Full Commanding Denial

March 25, 2009 12:25 AM

There have been a lot of descriptions of our new president, but being in "full commanding denial" is a new and, sadly, insightful one. Clusterf*ck Nation's Jim Kunstler observes that the bailout "is predicated on the idea that the mechanisms of wealth production -- even of illusory wealth, such as the fortunes created by trading securitized unpayable debt -- can keep chugging along, spinning off limitless additional suburban villas, chain stores, car trips, and deep-fried snacks." For a different view, the folks over at the excellent Baseline Scenario have been doing some interesting thinking about The Cultural Costs of Bailout Nation. For an even bigger big picture view, Dmitry Orlov's original analysis of the USSR vs. USA collapse in Superpower Collapse Best Practices seems to be even more resonant in his recent appearances. Maybe it's time to give Full Commanding Denial another chance ....
posted by Adamchik (80 comments total)

i see that Kunstler is already looking more rugged in his author photo.



that's all i gots.
posted by Hat Maui at 12:50 AM on March 25

.
posted by weapons-grade pandemonium at 12:54 AM on March 25

If spinning deep fried snacks are wrong, I don't want to be right.
posted by Dr. Grue at 1:22 AM on March 25 [5 favorites has favorites]

Hasn't he fixed everything yet? Sorry, I was napping.
posted by Clave at 1:23 AM on March 25

<3 Orlov.
posted by cthuljew at 1:37 AM on March 25

Speculation from people who have no formal education in politics, economics, or anything genuinely related to the topic they are speculating about…

Oh… wait… I forgot. It's the internet.
posted by vertigo25 at 1:59 AM on March 25 [1 favorite has favorites]

yeah i got about three sentences into Orlov's little rant. please define collapse. China's been around for thousands of years - did China ever collapse? or did it just have extended periods of difficulties/transitions?

i agree with Kunstler's point that essentially, the American big-spender paradigm of endless credit and massive consumption is grossly unsustainable. the problem isn't that the president buys into it (i don't think he does) - the problem is that the majority of the population buys into that concept. its a lifestyle. and a good chunk of the politicians and business leaders that the administration has to deal with also buy into that unsustainable concept of American life. so, as wrong and shortsighted as these people may be, you have to appease them a bit. they will not change their mind easily and you can't force them to. and if you want to stay in charge, you need their trust and approval.
posted by molecicco at 3:08 AM on March 25 [3 favorites has favorites]

If we can get the rest of the world to loan us two trillion dollars in a debt payable in U.S. dollars right before we collapse, I suppose maybe we could still end up handling the superpower collapse worse that the Soviet Union. But at least we would have everyone's money.

If we lived by unpayable debt, let us die by unpayable debt.
posted by XMLicious at 3:14 AM on March 25

Orlov did Late Night Live here on Australian radio the other week. I found it a fascinating interview.
posted by mattoxic at 3:39 AM on March 25

As much as Kunstler decries the unsustainable suburban lifestyle, he stands solidly behind the neoconservative militarism that guards it.
posted by telstar at 3:58 AM on March 25 [4 favorites has favorites]

That's all you've got?

What do you expect President Obama to do, overturn the entire economic model overnight? He's *got* to be incremental and cautious.

So much bitching, right and left. I'd like to see any of the president's critics actually have responsibility for anything serious and then spout their pronouncements.

It's too much. It's not enough. It won't work. It's socialist. It's not socialist enough. WTF people. He's been president for TWO DAMN MONTHS.
posted by fourcheesemac at 4:09 AM on March 25 [19 favorites has favorites]

Not everyone is complaining. Those of us who are not are just quiet, because, well, we're not complaining. When I look at all Obama has done in just two months, I am awestruck. When I look at his vision for the future, I am filled with hope. Will Obama make mistakes? Oh yeah, everyone does. But I don't think we'll see anything near the level of the insanely horrible mistakes that Bush made previously.

Education, clean energy, health care, a well-regulated financial industry, a stable housing market, these are the things we need for the long-term, and Obama's going full steam ahead to provide the country with those things. Yeah, it ain't gonna be cheap. Yeah, the odds are that at some point I will have to pay higher taxes to cover the costs. But, ya know, TANSTAAFL: There Ain't No Such Thing As A Free Lunch. I'm willing to pay for those things. I'm less willing to pay for massive tax cuts for the rich and unnecessary wars, but because of Bush I'm going to be paying for those too, and those don't help the country at all (unless you're rich, or a military contractor, or both).

In my life, I have never seen a president come out of the gates under such hostile conditions, and do so with such vigor, grace, humor and thoughtful intelligence. I feel we are very lucky to have ended up with the president we did. Though I was a Clinton supporter initially, in retrospect I'm glad it was Obama who won. I just don't think Clinton or McCain would have been courageous enough to tackle all these problems head-on like Obama is doing.
posted by jamstigator at 4:33 AM on March 25 [33 favorites has favorites]

Amen, jamstigator. The Big O is on fire.
posted by AppleSeed at 4:42 AM on March 25

The Kunstler piece reminds me why I've so quickly gone from one of his most histrionic evangelists to someone who can't get all the way through the KunstlerCast podcast (nice use of CamelCase, there, guys…such sharp satire of corporate design…ugh) without giving up and going back to singing along to Sergio Mendes. Ever since I get my first copy of The Geography of Nowhere, I've been in the congregation of the converted, handing out more than a dozen copies to friends and associates, going on and on about what I believed, and still believe, to be some pretty insightful writing on the subject of urban planning and the built environment.

I could kind of write off his chicken-littleism about Y2k as the earnest thoughts of someone who was not technical by nature, and even his crotchety moralizing about tattoos as the harbinger of "social dysfunction" and the decay of public taste, but his recent series of smug, self-righteous ongoing rambles about peak oil nonsense and the coming apocalypse is just too much. It's all degenerated into Limbaughesque belittling of everyone who's not had the luck and circumstances to move to a small town and live a small town existence, coupled with a really, really ugly refrain of "see, I told you so, I told you this was going to happen and you just didn't listen, you dumb, fat suburban slob with your SUV and your Xbox!"

It was a real eye-opener (or ear-opener, I guess), when his podcast amounted to Kunstler and his co-anchor sitting out in the parking lot of a mall, giggling about how fat everyone is, and how gigantic their cars are, and how brainwashed they are, and…gah—I'm reminded about when I decided that being a vegetarian would save the world and make me morally exemplary, or when I discovered earthships and was aghast that no one was building the one perfect kind of house, or when I decided that anyone who wasn't a fanatical follower of New Urbanism was working to destroy the future of the human race. The people who sat around and snarked and called me stupid for having a simplistic world view didn't educate me, didn't teach me to be realistic, and didn't change my mind—they made me dig my heels in and get defensive, and that's what Kunstler and all the judgmental TOLD-YOU-SO brigade do, right at the moment when we need to be building the social structures to adjust to big changes in the way we see the world. This time calls for moderation, openness, modularity, and compromise, not one more strict ideology that'll fix everything.

I'm never sure why our culture is so obsessed with apocalyptic imagery, end of the world predictions, and worst case scenario manifestos, except that we were founded by religious puritans who built those fears into their canon, but it's just become so extreme these days, and that cultural self-flagellation can't do us anything but more harm. I just don't see much prescriptive in this writing, except in smugly-stated appeals to the impossible and claims that there are going to be floods of refugees and unstoppable waves of inconceivable destruction.

Whatever.

