Poor Tim Geithner. He's got to appear before Congress and explain how come the US bailed out AIG by paying off its counterparties at par. You'd think everyone involved should have taken a haircut on that deal. But the only ones to get scalped were those who had nothing to do with it - the taxpayers.
Why, Tim?
Of course, the Secretary of the Treasury will have answers. He's been rehearsing them for weeks. He'll explain that the integrity of the system was at stake...etc...etc... Blah...blah.
The real reason was that the authorities have a different agenda. They have no idea how an economy really works. So, they merely react to the incentives laid before them. On the one hand, the taxpayers may be annoyed...but the common man will never really understand what went on. On the other hand, Goldman Sachs pays its top operatives very well...and Tim Geithner is still a young man. He's going to need another job, after his term at the Treasury is up. And the way it's going, his boss may only have three years left...not 7.
Goldman had a lot of money at stake in AIG. And why not bail it out? Wouldn't that be good for the economy? Wouldn't it help protect investors' confidence? Wouldn't everyone be better off as a result?
Of course they would, Tim. Of course they would...
The British economy finally pulled out of the worst recession in 50 years. At least, that's what the government claims and the papers report. GDP growth was positive in the last quarter of 2009. By exactly 0.1%.
This was such a poor showing that the pound fell on the news. And given the way governments track GDP it is hardly proof of anything. A number that close to zero is meaningless. It could end up being revised in either direction.
The real story in Britain is the same as in the US...only worse. Britain's economy boomed when London's financial industry boomed. If we're right...the financial industry is now in a downturn that will last for decades. Not since the '40s has there been such a decline in consumer and business credit. And when this de-leveraging cycle finally bottoms out, it could be many years in the future. Then, the new center of world finance will probably be in a different city - perhaps in Singapore.
Regards,
Bill Bonner
for The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
