AIG Down in flames... Discuss!

$85 Billion bail out from the federal reserve. Thoughts?

 

 

bored at work GO!

 

I'd let'em burn personally, insurance has to be one of the biggest frauds ever made by man.

wonder what they gonna name it when the gov. takes it over, cause do you think aig can pay back 85 billion dollars ?

 

and where the hell did the gov. find/get 85 billion dollars ?.... did they sell a toilet seat to china ?

 

Federal reserve has some $880 trillion in assets. By bailing out AIG they took an 80% stake in the company...

 

Sure they insure millions in hundreds of countries, but it seems like bailing them out isn't going to fix the problem. When companies get so big that if they fail, they produce this much of an impact, they need to be split up.

Federal reserve has some $880 trillion in assets. By bailing out AIG they took an 80% stake in the company...

 

Sure they insure millions in hundreds of countries, but it seems like bailing them out isn't going to fix the problem. When companies get so big that if they fail, they produce this much of an impact, they need to be split up.

You just wait until after all this is sorted out and we have the next financial episode. Bank of America is going to be HUGE!

I wont lie, i am not an economist. All I know is that my company has been doing sooooooo terrible this year, we've been on the verge of closing our doors every month and yet we've made it so far. We've made it by hard work, job cuts and being innovative. Bailing these guys out makes me think we're doing them a disservice by enabling this behavior.

 

I don't know if we let them collapse if the world would have imploded, but it feels like we shouldn't keep on doing this.

 

 

How exactly is an insurance company related to the sub prime mortgage thing? That is still a little unclear to me.

 

As for the 85 billion dollar bailout... I guess its better than total meltdown, but what kind of message does it send to other large companies? "lol it doesn't matter that we've placed the financial future of our company on this one extremely shady idea, the government will just bail us out."

 

I think in the end its necessary, but I don't like it. I believe that if you have that much money and are such a huge company you really shouldn't have any excuse for going bankrupt unless you are completely stupid or corrupt(or both). The presidents of these companies should be thrown in jail and their assets sold off to help recover the losses. I'm sure we could recover a good portion of the losses.

 

Also, in relation to the whole sub prime mortgage thing. Who the fuck gets a mortgage that is so fucking big that you can't pay it. I know that if I worked at fucking mcdonalds making $5/hour I'm not going to try to buy a $300,000 home. Don't you think ahead?

 

I don't know what is worst, the stupidity of the people who took these things on or the corruption of the assholes who gave them out? hmmm maybe the retards at the banks who bought and invested in those god damn things.

 

The whole thing is a failure of common fucking sense.

 

P.S. I'm pulling all my money out of banks, buying wow gold and investing in herb futures and adamantite. Its so stupid its fool proof.

whats aig?

I'd let'em burn personally, insurance has to be one of the biggest frauds ever made by man.

 

That and those hangover pills... they don't work.

How exactly is an insurance company related to the sub prime mortgage thing? That is still a little unclear to me.

 

As for the 85 billion dollar bailout... I guess its better than total meltdown, but what kind of message does it send to other large companies? "lol it doesn't matter that we've placed the financial future of our company on this one extremely shady idea, the government will just bail us out."

 

I think in the end its necessary, but I don't like it. I believe that if you have that much money and are such a huge company you really shouldn't have any excuse for going bankrupt unless you are completely stupid or corrupt(or both). The presidents of these companies should be thrown in jail and their assets sold off to help recover the losses. I'm sure we could recover a good portion of the losses.

 

Also, in relation to the whole sub prime mortgage thing. Who the fuck gets a mortgage that is so fucking big that you can't pay it. I know that if I worked at fucking mcdonalds making $5/hour I'm not going to try to buy a $300,000 home. Don't you think ahead?

 

I don't know what is worst, the stupidity of the people who took these things on or the corruption of the assholes who gave them out? hmmm maybe the retards at the banks who bought and invested in those god damn things.

 

The whole thing is a failure of common fucking sense.

