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  1. #31

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    So now we're bailing out AIG.

    I wonder how the experts determine who gets bailed out and who doesn't.

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  2. #32
    Senior Member ptgatsby's Avatar
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    Quote Originally Posted by ygolo View Post
    So now we're bailing out AIG.

    I wonder how the experts determine who gets bailed out and who doesn't.
    A lot of it has to do with what we define bailing out to be. Right now, the bailout is more like 'controlled bankruptcy'. For all intents and purposes, it allows the company to unravel itself over the coming years, much the way LTCM was handled (although that was less government intervention).

    With that in mind, it's easier to see which ones will - the ones that pose a particular threat to the markets if their business suddenly ceased.

    The central difference, and why things could get ugly, is because the ability for the private market to raise the money is dependent on their ability to... raise money! This does create a slight moral hazard - the banks won't rescue each other if the government will - but as it stands, they aren't able to either.

    Fascinating stuff, actually. I'm a bit irritated with the unwinding right now, since I fully invested myself a month or so ago (broad market). *shrug*

  3. #33

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    13 Week T-Bill

    So who's ready for an emergency rate cut? 13 Week T-Bill yielding 0.02

  4. #34
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    Quote Originally Posted by ygolo View Post
    So now we're bailing out AIG.

    I wonder how the experts determine who gets bailed out and who doesn't.
    We determine it by saying "who's dumb enough to just destroy their own company", and who's just incredibly dumb as to cause a chain reaction if they go under.

    Interesting that Wall Street claims to hire the best and the brightest. Because in this case, 26000 best and brightest at Lehman either

    A) clearly weren't the best and the brightest because they couldn't see this bomb waiting to go off
    B) were so greedy that despite seeing this, they thought they could get away with it anyway

    Those that went under because of this housing and credit crisis deserved what hit them. Fools don't deserve forgiveness.
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  5. #35
    Glowy Goopy Goodness The_Liquid_Laser's Avatar
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    Quote Originally Posted by ygolo View Post
    So now we're bailing out AIG.

    I wonder how the experts determine who gets bailed out and who doesn't.
    I'm not sure about AIG. I know that Fanny and Freddie were bailed out, because the government caused their mess by privatizing them. They took bigger risks than would normally be reasonable, and most people didn't think anything of it. Since they used to be publically owned, most investors were betting that the government would back their loans if anything bad happened. Looks like the investors were right.
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  6. #36
    Senior Member ptgatsby's Avatar
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    Quote Originally Posted by The_Liquid_Laser View Post
    Looks like the investors were right.
    Heh, I don't think that was... exactly the plan, but if it was, I don't think many understood that "government help" is not... a wise investment. Most investors got in because it was privatized, sure (well, by definition it had to be to get in!), but more because they were granted a monopoly and connections. In theory, anyway.

    But, as is the nature with razor thin margins and selling risk... rush to the bottom!

    (FNM: 52 week high? 68.60. 52 week low? 0.35 FRE: Almost identical! Preferreds? Not much better!)

  7. #37
    Order Now! pure_mercury's Avatar
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    Quote Originally Posted by The_Liquid_Laser View Post
    I'm not sure about AIG. I know that Fanny and Freddie were bailed out, because the government caused their mess by privatizing them.
    Uhhhh, what? Freddie Mac was always a GSE, and Fannie Mae has been "private" since 1968. The problems started very recently.
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  8. #38
    Senior Member millerm277's Avatar
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    Quote Originally Posted by ygolo View Post
    So now we're bailing out AIG.
    This isn't really a "bail-out". We aren't GIVING them money, we're loaning it to them until they have time to sell the assets to pay it back. They have more than enough in assets, the reason this occured is because they needed money in a day, and selling $50 billion chunks like their aircraft leasing arm takes time.
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  9. #39

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    OK. May be it is a matter of degree.

    It seems like the gov't gave more help to AIG than Lehman Brothers for some reason.

    I just wanted to know how they (whoever they are) reason about such things. I was making no value judgements.

    Accept the past. Live for the present. Look forward to the future.
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  10. #40
    Senior Member ptgatsby's Avatar
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    Quote Originally Posted by ygolo View Post
    OK. May be it is a matter of degree.

    It seems like the gov't gave more help to AIG than Lehman Brothers for some reason.

    I just wanted to know how they (whoever they are) reasons about such things. I was making no value judgements.
    Oh!

    In that case, it was because with the bailout of FMs, the market began to expect government bailouts across the board. Central to this issue is that management began making sub-par choices, such as AIG turning down other bank buyouts because a change of management was required. Letting Lehman fail was more or less a demonstration that the government was going to let you fail if they wanted.

    Why AIG? My instincts tell me that Lehman was left to fail because the government it wouldn't severely rock the markets. Places like AIG were more of a threat because they undermined the instruments themselves (ie: insurance via segregated funds would undermine an lot more than just the markets). The same goes with the FMs, although with the housing market (the sudden inability to get mortgage funding would literally collapse the market into the depths of the worst depression). It's actually notable - I was looking as Las Vegas, and the banks there won't issue mortgages to foreigners (including Canadians). This means that the prices won't have that support (ie: Rent multiple is reaching 100 - normally investors would step in here).

    It also sent a message that the government 'bailouts' are not nice, and that they had better pursue other options and/or take what is being offered. They come with big personal costs (ie: AIG has a new CEO), no protection for investors (it is in bankruptcy, as far as things go. Debt holders, perferred then common shares as it gets picked apart). The government is buying its assets just like a private company would, and is liquidating them. It's just doing it slowly and in a (hopefully) regulated way.

    (IMO, of course)

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