Suze Orman: 'Thank God, they bailed out AIG'

“That was 85 bil of taxpayer dollars thrown into a rathole and it’s not coming back.”

hmmmm....the ENTIRE 85 billion?

I wonder - if they cannot repay all - can they repay most?
half? a small fraction? nothing?

So don’t try to pull a “Charlie Gibson” and be condescending.

I wasn't trying to lecture you or trying to exhibit "Charlie Gibson" type condescension. In fact, rereading my comments to you it's pretty clear that I was agreeing with what you had said and I was trying to find some sarcastic humor in the situation at the same time. I guess you read it differently.

“It was a way to launder drug money while passing the risk up the financial food chain........”

BINGO!!

I prefer not to see the banks shut down. I prefer not to see panic and chaos.

Okay, hold on a minute. I never said I wanted banks to shut down or fail, nor did I ever say I wanted chaos. However, as I said in my first post, bankruptcy is a cleansing process and it should be allowed to happen if assets are so poorly managed that there becomes no alternative. AIG, if allowed to enter bankruptcy, would have it's various divisions sold off to institutions that can effectively manage those assets. This notion that Federal bureaucrats can somehow effectively manage the AIG mess is pure folly. There is absolutely no evidence that the Federal gubmint can manage ANYTHING effectively. If the Fed is so good at managing things, where was their oversight in the AIG situation?

Nobody was minding the "risk management" aspects at AIG. AIG made some very, very bad business decisions. These poor management practices exhibited by AIG would have ordinarily sent them, or any other other company so poorly managed, into Chapter 11, if not Chapter 7.

If certain banks and financial institutions are being so poorly managed that they need to go out of business then that is what needs to happen. FWIW, I've read the Constitution one end to the other dozens of times and I see no provision for the Federal gubmint to step in with taxpayer dollars and take over a private institution. Maybe you are comfortable with the nationalization of AIG, but I am not. The Federal gubmint has no business doing what they are doing. It is clearly unconstitutional.

Deficit and debt aren’t much fun either, but in the past we have managed to grow our way out of those messes.

One key difference here is this is new ground. We've never been where we are now in the financial markets before. We can take a relatively small hit now by letting AIG be broken up and sold off, or we can suffer a much, much bigger mess down the road. Rest assured, that bigger mess is indeed coming and the Fed just guaranteed it. AIG will never recover now. The Fed just flushed $85 billion tax dollars down the toilet. This is money that the Fed didn't have to spend, above and beyond the constitutional aspects of this situation. That's all I'm saying.

AIG cannot make good on the loan; their subsidiaries are not worth 85 billion plus the Guido interest rate the Fed is supposedly charging

I heard yesterday the Fed's AIG bailout rate was 11%.

“AIG, if allowed to enter bankruptcy, would have it’s various divisions sold off to institutions that can effectively manage those assets.”

isn’t this the crux of the problem right here?

It appears that all the institutions have been hit so hard that no one is able to “effectively manage” the assets.

If everyone is going under - who is going to be able to buy up?

I’m under the impression the feds stepped in as a measure of last resort when it appeared no one was going to come forward.

“Nobody was minding the “risk management” aspects at AIG. AIG made some very, very bad business decisions.”

It looks to me like AIG suffers from what (seemingly) every other financial institution is suffering from - overrated credit - the mortgage mess. It is something that has spread across the board.
And now we are facing loss of confidence. And once that is gone - it doesn’t matter how well run a bank is.
A panic will bring everyone down.

So that is the only point I’m trying to make.
I agree with everything you are saying about the government, and in normal situations it is best to allow businesses to fail (otherwise what is this thing called “risk”).

But if a panic occurs - and everything collapses - where does that leave everyone?

So it isn’t that I’m “comfortable” with the AIG deal - it’s just that I’m less “comfortable” with a total meltdown.

It appears that all the institutions have been hit so hard that no one is able to “effectively manage” the assets. If everyone is going under - who is going to be able to buy up?

Apparently, nobody has come forward with the assets to buy AIG in it's entirety. That is true. However, I've seen no mention of spinning off AIG's profitable sectors. I read yesterday that spinning off AIG's airline holdings alone would have probably saved the company.

I’m under the impression the feds stepped in as a measure of last resort when it appeared no one was going to come forward.

No one came forward because the price wasn't right. AIG's price never reached fire sale level. My guess is because someone at the Federal Reserve let word get out that a bailout was coming and that artificially held up their stock price. The Fed, in an apparent panic, instead threw our tax money at it and seized control, absolutely shredding the Constitution in the process, instead of letting the market work. Throwing our tax money around is all the Fed knows how to do and that is precisely why they shouldn't be allowed to do it. The Federal Reserve is a creation of Congress. Congress sold their Constitutional charge of fiscal management in 1913. It wasn't right then and it's not right now. FWIW, I'm far more worried about the long lasting effects of the Fed's actions, which bear a striking resemblance to Fascist Socialism, than I am about the repercussions of AIG going bankrupt. Next, it'll be the airlines and or the auto industry, probably health care, too. Count on it if Obammy is selected to be the next POTUS.

It looks to me like AIG suffers from what (seemingly) every other financial institution is suffering from - overrated credit - the mortgage mess. It is something that has spread across the board.

From what I've read and heard, AIG has many divisions that were not affected by the mortgage mess. These divisions individually would have remained profitable and therefore attractive to potential buyers.

And now we are facing loss of confidence.

Yep, and you can thank the Federal gubmint for throwing fuel on the fire of loss of confidence in AIG and the banking sector. Now, you have a situation where the Federal gubmint is now 85% owner of the one of the largest insurers in the world and various traditional lending institutions now own traditional investment institutions. This is totally new ground and very shaky ground at that. It's akin to the fox guarding the hen house and it stinks to high heaven.

And once that is gone - it doesn’t matter how well run a bank is. A panic will bring everyone down.

Everyone? Hardly. There are going to be a lot of Wall Street types in the unemployment line, though. The Fed guaranteed that with their actions, too. The overwhelming majority of banks remain sound. That is a fact.

But if a panic occurs - and everything collapses - where does that leave everyone?

All that has happened is the can has been kicked down the road a ways. Unless serious reform happens in the insurance and financial sectors the real collapse is indeed coming and the delay the Fed has instituted by taking over AIG will only make the coming crash bigger than it would have otherwise been. File this under the "road to hell is paved with good intentions" category.

I've been saying for at least 10 years that everyone had better get their financial house in order. I'm well positioned to weather out the coming storm. Many, if not most, are not. It isn't going to be pretty, that's for sure. There is still some time to prepare, though.

So it isn’t that I’m “comfortable” with the AIG deal - it’s just that I’m less “comfortable” with a total meltdown.

AIG being spun off and broken up wouldn't have been a "total meltdown". Would it have lead to some hard times? Absolutely. IMHO, the situation created in the wake of AIG being broken up would have been pale in comparison to what the Fed has guaranteed is now coming. When the Fed finally collapses the dollar it will usher in a meltdown of Biblical proportions and the Fed just sped up the time line substantially......

“I read yesterday that spinning off AIG’s airline holdings alone would have probably saved the company.”

So why didn’t they do that?

Thanks. I have added a modest proposal today, here -

http://www.freerepublic.com/focus/f-news/2085464/posts

Cheers...

So why didn’t they do that?

Excellent question. There are many, many things that just don't add up in this mess and that is one of them. Cronies protecting cronies with our tax dollars is one likely possibility......