AIG “Bailout”… And Other Myths

Posted: September 22, 2008 in Technology and Business

The entire weekend people kept calling last week’s action "a bailout"… and how the very rich "screwed" everyone… and other such malarkey.

It drove me crazy… I wasn’t hearing anyone refute.

So I did… and will here.

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MYTH: AIG is a bailout.

FACT: Everyone called the S&L crisis of a few decades ago a bailout.  But taxpayers made money from the S&L crisis.  And — important here — taxpayers are setup to make money from AIG… we now own 79.9% of AIG… plus we get 11% interest!   Where’s the bailout?  Looks like AIG got itself in trouble… and U.S. taxpayers were the only investment group of size that could step forward… which means we taxpayers got a helluva deal.  Anyone who calls it a bailout is simply parroting political rhetoric.  The dangerous, ignorant kind.

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MYTH: That we’ve "nationalized" the world’s largest insurer… the implication being that we’re run by some dictatorial government who greedily hordes gains for their own wasteful sloth.

FACT: Hello? This is the United States of America. We elect our government every four years. We are the U.S. Government.

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MYTH: That only the super rich gained and everyone else got screwed.

FACT: Well, certainly, some super rich folks gained.  Because SEC regulations allowed them to over-lever.  So they did.  And while the underlying assets they were levered against were appreciating (the housing bubble), it worked… and not a single person complained… that’s because everyone was making out-sized gains on their money… that is, anyone invested in a money market fund or a 401K fund or a pension fund… that is, everyone.  Once the value of the underlying asset depreciated, that extreme levering bit everyone, causing out-sized losses.  So excuse me for thinking that the people bitchin’ about the current situation are a bit disingenuous.

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MYTH:  We need more regulation.

FACT:  It wasn’t lack of regulation… it was poorly administered regulation that got us in trouble.  As I understand it, the SEC loosened up levering ratios in 2003 — from 1-to-12 to 1-to-40. 

OPINION:  Why did the SEC do that?  Who knows.  Maybe something simple as wanting to make home ownership more attainable… you know, the foundation of the American Dream.  Anyone think of that?  Nope, people are too busy placing blame.

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