Quote:
Originally Posted by turbo6bar
The market cap of AIG is $10B. Why didn't the government just buy the company, put executives in the electric chair, and part out the remainder of the company? The stench of moral hazard is getting really old. If honest Americans are expected to foot the bill, then Americans and not shareholders should be taking all future profits.
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To follow on, it seems undesirable for one insurance company to have govt backing and thus a lower cost of debt than other insurers. While AIG is a large insurer, there are other insurers who can step in and do the business. Perhaps insurance premiums will rise, but perhaps they need to rise so that insurers can make their profits from premiums rather than from investing.
That would be an argument in favor of seizing AIG and in effect shutting it down, then liquidating its assets in an orderly manner.
Now, I am not sure if the Fed and Treasury actually have the legal power to seize and close down AIG quickly and smoothly enough to avoid major damage to the financial system. In that case, maybe this loan plus warrants is a back-door way to do just that.
Just speculating, I guess we need to see the details first. I think Paulson and Bernanke are quite aware of moral hazard and have no desire to have the govt running insurers and banks any more than absolutely necessary. But I think they are trying to avert immediate disaster.