What the Pros Say: Wall Street Welfare?
After refusing to step in to save Lehman Brothers, the Federal Reserve decided Monday to provide an $85 billion secured loan to insurance giant AIGto prevent its collapse.
This follows the bailout of mortgage reinsurers Fannie Mae and Freddie Mac and the rescue of Bear Stearns , where the federal government orchestrated a sale to JPMorgan Chase . The Fed also provided at least $87 billion to help underpin trades with bankrupt Lehman Brothers .
Investing experts and economists worldwide weigh in on AIG and what this recent run of bailouts means for financial sectors across the globe:
Fighting the Turbulence
Investors are in a panic mode, says William Quinn, American Beacon Advisors. But for those people who are patient, he says, they’re going to look back on this time as a great buying opportunity.
There are a lot of things out there that can scare the consumer,” says Don Wordell, Ridgeworth Mid-Cap Value Fund manager. “Commodity prices, gas prices have come down, so we think the consumer’s going to be ok.And Darden Restaurants is an excellent stock here." (See accompanying video.)
'Socialism' on Wall Street
There is a huge "moral hazard" problem where Wall Street firms have privatized their profits and socialized their losses, says Nouriel Roubini, co-founder & chairman of RGE Monitor.
Facing the Fear
There is compelling valuation in tech, industrials and basic materials, according to David Goerz, Highmark Capital CIO. And “as oil prices come down,” he says, “we want to think about consumer discretionary stocks.” (See accompanying video.)
Nothing could be worse than an AIG bankruptcy in the short term, Pierre Gave, head of Asia research at GaveKal Holdings said.
Thin End of Wedge Vs. Smart Bridge Loan
The government is setting a dangerous precedentthat could lead to bailouts of all kinds of companies, Nouriel Roubini, co-founder & chairman of RGE Monitor, said. But Michael Sheldon, chief investment strategist at RDM Financial Group, thinks a bridge loan was the right thing to do, as a collapse of AIG probably would undo a lot of the work the Fed had already done to shore up the financial sector. (See accompanying video.)
Short-Term Good News for the Markets
Savanth Sebastian, equities economist at Commonwealth Securities, assesses the impact of the AIG rescue.
No Chance of AIG Collapse
"I think that we shall find today that the market is much less fragile than it was yesterday because people believed that AIG might fail," Sir Brian Pitman, senior advisor to Morgan Stanley, told CNBC. "If AIG had been allowed to fail that would have had a dramatic effect on the market. I never believed that the authorities would have allowed that."