Bailout of AIG

[Robja]

Hubris,

Your have more insight than people give you credit for.

[Ultralite]

The problem we face as an economy is that it's hard to see where the forged loans end and the collateralized debt obligations (CDOs as you say) and other asset-backed securities begin. In a sense, they are all forged loans. In the case of the mortgages, borrowers created paperwork that was inconsistent with their actual financial condition so they could get the money (lying). I am talking no doc loans. No paper works what so ever. Just a “sign here” was all that was needed. In the case of CDOs, the issuing investment bank bought a AAA rating from a rating agency which created the illusion (lying) that the security was safe. They had no freaking IDEA because of no documentation. Conceptually, there is little difference here -- both parties depended on essentially forged paperwork to make the loan go through. Since when is forging a document legal?

Why did banks issue forged loans? They were afraid to lose market share. They are to greedy, like a squirrel forging nuts. But that doesn't make it right. As my father used to say to me, if the other kids jumped off the DelawareMemorialBridge, would you do it too?

Greed is the reason we have this meltdown. Liars are what we have in our banking system. The Bankers can forge documents, Grab their bonus, and walk away keeping their millions safely secured from the melt downs. While the American tax payer foots the bill.

I did a refinance 2 years into my home. Sure I was offered thousands more than I needed to cover the loan. I stood firm. I only sought a lower interest rate. For the next 5 years I have received offers weekly to refinance and pull more money. So do not tell me or anyone else the bankers did not push this on themselves. They all knew what they were doing. They also knew they could walk away with millions, leaving the tax payer to cover their azz. Hang the Bankers from the 129th floor today. This makes me puke !!!!!

Back to the so called bailout of AIG. From what I've read on this, it's a two year loan secured by all the assets of AIG. Repayment will be from orderly sale of those assets as opposed to a distress liquidation. The estimated value of those assets has been conservatively placed at $150 billion. That means the $85 billion government loan to AIG represents a 56.6% LTV. Uncle Sam's two year borrowing rate as of today is 1.64% and they're charging AIG 11.5% on the loan, plus they're getting warrants for 79.9% of the Company. Any lender would do that deal in a heart beat. Remember a conforming 30-year real estate mortgage has a max LTV of 80%. Here you have a 56.6% LTV at today's valuations with a two year loan maturity. Rest assured that the Government had people pouring over the books of AIG to determine the value of the assets to collateralize this loan. Some may call it a bailout, but I see it as a liquidation bridge loan.

Lehman was a different story. The primary value in an investment bank are the people. Their balance sheets usually of trading assets and don't amount to much. It doesn't take much to blow them up. Barclays got a screaming deal as they took Lehman's investment banking operation for $250 million. In addition, Barclays got Lehman's Manhattan HQ building and New Jersey data center for $1.75 Billion. All the toxic real estate stuff was left in the bankrupt entity for the creditors to sift through.

These are unprecedented times. A lot of you will malign AIG and the so called bailout they got, but there is a broader issue of maintaining sanity in the market. As it stands now, no one is lending. Without that liquidity, markets and commerce will grind to a halt. No one wants to see that. Yes we all despise these richly remunerated executives that ran these fallen companies. Believe me, I worked for some of them. But for every one of them, there are thousands employed by them who are just trying to do their job and do it as well as possible. I'm not saying we should save their jobs through bailouts, but there are a lot of innocent people who will be impacted along with the guilty ones.

I will say that what we are seeing transpire is truly unprecedented. Furthermore, I would lay much of the blame for this on Alan Greenspan. He left rates low for too long after 9/11 and he did not act soon enough to put brakes on the overheated housing and mortgage markets. To the end he kept saying there was no national real estate bubble, only regional areas with over heated activity. He so missed on this. IMO history will not treat him well.