Feds Loan AIG $85 Billion

The Federal Reserve Bank of New York will lend AIG $85 billion. Explaining the breathtaking move the Fed said, “a disorderly failure of A.I.G. could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance.” They’re not just dumping out the public purse on the counter, though. FBNY will take a 79.9% stake in the company, the collateralized loan is for two years, and is expected to be paid off by selling off assets. NYT writes, “the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions does business with.” You can say that again.

Fed to Loan A.I.G. $85 Billion in Rescue [NYT] (Photo: Getty)

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  1. HRHKingFridayXX says:

    So, essentially, the Fed is paying for your life insurance or retirement policy now. Can anyone tell me why this is different than a gov’t pension? We might as well just cut out the bull and the CEOs and find a more marketable name for socialism

  2. Juliekins says:

    So this is the invisible hand of the market at work, right? RIGHT?

  3. Adam Smith is rolling over in his grave. So now we have the worst possible mixed economy – privatized profit (with little tax paid on it) and socialized losses (with tax-paid subsidies).

    What happen to the Republican theory of letting the market decide? Seems to me the market decided AIG should fail. So let it.

    • johnva says:

      @BaysideWrestling: Corporate cronyism is the modern Republican economic theory, not fiscal conservatism.

    • malvones says:

      @BaysideWrestling: I don’t know that we can consider this part of some well thought out economic plan? it’s more like they bailed it out to prevent a total flooring of the markets. What other option was there? just like letting Fannie and Freddie die, there is just no choice but to bail them out.

      • jwinston2 says:

        @malvones:

        As a republican, I think one of the few left. Yes they should of let Fannie and Freddie die. This ultimately would have made the market stronger, now we have this. What party is left that actually believes in fiscal responsibility and free market policies?

        • smartmuffin says:

          @jwinston2: It still amazes me that they’ve somehow managed to convince the country that the difference between Bush-style socialism and Clinton-style socialism is significant.

          • Trai_Dep says:

            @smartmuffin: Middle class earnings when up or down during Clinton’s administration? Bush’s?
            Sort of puts a lie to that comment, huh?

            While Clinton is far from a Progressive ideal (far from it), his “triangulation” was based on anchoring a sane point andone held from the loonie Right Wing, who espouses unregulated, unchecked, unsanctioned Big Business at all costs. Removing Glass/Seagal was an example of this that’s particularly apt: it’s who the Republicans are and what they do, to their core. Can’t blame this one on anyone else.

            > If the loonie Conservative ideologues didn’t push him so far to the Right, Clinton’s position would have been far more consumer and worker friendly. <

  4. laserjobs says:

    At least mention this is a 24-month term a rate of three-month Libor plus 850 basis points!!!

    The market will have to get really really bad for the taxpayer not to get paid back. I bet they hardly touch the loan and have others fund their day to day operations knowing the fed has their back.

    This is not a bad deal for the taxpayers like others are making it out to be.

    • TomCruiseDiedforYourSins says:

      @laserjobs: so please explain more to this Texas retard. How can the US govt bail out Bear Stearns, FanFred and AIG? I have heard the argument that AIG is widespread & will have a domino effect on many companies/industries. I’m not being a wiseass, just need some education.

      • TomCruiseDiedforYourSins says:

        @TomCruiseDiedforYourSins:

        Also, when assets are billions but liabilities are trillions, how does that work?

      • johnva says:

        @TomCruiseDiedforYourSins: My understanding is that the money to do this is just created out of thin air by the Fed. Which means that you’re paying for via devaluation of your bank account and salary.

        • kwittingyetlegitting says:

          @johnva:

          For years my understanding has been that our dollars are represented by the gold standard… many years ago. The metals at Fort Knox used to back up the paper money that circulates in America – but over the years the very real temptation of unlimited money printing has gotten away from us. Our once proud 100% “gold standard” has dwindled to a tiny, tiny fraction of the circulation value it represents – the money we use, deposit etc. But some faction of the gov’t (Fed. Reserve?) keeps printing plenty more paper money, without any gold backing it up. This, for many years, has driven the real value of gold up over the years, making it a sensible investment – in places like Switzerland who seem to not use this printing practice.

          I understand the metal/money ratio decides a nation’s fiscal attractiveess and rich folk want to put moneys into those banks? Or do we all know that?

        • GuyBitchy says:

          @johnva: Yup.

          Now ask yourself, just who or what is the privately-owned Federal Reserve anyway?

          • johnva says:

            @GuyBitchy: The Federal Reserve banks are privately owned entities, controlled by the banks. But portions of the Federal Reserve system are controlled by the government. And obviously the sole right to create U.S. currency is a monopoly enforced by the government. I will admit, it does make me a little squeamish to see the Fed giving out tons of money to banking corporations when the banking corporations partially control the Fed. The worry would be that the political leadership (such as the Treasury Department) that are involved in these leaderships are not acting in the interests of the American people.