Call it denial, but I'm just getting on with my life. I can't control what's happening with AIG or the rest of this silly bailout. I can't directly affect Obama or the military or world trade, but I can teach my friends and neighbors about carpentry, electrical wiring, installing and repairing plumbing. I'm building beehives for friends, to introduce them to simple beekeeping and the idea of being connected to their own food sources, and sharing the other resources I can share. I can do this because I was lucky enough to land where I landed, not because I'm smarter, not because I'm better, but because the dice that were rolled when I was born happened to give me a head start for living in a messed-up economy. I could sit around and kvetch and chortle and rhapsodize eloquently about the failures of people who used to think of themselves as being better off than me, and revel in that ugly "schadenfreude" of seeing political and economic power suddenly shift in what's presumably "my" direction, or I can practice compassion and understanding.

That's what I'm not seeing in all this—we're so smug and hung up pointing fingers and hollering about how we told you so that we're completely failing to actually help. It's that puritanism again, that mythology that we're a country of "self-made men," who rise and fall solely on the strength or stupidity of their own actions. It's true that a lot of selfish, uninformed people did a lot of selfish, uninformed things, but this is the perfect time to respond to them with an open hand instead of a closed fist, and bring them to understand what we understand with kindness, rather than force and mockery. If we can pull something workable out of this mess, it's going to be by being "I" and "we" more than "you" and "they."

Otherwise, it's back to the talk show, back to the big fight, back to the ugly old "I am better than you," "some animals are more equal than others" nonsense that made all this possible, feeding the gestalt interests that have kept it all going for so long.
posted by sonascope at 5:09 AM on March 25 [62 favorites has favorites]

President Obama has come up with a very good plan to help fix the United States. The best metaphor that I can come up with -- it is a very aggressive plan of medication and exercise to treat a very sick patient that slowly dying of cancer.

Unfortunatly, that plan will never be implemented, because the heart attack is killing the patient.

We've dumped trillions into the banks, and all they've done is said "MOAR!!!!" So we're going to dump trillions more. Instead of saying "The only thing in the US that can be too big to fail is the US", he's saying "You're right, Mr. Liddy, I'll tell the Congress to stop bullying you and get you another 30 Billion dollars."

It doesn't matter how brilliant the rest of his cabinet picks may be, he's put full faith and credit in Timothy Gietener, who has show himself to be clearly of the banks, by the banks, and for the banks.

So now, we're going to lend money to banks and hedge funds to buy bad bank investments at well above market price. These are non-recourse loans -- if the asset bought only nets 10% of the purchase price, we get 10% back, and that's it. If the asset nets 200% of the purchase price, we get the loan back, plus interest, and the profit on the asset goes to the private firm who bought the asset with our money.

Privatized Profits, Socialized Losses.

Everything else he's done won't matter. Everything else he will do won't matter. His amazing budget won't matter, because it won't be passed. He has bet his entire administration, and the entire country, on making sure the current banks survive and the current bank shareholders aren't wiped out.
posted by eriko at 5:10 AM on March 25 [9 favorites has favorites]

I'm never sure why our culture is so obsessed with apocalyptic imagery, end of the world predictions, and worst case scenario manifestos

You can see it right in the first sentence of this post. The apocalypse is where all those awful people who enjoy "suburban villas, chain stores, car trips, and deep-fried snacks" get their comeuppance. Or was it where those godless heathens and blasphemous heretics get what they deserve? Or maybe it's just the singular time when those stupid jocks will realize once and for all that the nerds were right. Maybe it's the event that will prove that all the pollyannas should have been paying more attention to the survivalists, or that the nuclear-armed commies really were just as crazy as we said.

Whatever precise form the apocalypse takes, I think we can at least all agree: the people who haven't been listening to me about how to prepare for it are screwed.
posted by roystgnr at 5:24 AM on March 25 [6 favorites has favorites]

Needs more "doom" tag. ("Doooooom", I tells ya!)

Honestly, I'm all for contemplating the worst-case scenario, but Kunstler and Orlov relish it, like every other apocalypse fan. There's plenty to be debated about Geithner's plan, but their Cassandrian tone (and accompanying self-satisfaction) dictates their contribution from the outset.
posted by Doktor Zed at 5:31 AM on March 25 [1 favorite has favorites]

Speculation from people who have no formal education in politics, economics, or anything genuinely related to the topic they are speculating about…

Yeah, because the people who DO have the training have served us so well.
posted by Malor at 5:45 AM on March 25 [2 favorites has favorites]

I'm in general agreement with sonascope's points above; I'll just add that Kunstler lost me completely when he went absolutely nuts during the recent Israeli attack on Gaza.
posted by Auden at 5:45 AM on March 25

eriko: President Obama has come up with a very good plan to help fix the United States. The best metaphor that I can come up with -- it is a very aggressive plan of medication and exercise to treat a very sick patient that slowly dying of cancer.

No, he really hasn't. He is prescribing what made us sick in the first place; easy money. The meth addict just had a heart attack. His prescription?

More meth.
posted by Malor at 5:46 AM on March 25 [2 favorites has favorites]

So much bitching, right and left.

Usually the sign of someone doing the right thing.

It is an amazing time.
posted by Ironmouth at 5:52 AM on March 25 [6 favorites has favorites]

Damn, clean energy, universal health care, and improved education are what made us sick? Well then, let's try all-coal energy and no health care or education for anyone. That should fix us right up!
posted by jamstigator at 5:54 AM on March 25

No, borrowing and printing money we don't have is what made us sick. He's retreated even further into the speculative-fiction version of economics, where you don't have to pay for what you buy.
posted by Malor at 6:02 AM on March 25 [2 favorites has favorites]

Okay, I just actually read the Dmitry Orlov links. The info in the power point slide and the transcript agree with what I know about the Soviet economy and the rest of their system but the analysis seems rather slanted in that it appears like a rather lowball enumeration of the number of advantages that the U.S. would have in a collapse.

And some of his remedies - converting parking garages into vegetable gardens? Seriously? In any area densely settled enough that they'd actually have to do that it would only feed the smallest fraction of the people.

Does this guy give an actual timeframe for the collapse anywhere? Because if not, he isn't exactly Nostradamus; only the most obtuse Americans think the empire will last forever. It's like someone looking into a crystal ball to tell someone's fortune and pronouncing, "You are going to die some day!"

And does he explain why the collapse of the Greater U.S. would look more like the Soviet Union and Rome rather than like the end of the British and Spanish empires?

...I just listened to the ABC broadcast, thanks for the link mattoxic. Makes me even more skeptical though.

The only reasonable place to buy food in U.S. cities is at McDonalds and at gas station convenience stores? That is manifestly not true. I am certain of that - I travel for business all the time, I've been in almost all the major cities of the U.S. and I frequently find something to eat by striking out in a random direction from my hotel or motel, going to a supermarket, and bringing several days' worth of food back.

He talks about having a house far from population centers as possible as if it's a weird American cultural thing, the Australian host says that's something Russians "can't even imagine," and Orlov doesn't mention dachas? Even lower-income people in the Soviet Union sometimes had dachas.

The U.S. is going to be "fighting insurgencies within its own borders"? And when asked for a timeline for all this crap he says it's "already been going on for several years." Call us back when everyone is growing vegetables in parking garages and Georgia has invaded Florida. Somehow I think his predicted collapse, which is evidently already in full swing (probably to stay in line with previous predictions he's made) is going to be drawn out over decades if indeed it really gets going within the lifetime of anyone reading this.

My first exposure to Dmitry Orlov leaves me resoundingly unimpressed. He's clearly got something to sell.
posted by XMLicious at 6:09 AM on March 25 [2 favorites has favorites]

No, borrowing and printing money we don't have is what made us sick. He's retreated even further into the speculative-fiction version of economics, where you don't have to pay for what you buy.

