I spoke too soon yesterday. After Treasury Secretary Paulson apparently refused to bail out AIG, the Federal Reserve stepped in and cut the mortgage giant a check for $85 billion in exchange for 80 percent of AIG shares. That $85 billion of taxpayer money is just a loan, we are told, but I don’t quite understand the distinction between and loan and a handout when the whole trigger for this loan was that AIG is unable to pay back its other loans.
Once again, this is being covered everywhere in the MSM. Here’s a good overview.
Although a cut in the Fed funds rate had become widely expected by yesterday, the Fed ended up holding rates steady. Perhaps they are trying to limit themselves to one Wall Street bailout per day.
Today is a new day, however.
Or Three.
Today there are
Or Three.
Today there are rumors that the Treasury will set up a separate entity to absorb bad debt off of banks’ balance sheets. Why, that’s brilliant! What shall we call it? I know, I know, how about “Frankie Moe”?
Haven’t we tried this already? Isn’t the moral hazard of banks dumping bad loans on a separate entity (like Fannie and Freddie) so they can write new bad loans part of what got us into this mess in the first place? And do the bad loans just magically disappear into some void, or is this “Frankie Moe” just another entity that the Fed and Treasury will have to prop up with tax payer and newly printed money?
And yet, with this brainchild of Hank “I’ve gotten nothing right yet” Paulson obviously doomed to failure, this AP report (http://ap.google.com/article/ALeqM5gHs5OM3gFG_DytQQZFbWfgPT08MAD939DLH00) quotes an investor saying as good news goes “on a scale of 1 to 10, this one is a 13”. I never cease to be amazed…..