I wish I understood the economy better, but this quote terrifies me:
“Respectfully, you guys are totally misunderstanding something crucial in the AIG bailout: Derivatives claims are not stayed in bankruptcy. (Yet another brilliant innovation from the 2005 bankruptcy reform legislation.)
If AIG were to go down, derivatives counterparties would be able to seize cash/collateral while other creditors and claimants would have to stand by and wait. Depending on how aggressive the insurance regulators in the hundreds of jurisdictions AIG operates have been, the subsidiaries might or might not have enough cash to stay afloat. If policyholders at AIG and other insurance companies started to cancel/cash in policies, there would definitely not be enough cash to pay them. Insurers would be forced to liquidate portfolios of equities and bonds into a collapsing market.
In other words, I don’t think the fear was so much about the counterparties as about the smoking heap of rubble they would leave in their wake.” (via)
Smoking heap of rubble. Yipes.
I personally blame market deregulation, which lead to a blatantly FRAUDULENT valuation of derivatives. Hopefully we now understand that an untamed market is like an untamed government; a dangerous lack of checks and balances.
Hopefully we can support a SUSTAINABLE relationship with our economy, one that doesn’t rely on cancerous exponential growth. Maybe then we can develop some of these emerging markets instead of exploiting them, managing our natural resources instead of exhausting them.
Because that would just be good business, in the long term. Let’s make it good short term business as well; the market will adapt.