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Reply With QuoteThe cars are mostly in good working order, they have just run out of oil. In an oil shortage few are willing to lend or share, especially if there will be the opportunity to pick up good motors at distress prices.
IANAE, but...
Does anyone else wonder if the US economic bailout that's in the final stages of refining and approval is really, really dumb?
I mean, you get a bunch of lenders who lend money to consumers who couldn't afford to pay it back... and it precipitates the current problem...
So then the US Federal Treasury lends money - $700 BILLION - to companies who currently can't afford to pay it back...
Am I missing something through my lack of understanding of macroeconomics, or is this effectively snowballing a bad situation?
The cars are mostly in good working order, they have just run out of oil. In an oil shortage few are willing to lend or share, especially if there will be the opportunity to pick up good motors at distress prices.
I suspect Moist von Lipwig is behind this
It's not dumb, it's just necessary.Originally Posted by Ronde!
It's highly unpleasant, because it's completely voiding the whole concept of "Moral hazard", it's effectively rewarding greedy scumbag bankers for being incompetent greedy scumbag bankers, and because no other industry gets this level of assistance.
However, the finance industry is unique - everything else depends on it. It's not like - for example - shipbuilding industry, which we can let go if it fails. If finance fails, we're all in trouble.
So, unfortunately, we have to grit our teeth and pay up.
Its due to your lack of understanding of macroeconomics, good summaries can be found in the Daily Mail or more detailed summaries The times, you could read the Economist etc to get a better idea whats its about
AIG underwrites a lot of banks. If AIG went out of business (a genuine possibility) then the banking system would effectively freeze.
Most banks and financial institutions insure their investments to minimise losses. This means that every bank around the world reduces its risk exposure. The current credit-crunch has been caused by banks over-exposing themselves to risk by taking on a series of bad debts.
AIG is effectively two companies: the insurance business, which is remarkably strong and healthy at the moment and a more general financial business, which is in trouble. The financial business problems were exacerbated when their credit-rating was increased, significantly increasing the cost of borrowing to AIG.
The issue was that the collapse of the financial business would have flow-on effects into the rest of the world's financial industry, exposing virtually every bank in the world to higher risks. Even the banks that we think are safe and stable would find their portfolio becoming more risky, therefore increasing the costs of their operations. In more than a few cases, these increases would be large enough to put the bank out of business. Without Government intervention somewhere, the knock-on effect of AIG failing would be the effective collapse of the world's financial markets.
To use the car/oil analogy - the cars are out of oil because their owners have decided that checking the oil wasn't worth the effort. Putting more oil in is a quick-fix, but the car will break again, and soon, if you don't get the owners to start checking their oil regularly.
Should the financial markets collapse, you'd suddenly find the economy freezes. This wouldn't just affect housing, it would effect trade credit. Without trade-credit, the retail service sectors can't operate. Supermarkets wouldn't be able to put stock on their shelves; petrol stations wouldn't be able to fill their tanks; hospitals wouldn't be able to buy medicines. No-one would be able to pay wages. We'd survive easily enough (that's what people do), but it would impose a lot of change on everyone that would be very painful.
The financial markets are incredibly interdependent: the collapse of one part of the market has effects through-out the rest of the market. I think most people agree that the financial markets need a shake-up. Personally, I always disliked the extent of their deregulation, for precisely this reason. If you allow markets unconstrained freedom, then you expose them to the benefits of competition. Unfortunately, competition means there will be losers as well as winners. When the competitors are large, the impact of a loser is necessarily going to be catastrophic. In market terms, this is OK - a bad market collapses and a better one replaces it. In human terms, it's not so desirable.
The issue is, how do we reform the financial markets without destroying the entire system in the process? I'm not convinced that the bailout is the best plan in the detail, but some sort of significant Government intervention was always going to be required at some point. But there has to be significantly more to it than a significant cash injection.
I wonder of there is any connection with me leaving AIG last December and what’s happen to it
Ps they didn’t get a credit rating increase but a credit rating down grade of 3 points from AA++ to A+
I am with you on this one... A big company fails due to overextending...
So they go bankrupt.
As a "small" businessman, if I over extend, will the gov step in....I think not.
They made bad buisiness choices, so cope with the result of that.
Now as to supermarkets - not all do the credit thing, from my understanding, Tesco's pays up front every time, but demand low prices, so people who supply Tesco's use it as a break even, but cash flow comes in, so they can also supply to supermarkets who like credit of a month or 2.
The USA bang on about Capitalist values, part of that is that you can win big, and also you can lose big.
Not sure where you got that from. Supermarkets have a tradition of having great cash flow as they squeeze their suppliers - so they become 'banks' in their own right. It used to be that payment terms of 6 weeks was the usual - not sure now as it not officially disclosed. See below for some examples.
Number of days taken to pay suppliers: UK supermarkets
1. Marks & Spencer – 12
2. John Lewis (Waitrose) – 27
3. Morrisons – 35
4. Somerfield – 43
Asda – no data submitted
J Sainsbury – no data submitted
Tesco – no data submitted
The three latter companies were all invited by Ethical Corporation to explain their supplier payment terms. None was willing to do so.
Source: CreditScorer
Last edited by JiveLad; 29th-September-2008 at 06:54 PM.
I used to work in the industry.
There is a reason why some supermarkets will not provide timelines.
Me too, but if either or both of us go under it will only affect us and possibly our immediate families, then the government step in and give us benefits until we can get back on our feet again.
Sound familiar but on a different scale?
Well, presumably because it would make them look even worse than refusing to quote figures - I cannot believe an efficient PR department would pass up an opportunity to make the company look better!
Google "Tesco, suppliers, payment" - there are plenty of reports about how Tesco squeezes suppliers - I cannot vouch for their accuracy but nor can I see any rebuttal from Tesco!
Interesting reading - My experience was working for a frozen foods supplier.
Tescos would pay cash on delivery, but demand lowest possible price. No money was made on the transfer of goods, but it provided cash flow as the goods did not need to be paid for by the frozen food supplier for 30 to 60 days.
This was some time ago, and times could well have changed since then.
What a fab reply
Yes, I get it Gav.
You talka my language - love your work and see your point.
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