The next time a left-leaning government administration says we need more financial regulation or more government control, or another bailout, there is proof positive that the public must STOP and THINK. Then remember AIG. (My caps are used for emphasis.)
AIG was a must-do rescue plan, to bail out the giant insurance company. We were told of the dire national and worldwide consequences if we did not do something quickly. The company was simply too big to fail.
In the process, the American taxpayer got stuck with a HUGE bill and 80% of diminished-value stock.
However, we now learn, the insurance company had secured insurance business of many varieties, all with secured assets. Those assets were never in danger.
But AIG also insured credit default swaps (CDS) obligations. It was thought that these would not only bankrupt the company when payoff would become necessary, but would cause a financial collapse of their clients as a result.
The truth about this bailout came to light in late November, 2009, in a report by TARP Special Inspector General Neil Barofsky. The report said that Tim Geithner, now the Treasury Secretary of the U.S., and then the president of the New York Federal Reserve Bank, did not think that AIG’s failure would be devastating. Geithner had been closely watching CDS activity for some time up to then.
So why the rush for bailout by government?
I may add: In the bailout, those who held CDS obligations were paid off 100 cents on each dollar of debt. Normally, creditors of holdings in a bailout get just pennies on the dollar. This also raises many questions about how bad those AIG assets really were, if a bailout was so necessary and urgent.
There is much more to this story, but enough for the public to ask a lot of loaded questions of our government.
And serious doubts about politicians who constantly want bailouts and legislation, where the whole purpose is merely a device for government to get its hands and power deeply into our private business.
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