tag:blogger.com,1999:blog-5880610.post5472653714185454353..comments2024-01-13T18:57:18.243-05:00Comments on Information Processing: 100 cents on the dollarSteve Hsuhttp://www.blogger.com/profile/02428333897272913660noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-5880610.post-37637290336785051642010-02-06T17:11:58.647-05:002010-02-06T17:11:58.647-05:00Let me make a prediction Dave.
The EU is in pai...Let me make a prediction Dave. <br /><br />The EU is in pain because they fell behind China at Copenhagen. They want parity with the U.S., but cannot speak with one voice. Ireland has a constitutional neutrality policy, France is interventionist - so EU is not an entity to the outside world. The EU liberal elite are busy planning on how they can tie a PIGS bailout to control over foreign LondonYounghttps://www.blogger.com/profile/09677529514013996419noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-67741530252949524722010-02-06T10:27:13.320-05:002010-02-06T10:27:13.320-05:00LY, Watch Europe if you want a good example. I do...LY, Watch Europe if you want a good example. I don't know how it will play out, but you have an interesting combination of large deficits in some member states (Greece, for example) and a stated rule that the EU will not bail them out. Should they stick to that? Will that drive some to leave the Euro Zone? It'll be interesting to see how that plays out.Dave Backushttps://www.blogger.com/profile/11472846910681816429noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-87645250441305721942010-02-04T17:52:53.998-05:002010-02-04T17:52:53.998-05:00Dave B - I agree with your moral hazard point 100%...Dave B - I agree with your moral hazard point 100%. However, the history of the U.S. has been one of states gradually losing their sovereignty to the federal govt. You are quite right that the feds haven't bailed out states in the past, but times change. In days of yore, the feds refused to bail out states over natural disasters. Now, when New Orleans floods because it has been built LondonYounghttps://www.blogger.com/profile/09677529514013996419noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-61263874757251082792010-01-31T14:22:54.407-05:002010-01-31T14:22:54.407-05:00LY, States were a natural target for the stimulus ...LY, States were a natural target for the stimulus package, since their tax revenues fell sharply and they're (officially) prohibited from running deficits. The bigger issue -- in all bailouts -- is whether they encourage profligate behavior. In Argentina and Brazil, peculiarities in the constitution (since changed, I believe) led states to run massive deficits, which were then passed on to Dave Backushttps://www.blogger.com/profile/11472846910681816429noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-10586074645918181202010-01-31T13:53:18.755-05:002010-01-31T13:53:18.755-05:00Dave Backus - your comments lead me to wonder abou...Dave Backus - your comments lead me to wonder about the following - how appropriate is a federal bailout of a state regulated entity? This could become very interesting if a state, like CA, should need a federal bailout ...LondonYounghttps://www.blogger.com/profile/09677529514013996419noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-52855309066691590762010-01-30T15:32:57.629-05:002010-01-30T15:32:57.629-05:00Interesting issue, we'll be debating it for de...Interesting issue, we'll be debating it for decades. Some things to think about: <br /><br />* Fog of war. What would you have done at the time? Remember, the markets were in chaos at the time. I'm not saying we did the right thing, only that it's a tough call to make. <br /><br />* Regulatory arbitrage. AIG went out of its way to run a derivatives business out of an insurance Dave Backushttps://www.blogger.com/profile/11472846910681816429noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-1686874612630774722010-01-30T08:37:34.565-05:002010-01-30T08:37:34.565-05:00At this point, the "unlimited bailout" d...At this point, the "unlimited bailout" decision has been made, and the discussion over mopping up these positions is a sidebar, not super important at the time (but it will become very politically sensitive a year later). The feds would like to save a few bucks by negotiating the close-out on these trades with the banks. However, because all the banks are holding lots of collateral, LondonYounghttps://www.blogger.com/profile/09677529514013996419noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-25590292113630119292010-01-30T08:36:50.229-05:002010-01-30T08:36:50.229-05:00Now, there are lots of ways to do a bailout. This...Now, there are lots of ways to do a bailout. This very same month, the largest financial entities in the world, Fannie and Freddie, were bailed out - and basically by the federal government saying "we simply guarantee all the debts and obligations of Fannie and Freddie". (Note that, in the end, the agency bailout is where the "taxpayer" will take almost all his lumps. But LondonYounghttps://www.blogger.com/profile/09677529514013996419noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-55455375109716334682010-01-30T08:35:54.815-05:002010-01-30T08:35:54.815-05:00Steve - I do think you have it wrong. The plot li...Steve - I do think you have it wrong. The plot line is false, but it is also imbued with plenty of facts - so explanation is difficult.<br /><br />Quick summary: An AIG bankruptcy filing did not hinge on the resolution of these contracts, thus there could not have been a game of chicken.<br /><br />Details (greatly simplied but still quite wordy): This story is set in November of 2008, but to LondonYounghttps://www.blogger.com/profile/09677529514013996419noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-31016211498199486322010-01-29T09:30:27.398-05:002010-01-29T09:30:27.398-05:00http://globaleconomicanalysis.blogspot.com/2010/01...http://globaleconomicanalysis.blogspot.com/2010/01/secret-deals-involving-no-one-aig.htmlAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5880610.post-43977780193278400572010-01-28T04:32:13.240-05:002010-01-28T04:32:13.240-05:00Was this a free market failure or a government ena...Was this a free market failure or a government enabled market failure? Would such weird logic had played out if there was no possibility of a bailout?<br /><br />I'm no businessman, but the idea of paying for someone else's mistakes is always wrong to me, no matter how big.<br /><br />If it turned into a catastrophic failure, than let it be an example in the future to anyone putting theirAlchemXhttps://www.blogger.com/profile/08475764756477708163noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-13937214913952712812010-01-27T21:44:16.850-05:002010-01-27T21:44:16.850-05:00Good point. But I guess that implies that insuranc...Good point. But I guess that implies that insurance regulators were ok with that - i.e., $100b in CDS liabilities hanging around the insurance divisions' necks? I wonder who was telling who what?zielhttps://www.blogger.com/profile/03669293146969638930noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-77759513602259880662010-01-27T19:55:04.677-05:002010-01-27T19:55:04.677-05:00No idea whether that was true. If so, then the AAA...No idea whether that was true. If so, then the AAA rating of the AIG FP unit was based on ... what?<br /><br />I thought a big feature of their business was "loaning" AIG's rating to CDOs via CDS insurance. How would that work if the insurer (AIG FP) didn't have significant assets? But I could be wrong.Steve Hsuhttps://www.blogger.com/profile/02428333897272913660noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-60851866108431851212010-01-27T19:43:39.802-05:002010-01-27T19:43:39.802-05:00I've read (I think ZeroHedge alleged it) that ...I've read (I think ZeroHedge alleged it) that the assets of AIG's insurance divisions were firewalled from these losses. If true, then the potential bankruptcy shouldn't have been so calamitous. Any of that sound plausible to you?zielhttps://www.blogger.com/profile/03669293146969638930noreply@blogger.com