Buddy system.

"You can only hope and pray the solution presented to you is going to be something else except a blatant bailing out of Paulson’s buddies at your expense."

This is not looting. This is needed in order to "preserve the economy," or so it was presented. Certainly resembles looting to me.

The, were AIG to force it's counterparties to 'take a haircut' then the bond ratings on any of these insurance guarantees would immediately drop down below AAA levels, and thousands of bonds would be required to be dumped by pension plans, investments groups, etc. that only hold the top-grade bonds....and the uncertainty in the system, of even just a partial haircut, would freeze credit markets and start dumping bonds into a falling market....but this is insurance on trash, sub-prime mortgage backed securities and it just stinks to High Heaven that the CEO of Goldman Sachs was there a the treasury meeting about the bailout of AIG.

Plus, the continued distribution of bonuses to the financial 'Masters of the Universe' is just such and issue of fairness and a very easily defined target that it make me want to take up the pitchfork.

So yes, we had to stabilize the system and make whole the counterparties, but GS should have been made to take a haircut elsewhere.....It is infuriating.

Paying back 100 cents on the dollar pisses me off. I understand that after Lehman, a bailout was necessary. AIG is holding the global economy hostage. We have to give in to some of the demands. Pay back 50 or 60 cents on the dollar.

Under any bankruptcy proceedings, the creditor's know that they won't get 100 cents on the dollar. What makes this different? Give the bankrupt banks enough to exist and keep the economy from collapsing, but no more than that.

How's this for a bonus structure: If your going to give bonuses, have it tied to the ability to wind down the CDS payments. The bigger the haircut, the higher the bonus. Nah, just mandate a haircut and forget the bonus.

Goldman Sachs sure pulled the strings as the MSM pretended not to notice.

We don't want to pay for the losers credit default swaps.

Goldman Sachs' CFO claims they had hedged against losses on the CDS! So not only did GS receive a windfall in that its CDS did not reflect the spread (and hence were not discounted due to their underlying risk), but they cashed in on their hedged position against AIG itself. Heads I win, tails I win twice.

As to haircuts, I've gotten to the point where I believe that Geithner believes there's some unstated systemic risk associated with nationalization's haircuts. (Speculation: fear that wiping out pensions' bank investments will require another bail out? Or is it avoiding pissing off sovereign funds, particularly China who got into the equities game in 2007-08?) I think Geithner won't say for fear of spooking the market.

If it's true that a bailout of shareholders is systemically necessary, then the haircuts associated with nationalization (the key to it working) aren't possible. In that case, Geithner's plan to at least subsidize the Paulson plan with some private capital (no matter how nominal) may be a decent option. That's some ridiculous speculation, but it at least explains how Geithner could be acting rationally despite the seeming despairing stupidity of our current course.

Quote: Citing the lack of regulatory authority over a financial institution the size and complexity of AIG, Geithner began to answer: "We did not have the ability to selectively impose losses on their counterparties..."

Last I looked, AIG was effectively bankrupt until the US government rode to the rescue using taxpayer's wallets to pave the way. If GS had CDS contracts against securities they actually owned (and therefore had some sort of actual insurable interest in), that's one thing. But if GS had merely been placing bets via CDS instruments (unregulated gambling is what it is) that this whole MBS/ABS/CDO/SIV mess was going to blow up, that's another thing entirely.**

So...regulatory authority my...donkey. This is taxpayer money we are talking about here.

**If GS or others wanted to then sue the US government for not paying off the unbacked gambling debts of a bankrupt company, we should have let 'em go right ahead. $12,900,000,000.00 will pay for a LOT of litigation. Actually, now that I think about it, GS wouldn't have a claim against the US government...because although the government now effectively owns AIG (or 80 percent of it), stockholders in a corporation (which is what the government is in this case) are not liable for the debts of that corporation.

You wrote "were AIG to force it's counterparties to 'take a haircut' then the bond ratings on any of these insurance guarantees would immediately drop down below AAA levels and thousands of bonds would be required to be dumped by pension plans, investments groups, etc. that only hold the top-grade bonds."

Here's my question: Since AIGFP was in the biz of selling CDS contracts, and since CDS contracts don't require the buyer to actually have any ownership or otherwise insurable interest in the instruments for which they are seeking CDS, what exactly is your evidence that in the case of, say GS, that forcing a haircut would have any effect on bonds they don't own what so ever?

...well, maybe more than two.

It seems to me there is a time to take drastic measures to 'save' the global financial system and a time to clean up operations and regulations, and the two should not be endeavored at the same time.

I think it is clear that a great deal of the 'bailout' was in effect returning a portion of a good trillion dollars that was 'stolen' from foreign investors via criminally-mis-rated securities and that the act of returning those monies was an acknowledgment that the US *is* a respectable partner in the global economy and worthy of future investment and trust by the rest of the world.

Protectionists and anti-globalists will cringe, but the future must be global. We must engage each other and intertwine our interests and resources and pursue honesty and integrity if we are to continue to evolve and eventually reach stability and security. This is anathema to many -- many Americans do not want global peace and prosperity.

To watch the hearings today was cringe-inducing -- Politicians are not economists and to listen to them babble on and grill the 'suspects' about topics they have no understanding about was depressing. All I could think of was ".1%" We are wasting these guys time over .1% Get over it. Let them get some traction and begin to fix the situation and then we can address regulations and operations when things have cooled down.

One last thing...

I was talking to an acquaintance who was against any bailout -- this is someone who is financially successful in the auction/foreclosure REO business and not involved in the 'market'. This 'financial whiz' was under the impression that the trillion dollars would be better spent giving 'every U.S. adult a couple-hundred thousand dollars" instead of shoring up the economy. When I did the math for him and showed that it would be more like $4000 per person, he was shocked. That is all it is? He could no longer argue that that couple thousand wouldn't be better put to use in public projects that would spur orders from manufacturing and construction(and supply and transportation) or that would unarguably create more than $4000 in return.(I hope that managed to come out right)

We never flinched at 'trillions' when we were pursuing 'oil riches', why the furor now?