Bailwha?
Okay, now I’m mad:
Metro and 30 other transit agencies across the country may have to pay billions of dollars to large banks as years-old financing deals unravel, potentially hurting service for millions of bus and train riders, transit officials said yesterday.
The problems are an unexpected consequence of the credit crisis, triggered indirectly by the collapse of American International Group, the insurance giant that U.S. taxpayers recently rescued from bankruptcy, officials said.
AIG had guaranteed deals between transit agencies and banks under which the banks made upfront payments that the agencies agreed to repay over time. But AIG’s financial problems have invalidated the company’s guarantees, putting the deals in technical default and allowing the banks to ask for all their money at once.
Ryan Avent observes: “One might ask just what the hell was the point of giving AIG government credit worth $122 billion (and counting) if it wasn’t going to prevent the deals the firm guaranteed from falling apart.”
Yeah, I really do wonder about that. WTF is happening here? Can’t we, in exchange for all the money we’re giving AIG, force the company to keep guaranteeing deals that are vital to keeping our public services running? Something about the implementation of this bailout is very troubling and it doesn’t inspire a ton of confidence in the future of TARP.
33 Responses to “Bailwha?”
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October 24th, 2008 at 11:31 am
Personally, I find this just as disturbing: Wall Street banks in $70bn staff payout
October 24th, 2008 at 11:36 am
That’s easy– Don’t pay the money back. Stall until January and there’s no way that banks with government oversight (which would be all of them in trouble) could press these claims.
Yet another reason the election is important!
October 24th, 2008 at 11:38 am
Maybe Metro shouldn’t have conspired with big banks to deprive the U.S. treasury of funds in the first instance.
Note that the IRS has also pushed the banks to wind up the deals in order to qualify for its settlement offer.
October 24th, 2008 at 11:41 am
Can’t we, in exchange for all the money we’re giving AIG, force the company to keep guaranteeing deals that are vital to keeping our public services running?
I would imagine the issue is not that AIG is backing out of its guarantees as it is the lending banks consider an AIG guarantee to now be worthless.
October 24th, 2008 at 11:45 am
“And then they came for my bicycle..”
October 24th, 2008 at 11:57 am
For a second I thought the title of this post was “Bwahaha”. That would have been more appropriate.
October 24th, 2008 at 12:03 pm
Can’t we, in exchange for all the money we’re giving AIG, force the company to keep guaranteeing deals that are vital to keeping our public services running?
No. That wasn’t the position we took in the company. We really should have bought the swap insurance-creating part of AIG (for the cash we gave them) and then smacked AIG, and told them never to get into that business again.
But hey, we didn’t bail AIG to save AIG, or fix the swap markets, we bailed AIG to help Goldman Sachs.
max
['So, let us go forth and take the banks.']
October 24th, 2008 at 12:06 pm
I’m assuming that this is something along the lines of: because AIG had to be bailed out by the US Gov. it’s no longer AAA rated and therefor the the municipal bonds it guarantees are no longer AAA and are in technical default.
If that’s the case, then really the only way to make AIG’s guaranteed bonds AAA rated again would be for the US Gov. to pass through it’s credit rating to AIG which is presumably beyond the scope of the original bailout and probably indicates that the bailout wasn’t well thought through.
October 24th, 2008 at 12:10 pm
Loan covenants require insurance written on a certain standard of paper–when AIG was downgraded, it no longer had the financial rating specified by the loans, which therefore get called in. It’s the same thing as your car company insisting you get insurance from a reputable carrier as long as they own most of the car.
Also, I’m biased here, but can we stop conflating AIG and the bailout? The government owns ~80% of AIG and got the equity in excange for a line of credit of which we’re paying 11.5% on money we take out and 8.5% on money we don’t. That’s a hard bargain, andnobody “gave” aig anything. If the line of credit isn’t paid off and closed out the government starts selling things for the cash. Now, I’m not complaining about the terms–it was that or bankruptcy, and I want the government to drive hard bargains to prevent moral hazard–but there’s this triumphalism all over the left over “mighty insurance giant AIG laid low” and it’s disgusting.
The financial services division that put the bad risks on the books was around 250 employees. The executive office guys they reported to, maybe another 500. That’s one owned company out of sixty-five and less than a thousand people taking down a corporation of over 110,000 people. That’s also a generous estimate, and includes everyone down to the secretaries and fileroom guys in those departments. You break it down to the executives who should have known better and could have changed the course, and it’s maybe less than fifty people. Everybody else just did their jobs (and worked for AIG owned companies that made money just fine, i.e. almost every single other one of them) and then watched their 401K’s and company stock go up in smoke as Jim Cramer screams on the TV how we should be stalked in the supermarket and publically shamed.
There’s my AIG rant
October 24th, 2008 at 12:17 pm
Seriously, it’s not just the big loans. I’ve got a bank coming up with all kinds of last-minute BS on my house closing. It’s a big loan, but we’re putting about 50% down, and they’ve seen our net worth, we can clearly afford it.
WTF was the point of this bailout? So they could hoard taxpayer capital along with their private capital?
Why couldn’t I get my home loan directly from the United States government? The terms here are solid, and the taxpayer would do really well. Seriously, why did they give billions in cash to these banks if all they’re going to do it sit on it??? It’s not just paying the middleman, it’s paying the middleman to kill a win-win deal!
It’s incredibly frustrating.
October 24th, 2008 at 12:17 pm
Metro and 30 other transit agencies across the country may have to pay billions of dollars to large banks as years-old financing deals unravel, potentially hurting service for millions of bus and train riders, transit officials said yesterday.
Oops!
