Society (or at least, the State of Delaware) grants corporations limits of liability, without which our modern capitalist structure would crumble. It seems that the fee for the bankruptcy put, however, is zero. What would be wrong with requiring firms to buy bankruptcy insurance from an approved insurance firm, with re-insurance from the state, also for a fee? Hardly a socialist proposition, reduces externalities somewhat accurately, and enhances the quality of incentives to firms.

But I take issue with

…the biggest single job of senior management in a financial institution ought to be to assure the health and survival of the entity…”

The current objective of most investors is a maximum present value of the shares, which is in conflict with the risk level and debt ratings. Corporate Finance has advanced enough over the years that management, stockholders and bondholders are actively aware of, and trying to exploit, information asymmetry.

Not yet having worked thru the paper, I’ll nonetheless argue that corporate disclosure and reporting needs a couple of notches more information. The simple fact that Citi could “elect” to stick $50 billion on its balance sheet one day that didn’t belong there before ought to be adequate proof that current disclosure stinks and puts investors at a disadvantage. Too bad that this would disclose the insolvency of so many outfits that have been looted while the shareholders cheered on.

I didn’t get no bailout!! What the hell is this?

This whole thing has turned into one unmitigated disaster! It really has. This bailout thing is totally out of control.

WE CAN NOT REPEAL THE BUSINESS CYCLE.

BUSINESSES FAIL FROM TIME TO TIME.

THAT IS THE REASON WE HAVE RECESSIONS, REMEMBER?

WHAT IS GOING ON HERE? I KNOW DAMN WELL THAT EVERY COMPANY IN THE US IS NOT “TOO BIG TO FAIL”!! THIS IS CRAZY!!

LET THE ECONOMY CORRECT!!

QUIT SPENDING OUR SOCIAL SECURITY MONEY ON BAILING THESE BASTARDS OUT, YOU SOBs!!

Is there some sort of cross posting going on?

i know somebody on this blog has got a couple spare million to pay the fees for the security forces. who’s gonna be a mensch and pony up? oh none of you? wimps.

there is one thing that doesn’t make sense to me:

AIG is short (ie, they have written insurance) protection on a bunch of CDO’s and MBS. This plan is to now take money from the gov’t and buy underlying CDO’s and MBS to hide in an AIG off balance sheet vehicle… the question: how does this help AIG? doesn’t this make them double long the assets in question now?

in other words… they now own the assets, and they are still short protection on them – if the assets lose value, AIG loses TWICE… !??!?! you noted the sentence: “Once it holds the securities, AIG could cancel the credit default swaps ” – which you described as noise – i’d describe it as NONSENSE… when you buy an asset, you don’t get CDS with it! How will AIG have the right to just cancel its CDS obligations???

If Bush does sign off on a bailout for the automakers, I’m sure it will contain stringent limits on pay and benefits for the auto workers because everyone knows they make too much, even if they produce actual products and don’t just shuffle money around with disastrous results.

BG:

I think you’ve got it about right. All this is farce. About all we can do is try to siphon off what we can out of the markets to protect ourselves as much as possible from this calamity, just as the big boys are. We cannot count count on the governments to solve anything.

On another note,…. with massive amounts of borrowed capital dissiminated around the world (to supposedly support the exchange of currencies), has the PPT gone global? I think it has!

What I hear is not consistent with what I see. It looks to me like Governments around the world are buying equities to mask off how bad things really are systemically. As the equities futures markets go up, a little voice in my head is saying none of this is real.

If the volatility could be removed and the equity markets just sit in a tight range and do nothing, that would be a good thing. If it continues to go up, that just tells me the day is getting closer to when the bottom falls out again. Either that or investors feel the situation is not as bad as indicated. I’m definitely not in that camp.