David Ignatius at PostGlobal

David Ignatius

PostGlobal co-moderator David Ignatius is a Washington Post columnist with a wide-ranging career in journalism, having served at various times as a reporter, foreign correspondent and editor. He has also written widely for magazines and published six novels. Ignatius’s twice-weekly column on global politics, economics and international affairs debuted on The Washington Post op-ed page in January 1999, and has been syndicated worldwide by The Washington Post Writers Group. The column won the 2000 Gerald Loeb Award for Commentary and a 2004 Edward Weintal Prize. From September 2000 to January 2003, Ignatius served as executive editor of the Paris-based International Herald Tribune. Prior to becoming a columnist, Ignatius was the Post´s assistant managing editor in charge of business news, a position he assumed in 1993. He served as the Post´s foreign editor from 1990 to 1992, supervising the paper´s Pulitzer Prize-winning coverage of the Iraqi invasion of Kuwait. From 1986 to 1990, he was editor of the Post´s Sunday Outlook section. Close.

David Ignatius

PostGlobal co-moderator David Ignatius is a Washington Post columnist with a wide-ranging career in journalism, having served at various times as a reporter, foreign correspondent and editor. He has also written widely for magazines and published six novels more »

Main Page | David Ignatius Archives | PostGlobal Archives


Let AIG Go Bankrupt: David Ignatius March 19th 5:15 pm

It's time to get AIG and the zombie banks out of the political fray and into bankruptcy court, Ignatius argues in today's video. Please post your comments below. Note: Please upgrade your Flash plug-in to view our enhanced content. var...

» Back to full entry

All Comments (100)

biparis Author Profile Page:

The Administration and clueless Congress are already taking the biggest financial risk the country has ever faced, to the tune of trillions - based on no real evidence or assurance that it's going to work. So what's one more risk? I say Let AIG go into bankruptcy.

Funny that when the GAO, the office charged to provide Congress with substantive, independent information of a budgetary nature, disputed the President's claims their report is discredited and given Deep Six treatment.

AnotherMichael1 Author Profile Page:

It really is time to reapply the Glass-Steagall laws.

Americanwoman4 Author Profile Page:

Any financial institution labeled "too big to fail" needs to be broken apart as it is as much, maybe more, of a threat to America than is Al Quaeda or any other terrorist organization. If bankruptcy is the mechanism to do this, I'm all for it.
Any corporation in any kind of business that controls too much of it's industry also need to be "down-scaled".

skata3 Author Profile Page:

David please forget AIG and for once more please, please enlight us about the Erdogan incident at Davos. Do not pretend to ignore this, for we will not!

Dermitt Author Profile Page:

We had a local hospital that the execs decided to bust out. The entire hospital went into bankruptcy and generated a lot of legal and accounting fees during the process. The hospital is still operating today. Some of the execs are not. AIG could generate more revenues in bankruptcy than it is now. When forced to choose between the lesser of two evils, look for a third.

hale_me75 Author Profile Page:

tropicalfolk. as much as I hate it you are right in what you said.It would affect the whole world. But I do think they should at least be nationalized and people got in there that can run the business.In our country I don't know if this can be done without opening a can of worms.I have to admit I would like to see then go bankrupt. but you are right in what you had said. It is too large and would cause more problems that if we nationalize it. I am not for just letting them take our money and laugh in our face.Our country owes to many other countries money and if we let or force them into bankrupsy where would we get the money. it is a bad deal no matter how you look at it. between the devial and deep blue sea. a big mess. they need to be made smaller.Regulation needs to be put back in so this can't happen again.Even the Bank of America is over sea's and needs to be smaller.Buying other companies with our money. bab bad.

hale_me75 Author Profile Page:

To allow the AIG to go bankrupt, is hard as it employee's a lot of people and will affect a lot of countries.But it needs to be done.They are using the tax payers money to give big bonuses and not playing the game fair, so this doesn't show me anything good about them. Let them go bankrupt, as then the company can start over which a lot of them do. There would be no money going to the CEO's It will hurt at first but then can come back better and get new people to run the business.They will know that you don't get paid for running a company in the ground.The money that is being given for bonuses can be used to help the employees, untill they get another job or the company starts up again.This will ease the pain for the little man. I am for letting them go bankrupt.

jailkkhosla Author Profile Page:

The infamous AIG bonuses are only the tip of the iceberg. There is an even greater problem: irascible, heavy-handed middle and line managers whose bonuses are driven by premium income. In the commercial casualty and property sectors the underwriting is reckless with little thought given to the risk at hand and all thought given to the premium income. It is all a big ponzi scheme that will unfold and come unglued one day. Bankruptcy for AIG is the only way to go. The pain will be much less today than say five years from now. But pain is inevitable and AIG and the nation have no other choice. If AIG does carry out mass layoffs after declaring bankruptcy then the feds must insist on wholesale sacking of the middle managers because the alternative, laying off the lower echelons, will spell catastrophe, most likely irreversible catastrophe for both AIG and the nation.

hgcsato Author Profile Page:

A bankruptcy of AIG will destabilise world financial systems and will lead to permanent damage to USA's reputation. At this late stage, a government sanctioned bankruptcy of AIG will sum up to America's back way of destabilizing the rest of the world, to bring the rest of the world down with it.

The classic methods of handling a financial problem is (a) reschedule and pay debts (b) default on debts or (c) government aid and printing of money until the problem goes away. The decision of which way to go must be made in the beginning. Changing course is the stuff of the undecided and or ill-willed people, not the people that call themselves leaders of the world.

When people decided to take away the Chinese Wall between insurance and finance and advisory services, they didn't see further than the tip of their nose. Now, the same people and only those people (albeit by proxy of Congress) must pay for their mistakes. Please remember that they went into it knowing full well what happened in Japan and their Zombie banks.

The problem in USA is not of the kind that will go away in a few months, 10 years is more likely and the renewed USA will be a lot different at the other end, almost beyond recognition.

crowbar8Prying Author Profile Page:

As an afterthought, Uncle Alan said that a lack of regulation on Wallstreet caused the meltdown, something to that effect. Have to give him credit for advising Congress not to liquidate our Gold Reserves for more reckless spending during that 109th Congressional session. You know, that big ole Homeland Security spending fest and all. I almost considered becoming a Fire Chief just so I could get my own red four-wheeler too. How dare I voice such opinions, I am not a One-Percenter.

katavo Author Profile Page:

Let AIG go bankrupt, we can deal with the consequences. One of which may be that we'll never again allow a company to become so grossly large that it's failure will destroy our economy again.

Where is Teddy Roosevelt when we need him?

SumtinWong Author Profile Page:

Sep 24, 2008 - Buffett to Invest $5 Billion in Goldman - WSJ.com
-----
Sep. 28, 2008 - Buffett to Congress: bailout economy or face "meltdown" - Sep. 28 ...
-----
Oct 4, 2008 - President Bush signs historic $700 billion plan aimed at stemming credit crisis.
-----
Dec 4, 2008 - Bill Gates questions bailout for Big Three automakers
-----
updated 8:03 a.m. EDT, Mon March 16, 2009
AIG Payouts
Below are the top 10 largest payouts, according to a report released Sunday by AIG.

Societe Generale: $4.1 billion
Deutsche Bank: $2.6 billion
Goldman Sachs: $2.5 billion
Merrill Lynch: $1.8 billion
Calyon: $1.1 billion
Barclays: $0.9 billion
UBS: $0.8 billion
DZ Bank: $0.7 billion
Wachovia: $0.7 billion
Rabobank: $0.5 billion
-----
March 19th 5:15 pm - Let AIG Go Bankrupt: David Ignatius

Thank you, Mr. Ignatius. - We the Americans love to be the sorry suckers.

wchan22 Author Profile Page:

I agree,let them all go bankrupt I had to because of circumstances beyond my control and Obama or no one bailed me out. If Obama wanted to give us a stimulus, He should have sent a box of ex-lax and I don't think it would have cost 787 billion$
wchan22

yeolds Author Profile Page:

tropicalfolk:

AIG is a USA corporation running its business under USA regulation [or lack thereof]. It still has some 1.6 trillion dollar swap to clear up [down form over 2+ trillion].

