The Fed's Loan To AIG
As I have said with some of these prior moves by the Fed, I too support this move. This, again, is not a bailout. Nor does the taxpayer likely have substantial, if any, obligation in this move. That is, unless you believe nothing in the economy is worth anything anymore. That money is worthless, all assets are worthless and your productive labor is worthless. Then, of course, this is the end of the world and your only tangible assets are a gun, shelter and food. But, if you believe that, you were likely cheering for AIG to implode - then you may work for Der Spiegel and suffer from schadenfreude. The reality is the taxpayers effectively own AIG and what has been reported as $1 trillion worth of assets in return for an $85 billion loan.
Many people will howl that this creates moral hazard and that free markets should be allowed to work. That is absolutely hilarious. The insurance industry is the poster child for a business that short circuits free markets. It is a racket. And, I do mean that in the legal sense of the word. Why do you think Warren Buffet owns so many insurance businesses? Because he can mint money without being exposed to many of the free market forces. People really need to think before they open their mouths and say 'free markets'.
If you want 100,000 people to lose jobs in a viable business overnight and hasten a depression, then AIG's implosion is the deal for you. Hank Greenberg, the former CEO, seemed a little disoriented in his television interview yesterday by stating AIG had a liquidity problem but was not insolvent. They are one in the same. He meant to say AIG was not bankrupt, it had a liquidity problem. Of course, he was likely nervous being on television and he is something like three hundred years old. (Hopefully he has AIG insurance.) AIG's insurance business is profitable according to Greenberg. And, this deal will likely force AIG out of noninsurance businesses. This is where Greenberg said the problems exist - the unregulated businesses. What a surprise. I think by now we realize regulation is necessary and free markets as defined by corporations and neo-dogmatic types is a secret code word for legalized theft of society's wealth.
If AIG is ultimately to fail, they will do so in an orderly fashion under the terms of this deal and without bringing down the entire financial system. If they are not to fail, then this facility will keep them from doing so. In other words, any outcome is enhanced by this move.
Many people will howl that this creates moral hazard and that free markets should be allowed to work. That is absolutely hilarious. The insurance industry is the poster child for a business that short circuits free markets. It is a racket. And, I do mean that in the legal sense of the word. Why do you think Warren Buffet owns so many insurance businesses? Because he can mint money without being exposed to many of the free market forces. People really need to think before they open their mouths and say 'free markets'.
If you want 100,000 people to lose jobs in a viable business overnight and hasten a depression, then AIG's implosion is the deal for you. Hank Greenberg, the former CEO, seemed a little disoriented in his television interview yesterday by stating AIG had a liquidity problem but was not insolvent. They are one in the same. He meant to say AIG was not bankrupt, it had a liquidity problem. Of course, he was likely nervous being on television and he is something like three hundred years old. (Hopefully he has AIG insurance.) AIG's insurance business is profitable according to Greenberg. And, this deal will likely force AIG out of noninsurance businesses. This is where Greenberg said the problems exist - the unregulated businesses. What a surprise. I think by now we realize regulation is necessary and free markets as defined by corporations and neo-dogmatic types is a secret code word for legalized theft of society's wealth.
If AIG is ultimately to fail, they will do so in an orderly fashion under the terms of this deal and without bringing down the entire financial system. If they are not to fail, then this facility will keep them from doing so. In other words, any outcome is enhanced by this move.
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