Considering that over the last two days I’ve had VERY mixed feelings about the government’s buy-out of AIG, that J has been twittering on it and T just sent this.
I thought I’d post here and solicit the general temperature of the water. Are we:
Experiencing the largest prop-up of criminally poor financial judgement?
Seeing a government taking drastic measures to stem, stop, or cover-up and pray about a much more devastating financial collapse? Indicated here.
Seeing a potent reminder of why the majority of citizens shouldn’t have their retirements amassed in anything but guaranteed return programs?
I have no idea how to feel about this right now.
Usually Pith and an Augument ad Absurdum re: #, but worth it this time for the perspectives
Good basic discussion on yesterday’s Fresh Air (9/17/08) Itunes Podcast Link.
After reading a whole lot about this, I am left with this overwhelming realization: the financial market is so mind-numbingly complex that it’s almost impossible to make any observations about it without massive qualification. Whether the judgment call is fair or poor, I think, is almost an unanswerable question.
My take away from the entire thing is this: the notion of a “free market” is totally hosed. Given the nationalization of AIG and the impeding bad credit buyout, anybody who is squaking about our free economy is lying. Our economy is not only regulated, but in times of crisis it will be propped up straight out of the taxpayers’ pockets. Our government is showing very plainly that it is not willing to let the market correct itself at the expense of potential economic fallout (a fallout which would effect the rich mostly, I would add).
It’s going to be especially interesting to see what sort of double-talk the fiscal conservatives have in the wake of this.
Comment by quietglow — September 19, 2008 @ 6:54 am
I’m in a similar space as you I think. Here’s my feelings as of this AM:
I’m really beginning to see that the easiest way for me to parse the economists that I’ve read and listen to on this one into two camps is to split them to those that believe that the derivative market was dangerously given no oversight about 8 years ago allowing for market values to prop up companies while not demanding the market values be responsive to an cash-out value, and those that believe that this all isn’t the function of poor regulation but rather a kink in the coil of the US economy. I can’t begin to evaluate the claims. My gut reaction is that something rings true that dodgy securitized products probably shouldn’t be counted as actualized asset until fully unloaded. But again, don’t really get the nuts and bolts.
“Free Market” has been a polestar not a reality for the history of economies (if you want the only true “free market” analysis, I humbly recommend the analysis of the solar economy in Le Part Maudite). So those that claim a desire for the free market essentially want a market freer of restriction (or rather restrictions that promote top driven control of the market) and those that champion the restraint of the market are much more interested in having power alloted to either those in political or regulatory control on behalf of the people or the people themselves. Room for saints and sinners in both camps.
I’m most interested in what bizarre schadenhexenschaft the”speculators” that McCain keeps yelling about have worked on the market. If we honestly and openly accept that the market has been a regulated beast then what regulations failed (or failed to be in place) to allow this disastrous use of novel financial instruments. How, for example, is it possible that underwriting a a bundled group of shite loans that were due to go bust, isn’t considered issuing insurance, and how is it that that same investment can create an environment with other investments of that same ilk where it values itself as a strong asset?
I could be way off but what I understand happened was that more available loan money flooded the pool of total money in the world economy looking for investment. That allowed the bar for quality of investment to drop. In order to sell these bad investments more efficiently and spread out the risk, they were bundled and then resold in portions. So that 10 shitty loans would be come one entity owned by 10 different people. These loans (their value no longer being directly tied to the worth of their individual loans, but nonetheless depending on those loans not to fail to expose the “real” value of the investments) were repackaged and resold. This gets us up to the sub-prime stage of the failure. Now we enter the underwriting phase. So its perfectly fine to guarantee the success of those bad investments for a fee and not call that insurance. If you call it insurance (which it fuckin is), then it’s highly regulated, but if you don’t then its unregulated and no one has to know the extent that these shitty investments have propped up the accounts of major Wall street firms. So here we are. Realizing pop by pop who slept with whom as the cascading effect of shitty investments falling apart washes downstream to the cracks in the foundations of these large investment groups.
BTW do we really want one of the Keating 5 (it would benefit us to remember that the financial impact of the S&L crisis and who was involved *cough*neil bush*cough*mccain*cough) who voted for the current unregulated securities in
20001999 (Gramm-Leach-Bliley Financial Services Modernization Act) untangling this mess?Please note that AIG secured their bail-out loan from us with the supposedly healthy subsidiaries…so much for only part of AIG being affected. When this loan is defaulted on, and it will be the other parts of AIG fail now.
Comment by groenefee — September 19, 2008 @ 9:12 am