US Seizes Control of AIG with $85 Billion BailoutAmy Goodman Show
September 17, 2008
The US government has seized control of insurance giant American International Group in an unprecedented $85 billion bailout. The Federal Reserve made the deal on Tuesday to save AIG from collapse in what the New York Times describes as “the most radical intervention in private business in the central bank’s history.” The move comes as a series of financial crises has altered the landscape of Wall Street. We speak with investment banker turned journalist, Nomi Prins, and Michael Hudson, president of the Institute for the Study of Long-Term Economic Trends.
Michael Hudson, President of the Institute for the Study of Long-Term Economic Trends, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and author of Super-Imperialism: The Economic Strategy of American Empire. He is the chief economic adviser to Rep. Dennis Kucinich.
(snip)
AMY GOODMAN: Michael Hudson, we’re talking government bailout, which means taxpayers stuck with the bill. Do you think this is the right move?
MICHAEL HUDSON:
No, it’s the worst possible move, and it puts the class war back in business with a vengeance. Wall Street has been preparing for this for years, because every financial analyst knows that the debts can’t be paid. And the question that Wall Street has, if you’re going to take a gamble on bad debts that can’t be paid, how are you going to come out a winner? And there’s only one way of coming out a winner, and that’s to make the government bail you out. This has been known for years, because it’s inherent almost in the mathematics of compound interest. Every banker I know knew that the loans they were making were going to go bad. They were trying to sell them to somebody else, ultimately expecting them to end up with some sovereign wealth fund.
And now, you had at the beginning of the show, McCain saying that this is the result of fraud and incompetence. The government has now bailed them out. But by bailing them out —
Wall Street was coming to terms with the bad debts. When Bear Stearns went under and when Lehman Brothers went under, this began to wipe away the bad debts. And when the debts exceed the ability to pay, there’s only one thing any economy can do, and that’s wipe them out. Instead, the government is trying to keep the fiction alive. And what Paulson did yesterday, in bailing out AIG, was to try to lock in whoever is the next president not only to further bailouts of Wall Street, ostensibly to protect the public money, but to make it impossible to write down the debts of the four million homeowners that are expected to default this year, impossible to write down the debts of companies that have issued junk bonds, impossible for the country to get rid of this excess of debts that can’t be repaid.
And you’re having really a war now of creditors against debtors. And this is what Wall Street has been preparing for. It needed an emergency to do it. It’s really not an emergency at all. This has been building up for many years. Everybody expected it. And breathlessly now, the Secretary of Treasury has done it. AMY GOODMAN: But, of course, the argument was, if you don’t bail out AIG, it could lead to a global financial meltdown.
MICHAEL HUDSON: What you —
it’s a meltdown of the gamblers, as Nomi said. These are people who’ve gambled. You had McCain saying they’re gamblers.
If these people have gambled, we’re talking about derivative trades, billions of dollars of bets on which way interest rates will go, billions of dollars of bad loans beyond the ability of debtors to pay. Why on earth would you want to bail out these creditors?
AMY GOODMAN: So, what would happen if you didn’t?
MICHAEL HUDSON:
Then you would prepare the ground for writing down the debts of the homeowners that have no way of repaying the exploding mortgages. Those interest rates are going to be jumping up this year. You would be able to bring the debts down to the ability of the economy to pay, and you would save these four million homeowners from defaulting and being kicked out of their houses. Now they’re going to be kicked out of the houses. The houses will be vacant. The cities are going to now say, “Gee, we’re going to have to cut the property taxes to enable the debts to be paid to save the financial system.” So, if they cut the property taxes, they’re going to have to cut back local expenditures, local infrastructure.
The economy is being sacrificed to pay the gamblers.
(continued)
http://www.democracynow.org/2008/9/17/us_seizes_control_of_aig_with___________________________________________________________________
Previous show:
“Most Serious Financial Crisis Since the Great Depression”: “This is the Result of Rightwing Ideology and the Political Power of Wall Street”January 23, 2008
Amid growing fears of a worldwide recession, the Federal Reserve slashed a key interest rate by three-quarters of a percentage point on Tuesday, the biggest single cut in nearly a quarter of a century. Meanwhile, President Bush and congressional leaders pledged to work together on a stimulus measure that would inject about $150 billion in additional money into the economy. But many economists are skeptical over whether any measures can turn around a severe slump in the housing market and the subprime mortgage crisis, signs of growing unemployment and weakening consumer spending and the added blow of record high oil prices.
(1 of 2 guests)
Robert Kuttner, Veteran economics and financial journalist. He is a founder and co-editor of the American Prospect magazine and a former investigator for the Senate Banking Committee. He is the author of seven books, his latest is The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity.
(snip)
ROBERT KUTTNER: Well, I think there are three things they ought to be doing. First of all, there’s the housing mess.
We need something like the Home Owners’ Loan Corporation of the 1930s, where a government agency, financed by government bonds, would buy these bonds back from Citigroup and Merrill and whoever at a steep discount, maybe thirty or forty cents on the dollar—they’ve already been written down to zero, because nobody wants to buy them—and turn them back into affordable mortgages, turn them into mortgages that would have a rate below market instead of the kind of predatory rate that subprime mortgages had. And you could then repopulate these houses. People on the brink of foreclosure would be able to keep their houses. Other people could become homeowners. So you need a much bolder approach to the housing crisis.(continued)
http://www.democracynow.org/2008/1/23/recession___________________________________________________________________
Since this was expected and...
"this is what Wall Street has been preparing for. It needed an emergency to do it. It’s really not an emergency at all. This has been building up for many years. Everybody expected it. And breathlessly now, the Secretary of Treasury has done it."
...I have to conclude that the "powers that be" have created this crisis now to lock in the next president and "breathlessly done it" because
they believe Obama will win.Well, we just bought Fannie and Freddie, and now AIG, so I don't see why we CAN'T create another Home Owners' Loan Corp., and I see no reason why we shouldn't do exactly that. And maybe a matching National Credit Union to go with it. Then, we could let the thieves rob each other - they can afford it.
While we're at it, we could create our own health insurance pool, and self-insure ourselves. That seems like a pretty simple idea to me, even though it would be big. I see no reason why that wouldn't be MUCH cheaper than what we're doing.
Maybe move on to nationalizing "national security" energy resources and utilities next. This could be a time of opportunity too, to make life better... if it's handled right. And if it's permanently illegal to ever privatize it again.
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