Tuesday, September 16, 2008

AIG gets a helping hand

So Bernanke and Paulson get in and bail out AIG by making available an $85B loan. Wow! These are unprecedented times. Some of those Lehman employees have got to be really ticked off.

On a lighter note I read an interesting commentary regarding the differential treatment that Freddie and Fannie got versus Lehman. Fits the AIG case as well. "If you screw up, make sure you don't put just your ginormous company at risk. Make sure you do so in a fashion that puts the entire economy at risk. Then you get the hand-out." In the case of AIG what had everyone nervous was the cascading effect of an AIG wipeout - they are the largest insurers of all those securities out there. AIG gets wiped out, then every significant broker, lender and investment bank out there would have to go and redraw their balance sheet with pretty clear consequences.

Which also makes me wonder, what does this buy, other than time? And what exactly needs to happen in that time for the markets to gradually absorb the impact. If the root of the problem is the housing mess (negative equity, insolvent home owners and such) ... that's not getting better anytime soon. Home prices aren't on their way back up and we have many more foreclosures to go. The economy isn't exactly growing or making it easier for people to stay current.

Again, as before, I don't think there was a choice. Ultimately Paulson and Bernanke very likely made the right move. And yes it makes sense for the government to intervene for bigger players than smaller - real world, sorry. The rescue though, just feels pointless at worst, delaying at best, if nobody has a more fully blown-out plan.

Article here.

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