Surprised no one has mentioned the AIG verdict
A couple of things about this. First, I believe you are right that they referred to the Federal Reserve as the Government. Though, technically speaking, the Federal Reserve is not part of the government. Hmmm.
Second, I think they validated what the Federal Reserve did. Even though, they said it was illegal, there are literally no reprucussions from those actions.
Well it blows up the fiction that the Fed is not part of the government. And the judge is probablyright that AIG wwould have gone bankrupt.
Given that the head of the Federal Reserve is an appointed position by the President, I doubt there are many who consider the Fed to be an independent entity.
I agree that this does nothing to prevent similar future action by the gov't. Particularly this... "The end point for this case is that, however harshly or improperly the Government acted in nationalizing AIG, it saved AIG from bankruptcy..."
So the ends justify the means.
Of course, the "ends" here were not to prevent AIG from going bankrupt, but to prevent the whole economy going belly up. AIG was just the center of the problem at the time.
There is a very good chance that this ruling is going to be appealed, perhaps by both sides.
Because of this ruling, the Fed is going to be much more hesitant to step in to save a major bank in the future, so I can see the government wanting a better ruling.
Greenberg of course wants money, which is what he has always wanted in life and has been pretty ruthless or efficient (depending on your view) in getting it.
Unfortunately, the only real resolution here would be for Congress and the President to work together to come up with a rational policy and procedure regarding what to do the next time banks that are too big to fail are about to fail. I say unfortunately because there is no way in hell they will work on this in any meaningful way. Kicking the can down the road as they always do will only make this a whole lot worse the next time--and there will be a next time. Dodd-Frank was but an attempt to come up with something, and it is pretty flawed.
I am feeling conservative as I reminisce about the good old days when banks were just banks, and not integrated financial entities playing in insurance, derivatives, stocks, retirement consulting, etc. You know, the days when you deposited your money, got a small but steady interest rate, borrowed from that same bank to buy your home at a reasonable interest rate, and ran into your banker at Rotary Club meetings. Perhaps you got a toaster or coffee maker for opening a new account. Back before they allowed non-bank banks to act like banks, forcing the banks to act line non-bank banks.
drummerboy said:
Of course, the "ends" here were not to prevent AIG from going bankrupt, but to prevent the whole economy going belly up. AIG was just the center of the problem at the time.
I'm curious why AIG was taken over but banks were given loans with no equity consideration.
AIG was the counter party on a large percentage of derivative contract with banks. So by controlling them the government got the ability to control the settlement of a big chunk of the derivative market. Controlling any single bank would not have given the same degree of power.
ParticleMan said:
drummerboy said:I'm curious why AIG was taken over but banks were given loans with no equity consideration.
Of course, the "ends" here were not to prevent AIG from going bankrupt, but to prevent the whole economy going belly up. AIG was just the center of the problem at the time.
No equity consideration?
ctrzaska said:
ParticleMan said:No equity consideration?
drummerboy said:I'm curious why AIG was taken over but banks were given loans with no equity consideration.
Of course, the "ends" here were not to prevent AIG from going bankrupt, but to prevent the whole economy going belly up. AIG was just the center of the problem at the time.
My memory is not very good and I'm incredibly lazy. Did the government take equity positions in many banks?
Yes. See the EESA into TARP re: preferred equity stakes and equity warrants. Non-voting.
ETA: Can probably get you the actual returns incl. divs/warrants if you're interested in any bank in particular.
Ah yes, true. I'd forgotten about that. But non-voting stock makes it tough to "take over" a company, no?
Technically, yes. But that assumes other voting shareholders disagree that they're the best option in the sad state prior to a wind-down, particularly when faced with the fact that the govt can possibly do it anyway under other authority.
No tears for AIG. No tears for any company whose screw-ups can threaten the national economy.
Companies in that position are not looking for sympathy. What they just got was some cover.
ctrzaska said:
Companies in that position are not looking for sympathy. What they just got was some cover.
True. But I don't know that it means much of anything. We have seen time and again that in a crisis, the government can pretty much to as it wants and the courts get to argue about it later.
And Hank "it's not about the money, it's about the principle" Greenberg has started the appellate process.
Steve said:
And Hank "it's not about the money, it's about the principle" Greenberg has started the appellate process.
No surprises there. As I said above, I think the government will file an appeal as well, although perhaps they will just focus on trying to beat Hank back on his appeal.
There is no doubt in my mind that the government will cross-appeal given that Hank has appealed. It's just ironic that he said that he was suing not for the money, but for the principle and, on that basis, was vindicated.
Steve said:
There is no doubt in my mind that the government will cross-appeal given that Hank has appealed. It's just ironic that he said that he was suing not for the money, but for the principle and, on that basis, was vindicated.
Can't say I knew him personally, but I worked close enough to him to know that he is always about the money, plus grandiosity. He also built one hell of a company until they lost it all on insuring derivatives. AIG was a tough company in many ways, some good and some not so good, but it was 100% in his personal image.
A pretty stunning result. A judge ruled that the government could not just dictate terms and seize an asset from its owners (stockholders). This invalidates much of what the government did in the financial crisis.
Yes the judge said, AIG shareholders would have been screwed anyway and lost everything in bankruptcy (so no damages) but that did not give the government the right to ignore due process guarantees in the constitution.