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"A.I.G. Suing US Government for $306 Million"
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Author Topic: "A.I.G. Suing US Government for $306 Million"  (Read 59792 times)
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« Reply #15 on: March 23, 2009, 10:31:53 EDT »

I was talking to someone at the weekend who worked for the offices of a Congressman.  Laws don't undergo very much examination by congress.  Congressmen don't read them they get their minor staff and interns to do it for them.

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The people who contracted with the corporation for those packages are individual people.  They're the ones who contracted with the corporations to receive those benefits after "x" years of service to that entity.  They're also the individuals from whom the government is trying to extricate back the money they were paid for their services.
Yes.

The point here is that the government are going after a bunch of people who haven't broken the law.  Rather than fining them they are "taxing" them.  That flies in the face of the idea of rule of law.
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« Reply #16 on: March 23, 2009, 12:38:18 EDT »

The point has also been raised that it's unconstitutional, and thus a violation of their oath of office.

I thought the yanks were tired of violating the constitution with dubbya, but hey, new sherif, new violations of the constitution.
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« Reply #17 on: March 23, 2009, 13:38:49 EDT »

I thought the yanks were tired of violating the constitution with dubbya, but hey, new sherif, new violations of the constitution.
What disappoints me is that it's such a boring act of attainder.

British parliaments and monarchs have done much better.  After the civil war in 1661 Charles II was restored as King.  The parliamentarians who had executed Charles I were dead.  However, Charles II and parliament wanted them punished for their crimes.  So they passed an act of attainder.  The "regicides" were exhumed then hung, drawn and quartered.  Oliver Cromwell's head the stood on a spike outside parliament for the next 25 years.

That said, there is an upside to acts of attainder like this and the AIG one: they distract parliaments from doing important work.
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« Reply #18 on: March 23, 2009, 16:32:23 EDT »

It's not so much favours as just good olde incompetence.

The problem is it takes longer to unravel a knot then make one, and there is a hell of a lot more brainpower making knots.

Enron sort of showed everyone how to go about setting up a solid "hide the debt" scheme (and they would have got away with it, if it hadn't been for their accountant's greed when they peddled the scheme).  It should be unsuprising to everyone that the money-movers are better then the money-finders, as a government position pays 1/3 the starting salary and has a low ceiling with the added bonus of having lackwit partisans stop by and ask you to kiss thier ass.

No one I know wants to work in such an enviroment unless they have some sort of disdain for money or other sources of wealth.
I'm not sure it's that simple.

Look at government pension schemes around the world.  Pyramid schemes most of them.  Few complain about that though.  Look at Fannie Mae and Freddie Mac.  Government backed SIV's both of them.  Even fewer people complain about that.  In Britain we have these things called "Private finance initiatives".  What they mean in practice is that government get a private company to build a building for them and then lease it to them.  The genius of this is that, even though it is more expensive, the debt to finance it appears on someone else's books.  This, as you probably know, is operating leverage.  Something similar is now being done in the UK with charities.  The government fund a charity and act through it.

The governments are employing most of the same methods the private sector have used to hide debt.

I agree with you though.  I think that government agencies aren't smart or well enough motivated to find the debt that private companies hide.  But I don't think that's the whole story.  Really government and regulators have never being able to do this in the past.  They have relied on their ability to punish after the event.  Governments want to be seen to be promoting transparency, but they want to do that without creating enough of it that it will affect themselves.  The US government could probably prosecute quite a few people under the Sarbanes-Oxley act without too much difficulty.  I don't think they will though.
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« Reply #19 on: March 23, 2009, 17:06:01 EDT »

FYI I was once in a punk band called "Cromwell's Head."

We were really bad, and it appears that there is a limited audience for historical trial punk.  We were into Guy Fawkes before he was cool to boot.

Anyway, yeah, no-one wants trials because people ask questions and give answers *shudders*, gah, it's like a cross to a vampire.  *has a little daydream about Harry Reid being forced to answer corruption questions and screaming "Noooo, not actual oversight....It BUUUUURNNSSSS US!"*
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« Reply #20 on: March 24, 2009, 05:47:03 EDT »

Look at government pension schemes around the world.  Pyramid schemes most of them.

Gah, no. I'm sorry, but you've just tarnished any educational value you ever had in the economic arena by parroting this line of crap.
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And if i catch you comin' back my way
I'm gonna serve it to you
And that ain't what you want to hear
But that's what I'll do
-- "Seven Nation Army", The White Stripes

So what you're telling me is that LTV's fudge factor means more than it's independent variable?
Yes...
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« Reply #21 on: March 24, 2009, 07:33:27 EDT »

Look at government pension schemes around the world.  Pyramid schemes most of them.

