Jim Rogers: Let AIG Go Bankrupt, Not America

last SG · 2009-03-03T22:23:34+00:00

Unless of course they print US$ to pay the 9.6 trillion dollars... sure American tax payers pay but so does the rest of the world, considering how big the e...

tai gok nang SG

Does it make sense to throw good money after bad into an entity who is technically bankrupt?

Why not just do the easier thing and nationalise AIG?

It does not make any sense to throw good money after bad, especially the technically bankrupt AIG, of course.

I believe both Bush and now Obama might have wanted to nationalize AIG so bad but he is facing political challenges:

1. America's standpoint is always free market and liberalization. Nationalization would badly harm its stature as the world centre of capitalism. But I don't think they can avoid it in the end.

2. Taxpayers' money are at stake here.

3. The stock markets will be badly battered, affecting the wealth of the American people in turn.

Stevenson101 SG

Does it make sense to throw good money after bad into an entity who is technically bankrupt?

Why not just do the easier thing and nationalise AIG?

I think this was discussed about during an interview regarding why England isn't nationalizing all its banks despite the stituation.

The problem is the government are fully aware of how badly the insitutions are doing, if they chose to nationalize them the government would have to assume responsibility for the bad debts and toxic assets as well.

The blackhole is so immense it would effectively bankrupt the country to pay it.

Stevenson101 SG

yawns

no wonder you can only call it hypothesis. All imaginary scenarios only.

Lehmann Brothers was allowed to go bankrupt, causing millions (or probably billions) lost. You can also go imagine up a lot of scenarios on how many will get affected as well.

I think the main problem is AIG is holding on to a lot of people's pension funds. If it is allowed to fail, these people effectively lose all their pension funds. Simply imagine the scenario where the CPF fails and all of us lose every cent in our CPF. Atobe's correct when he says that the CPF is no different from a Ponzi's scheme.

Lehman Brothers is only responsible for the pensions and 401ks for their employees, while AIG as an insurance company handles the pension funds of other companies and institutions.

If AIG is allowed to fail in my opinion, it is going to be far more destructive than Lehman Brother's collapse. Potentially thousands of retirees or soon to be retirees would be reduced to paupers, a scenario that's far worse than Lehman Brothers' collapse.

Correct me if i'm wrong, though. I'm just going by what i've read up on.

xtreyier SG

Banks can be nationalized, simply because no sane person will want to withdraw their entire deposits. Where will they keep it where it can be safe?

With a democratic govt's guarantee on deposits, there is no fear that the govt cant pay depositors even if every wants back their money, simply because govt owns real resources - minerals and agriculture, which are necessary for humanity to survive and must pay for it, therefore as long as a country has resources,

( or a non-resource country has collateral in the resource rich country ), money will always grow. $1 today to $100 tomorrow when more resources are dug out or produced for survival.

AIG or insurance companies MUST NOT be nationalized. They are nothing more than ponzi schemes where the bottom pays for the top with a pool of money, which is 'invested' (gambled) in the stock market (high class casino), to generate money to pay off depositors, as well as insurance claims.

Think - buy a policy at $100 a month, but if an accident occurs the next month, your next of kin gets $1,000,000 in insurance claims. Where did the $999,900 came from?

Ans: Policy holders pool of funds, new entrants who buy policy, and invested ( gambled) money.

Banks do not payout $1,000,000 or hold any insurance claims, but insurance companies do. If nationalized, it may mean taxpayers will be paying for the claims. The AIG directors are probably laffing away after pocketing the policy holder's money, as well as other companies who benefited from AIG losses.

Money do not disappear. It ALWAYS ends up in someone else's pocket. US taxpayers will be the suckers if AIG is nationalized.

John Keynes did not say prop up failed companies, rather instead, govt spending to assist in the circulation of money to create further money. Giving to AIG is no keynesian theory, perhaps an Obama or Wall street theory.

xtreyier SG

Lehman Brothers is only responsible for the pensions and 401ks for their employees, while AIG as an insurance company handles the pension funds of other companies and institutions.

Correct me if i'm wrong, though. I'm just going by what i've read up on.

