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yakers

What If Aig Folds?

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Intruder,

You are omitting proposition 13 and the effects of some of the lowest property taxes not just in this country but probably the world.

For example, as you know we sold our home for $975,000 last spring and we paid $3000 property tax these last few years. There are some of our neighbors that are paying a whopping $300, yes three hundred. You might as well say they are paying no property tax because these folks have owned their homes before prop 13 ever passed so their taxes were rolled back to 1975 levels with little or no increases. No politician dares to address that loop hole because proposition 13 has spoiled entire generations and will never be adjusted so that all properties pay a reasonable price. Even Warren Buffet complained about his low taxes. I was paying the same amount in property taxes as he was on is coastal multimillion dollar home. How in the world did we ever get into this mess.

 

Is this the answer to our budget mess? No

We have another problem; the super majority is needed to pass state legislation. When I grew up, I learned that what made our country great was that in our democracy a simple MAJORITY rules. But over the years because some minority politicians could never get their way, they created the super majority and that is why we still have no budget. The majority cannot pass legislation because the minority is holding the reins. This is not a democracy that I grew up in. When a good idea from our forefathers is changed for an agenda, we all suffer and the nation declines. Great empires decay from within, never from foreign invaders.

 

There are other issues that I grew up with that the have changed in recent years and because they are very ###### button political issues of the day when the two sides will never agree, I will not post them here. That itself is a sad state of affairs when we cannot discuss issues any longer without it getting personal.

You blame California or Florida for the housing melt down? Please spare me.

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I was merely pointing out the obvious fact that there are more defaults in CA and FL than there are in other states whose residents did not try to play flip this house as the way to instant wealth. Isnt there a town called Stockton, CA where 75% of the homes are in foreclosure?

 

Who wants to live in a state with a $15B deficit and a looming obligation to spend $8B more for its 156,000 prisioners health care. Most states dont even have a 15B budget. By the way how much more will the CA income tax rate of 9.3% be increased to pay for the deficit?

 

 

Um, Intruder, CA has more people than other states. That might have something to do with the number of foreclosures.

 

Are you saying that folks in other states did not flip houses? We (along with FL, apparently) were the only ones to do this? Riiiiight.

 

Why don't you move to a state like NH that has NO income tax rate and NO sales tax? The winters are just lovely there. Better yet, move to Alaska, where citizens get a $1200 payment from the state's oil revenues. You can live on the north slope, avoid any taxes, cash the rebate, and count your money while you don't see the sun during winter.

 

In the meantime, those of us in CA will just muddle on by like we always have. As for me, I'm looking forward to retirement in several years with a wonderful pension, a house that is free and clear, and lots of money in my 403b accounts. Lots of us in CA are able to do this, Intruder.

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AP,

I am from northern Wisconsin; I know what its like to be COLD. Never again. I love the weather out here and the beauty. Right now we are reading the paper in our patio area watching the navigator clean our salt water pool over looking a fabulous golf course. What a beautiful day. The warm sun, palm trees, the green contrasting with the Santa Rosa mountians as a back drop combined with the solitude and serenity of a desert valley morning. Just another California day. What more can one ask for.

Have a great day,

Steve

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I was merely pointing out the obvious fact that there are more defaults in CA and FL than there are in other states whose residents did not try to play flip this house as the way to instant wealth. Isnt there a town called Stockton, CA where 75% of the homes are in foreclosure?

 

Who wants to live in a state with a $15B deficit and a looming obligation to spend $8B more for its 156,000 prisioners health care. Most states dont even have a 15B budget. By the way how much more will the CA income tax rate of 9.3% be increased to pay for the deficit?

 

 

Um, Intruder, CA has more people than other states. That might have something to do with the number of foreclosures.

 

Are you saying that folks in other states did not flip houses? We (along with FL, apparently) were the only ones to do this? Riiiiight.

 

Why don't you move to a state like NH that has NO income tax rate and NO sales tax? The winters are just lovely there. Better yet, move to Alaska, where citizens get a $1200 payment from the state's oil revenues. You can live on the north slope, avoid any taxes, cash the rebate, and count your money while you don't see the sun during winter.

