Time for a National Bank?

I'm trying to understand this. The banks get in trouble because of bad lending practices exacerbated by securitization. They stop lending. The government swoops in and gives away piles of money to induce the banks to lend. The banks don't lend because they can't find credit-worthy borrowers. So instead, they take the money and use it to shore up their own balance sheets. But if the banks aren't lending, they're not making money, and therefore their health is still very much in question.

Since the banks aren't lending, businesses can't get loans. This puts them in trouble and makes the weak economy weaker. So the piles of government money aren't doing anything for the general economy. For the banks themselves, the money is doing nothing more than insuring that they will eventually need more money to postpone their collapse again.

Wouldn't it be better for the government to cut out the middle man, forget about giving money to the banks, and instead loan it directly to businesses and consumers? In other words, why don't we set up a national bank?

"Our Bonus Pool is Dramatically Lower"

If it's above zero, it's too high:

“The harsh realities of 2008, primarily our earnings results, mean that our bonus pool is dramatically lower than last year,” Mr. Pandit wrote about a year in which the bank has so far announced more than $10 billion in losses. “The most senior leaders should be affected the most.”

But Mr. Pandit’s remarks may strike some as several weeks late, if not a few million dollars short. Citigroup, one of the biggest recipients of taxpayer money, has taken in $45 billion in capital from the government’s bailout funds.

The AIG Debacle

The Washington Post is running a three-part series on the collapse of AIG. A few takeaways:

• AIG was long considered one of the safest companies in the world, as reflected in its AAA rating from the major credit rating agencies.
• The demise of AIG was caused by its subsidiary, AIG Financial Products. AIGFP was formed in 1987 as a joint venture between AIG and three defectors of the junk bond firm of Drexel, Burnham, Lambert (Howard Sosin, Randy Rackson, and Barry Goldman). The deal was structured such that AIG would 62% and AIGFP 38% of the profits.
• AIGFP specialized in derivatives, "financial jargon for a contract settling in the future that is based on something trading now."
• "Under the joint-venture agreement, Financial Products received its profits upfront, even if the transactions took 30 years to play out. AIG would be on the hook if something went wrong down the road, not Sosin and his team, who took their pay immediately."
• In 1993, Howard Sosin and Hank Greenberg, AIG's chairman, had a falling out, apparently precipitated by a deal that lost $100 million, and Sosin left (getting $150 million in the process), taking Rackson with him.
• AIGFP became a subsidiary of AIG, with the parent company taking 70% of the profits.
• In 1998, AIGFP got into "credit default swaps," a contract in which "the firm essentially would insure a company's corporate debt in case of default." AIGFP's computer model calculated that there was a 99.85% probability that the firm would never have to pay out on these contracts; that the "U.S. economy would have to disintegrate into a full-blown depression to trigger the succession of events that would require Financial Products to cover defaults."
• "When the housing market tanked, a statistically improbable chain of events began to unfold. Provisions in the contracts kicked in, spurring collateral calls on swaps linked to $80 billion in questionable assets, requiring the firm and AIG to come up with billions of dollars in cash. They scrambled for almost a year to stave off the calls, but there were too many deals with too many counterparties.

  In September, the Bush administration concluded that AIG's position at the nexus of the deals meant that it could not be allowed to fail, triggering the most expensive rescue of a private company in U.S. history. So far, the government has invested $152 billion in its efforts to save AIG. Federal investigators are sifting the carnage."