>From SLATE's news summary: >News keeps pouring out of Wall Street, and all the papers lead with the >Federal Reserve's startling decision to lend insurance giant American >International Group up to $85 billion in a bailout deal that would give the >government control over the company. The New York Times calls it "the most >radical intervention in private business in the central bank's history." In >exchange for its cash, the government would get a 79.9 percent equity stake in >the company. The Washington Post notes that the rescue package "effectively >nationalizes one of the central institutions in the crisis that has swept >through markets this month." The Wall Street Journal points out that this is >"a historic development, particularly considering that AIG isn't directly >regulated by the federal government."
>The move marked an astounding about-face for the government that had been >resisting AIG's pleas for help over the last few days and earlier chose to let >Lehman Bros. fail rather than put forward more taxpayer money. "The main >difference between the two situations: AIG is so huge and its operations so >intertwined in the financial system that the Fed feared an AIG failure could >harm the broader economy," USA Today summarizes. Or as the WSJ puts it: "This >time, the government decided AIG truly was too big to fail." The Los Angeles >Times notes that while Fed officials said the action was due to the fact that >AIG insures the assets of millions of Americans, it seems the main reason "was >fear that the company's failure could weaken or destroy nearly a half-trillion >dollars' worth of financial protection that AIG provides Wall Street firms and >the biggest companies of Europe and Asia." >In the last few days, government officials had been talking tough about how >this was a private-sector problem that needed to be solved by the private >sector. But once all efforts to secure private financing failed, federal >officials decided they couldn't just sit on their hands and watch AIG >collapse. "The spillover effects could have been incredible," an economics >professor tells the NYT. Under the terms of the agreement, AIG is putting up >all its assets as collateral for the two-year loan. Fed officials insist that >they fully expect AIG to repay the loan either through its day-to-day >operations or the sale of its assets. The WSJ highlights that "taxpayers could >reap a big profit" if the company manages to turn around. >As part of the deal, AIG's senior management will be replaced, and the >government will have veto power over any major decision that the company >makes. The LAT says that in private conversations, lawmakers expressed "deep >wariness about the loan" but for the most part talked about it as the best >choice in a slew of bad options. House Speaker Nancy Pelosi, however, was not >shy about criticizing the deal, a move that suggests Bush administration >officials will face tough questions in congressional hearings. "An $85 billion >loan is a staggering sum and is just too enormous for the American people to >bear the risk," Pelosi said. >The NYT points out that one of the big worries is that the AIG bailout "won't >be the last." Indeed, Treasury Secretary Henry Paulson and Fed Chairman Ben >Bernanke told lawmakers there was no way to know whether this would be the >last major government intervention into the market. For those keeping track at >home, the next company that could soon be approaching the government >hat-in-hand is Washington Mutual. >"How far will the bailout binge go?" asks the LAT in a Page One piece that >notes this year's "cornucopia of handouts and guarantees" is already larger >than the rescue of the savings-and-loan industry, which cost taxpayers around >$124 billion. Of course, proponents of the bailouts insist that not doing >anything would end up being much more expensive in the long run, but critics >say the practice helps companies get out of messes that they themselves >created. Also, as more money is handed out, more companies are likely to seek >the government's help, which means the next president is going to face some >difficult decisions trying to figure out who deserves to be rescued and who >doesn't. For example, if Congress approves a loan program for automakers that >could reach as high as $50 billion, there's no reason why airlines wouldn't >ask for the same thing. Some contend the big problem here is that there is no >clear set of rules that can help guide the decisions, which could mean that >those with the biggest lobbying prowess or companies that are based in key >swing states could have an unfair advantage.< Has anyone done comparable calculations of the costs of the S&L bail-out and the current ones? relative to GDP? Doug? Bueller? > The NYT's David Leonhardt ... praises Bernanke and Paulson, who may have had > "some early missteps" but lately have been acting "aggressively to keep the > financial system functioning." The problem now, though, is that while > everyone is rushing to deal with the current crisis, no one is trying to > figure out how to resolve the problems that created this mess. Bernanke and > Paulson "have done a nice job of playing defense," writes Leonhardt. "But > when will someone start playing offense?" >In the meantime, there's still a lot of defense to play. The WSJ fronts a look >at how banks suddenly stopped lending to one another or began charging >exorbitant rates yesterday across the globe as fears grow that any financial >institution could be the next on the chopping block. Central banks in several >countries, including the United States and Japan, injected billions into the >banking system to try to keep the money flowing. Meanwhile, the Fed decided to >keep its benchmark interest rate steady yesterday. The move is seen as >recognition that there's little the Fed can do on interest rates that can help >alleviate the current crisis. "The market is not short of liquidity; it is >short of confidence," an economist tells the NYT.< it's not just confidence: a lot of financial institutions still hold toxic assets at the same time housing prices continue to fall, making more assets toxic. > ... There was also a bit of good news out of Lehman as the WSJ reports that > Barclays, the British bank, has agreed to buy "a stripped-clean version of > Lehman's North American business" for $1.75 billion. The move allows Barclays > to take over Lehman's securities business without getting into the risky > mortgage assets. It's certainly a gamble for Barclays, but it seems to have > gotten a good deal, particularly considering that Lehman's headquarters > building is also included in the package, and that alone could be worth as > much as $900 million. It's unclear how many of Lehman's employees will get to > keep their jobs, but early estimates put the number at around 10,000. "If you > want to transform yourself from a minor player into a major firm, this is the > time to do it," an analyst tells the NYT.< -- Jim Devine / "Nobody told me there'd be days like these / Strange days indeed -- most peculiar, mama." -- JL. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
