Jim Rogers: Let AIG Go Bankrupt, Not America (loan, real estate, creditors)

[le roi]

Originally Posted by eatfastnoodle

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.

But they are not one and the same!

All retirees are taxpayers, not all taxpayers are retirees. The same goes with investors and homeowners.

Taxpayers need to do something because taxpayers need those banks for mortgage and those mutual funds for retirement.

I don't disagree with this, I think taxpayers should definitely be involved. The devil is in the details.

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.

It seems to me that this is a prediction that demand will dry up completely. I don't understand the basis of this claim. People will always want to live in houses, wear clothes, and eat food, AIG be damned.

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.

Point taken. I suppose that given the choice of two things I don't like, I'd rather live in a welfare state that redistributes to the poor before I lived in a regressive welfare state that redistributes toward hedge funds, banks, Ivy league endowments, and American landowners.

[gwynedd1]

Originally Posted by eatfastnoodle

Taxpayers ARE the same people who rely on the banks for mortgage, mutual funds for retirement, hedge funds for riskier investment.

Hi eatfastnoodle,

No they don't. Banks sell them to bond markets. The only thing they do is risk adjust. Nice job they did. They also inflate the asset as they create money out of thin air. It would not be such a problem if it was actually a productive asset aka a capital investment representing new productivity. Too bad a large house is conspicuous consumption.

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.

That is a Keynesian leakage argument. Whats another one? Thats right saving. Saving and trade are leakages. We also have the so called paradox of thrift. If the theory creates paradoxes then its fit for trash. The same MBA crap they taught me in Econ.
The real problem is when your trading partners are mercantilists and the domestic finance industry enables this with "securities" . The Ricardo/Smith model is the correct one when free trade actually exists. That way plumbers do the plumbing and the carpenters frame the house. Instead what we have is some one creates a piece of paper which sucks up buying power of said currency to create sweat shop labor.

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.

Again as John Adams said, banks have done more harm than good. I think I will side with the leadership before Britain reconquered us from the financial district.

I believe that banking institutions are more dangerous to our liberties
than standing armies. If the American people ever allow private banks to
control the issue of their currency, first by inflation, then by
deflation, the banks and corporations that will grow up around [the
banks] will deprive the people of all property until their children
wake-up homeless on the continent their fathers conquered. The issuing
power should be taken from the banks and restored to the people, to whom
it properly belongs. -Jefferson




History records that the money changers have used
every form of abuse, intrigue, deceit, and violent means possible
to maintain their control over governments
by controlling the money and its issuance."

-Madison


Banks have done more injury to the religion, morality, tranquility,
prosperity,
and even wealth of the nation than they can have done or ever will do good."
-John Adams


Gentlemen, I have had men watching you for a long time and I am
convinced that you have used the funds of the bank to speculate in the
breadstuffs of the country. When you won, you divided the profits
amongst you, and when you lost, you charged it to the bank. You tell me
that if I take the deposits from the bank and annul its charter, I shall
ruin ten thousand families. That may be true, gentlemen, but that is
your sin! Should I let you go on, you will ruin fifty thousand families,
and that would be my sin! You are a den of vipers and thieves.
-Jackson

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 can't argue with this. It is about perceived value but also about organization. A box of loose bolts of different sizes is worth far less than an organized ones in separate boxes.. The goods and services economy cannot conduct transactions though bank credit thus the communication and value system is lost. We can't price anything. Thats why you can't allow private interest to create money. If I have a lemon aid stand and the crowd on its way was diverted its more than simply perception. Value is lost because their is no buyer seller communication or value system. I have no idea where to place capital.

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.

I agree we need to use the political system we have if at all possible. However its now in the hands of a banking cartel. And we need political momentum to dislodge it. We can no longer allow them to create money through fractional reserves. It is inherently volatile, usurious, self perpetuating, and parasitic.

[Stac2007]

We can't let AIG go under because of the millions if not billions of dollars invested into annuities by honest hard working middle class Americans who pulled their life's savings out of the market and into insurance policies.

