Posted on 03/18/2009 11:12:59 PM PDT by Cedar
I posted this on another thread. Was hoping someone knowledgeable could answer:
The most astounding comment made by Liddy: only 25 or so employees were responsible for the entire meltdown of AIG (which also affected the entire U.S. economy).
When asked by an astute congressman where was the AIG risk management team during this time and why didn’t they monitor the risk involved, Mr. Liddy said the risk management team wasn’t allowed to monitor that particular group (those 25 employees). The congressman looked totally shocked and asked why. Mr. Liddy said that question needed to be asked to the former CEO and not him since he wasn’t the CEO during that time.
Later on the congressman asked for the names of those 25 people, but Liddy refused to say right then...said he needed to consult AIG lawyers.
Could be those 25 people might have criminal charges against them soon? Don’t know enough about business law, but to totally risk shareholder’s money through deriviatives without allowing any risk monitoring....is that criminal action?
bookmark- good AIG info
But alas he did not ask about insurance fraud. He asked about risk taking as if that were a crime.
Yep. This is the one thing that is completely under-reported about this mess. Mark-to-Market, I would argue, is the primary reason that the mess is as big as it is. It wouldn't have prevented this collapse, but it certainly has exacerbated it.
Here's the problem. The American electorate is economically and financially illiterate. Crikes, I heard Regis and Kelly discussing this yesterday morning, and it sounded like to first graders discussing where babies come from. Then at night on Leno, Jay and Kieth Olbermann took a stab at it and made Regis and Kelly look like Nobel Laureates.
As a result of America's stupidity, Obama is going to get away with riding this populist rage right into French-style economic socialism, and he knows it. Things are a little uncomfortable for him and Geitner, but that will improve and the outrage will give him cover to pass and sign sweeping economic reforms. What a mess.
re: the bonuses that congress is now voting to tax at 90%, we know it wasn't in the stimulus bill and then it was sent back to Dodd by Treasury/White House and Dodd was told to add the bonuses in... he did... they voted... the GOP was never allowed to read the bill before voting and, with the exception of Snowe, Collins and Spector not one Republican voted FOR it! Yet... Obama actually tried to blame the GOP and the Bush admninistration for the bonuses being paid out when Bush and the GOP had absolutely nothing to do with them.
sorry for the rambling here.....
I agree completely.
When local banks originated mortgage loans to local people, those banks owned that paper for the life of the mortgage. Therefor, they were much more discriminating about the risks they would take, and when things went south - because they presumably had a long relationship with the borrower - they would be a little more open to allowing the borrower to go through the loan work-out process. With the securitization of these mortgages the last 20 years, this process has been completely destroyed and now we face the mess were in.
I think you Bell breakup analogy is a good one. Hopefully, we'll see a little of that in the financial services industry and get back to much more regional if not localized banking. But, these mega-banks have caused more problems than they've solved - IMHO.
There's no criminal action here. Liddy's statement is false and meaningless. Liddy's just moving his mouth and making noise to divert attention from the real problem, which is that those AIG clowns didn't know and understand what they were doing. They were incompetent and that was proven by their catastropic failure.
The gobbling up the regional banks is one reason so many small farmers were forced to sell out to conglomerates. The small banks knew the farmers, worked with the farmers and everyone had a symbiotic relationship. When the corporate banks bought out those regional banks, they didn’t care a wit about the regional small farmers, they only knew one thing, make them sell and finance the big guy waiting to borrow big bucks for that farm or ranch.
Amen. And that same story can probably be applied to thousands of other types of small business. It needs to be fixed.
"Mark to market" means the value of financial instruments is determined by it's selling price. With rational actors, the sale price is a good measure of an item's value. However various irrational forces can and do influence a buyer's behavior.
AIG's job was to value these instruments in a rational way and insure them. IOWs, they were supposed to scrutinize that mark to market value. Any real, rational measure of valuation must include an accurate risk measure which reduces an instrument's valuation from an irrational sales price. Risk reduction then includes considerations of irrational causes that gave rise to the selling price. The real valuation, being rational, would stand up as such in reality. That wasn't the case here. AIG's certified wizards failed big time.
I expect no one in particular to do better. That includes the maggots infesting academia and the govm't. There's a moral component in addition to general competence involved here which are notably absent in socialists and various others. The free market hasn't failed here. It wasn't allowed to work at all. The thoughts, decisions and actions of the bozos that were in charge caused a catastrophic failure and they're being given more money and another go at playing sim-economy. That's ridiculous!
I fear we’ve already gone too far down the road... another case of being unable to ring a bell, especially with the current yo-yo’s running congress.
Interesting. Appreciate your thoughts and explanation.
And thanks again to everyone for taking the time to comment and clarify.
You’re welcome.
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