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For the first time since becoming president, a significant number of American people are expressing some disapproval of Barack Obama’s handling of a specific item: The AIG bonus situation. Forty-two percent of those surveyed disapprove of the president’s handling of the AIG bonuses, while roughly the same percentage - 41 percent - approve. Another 17 percent don’t know or aren’t sure.
The question is: Can we afford to let AIG fail? AIG is on the brink of a total collapse due to something called "credit default swaps'. These financial derivative products are part insurance product and part out-right wager and are bought and sold on the unregulated over-the-counter derivatives market. Because AIG is the insurance counter party to so many other companies and people all across the world, a collapse of AIG would cause a great many normal organizations to be without insurance and that will likely kickoff a cascading wave of other financial collapses all over the globe. Economists believe that AIG exposes us all to “systemic risk.” This idea that some firms are so large in themselves, and so intertwined with other important firms, that they are simply to big to fail. Some believe that it is better to let AIG go bankrupt.
Today, amid the clamor of the rabid traders on the floor of the New York Stock Exchange (the market was up 500 points) financial media types debated whether or not the current plan as detailed and outlined by the Treasury Secretary Jim Geithner will work. It seems that they are taking a page out of the previous administration's play book and creating a new methodology whereby the banks can now wipe the books clean of toxic assets and raise capital they need to begin lending again. These toxic assets would be bought by private investors who have been incentivized by the U.S. Federal Reserve, whereby if the investor buys these assets and he makes money, the profit is all his. If he loses money, the shares 90% of this loss with the U.S. Taxpayer.
The difference between a corporate bankruptcy and a personal bankruptcy such as you or I would go through depends upon how the debts are handled. In the corporate world a company can reorganize and restructure debt in some cases, and is other cases the debt gets wiped out, but the company continues to function business as usual. This is called re organizational bankruptcy. In a personal bankruptcy a person can have all of his debts officially wiped out, but his life is far from business as usual. Companies can get lines of credit again and sell bonds after a bankruptcy, not so people.
About The Author:
This artice was written by Mark Soveign who owns and writes for Wertheim Communications LLC as well as Mooker.Com