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Old 03-03-2009, 11:58 AM
 
20,599 posts, read 19,261,971 times
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Quote:
Originally Posted by texdav View Post
That is what so many economist say. That if AIG goes it could takeout the markets. Think 90% unempoloymentt and another great depression.They say the big three going under and all the related industires would be nothing because of the extent of AIG businesss which is only not person insurance. I'm don't really know myself.

Hi texdav,

Many of those economists have been spewed from the finance industry.They are either stupid or they are liars. They are also the ones that write the text books for the MBA drones. Let those companies go under bank bankruptcy protection. The whole purpose of reorganization bankruptcy is to keep the actual business operating. If I make widgets and net 1 million for the year there is a significant enterprise value. If however financing cost 2 million for the year its not solvent with respect to its liabilities. So it would have a negative market cap but a positive enterprise value. If the business has enterprise value it should continue to operate.



The next thing we need is a medium of exchange other than bank credit. If I have no money and you have no money but you want my apples and I want your oranges we either barter or use a medium of exchange. How about suspending the income tax and converting to treasury notes? Along with the income tax suspension federal employees may be paid with them and grants to states to pay their employees as well. Now we have a goods and services economy with a medium of exchange.

Solvent banks can take in the new notes with time deposits or full reserve demand deposits.

As for the Wall Street huckster banks, anyone VP or above should be arrested and put on trial. Directors on a case by case basis. In cases of proven fraud then personal assets will be confiscated.
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Old 03-03-2009, 12:54 PM
 
Location: Houston, TX (Bellaire)
4,900 posts, read 13,691,863 times
Reputation: 4188
Quote:
Originally Posted by rubber_factory View Post
Can you explain this in more detail?

If AIG's insurance products "disappear", then what assets become suddenly worthless, and how?
What he is trying to say is that the part of AIG that is losing money is the part that insures other business' losses. For example if you have home owners insurance and your house burns down then AIG pays you for the cost of the house. In the same way many of the large banks have insurance on their investments and many of those investments are currently burning down forcing AIG to pay for the cost of those investments. To just let AIG go under now would be like letting say State Farm go under right after a major hurricane comes through and flattens half the city.
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Old 03-03-2009, 01:21 PM
 
89 posts, read 261,212 times
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I think what AIG did is criminal with the CDS, but they cannot fail. The domino effect would lead to a global depression. Its kinda like having two bad choices right now.
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Old 03-03-2009, 01:23 PM
 
48,505 posts, read 96,610,333 times
Reputation: 18304
Quote:
Originally Posted by gwynedd1 View Post
Hi texdav,

Many of those economists have been spewed from the finance industry.They are either stupid or they are liars. They are also the ones that write the text books for the MBA drones. Let those companies go under bank bankruptcy protection. The whole purpose of reorganization bankruptcy is to keep the actual business operating. If I make widgets and net 1 million for the year there is a significant enterprise value. If however financing cost 2 million for the year its not solvent with respect to its liabilities. So it would have a negative market cap but a positive enterprise value. If the business has enterprise value it should continue to operate.


The next thing we need is a medium of exchange other than bank credit. If I have no money and you have no money but you want my apples and I want your oranges we either barter or use a medium of exchange. How about suspending the income tax and converting to treasury notes? Along with the income tax suspension federal employees may be paid with them and grants to states to pay their employees as well. Now we have a goods and services economy with a medium of exchange.

Solvent banks can take in the new notes with time deposits or full reserve demand deposits.

As for the Wall Street huckster banks, anyone VP or above should be arrested and put on trial. Directors on a case by case basis. In cases of proven fraud then personal assets will be confiscated.

I really don't think that the thugs are going to let you keep your oranges or apples. It would be the rule of the toughest. Sounds like the old communist theory of when they would get to a point were no state was necessary. Doesn't make any sense to me;sorry.
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Old 03-03-2009, 01:29 PM
 
20,599 posts, read 19,261,971 times
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Quote:
Originally Posted by chris_ut View Post
What he is trying to say is that the part of AIG that is losing money is the part that insures other business' losses. For example if you have home owners insurance and your house burns down then AIG pays you for the cost of the house. In the same way many of the large banks have insurance on their investments and many of those investments are currently burning down forcing AIG to pay for the cost of those investments. To just let AIG go under now would be like letting say State Farm go under right after a major hurricane comes through and flattens half the city.
Hi chris_ut,


Um no its not. If have drugged out free basing parties and torch my house down its not like I had a little accident. What these people have done is more akin to arson. They built junk assets and burned them down for the insurance. AIG pretended not to know.

Also if an insurance company is insuring what it can't insure what good is it? Insurance companies will NOT pay for your house from damages due to war. If they did, they would need to price it in. AIG is the one that was supposed to risk adjust, they should have priced in for the melt down. And guess what? Most banks would say oh gee we can't afford that and no bubble.