Gah, no. I'm sorry, but you've just tarnished any educational value you ever had in the economic arena by parroting this line of crap.
What I mean is that many of them depend on the payments of current workers to finance the pensions of current pensioners.  Just as in a pyramid scheme the returns on the "investment" are financed by those paying into the scheme.  Both have a similar flaw, any change in the level of the two populations changes their financial viability.  This is why most pension systems will eventually have to be topped up with taxes, or otherwise fixed.

In understand some on the left consider pension not to be pyramid schemes because the government have the ability to increase the payments that those currently in work make.  I think this is disingenuous.

I'm not really saying anything controversial here.
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« Reply #22 on: March 24, 2009, 08:06:53 EDT »

Both have a similar flaw, any change in the level of the two populations changes their financial viability.

The flaw of an actual pyramid scheme is that it promises unrealistic profits (in order to draw in more victims quickly), which can only be maintained by drawing an exponentially growing number of people into the system.

I have yet to the government pension plan that promises 20+% yield per year.

Also, the other way of paying for retirement (capital cover) isn't completely rosy, either. The accumulated capital can evaporate fairly quickly (as we've seen in the last two years), and if (big if here) everyone was actually able to save enough money for a comfortable retirement, there would be problems with actually investing this amount, and possibly inflation, too. (Simplified: If you have $500k now, it's a lot of money. If everyone had $500k now, it wouldn't be worth nearly as much)
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« Reply #23 on: March 24, 2009, 11:29:43 EDT »

Both have a similar flaw, any change in the level of the two populations changes their financial viability.

The flaw of an actual pyramid scheme is that it promises unrealistic profits (in order to draw in more victims quickly), which can only be maintained by drawing an exponentially growing number of people into the system.

I have yet to the government pension plan that promises 20+% yield per year.
A pyramid scheme doesn't have to offer unrealistic profits to be a pyramid scheme.  Madoff's fund paid only 10%, lower than returns from the S&P in many years. 

The key point about a pyramid scheme is that it is dependent on the new entrants.  In this manner many government pension plans are similar.

Also, the other way of paying for retirement (capital cover) isn't completely rosy, either. The accumulated capital can evaporate fairly quickly (as we've seen in the last two years), and if (big if here) everyone was actually able to save enough money for a comfortable retirement, there would be problems with actually investing this amount,
I agree that saving is not without pitfalls.  However, all provisions for the future are provided for by capital whether they are explicitly backed by it or not.  All depend on capital in the broad sense, including "human capital" in skills and knowledge.  There is no particular reason to think that depending on it through taxes is more dependable than depending on it through dividends and interest.

I can explain that in more detail if you like, if you disagree.

and possibly inflation, too. (Simplified: If you have $500k now, it's a lot of money. If everyone had $500k now, it wouldn't be worth nearly as much)
Inflation can only be caused by issue of more money.  There is no particular reason why this would occur.  I agree that there would be much short term disturbance if a country changed from one system to another at once.  This isn't at all practical though, what is needed is a gradual change.

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« Reply #24 on: March 24, 2009, 11:52:25 EDT »

A pyramid scheme doesn't have to offer unrealistic profits to be a pyramid scheme.  Madoff's fund paid only 10%, lower than returns from the S&P in many years. 

Well, he was trying harder to make it look legitimate than most other people running a pyramid scheme. Also, he managed to avoid sudden large withdrawals, so each entrants money would have lasted for almost 20 years.

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I agree that saving is not without pitfalls.  However, all provisions for the future are provided for by capital whether they are explicitly backed by it or not.  All depend on capital in the broad sense, including "human capital" in skills and knowledge.  There is no particular reason to think that depending on it through taxes is more dependable than depending on it through dividends and interest.

I disagree here. Look at the performance of the stock markets (down 50% since the start of the crash) and the GDP of various nations (either stagnant or drops in the single-digit percent range).

And for people naively following investment strategies peddled to them by "financial experts" (like investing in individual companies ... *shudder*), things can look even worse.

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Inflation can only be caused by issue of more money.

So what happens if everyone tries to save up $500k for their retirement? Either the money supply is increased accordingly (and you get inflation), or there's less money circulating (and you might end up with deflation, which is even worse).

Like with health insurance, combining several models may be the optimum way. The tax-funded part will keep you from starving, and the investment-funded part will let you have champagne and caviar if you're lucky.
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« Reply #25 on: March 24, 2009, 14:40:34 EDT »

A pyramid scheme doesn't have to offer unrealistic profits to be a pyramid scheme.  Madoff's fund paid only 10%, lower than returns from the S&P in many years. 