I understand what you are saying and share the same sentiment with you. BUT it will be a moral dilemma.....

Shall we use bail out funds to save the few retirees....and let the majority mostly young and saddled with families die .....or,

...save the majority....and let the retirees......?

One thing for sure, when the dust settles, someone or somegroup WILL have to be hung for this!

F-22A Raptor SG

Lehman Brothers is only responsible for the pensions and 401ks for their employees, while AIG as an insurance company handles the pension funds of other companies and institutions.

Correct me if i'm wrong, though. I'm just going by what i've read up on.

Is RICH DAD's PROPHECY becoming true?

Cram SG

"Money do not disappear. It ALWAYS ends up in someone else's pocket."

You're absolutely right. We are seeing it happen right before our eyes: billions of Singapore taxpayers' money has landed in the pockets of companies/investors across the globe. And if Temasek goes ahead with its $30-billion plans to buy AIG's Asia operations, AIG directors will be laughing...but not at US taxpayers.

I wish the people running Temasek and GIC would take your advice and stay away from the "high-class casino" that stock market is, where "ponzi schemes" like insurance companies "gamble" away money.

eagle SG

Money can disappear. Most of it were virtual anyway.

With huge funds, a fund manager can move the price of stocks by doing a right hand sell to left hand tactic. Your "assets" can then increase or decrease just like that... They faced off with other fund managers only...

Stevenson101 SG

Is RICH DAD's PROPHECY becoming true?

Sadly i think that it is.

Financial stores of wealth do not correspond to physical caches of wealth in the same sense as a squirrel's cache of nuts. If I retire when I am sixty-five years old and expect to live for another twenty years off of my 'savings', there are no warehouses under lock and key filled with food, clothing, and fuel dedicated to my exclusive future use. If I go on eating, wearing clothes, and staying warm at night, it is because men and women get out their beds every morning and go to work and produce economic output, part of which they give to me.

One person's savings is another person's consumption. While I am working I am effectively supporting the people who are not working, and when I retire (should such a day ever come) the people who are still working will, in turn, support me. Mutual support in complex economies is an objective physical reality which can be understood independent of any particular political ideology. Apart from some necessary amount of inventory real physical savings are in the built up infrastructure of society (in which I include the knowledge and skill of the men and women who are that societies brains and hands) and the resource base which supports that infrastructure. Since we build infrastructure in order to use it, the desire to store up value is really a desire to produce and sell as much stuff as we can in the present. When people are in the stores buying home theater systems, laptop computers, MP3 players, etc. then our 401K funds and pension funds are happy.

This fundamental structural contradiction of our economic system, in which greater current resource consumption is made to appear as if it will result in greater future security, needs to be fixed. Financial/monetary reform alone is not an adequate solution to this problem. We need to make the objective fact of mutual support manifest in the daily operation of our economic system. Your suggestion of a plan to provide basic goods and services in the event of an economic crisis is a step in this direction but does not really address the long term functioning of a steady state economy. In a world in which constant productivity increases are no longer possible we can no longer count on Adam Smith's cooperation of greed.

I wished that i could claim credit for this post, but i got this off a poster in www.theoildrum.com

I believe it explains the problem more accurately then i ever could. Our current economic growth and supposedly prosperity is actually quite paper thin if 2 factors are affected - high population growth and cheap energy.

stupidissmart SG

Think - buy a policy at $100 a month, but if an accident occurs the next month, your next of kin gets $1,000,000 in insurance claims. Where did the $999,900 came from?

To me insurance is like 4D. U can ask someone buy 4D for a few dollars but if they win they end up with thousands. How it works is the probability of u getting an accident unintentionally is lower than the odds u r getting. The 999900 comes from the other people who pay insurance and never get into any accident. In fact they even get an additional 1,000,000 in profit from people who never get into any accidents for adjusting the funding of the people.

yawns

no wonder you can only call it hypothesis. All imaginary scenarios only.

Lehmann Brothers was allowed to go bankrupt, causing millions (or probably billions) lost. You can also go imagine up a lot of scenarios on how many will get affected as well.

