Posts Tagged ‘AIG’

Weirdness Happens

March 26, 2009

—  When was the last time you heard Dems angry that a company is paying its workers too much, and the GOP defending the workers?  What happened to the halcyon days of yore, when the auto makers were the ones under the gun, blue-collar workers were the employees in question, and the 2 political parties stayed on their own sides of the car?  AIG: it’s freaky.

—  Many Dems don’t like the idea that we’re turning to the Wall Streeters who got us into this mess to also get us out of it.  I don’t either.  So why is Larry Summers in the White House again?  He’s the Mark Penn of Democratic economists.

Bailing Out

September 17, 2008

So huge financial bailouts are in the news, right? The feds (or the Fed) stepped in to help with BearStearns, let Lehman fall (but helped anyway by making sure it was as soft and slow a fall as possible), and now we’re all the proud new owners of AIG, the biggest insurance company in the world.

“Too big to fail” is the phrase of the moment. Some of these Wall Street firms and hedge funds, they’re just too big to let them fail; if they go down, the whole financial system crashes and burns. We had to bail out AIG because if they’d gone down, they would’ve taken a dozen other huge financial services firms with them, due to something called “counterparty” implications, which I don’t pretend to understand.

“Too big to fail.”

Matt Yglesias has a post up today that got me thinking. In economic terms, what’s bigger: AIG, or the American middle class? I ask because, you know, we totally let the American middle class fail. All these financial companies are in trouble because — the Dow is tanking because — we let a huge number of middle-class home “owners” default on their mortgages. We let them fail. If the justification for saving AIG and BearStearns and certain others is that letting them fail would have too drastic consequences on the economy, why did we let those companies reach the point where they might fail, by allowing the middle class to fail? Couldn’t we have avoided all of these corporate bailouts by nipping the problem in the bud? That is, by bailing out the middle class, where the whole problem started?

What possible justification — economic or moral — is there for letting the middle class fail, but saving the corporations? Both made bad financial decisions. Both bought into more debt than they could afford. Both acted on the belief that there is such a thing as a free lunch.

If we need to let the middle class fail so it learns its lesson, how is AIG any different? Don’t Wall Street geniuses need to learn exactly the same lesson?

If the justification is purely economic, I still don’t see how it makes any sense. Bail out the middle class so it doesn’t default on its mortgages, and you don’t suffer all this Sturm und Drang in the financial system, nor have to bail out the corporations that held all that middle class debt.

How, O, Hippos of Hunger, does what we’ve done make any sense?