AIG Bailout is Disturbing

Why is it that less than 20 years after the United States buried the Soviet Union‘s doomed experiment in socialism that the rest of the world is rushing to embrace freer markets but the U.S. is moving in the opposite direction?

A few hours ago the U.S. government set in motion a bailout of the nation’s largest insurer, American International Group (AIG). The International Herald Tribune reports

Acting to avert a possible financial crisis worldwide, the U.S. Federal Reserve Board reversed course Tuesday and agreed to an $85 billion bailout that would give the U.S. government an ownership stake in the troubled insurance giant American International Group.

The decision, announced by the Fed only two weeks after the Treasury Department took over the quasi-government mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history.

With time running out after AIG failed to get a bank loan to avoid bankruptcy, Treasury Secterary Henry Paulson Jr. and the Fed chairman, Ben Bernanke convened a meeting with House and Senate leaders on Capitol Hill at about 6:30 p.m. Tuesday to explain the rescue plan.

They emerged just after 7:30 p.m. with Paulson and Bernanke looking grim but top lawmakers generally expressing support for the plan. But the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by AIG and other institutions [it] does business with.

 

The most radical intervention in private business in the central bank’s history? Aye yai yai.

What can we expect next from President George W. Hoover?