Bailout and financial crisis

Business Money
1

Bailout is only temporary solutions to cover what lost by financial or other industrial sectors. Bailout money is public money used to please rich sectors. This adjustment to relieve them is may be by pruning necessary social projects or overburdening its citizens with direct or indirect taxes. More taxes mean lesser expenditure is best way to worsen economic growth. Bailout does not mean better future of these sectors due to low financial demand from loss making or reduced output of industries.

  1. Growing competition in banking and housing sectors to attract more and more consumers without evaluating personal capacity and uncertain economic condition of consumers rendered heavy losses to lenders and builders. Cheaper interest rates enticed customers without realizing the consequences of economic depression.
  2. Tough competition and soaring running unit cost or failure to achieve expected to meet target rendered axing work force as cost cutting measure.
  3. Heavy bull and bear investments on escalated valued of stocks during boom time began busting during demand crisis led to heavy losses to both categories.
  4. Tough economic conditions of families rendered by high fuel, food, day to day use, education and prices of others made more and more consumers defaulters.
  5. Job losses and uncertain future is major factor to render demand crisis resulted to ax work force.

Final decision of moving economy is by the final customers who already have lost to high living cost. Improving citizens buying power would yield the result. Many factors are involved for the present banking and industrial crisis among them major reason is defaulting final customer. Think about:

• Present artificially escalated cost essential commodities through over speculative futures trading. Lacks of productive resources for investment, most investments are done in speculative unproductive sectors like housing, stock or other markets. These tend to create artificial demand and artificial price hike in hope more profitable business. Finally lack of demand from real needy customers dooms the market.

• Change economic pattern, both rural and urban economics be developed in same priority. Major Asian economies have gone into crisis as they relied on exports of basic commodities and manpower to developed countries resulting failures as have no demand in their own countries due to extensive poverty level.

• Generating employment in both rural and urban sectors is must for any economy to grow as a boost to generate demand. Countries pumping funds into economy to build confidence among citizen by way of concession in direct and indirect taxes. Promoting small and medium sectors to consume and generate more employment. These neglected sectors are ways to help consuming part or full time employees.

• Finally any economic crisis or promotion is determined by the individuals of a country who buy and sell commodities or services. Country’s growth is based on the power of its individuals. Simply scaling down of inflation index or GDP growth on paper does not help real evaluation of actual growth of any economy. Inflation indexed increase or decrease is only to satisfy regulators themselves but for normal citizen it is the price of vegetable, cereal or any essential commodity that matters which practically rose by 200-300% whereas the inflation index indicates opposite to it or minor increase. (WPI) there is also variation of wholesale price and final price what a citizen pays for commodity, to get correct inflation figure retail price of the commodity that matters (CPI). Normal human has nothing to do with any high valued industrial commodities so inflation index need to classify essential and non essential commodity. Similarly, GDP growth indication too fails in countries where 50% of rural citizens are unemployed or semi-employed. Actual GDP grows when major portion of working population is engaged in production present industrial growth is beneficial to only limited nearly 5 to 10% of total population. A present economic indication criterion is totally baseless for a country which has among the largest poorest living population in the world.
http://www.sadashivan.com/distressingfacts/id8.html

2

Yeah, I agree completely, we’re f*cked.

3

Speaking of bailouts. . . and speaking of being f#cked. . . looks like another industry is looking for a stimulus package.

[quote]Porn industry bosses seek bail-out

Porn barons in the US have called for a multi-billion dollar bail-out of the adult entertainment industry to help it through the “hard times” ahead.

Hustler magazine publisher Larry Flynt and Girls Gone Wild chief executive Joe Francis issued a joint plea for Congress to pump 5 billion US dollars (£3.3 billion) into the sector.

They claim that the economic downturn is hitting the porn business and that federal assistance is needed to boost the nation’s sex drive. The pair add that they deserve the same treatment offered to banks and the automobile industry.

In a statement released on Wednesday, Mr Francis said the cash injection was needed “just to see us through hard times”. . .

The porn baron-turned-campaigner said: “People are too depressed to be sexually active. This is very unhealthy as a nation. Americans can do without cars and such but they cannot do without sex.” . . . [/quote]
google.com/hostednews/ukpres … fKColMCtrw

4

Well, in hard times, people need a hand.