Well, he was trying harder to make it look legitimate than most other people running a pyramid scheme. Also, he managed to avoid sudden large withdrawals, so each entrants money would have lasted for almost 20 years.
Yes.  That doesn't mean though that what he did was any the less a pyramid scheme.

Quote
I agree that saving is not without pitfalls.  However, all provisions for the future are provided for by capital whether they are explicitly backed by it or not.  All depend on capital in the broad sense, including "human capital" in skills and knowledge.  There is no particular reason to think that depending on it through taxes is more dependable than depending on it through dividends and interest.

I disagree here. Look at the performance of the stock markets (down 50% since the start of the crash) and the GDP of various nations (either stagnant or drops in the single-digit percent range).
Yes.  My point is though that taxpayer/payment funded schemes are really not that different.

For example, I have a private pension and a state pension.  My UK state pension will (if the present situation continues) be paid for by those who are working at the time I claim the pension.  My private pension is savings, it is invested in shares and bonds.  They will pay a return when I retire.

In my view the current crisis, and most crashes, are the result of a realization that mistakes were made in the past.  Investors (and many others) have come to understand that their future returns will not be as great as they thought they would be.

This affects the state just as it affects the private sector.  The state exists upon taxes which it takes from the private sector.  The future projections of revenue from those taxes must now fall.  If the state have made their plans on the basis of inaccurate rates of growth (which most have) then they will be in trouble.  Raising taxes will be the only solution in the long term (something they can put off by borrowing).

In the long-term drawing income from taxes is not more stable than drawing income from investments.  The state has no magic power here.

The state can always raise taxes, but in that case they are only displacing the problem onto the taxpayers.

And for people naively following investment strategies peddled to them by "financial experts" (like investing in individual companies ... *shudder*), things can look even worse.
Yes.  Certainly many people make bad decisions and will continue to do so.  I'm not convinced though that investing with the state is a particularly good one.

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Inflation can only be caused by issue of more money.

So what happens if everyone tries to save up $500k for their retirement? Either the money supply is increased accordingly (and you get inflation), or there's less money circulating (and you might end up with deflation, which is even worse).
If I put $500K under my bed then the money stock will contract by that amount until I take it out again.  However, few are likely to invest in this way.

More realistically I will accumulate an amount, £X, in my bank account then use it to buy Y shares in a unit trust or mutual fund.  Once I buy those shares the money will be deposited in the bank account of whoever I bought them from.  It will not disappear from circulation.

Like with health insurance, combining several models may be the optimum way. The tax-funded part will keep you from starving, and the investment-funded part will let you have champagne and caviar if you're lucky.
I don't agree.  The problem I'm pointing to here is no so much that the system is compulsory but that it is dangerous.

Here's a proposal that should appeal to progressives.  At present the tax funded part hands money from taxpayers to retirees.  Why not invest it with a low risk strategy such as a diversified mixture of bonds, property and stocks.  That would insulate it from the problems that a change in population composition would bring.  There is no particular reason why state systems should be run as they currently are.  Now, I don't think that this is the best policy, I think a full private system would be best, but I think it would be a big improvement on what many countries have now.
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« Reply #26 on: March 25, 2009, 05:34:40 EDT »

The key point about a pyramid scheme is that it is dependent on the new entrants.  In this manner many government pension plans are similar.

No, the key component of a pyramid scheme is that is is dependent on gaining more entrants than leave it. Government pension plans are similar to pyramid schemes iff you believe corporations are similar to what Psy thinks they are. Or, you know... iff you believe that the proverbial apple and orange are similar.
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And if i catch you comin' back my way
I'm gonna serve it to you
And that ain't what you want to hear
But that's what I'll do
-- "Seven Nation Army", The White Stripes

So what you're telling me is that LTV's fudge factor means more than it's independent variable?
Yes...
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« Reply #27 on: March 25, 2009, 06:27:47 EDT »

If I put $500K under my bed then the money stock will contract by that amount until I take it out again.  However, few are likely to invest in this way.

If people are expected to invest optimally, they (all of them) will have to do exactly that under certain circumstances - that is, whenever the chance of losing money by investing is higher than losing money (to inflation) by hiding it under the mattress.

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I don't agree.  The problem I'm pointing to here is no so much that the system is compulsory but that it is dangerous.

The government is also compelled to feed people under certain circumstances, so the compulsion cuts both ways.

Unless you're ok with letting anyone who's unlucky, stupid, ignorant, naive, or a combination thereof starve or freeze to death, I don't see how a system could be set up without even the slightest compulsion.