            I think we can all agree that it would have been better to just have sound fiscal policy and regulatory enforcement in place before this whole crisis started so that we could have lessened its severity. Now we may be stuck with these stupid bailouts.

            • GuyBitchy says:

              @johnva: Yes, but as I hope you can appreciate, since the Federal Reserve banks are privately owned entities, with the government exerting only limited control over their activities, one could argue that those entities controlling the money and money policy can, by design or neglect, exert more influence over the government and, more importantly, the state of the nation–a state which the government, as we see now, tends to just respond/react to after the fact(s).

              The tail, I suggest, is wagging the dog–and the dog is going down.

    • HRHKingFridayXX says:

      @laserjobs: LOL. Please let us screw them over subprime or check in to cash style

    • ojzitro says:

      @laserjobs:

      What happens if they do need the money, and the financial industry is put under new regulation and they have trouble paying back the loan?

      What you need to understand is that the Social Security system is in shambles, it’s been borrowed against for the last twenty years straight. The FDIC is also is bad shape and needs refunding. We’re spending money on a war the is questionable at best, and the money we’re “lending” out isn’t really ours, it’s borrowed itself. We’re lending it at rates that are at or below what we borrowed it for. We don’t have money to be promising to private companies, plain and simple. Our debt as a nation is enormous.

      Any business that ran itself like that would eventually be sold or go broke. If you missed it, America’s been for sale for a while now, and we’re beginning to fall back into a less powerful role

  5. dmuth says:

    It’s great to know that Bush 2.0b is doing such an awesome job of making government smalle–oh, wait.

  6. Malbone says:

    I’ve been very critical of Paulson up to now, but it does seem with Lehman and now AIG that he has finally wrested control of Treasury policy from the Village Idiot-in-Chief. I don’t know if this level of bailout was warranted, but it is very encouraging that the US will take an 80% share of the company in return. This may be the first time in 28 years of Reaganomics that government finally decided to operate like a business and get some value for its investment instead of serving as an emergency feed trough.

  7. azntg says:

    In a way, it’s a bit of a relief that a large insuring group has been saved from destruction. But, it’s somewhat alarming to see so many government bailouts.

    Judging by how things work in the United States, I wonder if we’ll be paying as much in taxes like those welfare-state countries, all without most of the benefits. Sweet!

  8. meske says:

    Couldn’t they just have had a bake sale?

  9. metsarethe... says:

    I think this may be the inflection point, WaMu is the next target the shorts will be after but may not be able to significantly pressure the stock down. Even if they did, no doubt another bank, HSBC, Chase would swoop it up.

  10. sabrinad says:

    Na na na na, na na na na, hey hey hey, goodbye…my 401(k). I loved you! We had such good times together. Such dreams for the future. But hey, at least I’ll always be able to fall back on Social Secur– oh, right. Never mind.

    Crapmuffins.

  11. pinkponies says:

    Just so long as they dismember the company and chop some heads.

  12. dragonfire81 says:

    What’s the worth in continuously throwing money into a pit? That’s kind of how this feels.

    “Oh you guys got yourself in an assload of trouble?…Ok, here’s $85 billion to get out of it. Try to be smarter next time.”

  13. wholenuther says:

    Well I think… oh, who am I kidding? I’m stoopid at this stuff and so is most everyone I know. Nobody better fuck with the change in my desk drawer though, because I need that for lunch.

  14. Tank says:

    uhhh, fuck?

  15. When asked what struggling small business owners should do, Paulson ran away and cried “Leave me alone! I hate all of you! I hate you!”

    Bernanke tried to give his Ronald Reagan action figure to Paulson to play with, but it was no use. Paulson just would not come out of his office.

    A Treasury Department spokesperson said Paulson was “resting.”

  16. u1itn0w2day says:

    What a crock!!!,All these guys including AIG are in someway involved with the subprime mortgage mess which has been going on for 2 years at this point and yet NOW they CRY poor mouth???

    Now if the FED is going to “loan” them money and take a stake and fund it by SELLING ASSETS-why the heck didn’t AIG or the others start selling assets to stablilize or cover their balance sheets.WTF:AIG is an insurance company and they don’t give themselves insurance in the form of a stable balance sheet.

    To top it off the EX president or whatever Hank Greenberg protect some stock awards by putting them in his wifes name-why the heck did the board want that money bad enough to go after him.Did Greenberg know they were messed up and his pay not only excessive but NEEDED?

    And this is a company who can’t even decide who it’s leaders should be-after Greenberg left certain factions of the company wanted him back.I think he left around 2005-he was incharge when they entered this mess BEFORE hand.Then to top it off AIG,Greenberg and Warren Buffet are all pointing fingers at each other over a FRAUDULENT DEAL-I think the company was General Re?-a French company.I think it involved FRAUDULENT ACCOUNTING-and we’re going to give these guy 85 BILLION-F U-shake a cup and tell your story in a book or movie.

