Word: systemic
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...anything other than stop the bleeding. Failure by AIG to pay might have threatened its counterparties - for instance, Citigroup and, in turn, Citi's counterparties. A bond or a derivative is, after all, a promise to pay someone, and if there is no confidence in its fulfillment, the financial system ceases to function. It is not a fear that has gone away simply because AIG has been stabilized...
...Bailing Out the Bailed Out Keeping the financial system fluid might explain why so many banks got paid in full, which strikes some as a scandal way bigger than the bonus payouts. Many experts wondered why AIG paid 100 cents on the dollar. Among the biggest beneficiaries of the AIG pass-through, at $12.9 billion, was Goldman Sachs, the investment-banking house that has been the single largest supplier of financial talent to the government. Critics have been quick to note - and not favorably - the almost uncanny influence of former Goldman executives. Initial phases of the rescue were orchestrated...
...Gerry Pasciucco, the new head of AIG FP, is working to whittle down AIG's trading book by $1.1 trillion. Which raises the question, Does he really need those $165 million bonus babies to finish the job? AIG says yes, because they know the trades and the system, but not everyone agrees. "This is an engineering problem," says Rick Bookstaber, a risk expert and the author of A Demon of Our Own Design, which predicted the predicament we're in. "Right now there are probably a million guys out there...
...considering the risks still infecting the system, the clawback is pointless. Geithner and Bernanke have way more important things on their plate. Did we mention the economy, with unemployment headed toward 10%? And the upcoming G-20 meeting that has the U.S. and Europe at odds over what to do first - regulate the global economy or stimulate it? Nor will the albatross of AIG be removed from the government's neck anytime soon. Liddy said his goal is to restructure AIG's core businesses into "clearly separate, independent" companies that are "worthy of investor confidence." AIG has "made meaningful progress...
Immediate financial fixes. Central banks and financial technocrats are moving to end some of the more flagrant abuses and rethink the financial system's rules - but, inevitably, that is a slow and painstaking task. London needs to serve up some quicker fixes. One suggestion: an immediate ban on opaque off-balance-sheet "special purpose vehicles," which played such a big role in the meltdown (and in the Enron scandal). Another: the establishment of a G20 College of Supervisors, the beginning of a world regulatory body to oversee financial markets, coordinate national responses and troubleshoot crises at cross-border financial institutions...