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Donn Vickrey, who runs the independent research firm Gradient Analytics, predicts that A.I.G. is going to cost taxpayers at least $100 billion more before it finally stabilizes, by which time the company will almost surely have been broken into pieces, with the government owning large chunks of it. A quarter of a trillion dollars, if it comes to that, is an astounding amount of money to hand over to one company to prevent it from going bust. Yet the government feels it has no choice: because of A.I.G.’s dubious business practices during the housing bubble it pretty much has the world’s financial system by the throat.

If we let A.I.G. fail, said Seamus P. McMahon, a banking expert at Booz & Company, other institutions, including pension funds and American and European banks “will face their own capital and liquidity crisis, and we could have a domino effect.” A bailout of A.I.G. is really a bailout of its trading partners — which essentially constitutes the entire Western banking system.

I don’t doubt this bit of conventional wisdom; after the calamity that followed the fall of Lehman Brothers, which was far less enmeshed in the global financial system than A.I.G., who would dare allow the world’s biggest insurer to fail? Who would want to take that risk? But that doesn’t mean we should feel resigned about what is happening at A.I.G. In fact, we should be furious. More than even Citi or Merrill, A.I.G. is ground zero for the practices that led the financial system to ruin.

“They were the worst of them all,” said Frank Partnoy, a law professor at the University of San Diego and a derivatives expert. Mr. Vickrey of Gradient Analytics said, “It was extreme hubris, fueled by greed.” Other firms used many of the same shady techniques as A.I.G., but none did them on such a broad scale and with such utter recklessness. And yet — and this is the part that should make your blood boil — the company is being kept alive precisely because it behaved so badly.

At this point, why don't we just say "Go ahead, shoot"?

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koshembos's picture
Submitted by koshembos on

Unless proven otherwise, one company couldn't have lost $250 billion. Anecdotal information is evidence that large portions of the initial bailout, $85 billion, were used for bonuses up and down the company's hierarchy.

ML shows that bonuses are a substantial portion of the companies loses.

It would be interesting to bring in independent auditors and let them evaluate nonsense such as AIG and Citi.

Submitted by lambert on

Why on earth couldn't the loss be that large? Your say so?

Anecdotal evidence? Please don't speak on matters of which you know nothing. ($70 billion estimate; $85 billion estimate.) Better to remain silent and be thought a troll then to open you mouth and prove it.

pie's picture
Submitted by pie on

and will be listening to this as soon as it's available.

I want to know now who and where the people are who perpetrated this earth-shattering financial crisis and when they're going to be charged, tried and convicted.

Submitted by jawbone on

that they focused almost solely on mortgage defaults and bad mortgage loans as the reason for the cirsis... Well, toxic assets were mentioned, but could have been a reference to defaulted mortgages, and I think I heard CDS mentioned, then a economist who said the real problem is that the US and West lived on credit for the last 20 or so years.

The part that stood out to me was Simon Johnson talking about the Deutsche Bank memo saying that no matter what happens, the tax payer will pay for the Big Banksters' losses, either through using tax dollars to restore the banks' solvency (or at least keep the banks on life support) OR through the losing jobs due to a greated decline in the economy, higher interest rates, and forgot the third. The bank's recommendation is to just go ahead and give the banks more money.

Most of us who have been trying to get a handle on the Big Shit Pile and Big Meltdown probably know most of what was discussed on TAL today, but it is a good summary (except for not pointing out with more emphasis the incredible multiplier effect of all those CDO's. CDS's, exotic financial instruments, etc.) and very good for people with less time to dig and root around on the web.

Johnson said one of his commenters called it the "Nice economy you've got here -- it'd be too bad if somethings happens to it." This, Johnson said, is the first time any bank has been that clear in what is going on. Sounds familiar, right? Big Banksters and Big Insurers have been saying from the gitgo that they're too big to fail. And Lehmann did highlight that.

I've been to Simon Johnson's blog before and read about his analysis, but haven't read his primers on the financial crisis. I didn't find the entry for the Deutsche Bank memo, and now must run, but here's the link for his blog.

Oh, while I was distracted and couldn't really listen, I heard some economist talk about the charts for econ activity prior to and at the beginning of the Great Depression and what's happening to day referred to as "Twin Peaks." Think it was the guy who said everyone in this economy has been living beyond his means, so it's a societal problem (No mention of the poor.)

Now I really gotta run.

pie's picture
Submitted by pie on

2007 was the second time that household debt equals the GDP. The first time was 1929.

I heard some economist talk about the charts for econ activity prior to and at the beginning of the Great Depression and what's happening to day referred to as "Twin Peaks." Think it was the guy who said everyone in this economy has been living beyond his means, so it's a societal problem (No mention of the poor.)

The guy who said that is, I believe, a professor at Columbia. There's no doubt that some people rode the credit train over the cliff, but my,oh my, how easily it was given by banks, credit card companies and mortgage institutions. They had the power to control this, and they didn't.

