Tuesday, September 21, 2010

The AIG Bailout Fiasco

The next time a left-leaning government says we need a bailout or more financial regulation, the public must stop and remember AIG.

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 immediately do something . The company was simply too big to fail.

In the process, the American taxpayer got stuck with a tremendous bill and 80% of diminished-value stock.

However, 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 became necessary, but would cause a financial collapse of their clients as a result.

The truth about this bailout came to light in 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.

Why the rush to bailout by government? Why not wait for claims to come in? Why not depend on order-oriented bankruptcy courts should the worst happen?

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.

There are also questions about how bad those AIG assets really were, if a bailout was so necessary and urgent.

There are more loaded questions of our government to answer 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 on power.

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