AIG Bailout a Bad Thing?

By
Mortgage and Lending with Allied Home Mortgage

Many people I've talked to and even in the media, there is a consensus that the Fed's bailout of insurance giant AIG was a bad thing. I realize that there are many companies still being burned by the subprime fallout. In my opinion, the Fed had to step in and help.

What many people don't understand that while they are helping AIG out by giving them billions of dollars, this is a loan and not a gift. The Fed is loan AIG this money at quite the interest rate. The Fed's return looks to be at an interest rate of 11.31%.

With over 74 million clients around the world, I think the Fed did what they had to do....to preserve the U.S. economy.

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
ActiveRain Community

Anonymous
Post a Comment
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the tree to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the scissors to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Show All Comments
Anonymous
Anonymous
brocktronic

That's an interesting point of view.  I agree with you that it was a dire situation, but unfortunately bailouts of any private industry has an indirect, long term economic consequence that is much more harmful than the good it can do for a single entity.  Simply put, if you save one job in a failing sector with bailout money from a productive sector (ie not failing) then you have actually eliminated one productive job.  Why?  If the productive sector has to give the failing sector money then that productive sector has exactly that amount of money less to invest in their own production.  The long term consequences of this are staggering when you think about it.  Taking that productive job away not only prevents a person from getting hired, but it reduces the overall productivity of that sector of the economy.  This means supply cannot go up and thereby prices do not go down.  By this mechanism we reduce the overall standard of living for everyone by saving a job that needed to fail anyway. 

This applies to the AIG case as well.  Instead of going through bankruptcy court and being allow to restructure in a healthy economic way, we bailed out their terrible insuring practices and gave them no reason to have a deterrent to do this in the future.  Furthermore, we've allowed Federal Government influence over these and other sectors of the economy where the Government has no business being.  In this sense, you can see that they are not preserving the U.S. economy.  In fact, they are fundamentally changing it.  

An interesting book that you might want to check out is here:

http://www.amazon.com/Economics-One-Lesson-Shortest-Understand/dp/0517548232/ref=sr_1_1?ie=UTF8&s=books&qid=1259626994&sr=8-1

It goes over the principles above in way more detail and will show you just how treacherous not only bailouts are but pretty much all of the economic policies of this and the previous administrations over the last 50 odd years.  Hit me up on Facebook some time if you want to discuss this more.   

Nov 30, 2009 06:25 PM #1
Anonymous
Post a Comment
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the truck to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Show All Comments
Rainer
6,907

Jason & Ryan Nicewarner

Ask me a question
*
*
*
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the woman to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase: