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  Asia-Pacific
USA — Bail Outs Must Be Questioned after AIG Losses
By Lee Jay Walker
Tokyo Correspondent
Logo of American International Group (AIG)

The United States of America (USA) is going from one crisis to another and apparently the only answer is to throw more bad money at inefficient companies. After all, money keeps on being pumped into companies like AIG but nothing appears to change, apart from growing debt. Therefore, it is essential to question the economic policies of America because since the crisis began, it is apparent that the only policy is to bail out companies which appear to be in complete free fall.

So once more AIG is given taxpayers money and according to the mantra of President Obama, it is the same conclusion, spend tax-payers money and forget about any other alternative policy. Yet AIG could easily abuse tax-payers money in order to undercut their rivals and this is the problem. Once you intervene in the market, then the free market or capitalist system is undermined because of favouritism and unfair competition.

Therefore, if any respective bank abided by the fundamentals of banking, they should be rewarded for being efficient, conservative, and businesslike. Instead, inefficient banks or other financial institutions can just cry wolf and then go begging to Obama. After all, Obama appears to enjoy the publicity surrounding the injection of tax-payers money into many different sectors. Yet is big government the answer to the current economic crisis?

If we look at the Homeowner Affordability and Stability Plan we see the same flaws. After all, what Obama is saying, is that people who looked after their finances properly must be penalized. This can be the only conclusion, because people who took high risks or were greedy, are now going to obtain support from the government of America via conservative tax-payers who behaved properly. Is this a policy based on justice?

Jeffrey A. Miron, a senior and highly respected lecturer in economics at Harvard University, sums it up correctly. He states that "… government payments to troubled borrowers come from people who did not stretch their finances to buy homes, or who bought small, less expensive homes, or who economized on other expenses. That is, the plan penalizes cautious taxpayers to bail out those who took bigger risks."

Therefore, just like the financial sector, it is inefficient companies which are being supported and instead of natural consolidation or the demise of inefficient companies, we are seeing a "basket case" scenario where Obama seeks to massively increase both the national debt and the power of government. However, like Jeffrey A. Miron points out, "Insisting that borrowers, not taxpayers, bear the consequences of these questionable decisions would provide the right incentives for appropriate risk-taking. This applies to homeowners and bankers alike."

Therefore, real accountability is not being applied properly and prudent borrowers and companies are paying for something they never created. The natural logic being that in the future the same problem may arise but why worry, after all, the "nanny-state" of Obama or a future leader will bail you out. So individual tax-payers and companies which are efficient and paid vast sums in corporate tax, are now being told that they have to fork out once more in order to protect the people who created the economic crisis in the first place.

Obama, however, comes up with a different conclusion. For Obama states that "I know how unpopular it is to be seen as helping banks right now, especially when everyone is suffering in part from their bad decisions. I promise you, I get it. But I also know that in a time of crisis, we can not afford to govern out of anger." In truth, Obama may indeed be very sincere and of course the central government must do something but this must come via real policy objectives. At the moment, I fail to see real policy objectives apart from keeping companies and home-owners afloat.

Shankar Vedantam, Washington Post Staff Writer, states that "What Obama did not mention, however, is that saving banks and financial institutions has the unintended consequence of saving many bankers, CEOs, and Wall Street tycoons from the consequences of their greed." Therefore, Vedantam supports a middle way between the rationalism of Obama and the every-day anger of many tax-payers. This middle way, explains Vedantam, is that you should "Pour taxpayer money into fixing broken institutions, but make sure those responsible for the catastrophe pay – and pay publicly."

Overall, I would argue that money spent on AIG and others, at the moment, is like one big "money black whole." It appears that companies like this just plead for more funds and at the moment, they get it. Yet no fundamental change is taking place, instead the Dow Jones is either in free fall or it is static, and corporate and national debt just keeps on rising. Sooner or later, if the situation does not change, you will see greater social tensions and government policy will come under real attack. Therefore, will Obama take real measures to reverse the crisis or will he just keep on throwing money in all directions?

Lee Jay Walker
leejayteach@hotmail.com
THE SEOUL TIMES



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Lee Jay Walker serves as Tokyo Correspondent of The Seoul Times. He specializes in int'l relations and geopolitics. He is also involved in analyst work and research on business. After finishing BA degree in East European Studies at the University of London, He earned MA degree in Asia Pacific Studies in Nottingham Trent University. He also studied business at London Institute.

 

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