And China is worried:
Source: http://www.belfasttelegraph.co.uk/news/world-news/china-warns-us-over-loans-14226971.html
WHAT fire?
If you think that’s either the intent or the result, there’s little point in continuing.
Cut the crap, Captain Talking Point, and go learn about what bankruptcy does. When you’re in it, you lose control entirely to the courts and your creditors.
If that had still been a possibility for AIG, or at least preferable to bailout and socialization, don’t you think they’d have taken it? Apparently you’re smarter than they are about their own business - when did that happen?
That may be what the filtered blogs you use as your sole sources of information are telling you to think, but it still just ain’t so. It lacks even your own minimal level of internal logic to make the claim. If Congress wanted companies to declare bankruptcy, the faster and far cheaper way to do that was to do nothing. But, amazingly enough, they and both the previous and current administrations want to avoid another Depression. Makes no sense to you, I know, but there it is.
Stigma? What stigma? Even if there were one, who’d give a flying fuck? Managements have fiduciary obligations. They aren’t allowed to care about stigmas first. Really, where the holy fuck do you get these silly ideas about how business works?
Companies will do what they have to in order to avoid bankruptcy, yes - as has always been the case.
No more difficult than if there were no prospect of a bailout at all, hmm? Once again, you’re not making even internal sense. That’s the mark of someone parroting, not thinking. I would say you’re better than that, but we all know otherwise.
Absolutely it is. They’re allowing the company to survive and operate essentially unchanged. That’s a helluva lot easier than letting it die and let the economy dependent upon it collapse too, ain’t it? Why do you not think so?
They can all cry themselves to sleep on their pillowcases stuffed with cash, the poor dears. Get off it.
If you want to know what “as bad as it can get” is, go talk to someone who has just been laid off with no real prospect of new employment in the near term, steadily selling off assets to survive until there’s nothing left. Sympathize with them instead.
The very people who blew it in the first place?
You’ve heard many such. You, as usual, simply refuse to listen. That’s nobody else’s fault. Now grow the fuck up, even just a little. Show us you can do it. Just for once.
I would.
The expertise necessary to unwind these transactions and create a graceful shutdown is held by a precious few. It can take a decade before somebody can learn the ropes, and frankly, few people are capable of it. You need a gift for mathematics and a very fast and nimble mind.
Of those very few, all the ones you need to do it are at AIG. They are the ones familiar with the structure of the specific securities and transactions.
If somebody doesn’t do it, then the entire financial system unwinds. You’ll recall, that’s why the government stepped in. We could not afford the failure.
So, you need to hire these people to do it. They were hired on a contingency basis. They got $1 salary. They would get a bonus of a specific amount, when and if they were successful in fulfilling AIGS commitments, and unwinding the transactions in the sectors they were responsible for.
The fact that they are owed the bonuses means that they were successful. This is the best possible outcome for this mess. Spend a couple of hundred million to save trillions. It worked. Seems like money well spent.
On the other hand, one of the guys that got us into this mess is Dick Syron, who cooked the books at Freddie Mac, and ran through a whole bunch of red lights, and managed to bankrupt a company that to a large part was backed and funded by the Government. He got 19.7 million in bonuses in '07 for almost bankrupting the company, and had he not totally bankrupted the company in '08 he would have been guarranteed another 20 million in stock grants.
Stan O’neil got a 161 million dollar exit package. Killinger got 44 million for tanking WAMU. Charles Prince got 105 million for destroying Citigroup. Go after those guys.
If you want go after some of the bigger guys at AIG who got multimillion dollar bonuses.
The bulk of it though is amounts nowhere near this scale that are being paid to people hired to fix this mess. They deserve to be paid what they contracted for.
Go after the people that were responsible, the executive level at a company sets the risk management profile and direction. The board of directors is supposed to oversea it and make sure it’s reasonable. The regulators and politicians are supposed to make sure nobody is doing anything that can damage the system.
These are the guys that fucked up. These are the guys responsible. These are the guys pointing fingers and putting on airs of moral superiority. It’s all the same incestuous group of people who just migrate through boards and government and executive positions, back in forth, and they all just watch out for each other.
