Treasury sells $4.5 billion in AIG stock

myp · Aug 10, 2012

Bonuses are the right of the corporation and shareholders to do what they want with their money. The US should not be running private businesses and they stood on that ground- a good thing.

As for the penalty, I think my words don't do justice to what I was trying to say. I believe they have gotten away with a lot without justice being done to the American people. There should have been and be more criminal penalties, but there probably won't for political reasons. There should also be reform of the system, again a problem because of lobbying. My point was that they weren't saved to be saved but were saved because the country needed them to be saved. The government tried to show them they won't all be bailed out always with Lehman.

The government should not break up anything. That should happen naturally- it would happen if a more competitive system is in place- that takes reform. BUT, and this is a big point- right now is not a good time to try to get them to split up. We need to be out of recovery before that.

Glass-Steagall wouldn't necessarily fix the system right now. Actually, it would probably make things worse. The market has evolved and now you can't just implement it overnight or whatever. Also banking and speculation tend to go together even when Glass-Steagall was there- what do you think lending is? As for 6 decades of prosperity- I think you are oversimplifying way too much and forgetting events like the S&L crisis.

Road Warrior · Aug 10, 2012

As it happens, I just watched a repeat of HBO's "Too Big to Fail" a couple of days ago. While I think our government did the right thing in 2008, I also think we still have a major problem on how the banking industry (and Wall Street) is regulated.

myp · Aug 10, 2012

Road Warrior said:
As it happens, I just watched a repeat of HBO's "Too Big to Fail" a couple of days ago. While I think our government did the right thing in 2008, I also think we still have a major problem on how the banking industry (and Wall Street) is regulated.

That is a great movie (Rocco mentioned it above too). But as Rocco said, it glorifies Paulson and company too much. Still pretty factual though.

mogur · Aug 10, 2012

myp said:
The government should not break up anything. That should happen naturally- it would happen if a more competitive system is in place- that takes reform. BUT, and this is a big point- right now is not a good time to try to get them to split up. We need to be out of recovery before that.

Fair enough, but the whole bit about monopolization is being ignored. Would we be better off if we depended on natural forces to come up with a competitive company to AT&T? Or Standard Oil? ----- I think not. When a monopoly allows unfair advantage, there is no longer free market.

...The market has evolved and now you can't just implement it overnight or whatever. Also banking and speculation tend to go together even when Glass-Steagall was there- what do you think lending is?...

My hope is that banks are limited to lending risk. Bundling crap investments and burying toxic derivatives should be limited to investment speculators. When we allow institutions 'too large to fail' to play that game, we get the 2008 cliff.

myp · Aug 10, 2012

mogur said:
Fair enough, but the whole bit about monopolization is being ignored. Would we be better off if we depended on natural forces to come up with a competitive company to AT&T? Or Standard Oil? ----- I think not. When a monopoly allows unfair advantage, there is no longer free market.

It is arguable that in both instances government policy allowed the monopolization in the first place. But in finance we don't have monopoly worries right now- perhaps oligopoly worries, but then you get a grey area from where it is okay to not okay. There are more big banks than big phone companies in the US right now for example.

mogur said:
My hope is that banks are limited to lending risk. Bundling crap investments and burying toxic derivatives should be limited to investment speculators. When we allow institutions 'too large to fail' to play that game, we get the 2008 cliff.

Finding solutions for the past is easier than stopping problems in the future. In 2005, those housing derivatives were seen as legitimate instruments. They actually reduced risk for a lot of parties by diversifying in many, many mortgages instead of just one or a few. We overlooked systemic risk. And by "we", I mean the vast majority of people, investors, and firms- this includes some of the brightest in economics and business.

Furthermore, speculation often gets a bad wrap because of what the media tends to focus on when it talks about speculation, but the fact of the matter is some speculation is very important and has been for a very long time. Many people don't know it, but it is a big reason for price stability at chains- companies like McDonald's speculate a lot on futures contracts in order to make sure they will be able to offer their items at the same price over time. If they weren't able to do that, you might not have a dollar menu or the same price for a Big Mac on any two given days let alone years. Futures contracts also allow firms to hedge- this is big in farmers to insure against bad harvests.

