FYI: AIG’s new money deal

mmckinl mentioned the new AIG deal.

Naked Capitalism has a post by Yves Smith regarding the new and improved AIG plan titled: The looting continues (Bannana republic watch). It reviews a WSJ article and notes that AIG is getting a rate cut (5.5 point reduction) with more money for a longer term (5 years instead of 2, is this to protect the money class through this first term liberal hippie commune period?) and we are buying junk at $0.50 on the dollar thus potentially setting up a windfall for those who already bought crap for less. The author’s position is also that WSJ is doing their usual water toting for the money from money class.

In the end the author quotes a 1994 article by Nobel prize winner George Akerlof and Paul Romer : Looting: The economic underworld of bankruptcy for profit.

Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society’s expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

I would ask: Is AIG the linchpin to assuring the financialization of our economy is extended well beyond Bush’s and prior neo-liberal economic policy hawks (DLC, Blue Dogs, Clinton) legacy?

Tags: , , , Comments Off on FYI: AIG’s new money deal | |