Hardly.
posted by Ironmouth at 6:11 AM on March 25

While I agree with everything sonascope has to say ... the KunstlerCast can still be pretty damn entertaining, unnecessary belittling and all.
posted by l33tpolicywonk at 6:13 AM on March 25 [1 favorite has favorites]

I'm never sure why our culture is so obsessed with apocalyptic imagery, end of the world predictions, and worst case scenario manifestos, except that we were founded by religious puritans who built those fears into their canon


(Ahem.)

"As lain Murray shows in his book The Puritan Hope the eschatology of the English Puritans lay at the heart of the great world-wide missionary movement of the 19th century. This positive view of the future known as the eschatology of victory has tremendous implications because it inspires vision. It motivates effort and enterprise. If we believe that evil will overcome everything we will be subject to fear and despair. We will not be inclined to attempt very much. If the gospel is destined to prevail in all nations then we will be inspired to attempt great things for God. We will seek to win the nations for Christ. And winning the nations for Christ means that the hearts of men and women are renewed and brought into obedience to the gospel. The kingdom of God is within us. From that position of being 'in Christ' we then apply the teachings of Scripture to every sphere of life as Calvin and the English Puritans sought to do.

"With regard to culture we have a mandate to develop every sphere and bring every area of human life under the rule and dominion of the Prince of Peace (Ps 8). We are to pray always that his justice will prevail. We are to pray the prayer of Psalm 72. We must plead that the Prince of Peace will prevail. We expect him to defend the afflicted among the people and save the children of the needy. We are to pray that the whole earth be filled with his glory as the waters cover the sea (Ps 72). These prospects were believed by the Puritans as most certain of fulfillment. The future was as bright as the promises of God."

This has been another edition of "No, Metafilter, Christianity is not to blame for everything you don't like about the world." We now return you to your regularly scheduled programming.
posted by Pater Aletheias at 6:14 AM on March 25 [5 favorites has favorites]

So much bitching, right and left. I'd like to see any of the president's critics actually have responsibility for anything serious and then spout their pronouncements.

i'd like to see one of the president's defenders come up with a better argument than "it's not time to bitch yet, we'll tell you when it's time"

the perception is that the little people are being screwed while the big people are being bailed out - there are two real alternatives as i see them - failure or nationalization - and the bailout plan is not nationalization

obama just isn't getting the right advice - no, for that matter, is he getting a congress that's sensible and realistic about what's going on

meanwhile, the cry of "where's my bailout?" gets stronger

this keeps up, i predict widespread tax evasion and cheating - why should americans pay taxes for a government that's no better than a hostage held for ransom by the money interests?
posted by pyramid termite at 6:30 AM on March 25 [1 favorite has favorites]

Did you just discover Kunstler? Because that's pretty much the same thing he's been saying, week after week, for as long as I've known of him, and probably for decades earlier. The man has some very interesting things to say, but he's said them all, over and over and over again. God love 'im...
posted by Edgewise at 6:33 AM on March 25

Education, clean energy, health care, a well-regulated financial industry, a stable housing market, these are the things we need for the long-term, and Obama's going full steam ahead to provide the country with those things.

That sounds great and all, but I'll add this to the ever-expanding file of evidence that the American, and perhaps global, public don't understand what is happening.

The problem is not Bush's wars or the housing boom. The problem is much larger and goes back much farther. There has been too much money in the system for too long and everyone has gotten used to it to the point where they believe it to be the normal state of affairs.

The mid 80's, late 90's and early 2000's were not normal, they were abnormal. Right now? This is the long-run normal. The savings rate right now, which people are declaring to be too high, is the historical average. So many business are closing because there were too many business to begin with.

I hope that the Fed's rapid gross-tuning of the money supply is able to restore normality in the economy, but I'm not so sure that it will. It's seems to mechanistic in a way that doesn't integrate the cultural shift in the consumer. I don't think the american consumer is eager to return to their acquisitive spendthrift ways, because the American consumer has become more introspective, asking themselves what all that consumption got them in the end. I think that Ame

There are really three kinds of outcomes here. A V-shaped recession, where the fall is steep but we jump right out of it, a U-shaped recession where we spend ten years adrift in stagnation but ultimately claw our way back to economic growth, or a L-shaped recession, where the economy doesn't experience significant real growth for decades.

I hope it is U-shaped, because that's the situation in which everyone learns their lesson but the suffering is mitigated. I think a V-shaped outcome is a pipe dream of busted-dotcommers and political hacks. And L-shaped outcome is a real possibility, but only if there is another "black swan" event, like a war in Asia or a terrorist attack in the U.S.

On the other hand, economic stagnation is probably the best thing for the environment.
posted by Pastabagel at 6:48 AM on March 25 [2 favorites has favorites]

Despair over financial policy (Paul Krugman)

The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.
posted by Brian B. at 6:59 AM on March 25

Is this the best criticism of Obama there is? If so he has nothing to worry about.
posted by stbalbach at 6:59 AM on March 25

Amen to that, sonascope. I went through the same thing with Kunstler. I still check his weekly blog when he posts on Monday, but I find it harder and harder to get through the whole thing. The guy has lost all sense of scale and proportion.
posted by fimbulvetr at 7:00 AM on March 25

When I look at all Obama has done in just two months, I am awestruck.

Me too. I still remember Bush's seemingly cluelessness, later born out in actuality, during his first six months in office. Which in turn causes me to cringe at the thought of what may be happening right now had McCain/Palin won in Nov.
posted by notreally at 7:44 AM on March 25

I could kind of write off his chicken-littleism about Y2k as the earnest thoughts of someone who was not technical by nature

Why? The attitude here is "Im going to rant about shit I dont understand." How are his thoughts on economics any different?
posted by damn dirty ape at 7:52 AM on March 25

Another thumbs-up for sonascope for enumerating Kuntsler's exasperating tendencies; he and Orlov don't share any particular accuracy in their observations, but rather a certain butthurt peevishness that America's Grim Meathook Future hasn't arrived soon enough to suit them.
posted by Halloween Jack at 7:57 AM on March 25 [3 favorites has favorites]

How are his thoughts on economics any different?

Because economics is accessible on a macro level, and details about the effects of very specific computer bugs are not.
posted by symbollocks at 8:25 AM on March 25

The problem with Kuntsler is that if the doompr0n he masturbates to really does come true, he'd have to live in it, and his attitude is one of someone who after the apocalypse would rather be smug about being right than actually do something about making the neighborhood he lives in better. And thus, he'll be eaten by cannibals fairly early on.

All I know is what hasn't worked. And cutting off the banks got us into the Great Depression. If we can be selective and patient about our retribution and put down the pitchforks and torches, we might just be able to get through this. But the AIG outrage makes me fear we won't.
posted by dw at 8:29 AM on March 25

"No, borrowing and printing money we don't have is what made us sick. He's retreated even further into the speculative-fiction version of economics, where you don't have to pay for what you buy."

