Why Are Companies Allowed To Get Big Enough to Pose A 'Systemic Risk'?
By Susie Madrak Tuesday Mar 10, 2009 5:00pm
Well, it just gets more and more interesting as it unravels, doesn't it? Seems to me we shouldn't allow companies to get big enough to pose a "systemic risk" - a term that's now synonymous with "Uncle Sugar to the rescue":
An AIG report to the Treasury Department last month warned that if the government didn't come to its rescue again, its collapse would trigger a "chain reaction of enormous proportion" that would "potentially bankrupt or bring down the entire system" and make it impossible for AIG to repay the billions it already owed the U.S. government.
I believe the correct term here is "extortion."
A draft report, obtained by ABC News, and marked "strictly confidential," said, "the failure of AIG would cause turmoil in the US economy and global markets, and have multiple and potentially catastrophic unforeseen consequences."
The draft was dated Feb. 26. On March 2, the Treasury Department and the Federal Reserve system announced that AIG, which lost $61.7 billion in the fourth quarter of 2008, would receive $30 billion in new government help.
AIG warns in its report of the "systemic risk" that a potential collapse posed. It describes a "systemic risk" as one that "could potentially bankrupt or bring down the entire system or market."
The company said, "What happens to AIG has the potential to trigger a cascading set of further failures, which cannot be stopped except by extraordinary means."
[...] The Treasury Department told ABC News it would have no comment on the report, and the White House referred questions to the Treasury Department.
Oh, and as Jane Hamsher points out, Timothy Geithner had a little something to do with the AIG mess back when he was the NYC Fed chairman. Hmmm.
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Maybe it is like a cancer that cannot be killed as it has tendrils into every organ. It is American Capitalism.
Watch this video . 60 Minutes
http://emptywheel.firedoglake.com/2009/03/09/...
Christy over at FDL had James Galbraith on today
Talking Economic Accountability with Economist James Galbraith
By: Christy Hardin Smith Tuesday March 10, 2009 1:30 pm
http://firedoglake.com/2009/03/10/talking-eco...
Great link.
amazing.
The firedoglake interview is Democracy Now from 2/10/09, it stops short of the conclusion which is important to hear. Here is the Democracy Now link with transcript.
Here is my last comment with links on Galbraith, Hudson and Black. These are the experts that don't mince words.
I have Predator State on my desk right at this moment. Galbraith is a chip off the old block of his father John Kenneth Galbraith who said this:
Or something very much like it. See my comment below. Here
As for the post question. The answer is simple:
GREED!
The first time companies started crying for bailouts using the argument that they were 'too big too fail' they invited harsh meaningful anti-trust regulation.
In my opinion the first time a town dried up because an industry died the lesson should have been learned. I'm looking at you U.S. Steel
"We don't need no stinking anti trust!" - The Captains of Industry
Great choice to run treasury.
Something smells really bad in this entire fiasco. It IS sounding like both Reps and Dems are in on this entire scam.
.
Because Reagan stopped enforcing the Sherman Antitrust Act. It really is no more complicated than that.
Don't forget the repeal of Glass-Steagall... and I remember reading in all the radical journals at the time (like the Nation) what a disaster it would be. Hmmm... now we have said disaster.
deregulation...Glass-Stegeall Act, Telecom Act, Nafta,Cafta, Immigration Act---on and on and on....
Do you know he had to sign it? They had a veto proof majority.
In fact, only 7 Dems voted against it. McCain didn't bother voting.
You might want to read this. I'm still having difficulty finding out who actually voted for this Act. At the bottom of the Legislative history you'll see a #6. Link to that.
Barbara Boxer voted against it. That's my gal. Make ya wonder about the other Dems though. No?
Here, this might help.
^ 52 Republicans and 38 Democrats voted for the bill. Sen. Richard Shelby of Alabama (Republican, formerly a Democrat) voted against it, as did 7 Democratic Senators: Barbara Boxer (Calif.), Richard Bryan (Nev.), Byron Dorgan (N.D.), Russell Feingold (Wisc.), Tom Harkin (Iowa), Barbara Mikulski (Md.) and Paul Wellstone (Minn.) Sen. Peter Fitzgerald (R-Ill.) again voted "present", while Sen. John McCain (R-Ariz.) did not vote. On Agreeing to the Conference Report, S.900 Gramm-Bliley-Leach Act, roll call 354, 106th Congress, 1st session Votes Database at The Washington Post, retrieved on October 9, 2008
Larry Summers, Timothy Geithner, and Robert Rubin and who is serving now under Obama to fix what they helped repeal to help form Citigroup?
