIG $85 Billion at eight percent interest which is to say the Fed could potentially profit in the deal.
Make no mistake. This is an unwise installment is what in looking more and more like a serial government bailout that will only encourage more deservedly failed enterprises to line up with their hand out. Further, these short-term fixes only serve to undermine the long-term health of our economy by weakening our dollar.
The prospect of a government bailout (now in place) of Fannie and Freddie emboldened them to take risks they would otherwise not have taken. The cascade effect allowed Washington Mutual, AIG, and others to follow suit. They, along with GM are now raising the white flag.
These companies should be condemned to suffer quick, conspicuous deaths, allowing their assets to be picked up by their rightful owners – those institutions that wisely resisted the lure of chasing too little reward by accepting too much risk.
Meanwhile, Joe Blow Biden incredulously believes this to be the time to talk of raising taxes.
Democratic vice presidential candidate Joe Biden said Thursday that paying more in taxes is the patriotic thing to do for wealthier Americans. The Republican campaign for president calls the tax increases their Democratic opponents propose “painful” instead of patriotic.
“We want to take money and put it back in the pocket of middle-class people,” Biden said in an interview on ABC’s “Good Morning America.”
Versus stimulating and enhancing the opportunities to earn it themselves, right Joe? You arrogant socialist hack.
A more accurate choice of words is “confiscate”. Only a liberal democrat would assert that “taking” money from those that have leveraged the American Dream by investing, working hard, and employing others will somehow result in a stronger America.
I’m actually starting to believe Obama’s assertion that Joe Biden is a regular “lunchbucket” kind of guy. Just exactly the wrong kind of myopic mind to be assuming leadership of our nation.
Gee Joe, the economy is the political issue now.
Wrong! The political issue of the moment is Sarah Palin’s tanning bed.
Wrong bucket, sir. But an excellent post, JRoosh.
Aren’t these the same people that ridiculed Palin for wanting to get up to speed on all the issues before opening her mouth??
Mitch displays gross economic illiteracy
“The federal government is loaning AIG $85 Billion at eight percent interest ”
I am sure the AIG plan is more than just this simple loan. There are many details to the deal, most of them secret. Biden would like to know those details before approving the deal. Kind of like reading the contract before you sign.
“Further, these short-term fixes only serve to undermine the long-term health of our economy by weakening our dollar.” A. How is the world would letting AIG fail lead to a stronger dollar in the long-term? B. Isn’t a weaker dollar long term, or at least, mid-term good for the U.S.? We currently have a massive trade deficit and a massive capitol flow deficit. A weaker dollar boots exports and helps reverse our negative capitol flow.
“The prospect of a government bailout (now in place) of Fannie and Freddie emboldened them to take risks they would otherwise not have taken”. How? AIG, Bears, and Lehman were done in by decisions made long before Fannie and Freddie got bailed out.
“These companies should be condemned to suffer quick, conspicuous deaths, allowing their assets to be picked up by their rightful owners – those institutions that wisely resisted the lure of chasing too little reward by accepting too much risk.”
But that is the whole point of ‘too big to fail’. The death of Fannie, Freddie, or AIG would not be quick. It would cause a general shut down of all capital markets and an end of inter-bank lending. If they go down, they take everyone else with them. Unless the profitable companies but their cash under the mattress the will not have the money to buy anything, let alone the assets of Fannie, Freddie, Bears or AIG.
Opps. Sorry Mitch, that was JRoosh displaying the illiteracy.
Rick says “I am sure the AIG plan is more than just this simple loan. There are many details to the deal, most of them secret”.
So you know nothing, you’re SUUUUUURE there’s more to it than meets the eye but you can’t possibly say what – but Roosh, the guy who actually works with money for a living, is the illiterate?
Uh huh.
According to published reports, AIG is being loaned $85 billion at about 11% interest. (Eight and a fraction above “the three-month London interbank offered rate”.)
