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It's the biggest bottle-job in history. Private Equity 1, the Fed, 0. Paulson told JP Morgan and Goldman Sachs to conjure up $75bn in rescue money for AIG. The answer in this colossal game of chicken was "Why? If it's so important, YOU conjure it up". To which Paulson said, "Oh no, the taxpayer can't back another bail-out". To which GS and JPM replied "Then AIG will fail".
And so, the Fed bottled it and put in $85bn (remember last year when the estimated entire cost of the credit crunch and subprime crisis was $100bn? Happy days) in return for an 80% stake. Yes, the US government, in a country where there is still state-by-state regulation of insurers, now owns 80% of the largest insurer in the country. To be frank, you couldn't make it up.
The FT this morning came out with what struck me as a typical leader coment that shows how chicken-shit scared the financial sector is -- the only guy out there with courage is Warren Buffett. Of coursse, the Fed approached Buffett last week, and he walked away, probably holding up a big sign saying "remember when you said I was getting too old six years ago, just because I said credit derivatives were a time bomb, a financial weapon of mass destruction? And now YOU want ME to help you out? Dream on".
The FT said:
which is just so much bollocks. If AIG had failed (which it should have been allowed to do) a whole bunch of companies would have been sitting on naked liabilities. Previously these had been "insured" with AIG, and so the accountants had signed them off as being "risk-free". Now the risk was on the book. This would have required extra capital under current accounting rules.
But the point here is that everyone would have been in the same boat. And if that's the case, it would have been easier to change the rules than to put another sticking plaster over the current system.
But now, well, those companies that insured their structured finance with AIG can go back to their old ways and count the loans as 100% safe because, hell, now they are insured by the government. The one play that could have smacked to high heaven the moral hazard endemic to much of current bank and private equity financing has been ducked.
Had AIG gone under, the current rules would have tested the solvency ratios of a large number of companies. Technically they would have had to raise extra capital. But in the current market, that wouldn't have been possible. So, simply, you don't make it compulsory for them to raise the extra capital. Sure, those entities are now sitting with the risk on their books, but that's what lenders should have. In effect the lenders had become brokers, not banks, not real 'financiers'. And this rescue has allowed them to carry on being risk-avoiding brokers. And the FT, because it's full of suits rather than risk-takers, thinks that this is a good idea.
Wankers.
__________
And so, the Fed bottled it and put in $85bn (remember last year when the estimated entire cost of the credit crunch and subprime crisis was $100bn? Happy days) in return for an 80% stake. Yes, the US government, in a country where there is still state-by-state regulation of insurers, now owns 80% of the largest insurer in the country. To be frank, you couldn't make it up.
The FT this morning came out with what struck me as a typical leader coment that shows how chicken-shit scared the financial sector is -- the only guy out there with courage is Warren Buffett. Of coursse, the Fed approached Buffett last week, and he walked away, probably holding up a big sign saying "remember when you said I was getting too old six years ago, just because I said credit derivatives were a time bomb, a financial weapon of mass destruction? And now YOU want ME to help you out? Dream on".
The FT said:
AIG is too large and too interconnected to be permitted to fail.
which is just so much bollocks. If AIG had failed (which it should have been allowed to do) a whole bunch of companies would have been sitting on naked liabilities. Previously these had been "insured" with AIG, and so the accountants had signed them off as being "risk-free". Now the risk was on the book. This would have required extra capital under current accounting rules.
But the point here is that everyone would have been in the same boat. And if that's the case, it would have been easier to change the rules than to put another sticking plaster over the current system.
But now, well, those companies that insured their structured finance with AIG can go back to their old ways and count the loans as 100% safe because, hell, now they are insured by the government. The one play that could have smacked to high heaven the moral hazard endemic to much of current bank and private equity financing has been ducked.
Had AIG gone under, the current rules would have tested the solvency ratios of a large number of companies. Technically they would have had to raise extra capital. But in the current market, that wouldn't have been possible. So, simply, you don't make it compulsory for them to raise the extra capital. Sure, those entities are now sitting with the risk on their books, but that's what lenders should have. In effect the lenders had become brokers, not banks, not real 'financiers'. And this rescue has allowed them to carry on being risk-avoiding brokers. And the FT, because it's full of suits rather than risk-takers, thinks that this is a good idea.
Wankers.
__________
