What ever happened to free-market Capitalism?

AIG Bailout Means Drastic About-Face for Feds
Government Providing AIG With $85 Billion Loans; Feds’ Move Stands in Stark Contrast to Decision on Lehman Brothers

By SCOTT MAYEROWITZ and CHARLES HERMAN
ABC NEWS Business Unit
Sept. 17, 2008-

Hoping to avoid a worldwide financial meltdown, the U.S. government last night took the unprecedented step of loaning insurance giant American International Group, or AIG, $85 billion in exchange for a shocking 80 percent ownership in the company.

The move was a stark about-face for regulators, who just days ago resisted pleas from AIG for help, and was the latest in a stream of massive government bailouts for financial firms that bet wrong on the subprime housing market.

Stocks started the day down sharply, with the Dow Jones industrial average off by about 200 points.

The AIG takeover comes less than two weeks after the government assumed control of mortgage giants Fannie Mae and Freddie Mac, an act that backed mortgages with $200 billion of taxpayer money. That is in addition to the $29 billion the government pledged in March to back J.P. Morgan Chase’s fire-sale purchase of Bear Stearns.

To pay for all these bailouts, the Treasury announced this morning that is will be issuing a special series of Treasury bills, separate from its normal borrowing programs.

AIG is the world’s largest insurance company, with more than 74 million customers around the globe. It provides coverage for everything from cars to homes to planes, in addition to offering life insurance policies and annuities.

But that is not where AIG got into trouble. The company’s downfall comes from a decision to insure investments in the subprime market. As subprime mortgages started to default, AIG was on the hook to pay out more money than it had ever expected, and it didn’t have enough cash on hand to continue operating.

“They called it insurance, but they were gambling,” said Nobel Prize-winning economist Joseph Stiglitz. “In a market economy, there has to be a sense of accountability. You can’t come running to the government every time you have a problem.”

Stiglitz said these bailouts are “a damning condemnation of the way we’ve managed our economy and regulation system” and that it’s time to “draw a line.”

In the short term, he said, it will be hard to let these companies fail, but “we will end up with a financial system that will probably be stronger” in the end.

But many others said that AIG was simply too big to fail and that its demise would send shockwaves throughout all corners of the economy.

Former AIG Chief Executive Maurice R. “Hank” Greenberg told Chris Cuomo on “Good Morning America” today that “it’s in our national interest to keep this company alive.”

Read the rest of the story here.

If George W. thinks this is an an adjustment, I would hate to see what a collapse looks like.

  4 comments for “What ever happened to free-market Capitalism?

  1. Dan Chmielewski
    September 17, 2008 at 9:31 am

    Wow, aren’t you glad the Feds didn’t invest SocialSecurity money with Wall Street?

  2. September 17, 2008 at 9:44 am

    We haven’t had free-market capitalism for a very long time.

    http://en.wikipedia.org/wiki/Government_sponsored_enterprise

  3. Steve Kim
    September 17, 2008 at 10:33 am

    Just plain socialism

    Socialized losses.

    Would Reagan still say
    “The nine most terrifying words in the English language are, “I’m from the government and I’m here to help.”?

    Like the Lincoln Savings and Loan on steroids.

    Let’s here it for deregulation!!!

    Let’s hear it for supply-side econimics!!!

    Let’s hear it for the Neo-Liberals!!!

  4. Lefty
    September 17, 2008 at 1:51 pm

    Ship USA jobs overseas . . . . fight battles that are not our own . . . . bail-out bad decisions & outright thiefs . . . .

    Who is “Washington” working for? . . . .

    Will those who have profited from “treason” be allowed to keep their ill-gotten gains?

    Will they?

Comments are closed.