There is no judge or court which could untangle this mess in a reasonable time! Cuasing more havoc in short, medium and long term.

while your agreement with the notion that AIG should fail, you did not consider the effect either on USA economy, World economy nor the USA $.

You want to see a larger mess than came after the first investnment bank's bankrupcy - the whole world's economy went into cardiac arrest. That was a mere baby beside the problem of 1.6 trillion on a never ending court case.

Presntly the world [the people who lend money to the USA, provide her with oil, gas, food etc] blame the USA for the present mess. Give them more reason to distrust your economy [and government] then no one will lend you money! so where you get 12-15 million barrels of oil? your strategic reserve is good for 50 odd days.

Therefore bankrupcy is out. possibility that USA nationalize AIG, sell the insurance part, and work though politicians and Federal Reserve to satisfy the SWAPs always keeping in mind that too much loss world wide would end USD as reserve currency.

No hudge or Court in USA can be given the obligation to defend the Currency, that power rests with Congress or the Administaration working with Congress.

Your problem is the unconstitutionality of the Federal reserve, for the creation of money was reserved to the Government by your Constitution.

For 94-6 years since its Creation under the rule of the Fed. Reserve every 20 years you had a major financial failure [a.k.a. recession or depression].
Fortunately, up to 1982 or so the USA was a creditor to the world, thus better positioned to solve her own economic problems. Now you are above your head in Debt, Government, Industry, Banks and citizens. There is NO SPARE CAPACITY TO WRITE OFF DEBT WITHIN THE STATE!!!!

Therefore, you have to act in such a way that the CREDITORS do not get upset. That means no bankrupcy for financial institutions deemed too big to fail.

GL

tropicalfolk Author Profile Page:

I applaud your good intentions, Mr Ignatious.

I don't know what should be done about AIG. Fundamental fairness tells us to let that monster company fail, and do so in an orderly way through bankruptcy laws.

However, it's clear AIG is not a normal spider. It has poisonous legs all over the world. Any attempt to kill that monster would result in grave, unforeseen effects. The transfer of tens of billions of dollars to European banks seems to be only the tip of the iceberg. Mr Liddy spoke of some $2 trillion in outstanding derivatives contracts.

Of course, the last thing we should do is keep feeding the monster...

dummy4peace Author Profile Page:

It is not that the AIG people just don't get it. It is that the rest of America just doesn't get it. Business is business. Money is money. Greed is greed. As long as our government won't allow big corporations to fail, they can do whatever they want till Attorney Patrick Fitzgerald knocks on their door. We should fire most of them and replace them with scientists, engineers and mathematicians. They know numbers much better and, in general, I hate to say this, but they are more trustworthy. This is not what they enjoy doing, but for the love of the country, they will fix it for us. If you look for them, you may even find quite a few physics Ph.D.s working on Wall St. Those are what President Obama needs now.

Aprogressiveindependent Author Profile Page:

AIG should be allowed to go bankrupt if all of the bonuses are not returned to the federal government and future bonuses are forbidden until the company becomes fully profitable on its own, with all bailout funds repaid.

tyrose5 Author Profile Page:

The chaos that followed Lehman's demise, has now resulted in the myopic view that so many of these institutions are "too big to fail". A few of them may very well be so, but certainly not all of them. Considering how much money has been spent so far, with so little noticeable results, maybe we would have been better off letting AIG,(et al) go under. After all isn't capitalism the survival of the financially fittest ?

TerrifiedAmerican Author Profile Page:

I think “bonuses” might sound like a hand-out to hourly workers or someone who’s never worked in sales or management, and that's part of the rationale driving all the disbelief and media hysteria.
To bring it down to a more fundamental equation and give it perspective, let's suppose the going market price for your employment services is $20.00 per hour. The company makes you an offer of $15.00 per hour but says if you meet this list of targets or goals that they have, we will give you the added $5.00 per hour that you would have made at years end in the form of a bonus... it simply ties your compensation to your effort; isn’t that a good thing? Why else would business do it; just so they can feel great about giving? Cmon…
Sure, these execs aren’t pumping gas and many of their job descriptions called for decision making; but those decisions had to fall under their ‘bonus’ agreement, otherwise the company would have a way out.
The company decides the goals that the employee must achieve, and if they're intelligent, it’s tied to overall fiscal health in addition to other performance goals. If it isn’t, it’s the firms fault… or the government leadership, for not paying attention to companies that wield clout capable of capsizing a global economy.
The salary range may be subjective and established by a number of free-market factors; I'm not saying some of these individuals might not be overpaid; but I do know that these career people often constitute a different breed of employee who work many more hours, nights and weekends away from their families doing many things that most workers won't… just for the opportunity to operate in these pay ranges. I may be off a little, but I don't think the average hourly employee can even relate to a working environment like that; much less want to suffer the years of academic training and experience just to get the chance to sink or swim in positions of such weighty responsibility with sharks at your back at every turn.
So, if you haven't been there, maybe you shouldn't throw stones until you have an informed point of reference. It would also probably help to read up on AIG's changes & progress at:
http://www.aig.com/home_385_131629.html
Lastly, the money promised and paid to these employees really pales in comparison to the funds many of these politicians received in contributions for their wildly expensive campaigns, and have now doled back out with interest (using your money) to the same BBB companies (Big Beautiful Business).
Washington is only too happy to hop on the ‘media-op’ and try to appease the majority of mostly uninformed lynch-mobbers (because they vote); at the same time it provides a media circus event to draw attention away from this legal but corrupting relationship between politics and business... which is what really needs to change.

BGladd Author Profile Page:

AIG (the supposedly "healthy" non-CDS side) may have been pulling the reinsurance equivalent of an "Enron," i.e., incestuously "buying" "reinsurance" contracts from its own offshore wholly-owned internal subsidiaries. Having cooked their books in this Enron-esqe manner, they may not have anywhere near the capital reserves to cover their contingent liabilities (much of which may soon be actual rather than "contingent"). If true, this would severely complicate the prospect of them being allowed to go BK.

A mind-bending mess. They may yet precipitate a total global economic death spiral, irrespective of what the feds do now.

fishingriver Author Profile Page:

AIG is unrepentant. They can't live with any control on bonuses even though any bonus under 150k won't be affected.In two WaPo articles today they are threatening to walk away from the help. So I am inclined to agree with Mr Ignatius (for the first time in my life) that we should allow them to go broke. It will hurt the market but I believe it is going to happen anyway because the people at AIG just don't get it. They lived like pigs and crashed everyone's investment. Now they want us to keep paying for their lavish lifestyle. In fact, they are willing to extort us by threat of failing if we don't give them unrestricted bonuses. Time to cut them off.

Anglia123 Author Profile Page:

Listen very carefully: the current economic crisis was magnified vastly by the collapse of Lehman Brothers. The collapse of AIG would, quite simply, cause the Second Great Depression.

The only way to prevent that is by preventing AIG from going bankrupt. Whether you like it or not, it is the ONLY WAY.

The problem here is that Obama failed to do the one thing that would have prevented AIG from committing the same stupidity that led it to this point in the first place- he failed to fully nationalize it from the start. Had he done so- along with nationalizing the other major lending institutions which AIG owes money to, he could have erased much of AIG's and its competitors' debt and forced them to begin lending again. AIG shareholders would have lost out, and AIG's executives would have lost out. No one else would have.

remember, please, that a heart with a defect that will soon kill the body is infinitely preferable to a body with no heart at all. The former can yet be repaired. The latter is a corpse.

sabre76c Author Profile Page:

Yes! Let the bones be picked over by healthy companies who will take the good assets and let the bad assets rot away. It's the only way. Otherwise we'll keep pouring money down the drain trying to stop something as inevitable as fighting gravity.

gabrielle5 Author Profile Page:

I strongly aggree! Let AIG go bankrupt. At this point this is the only step that will lead to real reform and teach these executives a lesson. This will also save a lot of time and energy in the political arena.

LondonReader Author Profile Page:

http://en.wikipedia.org/wiki/Systemic_risk

This is why you don't let AIG go bankrupt. Letting Lehman and Bear go was as far as the Fed & Treasury could risk.

As for why financials get special treatment and this being unfair, well that's true - however if chrysler goes bust it improves the business environment for GM and Ford - whereas for financials the opposite. The failure of a big firm can threaten more big firms, and the failure of as many as we've seen recently can cause collapse.

Letting AIG go bankrupt is a bit like letting a nuclear utility go bankrupt and just sacking all the staff without shutting it down safely.

Saying that if you want to punish AIG then they should be nationalized and wound down. That can be done without risk of catastrophe, but apparently is politically imposibble in america.


peterroach Author Profile Page:

Bankruptcy is the best solution for AIG particularly after this latest bonus nonsense.
I have been urging government people to do what you propose
Peter Roach Manassas VA

OneFreeMan Author Profile Page:

Banks did this to themselves. They had the bankruptcy laws changed and started making usury loans.

AIG is not capable of covering all of the LOANS they have insured. Sounds like fraud to me.

AIG CANNOT VOTE...This should not even be an issue.

The banks shouldn't make the loan if they can't afford to take the loss if the borrower fails to pay.

The bank that gave you a mortgage loan, gave you a credit card or should I say several credit cards. Then gave you a student loan, then a car loan, then more credit cards...

They should fail.

This is self-inflicted.

npsilver Author Profile Page:

AIG and all of the other power house banking institutions should be allowed to seek their own redemption without using ANY taxpayer dollars. If the go down we will survive. Just wait and see.

tartansailor Author Profile Page:

AMEN!

Dick,
Groton, MA USA

Ozexpatriate Author Profile Page:

This howling, mindless lynch mob on Capitol Hill terrifies me more than anything else about this crisis. If they want to punish AIG (and there is a case to be made for punishing AIG) why don't they get to work on finding a responsible, orderly way to do it through bankruptcy reorganization, as you suggest? Of course bonuses at this time are inappropriate, but why not let a bankruptcy judge decide what to do, not a mob of ranting failed lawyers and former car dealers pandering for a few votes. The bankruptcy option is at least more constitutional than a punitive and constitutionally questionable 90 per cent tax. It's worth exploring more than Congress has.

TwoCents2 Author Profile Page:

It's my understanding that the bankruptcy process would harm pension plans, insurance annuity holders, foreign banks, etc. We would have had a meltdown in September if AIG were allowed to fail.

Now it is apparent that the US taxpayers would have been better served and a lot of money saved if AIG was allowed to fail, and those entities that lost money due to the AIG failure could apply to the US government for assistance. The government could have elected those entities that it deemed worthy of subsidizing (i.e. paying back the AIG losses), in a way that was transparent. If grandma would lose her annuity, we help her out. Goldman Sachs, Deutschebank, not so much.

dnkarabasz Author Profile Page:

I'm short AIG , so feel free to let it go under. I think the Congress will fail to make the best of a bad situation. I'm betting that Congress and the government makes a bad situation worse. So far, I'm right. I'm sorry to see the US government think anything can be to big to fail, I would not make that bet, it will cost a few politicians their jobs. However, that might be the one bright spot in all of this mess.

wahlerj Author Profile Page:

JPRS said:
'It's worth point out too that the FDIC and Fed which are run by two Bush appointees have stated unequivocally that this crisis wasn't caused by the government forcing banks to give loans to poor minorities. Find me the section of the CRA that says banks need to offer poor people liar loans, 107 percent financing, jumbo loans? Do some digging on that one WHALERJ and get back to me, please. Also explain to me why so many of these mortgages occurred in outer-suburban areas where CRA credits weren't offered.'

It was the Obama administrations decision to keep the head of the FDIC.
The FED is the root cause of every economic problem in the US since 1913!

If you believe statements from federal bureaucrats, you are beyond all hope.

What I failed to say in my post pointing the finger at Fanny & Freddy is that Bush did the same thing as Clinton in pushing for everybody to own a home.

The CRA is just one big loophole created by government to give them more power and control: 'The Community Reinvestment Act of 1977 seeks to address discrimination in loans made to individuals and businesses from different areas or neighborhoods, and mandates that all banking institutions that receive FDIC insurance be evaluated by the relevant banking regulatory agencies to determine if the institution has met the credit needs of its entire community in a manner consistent with safe and sound operations. The law does not list specific criteria for evaluating the performance of financial institutions. Rather, it directs that the evaluation process should accommodate the situation and context of each individual institution. The law emphasizes that an institution's CRA activities should be undertaken in a safe and sound manner, and does not require institutions to make high-risk loans that may bring losses to the institution.(unless the FDIC or some other federal agency tell them to) An institution's CRA compliance record is taken into account by the banking regulatory agencies when the institution seeks to expand through merger, acquisition or branching.'

I accept your statement about mortgages in the outer-suburban areas because I don't have time to research it. But, it stands to reason that that is where most jumbo loans would be made, based on the new homes I have seen being built over the last few years in the VA outer-suburbs of DC, and unrealistic loans can mostly be traced back to.......Fanny & Freddy. ;-)}

JPRS Author Profile Page:

wahlerj,

Yes, historically Fannie and Freddie have had a huge chunk of the mortgage industry. That point is clear.

However, from 2000 until 2008 Fannie and Freddie were losing huge chunks of market share to secondary lenders.

It was the secondary lenders who were often engaging in the riskiest transactions including subprime.

Here's a good historical analysis by the Dallas Fed:

http://www.dallasfed.org/research/eclett/2007/el0711.html

The explosion of the derivatives market has expanded the problem as well.

If we were just dealing with problematic loans that ran through Fannie and Freddie we would be talking about a $200 to $300 billion problem -- not a $2+ trillion one.

AIG couldn't even play in the swap market before 2000 before the revision of securities laws.

Plus, if investors believed that Fannie and Freddie securities were backed up by the full-faith and credit of the U.S. government; why would they have bothered to create a swap contract with a private entity like AIG to cover their risks?

AIG financial services division existed primarily to hedge risk on non-conforming loans (e.g. non-GSE loans).

p.s. you may present evidence, but your evidence lacks context and ignores other relevant evidence. It's not persuasive.

wahlerj Author Profile Page:


maugustson said: 'WHALERJ,You seem to know everything. Maybe you should run for office. I'm going to take issue with the following Rush-Ditto-Head-esque comment, which is nothing more than code for "it's the poor negro man's fault":

That is an awfully long stretch. I have no use for Rush or any of the other demigods on talk radio.The race card has no place in these discussions. You MIGHT say it was the Poor man's fault, but that flies in the face of the government urging every one to 'Buy a House'.

As for my statement:
"The current economic problem was directly caused by the government deciding, during the Clinton administration that 'everyone should have a house' even if they couldn't qualify under the normal, prudent rules of the mortgage banks. This was done primarily through Fanny May & Freddy Mac, both of which are GSEs (government sponsored enterprise).

and your reply:
You couldn't be MORE incorrect. Just because you know what a GSE is, doesn't lend you any credibility. Community Reinvestment Act (CRA) programs (the Fannie and Freddie affordable loan programs) account for a little over 1% of the overall total mortgage originations over the past decade.

And those programs were possible because they were insured by the likes of AIG, UG, RMIC, PMI, etc. So you, and Rush, way overstate the impact CRA lending has had.

