I’m not a financier, econ guy or anything else like that (just econ 101 in college in ’70s), rather a ME, musician and last 18 yrs a programmer.

However, I got wind of this thing coming last March (’08) as contractor working on data center by a group of banks attempting to trace mortgage paper downstream. Quickly became clear what was ahead, w/ARM rates due to kick in etc etc.

I’ve spent literally a few thousand hours since becoming a money guy, and have managed to stay ahead of the curve… no losses on my life savings except for home devaluation.

With that said, in my view given enormous reach of this whole thing, as a metric for evaluating what the feds should (not) do I don’t accept wholesale bailouts of any 1 sector, whether investment banks, AIG or whatever. Whether “unfreezing the credit” system or preventing “global financial failure”, seems to me that’s pretty much happened anyway.

Beyond that, however, at least for me… the notion that these guys who did all the damage are being recapitalized on taxpayer dime w/debt borrowed from future taxes is surreal. Particularly given how far US has fallen behind in generation of real economic value… where’s this income going to come from?

There’s just way too much wrong throughout financial system to explain TARP/”stimulus” and all the rest as an attempt to “fix the financial system.” I say this based on my experience navigating around this system to save my little pot of gold, and the ignorance of financial “professionals” I dealt with along the way.

I had a lot of fights (shouting, not bad feeling) w/wife, my grown kids, and 87/88 yr. old parents advising they get out of market when DOW was still about 1k. Reasons were obvious:

a) paper value replaced the real kind
b) depractation of real US econ activity’s homegrown value masked by cheap imports… eg. who the hell’s gon’a pay for these 10/30/60/100% higher ARM mortgages, and who’s gon’a catch guts of the thing when bottom starts dropping through the floor?
c) In my home town (Albuquerque), every single money manager… every single one: Schwab, Wells, Owner of largest most prestigious Accounting firm in ABQ (and bunch of others) kept telling fore-mentioned family members the same thing: don’t pull your investments, this is just an adjustment. I argued it was an impending cascading collapse. Point being, not a single one of them… not one, had done their homework sufficient to be armed w/underlying facts which indeed have played out. In one form or another, they relied on “advise” handed to them by their employer’s investment arm, WSJ (always behind the curve), rating agencies, etc etc.

How can a financial system be solid when most of it’s participants do not understand it’s functioning? When the “professionals” a public relies upon are, with all due respect, pass through bots w/little or no authentic POV based on evaluation & knowledge of underlying realities?

And that’s just a cursory introduction to way I see things.

And please don’t misunderstand me… I’ve been reading this blog (and few others, along w/Roubini subscription) since early last year. Aleph has been among top tier source of good understanding and reliable education for a neophyte like myself. I’m grateful… thanks.

I’m just expressing my POV, and it’s pretty well hardwired now: my “finger to the wind” has served me well, and I’m not likely to usurp my finger’s judgment in financial matters any time soon.

Based on Bush’s team’s (non) corrective actions, and even worse Obama’s (I walked streets to get him elected, managed precincts etc.), personally I see no meaningful recovery based on implemented programs, and very real possibility of US falling into 3rd world status economically.

With Obama’s very scatter shot spending (really hits no target squarely), dependence on entirely broken finance for “recovery”, and utter lack of making distinctions which identify culprits and sinkholes in system that got us here… this one’s just too big. I don’t think it’s going to work, and AFAIC it’s fool hearty.

Ok, well just my $.02 worth (now about $.0123 and dropping fast), and thanks again for your excellent musings on this blog.

Level two is: how would you bailout at the least cost to society? 1) Only bail out entities that are regulated, according to previously described rules. The FDIC is an example here. 2) Exception to rule 1 — if a non-regulated entity’s failure would cause much of the regulated system to fail, bail out only the element that threatens the solvency of the regulated system. Let the rest fail.

We might look at AIGFP and allege stupidity. Why do we bail out stupidity? Because intelligent parties looked at AIG as a whole and said, “No way that could go down,” and accepted them as a hedge counterparty, in the process getting the better side of the trade. Seemed like a good idea at the time. My guess is that a failure of AIGFP would have led to the failure of most of the big banks of our world, and that would bee too big of a risk to take.

We live in a fiat money system. Fiat money systems rely on controlling credit. We did it badly on the way up, we’re doing it badly now, but protecting AIGFP while letting AIG fail would have been the right move, together with taking losses on AIGFP at least partially out of the hides of AIG bondholders.

If there were systematic risk issues, guarantee the derivatives counterparty, and send the rest of AIG into Chapter 11.

My view is most of the counter parties were “insuring” mortgage bonds, correct? AFAIC, these things were as fraudulent as AIG’s “insurance.”

Why would you advocate pumping fed $$ into CDS counterparties w/out opening their books first? Why has AIG incurred all the wrath, when (at least as I understand) much large culprits are investment houses?

In the context of financial/insurance companies such as AIG can you explain the distinction/interrelationship between the holding company and operating company (subsidiaries). I’m not sure I fully understand this. Thanks for your time.