Geithner

He seems like a nice enough guy but he is being disingenuous when he says the government lacked the powers it needed to handle the collapse of a company like AIG and that, "Coming into AIG we had, basically, duct tape and string."  Setting aside the method (meaning tools), it was the PRICE that was wrong.  The tools at hand (using AIG as a conduit to cover banks exposed to CDS losses) were used poorly.  The Fed could have poured less cash into AIG rather than paying out on CDSs at 100 cents on the dollar.  Also, the subtext seems to be that the CDS counterparties used economic collapse as a playing card ("we will bring the financial system down by demanding that AIG make good on its CDS obligations") and that the Fed caved in.  Crazy both in the recklessness of the counterparties and if the Fed bought the argument.  Put simply, the Fed should simply have said: "we can pay you some amount on the CDSs or you can take your chances in bankruptcy court with AIG."  As bankruptcy court for AIG would have meant bankruptcy for the counterparties (as the financial system collapsed), they would have accepted the "some amount".  Separately, why is Goldman's hedged position with AIG relevant?  Either they were hedged (in which case there was no need to bail GS out because there was no system risk from failure to satisfy the CDS obligations to GS) or they weren't (in which case they weren't in a position to demand 100 cents on the dollar).

The Fed should ask for its money back.

Wall Street problems

This is generally right, especially adding in my pet theory of sales guys rising a little further than they ought to.

CS no FB?

Had no idea that there were even rumors that CS would get out of investment banking altogether. I thought CS was doing relatively well and so would be able to preserve an investment banking platform.

Malus

Awesome word. As a potential deduction from a bonus, UBS executives may get a "malus". But, of course, I don't think it can result in a number lower than zero. http://dealbook.blogs.nytimes.com/2008/11/17/no-bonuses-for-top-ubs-executives/

Break The Glass

According to this Bloomberg article, Goldman seems to have been aware of the break-the-glass plan from at least the beginning of 2008 as they already had Federal Reserve representatives on the premises in March 2008. I guess it wasn't so secret after all? And how was it shocking news when Goldman and Morgan became bank holding companies at the end of September. And, finally, why wasn't Lehman given permission when asked a few weeks earlier?

"The contingency planning to become a commercial bank had been under way since March, after the collapse of Bear Stearns Cos. sent shivers through Wall Street. That's when Federal Reserve inspectors set up camp at the firm's 85 Broad St. headquarters, a sign of things to come."

Spitzer's Fault?

Only half tongue in cheek, was Eliot Spitzer a proximate cause of the current economic turmoil?

Consider his weakening of the investment banks (leading them to take on riskier strategies to maintain earnings), targeting of AIG (leading to the ouster of its CEO – the one man who could keep Financial Products in line), and failure to limit mortgage lending fraud and abuses (items more appropriately with a state AG’s mandate).

And then the consequences: Lehman’s bankruptcy, Bear’s bailout, Merrill’s merger, AIG’s nationalization, and today’s frozen credit markets.