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Old 09-17-2008, 02:48 PM   #21
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wow.. wait 'til the masses of "individuals" in "exigent circumstances" get ahold of this news.

Why, then, did the Chrysler bailout ($5+ billion in today's dollars of loan guarantees) require an act of Congress and Carter's signature?
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Old 09-17-2008, 03:09 PM   #22
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Why, then, did the Chrysler bailout ($5+ billion in today's dollars of loan guarantees) require an act of Congress and Carter's signature?
I suspect that it's because the Fed is supposed to watch over the financial industry, not automakers. Not that I think that's sufficient justification, but I suppose that's what it behind the difference.

Note also that the post-9/11 airline bailouts needed to go through the legislative process as well.
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Old 09-17-2008, 03:22 PM   #23
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wow.. wait 'til the masses of "individuals" in "exigent circumstances" get ahold of this news.

Why, then, did the Chrysler bailout ($5+ billion in today's dollars of loan guarantees) require an act of Congress and Carter's signature?
The Fed is not required to open up its discount window or credit facilities to anyone, if you read the statute carefully. As a matter of policy, the Fed only extends a line if its fully secured with good collateral. It was "unprecedented" for it to advance funding to Bear Stearns -- it denied funding to Lehman, and evidently had a major change of direction over AIG.

The Fed and the Federal Reserve Banks do not consider themselves part of the Administration, but pride themselves as being independent of the Administration in many respects. The Fed made sure it had the blessing of the Congressional leadership for the line of credit to AIG. So, the Fed and NY Federal Reserve Bank acted in a manner consistent with the statute, but you can be pretty sure they expect to be repaid based on the collateral it took as security, which probably didn't include any mortgage-backed securities.

If a giant manufacturing company, like one of the big three auto companies, sought lending from the Fed today, I doubt it could meet the test that the national economy requires it to be propped up with Fed borrowings, let alone satisfy standards that its failure poses a systemic risk to payments system or national economy.
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Old 09-17-2008, 03:23 PM   #24
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AIG is so vast, they have got to be bailed out. They were, just last year, one of only 8 companies in the world that were rated AAA. Go figure.
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Old 09-17-2008, 03:26 PM   #25
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AIG is so vast, they have got to be bailed out. They were, just last year, one of only 8 companies in the world that were rated AAA. Go figure.
I'm a good capitalist, I think, but any business that wants to grow to the point of being "too big to fail" has got to accept a reasonable amount of regulation to greatly reduce the chance of meltdowns like these from occurring.
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Old 09-17-2008, 03:28 PM   #26
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I'm a good capitalist, I think, but any business that wants to grow to the point of being "too big to fail" has got to accept a reasonable amount of regulation to greatly reduce the chance of meltdowns like these from occurring.
Or be forced to break up into smaller companies...
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Old 09-17-2008, 04:03 PM   #27
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I'm a good capitalist, I think, but any business that wants to grow to the point of being "too big to fail" has got to accept a reasonable amount of regulation to greatly reduce the chance of meltdowns like these from occurring.
I agree with you. However, if we just let them fail, they'll take down a huge chunk of economy with it. So, what do you do? They insure so many different things around the world!
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Old 09-17-2008, 04:04 PM   #28
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Or be forced to break up into smaller companies...
That just exasperates the situation. In fact, they'd probably appreciate the opportunity to dump their bad debt into a couple companies and watch the shareholders flounder. This may be what BOA is doing with Countrywide.
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Old 09-17-2008, 04:07 PM   #29
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That just exasperates the situation.
Nicely put.
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Old 09-17-2008, 04:15 PM   #30
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My point was "too large to fail" companies should be prevented via regulation from gaining that position. They should be forced break up into smaller companies prior to becoming a potential time bomb in the economy. Before becoming too large to fail, they need to become too large to exist.
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Old 09-17-2008, 04:31 PM   #31
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That would entail companies actually policing themselves, and that's not gonna happen. Can you imagine what happens to the share price if a company willingly splits for economic reasons? In reality, it would be best for the overall market, but it wouldn't happen. There are a whole lot of things that need fixing in the market right now.
BTW, ironically enough, I just got a call from AIG assuring me things were safe.....of course, they didn't offer any guarantees.
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Old 09-17-2008, 06:54 PM   #32
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If only there were some way of keeping companies from entering more than one kind of financial market or type at a time...
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Old 09-17-2008, 08:48 PM   #33
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That just exasperates the situation. In fact, they'd probably appreciate the opportunity to dump their bad debt into a couple companies and watch the shareholders flounder. This may be what BOA is doing with Countrywide.
Exacerbates! Exacerbates! Yaaahhhh!

Sorry, pet peeve.
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Old 09-17-2008, 10:16 PM   #34
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So in other words, you're exasperation is exacerbated?
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Old 09-17-2008, 10:25 PM   #35
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Can you imagine what happens to the share price if a company willingly splits for economic reasons? In reality, it would be best for the overall market, but it wouldn't happen.
It isn't all that uncommon - companies split off divisions, usually with the explanation that that will allow them to 'focus' on their core whatever. It's probably a bogus excuse to cover up their poor management 90% of the time, but it does happen voluntarily.

Not sure what the answers are. I'm a free market kinda guy, but if a company gets so big and entwined in everything to be considered 'too big to fail', well, it's not really a free market anymore. So as REWahoo says, split 'em up before they get that big.

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PS to Harley - the two words are somewhat interchangeable - no?

ex·as·per·ate

1. To make very angry or impatient; annoy greatly.
2. To increase the gravity or intensity of:

ex·ac·er·bate

To increase the severity, violence, or bitterness of; aggravate:
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Old 09-17-2008, 10:31 PM   #36
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Nope, people get exasperated (irritated); situations get exacerbated (made worse). Sort of like affect, effect.
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Old 09-17-2008, 10:47 PM   #37
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There is a big difference between WM and AIG, IMO. AIG did lots of stuff at the holding company level that caused them a liquidity crisis. WM did most everything out of bank entities, which have all the liquidity goodies that go with it: discount window access, Federal Home Loan Bank membership, etc. So unless something causes a massive run on the bank by actual depositors, its hard to see how WM will have a liquidity crisis that will cause them to suddenly fail. The $64k question for WM is whether they have so many bad loans on the book that they eventually run out of capital. I don't think anyone can guess as to whether they have enough capital with any degree of confidence, at least at this point in time.
If WAMU has no liquidity crisis, why are they looking for a buyer?

http://www.nytimes.com/2008/09/18/bu...=1&oref=slogin
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Old 09-18-2008, 12:00 AM   #38
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Exacerbates! Exacerbates! Yaaahhhh!

Sorry, pet peeve.
You are going to be a busy man.

ha
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Old 09-18-2008, 12:01 AM   #39
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Nope, people get exasperated (irritated); situations get exacerbated (made worse). Sort of like affect, effect.
I can effect any affect I want to.

Ha
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Old 09-18-2008, 03:53 AM   #40
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... AIG did lots of stuff at the holding company level that caused them a liquidity crisis...
Do you know if those Credit Default Swaps that pulled them down were owned by the insurance company(s) or some other investment bank subsidiary?
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