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

[deirdremoon.livejournal.com]

So, all of that is awesome. But how do you boil that down to figures that Joe Average easily understands, AND shout it loudly and provably enough to TELL the Tea Party that?

Believe me, I'm not calling them stupid. I rely on educated synopses from people like you to tell me these things myself. But I think half the friction with the Tea Party is a difference in basic administrative philosophy, and the other half is sheer mistrust of The Other Side(tm) such that I'm not sure you *could* convince them that the bailout was a good idea even if you had the books right there.

Meanwhile...

[maradydd.livejournal.com]

...apparently not every insurance company is in such good straits.

Thoughts?

[feyandstrange.livejournal.com]

I would've bet that we made a small, small profit off of AIG, barely enough to cover costs. My bet was that conservative mainly because I figured AIG would find ways to steal the money.

And Chrysler, yeah, boggled.

[wrenn.livejournal.com]

Telling people that 'this' is one of the things that the government is for, stopping a free-fall of the economy, they don't understand.

As we've discussed before, Richard, we both know that if there hadn't been support in the forms of loans to BoA and JPM, They would not have bought Merrill or Bear Stearns. Or rather, they likely still would have, later, after their value had dropped far further than it had at the time of the agreements, pennies on the dollar, after an economic freefall. The damage done by that event would have been devastating.

That many more banks were given loans to do other things, and that the government in fact pushed some who did not want to take the loans to do so, is not something that is spoken loudly. But for the most part, what businessman would refuse something offered to them, that their competitor is getting? Why put yourself at a disadvantage you don't have to?

I saw many lies in the media. After the loans were approved, and agreements signed to take over the failing investment companies, but BEFORE they were handed out, was when the politicians talked to the media. They got the first say in. That is something to think on. Also... If not for talking BoA and JPM and others into helping, the Gov't would have had to step in directly. There really was no other option. Letting them fail, people really don't realize what that would have meant to the economy. Politicians did what they do best, spread around the 'blame'.

I also know that a bank I used to work with was worked over in the media for 'taking these bailout funds they didn't need and going and buying another bank (a failing one in Ohio)'. in the end of 2008. I know from internal email, they were planning on buying that bank, had even looked over it's financial position in April of 08. Well before the bailouts. It was planned well before the bailouts were even mentioned. Yet...

[johnromkey.livejournal.com]

My guess is that unfortunately most people who believed that the money was thrown away will simply not believe that the government made a profit on it, regardless of any evidence you may try to present to them.

[achinhibitor.livejournal.com]

OTOH, we've plowed over $100B into Fannie Mae and Freddie Mac and the Senate recently declined to cap the losses at $400B. So I expect some serious horrors there...

[mangosteen]

Tangential to the topic at hand, I do believe that the White House has finally hit upon a way to effectively and succinctly communicate a couple of economic realities:

http://www.whitehouse.gov/whiteboard

First one is two minutes long. Take a look.

[a-steep-hill.livejournal.com]

This thread is more than a year old, so I don't know if you'll see this, but I wanted to respond to this long ago and never had the time. Someone did it for me, so here goes:

Yes, they were loans. But the loans themselves were gifts.

The thing that the article doesn't mention is the big, bad consequence of the bailout: the too-big-too-fail banks are now even bigger and more powerful (relative to the market, and to their competition that didn't enjoy the same level of support).

I do think the bailouts were necessary to avoid total economic meltdown (though only because deregulation - notably the repeal of Glass-Stegal). And in that context, they were a bargain at any financial price. But of the price that was paid, any financial cost is minor relative to the cost of leaving the banks intact so they can do it again, which is the road we are headed down now.