The Fed comes to the rescue.
Fearing a financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an $85 billion bailout that would give the government control of the troubled insurance giant American International Group.
Financial markets, which on Monday had plunged over worries about A.I.G.’s possible collapse and the bankruptcy of Lehman Brothers, reacted with relief to the news of the bailout. In anticipation of a deal, stocks rose about 1 percent in the United States on Tuesday and were up about 2 percent in early trading in Asian markets Wednesday morning.
We (the tax-payers) now own 80% of the company. I’ll post my somewhat disgruntled analysis about the recent moves in a few minutes. Despite any of the problems with the situation, I am extremely pleased that our Trader will have a job to go to tomorrow. No more worries about that.
One positive to come out of the recent binge of government bail-outs is that the argument often put forward by the conservatives that the financial market cannot thrive under the “heavy hand” of government is now moot. They were wrong.
What is so infuriating is that throughout this big boom, the market devotees have been vehemently against any increase on the tax burden of the outsize profits earned by exotic financial instruments. To borrow a term from Tom Wolfe, we were faced by an army of Sherman McCoys, the Masters of the Universe whose market could simply do things better than the government could. “See!” said Mr. McCoy, “we simply don’t need the government to intervene- we’re just that good!” And yet here we stand, being forced to socialized the losses of companies whose profits have been nothing but private. That is, when things are good, don’t you dare even suggest that a larger portion of those profits go towards supporting the government and its inexpert attempts at regulation- we earned that money! Yet, when they fuck up- and I mean fuck up– who is the person they come running too? You guessed it, the army of the inexpert toiling away at jobs paying much less then what the vaunted Sherman McCoy’s receive. And what are we forced to do? Well, the grotesque scale of their incompetence literally forces the government to save them- not because they deserve it, but because they have done such an incredibly bad job at managing their firms that if they get what they deserve, people completely uninvolved with the original slew of mistakes will be punished. Some system.
Now, I want to make one thing clear (in addition to the fact that the laissez faire proponents have effectively been sit down): I don’t fault the Fed for what it did. It did what it had to do despite the moral hazard it may engender. I point my (middle) finger at the assholes who thought themselves so good, so incredibly wise and infallible, that they resisted any attempt at market regulation or taxation. You are to blame and you are not invited to the next debate on market regulation. Stay at home and think about what you’ve done.