[ExI] AIG Bail out

Kevin Freels kevinfreels at insightbb.com
Thu Sep 18 16:20:26 UTC 2008


I worked in the mortgage industry for a very long time while this was going on. I can tell you first hand that out on the front lines we were simply amazed at some of the programs and rates being offered. Not a day would go by when I would see some company like Countrywide approve and close a loan that should not have been made. I personally watched millions of dollars every month being funded for loans where the borrower had no job, or was self-employed for 6 months and couldn't even prove it, yet had a bankruptcy discharged 3 months ago and had $3000 down payment that everyone knew darn well was coming from the seller of the house in question. What was even more amazing was that after this started to correct itself, the fed's actions were to LOWER interest rates in order to continue fueling the fire. They just gave these banks more rope to hang themselves with. The proper move would have been to raise interest rates despite the obvious recession that it would have put us into. This isn't hindsight either. I was ranting about this a long time before the ball dropped. In fact, I left the mortgage industry long before the first casualties, Freemont, Ameriquest, New Centry, et al because I knew it was unsustainable and expected this to happen. The most surprising thing of all was that it took this long, but that was a direct result of the fed's rate cuts. 

Now I have a greater concern. It would be a terrific thing for everyone is people began saving their money rather than spending it all, but what happens if everyone suddenly stops buying at once because they are afraid of losing their jobs and need to build a quick savings account? That's the next wave. How do we prevent the herd from itself? 


----- Original Message -----
From: Max More <max at maxmore.com>
Date: Thursday, September 18, 2008 10:25
Subject: Re: [ExI] AIG Bail out
To: ExI chat list <extropy-chat at lists.extropy.org>

> The "people" do not own 80% of AIG. The federal government 
> (which is 
> NOT the people) *loaned* AIG $85 billion, to keep it going as 
> new 
> management sells off its businesses. You can say, loosely, that 
> the 
> government now *controls* AIG indirectly, but not that it owns 
> it. 
> Unless the transition is badly botched, only part of that $85 
> billion 
> will be a cost to the taxpayers.
> 
> To add to my previous comment (barely post-waking-up): The knee-
> jerk 
> finger pointing at markets at the problem is frustrating. Yes, 
> it's 
> entirely possible that problems can arise in financial markets 
> through poor decision making and herd behavior. But such 
> problems 
> will usually reveal themselves before they grow as large as the 
> recent Western financial problems. They only grow monstrous if 
> the 
> government won't allow the fuse to blow.
> 
> The anti-market types blame markets without reservation, despite 
> the fact that
> --the Federal Reserve, formed by the government, played a 
> central 
> role in the financial crisis with its insistence on keeping 
> interests 
> too low for too long.
> --Fannie Mae and Freddie Mac are government-formed institutions 
> that 
> were given a legally-enforced monopoly over "conforming loans." 
> Political pressures have distorted the market by pushing money 
> to 
> borrowers who wouldn't otherwise have received them.
> --By bailing out AIG but not Lehman, the government will create 
> additional financial uncertainty.
> 
> The economy will only grow more complex in the future. I find it 
> disturbing how so many of us still run to Great God Government 
> for 
> top-down solutions to the intricacies of complex economic systems.
> 
> Max
> 
> 
> 
> 
> 
> At 02:34 AM 9/18/2008, you wrote:
> >If the American people now own 80% of AIG, the world's largest 
> >insurance company, does that we mean we get to have 
> nationalized 
> >healthcare now? Or are AIG's customers going to have to 
> continue to 
> >pay premiums to be eligible to file any claims that will end up 
> >being paid with their own tax dollars?
> >
> >Stuart LaForge
> 
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