Jonathan Weil: Bailout Nation Will Thrive as Long as AIG Lives

To believe Christopher Dodd, the Connecticut Democrat who is chairman of the Senate Banking Committee, the end of government bailouts is near. In truth, the financial-overhaul legislation now before Congress would do little to arrest the bailouts already in progress.

When the U.S. government rescued American International Group Inc. in 2008, it reasoned that a disorderly failure of the financial-services giant would lead to an economic catastrophe. What the Treasury and Federal Reserve said they needed was a way to wind down systemically important institutions without sending them into bankruptcy courts, to keep the companies from triggering defaults on their obligations that would cascade throughout the broader financial system.

Congressional leaders say their final bill will deliver the resolution authority regulators have been seeking. “It will end bailouts, ensuring that failing firms can be shut down without relying on taxpayer bailouts or threatening the stability of our economy,” Dodd said June 10 at the House-Senate conference committee where the differences between the two chambers’ bills are being negotiated.

It wouldn’t end AIG’s rescue, though. The reason AIG hasn’t failed is that the Fed and the Treasury continue to stand behind it. There’s no sign this will change anytime soon. Nor would the legislation force the government to do otherwise.

Read the whole thing.


Posted in * Economics, Politics, Corporations/Corporate Life, Economy, Politics in General, Senate, Stock Market, The 2009 Obama Administration Bank Bailout Plan, The 2009 Obama Administration Housing Amelioration Plan, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Possibility of a Bailout for the U.S. Auto Industry, The September 2008 Proposed Henry Paulson 700 Billion Bailout Package, The U.S. Government, Treasury Secretary Timothy Geithner

2 comments on “Jonathan Weil: Bailout Nation Will Thrive as Long as AIG Lives

  1. qharbour says:

    Isn’t this a great country. Indian Casino’s do NOT pay any Federal Taxes, but the Mohegan Indian Casion in Conn. thanks to Democrat Senator Dodd, received $454M in stimulus money.

  2. KAR says:

    I was really upset about the retainment bonus mess, back then I stated AIG should be in the bankruptcy court. Any corporation that is “too big to fail” is just too big. If we remove “moral hazard” we’ve lost Capitalism.

    I can see an argument to bring the giants down slowly, less the thud creates a secondary hazards. In the end, poor decisions should be “rewarded” (a negative reward) for by the company and executives just like their great ones with positive rewards.