Read on...
http://crooksandliars.com/john-amato/rep-rich...
Except this better work. Otherwise, all bets are off and trouble will not be far behind.
Wait a second. I have a question for you Vegas. How old is Giethner?
What exactly was his job back in 99? Same applies for the other two.
I understand that they were players in this. But to what extent? proof please.
Depends what you define as work. If you define work as bankrupt the economy and move us into a third world police state, then you won't be disappointed
Your party already did that davey boi.
On Reaganomics. The truth is they were trying to repeal the Glass Steagal Act since it passed.
Especially during Reagan's period.
Blame these fuckers.
Daniel Akaka, Max Baucus, Evan Bayh, Joseph Biden, Jeff Bingaman, John Breaux, Robert Byrd, Max Cleland, Kent Conrad, Tom Daschle, Christopher Dodd, Dick Durbin, John Edwards, Dianne Feinstein, Bob Graham, Fritz Hollings, Daniel Inouye, Tim Johnson, Edward Kennedy, Bob Kerrey, John Kerry, Herb Kohl, Mary Landrieu, Frank Lautenberg, Patrick Leahy, Carl Levin, Joseph Lieberman, Blanche Lincoln, Daniel Moynihan, Patty Murray, Jack Reed, Harry Reid, Chuck Robb, Jay Rockefeller, Paul Sarbanes, Chuck Schumer, Bob Torricelli, Ron Wyden.
I don't get it. WTF is wrong here?
Then there is the Repugs.
Spencer Abraham, Wayne Allard, John Ashcroft, Robert Bennett, Kit Bond, Sam Brownback, Jim Bunning, Conrad Burns, Ben Campbell, Lincoln Chafee, Thad Cochran, Susan Collins, Paul Coverdell, Larry Craig, Michael Crapo, Mike DeWine, Pete Domenici, Michael Enzi, Bill Frist, Slade Gorton, Phil Gramm, Rod Grams, Charles Grassley, Judd Gregg, Chuck Hagel, Orrin Hatch, Jesse Helms, Timothy Hutchinson, Kay Bailey Hutchison, James Inhofe, James Jeffords, Jon Kyl, Trent Lott, Richard Lugar, Connie Mack, Mitch McConnell, Frank Murkowski, Donald Nickles, Pat Roberts, William Roth, Rick Santorum, Jeff Sessions, Robert Smith, Gordon Smith, Olympia Snowe, Arlen Specter, Ted Stevens, Craig Thomas, Fred Thompson, Strom Thurmond, George Voinovich, John Warner.
As I said. McCain didn't vote. That was a wise move on his part. And Peter Fitzgerald voted present.
Has Iraq and Afghanistan cost?
Yes, I blame all of those above. But What did Boosh do to avert this? He was in charge for the last 8 years davey boi.
He should have corrected this. But he didn't . So ultimately, the responsibility falls on him and his administration. I believe he took an oath to protect the Nation. From both foreign and domestic threats . No?
He wouldn't.
NY Times
Here
The Repeal of Glass Steagal was a done deal before it was ever voted on. The Financial Modernization Act of 1999 was passed on November 12, 1999. It made legal the Citibank Travelers Insurance merger which was already undertaken and should have illegal but the fix was in.
That is the story of our government, the fix is always in.
See my comment above, here.
I heard about this. Thank You for the link.
It was passed because they already knew the repeal was coming and would pass.
ughhhh.
Sometimes it doesn't pay or do any good to be informed.
Especially after the fact.
depressing.
Do you have a link for the Financial Modernization Act of 1999 vote?
And (hope against hope) the Commodities Futures and Modernization Act of 2000.
Sorry. I know you dislike wiki. But it might be a good place to start. Or maybe the WaPo.