[le roi]

Originally Posted by Stac2007

We can't let AIG go under because of the millions if not billions of dollars invested into annuities by honest hard working middle class Americans who pulled their life's savings out of the market and into insurance policies.

Life and annuity guarantee associations by state (http://www.fsdfinancial.com/State%20Guarantee%20Associations.htm - broken link)

[TennisDD]

Some very good points on this issue. It makes me smile that so many people are getting so well educated with this situation we are in(as opposed to the NOV days - Blame Insurance agents and call them executives because they won a trip to California)?!?

I hate what AIG Product division has done. I hate that we are footing the bill for an insolvent company who should have been regulated more heavily on CDS. I don't see how the tax payer benefits in a positive way from this.
With all that said, AIG cannot fail. Lehman Failed and looked what happen. This is way bigger than that.
To answer Stac2007, middle class people annuities and life insurance policies are fine. This is not because of the State Regulation, but because of American General Life, which is a very strong company whose books are solid. Go to all the rating agencies for all insurance companies. They are still as solid as anyone else. The State only guarantees up to 300K or so. Not much when talking about a term or annuity value.
Now if American General was not solvent, then that would be in play, but that is not the case.

Greed drove this AIG mess and we are now paying for it. But, I blame everyone(the person who bought the house they could not afford, the mortgage broker selling them it, the Wall Street firm risking billions).
We are all to blame.

[gwynedd1]

Originally Posted by Stac2007

We can't let AIG go under because of the millions if not billions of dollars invested into annuities by honest hard working middle class Americans who pulled their life's savings out of the market and into insurance policies.

Hi Stac2007,

Again thats the whole point of bankruptcy protection. The enterprise retains its functional elements. What actually is at stake is ownership. If someone owed 10k on a 3k ring it will go to the creditor because it still has value. Kmart went into bankruptcy. Eddie Lampert was famous for buying up the debt cheap and taking the equity position from bankruptcy. It was in his interest to run the company which was now debt free since the creditor absorbed the enterprise which had value.

[Stac2007]

Originally Posted by rubber_factory

Life and annuity guarantee associations by state (http://www.fsdfinancial.com/State%20Guarantee%20Associations.htm - broken link)

This is true but can states like New York afford to bailout insurance like AIG when they go bad? New York is already billions of dollars in the red. Can we trust the state or federal government to do anything these days?

[Icy Tea]

AIG got caught up in the aftermath of the governments deregulation of financing and the imposed policy of forcing the banks to lend to those who had no right to get mortgages. So while AIG is largely responsible for its own failure, at least some of the blame is the governments. The government gets a pass, homebuyers and banks and AIG get a bailout and the taxpayers foot the bill. That's the "change" we wanted thats the change we're getting.

[killer2021]

Well the more we don't let these companies fail the longer the recession lasts. Take your pick.

All that bailout money could have been put to much better uses: Tax cuts, building projects etc.

From the way I look at it this thing could be over by the time 2010,2011 rolls around but will probably last until 2015 and beyond because of government mismanagement.

There will be another major crisis that will hit us within the next year which will compound the problem even more. One word: inflation.

Empires are not destroyed from outside invaders, they are destroyed from within.

[jimmyP]

Originally Posted by gwynedd1

Greetings eatfastnoodle,

The life insurance of the average joe is solvent. That is exactly right. That is the purpose of bankruptcy protection. AIG is bankrupt and it needs to operate what actually is not broken and dump the rest. The equity and bond holder however should be wiped clean.

Hi Gwynned,

I think the bigger story with AIG is that they are dramatically shrinking the business at a time when they are "borrowing" (currently $163 billion) from the taxpayers. A much smaller AIG is never, ever going to be able to return $163 billion to the taxpayers. And there sale of assets is not happening either. I seldom agree with Rogers(he always talks his own book) but in this case he is spot on. AIG is already dead, they just don't know it yet.