Money for Nothing

September 17, 2008

Our regulators in action:

Like most folks writing about politics, I don’t have all that much insight into the current meltdown. As so many others have done, I can link to a few articles in the Economist and nod my head, because, you know, these guys would know, right?

I understand what just happened about as well as the next guy – which isn’t all that well – and I’m tied for last place with everyone else on the planet in my ability to predict what will happen next. The more interesting questions have to do with what should be done about it. So a quick word on that:

The notion that firms can be “too big to fail” is sensible enough, and it may well be the case that AIG was such a firm. It would be better if it were made explicit ahead of time which firms fell into that category, since there should be regulatory implications for any entity enjoying the backing of the federal government, but there’s nothing to be done about that now. But while saving a few AIGs here and there may be a necessary evil, it does not follow that we should be saving the shirts of their stockholders, and there seems to be something of a consensus that we shouldn’t be.

When the Treasury first stepped in to help Freddie and Fannie, but before they were forced to take over completely, Matt Yglesias – in full raving populist mode – was howling in unison with the heartless capitalists at the Economist that they should be fully nationalized, taken apart, and sold off, with the existing shareholders left out to dry. In the present instance, even the folks over at the National Review – not famous for their hostility to the monied classes – are insistent that if saving AIG really was necessary (they aren’t convinced) those who stood to gain from its sucess should lose everything with its failure. Yet it’s not entirely clear that that will happen.

If there is a decent argument for saving these investors a few cents on the dollar, I haven’t seen anyone make it. Yet that may be exactly what we end up doing.


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