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A Market Observation
The Federal Reserve is bailing out AIG to the tune of $85 billion. Ever wonder where the money to do deals such as this comes from?
In this case the bailout will be paid for by a special bond sale by the Treasury to the general public. Or to put this another way, the full faith and credit of the United States of America is being used to raise money to support a company that no private investor would touch with a pole.
Every payday I give this government 25-30 percent of my hard earned income in hopes it will use this money to support my future. But now I’m beginning to wonder: Is this a prudent investment?
6 Responses to “A Market Observation”
I get your drift, and I think it's an excellent idea. Why not a taxpayer revolt?
Somebody needs to discipline the bad bear..
generally speaking, I agree.
AIG may be a bit different. They have traditionally been extremely successful. They are also uniquely positions to cause collateral damage due to their interweaving of obligations tied into reinsurance, bonding, et c.
i do not have a good handle on how they were coming unravelled though, do others?
Collateral damage has never been more telling.
The Dow is not amused so far; it's down around 350 for the day.
I am very pessimistic in that I think a major systemic collapse is unavoidable and we are bound to experience something close to the Great Depression. There are very strong arguments that we're not even half way through the underlying losses that are causing all this so I just can't see us making it through.
The current situation is worrying because we are starting to put the full faith and credit of the government on the line. I am all for providing liquidity, but when we have to start expanding debt enormously that is no longer providing liquidity but it is destroying the value of our currency. The reason why we survived through the Great Depression as a country is because the government didn't take on too much toxic debt — and now the Fed is accepting stock as collateral?
The rest of the world is collapsing — fast and will soon not be able to help even if they want. I think that it is time to stop throwing money down the well and instead start setting up programs to deal with making it through the fall.
I should also add that i think this is a good explanation of AIG. People in the know are saying this ISN'T a bailout, it is a stealth long term bankruptcy. On the one hand this is good because it allows for orderly liquidation and it seems that they government shouldn't lose on the deal. On the other hand, it won't really solve any of the systemic problems….there will still be tons of writedowns and such.
“Every payday I give this government 25-30 percent of my hard earned income in hopes it will use this money to support my future. But now I’m beginning to wonder: Is this a prudent investment?”
Well, Harry Reid says it's optional, so maybe opt out?