A Serious Conversation About AIG (and others)...

All I've heard recently is how outraged everyone is about AIG paying bonuses or Northern Trust having big parties featuring Sheryl Crow and such. Let's understand something here; I'm no fan of AIG, but are we really asking a business to stop acting like a business here? Is anyone asking Government to stop acting like government during this crisis??

The argument here is that it is taxpayer money that is being used, so the companies should be restricted on how they use the money. Wait a second. You mean you want a company that "acted irresponsibly" to the point of bankruptcy to suddenly begin to act responsibly?? Would that be like asking a government that looked the other way leading up to the biggest financial crisis in a generation to suddenly make sure that everything is on the up-and-up? Meanwhile appointee after appointee has tax issues, the finance and banking committees have no idea what happened with the first half of the first bailout, otherwise known as TARP, and the President is saying exactly what he excoriated John McCain for saying 6 months ago, when the economy was much better than it is now. Outrageous!

So let's be clear about AIG, and how it got to where it is today, or at least where it was, before the taxpayers gave them $180 Billion and 80% ownership in the failing company. It was making risky investments. Highly risky investments. But so was the entire lineup of Wall Street. If your competitors are making money and profits hand over fist in the derivative market, and you don't get into that market, your company is going to suffer in the eyes of investors and Wall Street. That doesn't make it right, it makes it a business...which the main purpose of is to make profits.

It's almost like the reverse of a gas pricing war. I'm sure you've experienced that in your town at one point or another. One gas station wants to own the market. To do that, they must put other gas stations out of business...which is to say, lower their prices so much that all the customers come to them instead of competitors. Well, the competitors, at least one of them, doesn't want to go out of business, so they lower their prices to match...and the war is on. They keep lowering their prices against each other, trying to get more customers and put the other company out of business, so that when they are the only gas station in the area, they can recoup the losses by raising their prices back, and then some.

So if AIG's competitors are making insane profits by investing in some exotic derivative market, they'd be in trouble if they didn't do the same thing because no one would want to invest in a company who isn't making money.

The problem is, just as with a gas pricing war, eventually you reach the point of no return. All the companies need to come to their senses at the same time, or face bankruptcy. That, or someone has to be willing to lose customers(investors) and profits in the short term hoping that the other company that acted irresponsibly will have to go out of business due to incompetence and they can eventually get the customers and profits back.

Unfortunately, that takes a long term vision, and by design, many companies don't think in the long term, particularly when they don't fully see the riskiness of the short term profits or when they are getting pounded by competition.

So if you give companies that are acting irresponsibly and haven't felt the pain of consequences of lack of vision free money, do you really think they are going to change their ways? If you give an alcoholic, who hasn't said they will stop drinking or hit rock bottom, a thousand dollars, are they suddenly not going to go buy alcohol??

The correct answer is, NO. So you don't give companies free money....you don't give an alcoholic a thousand dollars...you let them fail...for their own good. That's just common sense!

Will it hurt? Of course. Will it possibly hurt innocent people? Quite possibly. But at least you aren't flushing money down the toilet. At least you have something to work with if and when the lessons of failure are learned.

So please...spare me the feigned outrage over AIG paying bonuses to executives. That's what companies do. And if you aren't competent enough to restrict those kind of actions as a contingency to giving out free money...well, then your the United States Government...an incompetent body who has no understanding of how business is run and has very little common sense.

Did you know that the US Taxpayer isn't even 1st in line to recoup money if one of these bailout companies still fails?????? Congress didn't even put the taxpayer at the front of the line when giving companies bailout money! That's outrageous!!