Let AIG Fail?



This new round of bailouts for the AIG gang on the heels of the fact that they suffered the largest quarterly loss in American history is enough to make even the most jaded blogger smouldering mad (The Corsair sips a 1979 Baron de Simognac armagnac). We know the reasons why the government didn't let AIG fail, but how much longer are we going to carry their goddam water? They have a close relationship with banks that the regulators doesn't want to see fail. Joe Nocera, in this Saturday's NYTimes, sums up our sentiment, our anger, perfectly:

"'They were the worst of them all,' said Frank Partnoy, a law professor at the University of San Diego and a derivatives expert. Mr. Vickrey of Gradient Analytics said, 'It was extreme hubris, fueled by greed.' Other firms used many of the same shady techniques as A.I.G., but none did them on such a broad scale and with such utter recklessness. And yet — and this is the part that should make your blood boil — the company is being kept alive precisely because it behaved so badly.

"When you start asking around about how A.I.G. made money during the housing bubble, you hear the same two phrases again and again: 'regulatory arbitrage' and 'ratings arbitrage.' The word 'arbitrage' usually means taking advantage of a price differential between two securities — a bond and stock of the same company, for instance — that are related in some way. When the word is used to describe A.I.G.’s actions, however, it means something entirely different. It means taking advantage of a loophole in the rules. A less polite but perhaps more accurate term would be 'scam.'"

The full, must-read article here.