In addition, in return for making the loan, the Feds get just under 80% of AIG’s stock. See http://www.bloomberg.com/apps/news?pid=20601087&sid=avTqlUhQQOfs&refer=home
AIG has 1.1 trillion in assets, according to the papers; its liabilities are apparently a lot less than that, but it’s got some short-term obligations, and limited liquidity — its assets can’t easily be converted into cash to meet its obligations.
If AIG goes totally belly-up, the common stock — including the Feds’ 80% share — will be worth very little; the creditors (including the Feds) are first in line. That said, AIG would have to owe a heck of a lot to wipe out that 1.1 trillion in assets.
If AIG doesn’t go totally belly-up, it’s hard to see how this won’t turn out to be the right decision, just in terms of the Feds’ bottom line.
When you add in the inevitable shock waves of a sudden AIG bankruptcy, it looks like the right, practical decision.
There may be details in the plan that would make it otherwise, or AIG could be in much worse shape than anybody’s suggesting, but from here, for now, it looks like the right call, in practice.
The analogy I heard on NPR (no snickering, please) yesterday is this: the Feds were given the opportunity to buy an 80% share in block of houses where there had been a horrible fire, in return for a loan. Some burned to the ground, totally; others were slightly damaged; others undamaged.
The plan appears to be for AIG to — without the pressure of an immediate bankruptcy looming — sell off various valuables (it’s owns a fleet of airplanes with a worth in the double-digit billions, for example) to repay the loan, pay off some other creditors, and get back on its feet.
If that plan works out, the folks who approved this will look like geniuses, and the AIG stockholders will be screaming bloody murder, as they’ve just had their share of the company cut to a fifth of what it was before.
Biden’s financial illiteracy here doesn’t surprise me. I took a look at his tax returns, and except for the big income and Schedule A numbers (mostly from the Senate), you’d think that you were looking at the tax return for a 35 year old plumber. His mortgage interest deductions indicate that he’s using his home as a bank (over half a million in debt I’d guess), and his Schedule B and C indicates that he’s not done terribly well at saving money.
And go figure; if he hasn’t figured out that his tax form shows he’s over-leveraged on his home and hasn’t saved much, he’s not going to be able to figure out that this is hte problem for AIG and others, either. Not the guy I want anywhere near a 3 trillion dollar budget.
Mitch writes:
“but Roosh, the guy who actually works with money for a living”
Well I am sure Roosh is a huge player on the financial scene. I am sure Bernankee and Paulson gave him a copy of the still very non-public loan?/purchase? agreement for AIG.
If so, he can answer some of the questions non-insiders like the me NYT still have about the deal.
http://dealbook.blogs.nytimes.com/2008/09/18/aig-so-many-questions/
Any light he can shed on the questions raised in the article would be much appreciated. Starting with things like:
“The rights the Federal Reserve has contractually obtained from A.I.G. are very unclear at this point. ”
In fact, it is not even clear that the deal has been finalized.
“We want to take money and put it back in the pocket of middle-class people”
Biden has subscribed to the Cy Thao Democrat accounting theory: “When we win, we take your money; when you win, you keep your money.”
[sigh]
In a perfect world, there is a wall waiting for these people to be put against.
Well I am sure Roosh is a huge player on the financial scene.
Rick, Al Franken called. He wants his sense of humor back.
Joel makes a simple, understandable presentation of the deal, and a half hour later you post this little gem. Your almost good enough to be an Obama speechwriter. They’re a bunch of sarcastic a-holes too.
We’ll help Rick out on how letting AIG fail would help the long term health of the dollar; most of the money supply derives from the multiplier effect of fractional reserve banking, and most of AIG’s problem is their bond rating. In other words, their debt is no good.
If you let them fail, banks and others write off bad debt, which reins in the supply of money, which makes the dollar stronger. If, on the other hand, the Fed creates another 180 billion dollars, that increases the money supply and the dollar is weaker.
One doesn’t have to be a consultant to the Fed to figure this one out, though it does help if you don’t take Galbraith too seriously. There are arguments, pro and con, to the bailout, but the issue that Rick isolated ain’t that complicated.