5

Las Vegas stripped by deep recession. Don’t believe it….! It so happened that I had to visit Las Vegas for Home furnishing trade fair (related to my business) in World Market Center. When landed the land of Las Vegas I realized the affect of recession. Empty roads and empty heavy discounted hotel rooms represented the declaration of heavy recession, confirmed by the hotel receptionist and the taxi driver. The present deserted Las Vegas looked like an age old desert land.
World market center once was packed with vendors and customers did not seem to gather crowd this time. There was enough number of exhibiting vendors as usual but failed by minimized visiting retail customers. Customers visited from Brazil, Mexico, Canada, Honolulu, other parts of US, and neighboring countries gave negative indication, rather avoided over buying for their stores. Many deals ended up in heavy bargains. The show however, did not turn up as expected. In fact I work as representative for overseas importers of home furnishing textiles, thought could manage approaching exhibitors. Many commented “O! Boy no homes no home furnishings.” Realized chose wrong time to visit and wasted money on the trip. An alarming signal to US administrations to bring solutions to overcome as soon as possible, delay will only aggravate unemployment. Small industries and shops would wind up.
Mange to put full stop on excessive escalation of housing cost so housing become cheaper so each house has new curtains/ cushion, bed linen, bathmats rugs are bought and decorated in new affordable houses.
Actual bailout needed for small and medium textile sectors so can survive this crisis. An incentive program on made in US products and gift items, as this sector consumes more employment without special skill than a car or weapon industry.
Research and education in agricultural sectors so fullest utilization and consumption is achieved even from the agricultural waste.
Each morning me and taxi driver chatted different subjects but finally ended up economic crisis blaming mortgage crisis. But none realized mortgage was not the real crisis rather lack of buying power and artificially escalated cost of housing and essential commodities led to unaffordable situation. O! Boy Life in US is gonna crazy V low income will end up crazy, income slashing 30-40% down “Wanna bailout for safe life.” “We have many layoffs and closures. Unemployment is real hell we need to get out of it.” Hey! Obama middle and low income who I chatted with, favor you in they expect also a lot from you be prepared.
Next generation solutions are to handover money to the citizens and ask them to spend on non essential luxury goods and give record and save tax. US$ 13 would only be enough to 13 water bottles would never serve purpose if spent on essential commodities as demand of essential commodities does not decline that fast as the MP3 or camera.
Housing prices will go on crashing until real customers afford to buy. Affordable Mortgage rates possible only when housing values reach at real prices. Keep check on speculators. And invent productive investment resources so money is not wasteful investment.
Life of low income group is real hell. A woman in world market center, worked for a coffee vendor explained “I start working at 7am and end at 10pm. That’s not finish I sleep at 2 am because of my child.” Even then I do not get enough money to manage. Shows how competitive the labor market is? Is not the story of one woman alone, the entire low and middle income group would narrate the same story!
Creating more jobs and resources are the only solution to put to an end to labor competition.
In Los Angeles many illegal immigrants working for cheaper wages eating away jobs. Incentive and disincentives for own population at work. Click to watch Las Vegas music
http://www.youtube.com/watch?v=OCLoL2PS03c
At airport An African American taxi driver to me “Good day enjoy your trip, no to worry! Its recession vanish in 2 years. Love India and rich culture”

6

Damn! Why does MY company have to suffer from the global crisis and cut back from top to bottom, but those companies who actually CAUSED the mess get bailed out and pay sweet bonuses? What a fucked up world.

[quote] A.I.G. Planning Huge Bonuses After $170 Billion Bailout

The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.

Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.

The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.

The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the government’s efforts to prop up Wall Street. Past bonuses already have prompted President Obama and Congress to impose tough rules on corporate executive compensation at firms bailed out with taxpayer money.

A.I.G., nearly 80 percent of which is now owned by the government, defended its bonuses, arguing that they were promised last year before the crisis and cannot be legally canceled. . . .[/quote]
nytimes.com/2009/03/15/busin … IG.html?hp

Ok, so they can’t legally hold back the bonuses; but can they simply shoot all the top executives? :s

7

Why is the new owner (the US government) obligated to uphold the contracts? Without the bailout there would be no AIG and hence no bonuses.

8

A contract’s a contract, I guess.

Apparently AIG was contractually obligated to pay the bonuses to its employees prior to the bailout, and as a result of the bailout the govt acquired 80% of the company, but that doesn’t affect the validity and enforceability of those employment contracts.

