Government Bailout for AIG

So why didn't the Government step in to save Lehman Brothers from Chapter 11? And what are they going to do when the next big imminent failure comes up?

Despite all the background Gary provided, I think a dangerous precedent has been set here by our Government and one that may backfire with future failures if they are in a "pick and choose" mode with whom they choose to help out.

I still don't like it.

Dave
 
Because Lehman is a small firm and fall out from it's disappearance will be contained. AIG's failure would ripple though darned near every business since if they don't finance it, they insure it, or they insure the guy who finances it or insures it. Lehman is also predominantly US, AIG is international. If Lehman falls, it probably won't take down other investment banks, while AIG's failure would put a lot of pressure on similar companies.

You can't compare apples and orange dogs.

Best regards,
Frank
 
fc3 said:
Because Lehman is a small firm...
Click to expand...

Bear Stearns had $399 billion in assets, $2.7 trillion in derivatives trades and $387 billion in liabilities Source

Lehman brothers has $640 billion in assets, “only” $729 billion in derivatives trades and $613 billion in liabilities Source

Merrill Lynch has $966 billion in assets, $4.2 trillion in derivatives trades and $931 billion in liabilities. Source and derivitives Source

AIG has $1.0 trillion in assets and $972 billion in liabilities. They are counterparty to at least $447 billion in credit default swaps Source

In my opinion, the question is this. What would happen if an insurer with $1 trillion in assets were to fail? My answer: I have no idea. I dont think anyone does.
 
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Small in terms of impact.
 
Do you think anyone would miss it if a crumb of 1 million dollars fell off the table and I grabbed it?
 
Depends on who's crumb, Mike. If it's the government, they have no stinking controls on spending. They wouldn't notice. They have no idea where they throw money.

The real world might not notice immediately, but they would by the end of the month or certainly by the end of the quarter.

Best regards,
Frank
 
A trillion here a trillion there and before you know it your talking real money.

The difference between a million and a billion?
A million dollars makes a stack of $100 bills two feet tall.
A billion dollars makes a stack of $100 bills taller than the Empire State Building.
 
So, Mike... How big is your wallet?
 
Why do I think things will not turn out as rosy as Gary predicts?

But I am a cynic. . .and don't know how all this really works.
 
Now it's directly affecting this discussion. Green balls have been devalued, and a lot of once Boating Geniuses will now Become Famous Soon Enough!
 
fc3 said:
Depends on who's crumb, Mike. If it's the government, they have no stinking controls on spending. They wouldn't notice. They have no idea where they throw money.

The real world might not notice immediately, but they would by the end of the month or certainly by the end of the quarter.

Best regards,
Frank
Click to expand...
I agree on the spending but have to laugh because I recently recieved a letter from the IRS as an result of a disagreement I had with them a couple years ago. In this letter they claim that I didn't do some calculations correctly and owe them...get this...$1.26. They did credit my account in that amount because "the amount was so small". With all the problems right now maybe they'll change their mind.
 
Gary is right, there are a few other comments I would like to make.

Lehnman Brothers is different from AIG and Merrill Lynch. Lehnman Brothers does not effect the guy on the street the others do. A bankruptcy of either would have caused panic and a run on the market because they operate on main street. What if AIG went into bankruptcy, many of the insurance contracts could have been voided and no payments made. Do I hear Ike howling again? Don't think that BofA and Merrill got together over drinks and decided "gee wouldn't it be a good idea if we BofA bought you Merrill----let's get it done by tomorrow." These deals do not happen this way. That is of course someone in Washington has encouraged it. There has been no mention of Justice Department review either has there? How long did the Sirius and XM deal take to clear Justice?

We are in a lot deeper trouble than we think. I wonder why no one is saying the politicians at the Freddies should be heading off to jail. This whole problem sits on Congress's lap and we will all once again let them get away with it.

Mr Salt
2001 540 CPMY
Caterpillar C-12s
Cape MAy NJ
 
I have no idea if this deal will make the government $$... over my head... I just like the way it was constructed... but if the fed becomes a "private equity fund", the dollar will get much weaker..
 
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I think criminal prosecution of one sort or another for the Executives at all these failed institutions will come in due time once the new Administration is in power. The American people will be demanding it.

I wonder how long it will be before both of our illustrious candidates are touting that as the main part of their campaign?
 
I am certain both campaigns will talk of reform. And talk. And talk. If more than two people go to jail.. .I will be shocked.

I would like to think that the government has structured this thing to make money. I would like to think many things. The proof will be after the election and after most people's attention to these matters diminish. . .unfortunately.
 
Mr Salt said:
Gary is right, there are a few other comments I would like to make.

Lehnman Brothers is different from AIG and Merrill Lynch. Lehnman Brothers does not effect the guy on the street the others do. A bankruptcy of either would have caused panic and a run on the market because they operate on main street. What if AIG went into bankruptcy, many of the insurance contracts could have been voided and no payments made. Do I hear Ike howling again? Don't think that BofA and Merrill got together over drinks and decided "gee wouldn't it be a good idea if we BofA bought you Merrill----let's get it done by tomorrow." These deals do not happen this way. That is of course someone in Washington has encouraged it. There has been no mention of Justice Department review either has there? How long did the Sirius and XM deal take to clear Justice?

We are in a lot deeper trouble than we think. I wonder why no one is saying the politicians at the Freddies should be heading off to jail. This whole problem sits on Congress's lap and we will all once again let them get away with it.

Mr Salt
2001 540 CPMY
Caterpillar C-12s
Cape MAy NJ
Click to expand...

Thain, ceo of MER saw the handwriting on the wall Sat. morning when the news on LEH and AIG was breaking. MER probably could have withstood the upcoming onslaught but didn't want to take the chance. There's a bunch of blood suckers out there shorting the financials and intentionally driving down the markets. That and the treamendous exposure to the world if AIG would go under prompted him to call Harris, ceo of BAC. Had they talked before? I'm sure, hell everyone has been talking. They had already pretty well done their due diligence and both sides knew it was a great opportunity and they jumped on it. BAC just bought a firm with the best Global Wealth Managment and profitable brand in the world. Something they don't enjoy. This deal was indead put together in 48 hours. Had MER gone under this would have been mucho bloodier. And if AIG were to go under, you can't imagine, as someone previously mentioned, how globally devasting it would be.

Justice won't be involved because there's no anti trust. It's brokerage to bank transaction.

I'm in the industry....It Ain't fun....
Here's a rather interesting story.
http://finance.yahoo.com/banking-bu...eet:-A-Letter-of-Explanation-From-Wall-Street
 
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