So I am sorry, put one between the eyes of AIG and add the lime.
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Old 03-03-2009, 01:55 PM
 
Location: down south
513 posts, read 1,578,559 times
Reputation: 653
Quote:
Originally Posted by rubber_factory View Post
Can you explain this in more detail?

If AIG's insurance products "disappear", then what assets become suddenly worthless, and how?
many new financial instruments held by banks, retirement funds, university endowment, hedge funds and mutual funds, etc. are insured by AIG. AIG used to have jewel on the crown kind of credit. So when it decides to sell its credibility and promise to cover the losses, as a result, the risk of those instrument/contract, whatever you call it, were shifted away from those who sold it to AIG, because AIG had such golden credibility, those derivatives would suddenly have the same kind of AAA rating as AIG had, which made them seem like 100% safe investment, much easier to sell. In return, AIG was paid lucrative fees, as you can see, when time is good, it's highly profitable business cuz what AIG sells are credibility and promises which AIG used to have seemly unlimited supplies. But when time turned bad, loss of those instrument/contract piles up, AIG has to put up more and more money to cover those losses, and AIG also promised to set aside more money as collaterals if credit rating of a type of instrument/contract insured by AIG was downgraded, AND AIG also promised to many quite prudent investment funds that if the supposedly safest among safest bonds bought by those investment funds go bad, AIG would buy them back. Now you can see the potential domino effect: AIG's insurance, to large extent, determines the prices of the very "asset" held by those banks/various funds. If AIG goes under, so does the promises, what's gonna happen to the asset to obligation ratios of all the financial institutions? And what's gonna happen to their creditworthiness? What's gonna happen to investment confidence? To prevent that from happening, somebody must step in to basically replace AIG to keep those promises AIG made and profited from, given the size of AIG and the current economic environment, the only one that can step in is the government.
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Old 03-03-2009, 02:08 PM
 
939 posts, read 2,372,695 times
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Quote:
Originally Posted by eatfastnoodle View Post
many new financial instruments held by banks, retirement funds, university endowment, hedge funds and mutual funds, etc. are insured by AIG. AIG used to have jewel on the crown kind of credit. So when it decides to sell its credibility and promise to cover the losses, as a result, the risk of those instrument/contract, whatever you call it, were shifted away from those who sold it to AIG, because AIG had such golden credibility, those derivatives would suddenly have the same kind of AAA rating as AIG had, which made them seem like 100% safe investment, much easier to sell. In return, AIG was paid lucrative fees, as you can see, when time is good, it's highly profitable business cuz what AIG sells are credibility and promises which AIG used to have seemly unlimited supplies. But when time turned bad, loss of those instrument/contract piles up, AIG has to put up more and more money to cover those losses, and AIG also promised to set aside more money as collaterals if credit rating of a type of instrument/contract insured by AIG was downgraded, AND AIG also promised to many quite prudent investment funds that if the supposedly safest among safest bonds bought by those investment funds go bad, AIG would buy them back. Now you can see the potential domino effect: AIG's insurance, to large extent, determines the prices of the very "asset" held by those banks/various funds. If AIG goes under, so does the promises, what's gonna happen to the asset to obligation ratios of all the financial institutions? And what's gonna happen to their creditworthiness? What's gonna happen to investment confidence? To prevent that from happening, somebody must step in to basically replace AIG to keep those promises AIG made and profited from, given the size of AIG and the current economic environment, the only one that can step in is the government.

Can't rep you twice in a row, but you certainly deserve it for your posts in this thread.
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Old 03-03-2009, 02:18 PM
 
22,768 posts, read 30,645,513 times
Reputation: 14737
Quote:
Originally Posted by eatfastnoodle View Post
many new financial instruments held by banks, retirement funds, university endowment, hedge funds and mutual funds, etc. are insured by AIG. AIG used to have jewel on the crown kind of credit. So when it decides to sell its credibility and promise to cover the losses, as a result, the risk of those instrument/contract, whatever you call it, were shifted away from those who sold it to AIG, because AIG had such golden credibility, those derivatives would suddenly have the same kind of AAA rating as AIG had, which made them seem like 100% safe investment, much easier to sell. In return, AIG was paid lucrative fees, as you can see, when time is good, it's highly profitable business cuz what AIG sells are credibility and promises which AIG used to have seemly unlimited supplies. But when time turned bad, loss of those instrument/contract piles up, AIG has to put up more and more money to cover those losses, and AIG also promised to set aside more money as collaterals if credit rating of a type of instrument/contract insured by AIG was downgraded, AND AIG also promised to many quite prudent investment funds that if the supposedly safest among safest bonds bought by those investment funds go bad, AIG would buy them back.
OK.

Quote:
Now you can see the potential domino effect: AIG's insurance, to large extent, determines the prices of the very "asset" held by those banks/various funds. If AIG goes under, so does the promises, what's gonna happen to the asset to obligation ratios of all the financial institutions?
They will fall.

