Bailout Watch 48: AIG SOS = GM RIP?
Earlier today, Merrill Lynch upgraded GM to “neutral.” The fact that this is the same Merrill Lynch that’s teetering on the brink of bankruptcy, the same Merrill that hoovered-up the remains of GM’s busted deal with FIAT back in 2002 (buying The General’s 5.1 percent share of the Italian automaker at a fire sale price of $1.16b), has absolutely nothing to do with it. Anway, Merrill’s optimism re: GM could be about to disappear; the upgrade was based almost entirely of the possibility that The General will scarf low-interest loans from you-know-who (hint: you). That’s because Uncle Sam has agreed to an $85b loan to insurance giant AIG to stave off bankruptcy (AIG’s, not Uncle Sam’s). This dramatic development could cut one of two ways for GM. The AIG bailout may increase the likelihood that Motown will score its $25b+ federal bonanza (the Daniel Howes “You Saved Wall Street So Why The Hell Not US?” prophecy). Or it will decrease Detroit’s chances of immediate federal assistance significantly (the Holy Shit bailout fatigue non-option). Place your bets now. But as far as your tax dollars or the free market is concerned (the feds now hold an 80 percent share of a formerly private insurance company), any way you look at this, you lose. Who wants to own GM? Not me.
Pch101: What you say is true in large part, but the situation has come to this point because the big boys wanted to take care of the big boys regardless of the OBVIOUS risk to the society as a whole. And now today, after the AIG action, it's the credibility of the US Fed and Treasury as a whole that's coming into question. The cost of insuring against a default by the US has risen dramatically. We're considered to be less safe than Australia; not as bad as Russia yet. Silver is up 11% today, gold up over 9%, but 'somehow' the USD is down barely at all. I have to believe the Mid East and asian holders of the USD are pulling it out in huge quantities, and the USD is being supported by our govt. This can't go on, and if/when it fails, the failure of AIG would be a blip in comparison. It's like the mess in Iraq; it's a near impossible problem now but could have been easily prevented earlier.
I heard that the reason that all these brokers and AIG went into Death Spiral Mode was because they killed the "uptick rule" for stocks. How much truth is there to that? I like the idea of deregulation...so long as the remaining regulation works.
I think the easy money for the common consumer eventually became a feedstock byproduct of the financial game of the derivative and collateralization game. Thousands of foolish people were eager to sign on for a mortgage deal they couldn't support and go nuts on credit cards they couldn't support which became raw meat for the financial magicians to mix with a ton of hamburger helper of their hugely leveraged 'instruments' and walk away with billions. Now we have the residue. The game was set up to end up just where it's going. All kinds of offshore orphan corporations established with the sole purpose of isolating the perpetrators from responsibility and claw back when it went down. This stuff went on and was certainly not a secret to anybody in the business or with a legislative or regulatory role. I guess there's no point in getting excited about it; it's just the way we do things.