Another way letting companies die helps the long term health of the dollar; it lets bankers and investors know that Uncle Sam is NOT going to bail them out, and poorly chosen loans never are underwritten because people learned their lesson.
The article RickDFL links to asks some interesting questions, but they seem to be of the “does the purchase price of the home include the right of way to use a disputed sidewalk?”. question about a home sale. They mostly boil down to whether or not shareholder approval is required & will it be given.
RickDFL said:
“Well I am sure Roosh is a huge player on the financial scene.”
So, because JRoosh may not be BFF with “Bernankee and Paulson”, I should listen to the uninformed opinion of RickDFL instead? Sounds pretty goofy, but is a typical example of RickDFL “logic”.
Kermit:
Joel’s post does not answer the questions raised in mine. So, Biden has perfectly good grounds for wanting more details. If JRoosh has the inside dope Mitch says he has, then it would be helpful to know.
Terry:
The open questions seems to me at least more important than you suggest. If the GOP generally takes such a cavalier attitude towards an 85 billion dollar deal, that may explain how they ran the economy into the ground.
Bike Bubba:
While the default of any particular company (all things equal) may make a currency weaker in the very short-term, it is unlikely to have any effect on the long-term strength of that currency. Same with the Fed injecting funds, the short-term results will be a weaker dollar, but the long-term results are totally indeterminate.
What does Gailbraith have to do with the question?
“it lets bankers and investors know that Uncle Sam is NOT going to bail them out, and poorly chosen loans never are underwritten because people learned their lesson”
That is just silly. Are you against the FDIC too? Economists, both right and left, agree central banks ought to act as a lender of last resort in order to prevent a complete freezing of credit markets or liquidity traps. No one wants to go back to the days of Andrew Mellon.
Rick, actually the default of a particular company tends to make the currency stronger by reducing the money supply. That was what FDR was fighting mightily in the 1930s, and FDR’s intervention kept the Depression going more or less until Hitler marched into the Sudetenland.
In other words, yes, the Fed, FDIC, and Galbraith do have a great deal to do with the malinvestment that is blowing up in our faces today. It shields investors from responsibility for their actions, and the natural result is that those stupid actions happen more often.
Abandon it altogether? Not likely at this point, but refusing to bail out companies would be a great start.
I’m not TerryGOP, RickDFL. I’m registered as an independent. The big question is whether or not the fed and AIG’s board can convince the shareholders to go along with the deal, and failing that, whether or not the board & the fed can bypass their vote. The fed is the 800lb gorilla in this case. I’m pretty sure it’ll get its way.
If the board or the shareholders have another deep-pocket buyer in the wings they should trot it out. If you want answers or have concerns contact Klobuchar or Coleman.
The NY Times financial writer is a kibitzer and what he writes should be taken in that light.
Rick — how about let’s split the difference? I think it’s great to want to know the details and all, but you’re very, very, very interested in the minutae of this deal in a way that you’re characteristically uncurious in the line-item details of, oh, Barack Obama spending plans. I question the timing special curiosity.
What it looks like, from this remove, is that AIG was in the position of negotiating its utility bill while plugged into the heart-lung machine, and it seems very unlikely that they were in a position to get a sweetheart deal. If it was that, it’s unlikely that Hank Greenberg (AIG’s former CEO and former biggest stockholder) would have lost 95% of his net worth., say. (I’m not going to worry about him being on food stamps, mind; he’s still worth something like half a billion dollars.)
And if the Feds, under Bush, had spent another three months negotiating and answering the (actually pretty reasonable) questions you raise, AIG would have collapsed, and you’d blame them for that.
Even Obama isn’t condemning the deal; he just wants to be sure that the “shareholders and management” of AIG (you know: the little old ladies who have AIG in their portfolios, as well as the managers) don’t get the benefits of the bailout. (Which, given that they’re turning over 80% of their stock, seems rather unlikely. AIG would have to perform miracles to recover even a tenth of its former value for its now-20% shareholders.)
