Holy Profitable Bailouts, Batman!

[xthread]

Wonders will officially never cease.
As of early this morning, AIG (remember them? the people who thought it was a good idea to insure every mortgage-backed security in the country, and promised to make good to the MBS investors if the homeowners didn't pay their mortgages? used to be the largest insurer on the planet) has prepared a plan for paying back the Federal Bank of New York and the US Treasury. We had expected that AIG was going to be one of the two remaining sources of losses in the 2008 federal bailout of the US financial system.

We were wrong. Now both Chrysler and AIG are expecting to return profits to the federal treasury, instead of losses. The dickering now going on between the Fed, the Treasury, and AIG, is about how much money the US Gov't will make on having prevented the world bond market from collapsing. Pretty neat.

Although it does present a problem for Tea Party governance - if we're actually making money on the financial system bailout, stopping that spending won't improve the state of the federal treasury. (As a side note, we've also come out ahead on the Chrysler deal, which is actually more surprising than AIG making money - a bunch of economists were reporting at the time of the AIG bailout that the Feds should make money on it, but should and three bucks will get you a cup of coffee at Starbucks. No one was nearly that optimistic about Chrysler)

Comments

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Yes, I've been meaning to post about that article.
It's a somewhat frustrating article, to me - I agree with his basic thesis that the large US depository and investment banks were protected from well-deserved commercial failure. I have severe problems describing it as a 'bailout,' because that term has the connotational meaning gift of money which is called a loan to save face and the reality is importantly different from that. That is to say, I'm on the side of the argument that the problem with TARP et al is that the support was provided at too cheap a price, not that it should not have been done.

And using the term 'bailout' leads, I think nearly inexorably, to the rhetorical position 'no bailouts!'
Which is deeply flawed - if my only choices are a collapse of the banking and monetary system or a deeply corrupt support of that system which allows the existing operators to continue to skim large sums of money off the top, I'm going to have to vote for the latter. Which is not to say that I like that latter choice, just that it's clearly the better alternative.

[a-steep-hill.livejournal.com]

You can argue about semantics, but providing something below market cost in a competitive market is a gift of money. Let's call a spade a spade.

At the time of the bailouts, I agreed with you statement that they were the least-bad alternative. Now I am far from sure. The terms of the deal were so generous that they no only did nothing to alleviate the problem, they actually made the underlying structural issues worse. They also served to reinforce the cultural problems within the finance industry, namely that the people there really do think they are doing God's work and should be compensated accordingly. (Yes, I do think that this level of permanent-vacation-from-reality arrogance among leaders is inherently dangerous.) The combination of these two factors means that a repeat performance is simply a matter of time. And the problems associated with living beyond ones means get harder to deal with the longer we put off doing so.