Uncle Sam is turning into Uncle CEO. But will the new corporate suit be a good fit?
By agreeing to bail out insurance giant American International Group Inc. and mortgage lenders Fannie Mae and Freddie Mac, the federal government has put itself in the unprecedented position of running huge private companies. In the case of American International Group, or AIG, the government is now the majority shareholder, acquiring 80% of the company in exchange for lending it as much as $85 billion over two years to keep the business out of bankruptcy as it is dismantled.
But some lawmakers and financial experts wonder whether U.S. officials are up to the task of directing large corporations through such turbulent times. AIG, for instance, has 116,000 employees and does business in about 100 countries. Fannie Mae and Freddie Mac together hold or guarantee $5.4 trillion of mortgages, about half of the nation’s home loans.
“The government does not have a core competency to run an insurance company of the magnitude of an AIG,” said David M. Walker, former head of the Government Accountability Office, the congressional watchdog agency. “It’s clearly not going to be able to effectively manage AIG and do what needs to be done.”