Quote
Why not invest it with a low risk strategy such as a diversified mixture of bonds, property and stocks. 

Low risk comes with low returns, meaning that inflation will eat up a large portion of your gains.

Also, in order to diversify sufficiently, you need quite a chunk of money in the first place (or brokerage fees are simply going to eat up most of your investment). Last I read sufficient diversification for stocks meant having at least 30 different ones in your portfolio, spread out over different industries and regions, and dedicating quite a bit of time to watching them. Of course, you can reduce that by investing in mutual funds rather than individual stocks, but then you end up at the mercy of the manager of each fund, and end up losing a significant fraction of your investment each year to the TER, regardless of whether the fund is actually profitable.

Same goes for investing in property. Either you have a significant chunk of money already (and property has some fairly nasty, err, properties, like being a low-liquidity asset and coming with maintenance costs), or you chose investing in funds based on property that come with pretty much the same drawbacks mentioned above.

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That would insulate it from the problems that a change in population composition would bring.

The value of these investments is, at some point, tied to demand, which in turn is related to population - especially for things like property.

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« Reply #28 on: March 25, 2009, 12:50:11 EDT »

In theory government pension plans shouldn't be pyramid schemes, the problem is they often become them because the government is very, very bad at money management.  Then it needs new influxes of cash because it poorly used the pervious cash and/or borrowed from that piggy bank for sketchy ideas. 

Right now in Canada, we have whole piles of money being invested by lawyers and human rights people in the Worker's Compensation program.  One would think they would hire a money manager, but this is the standard government practice of assuming people in positions of authority are good at things they have no reason to be good at.

The key worry is not that social security is designed to be a pyramid scheme, but that governments steal from the piggy bank with the inention of putting it back in, and when they lose power and a new group comes in they shove aside fixing the problem in favour of their own agenda.
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« Reply #29 on: March 25, 2009, 14:22:32 EDT »

The key point about a pyramid scheme is that it is dependent on the new entrants.  In this manner many government pension plans are similar.

No, the key component of a pyramid scheme is that is is dependent on gaining more entrants than leave it. Government pension plans are similar to pyramid schemes
I think I agree with your description of a pyramid scheme.

Here is my point.  Suppose the current working population of a country is 38.5million.  Each of them pay an national insurance payment of X $.  The current population of pensioners is 11.3million.  Each of these pensioners receives 38.5/11.3 * X £ (38.5/11.3 is ~3.4).  The current working population expect to receive the same pension as the current pensioners are receiving, accounting for inflation, they expect the same real amount.  Suppose that thirty years elapse.  At this time the current working population is 43.6million and the current population of pensioners is 21million.  At this time each working person pays £Ys of national insurance.  So, each pensioner receives 43.6/21 * Y £s (43.6/21 is ~2).

The UK government call the population ratio between the working population and the pensioner population the "old age dependency ratio".  So, if there are 10million workers and 3million pensioners that is 3/10 = 30%.  The ratio taken the other way around shows how many of working age support a pensioner 10/3 = 3.3.  That is called the "old age support ratio".

How can that £Y be worth the same in real terms as the earlier £X?  There are a few possibilities, government can increase the amount that the working population pay by directly increasing the national insurance payments they make.  Government can raise other taxes to meet the shortfall.  Alternatively government can print more money, that is just another form of taxation.  The gap could be covered in the short term by borrowing but that must lead to future tax increases.  If things happen fortuitously then economic growth will cover some of the gap.

There are other alternatives.  The amount paid to pensioners could be reduced in some way, for example.

The figures I give in the first paragraph above describe the UK pension system.  The current situation is that the old age support ratio is 3.3 or 3.4.  That ratio would drop to ~2 by 2051.  In the UK the government have taken steps to rectify this.  They have increased the age at which a person can receive a pension to 65 for both men and women.  (Formerly it was 60 for women and 65 for men).  This is of course really a cut in another form.  Performing this cut though will stabilize the old age support ratio at 3.3 by 2031.  State documents indicate that another rise in the pension payment age to 68 will stabilize the system until at least 2051.

The UK government have a nice report on the subject.  The report shows how changes to the pension age can offset the problems.  The report though paints a picture of things being understood.  If you read it pay attention though to the section on uncertainty.  Demography may change in the future.  Currently a boom of immigration into Britain has made all these calculations look much better.  Whether the new migrants from eastern europe will stay in the long term is unknown.  It is also not know if many people in their late 60s will be able to carry on working.

iff you believe corporations are similar to what Psy thinks they are. Or, you know... iff you believe that the proverbial apple and orange are similar.
The situation isn't similar to the Marxist critique of capitalism.
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