Topic: The AIG thing (Read 5044 times)

ivan · « **on:** March 19, 2009, 01:16:51 PM »

Let me see if I understand this.

A whole bunch of capitalists all over the world bought a whole bunch of US mortgages. They assumed the mortgages would make them piles of dough, but just in case something goes terribly wrong, these capitalists bought insurance to cover any unforseen losses. A lot of them bought that insurance from AIG, because AIG specialized in that kind of thing. Now, AIG was pretty much rofling all the way to the bank, because the housing market was fucking unbeatable. A sure bet. It was like selling insurance against the sun blowing up. In fact, AIG was so stinking sure the housing market would never fail that it took a bunch of its cash and invested in the housing market! So when the unthinkable happens and the housing market collapses, AIG has nothing to liquidate to pay off any insurance claims, which now have to be paid all at once. So then a bunch of politicians decide that AIG has to be kept going for the sake of the children of the world, so they give AIG a bunch of money to continue operations. When it turns out those operations include paying bonuses to AIG fatcats and giving money to AIG clients, many of whom are foreign banks, everyone gets upset, and want to punish AIG. Also, they want to make new rules so that this can't happen again.

I suppose the new rules will include the obvious: you can't be an insurer of something that you yourself invest in. So if you insure against housing market problems, you can't invest in the housing market. That's a sensible rule, but one would think that a bunch of smarties like the folk at AIG would have figured that out even without a rule. It's like having a rule against cutting your own head off. But anyway, fine, make the rule, but the larger question is: how does a firm with such inherent moronity become so huge? That's what I want to know. Because these guys didn't suddenly become stupid, they were stupid already. So there is something in the world of big finance that rewards and encourages stupidity. Something is protecting and coddling these morons, allowing them to become big players, instead of letting them die a darwinian death long before they get too big to fail. That is what needs to change.

Another rule, I hope, will be: No more bailouts. Let the failed company go into recievership, so that contracts could be renegotiated and so that creditors can be payed what is reasonable. Keeping a company afloat and then whaaing about how that company chooses to fix its problems is childish.

I'm not sure I actually understand all this, and I might be way off on my understanding of AIG's fumble. If anyone wants to correct my thinking, please do.

Joe Sixpack · « **Reply #1 on:** March 19, 2009, 01:26:34 PM »

My 2 cents: The only reward system that exists is whether a stock price goes up or down. So clearly companies, meaning the people who run them, will do what it takes to make that happen. If that means being greedy and making imprudent long term decisions, that's what they will do. As individuals they are making enough money that a collapse of the house of cards won't hurt them, assuming they are making more prudent decisions with their personal finances. In a broader sense I feel that this same lack of a reward system leads to the general lack of values for publicly traded companies. You could make the case that it ultimately leads back to the shareholders, as they invest in these companies based on their profit margin, regardless of their sense of right and wrong. In a sense, issuing an IPO also means throwing your personal and corporate values out the window. The second you accept a shareholders investment, you are obligated to do your best to return on that investment.

Demosthenes · « **Reply #2 on:** March 19, 2009, 01:42:22 PM »

Quote from: ivan on March 19, 2009, 01:16:51 PM

So there is something in the world of big finance that rewards and encourages stupidity. Something is protecting and coddling these morons, allowing them to become big players, instead of letting them die a darwinian death long before they get too big to fail. That is what needs to change.

Another rule, I hope, will be: No more bailouts. Let the failed company go into recievership, so that contracts could be renegotiated and so that creditors can be payed what is reasonable. Keeping a company afloat and then whaaing about how that company chooses to fix its problems is childish.

I'm not sure I actually understand all this, and I might be way off on my understanding of AIG's fumble. If anyone wants to correct my thinking, please do.

I, for one, think you're 100% right. Carry on.

Vespertine · « **Reply #3 on:** March 19, 2009, 01:46:20 PM »

I just read an interesting analysis of AIG. The crux of the analysis was that the bailout will hurt AIG more than if they had just plugged along merrily. Apparently AIG's insurance business was strong enough to offset much of their losses, and a solid enough business that they could have sold off everything else and come out of as a very strong insurance leader (which is what they were to begin with). The analysis suggested that the bailout will ultimately put AIG out of business because now they're hanging on to the unprofitable parts of their business (or something along those lines). It'll be interesting to see if this person turns out to be right.

Demosthenes · « **Reply #4 on:** March 19, 2009, 01:47:28 PM »

When you reward the stupid and weak, the result is inevitable.

xolik · « **Reply #5 on:** March 19, 2009, 02:26:29 PM »

Quote from: Demosthenes on March 19, 2009, 01:47:28 PM

When you reward the stupid and weak, the result is inevitable.

