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AIG Bonuses Are Just the Tip of the Iceberg

The Dems call to return the money is a sham. Not that they might not attempt to get it back but that they weren't behind the bonuses going forward in the first place.
When the original stimulus bill was being drafted Senators Snow (R) and Wyden (D) proposed an amendment that would have blocked just this type of bonus payout. Chris Dodd (D) the chairman of the Senate finance committee together with backing of the Obama administration dropped it from the stimulus bill. Now its been revealed that Congress and the administration knew for more than a month that AIG was going to do this bonus plan. Within the last month the treasury sent another 30 billion to AIG. The outrage from Dems is ridiculous! They knew about this all along and in fact dropped legislation that would have made these bonuses impossible to do. Now they're outraged and protesting to Libby?

The AIG Bailout: Why Was the Onus Placed on Taxpayers?

It looks pretty unlikely that under the best of circumstances, we will only not owe quite as much as we do now on AIG loans. AIG has businesses to sell, and some with actual tangible assets, but a lot of others hold a great portion of their value in intangibles that are dissolving before our eyes. Consider the CEO's argument for paying out bonuses to those same executives that over-exposed AIG in the CDS market? There isn't much fear that Goldman is going to be calling on those guys. How attractive does AIG derivatives trading department look on their resume anyway. These guys will be following the tried and true career path of so many others that fail in business. They'll teach. Who is really going to want to buy this talent, or this business?

The Bane of Broken Balance Sheets

A simple screening of stocks within Yahoo's limited screening comes up with 297 companies with no debt and are cash flow positive. Those certainly aren't broken balance sheets, but neither of an even larger number of companies who might have debt but are cash flow positive, or have no debt but have some writeoffs in the current fiscal year. This isn't only a small percent of those companies that couldn't be classified as having a 'broken balance sheet'.


On Mar 06 01:20 PM dw57 wrote:

> a question not asked, are there any companies that truly do not have
> a broken balance sheet?

CDS and the Looting of AIG

So many misunderstandings. Today, most politicians and the American public think credit default swaps are a form of business cancer. This is misinformation. Credit default swaps are a form of insurance. Any insurance company will tell you that they never have one dollar in reserves for every dollar insured. They always use leverage. Insurance companies are regulated and rated according to the amount of leverage they use. The problem with the CDS market is that there wasn't any regulation. With no oversight, AIG burned down their own company by over-leveraging in the CDS market. So the problem was no regulation which resulted in suicidal over-leveraging.

Why Capping Pay Is Likely to Work

I think we should learn from the Obama admin and push for milestones for Congress to cut wasteful spending, and achieve a balanced budget by some time in the future or face a 50% cut in Congressional pay. They get paid $174,000 a year both Congress and the Senate with leaders receiving a bit more. They get automatic cost of living increases and the best medical/dental/ retirement plan available for a short stint in national politics. They built the embedded moral hazard into the mortgage market that was the foundation to this financial crisis, and yet they get off scot-free as all blame goes to everyone else, who btw are also guilty.

Why I Need a Government Bailout

If having a balance sheet that's a wreck would qualify, GMAC wouldn't need to raise capital to qualify as a bank holding company. They're still seeking more bondholders who would be willing to convert to preferred and a lesser amount of debt. Perhaps, if you can convince your mortgage company to accept this you can qualify but I think the mortgage bailout is a better option for those mortgage holders that qualify. Nothing like forgiving part of the debt, lowering the interest rate and not needing to offer any preferred stock or other consideration.

AIG's Speculative CDS Bets

On Dec 11 04:19 PM Insurance_nerd wrote:

> When will the govt finally pull the plug on AIG? Isn't the systemic
> risk vastly reduced now that the CDS exposures has been dealt with
> after the latest bailout restructuring? How big of a counterparty
> does AIG continue to be for banks?

The bailout restructuring only provided reserves enough to deleverage and thus avoid more downgrades which would end all other business. The counterparty risk isn't gone. The MBS market needs to return to a reasonable liquidity which will only happen after the vast majority of homes destined for foreclosure have already been squeezed out of the market whether through foreclosure or legitimate refinancing arrangements that don't later still fall into foreclosure again. So, for now we're on the hook.

White-Hot Mad over AIG

On the one hand, I can understand the anger, but then people explain their anger that only exposes their inability to grasp the alternative inaction. Should we throw caution to the wind and assume that any claim of a resultant worldwide domino effect is nonexistent? Is counterparty risk a ruse to suck in taxpayer money for the bailiout? Isn't Paulsen experienced enough to understand the risk, or is he in on this ruse?
We can already see some of the depth of this crisis. Are we anyway close to the end? Would it be better and/or cheaper if we just let them all fail? Did anyone note how the world credit market froze up AFTER Lehman brothers went belly up? Do you really think Lehman was THE big player? How much cheaper would it be if we let AIG fail? Surely less than $150 billion, eh? And if it turned out to be much, much, much worse...surely we wouldn't blame the government for having allowed them to fail. That's just the capitalist way.
These firms won't get off scot free. They blew up their companies, and will have to deal with the ensuing mega-regulation, litigation and resultant slow, slow growth for decades to come. These firms will never employ as many people as they have the last few years. They won't make money like they had earlier this decade, for years and years to come. They will never attract investor money as they once had. They will pay, but unfortunately, we have to pay first if we want to have any chance of avoiding the kind of unemployment, bankrupt businesses and overall economic turmoil that our initial and likely, additional capital infusions, may possibly ward off.

AIG's Implosion Caused by Misplaced Bets on Credit Default Swaps

I think it would be amiss to say that the culprit are CDS. Credit default swaps are a form of insurance. They actually spread the risk. The real culprit is over-leverage of the CDS market. It really came down to greed and stupidity. Firms didn't fully understand the ramifications of the leverage they held in these contracts, while their greed led them down the path of adding more and more so as to improve annual returns on equity. The near-term benefit were year end bonuses while shareholders were left holding the bag. Even if these companies survive, litigation will go on for years and years.