  17. The Fed Gave AIG $85 Billion and All I Got Was This Lousy T-Shirt

  18. Newsflash:

    Fed to Borrow $85 Billion from Treasury

  19. Newsflash:

    Treasury to borrow $85 Billion from Some Rich Saudi Guy

  20. Newsflash:

    USA now owned by Some Rich Saudi Guy

  21. lindyman77 says:

    News Flash Feds:

    You just signed that check with my vote. Good bye and good riddance.

  22. sosina says:

    seriously. the tax payers have never had such a sweet deal. This company is not insolvent. It is a great company that is still making a ton of money, it just had a bit of an immediate liquidity issue. Any other time, it would have been able to raise this loan very easily from the capital markets (remember Sam Zell can raise billions to buy a newspaper company….the largest fucking insurer in the planet with assets worth a gazillion dollars could do as well). This is a case of bad timing and a bit of bad planning that they need the money during this credit crunch. Now the US government gives the loan at at insane interest rate (L+850bps is junk bond territory) for a credit worthy company. anyway, here’s the cookie; for this very very safe secured loan, the taxpayers get 80% of the company and the current shareholders get f’d. even the Private equity vultures didn’t manage to wrestle such a sweet deal. so dear tax payers, say thanks to the nice bald man at the treasury dept and let’s go back to debating animals that can wear lipstick while rome burns.

  23. Andon says:

    God-fucking-damnit. I was honestly rather giddy that AIG might keel over and die – I’ve been looking forward to something like this for a while. It’s not so much that I want the economy to collapse (but that’s whatever, in my opinion,) as it’s that I enjoy seeing companies like this getting what they deserve for making poor business decisions.

  24. INsano says:

    @ Sabrinad

    Your 401k (and my 403b) are issued through AIG’s investment wings, but you’re an owner of the mutual fund’s companies–not AIG itself. If a broker sells you stock in…what, Nike, and the broker goes out of business, you still own the Nike stock–got it? If you have a fixed or variable annuity it’s most likely through VALIC, which is it’s own company. I was freaking out a bit about my own 403b and found this at 403bwise.com:

    [www.403bwise.com]

  25. u1itn0w2day says:

    I keep on hearing ‘too big to fail’:what? special rules for corporations who have no problem collecting from customers who don’t pay them and force them into forclosure or bankruptcy or gouge paying customers or won’t pay customer claims.

    This is an insurance company-INSURANCE which is A BET-the company is hoping you won’t file a claim and you are betting you will have to file a claim someday.So this great big insurance company made big bets by insuring sub prime loans? And they loose and want us to pay?

    Too big to fail-where the heck were all the regulators when these corporations are gorging on mergers and aquisitions becoming bigger.Shouldn’t the regulators be figuring out if all this m & a activity is forming monopolies.So if the new company collapses and affects as many as it now how is that NOT a monopoly,where were the choices or alternatives to prevent this.

    So a big corporate insurance company like AIG can deny my claim which will force me to pay out of pocket,fall behind on bills,reduce my budget AND spending on the local economy or reduce food and medical care which could very easily turn in a catestrophic financial disaster for me and yet AIG files “a claim” with the taxpayers wanting us to pay for their screw ups???

    Go shake a cup on the street-pun intended

    • TechnoDestructo says:

      @u1itn0w2day:

      I think the idea of “too big to fail” means that too many other institutions are dependent on them continuing to exist, and they would also fail if the too-big-to-fail company fails.

      As I heard it explained on NPR yesterday, AIG is “too big to fail” because they insure the loans of many other financial institutions. If those companies cannot get insurance, they will not give new loans. If they cannot give new loans, businesses will not have money to stay in business, and other banks may fail as well.

      @Paytriot:

      It isn’t a sweet deal for the taxpayer, but it may not be a terrible one, either, since the alternative could be worse. (And they may in fact pay off the loan on time.)

      • u1itn0w2day says:

        @TechnoDestructo: If that many institutions have insurance from AIG or a subsidiary to me that is proof in itself that AIG is a monopoly of somekind.

        And all this goes back to the regulators not challenging the mergers or aquisitions of AIG and others over the years.

        I can’t believe they don’t have somekind of percentage of market rule? If you have more than X percent of the market by yourself or a subsidiary you should be considered a monopoly.

        Oh well:back to more local and regional banks and businesses rather than the international conglomerates-oh no : competition…

  26. Paytriot says:

    Bullpuckey! sweet deal for the taxpayer my butt. Someone needs to make a stand in the sand on this crap & start suffering the consequences

  27. redclear55 says:

    good deal or not remains to be seen. This is the less scarier of the options we had. Of course we could have let the company die, but the systematic effect in the market could have been catastrophic. At any rate, this deal should be viewed as a positive as this allows AIG the opportunity to correct itself. Also, it needs to be understood that selling off AIG’s assets in the current market doesn’t help anyone. The deal that the Fed negotiated allows us to wait until the market stabilizes and liquidity becomes less of an issue. if at the end of the term, AIG defaults and does not pay us back as indicated by the terms, then we are in a better economy (hopefully) to sell the assets and recoup our potential loss. the best case scenario is that AIG rectifies itself and repays the loan as termed. This would be good for the market AND we get are market.

