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The rest of the world catches up
Mar. 9th, 2009 12:52 pmWell, it was touching to see Capitol Hill and then the Wall Street Journal and Fortune cover a point made in this blog in the middle of last week - viz, where has the bailout money to AIG gone?
It's transpired that at least 24 US and European banks received a total of $50bn from the Federal Reserve’s rescue of AIG. The WSJ cited a "confidential report"which said that Goldman Sachs Group and Deutsche Bank each got around $6bn in payments during the last three and a half months of 2008. Other recipients of large sums from AIG were said to have included Merrill Lynch and Société Générale; smaller payments went to Morgan Stanley, Royal Bank of Scotland and HSBC Holdings.
Fortune reported that the list of AIG counterparties that received payments from AIG also included Crédit Agricole, UBS, Barclays, DZ Bank, Bank of Montreal, Rabobank, Bank of America, Wachovia and Barclays Global Investors. No wonder Fed vice-chairman Donald Kohn, in testimony before the Senate banking committee, refused to name the financial institutions that benefited from the AIG bailout.
The gist of this is that all of the beneficial parties listed above basically got twice as much cash as they should have got if a free market had been allowed to reassert itself. That's a hell of a price for the US taxpayer to fork out in the vague hope of restoring liquidity.
As has also been observed, the old numbers when it comes to "restoring liquidity" also seem to have vanished. Far from a billion or thereabouts producing about 20 billion in increased loans (following a 5% Tier 1 capital ratio), a billion seems to be producing, er, just a billion in increased loans. That kind of fucks up the quantitative easing theory.
Or does it? What this means is that QE will assume a lower multiplier effect, whereas in fact the low multiplier effect is part of the liquidity crunch, not the systemic banking crunch/recession. The liquidity crisis will end first, which means that the old multiplier effect will come into play before output is expanding. You can all see where that leads -- more money, more velocity, fewer goods.
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It's transpired that at least 24 US and European banks received a total of $50bn from the Federal Reserve’s rescue of AIG. The WSJ cited a "confidential report"which said that Goldman Sachs Group and Deutsche Bank each got around $6bn in payments during the last three and a half months of 2008. Other recipients of large sums from AIG were said to have included Merrill Lynch and Société Générale; smaller payments went to Morgan Stanley, Royal Bank of Scotland and HSBC Holdings.
Fortune reported that the list of AIG counterparties that received payments from AIG also included Crédit Agricole, UBS, Barclays, DZ Bank, Bank of Montreal, Rabobank, Bank of America, Wachovia and Barclays Global Investors. No wonder Fed vice-chairman Donald Kohn, in testimony before the Senate banking committee, refused to name the financial institutions that benefited from the AIG bailout.
The gist of this is that all of the beneficial parties listed above basically got twice as much cash as they should have got if a free market had been allowed to reassert itself. That's a hell of a price for the US taxpayer to fork out in the vague hope of restoring liquidity.
As has also been observed, the old numbers when it comes to "restoring liquidity" also seem to have vanished. Far from a billion or thereabouts producing about 20 billion in increased loans (following a 5% Tier 1 capital ratio), a billion seems to be producing, er, just a billion in increased loans. That kind of fucks up the quantitative easing theory.
Or does it? What this means is that QE will assume a lower multiplier effect, whereas in fact the low multiplier effect is part of the liquidity crunch, not the systemic banking crunch/recession. The liquidity crisis will end first, which means that the old multiplier effect will come into play before output is expanding. You can all see where that leads -- more money, more velocity, fewer goods.
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