Monday, March 2, 2009

AIG

American International Group, the insurance people have asked for another thirty billion dollars from the US taxpayers after sucking up $150 billion already in failed efforts to support the company of last resort for manipulators of hedge funds and derivatives. I recall how the mandarins last December told us what we already knew: that the Recession had begun a year earlier and we were supposed to be surprised when it had been obvious to all that we were in a honking down turn. Now our economic bosses tell us that AIG reported the largest ever loss for the end of 2008, and here we are in March 2009. On that news DOW Jones futures are starting another slide, below the 7,000 mark this time. As though AIG's implosion should come as a surprise.
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I have read that some commentators, still pushing a political agenda in these parlous times, want to blame minorities in the US for creating this crisis, because they are to blame for precipitating the mortgage implosion. The argument goes that namby-pamby government support encouraged feckless welfare families (read: brown and black people) and when as was inevitable, these people failed to pay the market imploded. It will not be possible to eradicate this racist position because it is a dearly held political position, and using numbers to repudiate it won't work. The fact is that a vast majority of failures came through the betting on, and insurance of, those loans, made by white people and middle class people and even wealthy people. As usual it is easier and more expedient to blame the victim.
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The reason the mortgage industry got into no documentation loans was the good old profit motive. (I took one out myself, astonished by the process, which I soon converted to a thirty year fixed as I had no faith in interest rates remaining so low). In the old days banks sold mortgages and kept the paper so they had to rely on the interest payments coming in each month. In this Brave New World banks bundled up our mortgages and sold them around the world advertising the paper as "backed by US real estate." They bought insurance through AIG and lost interest in whether or not the mortgages failed. When the interest rates rose and people defaulted AIG stepped in and paid up to cover the failures, until it ran out of money.
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Had the US government allowed AIG to fail banking would have imploded far more completely and effectively than it did when Lehman Brothers, Treasury Secretary Paulsen's old Nemesis, was allowed to fail. The fear was societal collapse with the failure of AIG and thus the unending bailouts to try to support the insurance payouts on the mortgage failures. As we get deeper and deeper into the bail out plan with no change in the economic slide, it becomes clearer that rescue packages aren't working and all we are doing as a nation, is sliding deeper into impossible debt, throwing good money after bad. Yet we can't seem to stop.
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It seems abundantly clear that we need to chart a new and different course to escape the inevitable collapse if we keep doing the same thing and expecting a different result. And yet like a nation addicted to the drug of endless credit and debt we keep spending money and shooting up and hoping that this time the high will carry us away. Eventually it will.

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