Did the Fed do the right thing by bailing out AIG?

[Aussiest]

If there are problems at the core of capitalism and the financial system, eg, greed, lies, leveraging, then did the Fed really do the right thing?

Are they delaying the inevitable?

Surely, if those problems aren't dealt with at the core, they will manifest somewhere else?

 

[gfresh]

I think they had to..

If had collapsed it would have brought down many insurers worldwide, wiped out many people's superannuation locally (apparently), many many bond holders worldwide, and other more stable businesses. I think I read figures such as $180billion would have been lost by other parties. It's the world's 18th largest company.

I think the result if they hadn't would have been pretty catastrophic all round.

While I'm not really a fan of bailouts, and preventing organisations falling on their own swords, I really would prefer to go to the bank tomorrow and have my money still in there. Obviously it's hard to say, but according to some reports, it may have been the end of the financial system as we know it. I know that sounds melodramatic, but in this case may be true.

One thing we may never know is what the effects would have been if they had not been bailed out.

 

[Aussiest]

I guess i'm trying to understand why it would be 'catastrophic'.

If people's super funds were wiped out, increase in poor, more people on social security. (and that is not to mention the absolute emotional devestation, wouldn't wish that upon anyone).

How is AIG linked to other insurers? Surely they all operate independently?

Still don't quite understand how it would have affected 'financial institutions'.

Anybody care to elaborate?

 

[nunthewiser]

The U.S sure good at printing money to bail out these flea ridden giants , blessem all i say , just personally prefer them to run out of ink and stop pumping up there markets for the good of all mankind .crashnburn i reckon and may it be quick rather than this death of a thousand cuts rubbish

 

[nunthewiser]

Ooops forgot to say , gawd bless america! oh and them tradeable sucka plays they create

 

[Aussiest]

may it be quick rather than this death of a thousand cuts rubbish

That's what i reckon, but i was too afraid to post it!

I just think we are delaying the inevitable, and the truth always floats up to the top, like cream does with milk. No matter what we do, how many lies we try to tell, the truth reigns! This is the unravelling of the lies we have told.

Karl Marx would be turning in his grave (excuse the expression). The prolitarians didn't even have to rise to over-throw the bougiouse, they've done it to themselves. Lol.

Also, what is that passage in the Bible? "The meek shall rise and inherit the earth".

Should be interesting.

 

[xoa]

Those who support government bailouts should voluntarily donate their own money first. All investment carries risk - nobody should be "too big to fail".

 

[deadset]

Well I'm happy they did, because I'm still in the market.

I appreciate the question and discussion though.

Yes, this year will be remembered as the year of truth. Truthful dealings and conduct, anything else is gonna get hit for six in the future I'd say.

You know what I mean, I don't want to give examples.

 

[M34N]

Really, what choice did they have but not to save AIG?

It's one of the biggest companies in the world, a top 30 Dow component, employs over 100 thousand people, its debts and obligations would have impacted on thousands of other businesses and their employees across the world, lead to even more bankruptcies and more job losses and failures. I'd hate to think of the domino effect it would of had.

I agree that we should let companies that are incompetent fail, but if it's going to cost other innocent companies and people their jobs and money, then it's not fair they lose out as well. It's a tough decision to make, but had to be done. The cost of letting it fail would of far outweighed the $US80b paid to save it, no doubt about it...

 

[fimmwolf]

Do we want the financial institutions to be allowed to gamble even more recklessly in the future?

If a financial meltdown is what's needed to make governments wake up and place more stringent regulations on these institutions, then so be it.

 

[noirua]

Do we want the financial institutions to be allowed to gamble even more recklessly in the future?

If a financial meltdown is what's needed to make governments wake up and place more stringent regulations on these institutions, then so be it.

About 7 years ago the Hong Kong Government actually went into the market buying stocks to prevent a crash that looked certain. Later they sold all the stocks and made $billions on the exercise.

So it's a case of nationalization, loans and obtaining part of the company to sell again later, or buying shares in the market. Which ever countries do it, it has to be a gamble, such is life.

 

[Timmy]

Really, what choice did they have but not to save AIG?

It's one of the biggest companies in the world, a top 30 Dow component, employs over 100 thousand people, its debts and obligations would have impacted on thousands of other businesses and their employees across the world, lead to even more bankruptcies and more job losses and failures. I'd hate to think of the domino effect it would of had.

I agree that we should let companies that are incompetent fail, but if it's going to cost other innocent companies and people their jobs and money, then it's not fair they lose out as well. It's a tough decision to make, but had to be done. The cost of letting it fail would of far outweighed the $US80b paid to save it, no doubt about it...

Agree with you, there really was no choice, the time for choice had long since past.

The failures we are seeing are a failure of regulation in the US. In Australia interest rate policy is set by the RBA, and regulation of the financial industry is the responsbility of APRA (Australian Prudential Regulation Authority). In the US these two responsibilities are both the primary preserve of the Federal Reserve Board.

The separation of responsibilities is very important and is the reason that while all this turmoil has been going on Australian financial institutions remain solvent and strong (Babcock and Macquarie have both been sold down but are not in the sort of trouble US investment banks, what few remain, are in).

Why is the separation of responsibities so important?

To encourage economic growth there are a number of things that can be done. Just looking at what can be done in the financial sector, economic growth (at least in the short to medium term) can be spurred by making credit easier to obtain. Do this by lowering interest rates, and/or easing restrictions on financial institutions (allow them to find more creative ways to lend ...). In the US the Fed. did both. In Australia the RBA controls rates but APRA oversees regulation, and APRA's role is clear, from their website: "To establish and enforce prudential standards and practices designed to ensure that, under all reasonable circumstances, financial promises made by institutions we supervise are met within a stable, efficient and competitive financial system." No conflict of interest there, hence Australia's financial sector remains robust in even these very difficult times.