There will be a very enlightening committee hearing tomorrow in the House chaired by Dennis Kucinich.
Hopefully CSPAN 2 or 3 will cover it, or I believe you can stream it on the committee's website.
10;00 a.m. EST.
Kucinich is going after the banker boyz:
http://domesticpolicy.oversight.house.gov/sto...
Wikipedia: http://en.wikipedia.org/wiki/Commodity_Future...
Full text: http://commdocs.house.gov/committees/ag/hag10...
to see how the newer American history text books teach about all this economic turmoil compared to, say, British, French, Japanese, German or Russian textbooks.
Too bad we can't get Howard Zinn to write the next wave of American History books with guys like Michael Hudson, Michael Ratner and Glenn Greenwald.
Instead, the new textbooks will simply be filled with more
liesrevisionist history.At least I'm honest about it. Honest to myself. Try it. You might like it.
This was directed towards davey boi.
I can see you got nuthin.
Come back when you have a leg to stand on.
Four meaningless letters. Isn't that the "Sign of the Troll"?
follow the yellow brick road to the top of the golden pyramid.
there you will find a little troll named "rumpelstiltskin". he will tell you his name is "rich uncle pennybags", and dance a merry step, but don't be fooled; his name be "RUMPELSTILTSKIN".
and all you have to do is say his name, and the earth will swallow him up.
I am intrigued.
the name only has power over you because you don't know it, or won't say it.
once you say it, the curse is broken.
curse you froggy curse you , your brought the deamon from the bowels of jerry falwell! woe unto you my man!
maggots took care o'that.
aggggh the vomit purge purge!
said as much, we might have to make companies be limited some how. at least some one is talking about it.
by heracles
...following the same path to gigantism.
We can only hope that Eric Holder knows what anti-trust means.
The Corporate-American system continues on, buying every politician in sight. Hence Obama saddling us with the worthless Geithner. And they will keep on keeping on until they are all made to pay for their crimes. I'm sure that will be right after George W. Bush and his cronies pay for their crimes.
Not to travel to close to wingnut land's bad habit of calling for the President's head, but I get the feeling the corporate types won't change until they fear for their lives (or livelihoods, if they hold that more dear). We still live in a feudal system, a corporate feudal system. And we have to kill them. The only thing to do is to strike at corporate power -- revoke corporate charters for crimes against humanity (might want to start with Dow for Bhopal, Exxon for Valdez and others, the list goes on and covers the globe many times over), and eventually ween ourselves off of them.
I think within a generation we have to kick the corporate habit. I'm not saying the corporation has to die completely, just that it has to mostly die. It has to return to what it was in the time of Jefferson (ie, not a person whose "rights" are worth more than actual human beings). We could, instead, put our money into micro-financing projects and local monetary systems. How else to rein in corporate power than to cut off its lifeline -- money? We're the ones that allow them to do this to us. We must put an end to it.
From the Huffington Post ....
http://www.huffingtonpost.com/raymond-j-lears...
AIG is being bailed out, at least in part, to protect the profits of Goldman Sachs and Morgan Stanley, who were the same parties who triggerred this mess, I would argue deliberately.
Every time they line up for more money, we get the "it would be a disaster for the world economy to let AIG fail" BOOGYMAN thrown in our faces. In fact, what they are doing is supporting the financial economy at the expense of the real economy. They want the economy to collapse, or at least know eventually it will, and at that point, thanks to the Fed and the Treasury, they will be the only ones with money -- which they can leverage 100/1 -- so they will be able to buy up the country at pennies on the dollar.
We are being played like bad violins, and just like Argintina in 2002, they are stealing everything in sight. We are being led to the slaughterhouse -- that is why they have the empty detention camps and troops deployed in case of "domestic disturbances" -- unless we stop playing this game.
the plan, once boosh took office was to rob and pillage. period.
That that secret Congressional pow-wow they had about a year ago now wasn't about Domestic Spying.
I think they were told that this whole economic house of cards was going to come crashing down and that the anticipation would be millions of VERY PISSED AMERICANS.
Kucinich would not attend and to this day I don't believe anyone has come out and told the public what it was about.
