Some of the best television I’ve seen lately has been some exposes on CBC and Fox regarding the financial meltdown last summer. Some of you might think that’s a comment on my life, that there should be a lot better things to watch than that. Needless to say, that might be true, but figuring out what’s happening in this economy has been fascinating to me. Seeing some of our major networks expose some of the darker chapters of last summer economic meltdown made for some great television.
Still, some of you must think I should get a life. Again, that may be true. I never saw one episode of Cheers, Seinfeld or Home Improvement. Simply put I didn’t find any of it funny. I’d listen, but I didn’t think any of it was funny. I guess that is the economist coming out in me. However, seeing a documentary about Ben Bernake and Henry Paulson I find riveting.
Looking ahead, I still find it hard to get around on. There are many people out there who question the whole thing, especially the latest series of government stimulus packages. At first last summer and fall, I was all for injecting all kinds of capital into the financial system. I thought like others we needed a “stimulus” to get things going again. In other words, if consumers weren’t going to spend money, then the next best thing was to get our respective governments to do it.
It’s classical “Keynesian” economics. That is where government stimulates the economy in order to manage it. However, more and more it looks like our problem is coming down to “common greed.” Case in point is AIG, the American government insurance agency which has received over $170 billion of American government bail out money, but over the weekend were preparing to pay out $165 million dollars in bonuses to executives who caused this problem in the first place. President Obama put it this way.
“It’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million (dollar figures U.S.) in extra pay.”
“How do they justify this outrage to the taxpayers who are keeping the company afloat.” (President Barack Obama March 16, 2009)
In the last quarter of 2008, AIG lost $61.7 billion the largest corporate loss in history. Most of the money paid by government to AIG was used to cover credit default swaps, some of the riskiest financial products invented. It was also revealed over the weekend that AIG used more than $90 billion to pay out foreign and domestic banks, some of who had already got their bailout from respective governments. Some of the largest recipients of the AIG money were Goldman Sachs at $12.9 billion, and three European banks – France’s Societe Generale at $11.9 billion, Germany’s Deutsche Bank at $11.8 billion, and Britain’s Barclays PLC at $8.5 billion. Merrill Lynch, which was bought by Bank of America last year, is also undergoing federal scrutiny of its bonus plans, received $6.8 billion as of Dec. 31.
Keep in mind AIG was an insurance agency, which guaranteed “financial products” at financial institutions. So supporting them was a kingpin in the American political strategy. If they let AIG go, everybody else would implode. Or at least that is what we were told. It seems too completely obvious now though, the execs that put us in this position haven’t learned their lesson. Entitlement seems to rein.
It is all such a big disappointment, which in itself is such a stretch. Basically what you had are a bunch of rich guys who thought they could get even richer by stretching financial regulations to get even richer. Some might say this happens all the time, but this time, they got caught. In the case of AIG, it’s pretty obvious they haven’t learned a thing from it. However, it is one thing for me or you to be in debt, which we can’t pay and another thing for AIG to be covering trillions of dollars of bad debt. We’re going to lose and somebody else is holding the bag for them.
From a Canadian perspective, the fallout in the American economy from this debacle keeps dragging us down. No, we had better financial regulations, and our Canadian banks still stand. However, the financial hangover from being the US’s biggest trading partner is a dilly. Still Canadian banks right now have stopped selling mortgages to our federal government. That’s a sign they are on the way back, albeit they still have this US induced Canadian recession to deal with.
It’s all been a dog’s breakfast, this whole financial meltdown thing. However, as we all know dogs need breakfast too. It’s just such a shame this whole thing got so out of hand.