 

P.S. I'm pulling all my money out of banks, buying wow gold and investing in herb futures and adamantite. Its so stupid its fool proof.

Here's it all in a nutshell. This was started by the subprimes when people who normally wouldn't be able to afford a home were able to get a loan with an adjustable rate. This rate would continue to climb to the point were the payment you were able to make is now suddenly two or three times what it was. Thus forcing you to refinance or forclose. Many times refi-ing isn't an option so they lose the house they were staying in. There are other factors but I'm goingto try and keep this simple.

 

The reason an insurance agnecy is in trouble is they would purchase "securities" where would basically be morgatges bundeled together. This would be used as capital should the company need to make a payout, they'd sell this package to someone else and, boom, instant money. Problems happen when no one's interested in buying the securities that you're holding and suddenly your company isn't worh what you thought it was. It'd be like if I told you 75% of the money you have access to (credit cards, checking, savings) is really monopoly money.

 

Thier clients would lose faith in thir ability to provide cover should a payout be needed and pull out. Making a bad problem worse. If AIG were to go under right now then it'd leave millions of people and thousands of banks w/o any kind of cover. It's like a shitty Jenga game. AIG is one of those blocks that when removed suddenly brings the whole thing down.

 

Now with the Fed buying such a large portion of the company the money needed is there, and it's a loan so AIG is goign to sell off portions of itself and it's assets in a controled manner that keep the market stable. They're going to have to pay the Fed back for this loan and if all goes well the taxpayer is going to make truckloads of money on the interest.

 

The big deal is if this company were allowed to fold that rapidly then it would lead to a panic, followed by a crash, I again refer to that Jenga anology. The whole idea is that you want a controled fall.

 

Also buy Adamantite futures right now is just stupid. It's going to be replaced by yet another mineral for level 80 content. So for a long term investment you're wasting your time. You'd be lucky to break even on any purchase you make right now!

Edited September 17, 2008 by Ecthelion

I heard about this yesterday http://en.wikipedia.org/wiki/Glass-Steagall_Act... pretty interesting stuff =)

To put it a different way - As I've heard it, AIG was effectively insuring the (greedy fools) who were issuing the sub-prime mortgages.

 

As for what consumer would get into such a mortgage - As a shell-shocked employee said as he carried his belongings out the door of Lehman Bros. yesterday... "We were just helping people realise the American Dream!"

 

gfg.

All a step to consolidate power to fewer and fewer hands. Run to the hills! the end is near!

Well, business will be booming in the homeless, hungry, jobless, sick sectors, so as they say...business is good

The far gloomier picture is that too many countries (primarily the US that kind of started the domino effect we are seeing now) ignored common sense and put way too much at stake during the 'global economic boom' over the past decade... give or take depending on which countries you look at. Either way... it has led to the authorization of risky investments that have been cleared/backed by reserve banks/goverments and now those investments can't be made back. Risk analysis was made for a purpose to look at the whole picture and not just cutting paper losses to live and see another day, hoping for the best.

 

Look on the bright side... the US at least understands where it messed up with the housing bubble... Australia has been indirectly following your trends and also has a housing bubble on the verge of bursting and the economists here have absolutely no clue as to where the money has gone. Although... it probably won't be as bad as what the US potentially faces... because our economy is significantly smaller and has less of an impact on the world economy.

 

People are scared that countries are running decifits 4-5 times that of the great depression... but we also forget that the world is more globalized (whether that's good or bad is another issue altogether) and its economy is so much bigger than it was back then. There is a lot of interdependence going on... primarily due to the promotion of capitalism. Capatalism will never succeed though because the very bodies that push for it have some of the strongest protectionist measures in place which is understandable... Europe never again wants to be as vulnerable as it was after WWII. But yea... the hypocrisy is there and it has definitely affected the way certain things that have come to pass.

