This article deals with the new decision by the federal government to provide AIG with an additional $30 billion, and this would be the fourth time that the United States has had to bail out AIG so that the giant company avoids bankruptcy. “The government already owns nearly 80 percent of the insurer’s holding company as a result of the earlier interventions, which included a $60 billion loan, a $40 billion purchase of preferred shares and $50 billion to soak up the company’s toxic assets.” In my opinion, the government owes a full explanation of where this money is going to the taxpayers that are paying for this. The number of money given to AIG has become too large, and complete and accurate information is owed to the people; in addition, a plan on the foreseeable payback (if there is one) should be given to the people, as well.
What first needs to be evaluated is what happened to the money that was allocated in the first place? AIG has received about $152.2 million previously from the government, and where has that gone? The taxpayers are beginning to question why AIG was bailed out in the first place, and why they should continue to pay for the “bailout” of an insurance giant that has failed to work the past three times.
The shareholders are virtually nonexistent – and the bailout plan is so open-ended. The government is essentially throwing their money into a black hole, where they continue to pour in capital, and nothing comes out the other end. Repair seems to be out of sight for AIG, and for the taxpayers, as well. In my opinion, they should have targeted where they money was going; AIG is a global insurance company, so, obviously, there are both bad and good assets within the company. If they could have found a way to contain the bad assets into a separate company, the government could have then, written that off. If they separated the good from the bad within the corporation, the government could have then directed the money into the sections that needed aid. This way of handling the losses could have eventually incentivized the public to buy shares, and maybe by this time, AIG would be on the road to recovery.
Subscribe to:
Post Comments (Atom)
5 comments:
Source: http://www.nytimes.com/2009/03/02/business/02aigweb.html?ref=us
The federal government needs to continue to bail out A.I.G as this is one of the most direct forms of paying for the toxic debts. The debt from home mortgages was resold to other investors and was then insured by companies such as A.I.G. Now that there are so many foreclosures A.I.G is being called upon to pay investors their insured principle. This bailout is the most direct way of getting capital to the source of the problem.
Furthermore without the support of the federal government it is likely that they will be quick to declare bankruptcy. Without sound insurance the credit markets are likely to freeze up and the effect upon the American people would be disastrous. What would follow is more foreclosures and more businesses forced into bankruptcy. It is safe to say that the bailout of A.I.G is not the first one to be cut from the list.
A.I.G. is a company that is going downhill fast. This is evidence to the fact that they were bailed out multiple times before and are still having problems. The amount of money that the government has poured into this company is ridiculous. The taxpayers do deserve to see where their money is being spent. The economy is in such a bad slump right now and yet the government thinks that it is necessary for A.I.G. to stay alive, so they keep pumping the company full of funds when in reality they aren’t fixing anything. The last bailouts for this company failed so they obviously need to try a different strategy. Perhaps they need to appropriate the funds more efficiently. I think that the government is an intelligent group of people and that they obviously have their reasons for trying to keep A.I.G alive but if it does go down and many people are drastically affected, our system of capitalism has failed us. If one company goes down and it hurts the economy so badly then capitalism isn’t working the way that it is intended to.
Followup:
Brandon, I agree with the idea that the system of capitalism as we have known it has failed us in this situation, and it was the first time that I have recognized the idea that if the downfall and destruction of one major company negatively affects the country to such a degree, capitalism is not working as it was intended to. The failure of AIG would affect far more companies and far more people than the ones directly in business with the giant; its ties are far beyond financial and insurance firms, it reaches thousands and thousands of companies, and just one failure could put a serious strain on the American economy as a whole. This ripple effect is dangerous, and could counteract the previous governmental help in this situation.
AIG has lost the money that has been given to them and seemingly placed in the “black hole” that I described in my original post, but from the government’s standpoint, giving them a fourth bailout is the lesser of two evils. Through saying this, I mean that the government cannot simply walk out on the situation because when left to survive on its own, AIG will collapse. For the government, that damage is far worse. In my opinion, that does not make it acceptable for the government to take the taxpayer’s dollars in order to bail out a major firm with absolutely no explanation of why now, the fourth time is the charm. Shouldn’t we let the free market work as it was intended, and let these businesses fail? If capitalism and our free market are solid enough in their foundation and application currently, they will slowly pick up the pieces and allow the economy to gradually improve. As of now, this situation is turning to be an issue of transparency in the government – the American people are left in a lurch, and are finally waking up and noticing the grievance of the state of affairs.
Post a Comment