I believe that Barney Frank is on top of this. He knows that things need to be changed. Reregulate and regegulate hard! Make these assholes report everything. Put in stops at every possible intersection. Run tests that make it impossible for these companies to get too big to fail. regulate regulate regulate!!!! Now is the time because they cannot make any argument against it.
By the way, AIG will be broken up as soon as possible. As soon as they are on track again they will be broken up and sold off and the profits will go to the taxpayers/us.
I do not trust him. He's a corporatist.
Maybe true but he seems to be pretty pissed off at them.
Barney Frank talks a good talk but he is bought and paid for by the Fat Cats who we are shoveling trillions to.
The fix is in, the fix is always in.
See my other comment here and here.
You telling me that Barney Frank didn't know what was going on while Bush was in office? He's on the banking committee, isn't he? If he's been unaware of what has been unfolding, the extortion we are being dragged through, he's completely incompetent. If it isn't the case, he's in on it. He may have to bluster and make it seem like he's all upset, but I don't see him putting a stop to it.
Though there's no way for me to know, there is a third option. He knew, but could do nothing about it. If that's the case, he may now be able to do something. I'll give Barney the benefit of doubt until I see what he does.
You have already seen what he does: pretend to represent the average American while he covers for globalist financial interests.
This is his career. There may be no way for you to know, but this guy is supposed to know. It's his job. Couldn't do anything? In opposition to Bush and the Republicans? At the very least he should have been screaming bloody murder.
Remember the movie Stalag 17, when William Holder’s character found out who the spy was in his barracks?
“What do you do?” he asks Joey.
Do you scream bloody murder, and have the Germans move the spy to another camp? Do you kill him, and risk being executed yourself? Or do you wait for the right opportunity, so when he is exposed it can help?
Like I said, I’ll wait to see what Barney does.
Another 1 of the republican deregulations to allow corporate monopolies to get larger, this should be 1 of those Keith Olberman Booshied storys.
Find your Congressperson here. A printed letter is best but it takes the longest. Email is good but getting more worthless by the minute. Calling is good becasue they take a tally at least.
Yeah, what Susie said.
If I'm too big to fail, you have to give me money so I won't. I'm failing - give me money. That sounds like extortion to me.
[Deleted. Please quit spamming the posts with this. Thank you-Sitemonitor]
That a single man can make a salary of $280 million, FAIL miserably, CRASH the world economy, DESTROY millions of individuals' futures
AND not only NOT go to jail or be hanged in public, but TAKE IN $1 million A MONTH???
Does ANYBODY see what's wrong with this picture? Nadya Suleman is eviscerated by the media for doing something that affects NO ONE yet nobody knows this guy's name.
'An AIG report to the Treasury Department last month warned that if the government didn't come to its rescue again, its collapse would trigger a "chain reaction of enormous proportion"...'
Let AIG burn. They wasted the money that they were given. That is OUR money. They got themselves into their mess, now they have to pay for it.
have the heads of Citibank, AIG, HSBC. GE, GM...I can go on and on...been ousted yet?
I thought that was how "free market" capitalism worked.
Or do all you capitalists believe that bonuses should be paid to failed CEOs?
This is ridiculous to ignore Obama's appointments such as Geithner ex Head of the NY Fed and now the list grows more corrupt from those beneath him. Obama is the problem folks trying to prop up this unConstitutional Federal Reserve and all the greed and corruption they stand for. It's clear we had no choice in the last election and more than likely since the murder of JFK as one CFR candidate after another is "elected". The only good news is this will not work and the economy as we know is doomed. Yes it will create chaos however we desperately need to change this debt-based economy and get out from these bankers thumbs.
An AIG report to the Treasury Department last month warned that if the government didn't come to its rescue again, its collapse would trigger a "chain reaction of enormous proportion" that would "potentially bankrupt or bring down the entire system" and make it impossible for AIG to repay the billions it already owed the U.S. government.
******
oh really? too big to fail, eh? refusal to pay debts unless you get another loan, eh? we need you more than you need us, eh?
well - in the immortal words of former President George W Bush:
"bring. them. on."
fuck AIG. let them fail. 90% of Americans will roll with the punches way way way better than those assholes will.
arrogant fucksticks. how dare they position their request like this. assholes. the words they need to be saying are "please" and "thank you" - not "you better, or else..."
to try and blame their decades of fraud and greed on "just a small group operating in London." If it happened at AIG, the senior management knew about and approved every detail of those transactions, and most likely directed them. They should all go.