 

So reserve banks are doing everything to keep confidence up... maintain the spending, both fiscal and consumer... but eventually it'll run out... the problem is compounding and will be worse the longer we try to prevent it. It doesn't help when speculators are running around screaming RECESSION when most of them apparently don't even know the definition of one. The only country that has had the onset of a recession sofar has been the UK... and its overdue under our current financial system... they've been experiencing growth longer than any other country.

 

With the way the financial market has evolved since the birth of Bretton Woods and its eventual conclusion during the Vietnam war... where the US dollar has effectively become the international currency... it was intended for economies to maintain agreed upon parities but when the currencies started floating and opened themselves up to speculation... this was not the original intention of the Bretton Woods agreement... no one officially made plans for this.

Yes, people made a killing... a lot of countries are far richer because of it... but now they've also made themselves vulnerable to it. The pressure of raking in more money to satisfy the bottomline... resorting to short-term measures just so shareholders remain happy and disregarding common sense and being rational about welfare and the future has contributed to the stage we are at now.

 

Ultimately, the monetary system in its current state is flawed... it has led to fluctuations which we've known about for ages... and with fluctuations come up times and down times. The longer you try to prevent a downtime... the worse it will get when it eventually hits. IMHO.. we should have all listened to Keynes back at Bretton Woods and implemented his idea of an independent global financial institution with its own currency and countries having to maintain parities in order to trade (it at least had the same goal as the original gold standard which to this date has been the most stable monetary system but it wouldn't have been as biased). AND actually help countries stay out of deficit in the long-run which never really happened with the Bretton Woods agreement... IMF/WB don't count - sad attempts to try alleviate countries in need of help and making westerners richer is pretty appaling.

 

What i find ironic though... is that a lot of western economies are now reliant on the very one country that they opposed for so so long, China. Personally... i think we should all just eat the recession and get it over with... but a lot will suffer... so i hope that there'll be another way. Nobody is certain just yet because this is new territory.

Its in China's best interest to continue buying the USD and other foreign currency... keeping their currency pegged... just so that they continue to grow for now. Pray it doesn't change in the short run... the minute they stop indirectly buying up US deficits, we'll be in for an interesting ride. It'd be stupid of them to do it though, at least for now.

 

People need to understand that overall... we have a socialist-capitalist hybrid structure in place. These ideals conflict... a pure capitalist is all about efficiency and the strongest survive and the weak die off. Socialism promotes equality - both of which can lead to different kind of balances (due to different policies), if that makes sense. Theoretically, if you had either or... achieving some sort of equilibrium should be possible, but then again communism did fail which is why everyone sides capitalism. Problem is... of course communism will fail eventually if the rest of the world has different ideals. Reverse the roles and it would be similiar.

 

However, this system has 'worked' for so long... partly due to no new world wars (thank god) and i guess on some level... people like to have the best of both worlds... we want the pros of both capitalist and socialist ideals... which is awesome... but one needs to accept the notion of downtime every now and then for this to be possible.

And we did accept it.. there've been recessions in the past... but we hated it... we've learned more now and are trying to prevent it... or ignore it. We can't seem to accept that recessions are inherent unless drastic changes are made.

Nicely put Dag, just reminds us that all good things come to an end at one point or another.

Well said Dagorian.

Well said Dagorian.

^This^

/Kneel Treasurer Dag

This is the golden age of the repo man, a golden age that will last forever. Lets invest most of our money in repo businesses!

This is the golden age of the repo man, a golden age that will last forever. Lets invest most of our money in repo businesses!

Jokes aside, that would actually be a very smart move. Here in San Francisco, after the .com bust, there were still plenty of well-to-do individuals moving into the city...And most of them were from the 'asset liquidation' sector.

Thoughts from someone that works in the industry:

 

whats aig?

American International Group, Inc. They have (or did have) over $1 Trillion dollars in assets and have been the largest insurance company in the world for a number of years. At their peek they were the 3rd largest company in the world period. Larger than any Oil company or manufacturer there is. 2008 has been a crappy year for them and they've fallen considerably, but they are still very very large.

