I'd watch!

Now that the insolvent UK banks are claiming profitability, I notice that Stephen Hester wants to wriggle out from under government control. Perhaps there is some legitimacy to the Government's desire to split up big banks?
Holding breath … no, I'm still sceptical.

Have a great weekend!

When the NYT talks about AIG paying back $130 billion bail-out and the public making a profit the reporter is conveniently conflating a few things.

Paying back refers the the $20.5 billion in what is refered to later in the article as AIG's "credit line" and the $6 billion in interest.

If you look at what AIG has received for the sale of its various businesses such sales will never allow AIG to pay anyone back. They made loss selling th eunit to Met Life. And there was no sale to Pruduntial after the auditors got to peek beneath the bonnet.

AIG made a LOSS of $2.7 Billion in the last quarter which was supposed to be firmly part of a recovery wasn't it? I'm not quite sure how they are going to pay people back out of making a loss.

In the end, let's be charitable and say they do eventually pay back the $26.5 Billion. This has nothing to do with the $130 billion. Which mysteriously falls about $60 billion short of what I calcualte they were given. But lets leave that aside as well.

This main chunck of public expenditure is not considered anything AIG has to pay back. AIG is not going to pay back the $130 billion the tax payer spent on buying AIG's stock. That is considered a government investment which the government will gradually sell. Exactly as it is doing with its shares in CITI.

To make a profit the governemtn has tpo sell these shares for more than they bought them for. That in turn requires the stock market to be doing well. WHich it is relative to the low piont. BUT selling also requirtes finding a buyer.

And that is more of a problem. During all this rally there has been a steady decline on retail investors. They have been pulling their money out at a constant pace. Tghe rally has been almost entirely due to a small number of HFT selling back and forth. This is no longer a rumour or hypothesis. It is an accepted fact.

It is also a fact that these buyers will not be keen to buy AIG stock. So although the price looks healthy I doubt the government would find buyers for AIG stock it decided to sell. FOr that it i would require a foreign buyer like a sovereign fund. They, however, have been buying Chinese IPO's instead.

Then there is the problem of whether the stock market is going to stay as high as it is or grind down. I think the latter. Meaning there is a window of opportunity to sell the governbemtn;s stock holdings of AIG and CITI and GM. and that window may be slowly closing.

THEN there is the larger point. No one is including in their calculatoins of what the bail-outs have cost the tax payer, the cost of borrowing the money we spent to buy these stocks and bonds in these companies. No one is calculating the costs due to higher sovereign borrowing. No one is calculating the costs to people's lives of the cuts in care, health and education due to the costs of bailing out the banks.

To those who wanted to see the dismantling of the welfare state, of social housing, free medical care, quality public broadcasting, decent education and care for childrena dn the elderly, for people who thought all thses things were an outrage and should be demolished – then the financial impact of the bail-out so pulbic finances has been a god-send. They have achinced throufgh financial balck-mail what they had failed to achieve throught the ballot box.

For those who voted to defend and keep all the above things then there will never be any paying back of what is being destroyed.

That is what I think.

Golem, is there any realism in that the US and British tax payer can be fully reimbursed by the bail-out recipients or recuperate through sales of shares in the financial institutions?

The future recession in an ongoing depression

One for the doom-and-gloomsters. According to this the outlook for the UK is not exactly rosy even in comparison with the US or Europe.

Rob

Some of Peston's images are identical with Golems. Probably not plagiarism, there are obvious comparisons between aeronautics and crashing complex financial systems, the difference being that in the latter case the crashing can be postponed and camouflaged !

Edmund Conway and Ambrose E-P at the Telegraph are regular readers of zerohedge too.

And then the banks will demand another bail-out to get them out of another 'liquidity crisis', and our national debt will shoot up again, and the bond market will up the price of government borrowing and around we all go again.

Thanks for your response Golem – eagerly awaiting news on the book…

It goes without saying that I can't know for sure. BUT

Both of the htings you mentioned are likely to have contributed. I think it will also be th ecase that many of the loans they feared would default either haven't yet or not as badly as they feared. This last may turn out to be chimerical.

Many of the loans and securities 'not doing so badly' now are held in their 'not so bad' state by the suspwension of mark to market accounting, due to very low rates or, as in the case of much Commercial property still not at the moment when the debt has to be paid off.

Plus there has been a 'recovery' in those parts of the economy where we have pourted in all the bail-out money and where low rates have helped.

Proponents will say – you see we told you – the policies have worked.

I would say – at what cost to the rest of us and for how long.

This is political as much as economic.

I was trying to work out where they came from, but having gone back and read some of your older posts I think I have an idea.

Tell me if I'm close: Lloyds has essentially been swapping it's bad debts for money at mark to market prices with the BoE and then using this money to buy Government bonds. The difference in rates of return on the toxic debt (zero) and on government bonds (3-4%?) is written up as profit. Also, the value of Lloyds own debts has decreased making it cheaper for them to buy them back IF they were to do so. This is also posted as profit.

Am I in the right ball park?

It seems no matter how much I read 'off-piste' I still struggle to decode the MSM's 'news'.