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-   -   What is wrong with the US economy? Part 2 (http://www.physicsforums.com/showthread.php?t=256784)

Greg Bernhardt Sep16-08 01:24 PM

What is wrong with the US economy? Part 2
 
Previous discussion here:
http://www.physicsforums.com/showthread.php?t=130611

Feds leave interest rate unchanged at 2%

Market reacts in a triple digit loss.

AIG down 45%

turbo Sep16-08 01:35 PM

Re: What is wrong with the US economy? Part 2
 
What do you think, Greg? Will the Feds bail out AIG? From what I've read, AIG has a pretty solid insurance division that could be spun off safely - it's the exposure to derivatives and bundled debt held by their investment wing that are problematic.

Astronuc Sep16-08 01:41 PM

Re: What is wrong with the US economy? Part 2
 
The Dow Industrials just jump 150 pts into positive territory. Perhaps the Fed acted to support AIG, but AIG is still down so some other component must have jumped.

Astronuc Sep16-08 01:47 PM

Re: What is wrong with the US economy? Part 2
 
Quote:

Quote by Marketwatch
The Federal Reserve has asked Goldman Sachs and J.P. Morgan Chase to lead a lending facility for AIG of between $70 billion and $75 billion, according to two people familiar with the situation. The New York Department of Insurance has permitted some of AIG's regulated insurance subsidiaries to provide the parent with $20 billion of liquid investments.

Of course, they and others would benefit if AIG went under and they could pick up the insurance business, and leave the derivatives business to the trustee.

Greg Bernhardt Sep16-08 01:52 PM

Re: What is wrong with the US economy? Part 2
 
Quote:

Quote by turbo-1 (Post 1875937)
What do you think, Greg? Will the Feds bail out AIG? From what I've read, AIG has a pretty solid insurance division that could be spun off safely - it's the exposure to derivatives and bundled debt held by their investment wing that are problematic.

I'm certainly not smart enough in economics to know what is best or likely. I see reports that Greenberg's CV Starr may try to take over AIG as early as tomorrow however another source is saying AIG may get loan package from Federal Reserve.

Short covering rally has AIG at down 15% now off of 45% low.

Greg Bernhardt Sep16-08 01:58 PM

Re: What is wrong with the US economy? Part 2
 
wow AIG explodes to the upside! Fed must be bailing them out.

edit: not so fast on that recovery :D

Astronuc Sep16-08 01:59 PM

Re: What is wrong with the US economy? Part 2
 
AIG has recovered from it's lows. Investors are in a buying mood. BAC, JPM and HPQ were positive earlier, but a number of other components have turned positive.

One can watch the action on the Dow30 with this Yahoo interactive (if you don't mind a 15 min delay).
http://finance.yahoo.com/q/cp?s=%5EDJI

Greg Bernhardt Sep16-08 02:05 PM

Re: What is wrong with the US economy? Part 2
 
AIG looks to blow past 1 billion volume!! :bugeye: Anyone know what the record is? It's gotta be close.

turbo Sep16-08 02:21 PM

Re: What is wrong with the US economy? Part 2
 
AIG is in billion+ shares traded territory and has given back some of its earlier gains.

Astronuc Sep16-08 02:27 PM

Re: What is wrong with the US economy? Part 2
 
1,027,870,201 shares of AIG traded as of 3:11 pm

They actually went + for a few minutes.

The day started with just over 71 million shares being dumped. The rallies today have been sparked by rumors that the Fed will intervene to support AIG. If that doesn't happen by tonight, look for another drop tomorrow.

turbo Sep16-08 02:35 PM

Re: What is wrong with the US economy? Part 2
 
Citigroup, Bank of America, and JP Morgan Chase are posting gains - seems like there is some comparison-shopping going on, and perhaps speculation about who gets to pick up the pieces of AIG.

Astronuc Sep16-08 02:40 PM

Re: What is wrong with the US economy? Part 2
 
So this explains the rebounds of AIG and the Dow. Earlier in the day, CNBC reported that the Fed was considered some intervention, then that didn't happen and AIG settled down. This afternoon, Bloomberg News reported Fed intervention. Seems like the business news is pumping AIG. The Fed might act, or it might not. It shouldn't, but let the chips fall where they may.
Quote:

Quote by Marketwatch
After sliding about 150 points, the Dow Jones Industrial Average pulled into positive territory before lapsing again after the Fed's announcement, only to rise again on the latest AIG report by Bloomberg News.

