Monday, November 3, 2008

AIG should have been allowed to go bust

Effectiveness of AIG's $143 Billion Rescue Questioned

Ann Rutledge, of R&R Consulting, gets it right when she says, "What we see now are a lot of games by the government to keep these institutions going with a lot of cash," she said. "This is to fill holes in companies' balance sheets, and they're trying to hold at bay the charges that our financial system is insolvent."

See what she said there? A clue: it's not what most other talking heads are saying. The debate is no longer between recession vs. no recession, it's now an argument as to whether the SYSTEM ITSELF is solvent. Meaning the debate is a lot bigger than most people are letting on. If the system itself cannot be salvaged, then the debate should become more about what takes its place, and less about how the chairs ought be arranged on the deck of the Titanic.

"AIG is nothing more than a pass-through being charged 14 percent interest," Wolosky said. "Company assets are eroding on a daily basis; asset sales have not begun and can only be at fire-sale prices in the current market. "

But David Schiff of Schiff's Insurance Observer said he could not see how bankruptcy would have been a better solution.

"The point isn't to save AIG; it's to save the U.S. financial system. I think they were afraid to find out who else goes under if you let AIG fail," he said. "But right now, no one knows if this is going to work."

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