Monday, March 23, 2009
Brad DeLong, good friend of Larry Summers and current cheerleader
for Tim "Legacy Loans" Geithner's plan, wrote this in September of last year: (emp add)
Fed Is Likely to Make Money from Its Bank Buyouts
I think the federal government is much more likely than not to make money off of AIG (AIG), Fannie (FNM), Freddie (FRE), and whatever else it winds up buying. The underlying goal is to recapitalize the banking system--where a "bank" is anything that borrows short thus promising liquidity and lends or invests long--and to reduce the outstanding stock of risky assets to a level where the private sector is happy holding them at a reasonable price.
How's that AIG situation working out? Are we making money on that or losing up to $200 billion?
were you really expecting a quick profit? i keep reading it could take 4-5 years to recover the value of these assets. must everything be instantaneous before it's deemed a success? that's the same logic rightwingers use when they demand to know where are all the jobs are from the stimulus package.
I was focusing on AIG. I think that Fannie & Freddie may not be as bad. But regarding the "long term", I think it's highly doubtful that house prices will get back to their 2005-2006 price levels (relative to household income, or using rent equivalent measures).
Also, re AIG: I think it's clear that there were many unknowns back in September, when DeLong wrote his essay. And what we've learned since then is very, very strange. Paying off CDS's at par when the underlying securities haven't defaulted. Even Hank Greenberg is puzzled (as are several other economic reporters). That makes an early verdict on AIG seem warranted.
As to the long term, I'm prepared to wait, but I think that some of the positive assessments of Geithner's plans are way premature.
What do you mean are "we" making money? When the government makes money off of the people, that is a tax.
If the government makes a hundred billion dollar profit from manipulating AIG, then it has really extracted a hundred billion dollar tax from AIG's clients.
The government "making money" from AIG will not help the economy. It will remove money from the investment market system.
Now that the traders and executives are all resigning, who is going to work the positions on the AIG contracts?
Forget the $200 billion. We're talking about defaults on $1.6 trillion in contracts.
But on the other hand, the government will have an additional $50 million to offset the losses when AIGFP implodes.
4:26, remember, aig hired burston-marsteller for PR damage control. wonder if that aig resignation letter was one of their handiwork.
In that case the New York Times would have been participating in a pro-conservative, anti-administration conspiracy.
Do you believe that?