How about this? We are better off than we were yesterday.
You have to understand that we simply wouldn't be able to open most financials if AIG (STOCK QUOTE: AIG) had failed. Our new sovereign wealth fund, the Federal Reserve, came up with an elegant plan to take over AIG and make good on what would have been broken guarantees that would have caused worldwide capital calls and bank closings that honestly would have made the Great Depression seem like the Little Depression, World War I to our new World War II. That's worth avoiding.
It's hard to rally on this. People are still reeling from the enormity of it and the fragility that we didn't know about. I am actually pleasantly surprised that the Fed recognized that we had a problem this size on our hands.
You have to look at this only one way: Without this nationalization, we might not have had banks paying off other banks. We would have a seize-up and a destruction of capital that we simply couldn't handle.Now we are going to rebuild on a firmer basis.
I believe, again, that AIG was actually somewhat solvent but it had guarantees meant to be paid off, like Fannie (STOCK QUOTE:FNM) and Freddie (STOCK QUOTE:FRE), simply on house depreciation. It was a miserable underwriter and arrogant beyond all get-out, and it wasn't just Martin Sullivan that caused the problem. The now allegedly senior statesman Hank Greenberg set up this model, AIG simply took it to an extreme.
Last night before the news that Lloyds might buy HBOS, another mortgage issuer of no judgment, it looked like we could be down big on the recognition of the trouble we must have been in.
Now it looks like we simply aren't in as much trouble as yesterday. That makes things more constructive and not as worth selling after this save.