I have no idea why they wouldn’t have looked into that and been fully aware of it before handing over $170 billion. I handle M&As for my company and that’s one of the most basic of due diligence questions: what sums is the target company legally obligated to pay to its management and employees. That’s always part of the calculation: assets, liabilities, contractual and other legal obligations.

If they weren’t aware of those obligations they were monumentally incompetent. If they were aware it seems they were also monumentally incompetent for not demanding that those obligations be renegotiated prior to handing over the dough. Perhaps lots of top management might have left the company, but tough shit, they obviously aren’t worth retaining anyway with performance like that.

It was reported a week or two ago that AIG lost $62 billion in Q4, the biggest quarterly loss in US history. For that they’re being rewarded with my money. :eh:

9

So the White House is trying to take back the bonuses, which have already been paid out. Will taxpayer money be used to pay back taxpayer money?

[quote=“The White House Seeks to Block Bonuses at A.I.G.”]

White House officials said the Treasury would recapture the bonus money by writing new requirements into a $30 billion installment of government aid scheduled to go soon to the ailing insurance conglomerate. The government has already provided $170 billion in taxpayer assistance to keep A.I.G from failing andnow owns nearly 80 percent of the company.

But administration officials conceded that almost all of the most recent round of bonuses, totaling $165 million, had been paid last Friday, one day before the Treasury publicly acknowledged that it had reluctantly approved the payouts. The officials said that people who received the bonuses would probably be able to keep them.

By seeking to link repayment of the bonus money to the coming $30 billion in assistance, the administration seemed to leave open the possibility that the company would effectively be repaying taxpayers with taxpayer money. A Treasury official disputed that taxpayers would be repaying themselves, but could not specify how else the company would give back the money. [/quote]

10

That’s messed up, heads should roll for allowing those guys to steal money which is basically what they are doing taking bonuses and dumping billions on regular people in future taxes.

11

Someone fucked up badly. They paid out bonuses in December so this isn’t a surprise, and as the NYT article said, the administration knew about this for a couple months already.

I think what happened is when they first started bailing out AIG no one thought to look at what the contracts said for bonuses. They just wanted to keep AIG from going under because they had insured so much in credit default swaps and mortgage backed securities. That oversight, in order to try and quickly prevent a total meltdown instead of the 3 mile island situation we have now, is biting us in the ass now.

12

Someone fucked up badly. They paid out bonuses in December so this isn’t a surprise, and as the NYT article said, the administration knew about this for a couple months already.

I think what happened is when they first started bailing out AIG no one thought to look at what the contracts said for bonuses. They just wanted to keep AIG from going under because they had insured so much in credit default swaps and mortgage backed securities. That oversight, in order to try and quickly prevent a total meltdown instead of the 3 mile island situation we have now, is biting us in the ass now.[/quote]

Agreed, they fucked up extremely badly. If one is considering making a substantial investment in a company, it goes without saying that one must first perform a prompt due diligence inquiry, including reviewing the company’s assets, liabilities and legal obligations, and one of the most basic items is reviewing all agreements of upper management for their terms of employment, compensation, bonuses, etc. That’s just standard procedure in every corporate investment.

But apparently they failed to do that in this case. And this isn’t just any piddly little investment, it was the investment of first US$140 billion, then another $30 billion. In other words, it was a HUGE investment, so they should have used even greater care to perform proper DD in order to structure the deal in the best manner, negotiate agreements effectively, etc. But they obviously didn’t.

Heads should definitely roll. In a company such massive incompetence definitely would not be tolerated. Nor should it be in the government. But that’s secondary. More important is the government should fight like hell to find some means of remedying their massive screwup and avoiding or at least reducing the payouts (after all, it’s $160 million, or so; another million in attorney fees, while regrettable, should be worthwhile), though admittedly it sounds like the government has a tough case.

13

So now they are thinking about Congress passing a special AIG bonus tax to try and get back the money.

[quote=“Senate Banking Committee”]
…

We insist that you immediately renegotiate these contracts in order to recoup these payments and make the American taxpayer whole. If you are unwilling or unable to complete these negotiations, we stand ready to take the difficult, but necessary step of enacting legislation that would allow the government to recoup these bonus payments through the tax code. If we are forced to do this, we will impose a steep tax, perhaps as high as 91 percent, that will have the effect of recovering nearly all of the bonuses.

