It’s chairman was a crook, its investments were stupid, nothing it does affects consumers and it has absolutely terrible TV advertisements. So what the heck justifies US$85 billion for AIG? Did We Say No More Bailouts? [Forbes.com]. Forbes opines that this “prov[es] that pragmatism trumps conviction in the historic financial crisis sweeping through the world’s financial markets.” Not at all. It is simply white shoe, country club brothers helping each other out, with free (i.e., taxpayer) money. Read carefully:
Federal officials worried not about AIG’s ability to insure its ordinary customers — those assets are kept in myriad subsidiary units of the company, all closely regulated by state governments in the United States, as well as Europe and elsewhere. The major concern was AIG’s massive exposure to credit default swaps, essentially insurance products for corporate debt.
Meaning that the Wall Street gamblers who experimented with exotic financial instruments face absolutely no market discipline and have no cost of failure. This sort of permissiveness in the face of naked greed and business malfeasance has a price, which we are already paying. G.M. and Ford Officials Seeking U.S. Loans to Meet Fuel Goal [NYTimes.com]. None of this would have even been thinkable 30 years ago, let alone if the Reagan Revolution was something Republicans like George W. actually believed in. Who stepped up with a bailout when the dot.coms and telecom firms all collapsed in 2000? For a nation that has led the world in promoting open, competitive markets, shielding large financial institutions from the price of their own mistakes is backwards. Depositors and investors are insured. Those guys should be in jail, not on bail!