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Some Say AIG Will Cost U.S., Others See a Chance for Profit
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Under the deal, AIG agreed to pay the Federal Reserve a steep interest rate -- 11.3 percent at current rates -- and the government obtained the right to acquire nearly 80 percent of the company's stock. AIG's chief executive was forced out. As to other details, many investors and analysts remained in the dark yesterday.
"What isn't really clear at this point is -- how the government eventually stops owning AIG," said Rodney Clark, an analyst at the credit-ratings agency Standard & Poor's. "They haven't disclosed anything about how those securities are being structured or how the arrangement might one day be unwound," Clark said.
Maurice R. "Hank" Greenberg, former chief executive of AIG and a huge shareholder, had a more basic question.
"We don't know whether or not this transaction requires shareholder approval," he said.
The intervention fueled an already roiling debate about the government's role in saving private businesses.
"This is socialism," said Peter Schiff, president of investment firm Euro Pacific Capital. "This is not free-market capitalism, survival of the fittest. Let people be responsible for their own actions."
Schiff mocked the idea of the government calling the shots at AIG, saying, "I wouldn't trust them to run a lemonade stand, let alone the world's largest insurance company."
Others disagreed.
"We have a mixed economy where it's not a pure capitalist system where the government plays absolutely no role in the private economy," said John Irons, a director at the left-leaning Economic Policy Institute. "This is clearly the pendulum swinging towards the government having a more intimate role in the private economy."
Some questioned how to measure whether the intervention was working. Edwin M. Truman, senior fellow at the Peterson Institute for International Economics and a former Treasury official, said it was a three-part test.
First, he said, it's a question of whether the government is able to dismantle AIG without sparking a panic. Second, it's a question of whether it can do so without losing some or all of the $85 billion. And finally, it's whether the markets ultimately settle down.
David M. Walker, former comptroller general of the United States, warned that the government's ability to offer bailouts is not boundless.
"The real question is: Will Washington wake up and realize that the federal government's finances are not in good shape and that we need to start getting our nation's fiscal house in order," Walker said. "If not, some may start asking, 'Who will bail out America?' "
