Comments on: Exiting AIG

By: DanHess

DanHess — Tue, 10 May 2011 03:22:16 +0000

There is a giant non-sequitur in the way we look at these bailouts on the order of $20 billion and call them a success if they “break even” while backdoor bailouts in the form of as yet unsanitized monetization of trillions of dollars (Q.E. I and II and Fannie/Freddie losses mainly) are ongoing.

Money being fungible, the enormous backdoor bailouts are flowing in meaningful part into the share prices of AIG and bailed-out institutions. The backdoor bailout is making front door bailouts look good. Using honest accounting of course, AIG has been a huge disaster for taxpayers and the public generally. It necessitated much greater financial suppression than would have been needed otherwise.

By: klhoughton

klhoughton — Mon, 09 May 2011 16:48:29 +0000

“Governments care very much about the 0% return level on their investments in private companies. If they make more than that, the investment/bailout is considered a success; if they make less, it’s a failure. That’s a bit silly, but the psychology is at least easy to understand.”

A 0% return on an investment that includes selling warrants (claims for future earnings) from the initial deal is a negative return. We should stop pretending otherwise.

If you saved the world, you would also want to incent others from making the same mistakes. While CDN_Rebel has a point in concept, the reality remains that the buybacks have, to date, only reconfirmed that socializing the risks is perfectly acceptable.

I don’t mind giving platelets on a fairly regular schedule. There would be rather a difference if I were told the system would fail completely unless I gave every four days in perpetuity while the blood bank kept dumping oversupply.

By: CDN_Rebel

CDN_Rebel — Mon, 09 May 2011 15:50:18 +0000

@mickey I think that considering an action a success only if it is a break-even or better proposition is what he’s calling silly. Which is to say that putting up the US$150B or however much it was more than worth the cost even if Treasury doesn’t get back $150B in that it helped prevent the collapse of the world economy. That may be a bit of hyperbole – maybe not – but $150B to save the world seems a good investment, especially when it’s probable you’ll get some/most/all of that back.

By: mickey7410

mickey7410 — Mon, 09 May 2011 13:52:57 +0000

I don’t quite understand why the desire for a 0% return level is a bit silly. Could you go into more details on that?

My initial thoughts are that the investment is made for other reasons than just to turn a profit (e.g., prevent a financial collapse, job losses, GDP declines, etc.), so measuring the success/failure on just the return of the investment, rather than the results across the entire economy, would be the proper way to measure the success/failure. However, this seems difficult to do.