The American International Group mess raises some interesting questions:
- Is the US government giving corporate welfare?
- Should the US government nationalize the company outright?
- Should the US just sell-off the pieces of AIG?
Question 1: It seems that the US government has given an outright grant of money to AIG with no expectation of a return. It is corporate welfare which is no different than the government giving welfare to a poor person. The US is now an 80% owner, however, what does it own? What is it worth? The US owns a company worth much less than the $173 billion or so that the US pumped into it. It is like spending $500,000 to buy a bungalow which was worth $600,000 at the height of the market but is now worth $200,000. Therefore, the US’s funds have been nothing more than the most spectacular welfare payment of all time.
Question 2: The US, that is us (you and me), owns 80% of a company that is mis-managed and tone-deaf to the general public. Exhibit A is the $165 million of bonuses awarded to its executives who have landed the company in the ICU ward. An 80% owner would not let his company continue to be mismanaged. Would not an 80% owner just take-over management?
Question 3: The US is incapable of running a financial conglomerate. Indeed, AIG’s management, past and present, cannot run it. To throw more money at it is insane. If it cannot survive with the flood of federal money that it has already received, no more good money should be thrown after the bad. It is time to salvage what can be salvaged. The AIG subsidiary insurance companies should be sold so that the Treasury can recoup some of our money.
Mark E. Seitelman, 3/17/09, www.seitelman.com.