Commentaries

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from Rolfe Winkler:

Lunchtime Links 2-2

Homeownership rate falls to 2000 level (CR) At 67.2% it's still way overstated. Home "ownership" is a misnomer in cases when the owner has withdrawn mortgage equity or when the price of the home has fallen below the principal value of the mortgage. A better measure of homeownership, I think, is just to look at total owner's equity as a % of household real estate. The most recent Fed Flow of Funds report (page 104, line 50) puts the figure at just 37.6%...

U.S. could extend bank fee beyond 10 years, Geithner says (Di Leo/Crittenden, WSJ) The proposed tax on non-deposit liabilities should be permanent, and should target ALL liabilities, including repos. Deposits are guaranteed via FDIC. While that insurance is dramatically underpriced (witness the cash-strapped state of the DIF) at least banks pay something for it. Non-deposit liabilities are also effectively guaranteed, for the biggest banks anyway, via the promise that none which is too big will be allowed to fail. To counter moral hazard, this implicit guarantee must be taxed in order to offset any benefit derived from lower funding costs.

Must-Read: What's a college degree really worth? (Pilon, WSJ) A lot less than you think, as argued here before. This piece is well-written with lots of good data!

AIG derivatives staff said to forgo $20 million in retention bonuses (Katz/Son, Bloomberg) They're still well-paid, but this is better than nothing I suppose.

from Rolfe Winkler:

Geithner’s faulty apologia

Tim Geithner's appearance in front of Congress today was another embarrassment, perhaps more for the people's representatives than the Treasury Secretary. Still, Geithner offered a clumsy defense for paying out 100¢ on the dollar to AIG's counterparties, which included more than Goldman Sachs.

What they lacked in knowledge and nuance, Congress made up for in volume and OUTRAGE. The worst moment I saw was the utterly bogus comparison by Rep. Stephen Lynch between AIG's payout to Goldman (100¢ on the dollar!) and the bailout offer for Bear Stearns shareholders (only $2 per share). 100 is a bigger number than 2, you see.

from Rolfe Winkler:

Grist for Goldman conspiracy theorists

From Yves over at NakedCapitalism:

A former managing director at monolines Ambac and FGIC wonders why AIG was bailed out but the monolines weren't. (He admits to bias, so take this with a grain of salt.)

...the [AIG] bailout was prompted by fear mongering and deliberate strategies and manipulation on the part of Goldman and a few select others, to make sure that AIG would be bailed out to protect their trades in shorting ABS CDOs.

Barofsky audit a Fed, not Geithner, problem

Sure, Timothy Geithner led the negotiations with AIG counterparties when he headed the New York Fed last year, but TARP special inspector Neil Barofsky’s audit is damning where it really hurts the Fed. It raises the question of whether the central bank is a tough enough regulator at a time when Senator Christopher Dodd is calling for the Fed to be stripped of such power over big banks.

Big Picture has posted the report in its entirety.

It’s one thing to be a bad regulator during the boom years when, let’s face it, there were bad regulators everywhere. But to shrink from tough negotiations with banks during the height of the crisis when those banks were already benefiting from billion of dollars in state aid will be harder to explain away, though the New York Fed has tried.

Dow 10,000 is a gas

Jack Healy’s story in The New York Times about the Dow getting closer and closer to the magical 10,000 mark is OK, but it contains few surprises. But I really was blown away by the chart that shows the perfomance of Dow component stocks since March 29, 1999–when the index crossed 10,000 for the first time.

The chart, which includes a number of stocks that are no longer part of the Dow–such as AIG, Citigroup and Eastman Kodak–is interesting because more component stocks have lost ground over the past 10 years than posted gains.

AIG has debts that no honest man can pay

Here’s more evidence that it would be better for the federal government to order the break-up of AIG sooner rather than later.

Former AIG chief executive  and chairman Robert Willumstad, in a speech today, says the taxpayer-supported insurer “owes the government more than it has the ability to pay back.”

Profiting from the bailout

What is it with this belief that somehow the federal government’s role should be to profit from the bank bailout?

I thought the purpose of the bailout was to save the financial system from collapse.  And that’s why I supported it last fall–even if it was poorly designed and poorly explained to the public.

Time to junk AIG

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The federal government’s $180 billion effort to prop up American International Group has worked, averting an even bigger financial catastrophe. Now it’s time for the Obama administration to oversee the dismantling of the failed insurance giant with all due speed.

A report this week from the Government Accountability Office makes clear that AIG would crumble and likely reignite financial fears around the world without the government’s massive support.

What did rating agencies know about AIG?

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It’s time to start asking the big credit rating agencies just when they realized that American International Group might pose a systemic risk to the global financial system.

And what, if anything, did the rating agencies do to warn financial regulators of the global crisis that might ensue, if AIG’s debt ratings were suddenly slashed.

Obama’s AIG timidity

I’ve been pretty amazed at how silent the Obama administration has been about Robert Benmosche’s antics since becoming the well-compensated CEO of American International Group–the defacto government owned insurer.

But after reading this story in The New York Times, I was shocked to learn that many in the Obama administration are warying of looking like they are injecting themselves into the company’s affairs. That’s the case, even though many on Team Obama are upset with Benmosche’s $9 million pay package and his desire to move slowly in selling AIG’s assets.

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