Bailing out American International Group (AIG) was probably the most unpleasant part of the whole Wall Street bailout. It was also the part I expected to cost us the most money. How does that look now?
WASHINGTON—The Treasury Department said it would generate $7.6 billion in proceeds from its sale of American International Group (AIG), as it sells nearly all its remaining holdings in the insurer it helped rescue at the height of the financial crisis.
The government said Tuesday it would sell about 234 million common shares at $32.50 each, matching the price it got when it sold an even larger slug of shares in September. AIG’s stock closed Monday at $33.36, and jumped 1.6% to $33.90 in heavy pre-market trading Tuesday.
The transaction is expected to close on Friday. By Treasury’s calculation, the final round of sales means the government will have a net positive return on its AIG bailout of $22.7 billion.
As for the entire TARP program, it is projected to ultimately cost about $25 billion. Basically all of that will come from money we could not recoup from the auto industry.
In perspective, however, $25 billion is half what New York, New Jersey, and Connecticut are asking for in Superstorm Sandy recovery money.
Assets have no “true price.” There is no God of Asset Valuation who will judge both the living and the dead. It’s all artificial. If we believe that things are worth something, if we’re willing to pay something for them, then the game can be continued forever.
Time heals all wounds, and apparently all balance sheets. Were Citigroup and AIG, etc. objectively insolvent back then? Yeah, probably. But that was ruled out as a possibility, and we’re all fine for it. It goes to show that market fundamentalism is a complete crock, whether it’s bought into by the Austrians of the right or the “toxic shitpilers” of the left like Atrios and company. Value is a human invention.
I honestly have no idea what any of that is supposed to mean.
What it means is that he’s one of the folks who started off saying “zomg Obama is bailing out wall st and giving us a shit sandwich”, and now that this has been demonstrated to be incorrect, he’s declaring “there is no truth”.
Global financial firms are gigantic, defiantly criminal enterprises, rigging and defrauding anything and everything they can 24/7, so I would hardly describe their preservation an unalloyed social good, no matter what it didn’t cost.
http://www.reuters.com/article/2012/12/11/us-hsbc-probe-idUSBRE8BA05M20121211
http://www.bloomberg.com/news/2012-12-11/u-k-fraud-prosecutor-arrests-three-men-in-libor-rigging-pro
be.html
Those are just some of today’s headlines, and today’s alone. We’re so blessed to have them in our lives.
It means that what the government did was hold the bag long enough for the market in all its psychoses to pretend that AIG was valuable again.
But if there is nothing to value but its social construction, then there is neither moral not economic content to your use of “pretend.”
That’s basically correct, I think. The only people who were violated (or whatever) by the imposed correction were the shorts.
The pretend lasts until it gets cashed out as payments to other folks, like bonuses to executives. Then the pretend become real.
Why does a derivative of a derivative have value? It doesn’t. It’s all mathematical silliness, up until the point of transaction. Then it has presumed value, because somebody somewhere obviously paid for it and they would know.
Land has real value. Commodities pulled from the land have value. Structures built upon the land have value as long as they’re well maintained. Labor has value. So as long as new people are being born or immigrating or becoming consumers, and as long as somebody out there wants to keep buying widgets and soybeans and iPads from somebody else somewhere, we still got an economy going.
Buyers had fled the field, but at the end of the day, we don’t have time to invent a whole new class of assets. You can only buy what exists, because the banks have to sell off their books. So somebody has to confirm that those assets are purchasable. Value had to be externally reimposed. The Fed had to handhold institutional investors into restoring liquidity. The Fed now has a $4 trillion balance sheet, that’s 25% of our GDP! And in exchange for bearing non-recourse risk for all this nonsense, the government and the Fed made sure that private investors would pump equity back into the banks to restore their capital base. All under the assumption that widgets would still be bought and new loans financed, etc. and the game would play on.
It’s all totally a scam. But it was either that, explicit public subsidization, or rebalancing and wealth destruction; so of the three, this preserved the most amount of wealth for the most amount of people. But market fundamentalism should be thought definitively dead as of 2008. If the market is “wrong” (or stubborn or short-sighted or unwilling), that doesn’t mean the jig is up. The State (and its central banks) is supreme.
A derivative has value as a hedge against risk. A bundle of diverse things is less likely to have all go bankrupt (unless they really are not all that diverse because of fraudulent credit ratings). That was the first derivative.
The second derivative was a reverse transaction insurance policy in case the first failed. Which if fine if you are the one with the forward transaction.