Roosh is the one who blamed Paulson for Fannie Mae..
A real genius comment, considering Fannie Mae and Freddy Mac were in deep trouble long before Paulson’s appointment, AND that most of their trouble came from loans they were obligated to buy, not from some sense of hubris at knowing the Fed was behind them.
Rick has it right, on the one hand, you expect infalibility – and on the other, you don’t/wouldn’t allow Biden the opportunity to be advised on the specifics. This deal could be a tremendously costly or tremendously prosperous one for the public, but it’s hardly a slam dunk either way. The minutae and risks often are in the details.
And Mithc,
I not only ‘work with money’ and ‘in the industry’, I work backing banks – I work with Lehman AND AIG very directly, thank you very much. I suppose this makes me THE expert, by your standards.
And Mitch, the details are pretty F-in complicated, even the public ones.
This debacle sits at the feet of Republicans (and a few Democrats) – trying to deflect this discussion onto Biden is asinine.
And in that Rick’s talking point about how the GOP “ran the economy into the ground” conveniently ignores the fact that Barney Frank and Nancy Pelosi blocked a Bush initiative to better oversee Fannie and Freddie becuase they were worried about poor folks not getting home loans.
I can play that game too, Rick. The economy was chugging along just fine until 2004 when the Democrats got control of Congress and ran the economy into the ground.
Bike Bubba:
“actually the default of a particular company tends to make the currency stronger? Can you keep your story straight? Earlier you said the reverse. But still, whatever the short term effect, it would have no long-term effect.
“reducing the money supply. That was what FDR was fighting mightily in the 1930s” What are you talking about. Generally, FDR was fighting deflation by trying to expanding the money supply and create inflation (although his policy was inconsistent) and he attacked the strong dollar by taking the U.S. off the gold standard.
I think you are confusing Galbraith (1960s) with Keynes (1940s).
“the Fed, FDIC, and Galbraith do have a great deal to do with the malinvestment that is blowing up in our faces today. It shields investors from responsibility for their actions, and the natural result is that those stupid actions happen more often.”
Then riddle me this Batman. Why is the center of this catastrophe, not the more heavily regulated commercial banking sector, but the mostly unregulated shadow banking system? It wasn’t FDIC insured banks that got most heavily overleveraged on sub-prime MBSs and credit default swaps, it was the more unregulated investment banks and the unrequlated hedge funds. Fannie and Freddie did not get into trouble until the were privatized and de-regulated.
joelr:
I would be happy to split the difference. I agree with you, Obama, and Bidden that the Fed has to do the deal. Whether they did a good deal will depend, somewhat, or the details. Ergo it was perfectly appropriate for Biden to reserve some judgement and highlight the need for all of us to find out the details.
“I not only ‘work with money’ and ‘in the industry’, I work backing banks – I work with Lehman AND AIG very directly, thank you very much. I suppose this makes me THE expert, by your standards. ”
Well, that certainly explains why they failed. I had $15K in Bonds in Lehman brothers. Thanks a lot Peev.
RickDFL: “Well I am sure Roosh is a huge player on the financial scene.”
I may be down their list a bit but I you’re not even on it.
And besides, most of my energy of late is devoted to my MOB Mayoral Campaign.
Penigma: Roosh is the one who blamed Paulson for Fannie Mae..
That’s not technically true. I blame Paulson for making their dreams come true. They were taking irrational risks mitigated by the notion that they were “too big to fail” in the government’s eyes and Paulson proved them right.
…and set the current precedent. Sort of how welfare has enslaved generations of Americans.
Buzz beat me to it!
😆
Rick DFL: A. How is the world would letting AIG fail lead to a stronger dollar in the long-term?
Because the Fed “prints more money” to save AIG.
B. Isn’t a weaker dollar long term, or at least, mid-term good for the U.S.? We currently have a massive trade deficit and a massive capitol flow deficit. A weaker dollar boots exports and helps reverse our negative capitol flow.
