Meanwhile, House Republicans won a major victory, persuading negotiators to include a provision that would require the Treasury Department to create a federal insurance program that would guarantee banks and other firms against loss from any troubled asset, the official said.
The first paragraph is good, letting judges monkey with mortgages is a great way to tank the value of the securities resting on them. The second paragraph is more ominous. Insurance might seem like a cheaper alternative to bailouts in the short run, but in the long run it just perpetuates the moral hazard that got us here in the first place.
The moral hazard here will from the knowledge that the govt will bail out a related company to save on insurance payouts. In other words another AIG will be saved for $40B so the govt can avoid paying 80B in insurance when the company defaults completely.
The real problems with the bailout and that provision are that it solves nothing in terms of reducing the credit bubble that will destroy us, and now we will use up even more of the fed's good credit rating in propping up our sick financial industry. As a result the dollar will go down (maybe not right away but inevitably) and the interest rate demanded for Treasuries will go up (although Bernanke has promised to prevent that by using monetary inflation).
Geez I really wish I had finished MBA program tho I am not sure they even had these instruments & paper back in the day when Earth crust was cooling and no VCRs invented yet.
So you are saying that by Bailing out AIG, we are avoiding the Credit Default Receipts from being exercised thereby saving money, but can’t bail everyone out & get crushed from these Credit default insurance-type policies because they are so leveraged—so much debt leveraged on for each dollar or original assets?
So where do we run? where do we hide?