AIG uproar rattles private investors
The Federal Reserve is counting on private companies to use federal dollars to jump-start the credit markets. But are investors balking now because of the AIG commotion? Jeremy Hobson reports.
A financial services office of AIG International is seen in an office park March 18, 2009 in Wilton, Conn. (Chris Hondros/Getty Images)
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TEXT OF STORY
Kai Ryssdal: As Congress and the White House try to sort out the politics of the bailout, the Federal Reserve is doing all it can to get private companies to take federal dollars and use them to jump-start the credit markets. In fact, tomorrow is the deadline for applications to the Fed's latest intervention, something called the trillion-dollar TALF, or Temporary Asset-backed Loan Facility. But the commotion over bonuses at AIG may have already scared some of those private investors away as Marketplace's Jeremy Hobson reports from New York.
JEREMY HOBSON: Let's start with TALF. It's a way for the government to kick-start lending to businesses and consumers. It depends on private investors borrowing money from the government and using it to buy debt, backed by credit cards, student loans, auto loans and small businesses. Chris Low, chief economist at FTN Financial, says there's already some investor trepidation.
CHRIS LOW: Some of the customers that we talk to were planning to participate and at least a couple of them have told me they've decided that they'll wait until the second round, see how the first people are treated.
Low says they're worried lawmakers could change the terms of TALF and other program retroactively by restricting compensation or demanding a share of the profits. He says the fear is that as it deals with AIG...
LOW: In the process of doing justice, the government is undermining respect for contracts and ultimately respect for law.
The same applies to the public-private partnership to buy up toxic assets. Robert Johnson managed a hedge fund run by billionaire George Soros and was chief economist with the Senate Banking Committee. He agrees the possibility of lawmakers meddling in their affairs has made potential investors nervous.
ROBERT JOHNSON: Well it certainly might deter private sector participants, the question remains whether that is a healthy or an unhealthy development. In other words, if you are handing out candy from the public sector to the private sector, it's a good thing it's being stopped.
Unless, of course, that candy is the only thing that makes all this debt sweet enough to swallow.
In New York, I'm Jeremy Hobson for Marketplace.
Comments
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From Anniston, AL, 03/19/2009
If one party accepts (or begs for) money from another party, they should expect that strings will be attached. I would not lend another money without knowing they have the ability to pay it back and if they are willing to make the changes necessary to pay it back. It seems to me AIG (and others) brought the problem to the taxpayer doorstep. Now Congress (not exactly my favorite set of managers) must make "suggestions" to insure companies payback their debt (unlike the process they take to manage the peoples finances.) If we could just find some crooked individuals to run all aspects of business and government, we would be much better off. (tfpic)
From Los Angeles, CA, 03/19/2009
"In the process of doing justice, the government is undermining respect for contracts and ultimately respect for law."
Very well said. Bonus clawbacks and mortgage cramdowns set a very dangerous precedent.
Why would anyone go work for a high profile company facing financial difficulties? Your compensation package is determined by the Board of Directors or in some cases shareholders, that is unless Congress now decides to re-work it.
Why would investors extend a loan to anyone other than only the most credit worthy? A contract between two willing parties spells out the lender's recourse should a borrower violate payment obligations, that is unless Congress now decides to re-write it.
Everyone scrutinizes what news is currently moving the stock market. Too much noise makes this question impossible. But the markets do reflect overall confidence among investors. I'd say right now Congress has officially put its fist into capitalism and explicitly told investors that nothing is off the table. So expect the chaos to continue.
Can we please get Pelosi, Frank or Dodd to get more involved?
Even though politicians don't hold themselves accountable for their part in creating the credit crisis, these three people give me hope. They consistently seem to pacify the markets, have a positive attitude and propose solutions rather than just complain about the problems, and in general just have a real grasp of the challenges confronting our financial system.
At a minimum, I'd like to see these three do a bit more grandstanding.
...makes me physically ill.
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