RoccoR · Aug 10, 2012

myp, et al,

FYI

myp said:
Not necessarily true. Look at Lehman.

(OBSERVATION)

Federal Investigators Punt On Goldman Sachs Prosecutions Posted: 08/10/2012 3:47 pm said:
Federal Investigators Punt On Goldman Sachs Prosecutions Posted: 08/10/2012 3:47 pm said:

On Thursday, Goldman Sachs announced in a regulatory filing that the SEC had dropped its investigation into a $1.3 billion mortgage bond known as Fremont Home Loan Trust 2006-E, even though it indicated earlier this year that charges were likely.

Later in the day, the Department of Justice said it was ending its own Goldman investigation, launched after a congressional investigation chaired by senators Carl Levin (D-Mich.) and Tom Coburn (R-Okla.) issued a report that found Goldman Sachs sold investments "in ways that created conflicts of interest with the firm’s clients and at times led to the bank's profiting from the same products that caused substantial losses for its clients.”

"The department and investigative agencies ultimately concluded that the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time," the Justice Department said in a statement late on Thursday.

Reuters reported that David Wells, a spokesman for Goldman Sachs, said in an email, "We are pleased that this matter is behind us."

SOURCE: http://www.huffingtonpost.com/2012/08/10/investigation-goldman-sachs_n_1765368.html

Click to expand...

SEC Dropping Lehman Case: Where’s the Outrage? said:

After more than three years of investigating the largest corporate bankruptcy in U.S. history, the Securities and Exchange Commission is reportedly dropping the case against Lehman Brothers.
"The staff has concluded its investigation and determined that charges will likely not be recommended," reads an internal SEC memo, obtained by Bloomberg.

SOURCE: http://finance.yahoo.com/blogs/daily-ticker/sec-dropping-lehman-case-where-outrage-175140685.html

Click to expand...

v/r
R

Road Warrior · Aug 11, 2012

myp said:
That is a great movie (Rocco mentioned it above too). But as Rocco said, it glorifies Paulson and company too much. Still pretty factual though.

That's often the case with movies; to save time some characters are consolidated and viewers always like a hero. It's just a modern version of Beowulf with a global depression serving as Grendel.

Road Warrior · Aug 11, 2012

mogur said:
Fair enough, but the whole bit about monopolization is being ignored. Would we be better off if we depended on natural forces to come up with a competitive company to AT&T? Or Standard Oil? ----- I think not. When a monopoly allows unfair advantage, there is no longer free market.

My hope is that banks are limited to lending risk. Bundling crap investments and burying toxic derivatives should be limited to investment speculators. When we allow institutions 'too large to fail' to play that game, we get the 2008 cliff.

Agreed about monopolies. No company/corporation should dominate. If it does, then, as you said, we no longer have a free market. This is why we need good government regulation of the market; to ensure there is competition in the market. Same goes for banks.

myp · Aug 11, 2012

RoccoR said:
myp, et al,

FYI

(OBSERVATION)

v/r
R

They let Lehman fail. That was much worse

. Lehman doesn't even really exist anymore. There are regulatory capture concerns in the aftermath, but the bailouts are a separate issue in my opinion.

mogur · Aug 12, 2012

Corporations are not the problem. The bottom line is not necessarily evil. But, corporations shouldn't have 'civil rights'. That is just wrong. Shareholders and employees alike want their participation in corporations to turn out well, duh. But the problem emerges from the uber rich 'o0wners', who have the power to gut their corporation at any time that suits them.

Imagine that you, as NOT a psychopathic owner of a big tobacco corp, were told that your product is killing and maiming your customers. Would you use your wealth to bend politics and science to support your continued accumulation of wealth? Well, of course not. As I said, you are not without guilt. But what of those that wring out the last bit of profit from tobacco, asbestos, carcinogenous drugs, or anything else that science tells us is bad for us? And then sell off just before the lawsuits and penalties occur? Those are the people that tell us that the shareholders and employees are the victims if we don't bend to their will. In actuality, those 'corporations' and their employees are victims of uber-greedy people also, as well as the entire society that allows them to piggy-back on fair and honest people.

myp · Aug 12, 2012

mogur said:
Corporations are not the problem. The bottom line is not necessarily evil. But, corporations shouldn't have 'civil rights'. That is just wrong. Shareholders and employees alike want their participation in corporations to turn out well, duh. But the problem emerges from the uber rich 'o0wners', who have the power to gut their corporation at any time that suits them.