Quote:
And what's gonna happen to their creditworthiness?
It will fall.

Quote:
What's gonna happen to investment confidence?
It will fall.

Quote:
To prevent that from happening, somebody must step in to basically replace AIG to keep those promises AIG made and profited from, given the size of AIG and the current economic environment, the only one that can step in is the government.
You answered the question I had - which is, how the asset prices themselves are affected by AIG's solvency.

I still don't see the economic net benefit of the taxpayers guaranteeing investments for hedge funds, soverign funds, mutual funds, and university endowments. Ultimately those "investments" had to have some sort of underlying wealth-producing element to them, independent of AIG's guarantee, right? I understand that they might be worth less, but I don't see how they are worthless.
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Old 03-03-2009, 02:55 PM
 
20,599 posts, read 19,261,971 times
Reputation: 8204
Quote:
Originally Posted by texdav View Post
I really don't think that the thugs are going to let you keep your oranges or apples. It would be the rule of the toughest. Sounds like the old communist theory of when they would get to a point were no state was necessary. Doesn't make any sense to me;sorry.
texdav,


No you did not understand at all. I did not specify an anarchist government as you can see:
Along with the income tax suspension federal employees may be paid with them
I am simply taking back a revenue stream. The value of a dollar comes form a dollar bond which is made good by taxing power and not at all limited to income tax. This simply shifts the revenue from the inflation tax from going to private banks back to the treasury. Banks create money backed by our bonds.

We whine about paying interest on 10 trillion when we allow banks to collect interest on 10's of trillions of inflated currency that should be revenue to the treasury.

We need to swap out bank credit as a medium of exchange to Federal notes. About the only thing that they were supposed to be good for is risk adjustment and look how well they did that. That certainly can be achieved by bond markets anyway. The banks just decided to plug everything into the gaussian copula function.
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Old 03-03-2009, 03:16 PM
 
Location: down south
513 posts, read 1,578,559 times
Reputation: 653
Quote:
Originally Posted by rubber_factory View Post
OK.


I still don't see the economic net benefit of the taxpayers guaranteeing investments for hedge funds, soverign funds, mutual funds, and university endowments. Ultimately those "investments" had to have some sort of underlying wealth-producing element to them, independent of AIG's guarantee, right? I understand that they might be worth less, but I don't see how they are worthless.

Taxpayers ARE the same people who rely on the banks for mortgage, mutual funds for retirement, hedge funds for riskier investment. You can't separate taxpayers from workers and retirees. They are one and the same. Just like you can't separate consumers from workers of various products and services. I once made the case that outsourcing is result of inevitable economic realignment. So I won't say that by shutting down free flow of capital and goods, those jobs lost would come back to the US. But in the PR campaign launched by free trade supporters, they conveniently forgot to mention that the consumers who benefit from the low prices are same people who will be punished by loss of jobs. You, me and everybody else don't live in a vacuum, it's easy to blame everything on personal responsibilities/corporate responsibilities, pin every hope on personal/corporate responsibilities and refuse to do anything. Taxpayers need to do something because taxpayers need those banks for mortgage and those mutual funds for retirement. Every country has more government than they did 100 years ago, regardless of political leaning of that government because we live in a much much much more interconnected world in which everybody relies on everybody else. That's why we all need efficient government as the overall coordinator.

As for underlying value, yeah, everything has underlying value, but economy, society and politics rely more on perceived value than underlying value. On the other hand, whatever value a thing may or may not have, underlying or perceived, is only meaningful when there is a market for that various products/services to be exchanged. There is no value for stuff you can't sell and don't need. The crumbling down of the perceived value will bankrupt banks, freeze investment, freeze lending, collapse consumer market, all of which lead to mass layoffs, which in turn would cause further collapsing of everything else, it's a vicious cycle, which would lead to the near cessation of all but most essential economic activities, in another word, destroy the market itself. You can have as much gold/land/house as you want, but if you can't sell it to get the cars/food/clothing you want, all the asset won't be worth squat. Not to mention economy is inseparable from politics, US, as a nation, simply hasn't lived long enough to experience the kind of political upheaval often brought by economic collapse, which that happens, all hell are broken loose and anything can happen.


I believe, one of the fatal mistake made by people who feel by shouting "responsibility", they don't need to deal with reality, is the illusion that whatever is going on outside is somehow not their problems. If everything could be solved by themselves, then history won't be filled by so many bloodshed, overthrowing of dynasties, revolutions, massacre, disintegration of empires. That's why "systematic risk" is dangerous cuz it has the potential to change everything including yourselves in very unpredictable ways. Sure, change are inevitable, all empire collapses, all system break down, but we don't know when and what will replace the existing system. So all we can do is to do what we can do, save what we can save, if we succeed or not should be left to fate. Just like doctor treating a dying patient, he may or may not be doing the right thing, the patient may or may not survive, but just let the patient die and do nothing isn't a responsible option.
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