    I don’t mean to take the discussion away from the topic at hand, but I am curious as to why people are not as upset about our investment in other interests which to my knowledge has no guaranteed returns (financially speaking). And the dollar values are a LOT higher. Its like giving your crazy uncle your 401K to invest in his newest invention but getting upset when letting your friend borrow $5 for lunch.

    anyway… how many more shoes do we have left???

  28. P_Smith says:

    Sorry to point out typos, Consumerist, but the title should have read:

    “Feds Throw $85 billion Down A Money Pit”

  29. redclear55 says:

    correction to my previous post “This would be good for the market AND we get our money back.”

    Sorry about that.

  30. mac-phisto says:

    well, i’ve been a proponent of actions like this for awhile now – “buyout, not bailout” is how i touted it. it’s what we should have done to the airlines 7 years ago & any other industry that pleads for their life.

    now that i’ve seen it in practice, i’m not so sure. have we all noticed the picking & choosing going on here? AIG gets a loan, they tell lehman’s to f- off, they tell merrill to find a buyer, they force bear sterns & countrywide into shotgun weddings (possibly the same for wamu) – it’s just the good old boy network at work.

  31. foozer says:

    I’ve been a silent consumerist reader for a while but I feel compelled to present some balance to this story. I’m just a lowly analyst, but am hoping to offer some insight and perspective on the situation as someone currently working on Wall street.

    First, please take the time to read the article before commenting because trust me, the paragraph Ben quotes is only a small part of the whole story. It is clear from some of the comments that some people still have little to no idea of what the financial crisis is, and how it affects them. I don’t mean this in offense and I realize it may take time not everyone may have, but it will be well worth the effort in education. This crisis is one that affects everyone, not just those in the financial world.

    It is dismaying to read the amount of comments jeering on the fall of companies and banks. “They’re getting what they deserve! Screw them!” some of you say. There seems to be this perception that Wall Street firms are full of evil people just rollin’ in the dough from messing around with money.

    The fact is I know many good, hard working people who packed up their desks this weekend, many of them working in other divisions that don’t even deal with CDOs (the complex derivatives that brought about this mess). They arguably have as much to do with the current crisis as the average joe working his blue collar job.

    Maybe you don’t care, which is fine. Then consider your own self interest. The collapse of Lehman was a huge shock for the markets, but would have been nothing compared to AIG. Some say AIG should have been allowed to fail. In truth, the nature of AIG’s business and the global economy itself would make this a very, very bad thing.

    If AIG were to fall, it’s more than just another financial giant being brought down. The problem is that AIG insures a vast amount of mortgage backed securities held by other banks. If AIG went bankrupt, all of these securities would decrease in value, hammering the various firms and banks that hold them. You would literally get a chain effect of more financial disasters around the world which would almost certainly drag us past recession into a full blown depression. It doesn’t matter who you are, that is bad news all round. To put this in perspective, for every job lost on wall street, three to four more will be lost in the city of new york.

    Please do not take this as hyperbole. Some complain about the politicians and CEOs keeping everyone in the dark until the last minute. Well, this is the truth. It IS that bad. It is past the 11th hour and the severity of the crisis is no joke.

    I am definitely not a fan of the Bush administration and the way he has run the country, but the Fed loan was the best solution to an extremely difficult and complex problem given the immediacy required by the market. The fact of the matter is AIG is mostly a well-run business. It’s problems arose from one of many, many subdivisions that got into the CDO business a while back, which has brought the entire firm down. Those guys likely made a lot of money, but are long gone from the firm now, leaving their problems behind.

    To be clear, AIG isn’t even in debt. It has a LIQUIDITY, not SOLVENCY problem. It has plenty of assets, but cannot quickly sell them off to raise capital (finding buyers takes time it didn’t have). The Fed loan is simply there to buy AIG time to sell off it’s assets to cover it’s obligations and restore market confidence.

    I’ll end with a request to Ben Popken and the rest of the Consumerist bloggers. You’ve built a great site here and have done much to inform the average consumer. However, I believe that you committed a great disservice in your selective quoting of the NYT article as it not only incites (in this case) a lack of confidence in the administration’s efforts to resolve the crisis (arguably leading to more panic), it also wastes the opportunity to educate more readers on something everyone really needs to start paying attention to. Fear has precipitated much of the uncertainty in the market up to this point. These are tough times, there is no need to make things seem worse than they already are. So please, post responsibly. If you’ve read this far, thanks and I hope it was worth your time. :)

  32. Trai_Dep says:

    Wait. Wasn’t the plan to starve the Federal government until it was small enough to strangle in a bathtub?

  33. papahoth says:

    At least the Republicans are holding firm on not helping those that are going to lose their houses through foreclosure. That will teach those scum that dared to want to buy a house that real Americans stand on their own two feet.

  34. Krashstar says:

    Steve says LOUD NOISES!

