- 14,808
AIG plan of action- for brokers & agents
- Thread starter HomeService
- Start date
Um, you can stop at 2012 - one of 2 choices:
1) The world ends (along with the Mayan calendar) or
2) The federal government increases both student and parental loans, which is pretty much what they've been doing all along.
Think about it: the federal government limits (actuarially) the amount of money that can go into a qualified retirement plan (pension). The federal government DOES NOT limit how much a college's endowment fund can grow to. The federal government MANDATES distributions from a pension plan. The federal government DOES NOT mandate distributions from the endowment (that I'm aware of, enlighten me if so), so who's making all the money? Do the universities with massive endowments (Harvard, Stanford, Yale, Berkeley, etc.) need to be continually subsidized by the feds by shoving loans down parents and students throats?
I'm just saying....
1) The world ends (along with the Mayan calendar) or
2) The federal government increases both student and parental loans, which is pretty much what they've been doing all along.
Think about it: the federal government limits (actuarially) the amount of money that can go into a qualified retirement plan (pension). The federal government DOES NOT limit how much a college's endowment fund can grow to. The federal government MANDATES distributions from a pension plan. The federal government DOES NOT mandate distributions from the endowment (that I'm aware of, enlighten me if so), so who's making all the money? Do the universities with massive endowments (Harvard, Stanford, Yale, Berkeley, etc.) need to be continually subsidized by the feds by shoving loans down parents and students throats?
I'm just saying....
InsuranceGuru
Expert
- 95
I'm no economist, Mr. Bill, so I can't really comment. A previous poster made the statement, "There aren't two people on this forum that have any clue what AIG going under would do to the economy."
While my reply is rather elementary in understanding, terminology, and specifics, I'd like to think I'm coming pretty close. The collapse of one market has already proven its affect on other markets. The reinsurance market (the equivalent of the secondary mortgage market) is a telling sign of the disaster.
And as the government continues taking more money out of the Fed to bail these industries out to stabilize their respective markets, we see the value of our dollar plummet. While not "directly" proportional, the value of our dollar is tied to the amount of the national debt.
I suppose the value of our dollar can never actually reach zero theoretically, as it is on an exponential negative curve, but the idea that a penny today could be worth more than a dollar in ten years is frightening to say the least.
Could it come to that? I dunno, I'm no economist, but Paul Grignon seems to explain it to me well enough for me to understand the dynamics at work in this...
While my reply is rather elementary in understanding, terminology, and specifics, I'd like to think I'm coming pretty close. The collapse of one market has already proven its affect on other markets. The reinsurance market (the equivalent of the secondary mortgage market) is a telling sign of the disaster.
And as the government continues taking more money out of the Fed to bail these industries out to stabilize their respective markets, we see the value of our dollar plummet. While not "directly" proportional, the value of our dollar is tied to the amount of the national debt.
I suppose the value of our dollar can never actually reach zero theoretically, as it is on an exponential negative curve, but the idea that a penny today could be worth more than a dollar in ten years is frightening to say the least.
Could it come to that? I dunno, I'm no economist, but Paul Grignon seems to explain it to me well enough for me to understand the dynamics at work in this...
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- 868
What are you smoking? Thats only the scenario if B. Hussein Obama gets elected. The world is interconnected if we go down it all burns. The powers that be wont allow that to happen
- 868
I am an economist and what companies like AIG do is underwrite risk. Without someone to underwrite risk, companies will never innovate, people wont save or invest, claims dont get paid and it is literally you on your own by yourself.
If AIG went down it would cause a cascade effect worldwide and that would devalue everything from bonds to commercial paper. State insurance pools would be diluted. What people fail to recognize is AIG is not bankrupt. They are in the same situation as any of us would be if we had to come up with a million dollars cash in the morning, most people are not liquid their net worth and neither are they. We are talking about a company with 240 business units and 1 bad one that is causing all this.
So the answer to what could happen might be armageddon at least financially.
True..... but......
There are other companies that underwrite risk as well. Even risks that AIG turned down could be placed with companies like Lloyds of America / Lloyds of London. Would AIG failing cause all risks to have a problem?