No, that's the Republican talking point, but it's hardly true.
posted by krinklyfig at 8:30 AM on March 25

the problem isn't that the president buys into it (i don't think he does)

yea, indeed he said so last nite :P

...the most critical part of our strategy is to ensure that we do not return to an economic cycle of bubble and bust in this country. We know that an economy built on reckless speculation, inflated home prices, and maxed-out credit cards does not create lasting wealth. It creates the illusion of prosperity, and it's endangered us all...

and, i think, encouragingly he's hammering on health care costs* that if 'fixed' would allow so much more -- fix healthcare, fix the world! (+ the president has a swingset :)

otoh, i also share eriko/malor concerns re: a politically feasible -- taxpayer vs. oligarch -- way of fixing the banking system; if it was easy, it would have happened by now...

i don't think all the contortions would be necessary if the banking oligarchs (banksters!) weren't able to credibly threaten obama's second term or stuff he really wants to accomplish -- for example, health care reform -- which is why i think the latest TARP incarnation is potentially clever (it could also be really evil)

***note: boring interlude***
so like one way to get good healthy banks out of this and identify (and kill) the bad zombie banks without too much collateral damage is to identify the less bad from the more bad; what if there was a way to give money away so that only the good step forward, how could you just subsidise the strong(er) leaving the weak behind?

well, good banks -- as good banks do -- have already written down (marked to market) a lot of their bad assets, well some, while the bad banks are still carrying them on their books as if the housing/mortgage bubble hasn't collapsed.**

so to give you political cover to take on the oligarchs you might try doing something that baseline's simon johnson has been saying for awhile, "splitting this powerful interest group into competing factions" and, perhaps, maybe peeling off some and bringing them over to your side.

now with 'good' oligarchs and 'bad' banksters you can say, "let's have an auction! it'll be like a yard sale market with private investors... here, we'll even offer them generous funding," and the good oligarchs will be all, "sign me up!" but the bad banksters will be like, "uh, but everything i want to sell will be way more than what the good oligarchs can unload their stuff for, er..."

and then you go, "oh, and one more thing, the funding is coming from the FDIC, which altho it has, essentially, an unlimited line of credit with treasury (and its power of taxation), it's really always just funded itself thru bank premiums. so if anything goes wrong, we could just raise fees first to, you know, protect depositers..."
***end***

[still-boring-ist :]

anyway, i think (and hope ;) that could be the broad outlines of what obama/geithner/summers are planning; it depends on the details, of course, and that's not even getting into the 'stress tests' that, again, could complement the above carrot with a pretty potent stick: nationalisation, after a good-faith effort by the gov't and banks to realise their claims of health and solvency, while a few good oligarchs -- newly liquid, solvent and brimming with confidence -- pass muster as shining examples of american ingenuity and the capitalist way; the best parts of the system survive intact and its worse excesses and abuses are swept into the dustbin (if not prosecuted) and we can all wake up from our collective nightmare into the bright future of a (re)sane world.

um, so not to leave too much on a cheery note -- talking about reality :P -- whether any of the above happens or not, to me, it still looks like bankruptcy and inflation as far as the eye can see until markets (and/or the gov't) can, w/ reasonable accuracy, look into the future and figure out the right signals to send back to productively allocate resources and put people back to work...

cheers!

---
*e.g. 1) Health Battle to Focus on Public Plan 2) Health Insurers Offer Concessions

**these are long-term loss bombs; there's a reason why they're 'toxic' (and illiquid) -- it's a market for lemons + unless cram down legislation passes, there's every reason for people to default -- it's the rational thing to do when you're underwater (by a lot) and your loan is effectively non-recourse *hint, hint* and you might not get foreclosed on in any event, at least for awhile
posted by kliuless at 9:07 AM on March 25 [1 favorite has favorites]

There are really three kinds of outcomes here. A V-shaped recession, where the fall is steep but we jump right out of it, a U-shaped recession where we spend ten years adrift in stagnation but ultimately claw our way back to economic growth, or a L-shaped recession, where the economy doesn't experience significant real growth for decades.I hope it is U-shaped, because that's the situation in which everyone learns their lesson but the suffering is mitigated.

The idea that somehow, we should actually hope for an extended recession to teach Wall Street a "lesson" is putting hope for political and spiritual revenge. Recessions and depressions mean increased death and suffering for real life human beings. The President rightly sees his job as reducing suffering amongst the general public. Those who do not share this goal are placing personal hope for punishment of groups they personally dislike over the common good.
posted by Ironmouth at 9:15 AM on March 25 [2 favorites has favorites]

At this point in his presidency, Bush was about to get belligerent with China for knocking down our spy plane.

President Bush was also ramping up for a one-month vacation after six months in office. On the August 6, 2001, Daily Show--the same day President Bush was told "Bin Laden determined to strike in US" and replied, "All right. You've covered your ass, now."--Jon Stewart said, "My president went on vacation. All I got was this lousy sense of impending doom."

Bush aides defended criticism of the time off by saying he'd get daily national security briefings, but they missed some important ones. By September 11, 2001, "Bush had spent 54 days at the ranch, 38 days at Camp David, and four days at the Bush compound in Kennebunkport--a total of 96 days, or about 40 percent of his presidency, outside of Washington."
posted by kirkaracha at 9:23 AM on March 25 [1 favorite has favorites]

Pyramid, there's zero chance an Obama proposal to abandon capitalism right now would pass through congress. I'm not telling you when to bitch. I'm suggesting someone needs to come up with a better plan *that has a chance in hell of passing.*
posted by fourcheesemac at 9:39 AM on March 25

there are two real alternatives as i see them - failure or nationalization - and the bailout plan is not nationalization.

I think it is. Nationalizing a small bank requires an enormous amount of preparation and manpower. Nationalizing the largest banking institutions in the US, simultaneously, will need a little more time to be realized. Until then, staving off immediate armageddon requires the bailouts.

Obama needs to keep the banks afloat long enough to nationalize them, and he needs to tackle non-bank institutions that have the banks by the short and curlies - to wit, AIG.

The AIG Bonus scandal was a brilliant work of politics, a hatchet-job clearly orchestrated by the president's cabinet in conjunction with congressional leaders. Now Geithner can nationalize them without a fuss, and have Congress tax anyone who stands in his way into oblivion, and the voters will cheer.

This is Chicago hardball, and it's amazing to watch. I think Obama's doing just fine.
posted by Slap*Happy at 9:53 AM on March 25

I hope you're right Slap*Happy. Honestly I don't think they overlooked the bonuses as much as has been reported, but that's quite something to pull off.

The only worry I really have is that there is no way out. That no matter what we do we will still all sink. And since I doubt the nations of the world will implement any kind of NWO there will just be many wars for resources ahead of us.

At least in the history books we can blame the generations that came before us.
posted by Allan Gordon at 10:06 AM on March 25

Pyramid, there's zero chance an Obama proposal to abandon capitalism right now would pass through congress.

abandon capitalism? - we abandoned it years ago

he would simply tell congress that if they don't like how the bankruptcy courts are going to "nationalize" dead banks, then they need to authorize nationalization plan b

i have the feeling it may come to that, anyway

----


Obama needs to keep the banks afloat long enough to nationalize them, and he needs to tackle non-bank institutions that have the banks by the short and curlies - to wit, AIG.

my worry is that by the time he feels he's ready to nationalize is that he won't have the financial or political capital left to do it with
posted by pyramid termite at 10:17 AM on March 25

There can be no "nationalization" of the banks. The term has been massively misapplied. The U.S. government will not take over the running of all finanical institutions in this country. That's what "nationalization" is.
posted by Ironmouth at 10:34 AM on March 25

an Obama proposal to abandon capitalism

You're kidding me, right? What do you call giving literally trillions of dollars, with virtually no strings attached, to the bankers and fraudulent financiers so that their banks and companies won't fail? You are aware that the Federal Government is now the major stakeholder in the major banks, correct? We've already effectively nationalized the banks, we've just done it in the dumbest way possible: without any ability to control the situation or outcome, and without any ability to re-structure and direct the course. As Taibbi put it in his excellent RS piece:

on the linear spectrum of capitalism to socialism, where exactly are we now? Is there a dictionary word that even describes what we are now? It would be funny, if it weren't such a nightmare.