Imagine that you, as NOT a psychopathic owner of a big tobacco corp, were told that your product is killing and maiming your customers. Would you use your wealth to bend politics and science to support your continued accumulation of wealth? Well, of course not. As I said, you are not without guilt. But what of those that wring out the last bit of profit from tobacco, asbestos, carcinogenous drugs, or anything else that science tells us is bad for us? And then sell off just before the lawsuits and penalties occur? Those are the people that tell us that the shareholders and employees are the victims if we don't bend to their will. In actuality, those 'corporations' and their employees are victims of uber-greedy people also, as well as the entire society that allows them to piggy-back on fair and honest people.

I'm not really sure how this relates to the topic at hand...

mogur · Aug 14, 2012

The topic, as I understand it, was the propping up of AIG, a 'too big to fail', yet obviously flawed company, to avoid greater consequences to our economy as a whole, at the expense of taxpayers, not to mention the unfairness of that bailout to its less flawed competitors.

If taxpayers are on the hook to save a company regardless of its recklessness, simply due to its size and the risk to our economy, then it is incumbent on us to be allowed to reduce future risks by at least reigning in their excesses. I was merely making the point that the corporation itself, the employees, and even the shareholders aren't the ones primarily responsible for malfeasance. The honor lies solely with upper management and owners who easily can jump ship and take their golden parachutes to the next 'risky' bar.

myp · Aug 14, 2012

mogur said:
The honor lies solely with upper management and owners who easily can jump ship and take their golden parachutes to the next 'risky' bar.

Oh course not. Who do you think puts them in those positions or gives them those benefits? And it is more a result of the incentives than the people themselves in my opinion. I also don't have a problem with such benefits/salaries if the shareholders think the value-added by having that person there is that great.

The issue with too big to fail should be looked at economically for the future (we can't change the past) in terms of how to reduce or offset the negative externality of systemic risk.

mogur · Aug 27, 2012

myp said:
I also don't have a problem with such benefits/salaries if the shareholders think the value-added by having that person there is that great.

Oh, really? Really? You don't know about the upper management self aggrandizement motive to decide that the person who gives them the biggest parachute is the one who should be in charge? Do you REALLY think that 'value-added' is the go to for a fair and free market? What if the management decides that risky, gonna crap on everyone to make money is the motive? Will Glass-Stegall help?

The short answer is yes. Keep banks out of investment. That will keep 75% of crap out of investment, because the reputation of big banks doesn't get to be a part of the equation. If some high-flying 'investment only' house decided to bundle toxic mortgages and then off-load them to honest investors, nobody would buy them. But if Morgan-Stanley wants you to buy crap, you will buy. We did. We crashed. And you think that the perps are the best that we can do, and should be rewarded? That is not free market, and you are not thinking straight.

myp · Aug 27, 2012

mogur said:
Oh, really? Really? You don't know about the upper management self aggrandizement motive to decide that the person who gives them the biggest parachute is the one who should be in charge? Do you REALLY think that 'value-added' is the go to for a fair and free market? What if the management decides that risky, gonna crap on everyone to make money is the motive? Will Glass-Stegall help?

Who the hell are you (or I) to bash a contract made by a company if the company owners (shareholders) are okay with it? And yes, multi-million dollar contracts can sometimes be justified given the value-added. Another arena you see it, where you probably won't argue it at all is sports- somewhere where many players arguably still don't make enough compared to what they make their teams.

mogur said:
The short answer is yes. Keep banks out of investment. That will keep 75% of crap out of investment, because the reputation of big banks doesn't get to be a part of the equation. If some high-flying 'investment only' house decided to bundle toxic mortgages and then off-load them to honest investors, nobody would buy them. But if Morgan-Stanley wants you to buy crap, you will buy. We did. We crashed. And you think that the perps are the best that we can do, and should be rewarded? That is not free market, and you are not thinking straight.

