Is Paulson accurate about potential 25% unemployment if... ?

[steve2470]

Paulson: 25% unemployment rate without AIG bailout

WASHINGTON (MarketWatch) - Facing criticism on Capitol Hill, former Treasury Secretary Henry Paulson on Wednesday defended his decision to complete a $182 billion bailout of American International Group Inc., arguing that the unemployment rate would have risen easily to 25% without the bailout. "If the system had collapsed millions more in savings would have been lost," said Paulson, who was Treasury Secretary at the time of the bailout, at a hearing. "Industrial companies of all size would not have been able to raise funding and they would not have been able to pay employees, this would have rippled through the economy." Lawmakers grilled Paulson, arguing that government officials failed to obtain concessions for taxpayers.

[HiFructosePronSyrup]

1. When people were talking about a 2nd Great Depression, they weren't fucking around.

Those weren't the perennial woo woos who always make that claim.

[cutlassmama]

21. Agreed.

[thunder rising]

2. He's right, but that doesn't mean it's over. Where's the prevention regulation and oversight.

I guess this time AIG will really really be careful?

[scheming daemons]

3. It was the one time in his life that Paulson actually told the truth

We *WERE* that close to the cliff.

[Xipe Totec]

4. millions more in savings would have been lost...

So, we saved millions, and paid out bonuses in billions...

Nice work!

[Zynx]

10. We would have lost trillions of dollars in deposits.

I can't name a single financial institution with more than $10 billion in deposits that probably would have survived the cascade.

[Xipe Totec]

17. Hey, I'm just quoting him.

If you want to claim a higher number, go ahead.

[IndianaGreen]

5. It is 17.5% now of people unemployed or underemployed

and the Big Recession has shown no signs of coming to an end.

[boppers]

27. Recession's over. Unemployment still sucks, though.

My grandfather and I have talked a lot about the great depression. What we are dealing with now is a freaking cake-walk, in comparison...

[valerief]

6. Who says the TRUE unemployment rate isn't 20% now anyway? nt

[Milo_Bloom]

7. *SIGH*

It wasn't an either or.

There were OTHER WAYS to spend the same 182 billion dollars and prevent 25% unemployment and not reward AIG for their massive failures.

[karynnj]

13. AIG was not rewarded - they lost nearly all their value - which was as it should be

The money they got flowed to the banks they insured. This is why the banks recovered so quickly - and they are the ones that were rewarded. They owe the government for saving their industry.

[paulk]

20. actually, the money flowed to Goldman Sachs

http://www.huffingtonpost.com/2010/01/27/revealed-see-who-was-paid_n_438933.html

[karynnj]

22. among others - there were MANY counterparties that got money

The full list included all the big investment banks in the US internationally. (If were just Goldman Sacks, they likely could have let them fail. It would not have been allthat much worse than letting Lehman fail.)

[paulk]

25. is that going to be the talking point

when Congress starts calling for Geithner's head?

Did you read the article?

[karynnj]

26. Yes - and I am one of the people who think Geitner needs to go

I have read other things that were far more detailed than that article.

[Milo_Bloom]

29. AIG survived as a company and THUS was rewarded.

Employees continue to rake in huge salaries and bonusues.

Yes, they were rewarded.

[stevenleser]

8. I think it would have been worse than 25%

What we should be talking about is how to prevent a situation where the failure of 1 firm has that kind of effect on the economy.

[Zynx]

9. Yes. Actually, it would have been far higher I believe.

In the absence of any intervention at all by Treasury or the Fed, we would have lost virtually every bank. Because the FDIC only had $50 billion, several trillion in deposits would have been lost. Trillions more in credit lines would have evaporated. Most businesses would have run out of money very quickly. The credit markets also ceased to function anyway even with the bailouts until the Fed applied defibrillators to the market. Where the hell would businesses have gotten money from?

[golfguru]

11. If AIG went broke only people affected would have been

share holders of AIG and executives of AIG. As it should be. Whatever business contracts AIG had
could easily have been handled by competing corporations who would purchase
those contracts at agreed upon price. Lower level workers would have been absorbed by whoever
bought out AIG business contracts.

AIG executives should have all lost their jobs for indulging in risky & stupid
business decisions.

As for the stock holders, when you buy a stock you are rewarded for profitable
outcome and you are punished when you make a bad investment. That is exactly
how it is supposed to work.