"The spike was just off Bloomberg's report that the government may provide a loan to AIG. Whether the Fed cuts or not is totally irrelevant," said Peter Boockvar, equity strategist at Miller Tabak.

Of course, Michael Bloomberg has an interest in supporting the battered financials based in NYCity.

turbo Sep16-08 02:50 PM

Re: What is wrong with the US economy? Part 2
 
Quote:

Quote by Astronuc (Post 1876002)
The Fed might act, or it might not. It shouldn't, but let the chips fall where they may.

I agree - the Feds seem to let the "market work" when everything is going well, then step in when companies are failing. For the market to actually work, we need to let businesses with bad investments fail. It's a big market, and someone will step in to pick up the business. Locking in profits for investment banks and dumping their risks on the taxpayers has got to stop.

Thanks to John McCain, his buddy Phil Graham and other de-regulators, the banks run amok then scream for help when they get over-extended - those fellows hate socialism when it comes to the common man, but they worship corporate socialism.

Greg Bernhardt Sep16-08 03:07 PM

Re: What is wrong with the US economy? Part 2
 
Quote:

Quote by turbo-1 (Post 1876020)
I agree - the Feds seem to let the "market work" when everything is going well, then step in when companies are failing. For the market to actually work, we need to let businesses with bad investments fail. It's a big market, and someone will step in to pick up the business. Locking in profits for investment banks and dumping their risks on the taxpayers has got to stop.

They didn't bail out LEH. The fed seems to make an arguement that they are too big to fail. Too vital to the economy and if AIG fails then it could create a domino effect. I don't know this, but just what I hear. Your thoughts.

Jimmy Snyder Sep16-08 03:10 PM

Re: What is wrong with the US economy? Part 2
 
Quote:

Quote by Astronuc (Post 1876002)
Of course, Michael Bloomberg has an interest in supporting the battered financials based in NYCity.

But nothing to gain on a short-lived spike.

Astronuc Sep16-08 03:19 PM

Re: What is wrong with the US economy? Part 2
 
Quote:

Quote by jimmysnyder (Post 1876053)
But nothing to gain on a short-lived spike.

No, certainly, but he and Wall St need to prevent panic and instill confidence, so others don't go down like LEH.

One would only benefit from a spike if one was doing insider trading, which some companies and individuals have done.

turbo Sep16-08 03:21 PM

Re: What is wrong with the US economy? Part 2
 
Quote:

Quote by Greg Bernhardt (Post 1876047)
They didn't bail out LEH. The fed seems to make an arguement that they are too big to fail. Too vital to the economy and if AIG fails then it could create a domino effect. I don't know this, but just what I hear. Your thoughts.

I have read that parts of AIG could be spun off safely and securely. If that can happen, the remainder with large exposures to risky speculative investments should be allowed to fail. Share-holders can hold stock in the stable insurance sector of the company, though the stock values of the segments with high debt ratios will tank, and shareholders will lose money. At least they wouldn't lose as much as if the entire company was allowed to tank, and give up its insurance business.

If the Fed steps in with the taxpayer's piggy-bank to rescue investment banks, it degrades the value of our currency because we are assuming debt that once made tidy profits for the investors. The only way to get the banking industry re-regulated is if the Feds let banks fail so that share-holders get stung and demand greater regulatory oversight. Share-holders don't demand greater regulation during boom-times, and if they are shielded from busts by infusions of our tax dollars, they never will. Just my opinion - I'm not an economist and I don't play one on TV.

Astronuc Sep16-08 03:29 PM

Re: What is wrong with the US economy? Part 2
 
Quote:

Quote by Greg Bernhardt (Post 1876047)
They didn't bail out LEH. The fed seems to make an arguement that they are too big to fail. Too vital to the economy and if AIG fails then it could create a domino effect. I don't know this, but just what I hear. Your thoughts.

According to some financial summaries, AIG has a market capitalization of about $10 B, but that's probably with their stock beaten down. On the other hand, they apparently have their hands in about $1 trillion of financial instruments (how much is debt?). Now the question is how much of that is under the insurance business, and how much is under the financial engineering part of the business. LEH had about $0.6 trillion in debt.

The Fed should audit the heck out of AIG, but that would take time. Will the Fed act without due diligence? Wall Street is wanting action now, at least by tomorrow.

Interest position they are in.

Experts have saying for months that the derivatives markets are so complex that no one really knows how much debt there is and how much of it is bad or uncovered.


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