Furthermore, some of the same members of the hedge fund investor-class that drove us into this ditch and is about to begin working--largely secretly and in tandem with the Feds--through TALF to buy-up toxicworthless assets are actually doing quite well, thank you very much.
posted by ornate insect at 11:11 AM on March 25

this keeps up, i predict widespread tax evasion and cheating - why should americans pay taxes for a government that's no better than a hostage held for ransom by the money interests?

if nothing else, that might trigger a more consumption based, progressive and fairer tax code. That micropayment idea I saw floated some years back sounded promising.

At any rate. So what? We've been paying to support this corrupt system our entire lives. Corporate interests enriching themselves, very directly, at times, at the expense of the immiserated peoples of Vietnam, Iran, Iraq, Cambodia, Panama, Mexico, Nicaragua, El Salavador, the Philippines and so on. Not since the Marshall Plan and the Suez confrontation (with a few minor counter examples here and there to serve is anecdotal window dressing) has this nation been anything but a force for greed, corruption, and indifferent to misery and violence at home and abroad.. Halliburton's sweetheart deals enabling it to profit grotesquely in a needless war (shades of Bell and Sikorsky in the 60s), AIG's unchecked betting at the derivatives roulette table and Bernie Madoff (by way of microcosm) did us all a huge favor by revealing it for what it is: a gigantic pyramid scheme where, if just enough crumbs trickle down to the lumpen masses, no one will blow the whistle. When we're out of breadcrumbs, she all comes tumbling down.

Whatever you think of Obama, I do not believe that he is beholden to any of the interests the Bushes, the Clintons, McCain, Reagan, Carter, Ford, Nixon and Kennedy were. I know people are uneasy with the contributions his campaign took from Wall Street, but (a) I don't think that's materially significant and (b) the contributed just as much to McCain when the election was still in doubt. Most days I wake up feeling incredibly pessimistic about how that day will go, but mostly I feel incredibly fortunate that we ended up with Obama as President. I can't say that everything is gonna be alright, but at least I know that we have half a chance that our kids generation might have a fighting chance.
posted by psmealey at 11:13 AM on March 25

The U.S. government will not take over the running of all finanical institutions in this country.

No: we'll just pump trillions upon trillions of taxpayer dollars into them without demanding any real oversight. We'll just set up, without any transparency, TARP, TALF, PPIF, and dozens of other bureaucratic acronyms that will facilitate the seamless re-organization of the Federal Government to work at the behest of the investor class. If Joe Hedge-Fund or Mr.AIG wants to do business with Geithner, this will make it so much easier for them. We plebes won't have to be bothered with the tiresome details.
posted by ornate insect at 11:16 AM on March 25

What do you call giving literally trillions of dollars, with virtually no strings attached, to the bankers and fraudulent financiers so that their banks and companies won't fail?

You err. The money is going to creditors of bankers. Nor is it going to "fraudulent fianciers." If you have evidence that anyone getting TARP or other bailout funds is "fraudulent" as in committing actual fraud, not "I don't like those guys" please enlighten us.

I would not call this the abandonment of capitalism. Please. The abandonment of captialism is communism. Not. Gonna. Happen. So please stop calling this the end of captialism. Because its not.
posted by Ironmouth at 11:19 AM on March 25

There can be no "nationalization" of the banks. The term has been massively misapplied. The U.S. government will not take over the running of all finanical institutions in this country. That's what "nationalization" is.

They can, they have, they are now, and they will again (on a much larger scale) soon. It's how the Texas S&L fiasco was fixed, it's how Sweden dodged the bullet in the '90s, and it's pretty much the only way out now.

The government will take over the bank, audit the hell out of it, sack the management and re-shuffle the hierarchy, implement sound management practices, and then once it's rightside up, sell it off to recoup the taxpayer's money spent in fixing it. Pretty standard procedure... if it weren't for the sheer size and number of institutions that need it.
posted by Slap*Happy at 11:22 AM on March 25

The abandonment of captialism is communism.

lolfalsedichotomy
posted by lumensimus at 11:25 AM on March 25 [2 favorites has favorites]

No: we'll just pump trillions upon trillions of taxpayer dollars into them without demanding any real oversight. We'll just set up, without any transparency, TARP, TALF, PPIF, and dozens of other bureaucratic acronyms that will facilitate the seamless re-organization of the Federal Government to work at the behest of the investor class. If Joe Hedge-Fund or Mr.AIG wants to do business with Geithner, this will make it so much easier for them. We plebes won't have to be bothered with the tiresome details.

First, we will not pump "trillions upon trillions" of taxpayer dollars into anything. Trillions, yes, but trillions upon trillions.

Second, have you even tried to look at what you can learn about these programs? I suggest you start here. There's tons of info out there if you can be bothered to look.

A quick look here lets you know what you need to do to have actual impact on the process of the PPIF's. As the FAQ on the PPIF program says, "The exact requirements and structure of the Legacy Loans Program will be subject to notice and comment rulemaking." That means you, Citizen!

The fact that one cannot be bothered to look up or make comments to the actual rulemaking bodies isn't evidence that the process is opaque. Get to work and really comment and make a difference.
posted by Ironmouth at 11:29 AM on March 25

Ironmouth--you err. What there is evidence of is that, for instance, AIG is as fraudulent and book-cooking a company as Enron or Madoff's venture, and we've had many examples of the bailout money being wasted on unnecessary expenditures. One major problem thus far is that it's almost impossible to discern where all the money pumped into the financial system the past 12 months has gone, but it would seem naive in the extreme, given the culture of Wall Street, to imagine that none of it has been siphoned off in illegal or unethical ways.

I don't actually think of any of this as "like" or "dislike" Wall street: I think of it as how best to tame sharks. Hint: you feed them after you've gotten what you want from them, not before. The carrot should have been the bailout money, and the stick should have been massive, sweeping regulation.
posted by ornate insect at 11:30 AM on March 25

Oh, and how about we call current approach to the crisis hedge-fund socialism?
posted by ornate insect at 11:33 AM on March 25

The government will take over the bank, audit the hell out of it, sack the management and re-shuffle the hierarchy, implement sound management practices, and then once it's rightside up, sell it off to recoup the taxpayer's money spent in fixing it. Pretty standard procedure... if it weren't for the sheer size and number of institutions that need it.

That's not "nationalization." Nationalization is Mexico taking over all oil companies and creating a government-run oil company. It means British Rail, and the government control of British coal mines. For 75 years, that is what that term meant. Now that Republicans are out of power, socialism and nationalization means whatever Obama's doing.

Many of these institutions cannot go through bankruptcy because they will fuck things up. Like bond indentures and leaseback deals.
posted by Ironmouth at 11:34 AM on March 25

but it would seem naive in the extreme, given the culture of Wall Street, to imagine that none of it has been siphoned off in illegal or unethical ways.

I'm trying to avoid making judgments based on my imagination.
posted by Ironmouth at 11:36 AM on March 25

Call it temporary receivership instead of nationalization.

One good articulation of it can be seen here.
posted by ornate insect at 11:36 AM on March 25

I'm trying to avoid making judgments based on my imagination.

So am I, that's why in numerous other posts on other threads I've detailed with links the criminal fingerprints of AIG's practices: the CM called them Enron-two four years ago. It's why the AIGFP auditor fled. You can continue to think AIG was squeaky clean and being run above board, but it's a fairy tale: parts of that company were almost certainly cooking their books.
posted by ornate insect at 11:40 AM on March 25

AIG is as fraudulent and book-cooking a company as Enron or Madoff's venture.

