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I am a little confused, isn’t the goal to keep private businesses private? And keep government out of private enterprise? I am not entirely sure that the move today by the Fed to “purchase” 80% of AIG insurance is all that well thought out. I mean I know that we are having some issues and all with Lehman Brothers this week and Bear Stearns failing a few weeks back but just how many private corporations can our government (meaning you and I) afford to prop up? And correct me if I am wrong but Warren Buffett owns a good sizable chunk of AIG.
I might totally be coming at this from the wrong way but it all seems real basic to me.
Help me out here….
Levi
8 responses so far ↓
1 dustin // Sep 16, 2008 at 7:42 pm
This is like a bad night out, except the government is saying, “Just put it on my tab.” I doubt the money to cover this hasn’t even been printed. More debit for our children and their children. Didn’t William McDonough say something to the effect that we live in a world controlled by the dead and not the living? Meaning the debit will have been created but people no longer alive yet the living will be paying for it. It was something like that anyways.
2 Ryan // Sep 17, 2008 at 9:43 am
AIG is a very, very big insurance company. They take policy owners’ money with the promise that if something bad happens to the insured, their policy will help cover/offset the losses. The money that AIG takes from its customers (that will be used to payout future claims) is diversified into the financial markets to reduce risk, or so they hoped. One of the places that money was invested (and it was lots of money) was to mortgage backed securities. Now that lots of people aren’t paying their mortgages and home values are down +/- 30%, those secutities aren’t worth much. If the government allowed AIG to go under, then what happens when those AIG policy owners have a claim and expect compensation? If my house burns down, and AIG is no longer there to cover my losses, there’s a decent chance that I will need to turn to public/government assistance (i.e the taxpayer) for help. This prevents that from happening.
As I understand it, the government is expecting AIG to sell off its units in an orderly fashion that will allow it to maximize its value and there will be little to no tab picked up by the taxpayer. Additionally, the government is charging AIG an 11% interest rate on the $85 Billion loan!!!
3 Gerry // Sep 17, 2008 at 10:05 am
But after all is said and done wont we still end up with the Federal government owning 80% of the largest insurance company in the nation? they way I understand it looks a lot like the way China does business only with a little more smoke and mirrors… Ryan? Thoughts…
4 Levi // Sep 17, 2008 at 10:18 am
Good words Ryan. I do see where you are going and that we have to stop the tide from flowing the wrong direction. I really hope you are right about the end result being a loan instead of an equity purchase.
5 dustin // Sep 17, 2008 at 11:22 am
Thinking about this more last night, I feel like safe, secure micro-loans may be part of the answer. These could be funded locally by private inverstor, essential you and me. We choose what we invest in, ie. sustainable or socially responsible businesses or developments, etc. This would take the idea of lending back to the grassroots level and might help keep us out of this mess in the future.
6 Ryan // Sep 17, 2008 at 12:00 pm
From what I have read, the loan will be for 2 years, which will allow AIG to liquidate itself at non-firesale prices (which Lehman Bros is now doing under bankruptcy , because government didnt step in) The proceeds of the AIG sale will go to the owners, which is to say, 80% to the government. It is believed right now that this 80% will repay the $85B in full (plus interest hopefully)
7 Amy // Sep 18, 2008 at 5:24 am
Dustin. Arent you describing the stock market?…
8 dustin // Sep 18, 2008 at 6:34 am
Amy, yeah…I guess so, but just keep the dollars local. Funding from members of our communities to members of our communities.
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