Thank you–finally, something we agree on completely. I have to ask–WHY is this not covered in the “news”? This is where (IMO) the real power and abuse lie. It is salt in the wound that the AIG guys got their bonuses? Sure it is, but if we want to correct this problem for the future (if we’re not all living in fridge boxes under the expressway), we need to identify the real culprits. I wish I worked in a corporate culture that awarded large bonuses–I could use the money–but nurses don’t get bonuses for job performance. IMO, our values as a society are as fucked up as they can be (a high class call girl makes more money than any nurse), but we have to deal within the confines of reality.
What to do next?
Well put. I’m a bear market guy. If you’re not trying to actively trade, then you sit on the sidelines until you hit the comfort zone.
For bear market stock picking, buy only the highest quality stocks with good cash flow that any idiot can look at and say 10 years from now that stock will still be a winner. GE is one I’m looking at for much the same reasons you are. It’s been beat up and trading far below where a realistic book value should put it at. But it’s a great company, well run, they raised cash early, and they will come out of this likely still the market leader in their main business lines. The question is timing.
Bear markets go on for far longer than most people “think” they should. Global bear markets go on for longer than that. Just because a stock has fallen 50% or 80%, does not mean it’s “cheap” or “value” in this new economy.
Go back to GE. Scylla, IIRC, you were talking about what a great bargain and dividend yield it had back in Feb. You got the right call but the wrong timing, and you didn’t take your own advice that past performance in this market can be relied on. That was before the div was cut, the credit downgraded and share price droped. The relative div yeild now is under 4%.
IMHO, GE is very likely to have more news come out that will punish the share price signifcantly worse over the next 6 or 12 months. Probably a bigger downgrade and/or more spectacular headline losses/exposure at GE Finance. That will be the time to buy.
A patient bear market investor picks out maybe 10 stocks, a couple of property plays, maybe even a brick and mortar business, and then cherry picks with low bids on bad headlines. There are going to be plenty of bargains over the next 2 years, so no need to rush in now on fear of missing out on the rebound.
eleanor
There’s probably a Church of the Blessed Free Market in your neighborhood, especially if you live in a gated community. They will instruct you in the essential principles of the faith, and you will understand why such people are worth far, far more than such social parasites as farmers, teachers, and truck drivers.
Right now the news is a thirty second blurb on the tube, and maybe about twenty lines on the financial section of print media. It may been covered and simply have had a short shelf life and been pushed off for the next story.
Declan
Oh sweetie, I grew up in a community that worships at the Shrine of the Blessed Cash is King. People will do a lot to maintain social prestige and power in such a place. It’s a strange place, lemme tell ya.
Do you have cite for these structured products people that hired on for $1 and the guaranteed bonus to unwind this mess at AIG FP?
I would be really happy to see a structured products and/or traders sign on for $1 and a giant stock bonus to be paid after the TARP funds are repaid.
The other assertation that only an AIG FP person can do the unwind is a crock. Any decent structured products person can go in, reverse engineer the products from the term sheets and be up to speed. And there’s plenty of good people out that have been let go over the past year to do this. Structured products guys reverse engineer their competitors products every day as part of their job. I did that for equity derivatives 15 years ago.
Sam, I don’t know what real world you live in, but where I live bonuses are based on *both *individual and corporate performance. And if the corp doesn’t make their numbers, then it certainly impacts your individual bonus. Heck, that was even true when I worked at Lehman Brothers, Swiss Bank and Nikko Securities. But seems like Wall Street entitlement has changed since I left the biz 12 years ago.
Could?. We are guaranteed to see interest rates skyrocket when the US and global economies come back from the cliff. Hopefully, the US learned the lesson of the Volker fed (btw, I feel much better that Volker is advising Obama), and will keep inflation reigned in.
What does Volker bring to the table?
That is true. I’ve been a fan of Ge all the way down. And, I’ve been buying it all the way down. I’m a bull market guy. Bull or bear, nobody can pick the bottom. I don’t try to. I just try to be a buyer along the curve as it drops. My average price will tend to be pretty decent.
No. I got that directly from Liddy while watching him testify. Since they kept asking him the same questions over and over so each politician could get his own soundbite, I’m sure it is pretty easy to find in a transcript.
They’ve gotten more complex. The fashion recently is to incorporate previously issued derivative based securities into new ones, so, particularly on the CDOs you end up with complex securities with pieces of other complex securities, with pieces of other complex securities. I’m not saying it’s impossible to reverse engineer them, but personally I would first chose the guys that put them together to take them apart.
