Thursday, March 19, 2009

We Deserve AIG's Actions

I have heard for several days that people are pissed with AIG. If you have been avoiding the radio, late night television, political blogs or the newspaper, you may want to check out my last blog entry. This blog entry will be political – yuck.

The government gave AIG a bunch of money. I am sure there is a whole section of AIG that is in charge of collecting this money. I have heard that they received a bunch of billions of dollars that they could do whatever with. And then more money that Congress gave them that was for such-and-such, with no strings attached. And then there was more money that they were given to AIG for "other stuff" that may have some strings attached to it. I think that they can't buy nuclear weapons or teach abstinence to high school students. There are probably other strings attached, but I have not really been paying too much attention.

AIG is not a bank – more of an insurance company. And AIG got into trouble when their judgment on assessing risk was impaired. So the government is giving a company with questionable judgment a lot of money. Oh, and the government and the press has basically said, "We can't let AIG fail." (Even yesterday, President Obama said: "One is to withhold money from AIG that could potentially lead them into a spiral that could affect the entire financial system.")

If I had questionable fiscal judgment and everyone said "you cannot fail", and thus bailed me out several times, why would I change my actions. They seem to be working for me. I mean, I am getting all sorts of money, and I need to pay my executives, the same ones with questionable judgment, money to stay because they are so important to overall operations. I don't see what the big deal is.

I heard Obama speak about this on the radio Wednesday, and I was floored. President Obama said, "Well, look, rather than going sort of the details of finding it out, ultimately, I'm responsible. I'm the president of the United States. We've got a big mess that we're having to clean up. Nobody here drafted those contracts. Nobody here was responsible for supervising AIG and allowing themselves to put the economy at risk by some of the outrageous behavior that they were engaged in."

So he said, ultimately he is responsible, but qualified it with "nobody here was responsible for supervising" AIG.

We can blame AIG and get mad at them, but they are just reacting rationally to the situation. They are doing what is in their best interest. Perhaps the next multi-billion-dollar payment will have more strings attached. Of course, we won't change our voting habits (it is always the "other guy's" senator or representative that is the problem), so maybe the strings won't be their either. I guess one investment AIG made in 2008 paid off, their lobbying efforts.


Grant said...

I think Chrysler should follow suit and rename themselves Federal Bailout Motors. Then they should stop making cars because it's so much more efficient to have yourself labeled a necessary resource and to just bleed the taxpayers for your survival.

And AIG should apply bonuses. If they make a profit, positive bonus. If they lose money, take it from the people who screwed up. Then require them to commit seppuku publicly.

Anonymous said...

Actually, the money was not turned over for AIG to do whatever they wanted. It went to firms on the other side of complex derivatives transactions involving all of those "mortgage backed securities." The reason? Because AIG insures a whole lot of other transactions involving bonds and other financial interests. If they went bankrupt, those transactions would essentially collapse, making other firms, cities and states that had done nothing wrong and weren't involved go bankrupt. Essentially if the insurer goes down, all the money borrowed as part of a bond transaction would be due immediately, resulting in a huge collapse of the economy. Obama will currently fix that by making rules that companies that do that kind of insurance can't go and do crazy transactions anymore.

LarryLilly said...

We put more restrictions on hunters than we do on company's spending billions of our money. It was absurd to give the money without strings, what where they thinking.

Everyday we hear that if it sounds too good to be true, or it has to be done right now, its an internet hoax. We heard the same thing from Bush and now Obama.

Letting AIG and others fail is the best form of capitalism out there. Yeah, some get hurt, but right now its ALL of us getting toasted, and that isnt capitalism, that is corporate socialism. Without the sting of real failure, its a huge golden parachute.

The execs that got the bailout and then go to a new company will be known not as the guy that failed AIG but the guy that scored free money. The former would keep him from a good job, the latter will guarantee future advancement.

Gary Baker said...

I think Leesa's last paragraph hit the nail on the head. Right now, the voters are holding the elected officials any more responsible than the officials are holding AIG, or any of the other bailed out companies for that matter.

At the same time, no matter what President Obama's and Congress's intentions, I have zero confidence in their ability to first off supervise the companies that are being bailed out, and second come up with any kind of regulatory structure that will have a decent effect. Congress has a terrible time keeping government within its budget, and that's with a guaranteed income. How many of the politicians pointing at AIG have ever been responsible for making a profit or running a business efficiently? I think about all that we are going to get is one series of hearings after another showing how the money is being wasted until it's finally gone, at which point I'll tell my daughters to give it up. It's civil service or nothing.

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