  35. Bruck says:

    This was on a Guardian comment page about this story, it made me laugh…

    “The Federal reserve Board proudly announces Socialism 2.0

    Fully compatible with Capitalism 1.0 and higher.

    Comes with the look and feel of Capitalism, so speculators feel right at home using it. No retraining needed.”

  36. SkinnyHedgieBitch says:

    So basically Lehman just fucked up their timing. The government can let one fail to, you know, give them all a big lesson. But two mega blow ups in a week would have been just too much.

    We may need to reconsider buying toxic toys from China again – to make sure their treasury doesn’t cut us off any time soon.

  37. dewsipper says:

    History channel was running a show on the Great Depression this morning. From the other room, I actually had to ask if he was watching the news or some history show…

  38. Mysterry says:

    Why are they [the Feds] continually backing up companies that make bad investments?

    Tax payers, be ready to hand out your money!

    • cf27 says:

      @Lunaped: From the New York Times Story:

      The Federal Reserve said in a statement that a disorderly failure of AIG could hurt the already delicate financial markets and the economy, the Associated Press reported.

      It could also “lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance,” the Fed said.

      As I understand the scenario, the Feds are offering an $85B line of credit to AIG; they’re not actually just giving them $85B. It may be that most of that $85B isn’t tapped.

      I know that sounds absurd, but here’s why: AIG is a party to a bunch of “credit-default swaps” — basically this means that other companies (call them “A”) lent money to other company and individuals (call them “B”). But, A was worried that B might default. So, A buys what amounts to an insurance policy from AIG that says “if B defaults, AIG will make it up,” and A pays a monthly fee to AIG. As part of that contract, AIG has to have enough collateral to pay these contracts. The line of credit is that collateral, and they will only need to tap it if a lot of those loans from A to B go bust. That may not happen and, even if it does, it probably won’t be for the full $85B.

      The reason the Fed is worried is that A has also made similar insurance contracts with “C”, with A being the insurer. As long as AIG is solvent, then the debts to B are collateral. But, if AIG goes insolvent, then those debts are no longer collateral, and now A needs to find a bunch more money. C did the same thing, so now C is in trouble also.

      That’s what the “Domino” effect is — if AIG fails, then other big financial institutions will fail also. And, if they all fail, then it will be very difficult for anybody to get any credit. Without credit, nobody buys homes, builds factories and offices or even builds roads. Without homes, new factories and offices, unemployment creeps up and the economy goes into a tailspin.

      @u1itn0w2day: AIG’s consumer insurance is unaffected by all this. They’re not a monopoly, either, since a number of other companies do the same thing.

      That said, you do have a point that maybe the government should not let companies get “too big to fail.” But, that’s never been a focus of regulation before — nobody ever really thought about that risk.

  39. TommyFeds says:

    We can all benefit from a little “Shared Prosperity”…

    …now where is that line for bread and toilet paper starting?

  40. Wormfather is Wormfather says:

    WARNING I’M ABOUT TO LOSE MY SHIT!!! and be a shitty speller

    I’m so god damned sick of the mother fucking bailouts. For decades the market asked, no begged for unfettered capitalism, well, they got pretty damned close and wtf happened? They all shit them selves like those proverbial monkeys jumping on the bed. In the process they bet big on shitty odds and ended up “falling down and bumping their heads”, hard.

    Now all of a sudden they want federal fucking money to prevent insolevency. Listen, you take the good with the bad, you cant scream like a teenager for your independence and then go call home crying when you were stupid enough to let “Johnny Football Star” hold your drink and now you dont know where you or your underwear are.

    This is the bed that the financial heavy weights made and they get to lay in it.

    But Wormfather, the entire system will collapse if the Fed doesnt help!

    Really, will it? First of all if the US Government really belives that this $85 Billion is such a great deal then why the fuck did every creditable lender find the notion of giving AIG cash laughable? Because where as other buisness were mostly greedy, AIG was greedy and stupid. I’ve got no problem with greed, it’s a the driving force in capitalism, get as much as you can because it’s every man for himself (until it’s not)

    Next problem, the tax payers shouldnt be made to keep a crippled company afloat when it’s made bad decisions. If GM was to decide to tripple it’s production of SUVs (which their not, go Volt!) that’d be their decision and the profits or losses would also be there’s (including the employees who’s raises/loss of jobs would be an (not ‘the’) end result).

    And when GM went under for that horrible SUV decision there would be competitors there to snap up whats profitable or salvagable and throw the rest to the waste side, that’s capitalism.

    Having the state take over a company with an 80% stake, they fucking nationalized AIG that’s not just socialisim and unamerican it punishes AIG’s compettitors that while smaller in size made reasonable decisions and should be rewarded with the opportunity to buy off AIG ventures at discount prices.