The benefit of a weaker dollar can be likened to peeing your pants to stay warm in the winter. It only works for a few minutes.
And besides, most of my energy of late is devoted to my MOB Mayoral Campaign.
Yeah, you can put lipstick on a pig….
RickDFL, I am keeping my story straight, and yes, Keynes gets some blame here, too, along with Galbraith. For those of you apparently in Minnesota’s own Rio Linda, I recommend you pay careful attention to Roosh’s response to your same question.
And why are Fannie and Freddie having problems? Well, they hired executives who Barack Obama was willing to associate with, for starters, and apparently they’re doing business with Penigma as well. You hire people who don’t believe in malinvestment, who will use government perks to the max, and wonder of wonders you get malinvestment.
Duh.
The Palin email hacker….it’s the son of a Tenn Democrat state legislature. I’ll have to go back and find the link, but if it is a true picture of him, he looks and awful lot like Dave Thune. Most be the look for overweight moonbats.
Rick, far as I know, Obama has not come out and said that the deal had to be done; at least as of noon today, it appears that he’d taken a pass on staking out a position, other than on the little old ladies and the managers.
An Obamamaniac would attribute that to laudable restraint; an Obama critic would attribute that to a lack of decisiveness.
I report; you decide.
Has anyone bothered to keep track of how many jobs/professions Peni/Peev has professed to be involved in?
“This debacle sits at the feet of Republicans (and a few Democrats) – trying to deflect this discussion onto Biden is asinine.”
Oh, please Peni try to explain how! & I mean coherently.
RickDFL,
Care to guess how long FDR kept the dollar off the gold standard? Care to guess why he panicked & put it back on the gold standard after that period of time? Care to guess what action FDR took in 1937 that caused the “depression-within-the depression”?
Hint: Bastard Obama & Slow Joe Biden are overtly promising to do the same exact thing in every single speech they make.
JRoosh:
“Because the Fed “prints more money” to save AIG” A. I asked how letting AIG fail would lead to a stronger dollar in the long term, and you tell me how saving AIG will lead to a weaker dollar in the short-term. Any dollars the Fed puts into the market to get through a short-term crisis, can latter be taken off the market. That is what the Fed does, regulate the money supply. Once again no long term effect.
“It only works for a few minutes.” Well sort of. If a weak dollar helps us correct our trade and capital imbalances, then the lovely free market will bring back the dollar to par. Same with a strong dollar, it will promote imports and an inward flow of capitol, when we have too little of both. Ideally, a country’s currency will oscillate gradually between the two according to global market conditions. That is the goal, not a permanently strong or weak dollar.
Rick, fiscal sanity in the short term is a necessary, but not sufficient, component of fiscal sanity in the long term. You abstain from wetting your pants in the winter to keep warm, don’t get frostbite, and you remember that the next time you’re out ice fishing. Things get better for the long term when you mind your Ps and Qs in the short term.
BB, I couldn’t have put it better myself.
…and would add that the more our country borrows the less intrinsic value our dollar represents.
…and we are borrowing every day of every month of every year because liberal policies both the GOP and DNC.
Bike Bubba:
Now you are just equating “fiscal sanity in the long term” with “strong dollar in the long term”. Fiscal sanity over the long run leads to neither a strong nor weak currency. The whole point of open capitol markets to allow countries to float easily between the two.
If you want to argue that Bush’s AIG bailout is bad for the economy long-term feel free, but that has nothing to do with whether our currency will be strong or weak in the long run.
Actually, Rick, a strong currency IS a good measure of fiscal sanity. Are we to seriously argue that losing large portions of the spending power of our currency is financially responsible or sane? Strong currency is sound currency and sound economics.
Nostalgic for the man from Plains, Rick?
And again, whether we create tens of billions of new dollars via the Fed has EVERYTHING to do with whether we will have sound monetary and fiscal policy. Are you seriously unaware of the power of a prior example, Rick? Of a precedent?
