Complex Financial Instrument
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- September
- 17
Apparently, you and I just bailed out AIG today (technically backed a really, really big credit line.) Maybe now we’ll get a friends and family discount on some insurance…
I don’t pretend to understand all this lunacy, but all my neighborhood friends work on Wall Street, and they do seem to understand, and are walking around with grave looks on their faces, which is a distinctly different look than they were wearing when they got their seven figure bonuses a few Christmases ago. Even though the cartoon correctly faults improperly regulated markets, to be fair, there’s no way regulators could have preemptively regulated a market that didn’t even appear to exist a few years ago. Regulators always respond after the damage is done…Leaving Wall Street brains to think up some exotic new instrument of unreasonably gargantuan financial bubbledom.
As to today’s financial dilemma. I recall Donald Trump once saying something like: When you owe the bank $10,000 it’s your problem – When you owe the bank $10,000,000 it’s the bank’s problem. Perfect.
This entry was posted
on Wednesday, September 17th, 2008 at 9:56 am by Matt Davies.
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I’ll have to steal a line from a friend of mine on her blog:
Since they AIG, Fannie and Freddie are now owned by the people, their employees should be should paid according to civil servant wage scales.
Top quality point Heather.
Matt, I do believe the issue stems not from a lack of ‘pre-emptive’ regulation, but the destruction of existing legislation thanks to constant lobbying of financial industries and the blind complicity of successive governments worldwide, but particularly the ‘financial powerhouses’ of the US and, I believe to a slightly lesser extent, the UK.
Regulation used to exist to prevent exactly the sort of wild speculation and reckless lending practices that have brought us to this precipice.
There you go, another insane yet wildly humourous comment. Hohoho…
Heather – Be careful what you wish for…Around here (In NY) public servants make astonishingly good money and receive things called (gasp) “raises” and cars and pension plans and gold plated health benefits…None of which seem to exist in the private sector these days.
D-Man, You are right. The deregulation of the past 30-odd years has carefully dismantled the patchwork of greed-monitoring safeguards, and did the pave the way for moral-less investment schemes like mortgage securities created for Wall Street by people preying on hapless, wannabe homeowners. Money has this funny habit of bringing out out the worst in people, doesn’t it?
BTW – Disasterman has sent me an eloquent “super collider” cartoon that he whipped up on his computer. I think I should post it here – don’t you?
All this schadenfreude…especially from Mr. Davies…but let’s get to the point which is: that you weren’t complaining when the Federal Reserve cut rates to protect your IRA growth in the 90’s.
You benefited then, together with the rest of the country, (and not forgetting Mr. Clinton’s ‘amazing’ economic record) and now the hens are coming home to roost because one man–and one man only–had a punt on the “growth potential” of the markets.
Step forward for a medal Mr. Alan Greenspan.
Forget Wall Street and the headless know-nothings like Fuld…Alan had 20 years in charge and DELIBERATELY manufactured this “bubbledom”.
Not Schadenfrude, Purity. More like gallows humor.
Agree on Greenspan, but why on earth would a rate cut by the fed protect my IRA growth? To encourage investment through more borrowing???
Apart from the fact I didn’t actually have an IRA back in the 90’s, I also don’t see what’s wrong with normal human beings enjoying low interest rates “responsibly.”
Let’s have the right body swinging from that rope then. Debit where debit is due.
Well, Matt, yes exactly. Greenspan cut rates in the 90’s whenever there was a ‘wobble’ in the stock markets. That wobble was the warning that bankers were off balance. Greenspan’s actions (eventually) constituted a guarantee that the Fed would protect investors in US stocks against their own downside. This –as any fule no– can only encourage putting as much money into the market as limits will allow (and limits can get bigger when there’s no downside potential)...human beings are no more capable of enjoying low interest rates ‘responsibly’ than they are accepting of the pleasures to be had from “frugality” of high (or penal rates).
Although that last comment is just my humble opinion.
ps. AIG pay Federal Reserve 11.4 % on the $75,000,000,000. Federal government pay ‘you’ about 2 percent on new issued 2 year money…
That makes sense. Thanks, Purity. I find it amusing when they trot out Alan Greenspan for his “expert” opinion on what is going on now, when obviously he started the brushfire and a deliberate erosion of regulation was the gasoline.
By using low interest rates responsibly, I mean a person buying say, a house (you know, to live in) while also fully intending to pay it back over the life of the loan. A revolutionary concept these days, but one I naively adhere to.
“Around here (In NY) public servants make astonishingly good money and receive things called (gasp) “raises” and cars and pension plans and gold plated health benefit”
Could have fooled me with the literal chicken feed they make my father slave for every month.
@Purity: I always thought it was spelt ‘As any fule kno’, as any fule kno…
@Heather: Perhaps Matt was referring to some strange, elusive and particularly exclusive class of public servants, maybe those could have influence on the provision of such benefits for themselves. But that would be ridiculous. No sane system of governance would ever provide public servants with the means to feather their own nests from the public purse. Phew That was a close one – had me worried for a minute there.
c.f. John Bourne, head of the National Audit Office in the UK for some 20 years. Delightful man. Charming wife. As half the world knows thanks to their extensive travel while auditing the national purse. Which can only be done from Barbados, or Vienna, or some such location which helps to clear the mind of petty distractions. 5 star hotels help of course – it’s all about being able to focus.