… [/quote]

While this is popular with the masses right now (populism at its best!) Ruth Marcus had an interesting editorial at the Washington Post that I found and thought I should share. There is an interesting point she makes, in contrast to what the braying crowds are demanding, that’s quoted below.

[quote]So I understand Obama’s railing against the bonuses – but I think he may be making a mistake, both short-term and long-term.

“This is a corporation that finds itself in financial distress due to recklessness and greed,” the president said on Monday. “Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?”

Well, because in the short run, hammering the AIG employees to give back their bonuses risks costing the government more than honoring the contracts would. The worst malefactors at AIG are gone. The new top management isn’t taking bonuses. Those in the bonus pool are making sums that for most of us would be astronomical but that are significantly less than what they used to make. Driving away the very people who understand how to fix this complicated mess may make everyone else feel better, but it isn’t particularly cost-effective.

In the longer term, having the government void existing contracts, directly or indirectly, as with the suggestions of a punitive tax on such bonuses, will make enterprises less likely to enter into arrangements with the government – even when that is in the national interest. This is similarly counterproductive.

Remember, the contracts were negotiated long before the government put a cent into AIG. “The plan was implemented because there was a significant risk of departures among employees at [the company],” AIG wrote in a paper explaining the plan, “and given the $2.7 trillion of derivative positions at [the company] at that time, retention incentives appeared to be in the best interest of all of AIG’s stakeholders.”

And federal legislation explicitly states that compensation limits for companies receiving bailout funds do not apply to preexisting contracts. Not to mention that the existence of the retention bonuses has been known for more than a year.

“That was then and this is now” is not a valid legal principle. “We are a country of law,” Obama economic adviser Lawrence Summers said Sunday. “There are contracts. The government cannot just abrogate contracts.” He was right. [/quote]

I think her analysis is spot on. While the government may have to hold their nose while they pay the bonuses, and take flak from the chanting crowds, trying to recoup them is a bad idea. Pay it, make sure future agreements don’t have bonuses written in (and negotiate them out as necessary) but don’t flaunt contract law. Doing so will only weaken trust in the rule of law, the government and serve to raise the fear that the government won’t honor it’s agreements. Contracts are binding, enforceable agreements not subject to the whim of public opinion.

14

I think her analysis is incredibly stupid.

Irrelevant. AIG exists solely because the taxpayers saved it. I don’t want my tax dollars paying seven figure bonuses to those idiots.

Ah yes, how “spot on.” A bunch of clowns who insured a bunch of other clowns who took advantage of weak regulations and lax rating agencies to sell complicated financial instruments underpinned by high risk assets to yet more clowns with similar motives and intelligence are just the clowns to “fix this mess.” Save us, oh wise ones!

AIG was faced with the choice of going under or accepting government ownership. Is this author really so stupid as to believe they wouldn’t have taken the deal if the government had limited bonuses?

I don’t want the government to honor agreements that involve sending my tax dollars to hucksters. But it did. Whatever miniscule, irrelevant little scuff the rule of law temporarily suffers as a result of the government getting that money back is well worth it.

15

Performance bonuses for helping to take down AIG and the economy around you??

Sign me up pronto!

The USG should have let AIG be forced into chapter 9. Then those wonderful traders would have ended up near the bottom of the creditor pyramid. Let them come hat in hand.

Bush’s and Obama’s teams should have known better than to give out money with no real oversight of this sort.

16

Let AIG pay its contractual bonuses out of “profits” earned, not out of taxpayer bailout money. That should solve the problem of rewarding incompetence nicely and be perfectly kosher contractually as taxpayers aren’t parties to that contract.

17

You’re entitled to your opinion. Care to elaborate why?

You, as a taxpayer, don’t get a choice in the matter. Yes AIG exists because we taxpayers own 80% of it. Contracts that were in place before the bailout are still legally enforceable unless in the negotiations they were specifically addressed, altered or canceled.

No but it is irrelevant. The government didn’t do its “due diligence” as Mother Theresa pointed out. The contracts are still enforceable and the courts will uphold the contracts. You don’t get to gut the contracts law just because the recipients are slimy.

