The title says it all: Are you really surprised?
Insurance ‘giant’ American International Group (AIG) received a Federal Reserve ‘bailout’ in September of last year which was, in reality, a nationalization of the business. You, I, and every other taxpaying American are now the proud owners of 79.9 percent percent of AIG—whether we wanted to invest in it or not. In October of 2008, AIG received another ‘bailout’ out of our pockets, and the grand total has reached a whopping $112,000,000,000.00. And what did we get?
The now 80 percent federally-owned AIG—which posted a loss of nearly 62 billion dollars during the last three months of 2008—has blithely gone about its business, sending executives on retreats and paying them bonuses. The massive federal investment has not saved the company from its problems, however, and it’s very likely that their next quarterly report will be just as bad as the last one.
Many are angry that, after a nationalization of the business and a massive taxpayer investment, AIG seems to continue doing the very things that got it into the mess in the first place. I’m angry too, but I can’t figure out why anybody is surprised. I’ve been saying from the beginning that these bailouts are counterproductive, that they reward bad behavior, and that they encourage the perpetrators to continue on their same path and cause broader economic harm. When a company fails, it fails. ‘Saving’ the business with federal dollars simply prolongs the inevitable and makes the process more painful.
So here’s an idea: Now that the federal government owns AIG, the federal government runs the show. Simply bite the bullet and shut it down through Chapter 7 liquidation. No more bailouts, buyouts, or bonuses. Sometimes you have to do something painful in the short term for a long term gain, and an end to these bailouts and corporate welfare programs is the only way to turn the economy around any time soon. With every bailout, stimulus plan, and government ‘investment’ (read: nationalization) we further undermine any possible economic recovery.