To Save Or Not To Save


I have to admit I don’t know what to make of the Federal Reserve’s move to save AIG from bankruptcy.  It’s unprecedented.

On one hand the government is placing taxpayer money at risk to protect a company that made bad bets on the subprime mortgage market.  It also penalizes responsible citizens who didn’t gamble their money and potentially increases the odds of the problem happening again.

However, others say the government has no choice because AIG insures a large amount of securities for varying financial institutions, making the fallout colossal in nature.  If AIG were to fail, the companies who have insured their investments with AIG would have to revalue their holdings, causing a domino effect around the globe.

Many economists feel the perception of the U.S. financial market screams, “OVEREXTENDED”, making foreign investors nervous, causing them to pull their money from this country. 

I’m not sure that is really perception as much as it is a reality.

The Federal Reserve and the U.S. Treasury no longer appear as strong as we once thought they were.

And don’t even get me started about the CEO’s of these failing companies who thrived in astonishing wealth during the hey day of the market. 

When are appropriate standards for executive compensation going to be put in place? 

Honestly I don’t have any of the answers but I’d love to hear your opinions on the subject.

Unfortunately, the handbasket to hell seems to be getting very crowded.

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45 Comments

  1. Diane 1

    I’m appalled by the actions of the UK government. If these loans are so toxic then no one should be buying them and the people responsible for allowing them to be taken out should be dealt with appropriately not given massive bonuses.
    I read Barclays are paying Lehman brothers directors huge bonuses still. That’s appalling.

    House prices in the UK need to decrease. They’ve been allowed to get overinflated and people are in massive debt. Politicians say that interest rates are only 5% and not 15% like they were during the last house price crash, but seem to ignore the fact houses are 3X more expensive now, so it’s the same as.

    Gordon Brown our primeminister is determined to prevent any bust because his mantra for nearly 10 years as chancellor of the exechequor was “no more boom and bust”. However house prices are unaffordable and house building seems to be one of the few industries left in the UK.

    The uk economy is being damaged by the banking system which has allowed these insane loans to be taken out. We have over a trillion pounds worth of debt on credit cards in the UK. That’s not sensible! We have record mortgage debt which is starting to come undone as people find they can’t afford to pay the mortgage. It’s not all because of fuel prices and food going up either. It’s a general overstretching of finances which has causes this crisis.

    Private banks shouldn’t be bailed out by the taxpayer unless the future profits become ours. We shouldn’t be taking the risk without the reward.

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  2. Betty 2

    You know Cathy,, I don’t have any answers either, but I agree that it’s time these CEO’s of all these companies STOP these big buy outs, they go in & ruin these companies, such as Eastern Airlines, AT&T, Home Depot, these guys come away with Millions of $$$’s & we are left holding the bags. Our retirement $$’s are cut off. Our health benifits are cut & cut each time they have a contract renewal. Why? All because these guys “NEED” this $$ so they can get out of the company. Am I bitter? Well yeah,I worked/retired from 1 of these so called Fortune 500 companies.Where’s my Fortune?If the CEO’s didn’t run off with it, the IRS gets the rest. Sorry Cathy it just hit a sore spot.

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  3. You have succinctly stated the concerns of myself and many others I know. I hope we do not give in to fear, but that this will cause us to reflect on our own abuse of credit and trust in financial institutions that in the end prove they are given to making bad choices. I also hope we can recover from this serious misjudgment of our financial institutions. KathyB.

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  4. Laura 4

    Last year Matt and I met with a financial advisor who advised me to begin another retirement account somewhere other than AIG. I didn’t. So, though the gov. IS “saving” AIG’s rear-end, I have zero confidence in it and I immediately put a stop to paycheck contributions. (It wasn’t THAT much, but I’m a teacher, so clearly every bit counts.)
    This past week Matt and I were also talking about selling our second condo because we just don’t want to have to think about it…renters, upkeep etc, but we now realize that because we bought it for SUCH an amazing low price, it is our only REAL solid investment. It is located in a highly desired area and will always be rentable.
    So. Real Estate – even in a cruddy market like this, may be a safer bet for the big picture.
    Or…under the mattress.