I stand by my statement and present this evidence:
The two largest housing GSEs of Fannie Mae (FNMA) and Freddie Mac (FHLMC) own and/or securitize upwards of 70% of the residential mortgage loans in the United States. Ginnie Mae (GNMA) is a government corporation that performs a similar function to Fannie and Freddie, and has the explicit backing of the full faith and credit of the United States government, although there is a perception (and a political reality) that Fannie and Freddie are "too large to fail" and, therefore, will be bailed out by the government should they get into financial trouble. This perception is reinforced by their line of credit with the U.S. Treasury and other benefits of GSE status, such as exemption from state and local taxes and use of the Federal Reserve as a transfer agent.

And this is the reason AIG/Wall Street took the rediculous risks. The government, in the name of FNLMC and FHLMC told them it was OK!

PS; No apology necessary.

pelham1861 Author Profile Page:

Yes, I agree with Governor Sarah Palin...we should have let AIG, GM and others work their way through bankruptcy. All this mess the Congress and our naive President have caused would have been avoided.

But that's no surprise, for those who do not understand the free enterprise system of supply and demand (Barney Frank, Nancy Pelosi, Barack Obama, etc) what would you expect?

Palin had the smarts and guts to challenge members of her own party and others to root out corruption. Too bad Obama is so timid...or inept.

18taipei Author Profile Page:

Ignatius is right. Stop propping up zombie banks and car companies. Run by the rules of the free market, when you're dead, you're dead! Giving money to Chrysler and GM is only the Democrats effort to befriend the UAW, to hell with dealers. When did anyone ever get any respect from a car dealer--never in my long lifetime! I am fed up with the whining private companies who are essentially mismanaged. Forget the unions and others who want more than their share. Why do I feel everything is getting hopeless?

loux24 Author Profile Page:

The question is not should AIG get gov't aid or go bankrupt.

The question is how was AIG allowed to operate as unregulated hedge fund in the first place?

During the Enron scandal you would see executives in handcuffs. Why not with AIG? Because what they did was legal under loopholes and lax regulation.


JPRS Author Profile Page:

maugustson,

In reference to your response to WHALERJ are you trying to tell me that banks operate on the basis of profit motive?

I'm joking of course.

It's worth point out too that the FDIC and Fed which are run by two Bush appointees have stated unequivocally that this crisis wasn't caused by the government forcing banks to give loans to poor minorities. Find me the section of the CRA that says banks need to offer poor people liar loans, 107 percent financing, jumbo loans? Do some digging on that one WHALERJ and get back to me, please. Also explain to me why so many of these mortgages occurred in outer-suburban areas where CRA credits weren't offered.

The CRA itself was poorly enforced during the Bush years, so this notion is just a bad joke.

The reality is more disturbing -- especially for some conservatives: e.g. an unregulated private sector doesn't always work in the interests of the greater good -- they don't even always operate on the basis of shareholder interest (it's doubtful that many of these large investment banks would have made the same kind of bets if they were entirely privately owned and operated).

As far as Ignatius's point goes, I absolutely agree. Put these companies and firms into bankruptcy. Find a way to make counter-parties eat some of the losses. Depoliticize the process.

As far as international investors are concerned -- this process could complicate the geo-political situation -- especially with some of our largest public debt-holders. But that's one of the potential trade-offs that we'll just need to deal with. Probably would be good to assess the risk exposure first, but it shouldn't prevent the federal government from using the bankruptcy process.

mernatti123 Author Profile Page:

This country is bankrupt anyway, greatest country in the world bulls### This is the fall of America and are own government did it

Bodiethebulldog Author Profile Page:

Are you an idiot??? If you let AIG go bankrupt, (almost) the entire banking sector will collapse! They have arrangements and contract with several levels of the banking industry not to mention their hedge fund.

There is too big of a web the let it happen. If they go under, so will about 100 other institutions. Talk about a recession!!!

darqberry Author Profile Page:

Yes, I concur with D.I.
Butfore different reasons. This concept "Too Big to Fail" is a faulty one....Nothing is to large to fail....tis a common thread for all business large & small - Failure...AIG is not excempt

NDmiddle Author Profile Page:

AIG didn't go down because of mortgages going bad.

Bad mortgages were merely the straw that broke the camel's back. The problem is derivatives.

AIG went down because it and the other big boys on Wall Street weren't trading stocks, they were dealing in Credit Default Swaps and other derivatives that are not insurance and they are not investments. They are a con game that for more than a decade allow some financial institutions to skim billions out of the market.

Not one dime to payoff on a Credit Default Swap!

maugustson Author Profile Page:

WHALERJ,
You seem to know everything. Maybe you should run for office. I'm going to take issue with the following Rush-Ditto-Head-esque comment, which is nothing more than code for "it's the poor negro man's fault":

"The current economic problem was directly caused by the government deciding, during the Clinton administration that 'everyone should have a house' even if they couldn't qualify under the normal, prudent rules of the mortgage banks. This was done primarily through Fanny May & Freddy Mac, both of which are GSEs (government sponsored enterprise)."

You couldn't be MORE incorrect. Just because you know what a GSE is, doesn't lend you any credibility. Community Reinvestment Act (CRA) programs (the Fannie and Freddie affordable loan programs) account for a little over 1% of the overall total mortgage originations over the past decade. And those programs were possible because they were insured by the likes of AIG, UG, RMIC, PMI, etc. So you, and Rush, way overstate the impact CRA lending has had.

Rather, Wall St firms financing of the SUB-Prime and Alt-A lending. I'm an Analyst with a larger lender. Just like field of dreams, "build it and they will come." "Create and offer the products and banks will market them to the masses." Nobody gets a subprime or Alt-A loan if Wall St. doesn't offer it. Case in point, try to get one today. Not going to happen.

About AIG, if everyone's up for a depression and a global failure of these larger than life banks, let them fail. Be careful what you wish for.

OhMy Author Profile Page:

The American people now own 80% of AIG. That is a majority share. It is now time to take a good look at the institution and figure how to make it smaller;much smaller. We have quite a stake in the eventual success of AIG but that doesn't mean we should continue to employ the same executives and employees that got this company into this mess much less pay them retention bonuses. We the owners should begin replacing the executives and anyone who was responsible for creating the toxic assets with new honest and competent employees. It is also now time to reinstate the controls of Glass-Steigel and to create similar controls for companies such as AIG.
Companies which are too big to fail are a bigger risk than a terrorist attack. The Ameircan people deserve to be protected from such a danger.

george22_1999 Author Profile Page:

I vote for a version of the fdic-lock the doors, boot out the directors and senior management, get back into business under fed control as soon as possible. We may not need enabling legislation if the US already has a controlling interest.

snapplecat07 Author Profile Page:

Mbelman writes:I am willing to take the word of the government officials who keep telling us that bankruptcy is a bad idea, since they know much more than most of us about the companies, the interrelationships and the details of the complex financial instruments involved.

-That is an incredible leap of faith. What in the world makes you think this ? This "gov" has a worldview that is more socialist then capitalist. This muddles the pot even more. The better alternative is to allow a collapse. The current solution is an endless deficit that we are piling
on top of future generations.

elh74 Author Profile Page:

Finally, a sensible commentary in the span of a whole week of circus thrills.

gcan1 Author Profile Page:

I fully agree with Ignatius--in a way. Let AIG and all the rest of them go bust. Drag them through bankruptcy. We virtually own them, let's take them over. Let's fire all their corrupt, incompetent management, put new honest, reliable people in place, clean house, and then set them truly free--with REGULATIONS that will protect the country and the world. This is not the Garden of Eden. Wherever do we get the notion that we can live without regulations. Hell, we fight over posting the Ten Commandments on public land. We do have a Constitution. We have been writing laws in addition to that for over 220 years. What's the big problem? What's the big secret? It really takes the wisdom of the Wall St. crooks to solve this with the lure of "retention" bonuses?

mbelman Author Profile Page:

I am skeptical about bankruptcy being an easy fix to the AIG or so-called zombie bank problems. Removing the process underway to the free for all of bankruptcy proceedings would certainly guaranty delay and greater administrative expense. I am willing to take the word of the government officials who keep telling us that bankruptcy is a bad idea, since they know much more than most of us about the companies, the interrelationships and the details of the complex financial instruments involved.

