Preview from Europe: Markets Dismiss Stress Tests and Crack 900 [View article]
"On the latter, the aggregate sum looks easily within the bounds of the deep pockets of Uncle Sam, and thankfully so ...". Apparently, the uncle has very deep pockets for banks and pork, but not for honoring obligations to creditors.
When socialist countries nationalise companies, they usually assume their debt, and in some cases even compensate their equity holders (to some extent). Venezuela just did that with their national phone company. Egypt did that when they nationalised their canal in 1956 (but was attacked anyway). And the list goes on.
Here, on the other hand, Uncle Sam is in the process of nationalising the auto companies for the benefit of the UAW, and without assuming their debt, let alone compensating their equity holders.
I can already hear dissenters saying "... but the auto companies are only being nationalised because they're bankrupt ...". So, how come the banks are not being nationalised? Indeed, if Uncle Sam were to "invest" in the auto companies one quarter of what he has poured down AIG's conduit to the "sound banks", the auto industry would survive until the next upturn.
However, it appears that rather than "wasting a good crisis", the auto industry is being nationalised for political reasons, and without honoring its creditors. This is an ominous precedent for the bond markets.
AIG Suddenly Takes the Full Disclosure Route [View article]
Interesting how bonuses paid from taxpayers' money are defended on the basis of being contractual.
Firstly, employment contracts are voided by bankruptcy. Although AIG, ML, C, BAC, and other WS rescued institutions are not technically bankrupt, the only reason they did not file for bankruptcy is government stepping in to prop them with taxpayers' money. Claiming that they should be allowed to pay bonuses because their bankruptcy has been avoided (or delayed) by massive use of public funds is disengenious, to say the least.
Secondly, congress just passed a law that allows judges to modify legally binding contracts (aka mortgages). So, it should be possible to pass a similar law allowing judges to retroactively modify, or even recoup, egregious bonuses paid by entities which had to be bailed out by government intervention.
Preview from Europe: Markets Dismiss Stress Tests and Crack 900 [View article]
When socialist countries nationalise companies, they usually assume their debt, and in some cases even compensate their equity holders (to some extent). Venezuela just did that with their national phone company. Egypt did that when they nationalised their canal in 1956 (but was attacked anyway). And the list goes on.
Here, on the other hand, Uncle Sam is in the process of nationalising the auto companies for the benefit of the UAW, and without assuming their debt, let alone compensating their equity holders.
I can already hear dissenters saying "... but the auto companies are only being nationalised because they're bankrupt ...". So, how come the banks are not being nationalised? Indeed, if Uncle Sam were to "invest" in the auto companies one quarter of what he has poured down AIG's conduit to the "sound banks", the auto industry would survive until the next upturn.
However, it appears that rather than "wasting a good crisis", the auto industry is being nationalised for political reasons, and without honoring its creditors. This is an ominous precedent for the bond markets.
AIG Suddenly Takes the Full Disclosure Route [View article]
Firstly, employment contracts are voided by bankruptcy. Although AIG, ML, C, BAC, and other WS rescued institutions are not technically bankrupt, the only reason they did not file for bankruptcy is government stepping in to prop them with taxpayers' money. Claiming that they should be allowed to pay bonuses because their bankruptcy has been avoided (or delayed) by massive use of public funds is disengenious, to say the least.
Secondly, congress just passed a law that allows judges to modify legally binding contracts (aka mortgages). So, it should be possible to pass a similar law allowing judges to retroactively modify, or even recoup, egregious bonuses paid by entities which had to be bailed out by government intervention.