Hence middle managers get promoted to directors and then directors proceed to plunder the ass(ets) of the company.

There should be no such thing as a company "too big to fail" ever. Fuck'em.

Clear_Runway · « **Reply #6 on:** March 25, 2009, 05:37:06 PM »

the problem with the whole "Oh my god, they used the bailout money to give the executives bonuses, those bastards!" argument is that the exec's were guaranteed those bonuses under contract before this whole mess started.

if all those companies had not paid, they would have had a lawsuit on their hands, which would have ended up costing more. yes, it sucks.

Novice · « **Reply #7 on:** March 25, 2009, 06:01:02 PM »

Quote from: Clear_Runway on March 25, 2009, 05:37:06 PM

the problem with the whole "Oh my god, they used the bailout money to give the executives bonuses, those bastards!" argument is that the exec's were guaranteed those bonuses under contract before this whole mess started.

if all those companies had not paid, they would have had a lawsuit on their hands, which would have ended up costing more. yes, it sucks.

Hello, friend.

It looks like you have a few things to add to our discussions here at The Geek Forum. That's excellent; However, I would like to suggest that you follow our forum rules by creating a nice introduction thread in the proper place.

This way, we can know a little bit about you before we start caring what you say.

Thanks!

ivan · « **Reply #8 on:** March 25, 2009, 06:35:04 PM »

Quote from: Clear_Runway on March 25, 2009, 05:37:06 PM

the problem with the whole "Oh my god, they used the bailout money to give the executives bonuses, those bastards!" argument is that the exec's were guaranteed those bonuses under contract before this whole mess started.

if all those companies had not paid, they would have had a lawsuit on their hands, which would have ended up costing more. yes, it sucks.

Total BS. Nobody knows whether or not any lawsuits could or would have been filed. The problem was that funds were granted unconditionally.

Contracts get renegotiated all the time in these kinds of situations. Just ask the auto industry workers.

Clear_Runway · « **Reply #9 on:** March 26, 2009, 05:11:04 PM »

true, they could have tried to renegotiate. but it probably wouldn't have worked. in the event of a renegotion, both parties must agree to the new contract-that is the nature of contracts. in the case of Ivans auto workers, they would have voted on it

sorry for not posting on the New Geeks forum first, it's there now

ivan · « **Reply #10 on:** March 26, 2009, 05:13:43 PM »

They are not my auto workers.

Clear_Runway · « **Reply #11 on:** March 26, 2009, 05:32:01 PM »

UAW's auto workers, fine.

ivan · « **Reply #12 on:** March 26, 2009, 05:34:04 PM »

Thank you.

Say, did you ever believe in Santa Claus, or were you one of those pitiful dreary kids who never believed in make-believe stuff?

Clear_Runway · « **Reply #13 on:** March 26, 2009, 06:13:31 PM »

I was skeptical of Santa Claus. I figured it would be better not to completely discount him, just in case he was real. I certainly wouldn't describe myself as dreary.

ivan · « **Reply #14 on:** March 26, 2009, 06:18:20 PM »

I never said you would. I was asking whether you in fact are.

Clear_Runway · « **Reply #15 on:** March 26, 2009, 08:20:27 PM »

I'm not, and never was. thiss is getting off topic, since my childhood assessment of santa claus does not, in fact, have anything at all to do with AIG

Wunderkind · « **Reply #16 on:** March 26, 2009, 09:09:16 PM »

Quote from: Clear_Runway on March 26, 2009, 08:20:27 PM

I'm not, and never was. thiss is getting off topic, since my childhood assessment of santa claus does not, in fact, have anything at all to do with AIG

Actually, it does.

I had a chart mapping the connection between your childhood assesment of Santa Claus and AIG, however it was eaten by someone whislt I was looking for your shift key.

I would like to know who ate it.

xolik · « **Reply #17 on:** March 27, 2009, 12:44:22 AM »

Quote from: Clear_Runway on March 26, 2009, 06:13:31 PM

I was skeptical of Santa Claus. I figured it would be better not to completely discount him, just in case he was real.

Sometimes I feel the same way about God.

pbsaurus · « **Reply #18 on:** March 27, 2009, 02:49:38 PM »

I feel that way about the economy.

Clear_Runway · « **Reply #19 on:** March 27, 2009, 09:17:12 PM »

My Shift Key? It Works Just Fine! As You Can See By The Fact That I Am Capitalizing All My Words

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