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Lay of the Land: Taxpayers to the rescue: Too little too late?

By Philip Anselmo

All things local may keep our blood pumping each morning as we scan the doppler for clouds over our heads, but the national scene never ceases to prod our ponderings as we chew the cud of the day. With that in mind, we thought to start the morning—along with our roundup of other local media leads—with a look at which stories are quickening the collective pulse of the nation.

Here's what we found inciting the editorial finger to wag this morning (feel free to talk amongst yourselves):

Bloomberg reports that "we the people" will back the loan to bail out yet another private Wall Street institution:

The U.S. government took control of American International Group Inc. in an $85 billion bailout to prevent the bankruptcy of the nation's biggest insurer and the worst financial collapse in history.

The Federal Reserve will provide a two-year loan, take 79.9 percent of the New York-based company's stock and replace its management because "a disorderly failure of AIG could add to already significant levels of financial market fragility," according to a statement by the central bank late yesterday.

This quote in the Bloomberg article is especially revealing:

"Nobody really knows what it would have meant if they would have been allowed to fail, but there was an enormous amount of systemic risk," said David Havens, a credit analyst at UBS AG in Stamford, Connecticut. "It's an enormous relief."

Nobody really knows. In an NPR account of the bailout broadcast this morning, commentators were heard to say that if AIG had been allowed to fail, the "already delicate" economy would have been hurt even further, "confidence in the economy" would have been weakened even more and it would become even more difficult for borrowers to get loans from banks. Even more, even further—there's a good reason they call these moves bailouts. The ship is sinking, folks. All hands off deck. Worst financial collapse in history, according to Bloomberg—and they're not the only one to say it.

What do you think? Does a government bailout help staunch the blood flow from an already profusely wounded economy? What does this matter to the everyday John and Jane down the block? I asked my six-year-old niece yesterday if she thought the economy was doomed or if we might get done with this backslide and start climbing back up soon, and she was doom and gloom all the way. She's a smart kid. Should we believe her?

Any financial gurus out there who can give us a better idea of what's going on and what to expect?

Here's some more coverage:

Philip Anselmo

For those who like to keep tabs:

"Between the $29 billion the Fed pledged to swing the Bear Stearns sale to JPMorgan in March, $100 billion apiece to rescue mortgage finance firms Fannie Mae and Freddie Mac, up to $300 billion for the Federal Housing Authority, Tuesday's $85 billion loan to insurer AIG and various other rescue deals and loans, taxpayers are potentially on the hook for more than $900 billion."

"'We're essentially continuing a system where profits are privatized and...losses socialized,' Roubini said, adding that auto makers, airlines and other struggling businesses would no doubt be asking for government help too."


Sep 17, 2008, 8:58am Permalink
Gabor Deutsch

Its very simple. The government loaned 80billion to AIG with a low interest rate to keep them from being bought out. People that owe AIG money are defaulting and it is causing loan and morgage companys to fold.
Good news, you might be able to re finance but if you need to bankrupt u better do it now.
Your morgage lender or bank loan will work with you on a lower rate now that they have government backing.
The economy wont crash because everyone still owes all loans and debts besides newly filed bankrupcies.
Also the government is funding this 80billin dollar loan with special treasury bills. And of course tax payer money. does any of this help?

Sep 17, 2008, 9:19pm Permalink
lazario ladou

"'We're essentially continuing a system where profits are privatized and...losses socialized"

want to change losses into ...mistakes socialized

Sep 19, 2008, 12:08pm Permalink

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