Please. I'm not saying they haven't engaged in misconduct, but let's take a look at your link to the Huffington Post:

Current Investigations:

-The FBI, SEC, and the British Serious Fraud Office are investigating the AIG Financial Products Group for hiding its losses on investments related to derivatives known as credit default swaps.

The same as Maddoff? Hiding losses is nowhere near creating a ponzi scheme where no investments have ever been made and the entire set of books is completely cooked, as in never was and never will be real.

Perhaps you think we should let A.I.G. fail? What do you think would be the result?

Let me give you a taste:

WASHINGTON, Oct 30 (Reuters) - Washington, D.C.'s transit agency won a slight reprieve on Thursday from having to pay millions on a defaulted financing deal, which many fear could escalate and cost U.S. public transportation groups up to $16 billion on exposure to other soured financing.

Belgian KBC Bank (KBC.BR) held a "lease-back" contract with the Washington Metro Area Transit Agency (WMATA) that was guaranteed by troubled American International Group (AIG.N). But when the insurer's ratings were downgraded the contract was considered in default, allowing KBC to collect a penalty payment of $40 million it expected on Oct. 31.

A.I.G. is the guarantor on these deals and on a lot more, such as the indentures on billions of dollars of bond issuances. If AIG goes bankrupt, the terms of those indentures allow the trustee for the bondholders to go for the entire amount of the bond issuance plus interest. Thus, corporations, municipalities and states who have been properly paying off their bond interest payments on time will be wiped out by payments they cannot make. That means a loss of jobs and a recession becoming a depression.

A.I.G. shareholders aren't making any money. On this day last year, A.I.G. was trading at $44.06. The price now? $1.17. No fat cats are making anything out of A.I.G. right now. They have lost tremendous amounts of money. The people who are getting this money are the creditors of A.I.G., generally European banks who were on the other side of credit default swaps.

Thus there are incredibly good reasons for keeping A.I.G. propped up. None of which have to do with saving shareholders of the company or saving any "banksters" or whatever the Adbusters term of the day is for them. We are the shareholders of the company. The U.S. government owns 60% of the firm.

Not bailing out A.I.G. means a much bigger world of hurt for you, me and everybody else.
posted by Ironmouth at 11:53 AM on March 25 [1 favorite has favorites]

You can continue to think AIG was squeaky clean and being run above board, but it's a fairy tale: parts of that company were almost certainly cooking their books.

Please point out where I said that A.I.G. was squeaky clean.

Here's the question of the hour: Should the response to this crisis be about punishing the guilty or saving the jobs of millions of Americans? Because they are, in many cases, mutually exclusive. And where that is the case, I go for the saving of jobs. That's what Obama is doing and what he will continue to do.
posted by Ironmouth at 11:56 AM on March 25

Ironmouth--things like transportation budgets and projects are being slashed or cut entirely with or without the AIG fiasco. Municipal budgets were reported to be strained even a few years ago. To claim that AIG alone is keeping the entire global economy from totally tanking is just hyperbole and hysteria: but I agree it's effective fear-mongering for blackmailing congress.
posted by ornate insect at 11:59 AM on March 25

Should the response to this crisis be about punishing the guilty or saving the jobs of millions of Americans?

False dichotomy.
posted by ornate insect at 12:00 PM on March 25

Ironmouth--things like transportation budgets and projects are being slashed or cut entirely with or without the AIG fiasco. Municipal budgets were reported to be strained even a few years ago. To claim that AIG alone is keeping the entire global economy from totally tanking is just hyperbole and hysteria: but I agree it's effective fear-mongering for blackmailing congress.

Your point appears to be that since municipalities and transit bodies are facing budget shortfalls, it doesn't matter that letting A.I.G. fail will make it worse. I disagree. We need to mitigate these problems--the result otherwise will be a situation that gets even worse. When companies and transit systems and municipalities take huge hits, they fire people and reduce services, resulting in more economic damage. Economic downturns kill people, especially in places far away from where the distrubance started.

My point is that there are real and very important reasons why Obama has decided that it is very important to keep A.I.G. afloat.

Again, please demonstrate where I said that "AIG alone is keeping the entire global economy from totally tanking." If I said something that you disagree with, please quote it directly.

I could care less if the "banksters" are punished somehow. I want the economy to get back on its feet and this misery to end as quickly as possible. I'm pretty sure that's exactly what Obama wants. Is that what you want?
posted by Ironmouth at 12:08 PM on March 25

Should the response to this crisis be about punishing the guilty or saving the jobs of millions of Americans?

False dichotomy.

Why? Although I disagree, explaining yourself would help me figure out where you are coming from.
posted by Ironmouth at 12:09 PM on March 25

Your implication throughout is that keeping AIG afloat is central to our economic well being; this supposes that AIG is more important than it really is. The states of NY and CA would still be having budgetary problems if AIG had been allowed to go under. You claim that letting AIG fail would make these budget woes even worse. If the concern is for the budgets, why not just transfer the money now going to AIG directly to the states and municipalities in need? The fact that so much taxpayer money went out AIG's backdoor to its counter-parties raises a question: what exactly is the purpose of having AIG as middleman in such a transaction? If the argument is that funding European banks directly would have been politically more difficult, I'm not so sure: already the AIG bailout has caused a considerable headache for the Obama administration. I'm not even sure they would do it again if they had to, but of course the process was started last fall. Meanwhile, the future of AIG remains totally uncertain. Are you confident it even has a future? If not, then is it not worse (economically, politically) to have pumped money into an entity that eventually does indeed have to be liquidated or sold at fire sale? Tying jobs to the future of AIG is a tenuous argument; one could just as easily argue that the AIG fiasco has already caused more damage (for instance, to economic confidence, as we see how poorly run the company really was) than it was worth. I think BHO is staying in the game b/c it's already been started. Not b/c he thinks it's ultimately best. But I admit that's conjecture.
posted by ornate insect at 12:19 PM on March 25

You claim that letting AIG fail would make these budget woes even worse. If the concern is for the budgets, why not just transfer the money now going to AIG directly to the states and municipalities in need?

OK, let me explain how major financial transactions work. When a company or a municpality needs money, they often find a financial institution to create a bond issue. The bond issue consists of notes issued by the compay or municipality guarenteeing a payment of a certain amount per year for a current payment now. The bondholders are represented by a third party, a trustee, who has a fiduciary duty to look out for the best interests of the bond holders. The bond agreement is attached to something called an indenture, a document laying out the responsiblities of the parties. Another third party, named in the indenture, is guarantor to the agreement--if the bond issuer cannot pay, then the guarantor agrees to pay to make the bond holders whole. The guarantor gets money out of the deal and invests it. The return on investments for the guarantor makes it possible for them to pay back any bondholders who they have to pay off--defaults are rare.

However, the indenture agreements contain provisions which say that if the guarantor goes bankrupt, the trustee for the bondholders can go after the bond issuer for all of the money now. The trustee must do this because he is a fiduciary--he is required to only serve his principal, regardless of outcome. Otherwise, he is on the hook for the whole amount.

A.I.G. is the largest guarantor of bond holdings in the world. This type of deal was its core business. It isn't just bonds either--it also insured large commerical leases, leaseback arrangements for airlines, railroads, you name it.

Here are examples:

Canary Wharf Owner Could See Hit From AIG Troubles

or a whole bunch of things behind this subscription wall, which include Military Housing Bonds, School District Bonds, University Bonds, you name it.

