What I don't understand is that the total Market Capitalization of AIG is $6.13 Billion assuming a $2.28 price per share on the day of the bailout announcement. Why doesn't the government own the entire company outright? And as a shareholder, can the government be sued when the collapse of AIG actually occurs?
Tuesday, November 11, 2008
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5 comments:
I was wondering the same thing about GM. Their market cap is $1.8B, so wouldn't it make more sense for the government to just buy it up completely before bailing them out? That way, if the bailout actually works then at least we the taxpayers will share in the profits.
I thought this article on currency was kind of interesting.
Fiat money loses its worth as more and more is printed. Gold does not back paper currency. Eventually, a dollar bill is not going to be worth the paper its printed on.
Money, Banking and the Federal Reserve :
http://video.google.com/videoplay?docid=-466210540567002553
True, just as a penny became not worth the copper on which it was stamped, so they changed it in 1983 from 95.0% Copper / 5.0% Zinc to 97.5% Zinc and 2.5% Copper. The dollar bill will eventually be phased out, and new denominations (e.g. $5000) will be introduced.
I'm actually of two minds about inflation. If you have a large stash of cash, then it's obviously bad because your stash becomes worth less over time. But who stashes away cash these days? People with wealth invest it, and usually get a return rate that exceeds inflation.
People with no wealth, on the other hand, see their wages increase over time, which offsets the effect of inflation for them. Would wages still increase at the same rate if there were no inflation?
And people with negative wealth, like me, actually see their debt decreasing over time if inflation exceeds their interest rate (e.g., I have a bunch of credit card debt locked in at 2.99%, so I should be rooting for high inflation, actually).
Inflation just creates a treadmill on which we're all forced to run. We could stop the treadmill (maybe), but would that necessarily make things better? Wouldn't people with money just be less motivated to invest it? And wouldn't that be bad for everyone?
Investment in the stock market is extremely risky, just look at the current conditions. If someone is saving for retirement, the rule of thumb for asset allocation is Cash = 100 - Your Age. And when I say cash I also mean cash equivalents like bonds. Saving should be encouraged, but instead is discouraged. What's bad for everyone is if you have no money b/c your portfolio is worhless and you haven't saved anything in cash.
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