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  5. I work for a newspaper that was bought out by a major media company and I’ve seen the downfall for two years now. It’s really scary not only to read the news, but to know in two years there may only be three newspapers left. I think this recession will start a “local” trend for folks to return to their communities instead of trying to take over the world.

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  6. Carolyn 6

    If it helps to keep our economy from totally collapsing, I’m all for it. HOWEVER, where is the accountability? As you mentioned, there are people who got extremely wealthy off of these practices and they are not being held accountable for their actions. The economy is going down the tubes because of their greed and they get to keep the millions they made, while others, who did not benefit from these practices pay the price by losing jobs they desperately need. It sickens me.

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  7. Nancy 7

    What makes all this even more appalling is that the CEO of Fannie Mae, who made 90 million over a few years is a huge contributor to Obama’s campaign. Also, the very people who are on the committees to oversee these financial institutions (Barney Frank, Christopher Dodd et al) fought tooth and nail any attempts at regulating these companies. Yet they (Frank, etc) receive lots of money from these companies for their re-election campaigns. But you won’t hear that on the evening news or read it in the New York Times.

    It’s so incredibly frustrating and scary. I think you are right when you say that we Americans are overextended. We can’t wait to buy anything. We have to have it NOW whether it’s a house, a car, whatever. People think nothing of running up thousands of dollars of debt on their credit cards that they can’t afford. Companies loan money to people for houses they can’t afford because of the attitude that everyone should be able to have a house, even if they can’t afford it. The mindset in our country has become “I deserve it.”

    Now those of us who have been responsible with our money have to bail these companies out.

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  8. My profession is driven by financial loans and to tell you the truth I am worried…we are down 65% from last year…stop the madness, I say. It is truly depressing.

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  9. Lordy, Lordy Cathy, you don’t want to get me started! I have been flipping out over this for 8 or so years. We lived in Fl where the housing was so over inflated it would make your head spin.

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  10. How are they going to make up the major deficit with tax payer bailouts?

    More taxes, I’m sure.

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  11. Oh, and all those CEO’s? Are still living in their 30 million dollar homes in Greenwich, Park Avenue and Palm Beach. And they will continue to do so long after out tax dollars have finished cleaning up their mess. Believe me, I know some of them. Unfortunately.

    Reply
  12. Becky 12

    Unfortunately, I don’t have any answers either. But I do know that WE are at their mercy!

    Reply
  13. this kind of stuff makes my brain hurt to think about, b/c it’s not as though the money just disappeared into the atmosphere and out of existence. Somebody profited big time. but who? and where is that money now? and it totally stinks that tons of us are going to have to pay for the people who made poor poor decisions.

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  14. From what I understand it HAD to be done, otherwise the world-wide ripple effect would have thrown the economy into a depression. I don’t fully understand it–but I think it was the only way.

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  15. Flea 15

    I have no comment. I’ve intentionally been an ostrich with my head in the sand for years, making my opinion nonsense.

    Reply
  16. On the one hand, I understand the importance of not letting some of these institutions fail. The prospect of the crash does not thrill me AT ALL.
    On the other hand, I’m opposed to bailing out the banks. They new what they were doing. Let’s bail out the home buyers… buy up their morgages and allow them to pay it back at a reasonable fixed rate. They get to keep their home, the banks get the subprime mess paid back and the taxpayers don’t have to take it in the shorts over the long term.
    And yeah… I get a little irrate thinking about how these lending decisions lined the pockets of the few at the expense of the many. Ack.

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  17. It’s too bad the CEOs get off so easily, especially when they no doubt saw the train wreck coming for miles and miles..
    For the rest of us in an unstable economy – two words.. Gold and Cash.
    liquidity anyone?

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  18. sassy 18

    For 30+ years my husband always felt secure that he had a retirement pension, that it was safe, and that his wife would be taken care of should anything happen to him.

    Well, his retirement was`nt safe, and due to bad management, the company spent the retirement funds, then filed bankrupcy and closed it`s doors.

