You do realize that one of Obama’s top economic advisors, Jeffrey Liebman, is a proponent of partial social security privatization.
Well, I agree that no one chooses a CEO to destroy a company. However the way CEOs get compensated these days tends to encourage excessive short term risk taking for short term stock price increases. Deferring bonuses until the long term implications of a strategy were known might help. Not getting millions when they screw up badly enough to get booted might help also.
I posted this in another thread, but it’s disheartening enough to post here as well.
From a Financial Times article (discussing why the US govt was unwilling to guarantee any bailout of Lehman):
“Since the August rescue of Freddie Mac and Fannie Mae, credit markets have begun to price in the possibility of a default by the US government – the implied probability remains a fraction of 1 per cent but it is an unprecedented development.”
I heard Barcleys bought a big chunk of Lehman. The story said they would not buy the part with mortgages but would still save about 7000 jobs.
Well Lehman isn’t big enough. But AIG is.
So where exactly is the line drawn in the sand?
I just found about about AIG. That is really shocking.
Not only that it’s happening, but… 80 percent Fed control? 3-month LIBOR plus 8.5? Wow.
Mind you, all these bailouts amount to socialism – not just in the sense of government spending, but in the sense that the United States is now playing (potentially) mortgage banker to half the homes in the country, and is running 80% of a giant insurance company. Since I have no reason to believe the United States government knows the first thing about running businesses, this seems very troubling. Is the plan to unload them back into the private markets when things “stabilize?” Or will the gov’t end up owning insurance companies, mortgage banks, car companies . . . ad infinitum? Bolshevism, finally accomplished.
I thought this practice was dying out since the 90’s. It’s not something I’m keeping track of, though!
Maybe. It would definitely depend on the company and the strategy in question.
I disagree here, for reasons I already mentioned (discourages risk-taking when that might be the behavior one wants to encourage).
People should hang for this.
Well assuming these companies survive to come out the other side, which one assumes they will with the Feds backing them up, then they may very well be able to be sold back into the private market, either in wholes or in smaller pieces, for a tidy profit before all is said and done.
Let’s wait a few weeks and see. I haven’t digested the full story yet, but from what I can tell this may be more of a liquidity crisis for AIG and less of a classic bankruptcy. My understanding is that AIG has plenty of valuable assets but couldn’t unload them in time, in an orderly fashion, to meet its creditors demands for cash.
In that case, a bridge loan can make a lot of sense. Especially if the US demands reasonably stringent terms as much as any other lender. It’s possible there could even be some upside.
But let’s wait. There will be plenty of time to hang those who deserve it, if need be.
Am I reading right? $1.1 trillion in assets. 80% stake bought for a loan of $85 billion. A loan at a pretty steep interest rate and backed by those assets. Plan is to sell its parts in an orderly fashion. I’m surprised a Buffet wouldn’t offer those terms or better.
I am understanding that correctly, aren’t I?
Warren Buffet probably doesn’t have the cash necessary to pull off such a deal. No doubt his money is just as tied up in illiquid assets as AIG
I don’t have the balance sheet in front of me, but equity is assets minus liabilities. I have no idea what their liabilities are off the top of my head, but IIRC AIG’s market cap was in the $200 billion range before the market started to head south. That’s not the same as book equity, of course, but it’s probably the same order of magnitude.
80% for $85 billion implies a market cap of a bit north of $100 billion. That sounds about right for a going concern of AIG’s size. Let’s hope the concern is actually going. Forward, that is.
What’s even creepier is that a Time magazine article has speculated that a lot of the pressure for the U.S. government to take these sorts of actions has come from foreign nations who have large investments in these companies (particularly Freddie and Fannie). That doesn’t sit right with me, but being the biggest debtor nation in the world certainly has its drawbacks.
Ding-ding-ding-ding-ding! Yes! That is the real red flag here. For years we’ve been debating to-and-for about the US current account deficit, the foreign financing of same, and speculated about when and how our line of credit would ever dry up.
I think it’s happening. Right now. I have no doubt that Lehman and Merrill hit the phones looking to raise more capital from overseas, and got a big ‘No’. That’s not exactly the same as China refusing to buy T-Bills, but it’s getting in the ballpark. Supposedly Paulson finally acted on FNMA because foreigners own a trainload of their bonds and wanted to know what the hell is going on.
Ah, yes. The day of reckoning. Margin call on Mortimer and Randolph Duke, for those of us who are ‘Trading Places’ afficianadoes. Let’s hope we’re at the bottom.
What would be making me laugh if the whole situation wasn’t so patently shitty is that in Canada we have some government regulation to protect us from our own stupid selves, and US Americans pointed and laughed at us and called us socialists; the US had very little regulation, so now you’re going to get a lot of regulation. After you all lose your jobs and your homes.
How do you figure every one of “us” is going to lose our jobs and homes?
Not to dredge up not-so-ancient board history, but I think this earlier SDMB thread provides an interesting comparison of attitudes.
A few choice Doper quotes:
None of these folks have appeared in this thread so far. Wonder what they’ll have to say now?