Quote:
Originally Posted by Phanuthier
Cowboy maybe you can answer this for me, but is the reason the feds are going to keep AIG and Citi alive (no matter what) because if either fail, the US economy will be bombed to the stone age? You had mentioned Citi (which I had agree) but if fully dies, it would trigger a ripple in many of the institutions (JPM? Wells Fargo? BoA? GE?) that insure investment? That, in turn, would kill the credit for companies that depend on credit to run operations? (i.e. every company out there)
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Exactly. Think of it this way, almost every insurance company, and financial institution has a significant exposure to potential defaults from both of these firms. If everyone else was as healthy as they were a few years ago, we'd be able to weather it, but many of the banks are in a bad state as it is. If you let AIG and Citi fail, you're pretty much forcing half of all US banks (BofA is next on that list) and a multitude of foreign banks into ruin right there. A lack of support and bailouts of FI's is what turned the 30's recession into the great depression. If you think credit availability is bad now imagine what it would be with half the players missing.
That's really the hard part for everyone to swallow is that mismangement by CEOs heading Financial Institutions caused these problems and letting them off the hook almost entirely for it at the expense for everyone is pretty much the only way to recover from it. The bad politics behind this is really what's behind Obama blowing money on 'PR' friendly things as well. In actuality if all bailout money went into bailouts only for FIs a lot of everyday corporations and companies would be better off as well because they would have better access to the credit markets.