By now, some of you might have the impression that I don't always agree with The Suit. I can see how that might have happened but every once in a while even I can commiserate with the guy. He was up on the Hill yesterday and got his bum handed to him over the AIG bailout of last year. Seems as though, following the report of some inspector general there are so many of those) some of the Hill types seem to have gotten the impression that maybe the latest anti-Christ, Goldman Sachs and friends, got too good a deal when the got paid 100 cents on the dollar by the Fed for their AIG exposure. Ok, they did, s*** happens and The Suit was running the New York Fed while auditioning for his present job so that means he has to carry the can for this one. Unfortunately, this could be a real problem for Our Hero because both sides of the aisle hate the AIG situation, the GOP believes that his little income tax "misunderstanding" should have disqualified him for the job and most everybody is coming to the belief that there is more than a bit of arrogant little snot around this guy's personality. He got big-time testy yesterday during the questioning knowing full well he's not the flavor of the week.
Now I am on record in stating that this was perhaps not the NY Fed's best moment. Before bailing everybody and his brother out of that mess I thought they might have tried a bit of market action like putting a bid behind the paper on which AIG had issued CDSs and then getting inside quickly to avoid the shorts who were falling off buildings but they didn't. And I suspect that this is the reason.
I'm sure you also remember me having stated that a lot of the history of past crises was rewritten last year. Many had seen this before going back to the first real systemic risk of our business lifetimes in 1982 with the Latin American debt crisis. At that point in time most of the major banks in the U.S. were technically broke but the crisis was resolved with a lot of hard work over time. It was a bank crisis, and while terrible in its effect, not everything ground to a halt. Last year, there were two major differences. The first I would call the financial equivalent of Moore's Law and the second the complete grinding to a halt of all mechanisms of credit extension world wide. There was no credit available to anyone as all depositors and liability holders ran to save havens and because of the technological advances that had occurred since 1982 it happened in the blink of an eye. Unlike 1982 when months were spent to resolve the situation a good friend who was involved in the events of last year told me that, "the time we had was measured by a clock's second hand." In this scenario, I am prepared to give The Suit a pass: it perhaps wasn't pretty but what had to be done was done. Frankly, if he were to be forced out, I would shed no tears (except that I shudder to think of the replacement) but if it occurred over this, it would be a bum rap.
While all of this is going on it's going to be difficult for the Treasury to get up to speed on the two bills relating to governance pushed by Messrs. Dodd and Frank. They had best do so as these two monstrosities have in them the capacity to do more damage to our financial system that 10 AIGs. On top of that, The Leader's trip has proven to be a train wreck and there is some serious backing and filling that needs to get done as every single approach on the international front was kaboshed. Enough there to keep a boy out of trouble for some time.
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