Setting the Record Straight On AIG

Joe Hard sent this in.
Setting the Record Straight on AIG–

AIG, Citibank and other companies have come under a great deal of pressure these past few months and have been accused of all sorts of things. The people who are making these accusations are the same ones who had a whole lot to do with getting them in that predicament (i.e. Barney Frank, Christopher Dodd, etc…). Let’s take a look at what really happened.

Up until the fall of 2008, and for years before this, the big banks and other related companies were lending and making a lot of money in consolidating mortgages and selling and buying them on the free market. Freddie Mac and Fannie Mae were buying the mortgages and bundling them into larger investments which were purchased by a number of entities worldwide. The Clinton administration wanted to enable all Americans to own a home and implemented policies to encourage home buying. During the Clinton administration, Freddie and Fannie lowered their underwriting standards and encouraged banks and brokers to write loans to individuals based in part on their minority status rather than on their ability to repay the loans. Some of the Clinton cronies, (e.g. Harold Raines and Rahm Emanuel) made millions from Freddie during its heyday.

Then things went wrong. The mortgages turned sour. People had been given loans who were not able to pay them back. This had a domino affect throughout the finance industry. Many huge companies were suddenly insolvent or unable to pay on their promises. The largest money market fund shut down for a week, and companies and individuals worldwide began to hoard money in fear that they would soon be unable to get to it or lose it.

The Bush administration went to Congress more than 10 times in the years preceding this disaster (17 times in 2008 alone), asking for a review and changes to Freddie and Fannie with no avail. Bush then stepped in and offered loans to several of these institutions in order for them to stay afloat. The goal was to push liquidity back in the market place. One of the largest insurance companies in the world – AIG, came calling and the government offered them a loan. Loans were given to other entities as well. The key here is that these were loans to these entities.

Along came the election and the swearing in of the Obama administration. One of their first actions, with the assistance of the Democratic Congress, was to write a historic spending bill greater than anything we have ever seen before on this earth. Over a trillion dollars in spending projects were quickly passed through Congress. The Stimulus Bill was not a loan but included grants and pork spending. Unbelievable amounts of money were given to organizations like ACORN and other entities with close ties to the current democratic Congress.

After this atrocity was put into place, the Congress and individuals from both parties began to focus on bonus’s given at AIG. They said these weren’t fair and that AIG was paying these with the government’s money. In a sense this is true, since the government did loan them money to stay afloat. But in another sense this is not true. The government loaned this money to AIG. It was not a gift and is expected to be paid back. And, of course, it was Senator Chris Dodd who slipped in a provision in the spending bill that quaranteed the AIG bonuses.

The AIG predicament is similar to the Chrysler crisis in 1980. Chrysler came to the Carter administration and asked for a loan to stay afloat. The government gave them a loan. Many people said that this was not fair and none of the government’s business. They claimed that Chrysler would never pay it back and it was a waste of taxpayer money. Well, as you may recall, Lee Iacocca led them out of that quagmire and ended up paying off the government debt before it came due.

AIG had a good point when they argued that they had a legal obligation to pay the bonuses to their corporate team. They also have a great desire to keep their team in place while they work towards paying off their debt. They are led by a new CEO who desires to revive the company.

Also, per a letter received from a Gatewaypundit reader, the banking industry as a whole has felt the burden of bank failures. Their fees from the FDIC have risen tremendously over the past few years, both in cash to the Treasury and in transaction costs. Smaller community banks have taken on the brunt of the costs paying a larger share of FDIC insurance for their size than their bigger (too big to fail) brethren because the assessments are based on domestic deposits which are close to 100% of the deposits at small banks but about 50% of the deposits at large banks.

We don’t know yet whether AIG, Citibank and others will repay their loans. Time will tell. We do know however, that the current administration passed spending bills that will never be paid back- ever. This is the real danger. The greedy are not the corporations who pay 35% on their profits to the US government – one of the highest tax rates in the world. Nor are the greedy the banks who keep the economy running. The real greedy are the current group of government administrators and Congressmen and women who take advantage of their positions and implement spending bills to ensure their hold on the US government and instill their liberal ideas on all Americans. They divert attention from their actions when criticizing AIG, yet look forward to AIG’s tax dollars for spending on radical and wasteful ideas.

Joe Hard
Thanks Joe for this information.


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