So each and every one of these entities is at risk for great losses now for things that they had nothing to do with. Some of these conditions have already been met as some agreements require AAA status to be maintained by the guarantor, which A.I.G. no longer has, of course.

Now, what happened was that A.I.G.'s perfectly profitable business guaranteeing these loans was pulled down by its investment business, which owes European banks huge amounts of money on CDS swaps.

Now to your main question: "why not just transfer the money going to AIG directly to the states and municipalities in need?

Simple. Whatever we are paying to keep A.I.G. afloat is a fucking pittance compared to the gargantuan sums of money required to help the companies, municipalities, school districts, airport authorities, transit authorities and states from taking a hit. It is far, far cheaper just to pay off A.I.G.'s creditors than it is to try and fix the thousands of rippling problems which will occur if A.I.G. goes down.

So, if A.I.G. goes belly up, trillions of dollars of money which would not be otherwised owed by companies, municipalities, school districts, airport authorities, transit authorities and states will be owed to bond holders immediately.

But the effects don't stop there. Becasue if such a thing hits the market, nobody is going to want to guarantee bonds. And these bonds are needed. You see, companies and governments get paid in spurts, but their costs are year round. So they need to borrow operating cash, pledging the reciepts from the payments they get in spurts for a steady cash flow. So economic activity is much reduced, because businesses and states can't borrow money.

I think BHO is staying in the game b/c it's already been started. Not b/c he thinks it's ultimately best. But I admit that's conjecture.

Conjecture it is. Because Obama surely knows each and every one of these facts and is taking them into account.
posted by Ironmouth at 1:25 PM on March 25 [4 favorites has favorites]

Whatever we are paying to keep A.I.G. afloat is a fucking pittance compared to the gargantuan sums of money required to help the companies, municipalities, school districts, airport authorities, transit authorities and states from taking a hit. It is far, far cheaper just to pay off A.I.G.'s creditors than it is to try and fix the thousands of rippling problems which will occur if A.I.G. goes down.

Where is the quantitative evidence to support this?

Maybe you are right, maybe you are wrong, but it's not being substantiated by actual numbers.

Furthermore, as the US government is already spending a fortune for its still unproven plans---private-public plans which also involve purchasing T-bonds and re-introducing Brady bonds, but not apparently keeping bailout recipients like JP Morgan Chase from outsourcing jobs---why is there not more focus here on what can be done to ensure the plans themselves are working?

We started giving AIG money many months ago, and we need to have at least some clearer idea of where in their case the "too big to fail" mantra becomes problematic.

Now the article you link to--Canary Wharf Group, the London-based property firm that owns Lehman Brothers’ London headquarters, could face a double whammy on the property if troubled insurance giant AIG—the guarantor on the Lehman lease—struggles to meet the rent. Lehman is expected ...--is an ironic example, is it not?

You next state AIG's failure would negatively impact Military Housing Bonds, School District Bonds, University Bonds, and while I'm not disagreeing with you just making a blanket statement like this is not especially helpful. Why? In part b/c even though AIG may be the largest guarantor of bond holdings in the world, you still need to show beyond a shadow of a doubt that the ripple effect of AIG folding would be catastrophic. Unfortunately I just don't see that kind of bold claim being substantiated with detailed analysis here.
posted by ornate insect at 2:04 PM on March 25

You next state AIG's failure would negatively impact Military Housing Bonds, School District Bonds, University Bonds, and while I'm not disagreeing with you just making a blanket statement like this is not especially helpful. Why? In part b/c even though AIG may be the largest guarantor of bond holdings in the world, you still need to show beyond a shadow of a doubt that the ripple effect of AIG folding would be catastrophic. Unfortunately I just don't see that kind of bold claim being substantiated with detailed analysis here.

If AIG fails, it will mean every bond guaranteed by AIG will be thrown into question. By extension, the bond market itself will also be thrown into question, since one of the underlying safety nets will be gone.

If the bond market fails or even just freezes, there will be no way for institutions or governments to issue bonds for debt. Bond prices would fall, interest rates would rise, and that would put pressure on the Fed to raise interest rates, which would make capital even more dear. And all this would happen fairly quickly.

In a case like this, it's the credit freeze we saw in the fall, only crazier. And it would probably be much worse, given that it would directly affect the ability to issue muni bonds, putting a lot of cities and states in jeopardy of default.

What's needed is an orderly wind down of AIG. Letting it fail would mean the moment it collapsed we'd be right back where we were when Lehman collapsed, only I think it'd be close to a Bank of United States level of chaos.

The problem clearly is we have a financial system run by organizations that are too big to fail. The solution is to NOT let them fail. But people seem to be rooting for their failure. I'm sure when their parents show up on their doorsteps telling them they have no retirement and they're taking the spare room, that sentiment will fade in a hurry.
posted by dw at 2:22 PM on March 25

What's needed is an orderly wind down of AIG.

Sounds good; can you point me to where this is now specifically being planned or even proposed by the powers that be? My understanding was that AIGFP was internally being wound down, but that the rest of AIG proper (i.e. the guarantor of bonds, etc) was being kept afloat. If the plan is to sell off AIG or put it into receivership, where is that plan being detailed?
posted by ornate insect at 2:27 PM on March 25

Sounds good; can you point me to where this is now specifically being planned or even proposed by the powers that be?

I know that was part of the plan with the initial investment, and I know there's been some anger and consternation over why they haven't started to break it up yet. But I can't find links right now.
posted by dw at 2:38 PM on March 25

OK, you want facts, you get them. First how much have we given A.I.G.? $165 billion.

This article estimates the exposure of transit authorities alone at $16 billion.

This article gives a more precise estimate at $16.102 billion--just for transit authorities.

But that's the tip of the iceberg:

AIG had become one of the world's biggest public companies, with sales of $113 billion in 2006 and 116,000 employees in 130 countries, from France to China. AIG says it has written more than 81 million life-insurance policies, with a face value of $1.9 trillion. It covers roughly 180,000 small businesses and other corporate entities, which employ approximately 106 million people. That makes AIG America's largest life and health insurer; second largest in property and casualty. Through its aircraft-leasing subsidiary, AIG owns more than 950 airline jets. Just for good measure, AIG is a huge provider of insurance to U.S. municipalities, pension funds and other public and private bodies through guaranteed investment contracts and other products that protect participants in 401(k) plans. "We have no choice but to stabilize [it] or else risk enormous impact, not just in the financial system but on the whole U.S. economy," said Fed Chairman Ben Bernanke.

The risk is not in any one business but in the connections among them and in the industries in which they compete. As AIG has pointed out in its own analysis, "The extent and interconnectedness of AIG's business is far-reaching and encompasses customers across the globe ranging from governmental agencies, corporations and consumers to counterparties. A failure of AIG could create a chain reaction of enormous proportion." Among other effects, it could lead to mass redemptions of insurance policies, which would theoretically destabilize the industry; the withdrawal of $12 billion to $15 billion in U.S. consumer lending in a credit-short universe; and even damage airframe maker Boeing and jet-engine maker GE, since AIG's aircraft-leasing unit buys more jets than anyone else.

Here's another article that indicates that an A.I.G. collapse would cost finanical firms alone (not governments, other companies, or anything else) $180 billion. So we're up to $210 billion without even scratching the surface, because the loss of these funds leads to even greater losses involving others.

Here's yet another article:

Haines said that European banks in particular, counterparties on many of AIG's outstanding derivative contracts, "would be hammered if the U.S. walked away."

Donn Vickrey, an analyst with Gradient Analytics, who has closely followed the financial deterioration at AIG said while "European banks are about two-third of the problem ... it would be a domino effect across the globe.

