I guess Paulson feels that AIG is more important to our economic health than Lehman as the Feds will loan the firm $85 billion. In exchange, we, the taxpayers, will own 80% of the company, in exactly what format or what cost, if any, is unknown. Supposedly, it's the parent company that is in dire straits, the subsidiaries have tons of money. Have you heard a similar message in the recent past?
Paulson's argument seems to be based on the fact that AIG is an insurance company, with whom many companies and people have contracted (about $1 trillion worth). If the company could not fulfill its contractual obligations, the ripple effect would likely be of tsunami proportions.
It looks as though the primary culprit is credit default swaps, another arcane instrument that developed a religious following. The last time I checked AIG had overvalued their swaps by $3.6 billion.
1 comment:
"credit default swaps" sounds so much more civilized than the trusty old con "bait and switch" which suckers greedy people. No one stands outside the casino and promises a loan to all the losers who gamble, but man are we ready to help the "have mores". sheesh
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