NWR: Financial chaos

originally posted by scottreiner:
originally posted by Jeff Grossman:
The beginning of the end was under Reagan (I think) when they allowed banks to handle investments. That signalled the capitalist free-for-all that has led to the no-morals-needed state of things today.
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The repeal of Glass Segal?
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Glass-Steagall, yes. With some Googling, I see that the research on the repeal was done in 1987 (Reagan), and various nibblings occurred around then, but the actual repeal by Gramm-Leach-Bliley was done 1999 (Clinton).
 
originally posted by Ian Fitzsimmons:
Where does the ice weasel reference come from, Chris? A friend of mine from long ago used it, and I was just thinking about this expression yesterday.
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Matt Groening.

Mark Lipton

"Love is a snowmobile racing across the tundra and then suddenly it flips over, pinning you underneath. At night, the ice weasels come."
 
originally posted by scottreiner: As to behind the curve, is it time to throw money at the problem? By that I mean, should we start paying the regulators the same that those creating the new financial instruments are making? Then maybe we would get some of the best and brightest.
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I doubt it. You are looking for a different phenotype anyway. The job of being a regulator is really different from being a transaction person or an investor. It inherently attracts a different personality. Just as one example, there is almost not enough money in the world to get me to do it. And most of the regulators I know, I wouldn't hire to do my job. Payscales aside. And for those scoring at home, I meant a different elephant.
 
originally posted by SFJoe:
Paul Krugman's column today is pretty good.
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Thanks for the tip. Good read.

It's a lot calmer than I thought. I was thinking of a 5+% drop in the markets.
 
originally posted by Chris Coad:

Isn't Bassman a Lehman Brother? Where is he these days?
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It's true, he was a Brother last I heard. If he was still there, he's probably got other things to do than look in here.
 
originally posted by SFJoe:
originally posted by scottreiner: As to behind the curve, is it time to throw money at the problem? By that I mean, should we start paying the regulators the same that those creating the new financial instruments are making? Then maybe we would get some of the best and brightest.
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I doubt it. You are looking for a different phenotype anyway. The job of being a regulator is really different from being a transaction person or an investor. It inherently attracts a different personality.
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Note that the Fed has hired Morgan Stanley, Goldman, JPM, and so on to advise on various aspects of the crisis. So you can get the people within the firms. Note also that many of the top people at the Fed and Treasury come from this sort of background. The Robert Rubin sort of thing, to take a successful example.

Cheaper to hire those guys after they're already rich, and also after they're a little older and calmer.
 
originally posted by SFJoe:

Cheaper to hire those guys after they're already rich, and also after they're a little older and calmer.
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And also when they're well versed in the chicanery of the profession. As has been pointed out by others more thoughtful than I, you want your regulators to be twice as smart and ten times as vicious as the people they're regulating.

Mark Lipton
 
and maybe it's not best to have former Goldman guys weed out the Goldman competitors? Talk about the value of revolving doors.
 
I briefly watched some CNBC this morning and a former AIG executive was defending a bailout of AIG by repeating an oft heard line, that a market is built on confidence. Well, not having worked in financial services for many years, I don't know what has changed. But, umm, do not the relevant financial services companies have to operate in such a way as to EARN consumer and market confidence?

If you take risks you need to be prepared to literally pay the price. It is a shame that the interconnectedness of the economy and the companies which together form the economy can fall back on said interconnectedness to take no-fault risk. 'Nuff said.
 
originally posted by SFJoe:
Note that the Fed has hired Morgan Stanley, Goldman, JPM, and so on to advise on various aspects of the crisis.
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Conflict of interest???

The Fed and the various financial institutions have very different POVs, goals and interests, no?
 
Oh, maybe. It's a complicated world. But hiring GS to do a bond issue for AIG, that's pretty straightforward. It's what they do. The Fed are big boys, and shouldn't be passive followers of anyone's advice. But the banks have people and resources that the Fed doesn't keep around all the time.
 
originally posted by Marc Hanes:
Market ConfidenceI briefly watched some CNBC this morning and a former AIG executive was defending a bailout of AIG by repeating an oft heard line, that a market is built on confidence. Well, not having worked in financial services for many years, I don't know what has changed. But, umm, do not the relevant financial services companies have to operate in such a way as to EARN consumer and market confidence?

If you take risks you need to be prepared to literally pay the price. It is a shame that the interconnectedness of the economy and the companies which together form the economy can fall back on said interconnectedness to take no-fault risk. 'Nuff said.
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That's the thing about the policies of last eight years and their underlying philosophy. If you're a giant corporation, you get to combine privatized profit and socialized risk. If you're a lowly individual on the other hand...
 
Okay, tell me what I'm missing here. I've only started understanding this stuff a couple months ago, so I'm sure it's a lot.

Let's just assume that AIG would have collapsed without the $70-80 billion and that said collapse would have had large, negative, and wide-spread impacts. Given that, it looks like Paulson has negotiated a great deal on behalf of the taxpayer here. The loan is of definite term, pays libor+850, and is collateralized by all of AIG's assets (i.e., massively overcollateralized). In addition, the government gets an 80% equity stake. So what have we accomplished?

1) AIG can live another day, the unknown of a massive CDS collapse is removed, and AIG can conduct an orderly sell-off instead of a disorderly one.

2) Shareholders are massively diluted, essentially being punished for their faith in AIG management.

3) Bondholders need to get in line behind the taxpayer.

4) In the meantime, we borrow at rapidly falling Treasury rates, and lend at libor+850. If I had $85 billion, I'd do that too.
 
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