 

How exactly is an insurance company related to the sub prime mortgage thing? That is still a little unclear to me.

 

As for the 85 billion dollar bailout... I guess its better than total meltdown, but what kind of message does it send to other large companies? "lol it doesn't matter that we've placed the financial future of our company on this one extremely shady idea, the government will just bail us out."

 

I think in the end its necessary, but I don't like it. I believe that if you have that much money and are such a huge company you really shouldn't have any excuse for going bankrupt unless you are completely stupid or corruptor both). The presidents of these companies should be thrown in jail and their assets sold off to help recover the losses. I'm sure we could recover a good portion of the losses.

How are they related? Well AIG insured the debt. (yes debt is insured. Everything is insured) of a number of mortgage brokers and banks. When all the debt went bad, their claims skyrocket and their reserves weren't enough to handle that.

 

AIG as a whole is an extremely diverse company (group of companies really) and this is only a portion of their business, but one that was allowed to get so large that its problems are affecting the company as a whole. And considering the timing of Hurricane Ike, which could cost them more than a billion in commercial property losses from what I hear, well, it's a shitty year for them.

 

The responsibility doesn't fall solely on the president or CEO. It isn't like Enron/Worldcom were a few corrupt guys brought down the company. Their problems are the industries problems. There are a lot of people/companies at fault. And you don't have to worry about the CEO's. The majority of their assets were in stock, which is now like $3 a share. They're broke as can be now.

 

I'd let'em burn personally, insurance has to be one of the biggest frauds ever made by man.

Maybe health insurance gives the industry as a whole a bad rap, but without insurance the economy would not be able to survive. It makes doing business and/or owning personal property safe and reliable.

 

For a business owner (or stock holders) the amount of liability incurred by doing business is huge, and the assumption of that liability by another entity is necessary. Without insurance, a single property loss, injury of an employee, or error in a contract could put you out of business. The economy would not exist without insurance.

 

I know insurance companies are demonized a lot, and mostly this is due to personal lines like Health and Auto screwing over the consumer at times, but they are only a small part of the industry and as a whole insurance companies aren't evil. >.

 

wonder what they gonna name it when the gov. takes it over, cause do you think aig can pay back 85 billion dollars ?

 

and where the hell did the gov. find/get 85 billion dollars ?.... did they sell a toilet seat to china ?

They won't change the name. The government isn't looking for a long term stake in the market. They have no interest in getting in the insurance industry, especially since it isn't a federally regulated industry. The Fed bought 79% of AIG with a loan. They don't "own" the company per se, but they do get to call all the shots til they are paid back.

 

And no they can't pay it back in the since that most are thinking. That would equal about $5b a month. AIG is only interested in surviving until they can find a buyer. More than likely they will break the company up and sell the portions that are unaffected by the mortgage collapse, which they could get $100b's for.

 

Federal reserve has some $880 trillion in assets. By bailing out AIG they took an 80% stake in the company...

 

Sure they insure millions in hundreds of countries, but it seems like bailing them out isn't going to fix the problem. When companies get so big that if they fail, they produce this much of an impact, they need to be split up.

They bought them to prevent any future problems that would affect the millions of policy holders, and thousands of agents/brokers and other carriers that are depended on them due to their stake in the industry.

 

Example, if they went belly up the industry would have millions of insureds with no way to renew their policies and the rest of the industry just doesn't have the capital and reserves to take on that much risk, not without raising rates on every line of business by considerable amounts. Right now the market can't take that. It's slow and stagnate and rates are already rock bottom and insured's don’t want to pay that. It would cause a lot of problems for us if AIG went under and so would every other carrier.

 

Bailing these guys out makes me think we're doing them a disservice by enabling this behavior.

 

I don't know if we let them collapse if the world would have imploded, but it feels like we shouldn't keep on doing this.

