Aig_Bailout

Should the Government have bailed out AIG in September 2008' In my opinion, the Government in 2008 made a mistake in bailing out AIG, a company that was headed for bankruptcy and financial ruin because of its own mistakes precipitated by the greed and mismanagement of its own company executives and directors. By bailing out AIG, the Government has also set a dangerous precedent in providing the private industry the image that if your company is “too big to fail” then the American Government will step in with taxpayers money to rescue the company. The American free enterprise system was based on a free market where well managed companies will flourish and the inept ones will go out of business. Bad companies that go out of business will always be replaced and history has shown that while the American economy may take a temporary hit, it will survive. In bailing out AIG, the government in 2008 in effect stepped in and halted the dynamics of a free market with the assumption that AIG was too big to fail. What will the Government do when other big companies face such risks' Without hindsight, as the question says, AIG should have been allowed to sink and while the world economy and our banking system may have been adversely affected at the time, it would have sent a message of responsibility and strong corporate governance to every other big company. The article clearly informs us that AIG through its Financial Products unit headed up by Joe Cassano took advantage of “a largely unregulated world of financial derivatives” to make millions and millions of dollars and then when warning signs and red flags were raised by Federal Regulators and Agencies, AIG executives either disseminated untrue statements or failed to indicate its weakness. The article tells us that time and time again, either by its own internal personnel or others externally, AIG was asked about “its material weakness” and often times it (through Joe Cassano) tried to dismiss this and deny the fact. I believe that the general public thinks that by the Government bailing out AIG, it has implicitly condone this type of corporate mismanagement. The question and the article though does pose an interesting perspective. While I am of the opinion that the Government was wrong in bailing out AIG and that certain executives and directors of AIG were acting irresponsibly, I am not sure that it amounted to criminal misconduct. AIG and Joe Cassano saw an opportunity to make money in a part of the American banking system (credit swaps, derivatives, etc) that was exposed and unregulated. It was a bad business decision but was it criminal...i think not. We will continue to have such unwise business choices being made in the corporate world but it is important that the Government let the consequences and free market play out. Do you think there is an ethics issue regarding the bailout from the standpoint of AIG, the Federal Government, Regulators and Rating Agencies' I do believe there was an ethics issue regarding the bailout with a number of players involved. Certainly, as mentioned above, AIG itself was unethical in many ways starting with taking advantage and making huge profit intially of an unregulated area of the banking market and then making deceptive statements in an attempt to hide its weak financial position. Ethically, individuals within AIG should be held accountable for a number of decisions made during its rise and during 2008. As far as the Federal Government is concerned, my research indicates that perhaps the Federal Government was too quick in stepping in by itself and should have explored other avenues and methods of saving AIG. There were apparently discussions made in 2008 where other banking institutions (e.g.Goldman Sach, JP Morgan) could have entered into some agreement with AIG to assist them from spiraling into financial ruin. The Govt ethically should have explored all such options before risking taxpayers money. We also must fault Government regulators and those closely connected with AIG and the banking system. Federal banking regulators must have ignored warning signs to permit such an institution as AIG to grow so big as a mismanaged company without knowing. Were the regulators to closely connected with AIG or executives' These are ethical issues that would need to be raised. --------------------------------------------------- The answers above were provided with the view of no hindsight as the question has asked. We do now know that AIG will most probably pay the Government back and the taxpayers money and that they will survive. We do understand NOW after the fact that not only AIG would have suffered upon its collapse but many others. However, at the time without hindsight as the questions asks, I stand behind my answers/responses above.