Wednesday, March 25, 2009

AIG Is A Nightmare In Our Economic Recovery

Mother Jones does a pretty good job of explaining some of the complexities of the AIG bailout - and why the government is probably not done with this job. Click the link to read more.

The reason that taxpayers have had to prop up AIG to the tune of $173 billion is that AIG is now basically a conduit—it owes money to so many other companies that the cash just pours right through. If AIG doesn't pay its counterparties—the entities on other end of its bad bets on the subprime mortgage market, the counterparties might go belly-up, too. That's why the bailout of AIG is sometimes referred to as a "backdoor bailout" for other companies. The people and companies on the receiving end of the "backdoor bailout" are AIG's counterparties, and so far, the Treasury and the Fed have been keeping their names secret. Now the Project on Government Oversight (POGO) is trying to change that.

1 comment:

gta mls said...

"If AIG doesn't pay its counterparties—the entities on other end of its bad bets on the subprime mortgage market, the counterparties might go belly-up, too." In other word AIG is too big to fail. I've been lately pondering whether any company should be allowed to get to that stage when the government simply have to help it otherwise it'd be too bad for everyone. More and more the answer "no" is appealing to me.

Take care,
Julie