Over on the main site, I have a piece
up about Warren Buffett's warnings about the dangers of
derivatives. Just wanted to offer a few mixed thoughts about the
stunning $85 billion AIG bailout.
--I don't think conservatives have truly grasped what these
means for the big picture. The fact that federal authorities had to
essentially nationalize the largest mortgage companies and the
largest insurance company within weeks makes the government's role
in our financial markets unprecedented.
My former employer, Reuters, estimates that when you combine all of the
bailouts and other rescue deals orchestrated in the past year,
taxpayers could be on the hook for up to $900 billion. Now, all of
those people who are always clamoring for more regulation of the
free market can argue that if taxpayers are going to come to the
rescue anyway, why don't we place more restrictions on private
enterprise to protect taxpayers from huge market failures? On this,
McCain and Obama both agree -- regulation needs to be overhauled --
there's no stopping it now. The only question is how intrusive.
--Beyond that, liberals now can point to this huge rescue of
Wall Street, and ask, what will we do for "Main Street"? They'll
argue that if we have hundreds of billions of dollars to dole out
to Wall Street finance companies that mess up, how come hard
working Americans can't get government health care? They can fill
in the blank for any government program that choose.
--More specifically, as far as this instance, the Fed really
gave mixed signals. On Friday, it seemed to draw a line in the
sand, and say, no more bailouts were coming. It held its ground
with Lehman, and then it caved on AIG. So basically, there's no way
to avoid the moral hazard problem. Any American company knows that
if they're big and interconnected enough, the government will come
its rescue, no matter how much it screwed up.
-- But with that said, was it necessary? If AIG went bankrupt,
it would have been a major financial disaster of global
repercussions, and I don't think conservative commentators truly
appreciated that. AIG was the backstop, essentially insuring a lot
of other financial firms that owned mortgage debt, so it's collapse
was much more likely to set off a negative chain reaction than an
average bank. This op-ed, I think, does a good job of
explaining why the collapse of AIG would have been so
damaging.Â
topics:
Health Care