Submitted by jawbone on

"their own" problems. Initially, the Repubs were pushing the idea that Congressional liberals had forced the banks to make loans to uncreditworthy low income applicants (you know, those irresponsible borrowers buying huge McMansions they knew they couldn't pay for; give me a break). That seemed to be gathering steam but had faded from MCM comments, except for a few. Now, the pushback from the bankster defenders and, again, Repubs, is that it's everyone's fault.

And NPR is utterly fair. And TAL is one of the best programs on NPR nowadays.

YOU (we)made those banksters send you avalanches of new credit card offers, right?
YOU (we) made them offer mortgages with no downpayment and, astonishingly, no documentation of income.
YOU (we) made them want even higher earnings so that they went out and invented craptacular exotic financial instruments based on modeling only post-doc physicists or mathematicians (or Ponzi schemers, well, ok, orders of magnitude simpler)) could begin to follow.

YOU, YOU, YOU (uh, us), you low life slimey greedy Americans! Shame on you for manipulating those poor, naive, innocent, do-gooder banksters.


Now, for people who came of age in the credit card /home equity loan push era, they've never known anything else. Some of these kids were deluged with credit card offers when they went to college. Some have paid dearly for it, graduating with not only tuition and housing debt, but huge credit card debt at horrible interest rates.

When some senators worked hard to get something into the Biden-blessed bankruptcy bill, the banks fought back and the amendments were defeated. I remember listening to some of those debates. Absolutely stunning that our representatives were so defensive of the credit card issuing banks.

Elizabeth Warren did yeoman's work to get protection written into the bill. But she had little success with the US Senate, Dems or Repubs. IIRC, Repubs were in the majority when that passed -- or...?

Anyway, it's pretty easy to make regular consumers look bad.

Submitted by lambert on

but his work on behalf of Big Money in the bankruptcy bill makes it pretty clear where the administration is coming from on this -- if Obama's work on TARP I didn't already make it clear.

Submitted by cg.eye on

worked at the COB or on Wall Street -- and are now muttering under their breath, "we've got to protect the phony-baloney investments Cousin Pete made for Mom and Dad for retirement". They are friends more with those banksters than they ever will be with people who they think have the bad taste to use payday loan stores and high-interest credit cards.

They've truly drunk the Koolaid, and that "it's all our fault" bullshit conveniently omitted how real wages have declined over the past 30 years, and the only 'increase in the standard of living' was the desperate wish families had to get their kids in college and out of their economic hole.

With the crippling home equity and college loan debt load, the kids got pulled down with everyone else. We know who owns NPR with every commercial they pretend they don't run, and through this financial series, they've proven it.

pie's picture
Submitted by pie on

to the Twin Peaks graph and Professor Dave Beim's remark:

But there's another link there which includes more of his analysis:

"That chart is the most striking piece of evidence that I have that what is happening to us is something that goes way beyond toxic assets in banks. It's something that has little to do with the mechanics of mortgage securitization, or ethics on Wall Street, or anything else," Beim says. "It says: The problem is us. The problem is not the banks, greedy though they may be, overpaid though they may be. The problem is us."

We have overborrowed, Beim says: "We've been living very high on the hog. Our living standard has been rising dramatically in the last 25 years. And we have been borrowing much of the money to make that prosperity happen."

Our living standard has been rising dramatically? For how many Americans is this really true?

pie's picture
Submitted by pie on

I just read this:

David Beim, a former banker who is now a professor at the Columbia Business School, has something to say for people who want to pin this whole thing on the banks.

Ah, it's so much clearer now, grasshopper.

Thanks, NPR. A**hole.

Submitted by jawbone on

Discussion of this weekend's broadcast of This American Life (audio available now; transcripts must be purchased -- Anyone have access to Lexis-Nexus?).

First segment on the Brian Lehrer Show has Adam Davidson and Alex Blumberg (pronounced like Mayor Mike's last name) on to discuss their latest TAL/Planet Money show.

Caller made point that reasons for making banks "mark to market" were made by Simon Johnson very clearly on the program, but then things got murkey when it went into the what the government was actually doing, the political aspects of making some part of society bear the brunt of actually paying for the losses. It seems to come down to being easier to put it on the taxpayer, since we're not organized enough to lobby for our interests -- and the banksters are not only organized but on the inside of the administration.

I'm not sure, but listening to the TAL/Planet Money guys it seems they may have been influenced by the power and persuasiveness of the Big Bankster Boiz and by the fact the pols in power now can't take a stand against the banksters' interests. Seems to me there's something about just getting close to power which can create a force field which bends thinking and perception of reality.

Interesting program -- audio will be available later today at the link above.

Second segment is with Katrina VandenHeuvel; fourth is financial factchecking by Polifact's Bill Adair (iirc, the site tends to be MCM friendly in its evaluation of "facst.").