[quote]
I don’t want the government to honor agreements that involve sending my tax dollars to hucksters. But it did. Whatever miniscule, irrelevant little scuff the rule of law temporarily suffers as a result of the government getting that money back is well worth it.[/quote]

I don’t want my government to throw out hundreds of years of contract law because of a public outcry. I want to know that if I enter into a contract that it is enforceable for everyone, including the government. It isn’t a minuscule, irrelevant little scuff when you ignore all legal precedent and try to break contracts. That is a scary proposition in which the laws we have are subject to the whims of whoever is in power. Laws shouldn’t be for the sole purpose of punishing or benefiting one company.

18

Unhappily, I must agree with you, at least that we shouldn’t be so ready to void contracts. I’m very unhappy with the Treasury Dept. and why save AIG but not another bank? It’s still unclear to me what the criteria and factors for “too big to fail” is such that one bank, but not another, deserves a bailout. That said, I think we need to look at the contracts themselves, see if there is a legal way to void them.

19

I don’t want my government to throw out hundreds of years of contract law because of a public outcry. I want to know that if I enter into a contract that it is enforceable for everyone, including the government. It isn’t a minuscule, irrelevant little scuff when you ignore all legal precedent and try to break contracts. That is a scary proposition in which the laws we have are subject to the whims of whoever is in power. Laws shouldn’t be for the sole purpose of punishing or benefiting one company.[/quote]

I’m with Obama (and Gao bo han and most everyone else) on this one. I read that article yesterday and didn’t buy it at all. Here’s what the article said about the sanctity of honoring contracts.

That’s complete hogwash. Yes, the government completely screwed up, repeatedly, in not recognizing those apparent contractual obligations before making two huge mult-billion dollar investments. They should have seen them in advance (assuming AIG didn’t fraudulently deceive, mislead or fail to disclose them in response to the government’s requests) and demanded that they be substantially modified if AIG was to receive any money.

But, just because the government screwed up and handed over the money without doing their job properly, doesn’t mean (a) the contracts are legally enforceable (maybe they are, maybe they aren’t; it depends on the exact terms of the agreements and other facts the lawyers are presently looking into) or (b) it would be some bizarre dirty trick for the government to try to alter or void the provisions now, and certainly (c) it wouldn’t be “throwing out hundreds of years of contract law.”

LAWYERS DO THAT KIND OF STUFF ALL THE TIME – find their client in a crappy position and scrutinize the contracts and applicable laws to look for any possible argument to try to gain benefit for their client. There’s nothing scummy or dishonest about that; it’s called zealous representation.

Everyone knows the whole world is pissed off at incompetent executives receiving millions for lousy corporate performance. Do you really believe bankrupt companies won’t come to the government begging for handouts in the future, because now they’ll be wary that the govt may wish to strike down absurd bonuses for crappy performance? No, everyone already knows damned well that for the most part such undeserved bonuses will be unavailable to those begging for handouts. And, beggers can’t be choosers. Future bankrupt companies will keep coming begging for handouts, regardless of what happens in this case, because everyone wants free money. The article is wrong.

Not paying off U.S. student loans
20

Correct me if I’m wrong, but what you have argued is primarily for lawyers to scrutinize the contracts to see if they are enforceable. If they aren’t enforceable then the government could try and retract the bonuses. The basic premise is that the lawyers look to whatever legal means available, within the laws that have already been enacted and within the contracts themselves, to try and see if there are ways in which to break the contract. If it turns out that there was deceit or deception involved then wouldn’t AIG be guilty of not acting in good faith and be required to repay the bonuses?

What I am confused about is the government trying to go back and alter the contracts after the fact. If there was no conditions within the bailout agreement that stipulated against these obscene bonuses and both parties entered into the contract in good faith, why does the government get to void the contract because the government screwed up? To put it in another way, why aren’t the contracts legally enforceable?

I don’t think that the lawyers are scummy for trying to recover the bonus money. I think Congress passing ex post facto laws is scummy, even you can legally do it in civil but not criminal law. If the government screwed up and has no means within the contract to break it, then why do they get to change the rules so that they win?

I know I’m making several assumptions here, including a good faith agreement, no deception, no clauses in the contracts which allow them to be canceled, etc. Still, if Congress decides to try and enact a law that has a 91% tax rate on AIG alone, won’t that just cost us more when the AIG employees inevitably sue the federal government over breach of contract?