You can't just go back. The market and system have evolved.

That aside, even prior to the repeal, firms were finding ways to take on risk and leverage- this crisis is not only the result of GLB.

And what do you mean by take banks out of investment? That is a fundamental part of their business model- what do you think loans are?

mogur · Aug 27, 2012

Who the hell are you (or I) to bash a contract made by a company if the company owners (shareholders) are okay with it?

Grin, I am the one that says just because shareholders are okay, it doesn't mean that:

1) it is okay. You want AT&T shareholders to say that since we are a monopoly, we get to dictate anything that we want?

2) a contract made by dishonest people that don't have any intention to honor a fair market are certainly NOT the people that you should trust. If you do, you are less than smart.

A contract with their customers is exactly what they dishonored. But you think that they deserve honor? I am flabbergasted. (not really, but I do understand).

mogur · Aug 27, 2012

myp said:
And what do you mean by take banks out of investment? That is a fundamental part of their business model- what do you think loans are?

Doh, loans are what banks do. And, in the old days, they used to make sure that the recipient was worthy. When investment houses got involved, all of a sudden loans were a commodity. Do you really think that it is okay to hedge house loans? Are you George Bush?

myp · Aug 28, 2012

mogur said:
1) it is okay. You want AT&T shareholders to say that since we are a monopoly, we get to dictate anything that we want?

What does that have to do with anything? Anti-trust legislation is a different issue and that can handle it without putting caps on executive pay.

mogur said:
2) a contract made by dishonest people that don't have any intention to honor a fair market are certainly NOT the people that you should trust. If you do, you are less than smart.

What is a fair market? Who defines that? Anyway, fraud is still fraud- no pro-market person denies that. I don't see how this is relevant to executive pay though.

mogur said:
A contract with their customers is exactly what they dishonored. But you think that they deserve honor? I am flabbergasted. (not really, but I do understand).

That becomes a legal issue (possibly fraud, possibly not), but again I have no idea what you are talking about.

myp · Aug 28, 2012

mogur said:
Doh, loans are what banks do. And, in the old days, they used to make sure that the recipient was worthy.

Loans are investments.

mogur said:
When investment houses got involved, all of a sudden loans were a commodity. Do you really think that it is okay to hedge house loans? Are you George Bush?

It was not just investment houses- it was government investment houses. Government wanted home ownership to go up, that was part of the problem. The other part was an overly-excited market- leverage, etc. made it worse which could have been countered, but some of it was probably just emotional overexcitement- not much you can do about that.

And yes, hedging house loans is a good idea. It can help reduce systemic risk and increase the liquidity of housing assets. By the way, you know that a mortgage on a house is a hedge by the bank right (the house is collateral on default aka a hedge)? Hedging is not the problem- it is a vital part of markets today and sooo many people and companies from McDonald's to banks rely on it to manage risk.

mogur · Aug 29, 2012

Okay, hedging isn't intrinsically harmful, I have to say that you are right on that. But when hedging slides into burying toxic loans, thereby encouraging a free-for-all pursuit of maximum investment, regardless of risk, then there is no longer any buffer against recklessness, but rather an encouragement of it. And if you think that Freddie and Fannie led the parade, you have it backwards. To now say that Freddie and Fannie over-investment was government leading the charge over the cliff is silly. They were incompentantly led for awhile, but they were following the crowd. Should they have acted more prudently? Of course, but to keep up with the money grabbers, they cannot now be blamed for leading the charge. That was the big bank, big investment houses.

Bush made it his goal to encourage home investment at any risk. He thought that home ownership would lift the impoverished out of their hardship and stimulate the economy. If safeguards hadn't been removed by Clinton, the Republicans, and greed, he probably would have succeeded. Btw, Barney Frank wanted more rent assistance than home purchase assistance. The almost total collapse of our economy, and thereby most of the rest of the world, happened under emasculated government oversight, not because of 'government investment houses'.

Treasury sells $4.5 billion in AIG stock

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