"The ensuing panic would be disastrous," he said.

None of this even takes into account A.I.G.'s losses in the securities lending market. Essentially, large pension funds lend securities to other parties for short selling. That's how shorting stocks works. The securites lending unit of A.I.G. was required to pay its counter-parties every 30 days. It invested the funds in 5-year investments which collapsed, causing huge losses to its counter-parties.

These links give us only a small portion of the negative effects of an A.I.G. bankruptcy. We don't even know what they are in total. To know for sure, each and every bond and leaseback agreement would have to be analyzed. That's a lot of uncertainty and that's what federal regulators are doing.

There are huge risks here. Perhaps you are comfortable with playing with this so that A.I.G. gets punished. I do not believe that Obama is willing to take such risks. Nor do I want him to take those risks.

In short, I suggest that people actually inform themselves as to what is going on instead of relying on Huffington Post op-ed columns and water-cooler talk. These are real problems that need to actually be addressed.
posted by Ironmouth at 2:43 PM on March 25 [1 favorite has favorites]

What's needed is an orderly wind down of AIG.

We can't wind down A.I.G. That's the problem. Other entities will take gigantic hits because of the financial services it provides.

Plus, for everyone talking about orderly winddowns, there is only one kind. The Bankruptcy code. You can't create a bill of attainder for one company, its unconstitutional. I keep seeing Josh Marshall speculating on some sort of made-up individualized bankruptcy provisions for various companies. You can't just do this.

What needs to happen is that A.I.G. stays afloat, other companies doing similar insurance stuff for large financial transactions get propped up, and banks who don't have such businesses need to go into bankruptcy.

The key is we have to not think with revenge in mind and do what's best for the broader economy.
posted by Ironmouth at 2:56 PM on March 25

You're getting warmer, but you're just pasting together stats from TIME magazine and laying the gratuitous, patronizing condescension on thick (something that you've not yet resisted in one of your posts). Guess what's still missing? Detailed analysis of how letting AIG fail compares with keeping them on life support. Again: you may be right. But it's also possible the net ripple on their failure (putting aside Cassano's CDS web, which spreads out to infinity) is less, over time, than having them liquidated in the long run (something dw upthread suggests is what's going to happen anyway). Question: does AIG have a future as a stand-alone company, or will they eventually be liquidated after all? Is the plan to delay the inevitable, or is it something else? Contrary to what you may think, I don't claim to know the answer. Looking at all the options is not an unhealthy exercise after all.
posted by ornate insect at 3:03 PM on March 25

Detailed analysis of how letting AIG fail compares with keeping them on life support.

I'm sorry if I seemed condescending, it was not my intention.

Otherwise, nice try. Frankly, I've done more to meet any possible burden of proof on a metafilter post, especially without a shred of evidence from the other side.

More importantly, it has to be said that we don't know what level of exposure exists as a whole, but there's plenty of evidence that exposure is great and we cannot and should not take chances. I want the President to be conservative on this and assume the problem will be big. That way we are covered. Just like global warming--we don't know the future but it behooves us to act conservatively and protect the planet until we have more information.
posted by Ironmouth at 4:24 PM on March 25

Ironmouth: What needs to happen is that A.I.G. stays afloat, other companies doing similar insurance stuff for large financial transactions get propped up, and banks who don't have such businesses need to go into bankruptcy.

That sounds reasonable. But what this Geithner seems to be proposing goes a lot further, what with the loans to help banks unload their toxic assets and all. It's like he wants to keep every big financial institution afloat, no matter how many bad assets they accumulated during the bubble, and damn the expense.


Slap*Happy: The government will take over the bank, audit the hell out of it, sack the management and re-shuffle the hierarchy, implement sound management practices, and then once it's rightside up, sell it off to recoup the taxpayer's money spent in fixing it. Pretty standard procedure... if it weren't for the sheer size and number of institutions that need it.

I hope that this is what eventually happens to most of the affected institutions. But there'll probably be a lot of turmoil and expensive half measures before that point is reached.
posted by Kevin Street at 4:38 PM on March 25

"what with the loans to help banks unload their toxic assets and all"

This helps to put a floor under the real estate market, which helps a lot in stabilizing the economy, because that's what's causing all the uncertainty to continue. You have this big black hole of assets which nobody wants to touch, because nobody wants to find out how much they're worth and unwind a lot of leverage. Nobody wants to invest in companies which have money tied up in these securities when they don't know how much they're worth. I don't totally agree with how they're doing it, but I do think this is an essential piece of it.
posted by krinklyfig at 10:35 PM on March 25

hey! lex is on the case :P

The US government is finally showing some signs of a coherent plan. Technical terms mask the crux of an issue. So when the US Treasury asks for “resolution authority” to deal with large “non-bank financial institutions” it is worth asking what exactly is at stake. Consider this piece of the puzzle together with the Treasury’s bank stress tests and its plans to buy bad assets. Selling loans and securities to public-private funds is likely to force banks to crystallise large losses. Meanwhile, stress tests could force thinly capitalised banks to top up with government funds.

Should these in combination reveal any bank to be in real trouble, the authorities are (belatedly) seeking powers to take the required action. The Treasury and the Federal Deposit Insurance Corporation want to be able to support, restructure or wind down a large financial firm. Not limited to the likes of AIG, these powers would also cover bank holding companies. The government wants the authority to deal with a big, complicated bank, a Citigroup, for example.

The FDIC’s existing powers over “banks” extend only to deposit taking subsidiaries, not holding companies. That is a problem when much of banks’ funding and derivatives contracts are stuck at the holding company level. Equally, the failure of one subsidiary may prove fatal for other parts of a financial outfit. The new authority would allow the government to control a company’s demise, to renegotiate contracts or potentially impose haircuts on creditors or counterparties.

All these moves suggest some method behind the madness. Certainly, the administration’s output is notably more nuanced and better thought out than its predecessor’s. President Barack Obama has even poured cold water on the loopy notion of punitive taxes on bonuses. Still uncertain, however, is whether the final element is in place to push these pieces together: the political guts to nationalise those banks that at the end of all this prove themselves insolvent.

so relax, he's got this :P ...oh and it would also fit with felix salmon's supposition:

I'm beginning to come around to the idea that the FDIC will play the single most important role in determining the way that the Geithner plan plays out. If the banking system is indeed as unhealthy as everybody thinks it is, the FDIC essentially has two choices: it can either ratify high prices being paid for toxic assets by extending financing guarantees for them, or it can force lower prices to be paid for toxic assets, force banks to mark their assets down to levels at which they violate their minimum capital requirements, and intervene to close those banks down.

"I love it when a plan comes together!"

[btw salmon gives a pretty good explanation Why AIG Wasn't Allowed to Fail (1,2) while merkel provides a useful counterpoint to Send AIG to Chapter Eleven, There are Many Criminals Here, Leave AIG to its own Devices, and let it Fail if Need be
:P cheers!]
posted by kliuless at 5:38 AM on March 26 [1 favorite has favorites]

But there'll probably be a lot of turmoil and expensive half measures before that point is reached.

Obama doesn't strike me as the sort of leader who leaves anything to hope, luck, Hail Mary passes or unfounded optimism. That was Bush. What the admin is doing doesn't strike me at all like a half-measure. I think that this is the best they can do... just the contingency plan might be a bit much to reveal to the general public at the current moment.

If people like Krugman were smart, rather than constructing his case to so that he can say "I told you so", he should be helping hammer out a Plan B, that is if he has anything constructive to contribute.
posted by psmealey at 4:02 PM on March 26