Bike Bubba:
It is rapidly becoming clear you have no idea what you are talking about.
“a strong currency IS a good measure of fiscal sanity”. No a strong currency indicates an economy out of balance. Market forces (reduced exports or capitol inflows) will correct and bring the currency back to neutral.
“Are we to seriously argue that losing large portions of the spending power of our currency is financially responsible or sane?”
Currency fluctuations do not impact the spending power of a currency with regard to domestic purchases. They do make imports cheaper and exports more expensive. That is good for some sectors of the economy and bad for others, but generally a wash. Whether it is good or bad depends on your trade/capitol balance. If you import to much you want a weaker dollar. Currency valuations are the major tool by which the market keeps the economy in balance. Free market 101
“Are you seriously unaware of the power of a prior example, Rick? Of a precedent?” But that simply begs the question of whether the bailouts are good for the economy. No bailouts could easily lead to weaker currency. If there is no bailout and the economy collapses and the U.S. defaults on T-Bills, that would make the dollar a weaker currency in the long run. You can not say the bailout is bad because it cause a weaker long-term dollar, unless you first show the bailout is worse than the alternative.
Rick, if you want someone who is unclear on economics, get yourself to a mirror.
You want to claim that currency fluctuations, say vs. the yen, won’t affect my spending power if I, say, want to buy a Toyota? Or if it drops vs. the euro, I’ll be able to buy the exact same amount of Lindt chocolate as I would before? Uh-huh.
And you’re trying to tell me that inflating the money supply won’t have a short or long term effect on the strength of the dollar–as obviously the inflation of Zimbabwe’s currency, or Weimar Germany’s, didn’t materially degrade the exchange rates?
Just because there are other factors in play here does NOT change the reality that the short and long term value/strength of the dollar does depend on the Fed’s willingness, or reluctance, to inflate the money supply. One can argue that other factors may reduce the impact of the Treasury/Fed decision here, but no sane economist, and not even that many Keynesians, will seriously argue that increasing the money supply can fail to degrade the strength and purchasing power of the dollar.
Bike Bubba:
“You want to claim that currency fluctuations, say vs. the yen, won’t affect my spending power if I, say, want to buy a Toyota?”
I think I was about as clear as humanely possible on that issue when I said “They do make imports cheaper and exports more expensive.” I guess I could have been 100% clear to say that specifically referred to a stronger dollar, but I thought everyone knew these things. Currency values affect the price of imports and exports, but not domestic products. And again the result is a wash. A stronger dollar makes your Toyota cheaper, but you sell less corn to Japan.
“And you’re trying to tell me that inflating the money supply won’t have a short or long term effect on the strength of the dollar–as obviously the inflation of Zimbabwe’s currency, or Weimar Germany’s, didn’t materially degrade the exchange rates?”
No I have said over and over inflating the money supply will, in the short term weaken a currency, but it has little or no impact on the long term value of a currency. For example the weak German mark of the 20s and 30s latter became the strongest currency in Europe. The weak U.S. dollar of the mid 80s gave way to the strong dollar of the 90s, gave way to the weak dollar of the 00s.
“the short and long term value/strength of the dollar does depend on the Fed’s willingness, or reluctance, to inflate the money supply”. Again short term yes, long term almost nil. People evaluate the current Fed – its options and track record. Volker’s early 80s deflation, Arthur Burns’ early 70s inflation, or FDRs policy of both have almost no influence on the current value of the dollar.
“One can argue that other factors may reduce the impact of the Treasury/Fed decision here, but no sane economist, and not even that many Keynesians, will seriously argue that increasing the money supply can fail to degrade the strength and purchasing power of the dollar. ”
It is like you are arguing that filling the sink today will make it more full 50 years from now. It sort of sounds plausible, if you pretend nothing else happens. Seriously, go talk to real currency traders. As they price currencies today, exactly none of them are thinking about what a central bank did 20, 30, or 50 years ago.