I was heartened to watch that link to James Galbraith, as I posted before, we should let the FDIC go in and investigate, stabilize and and recover what they can. If that's not possible, the bankruptcy courts should takeover and fix as much as can be fixed.
It will not be pleasant, but sooner or later we have to get All of these, dare I say "criminal," institutions cleaned out and get on with the business of re-regulating and recovering. The other option is for the economy to completely crash - and that would utter disaster for the world.
Monopolies used to be against the law, scores of protections and safeguards written into the laws. The fat cats have torn them down and deregulated them away. Today they call it too big to fail. What it really is, is a call to rob us further. Break up the Monopolies! Let them fail, they serve none but themselves.
Gaia, the problem isn't exactly monopolies, since AIG isn't one, but rather the aggressive takeover and swallowing of smaller businesses, which swells the ranks of large companies into monsters, with a few crumbs left on the outside. It happens with banks, investment agencies, insurance companies, the media, telecoms, utilities, practically any kind of company that has the money and drive to do it.
But I do agree that the best solution would be to prevent any company from becoming a monster company. How to do that lawfully is the question though.
an oligopoly is just a controlled monopoly in my opinion.
AIG, CIGNA, Munich Re., there are others, these companies control a GLOBAL industry and simply allow small companies to exist to give the appearance of an open and free market.
Microsoft, Exxon, Halliburton.
The problem is most people are small minded, and can't see the forest for the trees...so they are easily bamboozled.
This still applies:
"...And I won't have it, is that clear?! You think you have merely stopped a business deal - that is not the case! The Arabs have taken billions of dollars out of this country, and now they must put it back. It is ebb and flow, tidal gravity, it is ecological balance. You are an old man who thinks in terms of nations and peoples. There are no nations! There are no peoples! There are no Russians! There are no Arabs! There are no Third Worlds! There is no West! There is only one holistic system of systems, one vast and immane, interwoven, interacting, multi-variate, multi-national dominion of dollars! Petro-dollars, electro-dollars, multi-dollars, reichmarks, rins, rubles, pounds and shekels! It is the international system of currency which determines the totality of life on this planet. That is the natural order of things today. That is the atomic, and subatomic and galactic structure of things today. And you have meddled with the primal forces of nature, and you will atone! Am I getting through to you, Mr. Beale? You get up on your little twenty-one inch screen and howl about America and democracy. There is no America. There is no democracy. There is only IBM, and ITT, and AT and T, and DuPont, Dow, Union Carbide, and Exxon - those are the nations of the world today. What do you think the Russians talk about in their councils of state - Karl Marx? They get out their linear programming charts, statistical decision theories and mini-max solutions and compute the price-cost probabilities of their transactions and investments just like we do. We no longer live in a world of nations and ideologies, Mr. Beale. The world is a college of corporations, inexorably determined by the immutable by-laws of business. The world is a business, Mr. Beale. It has been since man crawled out of the slime, and our children will live, Mr. Beale, to see that perfect world in which there's no war or famine, oppression or brutality. One vast and ecumenical holding company, for whom all men will work to serve a common profit, in which all men will hold a share of stock, all necessities provided, all anxieties tranquilized, all boredom amused."
LaP
Who said that?
A bit hubristic, isn't it? I am convinced that most of the world's people won't be directly affected if the whole global financial structure comes tumbling down. Most are too poor, unproductive, nomadic, self-sustaining, "uncivilized", live in practically non-ownership cultures, and don't reap any benefits from it anyway.
They might be affected by secondary government failures or wars that overrun them, though.
rent "Network"...that was Ned Beatty, playing a media CEO, speaking to his evangelicalized, "common man", and quite insane tv show commentator..played by Peter Finch.
Most are too poor, unproductive, nomadic, self-sustaining, "uncivilized", live in practically non-ownership cultures, and don't reap any benefits from it anyway.
but...unless a third world country has natural resources...who cares?