October 24th, 2008 at 12:23 pm
Actually this was a good post, and I certainly sympathize with the poster and his fellow coworkers, having worked at a castigated f****d company myself. But the AIG loan was a government bailout, pure and simple. It’s wasn’t THE $700 billion dollar bail, but it was a bailout and the fact that municipalities are having to put the brakes on transit projects in the middle of a severe recession on account of AIG backed guarantees means that it wasn’t a well thought out bailout.
October 24th, 2008 at 12:25 pm
Part of the problem is that Democrats like you and Obama let Bush and Paulson lead you around the nose on the best way to “fix” our economy. This led to the Bush/Paulson plan to “fix” our economy so of course it’s destined to fail. One would have to a first-class fool to trust Bush and Paulson to accurately diagnose a problem and fix it. Especially a problem as complex as “fixing” our economy.
Of course the bailout wasn’t going to work–giving money to Wall Street so that they could lend again to regular Americans (even though these Big Boys weren’t really lending to Main St. in the first place–they were speculating in different sorts of assets and really just running really big hedge funds or gambling firms) was destined to fail.
Trickle down economics doesn’t work very well. We should have focused on the real economy from the beginning–the insurance companies and banks that really do lend to real Americans. We only have a certain number of public dollars to shore up the basic fundamental financing of the real economy. And we already have wasted a couple trillion on Bush and Paulson’s friends at Goldman Sachs.
It’s time for Democrats to get back to basics. Regulate insurance companies and banks. Focus on ensuring social security, pension promises, and worker protections. Let’s fix bankruptcy laws. Let’s regulate securities, derivatives, and investment banks.
Let’s stop this supply side, trickle down, Republican foolishness of giving money to Goldman Sachs and Citibank to “fix” our economy.
Obama needs to get the Chicago School of Economic’s foot out of his ass.
October 24th, 2008 at 12:26 pm
That was a pretty enlightening and entertaining rant, Jack. Keep ‘em coming. Its hard to find actual concrete info on this stuff.
October 24th, 2008 at 12:43 pm
Second DJ on Jack’s rant. Important perspective in all this.
October 24th, 2008 at 12:45 pm
Thanks Jack. I can understand your frustration that the reckless few infected what was once a conservative insurance firm.
If we are to spend public funds I would support insurance policies that have already been taken out–policies protecting individuals and public entities. I would rather make sure AIG can continue to back policies on Grandma’s annuties or life insurance or a small business’ general liability policy than I would for credit default swaps written to protect Goldman and the other players in the derivitive market.
Part of the problem is the damage is already done. We can’t go back and make insurance companies and banks have a solid capital base and not let them leverage themselves silly and not let them speculate in markets such as derivatives, etc.
We need to put those regulations in place right now but the little public money we do have should go to essential banking and insurance services–Grandma’s life insurance policy, or my local savings and loan, or in improving our basic social safety net.
I am much more sympathetic to bailing out AIG than Goldman Sachs. And this post shows why. It’s much more important to the public good than bailing out Goldman.
October 24th, 2008 at 1:22 pm
If these loans really do fall apart, it shouldn’t be too controversial for Congress to just flat-out appropriate funds equal to the amounts of the loans. This falls into the same category as a quick appropriation from the Federal gov’t to the states, which AFAIK has general support and is expected to pass during the lame-duck session.
October 24th, 2008 at 1:25 pm
The ratings cut that made these loans callable by the banks came before the bailout and were a big part of the need for the government investment/bailout.
October 24th, 2008 at 3:46 pm
I love it when the market views AIG as a better credit risk than transit agencies. The agencies have been running a brisk business guaranteeing all the wizards at AIG!
October 25th, 2008 at 10:54 am
SFHawkguy says it for me in comment 13:
When Paulson, the SecTreas, sends a three-page plan to Congress, it’s just a kick the can, “your turn” trick.
This “bailout” was never about “We the People;” it’s all about “Them, the Rich.”
Propaganda and message control resonates in economics just as well it does in the clarion call of war. Notice that those who profit from our current “wars” are now buffered from “Page One” and editorial revelations. (Look up the word chortle.)
The Bush administration got what it wanted for its lame duck cover-ups, behind-the-curtain payouts, and “pork belly” futures. Visualize those fat rats slithering down the bow lines of a sinking ship, a ship whose shuttlecocks they nudged open with little wet noses and grasping claws. (Hee Haw, y’all!)
There is no need to provide perspective for this group of readers. Any topic of social concern, whether transit, health care, sustainable wage is moot for any member of Congress; many, many government factotems; most media personalities; corporate CEOs (and other C-level parachutists); or anyone making Charlie Gibson’s “median salary” of $200,000. These folk have no concept of foreclosure on a personal, community, or societal plane. Their concept of history is a personal yesterday and a few talking points pulled from cheat sheets.
If anyone finds a need for some spine or a vision, watch last night’s Bill Moyer’s Journal on PBS (10/24/08). The juxtaposition of reality, sanity, and hope in a single hour is overwhelming. Someone should buy an hour on network television to replay this segment. Can you name another American sage, especially one who presents cogent solutions?
By the way, Jamie Galbraith should be SecTreas NOW!
October 26th, 2008 at 10:04 am
The potential foreclosures of transit systems is the latest debacle in the morass created by the get-rich-quick financial charlatans. The finance-lease back deals seem not unlike the whole subprime house of cards.
Funny how the banks are considering demanding payment now. Maybe, despite the taxpayer bailout, AIG is sinking fast.
October 26th, 2008 at 12:45 pm
Transit agencies have been really hurt by their deals with AIG. But these agencies need to stop the short-term thinking that leads to these bad deals. Read about this issues at the transport politic.
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