Good article. More on the AIG bailouts at Baseline Scenario

Post #304,951 by Another Scott 3/2/09 1:05:02 PM Reply	Good article. More on the AIG bailouts at Baseline Scenario http://baselinescena...bailouts-1-2-3-4/ One of the comments is pretty scary: Why fiddle with the terms of the bailout instead of actively fixing the problems? The core problem is AIG sold CDSÂ to banks in the EMU which allowed them to exceed their balance sheet leverage requirements. Without this protection, many large EMU banks would be instantly insolvent, thus creating a massive meltdown. AIG is a keystone to the worldÂs financial structure. The problem is intractable because a large part of the balance sheet risk in EMU banks is in loans made in Eastern Europe, and these loans are going bad at an accelerating pace. When one of these banks fails, we will have an international incident because the US (through AIG) will be asked by the sovereign host to pay on the CDS. If the US doesnÂt pay, it could bankrupt the sovereign. If the US does pay, we could be looking at a several hundred billion dollar bailout of the EMU. This crisis seems to be growing in complexity every day, and all the actions the US is taking look like stalling tactics. The question is, what are they stalling toward? I fear there is no good outcome. I fear Max is right.... Cheers, Scott.
Post #305,024 by dmcarls 3/3/09 8:30:30 PM Reply	Krugman weighs in again.. http://krugman.blogs...g-to-us/#comments All your downside are belong to us "So at the very least, we have a right to know who the counterparties are: who are we subsidizing, here?" We were promised some transparency, after all. The comments are great; you can begin to see some anger bubbling to the top.
Post #305,032 by Ashton 3/3/09 11:51:29 PM Reply	Yes, and trying for root-causes -- #12 poster: 12. March 3, 2009 1:43 pm Link Dr. Krugman, IÂm too old (53?) to dive deeply into the wonkish aspects of some of your posts - though a lifelong exposure to applied physics and numerical modeling makes much of it conceptually accessibleÂ IÂm asking here because this morning I read this WIRED articleÂ Recipe for Disaster: The Formula That Killed Wall Street By Felix Salmon 02.23.09 http://www.wired.com...ne/17-03/wp_quant Â and what I found particularly remarkable can be summarized in three questions: (1) Do you agree that one misused computational model is the rotten core of this crisis? Â How did it happen? (and insights beyond SalmonÂs incisive storytelling is welcomeÂ) (2) How would you apportion responsibility for that misuse? Â from MIT postgrads Âplaying gamesÂ to the Indifferent Insiders laying the risk-less bets? (3) How would you avoid this happening again? Â Should the idea of Âintellectual propertyÂ and Âproprietary methodsÂ be questioned? Â batondor How cute that the fuzzy-math / arsenic-doped catalyst for innate-greed behind these idiotic 'financial instruments' should come to be called, a Gaussian copula function !!. Copulated corporations? But none of the owl-entrails cast by these Nobeleous wannabe-astrologers cared to extrapolate a tiny bit and see Fucked Countries and the {soon?} unravelling of the entire planetary Ponzi scheme: after its first Real-Test. Economic 'Science' my ass; from the slick MIT grads with no slightest comprehension of the human effects of their invented-scam -- right on through all the layers of insouciant banking Suits -- this entire card trick was a psychology exercise: in a premeditated way, from the first, they wrapped an enigma in a conundrum and obfuscated the outer-wrapper with the usual BS TLAs (did 'velocity of money' come up?) And not a single link in this chain of obscurant jargon had the guts to say, WAIT.. just a damn minute! (well, likely there Were a few killjoys / unheeded as normally.) And by the time politicians were inescapably involved -- on went the pretense that this econobabble actually 'meant something in Econ Science' cha cha cha. And a Pol would feel great pressure to nod solemnly to these meaningless 'theoretical explanations'. Don't want to seem Econ-iggerant, right? And if THAT is where we still are? -- it would appear that all that's arrayed against that Lost Decade thing is: the perspicuity of Obama + his brain trust. (And even with their full-ken.. nobody yet has advanced an algorithm for undoing the faux-'trades' and for handling the zombie banks (whether liquidated or next run by new and newly-ept technicians.)) "How corrupt Is Murica, anyway?" -- How high can you count? And as to whether any of these perps, along with that crowd of the previous 8 years -- ever see the reclamation of their loot? Haven't heard a peep. (Terry Gross today interviewed a Prof. from the MIT Sloan School of Business (wtf is MIT doing teaching 21st century astrology?) He had some interesting nay Practical answers - aka axe the zombies as with the S&L RFC nostrum for handling the detritus/fallout from that (Reconstruction Finance Corp.) Seemed to think that much of the brouhaha could be addressed as: not even all that abnormal. But what does he know: MIT used to be about science sorts of things. Can bizness-lying rise to the level of treason, if enough of a country is destroyed by the consequences? Guillotine operators everywhere are ... standing by.
Post #305,060 by dmcarls 3/4/09 12:09:16 PM Reply	My 2 cents on AIG >>> But what does he know: MIT used to be about science sorts of things. <<< Hi Ashton. Thanks for your reply. This AIG debacle is spectacular in its audacity. They are not "too big to fail", rather, they made themselves "too important to fail" (!). By establishing counter-party risks in Europe on a massive scale, the US cannot afford to let them follow the normal path to bankruptcy and failure without instantly bringing down banks all across Europe. Brilliant, if I do say so. And they guy in charge? http://voices.washin...n_who_brough.html [...] "After the unit lost $11 billion, Cassano was fired Feb. 29 of this year, Braley pointed out, and got to keep $34 million in bonuses and was kept on as an AIG consultant at a salary of $1 million per month." [...] "Asked why they didn't fire Cassano, Sullivan said they needed to "retain the 20-year knowledge of the transactions." Reminds me a line from the movie "The Postman" (Kevin Costner is speaking to a grizzled old man) : Can I ask you a question? Can you ride? No. Can't walk too good either. So why are you here? I know stuff. And so it goes.
Post #305,069 by mhuber 3/4/09 1:27:54 PM Reply	An old theory, maybe it still would work Coatlique wants to solve the crisis, but she's too weak from hunger. Perhaps if we borrow Mexico's Teotihuacan facility, and feed her some tasty hearts. Not peasant hearts, though, she likes the important ones. I bet 20 years of transaction knowledge is just the seasoning she needs to get her in an economy-fixing mood. We may have to keep trying for a while, but I suspect that eventually she will grace some of the owners of upcoming rounds of important hearts with new ideas and the nobility to carry them out even if they cut into the next bonus. She could do it without even going to the inconvenience of existing.

Welcome to IWETHEY!