But my principal objection to the proposal is that it is very doubtful that it would end the political circus now going on, not only on AIG bonuses, but on earmarks, the fairness of measures to support mortgagors in trouble and a variety of other aspects of the efforts to prevent a depression. I have no confidence that members of congress will refrain from telling various parties to commit suicide or suggest that they be stoned, just because they are pleading their cases before a judge. Nothing will help much until we give up our petulance and political posturing, and I am not very sanguine about that happening.

simplesimon33 Author Profile Page:

Obama’s appointment of Wall Street insiders Tim Geithner and Larry Summers is responsible for continuing hemorrhage of US Treasury. Being the products of the same Wall Street, these guys are compounding the ills of economy by piling up huge debt burdens on US tax payers and government. It was understandable that Bush administration tried to rescue these culprits since he was pro-business. Democrats went along with Bush because they did not want to be blamed for resulting melt down just before elections if they opposed him at the time.

Not a dime should have been spent on rescue of AIG, Citibank or BoA atleast after Obama became president. Functioning according to ‘age-old human greed’, Wall Street was and is expected to milk Uncle Sam for all that it is worth, damn the US tax payers or world economy. Afterall 20 trillion or 30 trillion dollar US debt burden is not Wall Street’s responsibility.

Bankruptcy of AIG and nationalization of troubled banks would have prevented the pile up of debt burden. Stock market should have been shut down for a month or so on the first day of ‘nationalization and bankruptcy’ to calm the jittery markets. Bad assets of banks should have been separated from these banks and good parts floated out again as private entities within a week a or two after nationalization and allow markets to digest the news before opening again.

Terminator2 Author Profile Page:

The argument that some companies are too big to fail is a complete fallacy! Isn't it the exact idea that gave those execs the permission to take whatever risks and if they fail, the government will bail them out?
I don't buy also the argument that our US$ will crash if we don't bail them out. It might go down a little for a short while but the US$ will rebound because our productivity is way above other contries.

Stewar944 Author Profile Page:

Again, my sentiments exactly, let bankrupsy abrogate the contracts, then get on with cleaning up the garbage.(and I use this term loosly)

wahlerj Author Profile Page:


Dear mom21,

'But do you see how much damage a lack of honor, integrity and values can do?
This is exactly what the 'socialists' in power want to do. Get rid of God, or god if you prefer, so that there will NO honesty, integrity or values left in society.

'Get rid of ANYONE who doesnt put their COUNTRY AND THE LARGER ECONOMY AND THE WORLD FIRST.'
Almost nobody in government puts the country first. And, the WORLD is not our concern, except to be friends to all, but have NO ENTANGLING ALLIANCES, to quote the founding fathers.

Dear NDmiddle,
I agree, 'Congress shouldn't be dealing with doling out billions upon billions for bailouts!'

But I'm afraid that the 'safeguards' have not been around for MANY years, not the last 25 you refer to..... The best safeguard is a free open market in which We the People make the decisions on what business we will support and which will die through lack of support from the consumers. Government is not capable of doing that.

BTY; A 'progressive' tax system is unconstitutional, as well as being unproductive. High/stiff taxes on corporations/business is always PASSED ON TO CONSUMERS!

kurtbw Author Profile Page:

Well this seems so much more likely when you go back to the 30's and late 40's. I mean the government was very passive in getting itself involved directly in the company's board of directors, company president, etc.

Instead it LED the direction companie's ought to take by FIRST enacting laws and programs, carefully thought out, making sure to include guidelines, with such organizations, as the FDIC being created, etc. Not ;
Here's some cash, oh wait they're complaining, give it back, wait, is it ok media wise to do some campaigning or will my numbers drop upon doing so? Oh wait is it ok if people exercise they're constitutional right to assemble and protest, even in the hood, where I thought I had that locked up?

Think about the process and discuss like adults, not act like high schoolers, who JUMP IN and THEN THINK of Consequences, oh wait, I mean Grade Schoolers, oh wait I mean....

mccandlesstrekkies1 Author Profile Page:

AIG should be forced into bankruptcy court because of their gross total disregard for financial accountability and responsibility. This is an expression of greed by their having the audacity to file a suit against the very same entity that has provided their bailout money. AIG's forcing of of "issue" should allow our government to go in and break up AIG into smaller companies or at the very least allow them to totally fail.
The people involved in the selfish "take and run" of American tax dollars should be "black listed". For the CEO to tell an employee to "not speak about working at a company, to walk in pairs, to not wear company logo's, to not mention anything about the bailout money at the company", is a CEO who is "Criminal" and hiding something. This person is not looking out for their employees, they are looking out for themselves. Instead of doing the right thing and having the money returned, and put back into the company to "save" the company as it was intended. No this person, is fueling the "American hatred" by adding fuel daily to this fire.
I believe I speak for a majority when I say, we are already in a "Depression", let AIG FAIL! We have only one way to go from here, up, once they along with the "big banks" fail. Then we can go back to what this country was founded on, Freedom, Capitalism and Democracy not necessarily in that order. When did it become the problem of the American public to bail out banks, insurance companies, and especially individual investors, and the like? We need to return to true capitalism and self responsibility. If a company fails it fails, and it allows another to come up and begin.

poppadata Author Profile Page:

Overseas reaction is primarily negative; to the point of making the American banking industry a global pariah.....who will want to do business with an American financial institution when the government can 'undo' any deals made or contracts signed?

I sense a shift of wealth and talent to European and especially Asian financial centers...I've just redeployed assets into a Chinese account payable in Euros.

As one of the mice, I'm just getting the hell out of the way of the anarchy and chaos in Washington, and taking my money with me!

oakland1000@cox.net Author Profile Page:

I am a retired bureaucrat who has seen most of this before -- or some version of it.

I don't believe that any organization is too big too let fail. If we let AIG fail, we will have to deal with the consequences -- and I don't think that it'll be much different in cost than it is costing us now. I don't really care that if AIG failed X number of other financial institutions will fail along with it. Let them fail -- it is the cost of their stupidity; we are rewarding too many for taking risks that they should NOT have taken. It seems that the USG (Uncle Sap) is being given a bill of goods here that is based on fears and lies. Yes, people will have to suffer. Some will have to go homeless. Some will have their lives disrupted. But, they are not being killed off by genocide or tortured. They are harvesting what they sowed and some will have to suffer through it like our fathers did during the recession. I may even have to suffer through it as a result of nothing stupid that I've done but because of the stupidity and greediness of the time. No way should we reward the financial muckety mucks who created this mess as they will only come back to do it again.

I also agree that it may very well take a financial muckety muck to get involved and lead us out of this mess -- but hopefully we can find one with integrity rather than greed in his heart. I too offered my services at Treasury, but since I worked with these fellows before, I wasn't surprised when I got no reply. They are deadheads over there and their stupidity is evident by not taking direct charge and approving payments made by AIG. The better solution is to let AIG go into bankruptcy, nullify all contracts, and then put the money where it is needed. But, these fat-headed senior muckety mucks think they know it all and just throw money at the problem. Yes, I've seen it all and I'm seeing it all again. The same old faces are pulling the levers, and they are also protecting their ilk as they have done before.

