Imagine a world where you buy your car insurance and your home mortgage from the government. Oh, wait — you don’t have to imagine it. Welcome to America in 2008.
The US Treasury has nationalized AIG, the world’s largest insurance company. In exchange for an $85-Billion-with-a-B loan, the government now owns 80% of AIG. The government’s reasoning is that AIG is too big to be permitted to fail. The company has 103,000 employees and assets of more than $1-Trillion-with-a-T. The Federal Reserve decided “a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance.”
The Libertarian Party of Georgia is committed to free markets and individual liberty. An important thing to remember is that freedom can only exist with responsibility. If there is no possibility of failure, there is no freedom. If AIG (or Fannie Mae, or Freddie Mac) is too big to be allowed to fail, our economic system is anything but a free market.
The Fed is charging AIG 8.5% interest on this two year loan, so there is a potential that the government can make money off this bailout. But there also is a possibility that AIG will fail despite the loan, leaving the American taxpayer on the hook for $85-Billion-with-a-B. Add that to the sweetheart money the government guaranteed to bail out Bear Sterns, Fannie Mae, Freddie Mac, and the FHA and taxpayers are at risk for more than $900-Billion-with-a-B. On top of that, the US automakers already are queueing up for their free money, with the airline companies expected to hold out their hands at any moment.
New York University Stern School Of Business professor Nouriel Roubini came up with a perfect description of what our government has been doing over the last few weeks: he says “profits are privatized and losses socialized.” Under capitalism, those who take the financial risk are the ones who stand to make the profit. But under the new system, AIG will get to keep all the profits it makes over the next two years; but if it fails tomorrow, it’s the taxpayer who will pay the cost. The same is true of the arrangement with Fannie Mae and Freddie Mac.
Even more insidious, the new Bailout mentality rewards stupidity and incompetence. Why should AIG bother to run their buisiness intelligently if the government will cover their errors? This was a huge factor in the failure of Fannie Mae and Freddie Mac, and the AIG bailout will spread the new logic.
Libertarians are concerned about the world our children will live in, and their children. We fear that by salvaging companies and institutions that are not profitable, we merely postpone their day of reckoning. If we can help our kids live in prosperity by dealing ourselves with the financial hardship of an economic realignvment, we gladly accept it. Unfortunately, the Federal Reserve and the Treasury Department would rather our children and grandchildren suffer so that we can whistle past the graveyard today.
The Libertarian Party believes there should be a “For Sale” sign in front of AIG today, not business as usual.
