Comments on: What now?

By: Shoebox

Shoebox — Tue, 30 Sep 2008 17:52:56 +0000

Well, let’s look at what caused them to quit:
High gas prices
Increasing mortgage costs
inability to refinance equity in homes
and now, concern about income (jobs).

Gas has come down, soon to be $1 lower than the high, that will help as it will likely allow easing on issue #2. However, getting equity to spend on new TVs isn’t going to happend for a long time. I think the jobs picture will stabalize/improve as soon as the media thinks it should i.e. recession is when your neighbor loses his job, Depression is when you lose yours. Most folks it is their neighbor and should stay that way.

Short answer, I think some of this could settle early next year (after Obama waives his arms across the country to calm the economy!) However, things will not dramatically improve because the main driver of the past 5 or 6 years, equity, is not going to be there.

By: steveegg

steveegg — Tue, 30 Sep 2008 17:39:42 +0000

So noted. The question then becomes, when does the typical consumer begin to spend again?

By: Shoebox

Shoebox — Tue, 30 Sep 2008 17:29:35 +0000

“money back into the market” = suckers bet!
Even if the deal gets done, there is so much negative sentiment right now that each piece of bad news gets significant reaction down and good news is mostly discounted. I’m guessing this thing will turn based on the consumer concluding that machinations on Wallstreet are not impacting them. Until then, markets will gyrate. No “investing” is currently happening, only “betting!”

By: steveegg

steveegg — Tue, 30 Sep 2008 17:04:12 +0000

That’s why I said it’s not a direct comparison. I don’t believe there is a single entity that has the mix of businesses that AIG has, and the FDIC model depends on finding a peer.

Switching topics to the markets – money is flooding back into the markets (with the notable exception of the precious metals), erasing roughly a third of the loss from yesterday.

By: Shoebox

Shoebox — Tue, 30 Sep 2008 16:57:30 +0000

The one caveat I’ll give you on AIG is that it is a MUCH different animal that WaMu or Wachovia. The latter two are much more traditional banks and therefore easier to assimilate into exisiting banking institutions…AIG? Who’s their peer? Certainly a smaller group of buyers.

By: steveegg

steveegg — Tue, 30 Sep 2008 16:43:26 +0000

Do I expect that to happen? Yes. However, the longer AIG goes without a set of buyers, the less confident I get, especially if we get a D sweep (there’s my conspiratorial side again).

I’ll point out that the FDIC did manage to find buyers for both WaMu and Wachovia without dipping into the insurance fund. However, as I alluded to earlier, there’s potentially far more to be purchased than can be purchased in the current economic environment, and every bank that fails brings that point closer.

Also, while it isn’t a direct comparison, I believe that WaMu and Wachovia went for less than what AIG went for. The fact that we don’t have a private entity or set of entities able to take AIG tells me that we are very near the point of not finding private takers for failed banks.

By: Shoebox

Shoebox — Tue, 30 Sep 2008 15:58:46 +0000

Dad,

I’m a cynic, Steve gets closer to conspiracy theorist on this one (and I say that with all due respect!) I think we both agree that the RTC model is one that could work here. In fact, I think you are right in pointing out AIG in that it looks to be proof of that model i.e. buy assets that are technically bankrupt but have higher value than they are booked at and get them back into the hands of folks who can do something with them. The problem we both have is the extra crap tossed into the bill. I’m at the point where I would like to argue the ideology purist position but recognize the political reality. Steve is still hoping a pure RTC bill can get passed.

By: steveegg

steveegg — Tue, 30 Sep 2008 15:53:40 +0000

Is the institutional credit market any more liquid than it was (wasn't, really) just before the Feds took over Freddie, Fannie and AIG? If anything, it's locked up even tighter. I see nothing, other than greasy assurances by the seekers of the government teat, that says that spending another $350 billion for the distressed paper (which is all that would have been released this year) would have any more effect than the ~~economic stimulus~~ return-to-welfare package earlier this year.

By: dad29

dad29 — Tue, 30 Sep 2008 15:47:24 +0000

AIG approach that failed spectacularily

It failed, already?

The Fed will sell off the major components of AIG and recover the $85Bn in the next 12 months.

You expected what? A 1-day turnaround to find $80++Bn?