Terminator2 Author Profile Page:

I agree with that. However this should have been done right at the beginning last September. The taxpayers instead of paying $160 billion and counting would have paid only a fraction of that, probably $80 billion and we would have a much smoother bankruptcy process. I don't know why Geithner and Bernanke insist that AIG, Lehman Brothers and the like are too big to fail? There must be consequences to making bad decisions, that's the essence of our economy.

adrienne_najjar Author Profile Page:

Absolutely let them go bankrupt. It should have been done at the outset, and let the greedy shareholders eat it, along with all the high flying executives who screwed us so that they could get super rich. Let them all go do real work like most of us do, day in and day out for all our lives. This crap has got to stop or else there is going to be a bloody revolution.

NDmiddle Author Profile Page:

I agree these cases should be in the courts.

Taxpayers are paying off gambling slips made by banks dealing in Credit Default Swaps and other derivatives--all of which should be made illegal.

Congress shouldn't be dealing with doling out billions upon billions for bailouts! They should be reinstituting the safeguards that have been stripped away over the last 25 years by the "get gov't out of the way of business," which was a euphenism for "get gov't out of the way of greed."

To curtail the rampant greed, and to solve this notion that corporations can't compete with other corporations unless they get gargantuan compensation packages can be cured by again making it illegal to give stock as compensation, and to reinstitute a progressive tax system, such as we had in the days when our GDP was the highest. That would also mean reinstituting a stiff corporate tax rate.

These Chicago School of Greed economists in the last few administrations have got to go.

P.S. Some of the bailout money is going to our Congressional reps, so I'm not holding my breath.

marknelso Author Profile Page:

It's better than the Salem with trials now under way.

BMACattack Author Profile Page:

Yea so, we've already committed to not letting them go bankrupt. So, we're not going to do that. Not surprised this is pretty naive and relative vague comment is coming from someone from Newsweek. Your publication isn't very good.

Mom21 Author Profile Page:

I agree with part of your theory, Mr.Ignatius. I think bankruptcy is great for many of these institutions so they can rebuild in an orderly fashion and cut all the lard that they now have on them in the form of outrageous pay, bonuses unethical and dishonest behavior.

However, I have serious concerns about the example you gave - a Hedge Fund manager "helping" fix this mess... It almost sounds like you need a murderer to guard a murderer in jail. According to your thinking, only a murderer can think like one - therefore only a murderer can perform the job of a guard.

What you are proposing as an alternative is scary.

This country no longer trusts those who put their vested interests above all else. For too long we've overlooked the fact that many of these people have no values and no integrity - we have excused them because they made money - presumably for us too (using the trickle down theory).

But do you see how much damage a lack of honor, integrity and values can do?

No more. We dont want people near this AIG mess who have a vested interest and who stand to benefit from this. If your Hedge Fund manager is willing to use his knowledge to help without expecting any great returns, for the greater good of this country, it is a different story. But what you said is that he has the knowledge but is unwilling to jump in because he will be scrutinized.

Of course he will be. If someone cheats us once, we are naive. If they cheat us a second time, we probably deserve it.

And we dont. We are not dumb. Get rid of ANYONE who doesnt put their COUNTRY AND THE LARGER ECONOMY AND THE WORLD FIRST.

phoenixresearch Author Profile Page:

"In essence, Wall street threw a tantrum and Bernanke gave in to its spoiled childlike behavior. "
--------------------------------------

Agree, except it was Paulson, an ex Goldman Sachs CEO, who not only gave in, but helped enable it. The fox was in the hen house.

To another point made here, Obama raised significant campaign funds from Wall Street and its related businesses, more than did McCain. Obama's "small donor" base (i.e., up to $500) was about half his total funding.

He raised (these are approx., read off a BBC graph) 11 mil from securities/investment firms; 7 mil from real estate (?!); 7.5 from business services; 2.5 mil from commercial banks; 2 mil from insurance co's; and another 10 mil from "misc. finance and business".

That's about $40 million raised from financial-related industries with both a direct role in the disaster, and a vested interest in government actions. And, that's NOT counting the contributions and ongoing lobbying of the Congress -- which we all know acts purely ethically in dealing with these sectors.

To a final point, no, the U.S is no longer a "superpower" except militarily -- and that has seriously suffered from Bush/Cheney/Rumsfeld's ineptness at running a war. As examples, the Navy has a third $2.5 billion destroyer it didn't want (pork), and the F-22 and JSF are highly inappropriate to future conflicts, where air superiority -- a WWII concept -- is much less important.

Economically, China owns us, the EU runs less dysfunctionally, and India is gaining fast. Everything that can be outsourced, has been. As a "superpower", our best days are long behind us.

Welcome to the 21st Century and the New Reality.

wahlerj Author Profile Page:

'trubador1 has one relevant point, 'the insurance giant has too many vital relationships'. The most vital is that it has congress' retirements!

However, when he says 'In this sense it has become a symbol of all that is wrong with the notion that free market capitalism, left to its own devices, can solve every problem.....' he overlooks the fact that there hasn't been a 'free market' in this country for about 150 years. Since they days of Lincoln, government has been regulating more and more of the aspects of both the market and everything else in our daily lives. He also ignores the fact that any deregulation done was primarily cosmetic.

The current economic problem was directly caused by the government deciding, during the Clinton administration that 'everyone should have a house' even if they couldn't qualify under the normal, prudent rules of the mortgage banks. This was done primarily through Fanny May & Freddy Mac, both of which are GSEs (government sponsored enterprise). Anyone who thinks that the people who created the problem will/can fix the problem are smoking something much stronger than pot!


'bandfriend' has the right idea, if it can be done!?!? Unfortunately, since Treasury is missing most of it's top echelon people, I doubt that the government has appointed any directors to the AIG board.


easygoer88 must be a front for The New World Order. Bernanke and the Fed is the apparatus that WILL bring down what is left of US Independence! Bernanke's economic ideas are all from a from of economics that was proven wrong 50 years ago!!

reidcurtis17yahoocom Author Profile Page:

The banks are concerned they may have to take less holidays, and start working for a living.

nitad1953 Author Profile Page:

Since taxpayers allegedly own (79%)of AIG, how would bankruptcy affect AIG's payback of
taxpayers ($).

The politicians,the banks and a lot of the US companies are guilty of negligence towards and not having respect for the citizenry.

Those folks care for nothing more than their own rise to wealth and .

What goes around comes around and now they are feeling the wrath of their own evil along with the average Joe.

If AIG filing for bankruptcy would mean a wake-up call for any companies who would operate in such a callous manner and not cause any further economic trauma...let AIG get the boot and made to file for bankruptcy.

pKrishna43 Author Profile Page:

YES!!!!!

tlrasnic Author Profile Page:

Wait a minute!!! I thought Bush's Sec.of Treas.& advisors said AIG was too big to fail.Now we have dumped over ??? billions into that rat hole,own over 80% of it ,& you say bankruptcy? Why not call a shareholders meeting, fire the whole lot & put in honest folk who will act properly. And do not say these A--holes are the only ones who can run an insurance co. or whatever it does.At the same time, bring a stockholders suit against the thieves that made off with our money. Jeez, it ain't rocket science. For every wrong, there is a remedy.LAW SCHOOL 101.Of course bureaucrats & politicians would not know these things. But not bankruptcy; the lawyers & court administrators would stay rich for years; they are praying for GMC,AIG, Citicorp, etc to go belly up.DO NOT DO THIS! Sell it to CHINA.

easygoer88 Author Profile Page:

When will you stop second guessing Ben Bernanke and others who are uniquely qualified to deal with this crisis? Bernanke is widely recognized as the leading scholar in the world on economies in recession. Besides being knowledgeable, he seems to be particularly hard-working and ethical. David Ignatius is a journalist with no qualifications whatsoever to voice a public opinion on such issues. Every single idea Ignatius has ever had in this matter has occurred to Bernanke thousands of times and been rejected.

mibrooks27 Author Profile Page:

