2bz

Why AIG Wasn't Allowed to Fail

There is nothing wrong with CDS, they are simply insurance contracts. The problem is that AIG, in its greed, underwrote too many of them for, unfortunately, too little money because of the bad advice it got from credit rating agencies.

Why AIG Wasn't Allowed to Fail

The hubbub about the bonuses is just political posturing to have the herd look the other way while it is being slaughtered. The roughly $170 million are a pittance (less that 1/10 of 1%) next to the $170 billion dollars sank into this jalopy.

Why AIG Wasn't Allowed to Fail

Generally, the Government can't deprive persons of property without due process and can't take private property for public use without just compensation.

On Mar 17 05:01 PM Mike Hydes wrote:

> What would happen if Congress just invalidated these credit default
> swaps?
>
> If they can do that then why has it not been done?

We May See Mortgage Rates Fall to 3.5%

On Jan 13 11:28 PM cdg wrote:

> Other variables for the individual to consider are the mortgage interest
> deductions for a 3.5% mortgage versus what they are writing off with
> their current mortgage, and what the need for the write-off will
> be down the line depending on their income.

Nonsense, what consideration should a tax rate less than 100% have on refinancing at a lower interest rate? Your post only makes sense if the tax rate is greater than 100%.

Treasury Selloff: We May Be Approaching Bailout Limits

On Jan 22 10:11 PM constructe wrote:
> It's
> a only a bank bailout.

And a poor one at that. Rather than propping up rotten banks the govm't "should" fund new banks with squeaky clean balance sheets. It doesn't matte that much that the same people would run the new banks as the old banks, at least the balance sheets would be clean. Propping up (a better description of what's happening than "bailing out") is a near bottomless pit. The bank's creditors may get their money from the govm't, but that's where the buck stops. Yes, the govm't may make some money on the bad paper, but I'm not betting on it. I think all of it will go to the creditors.

We May See Mortgage Rates Fall to 3.5%

"No one" in the U.S. will hold the mortgage to maturity. Let's not kid ourselves; that would be the rational thing to do. If the Fed succeeds in reinflating the housing market people will be itching to ditch their properties at "break even" and get into "bigger and better" properties as long as they will be able to cover the payments for some time. The average time people hold on to their residences is 7 years AFAIR. I think that the banks will be OK as long as the inflation does not get too out of hand, i.e. banks refi mortgages at 3.5% now and get paid back when interest rates reach current levels ~5%, provided a healthy or newly exuberant housing market.

Also, if people don't have incomes, they will not be able to refinance unless lenders continue to offer "liars' loans".

The best, but not a short term, solution to our problems is to figure out how to flip the tables on the rest of the world and in particular on Asia. Namely, find goods or more likely services which we can provide to the exclusion of other countries for which there would be a high demand and which we could manufacture/provide relatively cheaply. Our business people and lawyers are increasingly working in places like Abu Dhabi is an excellent start. Obama's plan to reinvigorate our scientific research may be a good idea too in the longer term, provided that we succeed.

A New Goal for TARP Funds: Create Mutual Banks

I mentioned creating new banks over 3 months ago in this post: seekingalpha.com/user/...

Reasons to Bail Out GM

Bailing out the 3 is akin to keeping a terminally ill patient on life support. It cost the family a ton of money, but the final outcome remains certain regardless of the efforts.

Bankruptcy of the 3 is not equivalent to closing them down. It gives them an opportunity to clear their books of debt and start with a clean slate. Many airlines have done so and are still around today. We should however consider the impact on their suppliers. The ones with decent balance sheets (if there are any) will be the hardest hit in that they will have to swallow losses generated by the 3's defaults, but they may not yet be eligible for bankruptcy thus likely resulting in RIFs. The rotten ones will just go bust like the 3 and start from scratch under new ownership.

Friday's Bond Outlook: Bursting of the Treasury Security Bubble? (Update)

"You might want to make a trip to a few Walmarts and buy tens of thousands of dollars of dry food."

Err, provided that there is any credit left on our credit cards. ;)

Friday's Bond Outlook: Bursting of the Treasury Security Bubble? (Update)

To short US Treasuries short Treasury futures www.cbot.com/cbot/pub/...

Deflation Changes the Rules

Chris B wrote: "Perhaps it is more likely we will have 70's style stagflation."

I think we already had some of this and perhaps we will have some more provided that the government succeeds in stabilizing the economy (I'm in this camp). If it doesn't I think that deflationary recession is in the cards. I don't feel that we're in for a traditional inflationary scenario.

Deflation Changes the Rules

CLH wrote: "most people still think that gold is going up when the dollar is going up. Not possible."

It is possible, when there is a lot of turmoil (political, economic, etc.) outside the U.S. relative the U.S. itself both gold and U.S. currency can appreciate. Of course, depending on the relative demand and supply of each their relative prices will fluctuate with respect to each other.

Deflation Changes the Rules

Tom Evslin wrote: "You can buy more gold with $1000 (US) cash today than when gold was at $1000; that's why cash is king."

"King is dead, all hail the king." The problems with kings is that they come and go. So even if the Fed IOUs are the king at the moment, gold may soon be the our king again.

U.S. Bank Nationalizations: One Step Closer

As disgusting as the government bailout/nationalizatio... of failing banks is in principle, it looks like there is finally some inkling of a clue in the Treasury and the Fed. I hope they don't overpay for stock now though. At least with the "worthless debt" there was some recourse against the borrowers to recover the money, with stock all bets are on the emergence of the bank from insolvency. However, the losses in insolvent banks may still not be appropriately realized. I still think that the best course would be to fund new banks without toxic baggage.

The U.S. Economy After the Bailout

jlounsbury59 wrote: "[T]he way to recovery is through building "things" (rather than financial instruments). These "things" include infrastructure and domestic energy production facilities that can support domestic production of manufactured goods again."

Our infrastructure is in a state of shambles and these projects would most likely not be funded directly by the private sector. Thus, we would be much better served spending the $700,000,000,000 on fixing roads, bridges, etc. even though the return on such investment is even harder to measure than return on financial paper of currently unknown value. Better roads, for example, would contribute to better mileage, less breakdowns, and faster delivery times.