Please take no offense, but fixed income and mortgage based securities become a lot more complex a lot faster than most equity based products. Someone new to these securities is going to have to climb the learning curve, and somebody who knows them is going to have a much easier, faster, and efficient time of it.
I will concede the point that it was hyperbolic to suggest the only people who could unwind them were the guys at AIG, but I still think it’s accurate to say they are the best people for the job, and they will have a much greater chance of success in a limited time frame than a newbie.
Agreed on the newbies, but I’d bet you that a hot structured product team from Goldies or MS could go in there and be doing a much better job within a week. I’d be a lot more willing to look at their compensation too.
No offense taken. I trained on all stuctured products, since by definition, structured products incorporate a wide range of “things” even if they are called “equity derivatives.” And I would disagree that they are a lot more complex. Structured product guys spend all day ripping up their competitors products, and dreaming up new ones. The more convoluted, the more areas to add edge and margin.
You guys fill me with such confidence. I think I shall leave instructions to liquidate my holdings. Coca futures. Yes.
It really depends. As I said, I just received a bonus for achieving something independent of the corporate bottom line. On the other hand, I not only lost last year’s overall bonus because the company lost money, but we had a pay freeze for this year.
Bonuses are incentives. Who gets them and why depends on what the company is trying to achieve. In the case of AIG, these were definitely retention bonuses - paid to people simply to convince them to stick with a sinking ship.
We’re quite familiar with that type of bonus in Alberta. In the last couple of years when the economy was booming, companies were paying retention bonuses like crazy. For example, new hires at 7-11 qualified for a $1000 bonus for no reason other than that they stayed with the company for a year. Exactly the same as the AIG bonuses.
I tend to feel the same way, but I qualified it because Bernanke says he has a plan to unwind all this money out of the economy as velocity picks up. It’ll be interesting to see how he’s going to do that, and I have serious doubts.
The problem with tightening the money supply through interest rates is that the U.S. government’s budget is extremely sensitive to interest rates with all the debt they have taken on. Push those rates up to the levels required to really combat inflation, and the U.S. budget is going to implode. And given the performance of the clowns in Washington to date, I can’t see them having the guts to crank interest rates again. I guess we’ll have to see if the Fed truly is autonomous. It’ll be an interesting test.
A history of supporting a tight money policy when necessary. Volcker, appointed under Carter, was the guy who initially began to seriously combat inflation in the late 1970’s by adopting a tight money policy. Before Volcker, the Fed kept interest rates down to try to prop up the economy, leading to high inflation and still no growth.
I happen to think the quality of the people in Congress, both Republican and Democrat, was much higher in the late 1970’s and 1980’s. So they didn’t squawk too much and honored the autonomy of the Fed. I have no such faith today - from either party.
As promised, Scylla, the second half of my thanks to you for your efforts.* 
The bit about hedging my bet on XYZ by putting myself in a position to benefit from XYZ taking ABC down with it strikes me as pretty ruthless (to a far greater degree than I’m comfortable with). Still, I take your point that this is about competition, not philanthropy.
You expound on these matters with a great deal of conviction and authority, and I have no reason to doubt that you are doing so in good faith, and that your statements are based on your best understanding of the facts that are available to you. It kind of bothers me that I’m not seeing such sober discussion and analysis as this in the media, as it would tend to more or less (as the case may be ;)) corroborate the dot-connecting you have been doing for us, and the conclusions you have presented.**
I have to say that the prospect of the 90% tax on the bonuses disturbs me greatly, as does any instance of changing the rules in the middle of the game. I hope it doesn’t pass the Senate, but if it does, I hope that President Obama has the integrity to veto it.
Anyway, good job. Cheers, from your favorite CUTESYSEMANTICBITCH. 
*In my limited experience, one of the side benefits of teaching a subject to someone is a tendency to increase and refine my own understanding of the subject. I hope something like that has been happening for you.
**At the very least, I have benefitted from this process by becoming less likely to simply accept conclusions from a single source.
This was not just a business mistake, a trade gone bad or some harmless little financial accident. It involved a group of businessmen with no ethics. They bought off the regulators, the rating agencies and the politicians. They sold swaps they when they knew damn well they did not have the money to back. They took hundreds of millions of dollars in salaries and bonuses. The sad part is the guys that did the damage and got rich off it are now trusted as experts and want to get well paid to fix it.They should be answering to the people for their criminal activities. They are thieves that managed to steal a 2000 dollars from every family in the country at one time.