David, AIG should be forced into bankruptcy. It has now become apart that the main reason AIG is being propped up is because of it's key roll in proving cover for the international banking cartel and the globalization con game being run by our politician's and corporations. Remove AIG and "free trade" unravels like a bad carpet. Likewise, would we all just love to a look at the books of that outfit. Following the money trail would lead to all sorts of nasty fraud and schemes and would end more than a few political careers and cause the breakup of every western multinational - the bloated giants that are the root cause of this depression.

goziner Author Profile Page:

I would rather see the AIG folks get a bonus for winding down a book of business that otherwise may potentially further destroy my 401(k) investments. The outrage is BS. Next the government will go after AROD because he cheated.

dstel Author Profile Page:

Obama said last night on Leno that the folks at AIG behaved in such a risky way that they were holding us all hostage. Well, yes, they certainly did and they certainly are, but only because we continue to let them. Enough is enough. Let AIG and the zombie banks all fail, go into bankruptcy or be nationalized.
Obama is risking a lot of political capital by turning to Wall Streeters to fix Wall Street.
It would be a shame of the greatest magnitude were Obama to lose the support he needs for his truly progressive changes by mishandling this problem, but that appears where he is headed. I sure hope I'm wrong.

paulc37 Author Profile Page:

AIG has 74 Million Clients. 74 million clients.
How can one administratively account for the money that AIG is dolling out. AIG refuses to provide a money trail let alone names.

*apostle Author Profile Page:

Ben Bernanke said that there is only one prerequisite for derailing the recovery, and that is "lack of political will." This bonus affair shows exactly what lack of political will is.

The politicians who refused to regulate the industry now want to stifle its functioning. Latching on to the public indignation, they forgot all about solving the real problem, which is making the taxpayer whole by getting rid of toxic derivatives at AIG. The way it was done raised the public's wrath because it is unjust, but no matter how you look at it, it was in the judgment of the CEO and others who have nothing to gain, the best way to proceed.

Some politicians should have taken the high road of explaining why Liddy gave the bonuses, even as he loathed doing so. Ditto for Geithner and Obama. They are not stupid. They are not seeking any advantage for themselves in this case. They are trying their best to save us money. Have some sympathy for the spot that they have been put in, for heavens sake!

MBUSA Author Profile Page:

I agree YEOLDS. If AIG is allowed to fail a large number of banks WORLDWIDE will fail with it. The reason, the large number of Credit Default Swaps they're insuring with banks worldwide.

Have you ever overturned a big rock? With all the bugs and worms, etc living under there it's pretty nasty. Well AIG is a big rock, and if you let it roll away you're going to have to deal with all the nasty stuff that it's holding down underneath, namely Global CDS exposure. Rightly, the US Treasury Department realizes this, unlike Mr. Ignatius who is making it a political rather than practical argument, and is keeping it a float.

The real solution would be for the US Treasury to take over 100% of the AIG divisions which are causing the mess through "pre-privatization" and allow the rest of the company that is performing the functions valuable to everyday Americans retirement plans, insurance, etc. move on with its business.

thmak Author Profile Page:

I agree 100 %

bandfriend Author Profile Page:

AIG should be reorganized without going into bankruptcy. Treasury already holds 80% of the outstanding market value and has, or should have had, members appointed to AIG's board of directors. These directors should be looking to wind down AIG through spinning off the profitable units, such as the actual insurance arm, or seeking private buyers for the compontents of AIG. The leftovers, which cannot be spun off in some fashion, will have to go through bankruptcy or wound down with discounted guarantees to counterparties backed by the Treasury. Then AIG will no longer exist.

northernliberal Author Profile Page:

Correcting a couple of misconceptions:

1st - The insurance subsidiaries of AIG were adequately capitalized independent entities. It was the holding company that involved itself (and many others) in the Monte Carlo derivatives game.

The subsidiaries may no longer be adequately capitalized because the feds permitted AIG to upstream assets from the solvent subsidiaries to the insolvent holding company. In other words, the $170 billion "remedy" probably made the situation worse for the millions of insureds.

2nd - Reorganization proceedings under the United States Bankruptcy Code are not "simple." When adequate post-petition funding is available, (such as a $170 billion dollar gift from the taxpayers), the debtor can remain in possession of its business and life can go on pretty much as before. Except in one notable respect: the debtor's financial affairs are exposed to public scrutiny - which is why the elite has not placed AIG in bankruptcy.

rannrann Author Profile Page:

AIG should be a great lesson for the learning inclined. No company should be this big, this powerful, this full of bullsheet nothingness that if it fails it has the capability to take down the financial system. Even if it only took down a quarter of the financial system with it's failure it would be too big and too powerful. Enough.

Take AIG off life support.

Listening to everyone cry about the bonuses has left me thinking that things are not looking too good, in fact, things look just about the same as before the crisis, lots of loud mouths sounding just plain dumb. Listening to everyone from our Government officials to the media to the financiers you feel that things might go belly up and our future could be very tough going, but if that is what it will take for these dumb sasses to realize that it doesn't pay to stay dumb and self centered then so be it.....

Frankly, it feels like the finanical system that brought us to bailouts is simply brain dead. I say take if off life support now, rather than six months or a year from now.

DavidinDallas Author Profile Page:

OK. For those against bankrupcy because these guys are too big to permit them to fail, how do we deal with a kidnapper who demands ransom, fails to deliver our lost item/loved-one, and demands more money. We finally arrest him or take him out in a shoot-out. If Ayn Rand were correct, and these guys had the world's best interests at heart, I'd say go for it. But they are nothing but petty thieves.

They are like children caught with their hand in the cookie jar (pardon my mixing of metaphors) and they are demanding more cookies because they stole all the cookine and there are only crumbs left.

I supported the Bush/Obama rescue plans. But the bankers didn't support us. When do we say "enough"? Can we? Do we?

A lot of the folks that are suffering most are those wealthy individuals whose wealth was measured by instruments that are now without value. Perhaps we do need to let AIG fail and B of A fail. Maybe when there are more formerly rich folks on the unemployment lines they will finally catch on. NOBODY is worth the salaries they "earn". Nobody.

cloudnine9 Author Profile Page:

I wish. Very popular and very naive idea.

Unfortunately, if you forget that the government effectively owns AIG and it would be declaring a multi-billion dollar investment worthless via bankruptcy, AIG is the lynchpin of the Credit Default Swap market. If they go bankrupt, down goes the whole banking system.

Why do you think the government has been bailing out AIG, so that we can save a few term life insurance policies? Because they like AIG? They had to be bailed out and have to continued to be bailed out. Now if we want to blow up everything because the country is mad about a bonus given to employees equivalent to the size of the New York Yankee's payroll, however nausating the bonus is, that's missing the big picture.

Bloozer Author Profile Page:

Greetings! I was shocked & appalled upon hearing the news that they paid out the money in freaking bonuses, but now I am over it. Let them keep the money & do as they wish, but THEY should be forced to pay back every penny with INTEREST!!

StanKlein Author Profile Page:

If AIG goes bankrupt, what happens to all the life insurance policies and business insurance policies they have. I've heard they have 10's of millions of life insurance policies and around 100 million business insurance policies. When someone dies, do they pay the life insurance off at two cents on the dollar???

That is the problem. AIG was a huge insurance company that got talked into doing garbage derivatives using the AAA rating of its life insurance and other insurance businesses as backup. The garbage derivative business was what collapsed.

What I would propose is a 100% tax on the proceeds of credit default swaps for which the buyer didn't own the underlying bond, or otherwise legal authority to default on paying those off. They were nothing but bets the mortgages would go into foreclosure and the bonds would default.

The mortgages look like they were designed to go into foreclosure. If you start someone at an affordable teaser rate and then keep ramping up the rate, you will surely hit a payment they can't afford.

