Euan Ritchie <[EMAIL PROTECTED]>
>
> It amazes me (was this AIG or Fanny and Freddie, I forget) that they
> went to ask for some 30 Billion but on a couple of days investigation it
> turned out to be more like 70 Billion was needed to meet their obligations.
>
> The management of the relevant company literally did not know the state
> of their cash flow.
I think it more likely that they did not know at first how much money they
would be able to get away with.
But either way, AIG did not deserve to continue in business. The government's
behavior is shameful. The moral hazard being created is huge. Of course,
politicians only care about looking good for a few years, and if they can do
that by pushing the problems out into the future (even if it makes the problems
greater), then they will do that every time.
With a free market made up of a number of diverse players, when people make
the inevitable stupid or greedy mistakes, they suffer the consequences,
disappear,
and the resulting system is slightly better than it was before. Businesses fail,
some assets lose value, but things go on.
But when the government gets involved, the incentives become perverse and the
mistakes tend to be coordinated. Also, the government has proven that it will
bail out many of the players who took excessive risks. So the instabilities grow
and grow until they become so large and widespread that the politicians cry that
the market is in crisis and must be rescued! Which will in turn allow the
instabilities
to build to even higher levels....
It boggles my mind that some people think politicians are capable of making
decisions
about billions or trillions of dollars of other people's money that will turn
out well,
when businesspeople who make decisions about much less money (and at higher
potential cost to themselves) frequently make the wrong decisions. The bigger
the
dollar value of the decision, the bigger the cost of the inevitable mistakes.
Better to keep the decisions smaller and in the hands of those who stand to
gain or
lose personally from their decisions.
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