    The government took over the retirement pension program, at a lower monthly payment to the retirees of course.

    But you can bet you bottom dollor that the CEO`s at this company are still living high off the hog, and still spending our money.

    This was a devestating event for my husband as he had put in 34 years with this company.

    I am astounded at how far our country has spiraled into finacial doom in the 8 short years of the Bush administration. We certainly have left our children quite a mess.

    Reply
  19. MsMVNJ 19

    This has been coming for longer than the last 8 years – it simply picked up speed in the last 8 years. Somewhere along the line responsibility and accountability became just words on a page, not a way of life. The government bails out AIG, who has the responsibility to pay it back? We do, but we don’t see that? Our pensions (if we were lucky enough to have one in the first place) are disappearing. There won’t be SS available for us, because the government will have to rob Peter to pay Paul. Wake up America, there’s no such thing as a comfortable retirement anymore.

    Reply
  20. Marjie 20

    This has been coming since the late 90s, when the basically no-down-payment rules were instituted. There was an AP article in Sunday’s paper, with a realtor crying that she doesn’t have lookers for houses because people can no longer buy with only $500 down. EXCUSE ME????? $500 down to BUY a HOUSE????? You can’t rent a stinkin’ apartment for $500 down, at least nowhere in the world I know, because you need a security deposit and the first month’s rent, at the least! And anyone wonders why these mortgages are in trouble? Hello! There can’t be any feeling of obligation for something that’s cheaper than renting an apartment!

    And don’t even start me on the trend of homequity lines! People borrowing against the value of their homes in order to pay for a lifestyle which is above their income is another very prime factor in this mess!

    It is sad that we, the taxpayers, have to loan money to keep the financial houses afloat which allowed this to happen. And I’m afraid we must, because to fail to do so will leave us all at risk for losing any investments we have with the firms which have bought these mortgage bundles.

    GRRRR!!!!!

    Reply
  21. Here’s what kills me…

    You know who is going to pay for this whole big mess? Not the companies that lent all this money out to people who couldn’t pay it back or the people who owe the money to these companies…it’s people like you and me who are going to be footing the bill to get these idiots out of dodge. And that somehow does not seem right to me in the very least.

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  22. Fran 22

    We definitely have reason to be scared.

    Fran

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  23. krysta 23

    it was on cnbc that the aig ceo refused his severance package…

    Reply
  24. The whole thing is a mess if you ask me. I’m mad that the taxpayers are the ones that are footing the bill. I’ve been reading articles on http://www.dailykos.com lately about it and each article makes me more mad (if that’s even possible). It seems that there is only accountability if you are a person … if it’s a big corporation that has gotten overly big … no harm … no foul. It goes back to the same ol’ same ol’ good ol’ boy network if you ask me.

    Reply
  25. You know what I love about your blog– besides everything– I love how you can pose a question or express your opinion without being confrontational.
    Quite frankly, I’ll be glad to see this election over so that blogs can go back to being a great read without spewing hate.
    Anywho, my opinion on this is that it frightens the crap out of me. How’s that for an informed, eloquent response?

    Reply
  26. Lo 26

    I think that there are plenty of reasons to be frightened by the current economic climate… but I also believe that living based on fear is NO WAY to live.

    Is that an answer?
    Not exactly. But, I have to have hope. Because I can’t live in fear.

    Reply
  27. tipper 27

    Such a mess-I’ve been watching the hearings in Washington all day. Paulson and Bernicke don’t sound very sure the bail out will work, but think it will. If it doesn’t work-then what? I don’t have all the anwers-but I don’t see how we can bail out the whole country. If the bail out passes-it will also bail out foreign banks who do business in the US. I just can’t see the reasoning behind it-but I don’t want a complete collapse either.

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  28. ALF 28

    I have very strong opinions about these things. But rather than go off on a rant I will instead say nothing. Great comment, huh?

