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"I understand it's a big deal, but I dont understand what happened." That was the question my wife had last night. Maybe a lot of your colleagues and customers have the same question. This article does a fantastic job of explaining the AIG happenings.
http://nymag.com/daily/intel/2008/09/ai ... _less.html

Josh

Thanks Josh!

Will someone please explain to me where the billions and billions of dollars are coming from to bail out the investment banks, insurance companies, and, coming soon, the big three auto makers? We borrowed from China for the Fanny Mae/Freddy Mac fiasco, and, now are we simply printing the cash to fund these other missteps in the capitalist system? We had best hope that these insurance carriers get off of the soft market/cash-flow underwriting tram and start walking down a straight and narrow underwriting-profit path, because inflation is about to overtake this economy and combine that with a reduced credit rating (on fifty plus trillion of debt!), and the price of everything is about to go through the roof. I don't know about you and the way you run your agency, but I cannot afford to see my revenue flow continue to shrink in an inflationary economy!

It would have been better for the country and our capitalist system to simply allow AIG to fail. They took a chance underwriting a risky product and failed. Why should we extend credit to a poorly managed company? What of the other insurers who have failed in the past? Wouldn't there have been sufficient capacity amongst the remaining players to pickup that which AIG would begin to lose? Ever witness an agency go down the tubes? Yes, employees are displaced for a time, and, yes the agency's former clients are somewhat inconvenienced as they are forced to shop their coverage, which is simply good financial management to begin with, but the sun continues to shine, the world revolves and the industry survives.

Other countries are looking at us and calling us hypocrites, because the government is bailing out failing companies. We preach capitalism to everyone else in the world and then act the way we do. We need to replace all of the short term thinkers running our commercial institutions and government and bring on meaningful, conservative reform. We are on the brink of Fascism (centralized control of private enterprise, repression of opposition, and extreme nationalism).

Now, if we could just find the leadership with long term plans to benefit the country and not just their personal fortunes. One of the candidates to lead our country has surrounded himself with financial advisors who held the reins of Fanny Mae/Freddie Mac/Lehman Brothers to help form his economic policies (these guys walked away from their failed leadership roles with tens of millions in salary and bonuses)! This is the very same congressman who received the second greatest amount of money from Fanny Mae & Freddie Mac (Chris Dodd was #1) since 1989 and fought any attempt by Congress to have these folks regulated. Care to take a guess who? Yep, the very one who is promising to bring America the change it needs.

Amen, InsMgmt!

It would have been tough in the short term, but the long term needs to be the focus. Selling out our American values can't be positive.

It's time for a change ...just not the change that leads to more liberlism.

Will someone please explain to me where the billions and billions of dollars are coming from to bail out the investment banks, insurance companies, and, coming soon, the big three auto makers? We borrowed from China for the Fanny Mae/Freddy Mac fiasco, and, now are we simply printing the cash to fund these other missteps in the capitalist system? We had best hope that these insurance carriers get off of the soft market/cash-flow underwriting tram and start walking down a straight and narrow underwriting-profit path, because inflation is about to overtake this economy and combine that with a reduced credit rating (on fifty plus trillion of debt!), and the price of everything is about to go through the roof. I don't know about you and the way you run your agency, but I cannot afford to see my revenue flow continue to shrink in an inflationary economy!

Here's an award-winning video that answers your question quite well. It is amazing where this money is coming from: It is coming out of thin air. The Fed created a debit in its computer system and simultaneously issued a check to the US Treasury for whatever amount needed, and presto -- 700 billion or however much is requested:

http://video.google.com/videoplay?docid ... 2583451279

We are eventually going to have big time inflation due to this, and I think we are past the point of any prospect of repaying the nation's debt. The problem isn't the debt to China, yet. The real problems will come when the Chinese wake up and realize that the bonds they buy from us are really not worth the paper they're written on, but they're sending us real goods in exchange for the cash they give us. Then you'll see some "trickle down" economics, with trickles like Niagara Falls!

The Chinese, and others, will stop buying more, and sell their US Treasury bonds. The supply of US Treasury bonds will increase, so their prices will decrease. Bond yields are inversely proportional to bond prices. Interest rates will therefore increase.

Career changer- you are spot on with your assessment. We will have inflation that will make the 1970's look like a schoolyard picnic. Today's 401K's (actually 201K's) will be destroyed. Real estate will not be able to keep up with inflation as nobody will be able to get long-term mortgages as interest rates will be north of 25%. I am a Farmers agent that has a large financial services book of business and I really struggle with how to position my clients assets. I actually think that having a very significant amount of cash in short-term CD's as well as significant gold shares needs to be part of the future portfolio. In the 1970's stock did very poorly but roared back in the 1980's when inflation was brought back into control. The large mutual fund families pretend that people just need to keep diversification and ride out the waves. I think that is a start but it is also a poor plan for extremely rough waters ahead.

Ultimately we will inflate the trillions of dollars of debt away the same way we inflated away the debt from WWII and the Cold War. Regarding the Chinese that own our current debt, I really don't see that as a real problem. They know that the best bet is to simply take whatever interest we choose to give them. Who else wants the dollars and what else can China do with the dollars besides buy the US? The fact that they are not going to be buying future debt is what will cause future inflation. We will be just printing worthless paper.

To think that all this started with Chris Dodd, Barney Frank and Phil Gramm and their desire to help out their buddies in the mortgage and the securities businesses. We should have a constitutional amendment banning congress or the US Senate for more than one term. We would have representatives that would pass laws that protect citizens, not produce huge campaign donations.

so it goes...