 

In the meantime, those of us in CA will just muddle on by like we always have. As for me, I'm looking forward to retirement in several years with a wonderful pension, a house that is free and clear, and lots of money in my 403b accounts. Lots of us in CA are able to do this, Intruder.

 

 

Muddling on may not be possible for much longer. 33 years ago next month NYC narrowly avoided filing for bankruptcy when its access to credit markets to finance its increasing debt was suddenly cut off by its lenders. The City was bailed out ultimately by the NY state gov which guaranteed the city's debt by issuing special bonds backed by NY city revenue from property and sales taxes. (NYC was saved in the short term from a bankrupty filing on 10/15/75 by the NYC teachers union pension fund which purchased $150,000,000 of NYC bonds so that the city could meet that days payroll for all city workers.) The resulting decline in tax revenue forced the city to cut back drastically on services and lay off city workers. It took almost 20 years for the city to return to fiscal health. NYC is still paying off some of the bonds issued to finance the bailout.

 

In addition to its $15B current deficit, CA state gov has unfunded obligations estimated at $48B for retiree health care and 64B for pension benefits for state employees. (LA times 6/2/08). Local governments have an additional $70B in unfunded retiree health care liabilty. Taxpayers will have to fund these costs eventually. While the State can raise the income tax beyond the current 9.3%, prop13 prohibits raising property taxes to offest the rising cost of salaries and benefits, which may force local goverments to declare bankruptcy as the city of Vallejo, CA (populaton 110,000) did in May when it could not meet the payroll for its workers. The cause of the bankruptcy filing was spiraling public employees salaries and a plummeting housing market. Since defaults on homes cause a decline in property tax collections, local governments are forced to borrow more to make up for the lost revenue which increases the budget deficit. (Are new CA homebuyers entitled to a reduction in their assessments if the value of the home declines after purchase?) This demonstrates that there is an immediate connection between higher default rates and increasing deficits for municipal governments. If CA has a the largest number of residential homes and a higher than average default rate then the reduction on CA municipal and state gov revenue will be greater than in smaller states with an average % of defaults.

 

CA is not alone in having unfunded liability for govt workers which will have to be paid for by taxpayers. NJ is estimated to have a liability of $50B+ for retiree health care and another $30B for pension plans in a state with only 8M residents, for an average liabilty of $10,000 per person which explains why NJ has the highest property taxes in the US. NY has a similar liabiity for retiree health care but not its pension plans. Both states are declining in population which will result in lower revenue collections to pay for fixed obligations in coming years. CA may see a similar loss in population if its residents move to states like NV and WA which do not have any state income tax.

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Intruder,

 

I agree that states should be more fiscally responsible. I also agree that they should be aware of, and take action to deal with, the unfunded liabilities that you described. (I might add that Congress should do the same with Medicare and Social Security).

 

I disagree with you concerning the root causes CA's problems. Steve mentioned the problem of Prop 13, and I would like to mention the structural problem we have with our state budget, which requires a supermajority of 2/3 for passage. This creates all kinds of difficulties too numerous to mention here.

 

I also would not fall prey to catastrophic expectations for the state. We have gone through this stuff before. In the early 90s, people wrote off the state, and it came roaring back. There were stories of people moving east; those folks found it very difficult to return to CA's booming real estate market when they invariably wanted to return.

 

It's fun to make fun of CA; I do so myself. Where else on God's earth could tree sitters not only prevent athletic facilities from being built for a world class university (Berkeley), but be provided with supplies by that university while they were doing so?! Where else could a nut job like the mayor of San Francisco be elected? And don't even get me started about LALA Mayor Reconquista Villaraigosa. Yes, the excesses abound, and they frustrate the heck out of me sometimes.

 

However, if there were a stock market proxy for CA, would you be willing to go short with a substantial sum of money for any length of time?

 

 

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And there are differences right here on this board.

I highly respect the mayor of SF and LA. Mayor of SF was directly responsiblity for my first marriage. Mayor of LA tried to do something with the poorest and most neglected schools in LAUSD when both the union and district didn't do anything for decades.

Just my 2 cents,

Steve

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Intruder,

 

I agree that states should be more fiscally responsible. I also agree that they should be aware of, and take action to deal with, the unfunded liabilities that you described. (I might add that Congress should do the same with Medicare and Social Security).