    They system is colapsing, because it’s a fucking house of cards. I know, this is going to suck, but sometimes you have to blow the thing up and start over, or let it blow it’s self up as it may be. The bonds and dirivitives that are insured by AIG and that everyone is woried about because of the global exposure. Well they were shitty to begin with, no one is wrried about whether their invest ment in GE was a good one and about whether or not the insurance on it is going to pay. Oh and by the way, the insurance on these investments should have cost something like 33 cents on the dollar not .5 cents on the dollar so fuck AIG for being stupid and fuck the investment houses for their sleeziness, oh and fuck m me for having some investments there.

    In closing this is fucking bullshit, capitalism on the way up, socialism on the way down, tax-payers lose all the way around.

    Roz, I await my dissemvowelment and appologize in advance.

    • Skankingmike says:

      @Wormfather is Wormfather: Yes.

      Though didn’t GM ask for a loan from the government too?

      This is all socialism; this is what other countries do that we American’s say we don’t want. Then our elected and appointed officials, who claim to speak to what people want, loan to and buy out these companies that have made horrible choices.

      I’m gonna go out and buy tons of bad debt loans and then when i don’t get my money back cry to the government for a bailout.

      Don’t just blame the Repubs here this is the Dem’s work too. Both parties are old and out dated. They’ve turned good old fashion capitalism into Chinese Communism. If a company fails let it go out of existence. All the government did now was prolong their stay.

      I bet money that in 20 years or sooner we’ll be right back here. Some douchebag will come up with a new way to try to get tons of money through bad choices then when it gravy train runs dry they’ll ask for bail outs again. I bet student loan payments will be the next thing you’ll hear about.

      • Wormfather is Wormfather says:

        @Skankingmike: I’m a republican and I blame EVERYBODY for this. Now there’s talk of garunteing 401K’s. Listen up people, 1st, it aint gonna happen, it’s just ear candy. Next if it did you wouldnt want it because your 401K would be the new social security where your returns are shitty…I’m just gonna stop.

        • johnva says:

          @Wormfather is Wormfather: “Guaranteeing 401(k)’s”??? Do you have a link? I hadn’t heard about that one.

          Granted, I think it’s a shame that we’ve abandoned the pension system almost entirely in this country. Its demise has made things a lot more insecure for many people. But if we want to have guarantees, the way to do that is to go back to the damn pension system, not “guarantee 401(k)’s”. What I think we’re seeing is the collective panic of the Baby Boomer generation over the fact that they haven’t saved enough for retirement, and the government and private guarantees they thought would be there, aren’t, largely because of the massive increase in healthcare costs. As a member of the “millenials”, I’ll be damned if I’m going to let the Boomers massively suck at the government teat and pass the bill along to me. I support social programs to fix healthcare, etc, but I don’t support funding them on deficit spending so that I’m stuck with the bill later on. They want those benefits? They should pay for them now, while they’re still alive and many of them are still working. It’s not my fault that the stock market is tanking right when they want to retire.

        • Skankingmike says:

          @Wormfather is Wormfather: You know I’m registered as a Republican because of Ron Paul, Though I wish we had Teddy Roosevelt alive with us today. He’d kick everybody’s ass and give nothing to these companies. He defiantly wouldn’t be about drilling for more oil that’s for sure especially in National Forests!

          Yea we fight Communism but yet we shipped out all of our jobs to China but Cuba is bad.. ok… whatever.

      • johnva says:

        @Skankingmike: What REALLY pisses me off isn’t just the socialist aspects of it (though I do think it’s really perverse that we socialize the companies that perform the WORST, thus rewarding bad investment). What pisses me off is that the same people who use socialist arguments (ie, variations on the “common good”) to justify these bailouts fight tooth and nail (using terminology like “communist”, etc) against any sort of socialism that actually benefits the middle class or poor people. Here’s a hint guys: these bailouts are a helluva lot closer to communism than a universal healthcare plan is.

        • MrEvil says:

          @johnva: You’re right, it’s only communism if the people want it. If “Big Monolith corp.” wants it it’s called “protecting”

        • crabbyman6 says:

          @johnva: This is exactly what I was thinking. There’s absolutely no mention of socialism with all these bail-outs and takeovers, but if someone mentions universal health care the same people behind the bail-outs would decry it as the most communist move they can think of. The government is essentially slowly taking over all the major banks, that’s practically the definition of socialism, but where are all the benefits the middle/lower class are supposed to be getting? I’m torn between laughing at these hypocrites and crying because my kids, their kids, their kids kids….. will be paying for this.

          • johnva says:

            @crabbyman6: Banks are the linchpin of the “means of production”. What is communism? A large part of the definition is “nationalization of the means of production”.

        • ARP says:

          @johnva: Amen. Privatize profits and socilize the losses is the worst sort of socialism there is and one that not even Democrats endorse because it only benefits the wealthy, And you know us Dems all about giving handouts to poor people ;)

          If we’re bailing out banks and insurance companies with our money, but letting them pay crazy salaries to the idiots to who caused this, at least give me health care, education, etc. so there’s some real benefit to me rather than a nebulous “stability”

  41. MrEvil says:

    Personally, I think if one company can mean the entire US gets screwed up. We need to let that one company die so that we can get everything compartmentalized again. The proverb goes, don’t put all your eggs in one basket.