That may seem callous, but it is fact. Why is America in Iraq but not Dafur? Were the so-called human rights atrocities in Iraq worse then Darfur?
Iraq has oil. Period. The rest..the human rights bullshit, the "moral obligation" bullshit, the "bringing democracy" bullshit...is just that....BULLSHIT.
Countries are businesses.
the global financial system benefits only some, not all of the world's people by a long shot. If we call those countries it benefits "civilized", that just means they have access to more resources and benefits than other countries we think of as uncivilized.
It isn't so much a matter that the system or anybody else "cares" or not, but rather that if others can get along without the global financial benefits with so few resources that can be exchanged for "money" created by the global financial system, why can't the rest of the world?
I see you get what I am talking about. Thanks for posting the quote.
.
Q U E S T I O N:
What do you get when a Financial analyst that is paid good money to forecast the market and report his finding to the public, can't see the approaching cliff...
... But an opportunist at the People's expense, NO?
.
"I believe the correct term here is "extortion."
Thank you. Someone is finally calling it what it is.
Personally I have no problem with companies getting "too big". That's capitalism, even if a near monopoly is established. It could just be more efficient that way due to huge economies of scale.
For AIG's case, I still do believe that their insurance unit is healthy, it just has a bad financial department attached.
Online shop for Electronics, Computers, Games
"Why are companies allowed?"
That assumes that their freedoms, our freedoms, come from the government. They do not. They get this large because this is a "free" country. We cannot introduce any centralized control without a corresponding reduction in liberty. Likewise, I believe it is consistent to allow them to collapse on account of their own failure.
I like Crooks and Liars. There's a lot of good stuff on here, but when you wade into finance and economic issues more often than not you miss the mark. There is undoubtedly a problem with our financial system, but AIG being too big is not part of the problem.
The problem was lack of proper regulation and enforcement. Amongst many benefits of a large company are economies of scale - i.e., they can do things for cheaper than smaller companies, which in turn makes things cheaper for the consumer.
Not to mention the fact that their core business is insurance. With companies getting larger and larger, would it really make sense for small companies to underwrite insurance for large companies or transactions? If you owned a $10 million dollar home would you want it insured by an insurance company with assets of $5 million?
Systemic risk is part of every economic/political system - capitalism, socialism, communism. I'm sorry but this post is a bit silly and naive.
There are a lot of legitimate criticisms to be alleged at how we got into the current financial mess and what can be done about it. That AIG is too big is not part of the problem.
All of the economic cconditions that existed in the "Roaring 20s", were recreated over the course of the last 30 years...of course...we know how that worked out.
All of the so-called "bad regulation" that was put in after the Great Depression created the social safety net, which has serious holes in it today, and directly led to the creation of the Middle Class.
That regulation has been destroyed over the last 30 years, and all of the predatory and destructive aspects of capitalism have returned.
AIG should be broken up. They did it to AT&T in the early 1900s. (Unfortunately, AT&T is gradually being allowed to come together again.)
I bet they're completely insolvent. This is just an attempt to get federal money to pay off creditors, but they're not going to be coming up from this any time soon. We probably could have bought them completely for the amount of money we've shoveled into the fire already.
See my comments at my blog:
http://notesfromtherustbelt.blogspot.com/2009...
It's just a variation on a very old adage: If you owe the bank $10.000, your a$$ belongs to the bank. If you owe the bank $500 million, on the other hand... you have the bank by the short and curlies.
Why Are Companies Allowed To Get Big Enough to Pose A 'Systemic Risk', without having real transparency and without being subject to governement regulation and monitoring?
The company said, "What happens to AIG has the potential to trigger a cascading set of further failures, which cannot be stopped except by extraordinary means."
Sounds like someone is trying to blow smoke. I will take this bet. Let them collapse.
This AIG too big to fail thing is not much different from allowing a foriegn army to start stationing itself in every American neighborhood until they are on every block. Then the foreign general says "oops we ran out of money. . .you need to pay us now or we will loot your houses."
Whoever allowed this to happen needs to go to jail. . . or be hung for breaching national security.
Capitalism is bloodless armies in bloodless wars who are after endless bloodless conquest and it creates real damage to the world when the rules of war collapse under incompetent leadership.
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