There also needs to be an investigation to see if there were any links between people who bought the CDSs without owning the bonds and the people who originated the toxic mortgages. The whole thing could have been a huge scam.

robert23 Author Profile Page:

I am convinced that the difference between Madoff and AIG is about 100 billion dollars.(so far) If you wreck the lives of a few thousand investors you go to jail. If you wreck the country, you get a bonus.

feliciaros225 Author Profile Page:

AIG should be allowed to go bankrupt.
If Bankrupt means rock bottom, then yes. AIG will then be better able to build from the start, rather than just propping it up and have the bottom still weak. This is no time for repairs. We need a fresh start.
Within AIG there was no system of regulation,checks and balances so (like most companies here) everyone did as they pleased.

joecairo Author Profile Page:

I feel like the big banks/financial instituions have kidnapped the economy and we juust got the ransom note.

"if you want to see your 401k again, put billions in a brown paper bag......."

Threatening further harm to the economy if they don't get their way is as about as cynical a miscalculation as I can ever remember.

If AIG goes under, there will be a degree of turmoil followed qucikly by a sense of relief and renewed opportunity.

Others will rise in AIG's place because insurance, lending and the need for credit isn't going to disappear simply because a former big player left the stage.

let 'em go.

It's a new day and there are new rules.

rzzzzz Author Profile Page:

you tell me it's the institution
well, you know
you better free your mind instead

don't you get it? we own them now, so why would we want to rip them apart? we're looking to change the culture of greed, and put them back on line to support an economy for all of us.

trubador1 Author Profile Page:

I'm afraid Mr. Ignatius' premise that AIG is just another business and that sending it into bankruptcy would initiate an orderly, non-political process is fatally flawed. Unfortunately, the insurance giant has too many vital relationships with too many other companies to make this possible. In this sense it has become a symbol of all that is wrong with the notion that free market capitalism, left to its own devices, can solve every problem and indeed serve as a viable alternative to a functioning public sector. This notion--pursued with such misguided conviction by an administration intent on deregulation and the outsourcing of its every obligation--allowed AIG in effect to usurp the role of government. To imagine that this can all be undone in a simple legal process ignores the recent history that enabled its rise. The way out of this will require nothing less than a fundamental reassertion of this country's political viability.

rkerg Author Profile Page:

I agree that AIG should not be coddled just because its failure would be inconvenient for Goldman Sachs and a handful of foreign banks.
The ugly truth is that, all of Wall street knew that the near worthless mortgage
securities and all of the derivatives and credit default swaps that accompanied them were an out of control gravy train that was eventually going off the rails. Sadly, the well honed greed reflex of the morons of the universe dominated all reason and restraint. AIG was only bailed out because of the roiling of the stock market after Bear Stearns was allowed to fail, when actually, a roiling is just what you would expect to happen. In essence, Wall street threw a tantrum and Bernanke gave in to its spoiled childlike behavior.

pdignazio Author Profile Page:

Instead of giving money to these troubled public companies and letting then decide how to use the money, AIG etc should bring any request for payment from counterparties or creditors to the Fed and-or Treasury. The Government can then use taxpayer money to pay the creditor directly. Done!! No opportunity for bonuses or favored payments with this easy and enforceable and transparent idea. (Unless of course the Fed/Treasury wants them to have wiggle room)
Peter Dignazio
New York, NY

raschumacher Author Profile Page:

Quite right. Citi and AIG should go through bankruptcy reorganization. We must burn out all the rot before the rebuilding can begin.

robinsoncom Author Profile Page:

Of course they should go bankrupt. The Congress, Treasury and Federal Reserve are too close to Wall Street and the banks. Heck, the Federal Reserve IS a bank, which creates its own money - and our dollars have not been backed by gold since 1971. Read the Constitution about money - it is the CONGRESS that sets the weights and measures of money, and the states are not to "make any Thing but gold and silver Coin a Tender in Payment of Debts". The Federal Reserve System is unconstitutional. What did Thomas Jefferson say about this? "If the American people ever allow private banks to control the issue of their money,first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."

northernliberal Author Profile Page:

Almost every lawyer in the Treasury Department, Commerce Department, the Federal Reserve and in Congress already knows that formal bankruptcy offers the only honest and comprehensive solution to the AIG problems:

If AIG were placed into bankruptcy proceedings, all those infamous bonuses would be preferences that could properly and lawfully be recovered for the debtor's estate to be equitably redistributed among AIG's creditors, particularly the Federal Reserve and the U.S. government.

Moreover, all of the receipts and payments of federal funds would be public information.

However, if the elite really wanted a truly democratic solution to the financial crisis, AIG already would have been placed into bankruptcy proceedings. Sadly for most Americans, AIG is just another piece in the deliberate division of the United States into an elite nobility and masses of serfs.

Welcome back to the economic, political and military feudalism of the 12th century. And you finally can stop worrying, because your masters will be making all your decisions for you.


SteelWheel25 Author Profile Page:

Yes, Chapter 13 restructuring would be a good idea but to let AIG fall into Chapter 7 debt liquidation and go completely out of business will devastate the already weaken dollar. Chapter 7 bankruptcy was an option BEFORE America invested $180 billion. We can't abandon that investment! The psychological impact along with the financial impact will simply kill what little confidence the ordinary American and Global financial markets have in America's ability to recover.

Chuck Todd put this whole AIG debacle into perspective when he said that the amount of money America has invested into AIG is more than any of the cabinet level departments except DoD. That's more than Homeland Security! May God help us!

charlesdavis127 Author Profile Page:

Many community banks have been very well and conservatively managed. They should be protected. However, the County should not be subject to blackmail by excessively large and dishonest financial institutions. These institutions have destroyed tremendous amount of capital that should have gone into very needed infrastructure and other productive investment. Citybank has a history of dishonesty and then requiring government bailouts that date back to the 1930's. These institutions should be nationalized. Legitimate banking expertize does not require the paymaent ao millions of dollars in boneses.

Justlistening Author Profile Page:

We are faced with our own financial collapse or the entire world. Painful in both cases, but the world has a chance to recover; we don't. Bankruptcy, re-organization, new rules for all.

TMSHawaii Author Profile Page:

I agree with Mr. Ignatius. There can't be two sets of rules. If you or I fail in business, we file for bankruptcy. Should be the same for all, no matter how big.

What happened to the concept of a level playing field? Large bankruptcies would make the economy worse initially, but recovery would be way faster. Cut away the dead flesh, allow the healing process to begin.

yeolds Author Profile Page:

The notion that AIG could be bankrupted is impossible without the conseqence that the USD crashes.

As the exposure of Sovereign wealth funds [including central banks] is great in the debt swap issued by AIG, losses due to USA Government actions [be it political or court based] would cause tremendous losses by those on whom the USA depends to finance her deficits and balance of payment deficits. If these entities loose too much, they will refuse to buy new issues [or revolve their old issues on maturity] forcing the USA to run the printing presses over time. Thus hyperinflation, thus no source of oil [as USA does not have Euros, Gold, yen, rubles, yuans] thus no oil imports, thus death of the USA ecoonomy for lacking 12-15 million barrels of oil daily.


Even such a little printing as 1 trillion dollar as proposed by the Reserve bank has effected the devaluation of the USD by about 5%, [with inverse rise in price of gold and oil], guess what would happen with another 2 trillion being printed [federal deficit], plus another 2-3 trillion [bank rescue, plus another 2 trillion [the next effort to finance some more government intervention to kick start the economy]. Then comes the losses from commercial real estate [shopping malls etc] then comes economic collapse a la Russia in 1990-s.

End of superpower #1 20 years after Superpower #2.

Gl USA

PostGlobal is an interactive conversation on global issues moderated by Newsweek International Editor Fareed Zakaria and David Ignatius of The Washington Post. It is produced jointly by Newsweek and washingtonpost.com, as is On Faith, a conversation on religion. Please send us your comments, questions and suggestions.