The world largest insurance, AIG is more embedded into our lives than a bank known more for investing. Everybody here is giving their hypothesis because we r predicting the future which no one really knows

"Money do not disappear. It ALWAYS ends up in someone else's pocket."

The value of an object, however can fluctuate greatly in time. These "values" is equivalent to money. A person with a million dollars buy a million dollar house. His total assets is still a million dollar. If the house value drops to 30,000. His assets is only 30,000.

The problem is a lot of objects, such as companies shares and houses suddenly have their value reduced tremendously in tis period of time. Tis reduction in value corresponding to a real loss in wealth.

Of course someone will say tat the builder of the houses still has the money of 1 million dollars. However before he sell the house, there is a total value of a 1 million house and 1 million dollar. After the crisis it becomes 1 million dollars and 30,000 house. There is still a loss in total "value" of the combined items.

xtreyier SG

Simplier explanation of money and value:-

Example A

---------------

I bought a house with cash worth $5million.

Today i sold it at $3million.

I lost $2million. A fact.

So where did my $2million went?

Ans:- It went to the original owner of my house, smiling and enjoying life in the Bahamas that he sold his house to me a a high of $5million

Example 2:-

------------

I bought Noble shares in cash $5million at a $1 per share market price today.

The share price drop to $0.50cts per share now

I lost $2.5million IF i sell it now.

So who had won my other $2.5million?

Ans: Those 'investors' (gamblers ) who bought Noble shares long before i did at $0.50cts and sold to the sucker that was me at $1 per share. My money is in their pockets warmly.

So, money did not disappear. Only time money disappear is when devaluation occurs, such as happened to Thai, Indonesia and african states. Fixed assets supposed to devalue as well, but it seldom do. It will still cost one billions of zambawi dollars to buy a loaf of bread.

stupidissmart SG

We r not really contradicting each other here. If u look at just the physical money, it is always there. The money doesn't dissappear.

However I am talking about "value" of objects. They r equivalent to money (houses, shares, bonds) because they can be interchangeable (selling houses, shares, bonds). These values can dissappear. If these values dissappear, the total amount of asset of a person literally dissappear.

Shotgun SG

The money basically disappears with the bubble. The bubble was created due to unbelievably high prices, and basically those artificially inflated values disappeared when the bubble burst.

Banks who had those "lucrative" CDOs that included those houses, suddenly had very toxic debts that they could not liquidate since there are no buyers.

Daddy!! SG

i feel obliged to correct a mis-conception here.

lets say the outstanding shares for a stock is 100 million shares. 10 million shares changed hands each day. For example, let's say the stock's highest price is $1.00, about 10% of the investors managed to sell at $1.00 and the rest hold. If the stock goes down to $0.10 right away, only 10% of the shareholders managed to sell at $1.00, the rest have it at $0.10.

4sg SG

i feel obliged to correct a mis-conception here.

And not to mention that there is such thing as credit creation ratio of comm banks....

The money disappeared is also partly because of the tightening of credit which is again due to the diminishing credit creation ratio of comm banks.....

I dun mean this to you but there are ppl who have never studied banking, come here to tell us where and how the money goes.

These ppl don't understand that banks have the ability to create virtual money which is treated as real money in the real world. As the credit gets tighten, these virtual money disappears....

freedomclub SG

"David Walker, former US Comptroller General and chief of the GAO, warned before the 2004 election that if large economic changes were not made, by 2009 the United States and its taxpayers would not be able to afford the interest payments on the national debt [12]. A study authorized by the US Treasury in 2001 found that in order to keep servicing the debt at its current rate of growth, by 2013 income taxes would need to be raised to 65% [13]. If the United States cannot afford to pay the interest on its debts, that would be the final stage of economic collapse and hence result in a total textbook bankruptcy. The systematic crisis would in turn likely spread to the rest of the world, due to the financial/commercial interconnections inherent.