    Also as far as I know, the only regulations that forced banks to write mortgages for people were ones that eliminated any discrimination in lending. Before Equal Oppurtunity lending, banks would deny someon a loan on something as petty as the neighborhood they lived in.

    I’d like to see exactly what law forced lenders to make loans to people that couldn’t afford them.

  42. dcoe18 says:

    I’m having a liquidity crisis in my naked shorts.

  43. DoubleEcho says:

    So, where is the punishment for taking a high risk and failing? A normal small/medium business would have failed miserably, yet with this bailout it’s essentially telling AIG “That’s OK son, here’s some cash, try not to screw up too bad next time”.

    Where’s the reprocussions? Free Market my middle-class ass. (Oh wait, I’m 4.66 million shy of Middle Class, my bad)

  44. Wormfather is Wormfather says:

    Oh and please no one start in on the golden parachutes, as much as I hate them, their in the contract. You want the best tallent, you end up paying all the perks. The respective boards approve these things, their call.

    • @Wormfather is Wormfather: Well, those contracts are null and void now, motherf*cker. If you wanted your golden parachute, guess you shouldn’t have run your company into the ground.

      I have no sympathy for Bad Stupid Things because they’re “in the contract”. Being in a contract does not nullify the Bad Stupid, nor does it mean that we should hesitate to get rid of Bad Stupid when we see it, simply because more than one person was idiot enough to agree to it.

      We are talking about public money now, and no way in HELL should it go to pay the already-rich who are responsible for this mess to begin with. They’re lucky we don’t give them LEAD parachutes!

  45. pastabatman says:

    Agreed with MrEvil

    MERGERS ala Merrill and BOA are CRAZY! why? We are bailing these other morons out (AIG, Bear, Fannie et al) because they are “too big to fail”.

    Mergers are making MORE institutions too big to fail. WTF!?

    At the very least, it feels like for all our taxpayer skin in the game, we have the RIGHT to demand some rule changes. For one let’s do this weird thing like INSIST on competition. not hope, not “let the market decide”, but DEMAND they break some of these guys up telephone Co style.

    Jeez…something. anything. Enough of the too big to fail. we need some more “too small to care” sized like, you know, everybody else. you need a cheap free loan to help YOU out, well, you’re too small for anyone to care.

    • johnva says:

      @pastabatman: Yep. Some actual anti-trust enforcement would be nice, since that seems to be dead in this country. There is a reason that anti-trust laws were established, and part of that is exactly this. It puts the whole nation at risk when an overly huge corporation goes down in flames. Private entities should not have so much power that they can do irreparable damage to the world economic system.

  46. hardtoremember says:

    Well it is a loan at 11%. The government isn’t buying them. They should have never messed with the safe guards that were made to keep this from happening in the first place.
    Lets hope whom-ever gets in the Whitehouse presses to put them back.

  47. smartmuffin says:

    The US government itself is a poorly run organization that constantly makes bad decisions and only is able to exist by taking out huge loans that it probably won’t ever actually repay.

    Only makes sense that they’d extend the same courtesy towards private poorly run organizations that constantly make bad decisions, right?

    What’s good for the goose, and so on…

  48. tworld says:

    Oh, gee, just another $85 billion of my unfair tax money. Wait, I’ll even give you the chump change at the bottom of my underwear drawer, so you already have it on hand for next weeks coporate bail out.

    That $85 billion, combined with the trillions the Government has already pissed away is totally mind boggling. The same people who are losing their savings, homes and jobs are now going to bail out more greedy corporate morons.

    My husband and I have already started to research the feasibility of moving to Canada.

  49. cerbie says:

    I wouldn’t call 80% ownership, “bailing out.” If they hold them to it being a loan, this will be the first one of these that I can support as an ethical move. Golden parachutes don’t help us. Giving a loan that no one else can offer, to keep them afloat, and actually giving it potential teeth? Go for it!

    Potential teeth, because of course, I can’t predict the future. But, this is one of the few cases where the Fed being quasi-private may be an advantage, overall (kind of like a medicinal mold growing on your corpse being an advantage to your untimely death, though). If they keep the teeth on it sharp, though, it sounds good to me.

  50. In the tech industry, we have another term for “Too Big To Fail” — It’s called Single Point of Failure, and it’s something you’re supposed to AVOID AT ALL COSTS. If your system contains components that will take the whole system down by failing, then your system is weak, and needs to be more diverse and robustly-designed.

    Also, is anybody else worried that Bank of America is deliberately trying to become “too big to fail”??

  51. Trai_Dep says:

    These sorts of Too Big To Fail situations are one of the core reasons that Anti-Trust used to quash deals that would make entities too large.
    Too bad the standard GOP approach is that Bigger Is Always Better.