    Reply
  29. Alisa 29

    The thing that stinks about this whole thing is that it’s the innocent people who are going to get hurt the worst if the government doesn’t bail AIG out. The company big-wigs are living in their mansions, eating their cake, and are about to get a free ride. I have a serious problem with the lack of consequences. They brought down Martha Stewart, let’s see them bring down some big banker/insurance CEOs.

    Reply
  30. Shelly 30

    I have a suprise for you at my blog

    Reply
  31. ntsc 31

    They literally made billions when the market was hot selling what turned out to be as honest as the documents proving WMD in Iraq.

    Why think this is any more honest, I’m tending to think this is one more scam. ‘Trust me and hurry or the sky will fall’.

    Reply
  32. Liz C. 32

    Well, after reading all the comments, I have nothing further to add other than the fact that I too am thoroughly disgusted with the whole mess. When CEO’s know they have a train wreck headed straight toward them, why should we have to bail them out with our tax dollars? It just makes me feel like once again, the government has screwed us and we’re the ones taking it up the rear. Band-Aids won’t work forever and that is scary.

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  33. Very crowded indeed. Be glad your not a government leader faced with a bunch of no win decisions.

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  34. It all freaks me out… is there “real” money to bail these companies out?

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  35. magpie 35

    I don’t know. But it seems wrong somehow. I’m just not good at articulating why.

    This is a good post: link to dailykos.com

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  36. Tammy 36

    I think the first thing the federal government should do is have all banks, savings and loans, etc…. change everyone’s mortgage interest rate to say 4% fixed. That should stop the mortgage crisis and foreclosures should come to pretty much a screaming halt.
    Stop that bleeding wound….then you can aid the banks and S & L’s for their losses and basically start all over again. As a taxpayer, I don’t mind helping…but lower my interest rate so that I am not another one of your statistics.

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  37. Dee 37

    I don’t like it, but I believe it was necessary. Everything that happens to the US economy affects the entire world – thousands of miles away in Malaysia, we’re feeling it.

    I wish those CEOs with their fancy cars could somehow be made more accountable. I wish I had answers.

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  38. giz 38

    Honestly, I really don’t believe anything will change. People will bitch, nothing will happen except that the middle class make a shift and become the working poor.

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  39. Totally agree that rewarding irresponsible CEO’s should not happen.

    But on the positive side, there is a chance the taxpayers make money out of all of this (although we will never actually SEE a dime of that money). Previous government bailouts have proven to be moneymakers and this one may prove to be as well.

    As a matter of fact, I’m not sure where things stand now, but I gather that the gov’t made several billion dollars in the first day following the announced bailout as the stock rebounded…

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  40. Egghead 40

    I am scared. It makes me feel like I should be storing all my cash under a mattress now.

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  41. I’m a bit conflicted, too. On the one hand, I’m not in favor of ANY bailouts, but I know what will happen to the economy if they don’t.

    To top it all off, BOTH of my parents work for AIG. UGH.

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  42. heather 42

    seriously, i’m not sure what to think either. my husband works for a bank so we talk about all this stuff. why the higher ups aren’t held responsible, would a massive payout really help or just delay the agony, where does that money come from (is it even real money in a country with trillions in debt? i never can quite figure that out) and is it really so bad for the economy to have dips rather than a 45 degree angle of upward progress? the little i know of economic theory seems to be the root of the problem, along with greed. wanting an ever-increasing profit seems unreasonable and impossible to me. wouldn’t a stable economy be more level? there seems to be so many problems, it’s hard to know what the source(s) are. if we just put a band-aid on it, the problems will just come back later. although that seems to be the government’s way……

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  43. Lex the Mom 43

    I hope there are eventually standards. We’ve seen the fall of several corporations with the CEOs having lined pockets & no repercussions to speak of. All the while former employees are left with nothing, lost salaries & no retirement.

    Greed is an American epidemic – but it has been for a long time. (Not just American, I know, but it seems things are only getting worse here – there needs to be something done, somehow.)

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  44. More taxes? Oh no! Most of the Americans now don’t know where to get money to pay there bills and you are suggesting more taxes..

    Reply
  45. I confess that content like this one is rare to find online

    Reply

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