Tuesday, March 17, 2009


Obama: Nationalize AIG or let it fail.

I read a great editorial today by Jack Cafferty, in which he says regarding the bank bailouts that I believe is applicable to the current controversy over AIG:

"Either nationalize the big ones in trouble or let them fail. It doesn't seem that just continuing to hand them money is working."

So let's talk about this. Tao discusses how AIG is circulating a "Doomsday Memo" about how our economy would collapse if we let them fail. I'm not so sure, because we just keep pouring in money and nothing seems to be getting better. We already own 80% of it! If we own 80% of it, let's just buy it and fix the thing ourselves!

Tao continues:

"It was the government's job -- as the primary lenders and financiers of these essentially bankrupt companies -- to dictate the rules of the game. Of course, they could have put strings on that money. They could have capped bonuses, or salaries overall. They could have capped it for everybody, instead of just the top five or twenty-five executives. They could have taken these companies into bankruptcy, where the executives would not be legally entitled to their salaries or bonuses.Yet, they did none of these things. Instead, AIG executives will walk away with $450 million in bonuses -- at a company that was such a colossal failure that it lost $99.3 billion last year and required a $170 billion taxpayer bailout. Worse yet, the executives in the division that caused this epic meltdown will get $165 million in bonuses."

...if these corporations are too big to fail, then they are too big to exist: a proposition also agreed to by the populists and progressives of the late 1800s/early 1900s, by Abe Lincoln, by Teddy Roosevelt, by FDR, by Harry Truman....understood that corporations that grow too enormous threaten our economy and our democracy, and should be broken up into smaller entities that can't do so much damage when they are mismanaged. The era of bank consolidation has to come to an end, and these monsters need to be broken into smaller companies just like Standard Oil was in the early 1900s. Ironically, some of our tax dollars were actually used by these bank conglomerates to buy other banks, instead of, say, giving out loans to consumers and businesses trying to buy things or make investments that would create jobs...we can start by doing what our progressive forbearers did: breaking up the big financial trusts, regulating them with vigor, holding them accountable. When a class of people has screwed up as terribly as big bankers have, we should take away their power and watch them like hawks for the rest of their time on this earth."

We broke up Microsoft for getting too big. Remember that? Time to do it again, this time with big banks and Wall Street.

Thomas Jefferson said "If the America people ever allow private banks to control the issuance of their currencies, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their prosperity until their children will wake up homeless on the continent their fathers conquered."

Here's the case for the Government letting AIG fail instead of bailing it out.

According to this article from TIME, we don't need to bail it out. We don't need AIG. Our economy will recover and in fact be more prosperous if we let it fail. Here's an excerpt that I think illustrates beautifully what would happen if AIG were to fail:

"Think of the insured house. Many institutions hold insurance on the house; on the other side are insurance companies and the like making an opposite bet. If the house is destroyed, one group of institutions wins and the other group loses. Considering all institutions together, no money was truly lost..."

I've said it before. It AIG fails, something (or many somethings) will take its place and we will be okay.


TAO said...

If the folks at AIG could produce a 21 page overview NOW of what would occur if they failed then there is no doubt that they could have produced the same, as a risk analysis last year.

So, they knew all along the risks they were taking and they also understood that if the losses were so huge the government would have no choice but to bail them out...

So, they kicked in the bonuses (which only started in 2008 after Greenburg was gone) and said, lets milk this puppy for all it is worth! Then they proceeded to run it in the ground.

TRUTH 101 said...

How did we let it get so big to begin with? Oh wait. Never mind. Government had to get out of the way. Red tape doesn't create wealth. Benevolent rich guys creating jobs in the private sector ala Cheney at Haliburton. Yada yada.

Pamela D. Hart said...

You are right on, James. Let it fail. That's what I've been saying since the first bailout from last fall. But here we are not six months later with numerous bailouts to AIG, an omnibus bill, and one stimulus and possibly another stimulus on the way. When will the politicans wake up and listen to US, the American People?

James Wolfer said...

Yup, Pamela. Neither party will actually do what needs to be done, because it would mean less money in their pockets. I heard a great joke the other day, by Lewis Black: "The Republicans are the party of bad ideas. The democrats are the party with no ideas. A Republican will stand up in Congress and say 'I have a terrible idea!' and then a democrat will stand up and say 'and I can make it sh*ttier!'"

Pamela D. Hart said...

I would laugh, James, if the situation weren't so dire. But the joke is actually true, unfortunately. I guess the only thing we can do is vote the boobs out in 2010, well the ones that are up for re-election. Maybe that will show the others that WE mean business!

The Screaming Conservative said...

ditto, ditto, and ditto