[HiFructosePronSyrup]

24. LOL

Just like the failure of Lehman Bros. didn't effect anything but Lehman Bros.

[golfguru]

31. Yes, World did not come to a grinding halt upon Lehman's demise

The big shots at Lehman were the biggest losers along with the
largest stock holders.

[karynnj]

12. I believe that we were in uncharted waters

It could very well have brought down the world's financial systems. It could also have destroyed the life savings of most Americans, who put the money into mutual funds that for over 2 decades looked like a safe alternative to a savings account with a much higher rate of return. As it was the credit market was really slow to extend credit this year.

However, that is really the wrong question. A better question is whether the government needed to allow AIG to pay 100 cents on the dollar. Imagine they were more open and transparent and said that AIG was functionally bankrupt, but the government would in good faith pay n cents to the dollar through AIG if they agreed that it was payment in full. I assume that they could find an n less than 100 that banks would accept. After all, they knew the assets were risky when they "insured" them and they knew AIG was a private company. There was an element of risk that AIG could fail and they took that risk. they did it because these transactions were extremely lucrative for years. This is why I think it fair that the banking industry pay the AIG loans off with the proposed tax. That cost was to save them.

[amandabeech]

30. Right. The holders of the CDOs probably would have settled for considerably less than 100%.

Paulson is simply stuck in bankerthink. He can't comprehend that the banks do not deserve kid glove treatment any more than any other important industry.

[LaPera]

14. Republican Paulson = Republican scare tactics pushing fear = Republican corporations

justifying stealing our tax dollars for their own selfish sickening greed.

[JVS]

15. Half accurate. If the system had collapsed, it would have been that bad, but...

there are more ways to deal with the bank crisis than just shoveling money at them.

There was a lot of discussion about a Swedish model for the bailout or a Japanese model, Search DU for Banks Swedish Japanese, and you'll find discussion of that. Here's an example:
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x54445

[grantcart]

16. Probably closer to 30% if the bank runs that were happening continued

The FDIC would have collapsed.

The run on Washington Mutual alone was greater than imagined, but most people still are unaware of the enormity of the bank runs.

[golfguru]

18. FDIC is backed by full faith and taxing power of US Govt

It is impossible for FDIC to go belly up unless US Gov't ceases to exist.

Fear mongering at it's worst!

[Phx_Dem]

19. It's was quite literally a nightmare scenario. Read about it -- it's very

interesting and scary.

One great book is "Too Big to Fail." I couldn't put it down. It's written from the people perspective, detailing all the conversations, meetings between the CEOs and between the CEOs and the Fed. Gives great background on all of them (Paulsen is a hardcore environmentalist who drives a Prius. His wife hated Bush. So did his mother).

The financial industry caused the worst economist disaster since the 30's, and the Fed did what it had to do to prevent an economic apocalypse which would have paralyzed us all. Most of the money has been paid back with interest + dividends and the rest will be collected through the bank tax, if Congress passes it and they'd better!

[karynnj]

23. It is a good book

The perspective is totally from the point of view of the financial industry, which the author reported on for the NYT. For me, it was eye opening because I had thought I followed it closely. However, my focus on the government, especially the Senate, missed how much was really controlled by Paulson at Treasury and Geitner at the NY Fed. I was not happy to read the section near the end where Geitner was "marrying" all these companies. The book's perspective was it saved them - but, in light of the title, it seems he did it by making them "too big to fail". It is interesting that with Obama's plan, he might be the one officiating over their divorces.

The close links of everyone at the top of the Financial world, where everyone knew everyone from previous jobs was fascinating. The disdain the Treasury and the financial world had for Congress should motivate Congress to relook at their oversight role and really regulate them. (Yes, this might be another reason for campaign finance.) It also was clear that their insular world had led to incredible arrogance on their part. (Reading this I remembered what I had seen when Geitner was at the Finance committee hearing - he really was not the least bit deferential.

[boppers]

28. It's this simple: If you had money in a bank, it would have been gone.

I don't use banks anymore, and have only one credit card (Discover).

I have no illusions that putting money into a bank is little more than a gambling game with reliable payouts... it's still gambling.

[hayu_lol]

32. Until all the living wage jobs are restored in this country...

this depression will continue. Unemployment during the last depression was 16%. We are way over that at this time. Many of our currently unemployed people will not ever find stable work again during their lifetimes.