A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Group may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.
The Treasury Department leapt to keep AIG from going bankrupt on Sept. 16, and in the past seven weeks, AIG has drawn down $90 billion in federal bailout loans. But some key AIG players argue that bankruptcy would have offered more structure and greater protections during a time of intense market volatility.
AIG declined to comment on the matter.
Echoing some other experts, Ann Rutledge, a credit derivatives expert and founding principal of R&R Consulting, said she is not sure how badly the financial system would have been rocked if the government had let AIG file for bankruptcy protection. But she fears that the government is papering over the problem with a quick fix that was not well planned.
"What we see now are a lot of games by the government to keep these institutions going with a lot of cash," she said. "This is to fill holes in companies' balance sheets, and they're trying to hold at bay the charges that our financial system is insolvent."
The deal that the Treasury and the Federal Reserve Bank of New York pressed upon AIG was intended to stop any domino effect of financial institutions falling because of their business ties to AIG. The rescue allowed AIG to provide cash to huge banks and other players who had invested in rapidly souring mortgages insured by the company.
Early this year, investors had begun privately demanding that AIG pay off its billion-dollar guarantees. But in mid-September, when the demands for cash reached a public crescendo, AIG had to admit that it didn't have enough cash on hand to meet the obligations.
In the first weeks of its federal rescue, AIG has used the loan money to post collateral demanded by these firms, sources close to those deals say.
"No one else benefits," former AIG chief executive and major shareholder Maurice R. "Hank" Greenberg wrote to AIG's current chief executive on Thursday. "Unless there is immediate change to the structure of the Federal loan, the American taxpayer will likely suffer a significant financial loss."
Another concern is that in this depressed market, AIG, and the taxpayers that now own 80 percent of the company, will lose coming and going.
Anyone who believed that this bailout was anything other than a way of getting entrenched incumbents in Washington -- yes, Democrats as well as Republicans -- through the election, was an idiot. With absolutely no guarantees that the bailout of the company would do anything to keep it from collapsing, and no accountability whatsoever as to what the company would actually do with the money, this money -- our money -- was shoring up an expensive beach house with toothpicks in advance of a Category 5 hurricane.
Barack Obama's talk about tax cuts is at this point disingenuous. He is not going to be able to cut taxes. I understand why he has to do it; he remembers the ghost of Walter Mondale saying at the 1984 Democratic National Convention, "President Reagan will raise your taxes and so will I. He won't tell you; I just did." And we all know what happened to him.
Neither is John McCain if elected -- if he were being responsible -- except that John McCain will do it anyway because the giant, insatiable maw of the preposterously wealthy cannot be satisfied with anything less than continued feeding with the lifeblood of this country's future:
McCain won't tell you this is why he's cutting taxes for himself and his friends. He'll tell you it's to "grow America." He'll come out with the old canard that "rich people create jobs." And there are plenty of Americans who'll believe it, because we've been trained to salivate at the word "jobs." But it's not about you, or me, or jobs. It's about greed. It's about the black hole at the center of every so-called "free marketeer" who thinks that if you just shovel enough cash into that hole, they'll be happy and throw a few pennies your way.
But this is where we are today, thanks to the Bush family and their cronies, who ALWAYS believed that the world was a private fiefdom for the benefit of their family members and friends, to John McCain, who supported policies that fed this notion and became one of those friends so he could benefit, and to spineless Democrats who have been too lazy or too frightened to articulate the reality that Ronald Reagan was wrong -- you can't have everything you want and it's all free if you just give the already wealthy even more.
Meanwhile, Circuit City, that wonderful company that fired all its store employees who actually knew something and replaced them with low-wage people unable to answer technical questions, is finding that their strategy backfired on them. The company is expected to announce over 150 store closings today -- and it may not even wait around till Black Friday to see how sales go that day. I don't fault the people working their now for taking jobs that were available, and I'm sorry that they're going to lose them. But this is yet another case of colossal mismanagement at the top -- and you may rest assured that those who made these decisions will suffer not one whit, and will be well taken care of out of the inevitable liquidation of the company.
Even the most well-run companies are struggling in this economic environment, and I'm not saying that poor performance is always a function of bad management. But like households that have some money socked away for lean times, well-managed companies are in a position to weather the vagaries of the business cycle. But AIG played with fire and got burned, and Circuit City made a bonehead, supply-side, penny-wise and pound foolish decision, and both companies deserve what they're going to get -- except that those who brought them to this state aren't the ones who are going to find themselves unable to afford so much as an oven-stuffer roasting chicken for Christmas this year.
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