Nope, not even close. As you mention, it's only 1 business unit that is having this level of trouble, enough that it is sinking the other 239. The problem here is that this tells you that AIG did not have any common sense on how to run a company this size, or else, why wasn't this business unit isolated a long time ago? For this lack of foresight, we should double the CEO's bonus this year. (yeah, just kidding).
Problem is, the one business unit is the one that insures mortgage-backed securities, in essence, doing the same things that Fannie and Freddie did, except in mortgages that were deemed to risky for Fannie and Freddie to accept, I'm assuming that this are mostly loans of higher value.
There is a common thread to virtually everyone of these problems. The problem with any solution is that the government can't regulate real estate prices on a national scale, meaning that if the free-market sets prices, then they will fall (or rise) at the will of the free-market, which is the risk that is involved.
The solution on the consumer side (i.e., houses) is much simpler than it is on the commercial side, but both are very complex, and in the end, there isn't a great solution. Banks already have excessive inventory of houses, they are bending over backwards to help people who can afford their mortgage to stay in their houses. For people who can't afford the mortgage, while painful, the truth is the faster they get thrown out, the sooner we can move forward.
Commercial real estate sitting idle has multiple problems, it means no jobs, no tax income, lower home values, etc. Problem is, nobody wants to help the business owners, they only want to help middle-class america, since the mean business owner had to close down the shop, the joe 6 pack is now unemployed.
How much of this does AIG itself impact? I'll repeat my position, there probably isn't 2 people on this board that really can accurately answer that. Much will be learned in the next few days though....
Dan
- 868
Partially true however
1) Lloyds does not have size or scope needed to fill that need. They are aspecialty insurer
2) The biggest problem is this: companies use underwriting to foresee risk. The problem was the rating agencies were calling these CDO's and CMO's AAA rated, one step below treasury in their minds.
3) Another problem was the due dilligence that would normally be done by a lender was not done since they werent holding the paper long after origination.
4) These loans were packaged into bonds presumably as performing assets when in reality they were C paper.
5) Pressure was put on companies to lend many cases of 20k earner qualifying for 10X that in house, Many creative lkoans structure 80%LTV loan then 2nd loan to cover the remainder. So many consumers had little skin in the game. Coiuple that with cash out refinancing and eventually any hot market will collapse.
The solution is simple
1) let the problem loans be foreclosed on
2) Negotiate terms with people who can affford the payments
3) Sub prime borrowers will be left worse off but they can see at least they were homeowners for awhile
4) Speculators will buy the homes at rediuced value and when market stabilizes make a profit.
5) Tighten loan stds to those who can afford homes (min 700 credit) and income of 50K and requite 10-20% DP without exception
The story of capitalism is pain for some and profit for others. It is often a zero sum game
- 868
My first career was Wall Street and while I decry market intervention it has become necessary to stabilize the system.
Think about one thing counterparty risk
Imagine the following scenario you want to buy a stock but there is no trading system in place to make a market for it because no one trusts anyone else.
Or think of it simpler: Imagine there was no rating agency on life insurance and no one knew their stability
In that system commerce would grind to a halt because there is no one to extend commercial paper, no one to back annuities, no one to underwrite property in New Orleans at any price.
We as americans want everything convenient and low priced but without companies that mitigate counterparty risk all commerce would just be barter trade
Think about one thing counterparty risk
Imagine the following scenario you want to buy a stock but there is no trading system in place to make a market for it because no one trusts anyone else.
Or think of it simpler: Imagine there was no rating agency on life insurance and no one knew their stability
In that system commerce would grind to a halt because there is no one to extend commercial paper, no one to back annuities, no one to underwrite property in New Orleans at any price.
We as americans want everything convenient and low priced but without companies that mitigate counterparty risk all commerce would just be barter trade
The scenario you describe is exactly what is going on right now in the Russian markets (stocks as well as bonds) - we Americans are so completely financially uneducated, we have that dumb "it can't happen here" mentality. Guess what? It is happening.
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