Like I said, the economy is largely dependent on the availability of insurance. Not bailing them out could have huge repercussions to almost every industry.

 

For example, I imagine your company could spend more than $300k a year on insurance since you're in manufacturing, have warehouses, offices and distribution centers and a lot of staff. They need Casualty/Umbrella/Property/E&O/PL/Workers Comp etc. insurance to cover all of that. If their rates doubled or tripled, how many people would they have to lay off to cover that? Now imagine every company there is having to do the same.

 

It could theoretically cause a domino affect that results in the loss of millions of jobs and the long term stagnation of growth in the private industry making it difficult to rebound from that for at least a few years.

 

Other things to note

 

I don't think any CEO is kidding themselves into thinking that the government will bail them out if they are approaching bankruptcy. The size and scope of AIG is so huge that it makes companies like Google and Apple look like your local mom-and-pop shop. The Fed would never bail out any company like that because the affects are localized in a single industry that is more or less capable of sustaining itself if one or two key companies went under. That's not the case for AIG however.

 

As for the Fed not bailing out Lehman Bros 2 days prior to the AIG loan? The banking industry will survive and the evidence in that is BoA's purchase of Merrill Lynch, Barclays almost immediate purchase of Lehman's assets, and Lloyd's purchase of HBOS today. There are other fish in the sea capable of assuming the debt of Lehman or other similar banks.

 

How will this affect policy holders? It won't. Insured's are protected by the State governing bodies. Your State's Insurance Commissioner makes sure of that. And as long as you have a valid policy, even if AIG went out of business, you would be protected. You wouldn't have to worry til you needed to renew.

Edited September 18, 2008 by Hykos

Thoughts from someone that works in the industry:

 

They bought them to prevent any future problems that would affect the millions of policy holders, and thousands of agents/brokers and other carriers that are depended on them due to their stake in the industry.

 

Example, if they went belly up the industry would have millions of insureds with no way to renew their policies and the rest of the industry just doesn't have the capital and reserves to take on that much risk, not without raising rates on every line of business by considerable amounts. Right now the market can't take that. It's slow and stagnate and rates are already rock bottom and insured's don’t want to pay that. It would cause a lot of problems for us if AIG went under and so would every other carrier.

Like I said, the economy is largely dependent on the availability of insurance. Not bailing them out could have huge repercussions to almost every industry.

 

That is the issue I was getting at, when a company has this profound of an effect on so many people, it needs to be dealt with. Split the company up even if it is just by what is insured. Bailing them out is an "oh shit" move and while they have time, need to figure out how to set the company up so it doesn't crush everything by going down. They never heeded "don't put all your eggs on one basket." This is a prime example of why.

 

Well, they thought their eggs were in enough baskets. They are very diversified. It's just that one basket got too big and the rotten mess spilled over. At this point, yeah they should be broken up. I don't disagree with that. The loan til they can be sold off was necessary though imho.

I farted three times reading this thread.

Thoughts from someone that works in the industry:

 

 

Maybe health insurance gives the industry as a whole a bad rap, but without insurance the economy would not be able to survive. It makes doing business and/or owning personal property safe and reliable.

 

For a business owner (or stock holders) the amount of liability incurred by doing business is huge, and the assumption of that liability by another entity is necessary. Without insurance, a single property loss, injury of an employee, or error in a contract could put you out of business. The economy would not exist without insurance.

 

I know insurance companies are demonized a lot, and mostly this is due to personal lines like Health and Auto screwing over the consumer at times, but they are only a small part of the industry and as a whole insurance companies aren't evil. >.<

 

The other branches of insurance are just a byproduct of the way the system has evolved. Also the insurance industry is inherently evil. If you've ever worked in any health care profession you see the absolute crap they put their clients through. They are a bureaucratic institution that are far more concerned about their bottom line than actually providing patients with adequate care. Seemingly they will gladly screw someone over who is in desperate need of care to save a few bucks. I'll leave it at that now, I really don't care for this if you can't tell XD