Comments on: Why the government should have nationalized AIG http://blogs.reuters.com/felix-salmon/2010/02/07/why-the-government-should-have-nationalized-aig/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: CSC http://blogs.reuters.com/felix-salmon/2010/02/07/why-the-government-should-have-nationalized-aig/comment-page-1/#comment-11845 Mon, 08 Feb 2010 21:29:00 +0000 http://blogs.reuters.com/felix-salmon/?p=2491#comment-11845 You make some very interesting and prudent points. However, we need to understand this in the context of the whole of the financial crisis. AIG was just one (and a big one at that) of the financial dominoes falling in the global economy and US Govt Capital could (and was) needed elsewhere. Also, the CDO’s (and losses) by their nature were hard to quantify and if you cannot accurately measure the risk then why put a govt’s capital and financial rating potentially at risk?

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By: Carter http://blogs.reuters.com/felix-salmon/2010/02/07/why-the-government-should-have-nationalized-aig/comment-page-1/#comment-11831 Mon, 08 Feb 2010 16:27:21 +0000 http://blogs.reuters.com/felix-salmon/?p=2491#comment-11831 Felix,
All well and good if you could just explain the mechanics. Who could do this, and under what authority?

To Boabdil’s comment, I doubt the UK would want to nationalize the FP subsidiary, and it would probably be pretty interesting if the US sought to nationalize a UK-incorporated firm!

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By: Boabdil http://blogs.reuters.com/felix-salmon/2010/02/07/why-the-government-should-have-nationalized-aig/comment-page-1/#comment-11830 Mon, 08 Feb 2010 16:24:19 +0000 http://blogs.reuters.com/felix-salmon/?p=2491#comment-11830 Could the US Treasury or the Chancellor of the Exchequer nationalised just the trading arm of AIG?

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By: breezinthru http://blogs.reuters.com/felix-salmon/2010/02/07/why-the-government-should-have-nationalized-aig/comment-page-1/#comment-11826 Mon, 08 Feb 2010 11:50:27 +0000 http://blogs.reuters.com/felix-salmon/?p=2491#comment-11826 Obama’s idea of expecting large banks to make the taxpayers whole should include money the taxpayers lost in bailing out AIG… which is currently does not.

GS is not taking any losses on its AIG dealings. That means that someone else must take those massive losses instead. That someone else is the taxpayers.

It must be nice to have such powerful friends in high places. It’s too bad that the US taxpayers don’t have many people in DC who are interested in representing their interests.

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By: OnTheTimes http://blogs.reuters.com/felix-salmon/2010/02/07/why-the-government-should-have-nationalized-aig/comment-page-1/#comment-11823 Mon, 08 Feb 2010 01:08:17 +0000 http://blogs.reuters.com/felix-salmon/?p=2491#comment-11823 Geithner was head of the NY Fed and Bernanke was chairman of the Federal Reserve, and both were involved in the negotiations with AIG and Goldman. Paulson no doubt liked the solution, but it was the Fed that put the deal together. Geithner “negotiated” with Goldman and the other AIG betting partners, and Bernanke had to approve it. They were both rightly frightened by the domino effect-like consequences of an AIG collapse, but giving Goldman whatever they asked for was not the only solution. They deserve, at best, a D- grade – just barely passing. We deserve better (ok, maybe we don’t deserve better, but we need better management of the financial system).

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By: jian1312 http://blogs.reuters.com/felix-salmon/2010/02/07/why-the-government-should-have-nationalized-aig/comment-page-1/#comment-11822 Mon, 08 Feb 2010 00:33:40 +0000 http://blogs.reuters.com/felix-salmon/?p=2491#comment-11822 The previous commentator mixed up the time-line. I believe the AIG bailout was engineered in 2008, when Paulson was still Treasury Secretary; Paulson himself was CEO of GS before going to Treasury, was he not?

I would think, all technical details aside, the mentality of government officials at Treasury, Fed, SEC, etc., has been a major problem. They’ve all drunk the cool-aid and believed their mission is to offer whatever sacrifices demanded by ‘the market’ so that it wouldn’t go down. I would challenge that mentality first, before discussing anything else.

It’s also breathtaking that it’s not even a scandal, when we look at the obvious revolving door between major investment banks (GS in particular) and government overseeing agencies. It’s hard for Paulson or anyone with his history to not treat GS differently in the financial crisis; similarly, it’s hard for Geithner or anyone in his position to not treat investment banks with kid gloves, when he might very well hope to go work for them at a senior position after the government stint.

The blatant conflict of interests speaks for themselves. I’m not by any means questioning any particular player’s personal integrity. I’m saying this system of the revolving door is corrupting and wrong and harms all of us. It should be changed, more buffer should be put in.

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By: OnTheTimes http://blogs.reuters.com/felix-salmon/2010/02/07/why-the-government-should-have-nationalized-aig/comment-page-1/#comment-11820 Sun, 07 Feb 2010 23:30:21 +0000 http://blogs.reuters.com/felix-salmon/?p=2491#comment-11820 Yes, the government should have absolutely called Goldman’s bluff. They should have offered them fifty cents, and said take it or leave it. And if Goldman would have said that they would default and bring down their customers, risking a complete collapse, the government could have said “That’s ok, we’ll bail some of them out. But not you. You’ll be done, just like Lehman and Bear Stearns”.

Had they done that, Goldman would not have taken the scorched earth route, and there would be no debate about their bonuses this year, because there wouldn’t be all those profits that the government subsidized or enabled.

But Geithner and Bernanke didn’t want to do this. They were afraid of Goldman and the other AIG counterparties. They caved in, demonstrating why they were working for the government and not for the banks – the banks never would have hired them at a high level job.

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By: alea http://blogs.reuters.com/felix-salmon/2010/02/07/why-the-government-should-have-nationalized-aig/comment-page-1/#comment-11818 Sun, 07 Feb 2010 20:52:34 +0000 http://blogs.reuters.com/felix-salmon/?p=2491#comment-11818 Yes, the AAA rating would result in the return of all the collateral. Basically the credit support agreement that rules collateral postings is triggered only when the AAA rating is lost and for all practical purposes doesn’t apply otherwise (i.e when AIG is AAA) regardless of the performance of the underlying assets.

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By: absinthe http://blogs.reuters.com/felix-salmon/2010/02/07/why-the-government-should-have-nationalized-aig/comment-page-1/#comment-11817 Sun, 07 Feb 2010 19:59:57 +0000 http://blogs.reuters.com/felix-salmon/?p=2491#comment-11817 alea, what you say sounds reasonable, but we have no idea what the terms of the contracts were.

Also, the AAA rating wouldn’t result in the return of all collateral. Some (much? all?) collateral was triggered by a decline in the underlying asset, which would not have been fixed by a better rating. But collateral is not the main issue here — even if none had been posted, the contracts would have paid out during the unwind. I’m not sure the unwind was merely due to margin calls; it could also have been an attempt to stop the marked value of these from going lower, since AIG could no longer stomach an indeterminate downside risk on a massive portfolio. The only way to avoid paying out was to hang on to the contracts until the panic was over, which Felix suggests would have happened had it been nationalized.

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By: niveditas http://blogs.reuters.com/felix-salmon/2010/02/07/why-the-government-should-have-nationalized-aig/comment-page-1/#comment-11816 Sun, 07 Feb 2010 19:50:17 +0000 http://blogs.reuters.com/felix-salmon/?p=2491#comment-11816 How exactly were the paper losses locked in? The Fed and AIG via ML3 are still long the same CDO’s that AIG wrote protection on, and if they do bounce back in value, they will make money.

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