But, those credit default swaps were allowed to be traded to persons with no other interest than the speculation on the failure of the first derivative. So called “naked” credit default swaps. And the credit default swaps were treated as assets for leverage.
And the speculative trades worldwide (and out of reach of regulators because it was a “new” product traded internationally) created a bubble that was like counterfeiting money. And when housing started down, there was a panic among folks who knew it was all pretend but who would be holding the bag for real cash.
Why does a derivative of a derivative have value?
Because it gives you a right to collect money from somebody.
Why does a check have value?
Yup. Wonder how many of the ‘hippies are always right’ will admit they were wrong. It’s pretty much crickets out there so far. Which is pretty silly insofar as most mortals are wrong about somnething every day, and there’s no shame in admitting it.
If you have 24 hours to sell your house, its ‘value’ is different than if you have unlimited time to sell it.
Even Krugman slipped his admission that Geithner’s plan cost the taxpayers less than his nationalization scheme would have into the middle of the 3rd paragraph of a random post about a year and a half ago.
For some perspective, I think the S&L bailout cost over 100 billion.
TARP was not Geithner’s plan. What Geithner did was make the best of already crappy legislation.
Krugman didn’t agree with the stress tests, the handling of AIG, Citi, etc.
Clearly Geithner changed course in terms of executing TARP after he became secretary.
http://www.khanacademy.org/finance-economics/geithner-plan
Wonder how many of the ‘hippies are always right’ will admit they were wrong.
Perhaps that one guy towards the back, past the crowd of people crediting their awesome protests skeelz for this outcome.
Too bad we are going to have to go through this bailout nonsense all over again within the next decade. The method of operations that produced this crisis are still in place unchanged and because the folks responsible for the crash never were held accountable nor the system changed, it’s already “good times” all over again.
The financial industry does not know how to prevent its business for costing the taxpayers billions. But they own Congress, which will therefore not do what needs to be done.
No. I’m not celebrating. It was not brilliant. There were other ways of dealing with the crisis than the one chosen by the self-serving Hank Paulson and the idiot George W. Bush. And Democrats in Congress faced a “take my plan or we shoot the global economy” decision and by standing together they let all but just enough Republicans avoid the bitter medicine.
Actually, we won’t. Well, we might. But there is now an ability to wind down Too Big To Fail institutions. It’s anyone’s guess if it’ll work or not. We won’t know until the moment comes upon us.
But then there’s the political will: even if the resolution authority did work (if it was implemented as it’s supposed to be), would the gubmint have the will to see that it’s done? Again, it’s anyone’s guess.
I’m not celebrating, but we do have tools that we didn’t have before.
BTW, where are the props for whoever got Elizabeth Warren involved in overseeing TARP?
Harry Reid. Well, probably one of his staffers.
that sounds all nice and stuff, but somewhere, someplace, one of those TARP Banks is charging a Customer 18% percent for a Credit Card Charge.
not that, that isn’t a problem but those percentages were the case before TARP too and not just at TARP banks
The Dems., missed their chance to extract and ounce of blood, before allocating the TARP funds. And considering the Fed. Window was open to most banks getting .02 percent money than charging 18% to consumers is a little high.
since TARP was initiated under Bush that wasn’t really in the cards but I would have liked reinstatement of the usury laws but that will have to be in the next improvement, never get everything the first shot anyway
maybe i forgot, the TARP funds was the 900 Billion give-a-away, before Obama became President?
$750 billion giveaway. Bush committed half of it immediately to banks. Left half for Obama to manage. Obama committed some to large banks, some to community banks, and the rest to bail out GM and Chrysler. Both GM and Chrysler had financial entities (like GMAC) that functioned as banks.
When discussing money that is to be paid back, the verb “loan” is more commonly used than “give.”
When you give something to somebody, they get to keep it.
You’re both essentially right, the Bush administration intended it to be a giveaway but President Obama and Secretary Geithner ended up getting most of it back, which was unexpected in 2008 when TARP was passed.
Property still hasn’t been declared theft.
Obama still hasn’t called on us to expropriate the expropriators.
The commanding heights of the economy are still not owned by the workers.
Obama sold us out.
Record high corporate profits and record low wages as percentage of gdp.
http://money.cnn.com/2012/12/03/news/economy/record-corporate-profits/index.html
The situation is excellent. (See what I did there?)
“Obama sold us out.”
Again! To the ramparts, Comrade!
Related somewhat tangentially is HSBC will pay $1.9 billion for money laundering.
Forbes warns about financial entities too big to indict:
Too big to indict?
So much wealth, laws bounce off. That opens up all sorts of opportunity.