Comments on: AIG a bailout or Safe Sex?

By: skepticlawyer » Banking bailout or economic bailout? Guest post by Joe Cambria

Sun, 21 Sep 2008 17:48:38 +0000

[...] People have suggested that the US authorities are in the process of creating new levels of moral hazard, which in my mind is frankly hard to see and doesn’t hold up to close examination. The Equity owners in all these firms have lost their capital. Sure the bondholders come out a little better but imagine having to sit around wondering if your loan money will be returned while the Fed’s managers liquidate AIG; people forget the Fed now ranks ahead as creditor. The management of all these firms have lost their jobs and most of their net worth. I can’t see an argument for moral hazard through the way the Fed and Treasury have conducted their activities. In fact I see the US taxpayer walking away with a big profit as a result of the Fed’s AIG loan terms and conditions. [...]

By: Jim Fryar

Jim Fryar — Fri, 19 Sep 2008 15:11:58 +0000

I just don’t understand how this could have happened, Freddy and Fanny were subject to oversight by the Banking, Housing and Urban Affairs Committee which is chaired by Sen. Christopher Dodd (D-CT) who is held in high regard by them.

Such high regard in fact that they have donated $133,900 in campaign contributions to him. This is $28,000 more regard for him than they have shown for Obama.

By: TerjeP

TerjeP — Fri, 19 Sep 2008 04:31:46 +0000

p.s. Just to be clear. Different actions by Churchill could have avoided deflation across the commonwealth but not the contraction brought on by US trade policy.

By: TerjeP

TerjeP — Fri, 19 Sep 2008 04:26:09 +0000

Pommy – are you against personal responsibility. Just wondering given your comment to me.

The great depression was caused by a massive hike in US trade barrier and a massive retaliation from the rest of the world. The gold standard in the USA neither caused it nor exacerbated it. However the gold standard in Commonwealth countries (such as Australia) was a serious burden due to Churchills monetary cockup in 1925 and there were many economists and commentators at the time describing the burden of the gold standard. Essentially the whole Commonwealth was already burdened by Churchills deflation at the time that the Smoot Hawley tariff struck. The market anticipated the tariff (and the recession it would cause) which is why we had the crash of 1929. However if Britian had stayed on the gold standard during WWI, or if Churchill had returned to the gold standard in 1925 at a more realistic price then there would have been no deflation.

In short it is stupid to blame the gold standard for the great depression. And it was stupid to think inflation would fix the great depression.

A gold standard, where gold is the unit of account, only causes a decline in liquidity when there is a fall in the demand for liquidity. Which is in fact the whole point of the system and one of the ways in which it automatically stabilises the price level. And unlike our modern artificial stabilisers (central banks) the gold standard manages to stabilise not only consumer prices but also currency prices and commodity prices. Gold used properly is the great stabiliser. Like polaris it is not perfectly stable but like polaris it is pretty damn fine none the less.

By: Mark Hill

Mark Hill — Fri, 19 Sep 2008 03:26:21 +0000

“I’m of the view ( and I know it’s not popular) the the only reason we will get out of this is the fed can add liquidity to the system as the leveraging unwinds. The gold standard prevented this happening in the 30s.”

Get out charles. This is just socialism for the rich.

The gold standard didn’t stop it at all. It simply meant people didn’t overpay for shit assets.

By: jc

jc — Fri, 19 Sep 2008 00:41:13 +0000

What’s your estimate of the counter-party risk with the futures contracts?

I believe the futures broker would be the counterpart.

By: nicholas gray

nicholas gray — Fri, 19 Sep 2008 00:32:04 +0000

A Duoist-
What IS a duoist? Is that something like dualism?

By: pommygranate

pommygranate — Fri, 19 Sep 2008 00:00:14 +0000

JohnZ

from the ASX website,

A GOLD security consists of a gold bullion share of nominal value and a beneficial interest in approximately 1/10th of one fine troy ounce of gold bullion held on trust for the holder of the security.

The gold is held in London vaults by a custodian. A trust deed establishes a separate trust for each holder of GOLD so that the holder is absolutely entitled to the gold bullion held in the vaults.

The important point to note is that the Gold is held in trust for you. hence you are not a creditor.

By: JohnZ

JohnZ — Thu, 18 Sep 2008 22:40:23 +0000

Not the end of the financial world, but it seems prudent to hedge against a wider financial meltdown.

What’s your estimate of the counter-party risk with the futures contracts?

By: jc

jc — Thu, 18 Sep 2008 14:45:56 +0000

Now just who owns/has all the gold?