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Commentary

USSR is back

A day without an internet connection and look what happens. First, my Reliance WiMax gives up on me and, as it turns out, the entire lot using that tower, because something went wrong there.

Even with this severe disability, I was able to get myself off the computer and walk across to the TV, where the news seemed to be battering anyone watching or reporting it.

For one AIG was going under, but the Fed gave it a royal save. They decided to give AIG $85 billion as a loan for two years, at Libor + 8.25%. The debt, which was trading at 33 cents to a dollar, suddenly is made whole.

Horrible. $85 billion, no conservatorship. Taxpayers get 80% of the company. Debt tradign at 33 cents to a dollar yesterday gets 100 cents. Bailing out policy holders is ok. CDS insurance payout, ok. But why bondholders? It’s silly. With Freddie/Fannie I can even think of buying an excuse that they didn’t clarify what they meant by “implicit” guarantee of the government. But AIG?

The official thing is this would have caused havoc in the markets. Big frikking deal. Like there won’t be havoc. This is moral hazard. This is socialising losses, when the companies got to keep the profits. Forget where the money will come from, who’ll fund it, whatever. I think I remember that story.

This is back to USSR. United States, Socialist Republic.

(As you can see, the lack of internet puts me in a foul mood.)