The latest canard is the pretense at negotiations with AIG. If you recall, AIG, which is regulated by a host of countries at the insurance subsidiary level, came begging to Uncle Sam because it had a credit default swaps unit at the holding company level that had written unhedged policies that looked pretty certain to crater the parent company. Even though the subsidiary companies are well regarded (in many cases very well regarded) they cannot readily upstream cash to the parent. The only way to realize value is by selling them, and this isn’t a great environment for doing that.
What has been appalling about AIG is that Uncle Sam initially imposed a suitably puntitive deal but then for reasons that remain a mystery, relented . Since the federal government is NOT a regulator of AIG, there was no reason to expect the authorities to step in, save Ben Bernanke and Hank Paulson’s attentiveness to the needs of the financial sector generally. AIG has globe-spanning operations, and there is no good reason why the US public should be stuck with the consequences of their lousy risk management decisions. But not only did AIG get considerably more in loans in version 2.0 of its deal with the US government, but the terms on its initial loans were improved considerably.
I have to tell you, in all my years of private sector dealings, when a company comes back for more money, particularly when it has missed targets (as AIG did, it claimed the initial loan would be sufficient), the new money, be it debt or equity, comes on vastly more costly terms. And it is simply unheard of to revise an initial deal to be more company friendly. I do not know why the travesty of the kow-towing to AIG’s faux needs has not resulted in more ridicule.
And it only gets worse. AIG is on the verge of getting even more fawning treatment from a “sympathetic” government. Do little guy deadbeats get such kid glove treatment?
I have no use for the Big Three auto makers plea that they need government money. Unlike Yves Smith, I want to see them go bankrupt.
But I can’t help feel that auto unions and every other blue collar worker in this country have every right to be mad enough to chew nails. We will make an industrial company beg to get 20 billion and at the same time we shovel hundreds of billions of dollars at one white collar company that helped to get us into this mess.