How did this happen? Why is the US national debt $12,250,000,000,000 as of Jan 2009? Of the 203 countries in the world today, only four (!) do not owe others money. The collective external debt of all the governments in the world is now about 52 trillion dollars14 and this number doesn’t include the massive about of household debt in each country The whole world is basically bankrupt. But how? How can the world as a whole owe money to itself? Obviously, it’s all nonsense. There is no such thing as ‘money’. There are only planetary resources, human labor and human ingenuity . The monetary system is nothing more than a game… and an outdated and dysfunctional one at that.
Those in positions of social power alter the rules of the game, at will. The nature of those rules is guided by the same competitive, distorted mentalities that are used in everyday “monetary” life, only
this time the game is rigged at its root to favor those who run the show.

For example, if you have 1 million dollars and put it into a CD at 5% interest, you are going to generate $50,000 a year simply for that deposit. You are making money off of money itself… paper being made from other paper … nothing more - no invention - no contribution to society – no nothing.

That being denoted, if you are a lower to middle class person, who is limited in funds, and must get interest based loans to buy your home or use credit cards, then you are paying interest to the bank,
which the bank is then using, in theory, to pay the person’s return with the 5% CD! Not only is this equation outrageously offensive due to the use of usury (interest) to ‘steal from the poor and give to
the rich’, but it also perpetuates class stratification by its very design, keeping the lower classes poor, under the constant burden of debt, while keeping the upper classes rich, with the means to turn excess money into more money, with no labor.

That reality aside, there are other games in the system which have worked for decades, but are just now starting to bloom into the inevitable mathematic disasters that should have been anticipated 100 years ago.

..."

- http://www.thezeitgeistmovement.com/The%20Zeitgeist%20Movement.pdf

4sg SG

The collective external debt of all the governments in the world is now about 52 trillion dollars14 and this number doesn’t include the massive about of household debt in each country The whole world is basically bankrupt. But how? How can the world as a whole owe money to itself? Obviously, it’s all nonsense. There is no such thing as ‘money’. There are only planetary resources, human labor and human ingenuity . The monetary system is nothing more than a game… and an outdated and dysfunctional one at that.
Those in positions of social power alter the rules of the game, at will.

aye....well researched, well said.....

freedomclub SG

aye....well researched, well said.....

Please go read about The Zeitgeist Movement, or rather, that .pdf file.Or better still, watch the documentary Zeitgeist Addendum.

For millenia we have counted on pieces of paper to deal with our scarcity, which was only natural. But right now, with our technological prowess, scarcity can be eradicated, removing the need for money. Without it, the social stratification which causes much of our social neurosis would have no place to exist. In addition, while it is not acknowledged, this monetary system is actually the root of most of society's ills. In order to survive, people have to complete and exploit one another. While we also pay lip service to compassion, humility and other virtues, how can they last if the system is designed to perpetuate opposite values?

Should money disappear in a world of abundance, there wouldnt be the basis for the sick, polluted and distorted world that we see today, where 25,000 children die everyday and half the world lives in abject poverty.

After so much being said about the human potential and our development as a species, isn't it time to progress? The real reason for all the bullshit talk about 'revitalising' the international system is simply to ensure that the elites' position of power isn't threatened. For in a money-less, and human-oriented world, the distorted pyramidal system of power would not exist, hence ending their monopoly of wealth and power.

No matter how you see it, they're just selfish bastards that want to consolidate their own power even if it causes billions of people to suffer in vain.

Ice Dive SG

i feel obliged to correct a mis-conception here.

Good explanation ... I was trying to explain this this afternoon ... but my colleague cant seem to understand ... Your explanation is much better ...

Ice Dive SG

i don't quite agree.

one of the factors governing the price of a T-bill or any plain vanilla fixed income instrument is the promised yield attached to the bond. assuming that china purchased their bonds over the past few years, they could very well offload their bonds now at a premium rather than at a discount, simply because of current interest rates.

Care to give a numeric example for me to understand what you have said better ?

T-bills work by buying at a lower face value .

eg. $100 USD T bill is bought at a discount say 90 USD . They can choose to sell at a lower discount from the face value eg . 95 USD . That is what I mean at lower discount .

Anyone care to share and verify else I am going to buy T bills to try out ... haha ... Actually I have a colleague ( pretty smart ) ... swap from shares to T bills last year ..

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