 

I disagree with you concerning the root causes CA's problems. Steve mentioned the problem of Prop 13, and I would like to mention the structural problem we have with our state budget, which requires a supermajority of 2/3 for passage. This creates all kinds of difficulties too numerous to mention here.

 

I also would not fall prey to catastrophic expectations for the state. We have gone through this stuff before. In the early 90s, people wrote off the state, and it came roaring back. There were stories of people moving east; those folks found it very difficult to return to CA's booming real estate market when they invariably wanted to return.

 

It's fun to make fun of CA; I do so myself. Where else on God's earth could tree sitters not only prevent athletic facilities from being built for a world class university (Berkeley), but be provided with supplies by that university while they were doing so?! Where else could a nut job like the mayor of San Francisco be elected? And don't even get me started about LALA Mayor Reconquista Villaraigosa. Yes, the excesses abound, and they frustrate the heck out of me sometimes.

 

However, if there were a stock market proxy for CA, would you be willing to go short with a substantial sum of money for any length of time?

 

 

What you are ignoring in your comparison to the 90s is that catastrosphic financial events today move at warp speed beyond the ability of CEOs and goverment officials to control them.

 

As of Monday morning Lehman brothers will have filed for bankruptcy, Merrill lynch will be taken over by Bank of America for $44B and AIG is selling its prized assets to raise capital to avoid insolvency if it can get a 40B loan from the federal reserve. WAMU is expected to go under later in the week. A week ago fannie mae and freddie mac with over $5.3T in liabilities were taken over by the US treasury putting taxpayers on the hook for at least $200B in losses. Given the events of the last week why do you think a state government with a 15B deficit is to big to fail?

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Perhaps AIG's troubles will force schools to look beyond AIG and start to deal with companies that are less expensive and more transparent. This should be a wake-up call!

 

 

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Perhaps AIG's troubles will force schools to look beyond AIG and start to deal with companies that are less expensive and more transparent. This should be a wake-up call!

 

 

AIGs VALIC is an insurance company which will not be affected by AIGs financial problems. Since it is extremely profitable worst case scenairo is that VALIC would be sold to another financial institution.

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I fail to see how VALIC stays an AIG company, this is the unit that is very profitable for them - it has to be the prime asset they have to sell at this point. The question is probably less when they will be sold, but who will be the lucky buyer?

 

I could see ING, AXA and MetLife wanting a piece of this action. Anybody have any thoughts as to whom might make a good buyer?

 

ScottyD

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I fail to see how VALIC stays an AIG company, this is the unit that is very profitable for them - it has to be the prime asset they have to sell at this point. The question is probably less when they will be sold, but who will be the lucky buyer?

 

I could see ING, AXA and MetLife wanting a piece of this action. Anybody have any thoughts as to whom might make a good buyer?

 

ScottyD

 

 

AIG's aircraft leasing subsidary is more profitable. JC Flowers offered to buy AIG if someone else provided the financing, e.g the federal reserve. AIG will be toast in 48-72 hours if its credit rating is downgraded. Some companies are worth more dead than alive. Sunlife may bid.

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From the New York Times:

 

"Insurance sources said some of the money could be produced by exchanging assets between the holdings of A.I.G.’s life insurance subsidiaries and its property and casualty subsidiaries, which have different capital requirements. For instance, an A.I.G. property insurer might buy stock from an A.I.G. life insurer’s portfolio, paying for them with high-quality bonds from its own portfolio.

 

Life insurers have tighter capital requirements than property insurers, so replacing stock with bonds would strengthen the life insurer’s capital structure, allowing it to send the surplus to the holding company.

 

Such a transfer would leave the life insurance company with investment assets that would produce less income, so the insurer would probably have to make up the difference by charging more for its life insurance policies, annuities and other products."

 

Looks like there is a possibility that AIG VALIC could see potentially lower fixed account returns or higher annuity fees if they are one of the subsidiaries that help fund AIG's "bridge loan".

 

This should be interesting to follow over the next few days.

 

ScottyD

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According to today's NYT, AIG is seeking a $75B line of credit. LOL. There is a concern that if AIG files for bankruptcy it will cause other financial institutions that have contractal obligations with AIG to default ontheir obligations which will depress the global financial system.

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