  52. GuyBitchy says:

    Basically:

    When this nation was founded, the US Government had control of the money supply. The dollar had a fixed value. “Dollar” is actually a weight measure of silver, 371.25 grains, to be exact. Our American silver dollars are actually heavier, since other metals were added for durability. But that 371.25 grains of silver WAS the dollar, matching in weight an unbroken chain of accepted monetary units that reached back through the Spanish Milled Dollar, the Dutch Daller, back to the German Thaler; the product of a silver mine which sold its product in coins of an exact weight. The Coinage Act of 1792 defined our dollar to exactly match in weight the silver dollars in use around the world, and then defined the gold dollar to be that amount of gold which would equal the worth of silver in a silver dollar, 24.75 grains, 1/15 the weight of the silver in a silver dollar.

    When you, as a citizen, hold a silver dollar or a gold dollar in your hand, you hold that actual worth of metal. Nothing the government can do can change the worth of the money in your control.

    The problem with this system from the point of view of the government or the banks is that it limits the amount of money they can work with. When the bank runs out of silver or gold (or the equivalent certificates) it can no longer lend any more money with which to earn interest. When the government runs out of gold or silver (or the equivalent certificates) it can no longer spend money (just like the rest of us).

    Over the Christmas break in 1913, a bunch of Congressmen went into the capital building, voted to suspend the quorum rule, then passed the Federal Reserve Act, transferring the creation and management of the nation’s money supply to a privately owned bank.

    Here is how the swindle works.

    The Federal Reserve Bank hires the US Treasury to print up some money. The Federal Reserve only actually pays the treasury for the cost of the printing, they do NOT pay $1 for each 1$ printed. But the Federal Reserve turns around and loans out that money (or creates a credit line in a computer) to banks at full face value, those banks which have exhausted their deposits then loan that Federal Reserve fiat money to you, and you must repay it in the full dollar value (plus interest) in work product, even though the Federal Reserve printed that money for pennies, or created it out of thin air in a computer.

    As the Federal Reserve overprints more money, the money supply inflates, and too much money starts chasing too few goods and services, which means prices go up. But contrary to the charade put on by the Federal Reserve, inflation doesn’t just come and go due to some arcane sorcery. The Federal Reserve can halt inflation any time it wants to by simply shutting down those printing presses. It therefore follows that both inflation and recession are fully under the control of the Federal Reserve. This means the cycle of inflation and recession is an intentional one; a gigantic heartbeat that pumps paper certificates out to the working class, while pumping real wealth in to the owners of the banks.

    Over time, that excess of printing has destroyed the value of that dollar you think you have. If you want to know by just how much, see how many “dollars” it takes to purchase 371.25 grains of silver right now.

    • Powerlurker says:

      @GuyBitchy:

      Commodity backed currencies are an asinine relic of mercantilism. It makes no sense to tie a nation’s monetary policy to the ability of the world to dig shiny rocks out of the ground. Tyler Cowen discusses a number of reasons why in this post: [www.marginalrevolution.com]

      Besides, for the non-wealthy, mild inflation tends not to be far better than the deflation that would, and did, come with a gold standard.

    • Trai_Dep says:

      @GuyBitchy: If reposting 3pp long Cross of Gold screeds into multiple stories here isn’t against the Consumerist Code, it should be.
      And, for the record, commodities float as fluidly as currencies, while being more prone to market cornering and speculation. Floating and pegged currencies are analogues, while the latter constrain options that prudent nations find effective.
      Macroeconomics has grown a tad more complex in the last 150 years than you seem to realize.

  53. Powerlurker says:

    Correction: for the non-wealthy, mild inflation tends to be far better than the deflation that would, and did, come with a gold standard.

  54. GuyBitchy says:

    You both miss, or dodge, the bold type to argue the fine print. The corrosive problem is not with “how” (which of course can/should evolve/change with the times), the issue/problem is with “who”–our money being created and controlled by private entities operating fairly far outside the transparent governance of our representative democracy.

    “As an independent institution, the Federal Reserve has the authority to act on its own without prior approval from Congress or the President.”

    As Fannie and Freddie tell us, when major, privately-controlled institutions putatively working in the public interest go off the rails, we, the taxpayers, will take the hit.

    Why shouldn’t we, the public, then have corresponding control?

    Just look at the declining value of the dollar and the Greenspan-facilitated chaos around you, with worse to come, mark my words, and ask yourselves…

    Why is the Federal Reserve sacrosanct?

    Do those private Federal Reserve entities serve America, or the other way around?

  55. mrearly2 says:

    That’s a misleading headline. It should say “Fed”, without the “s”. The Fed is the privately-held central banking system in the U.S. The “Feds” refers to the Federal Government. The two are related only enough to make it appear as if the Feds control the Fed. They don’t–in fact, it’s the other way around.

    Further to what GuyBitchy said, to help control the inflation caused by the Fed’s excessive issuance of their fiat money, the IRS (private corporation, run by the banksters) is used, to siphon off the overflow and maintain
    a somewhat stable market. That excess you pay as taxes goes directly to the IRS, not the Feds.