AIG: The Problem Child

Do you remember when you were younger and had to do chores? If your parents thought you did a good job, you'd usually get an allowance. So began the process of service-payment exchange; you'd conduct the chore and they'd pay you the allowance. However, if you did not complete an assigned chore, you did not receive any payment. Unfortunately in the real world, this is not the case. Insurance giant, American International Group (AIG), has proven to be an exception from the general "service-payment exchange" rule. During this current financial crisis, a series of bailouts have been given to various companies, AIG included. However, it seems that AIG continues to get a stream of bailouts. Why is this so? What are they doing that keeps in them in the need of additional funds? Most importantly, is it fair to keep bailing out a company that has not made any improvements? These are all questions that the general public wants answered.

From the statements above, it can be inferred that I disagree with the AIG bailouts. I must admit, I'm not happy about it. Yet, I do understand why the US continues to do so. Being in various risk management and insurance classes, I've had the chance to discuss AIG's circumstance and what it means for the general public and the future of this financial situation. As mentioned before, AIG is an insurance powerhouse. It is one of the largest insurance corporations in the country and holds a vast amount of the policies thereof. During its positive reign, AIG made an major impact on the insurance industry and the country as a whole. Although it sounds cliche, if AIG were to completely fail, the rest of us would be directly or indirectly affected. The company is very complex and involved with other companies in various ways. It's downfall could create a "domino affect" of failure in the insurance industry and any company that is heavily tied to it. Not only that, but if the US stopped funding AIG, it would lead to the downfall of the healthy sectors inside AIG. What some people fail to realize is that the entire AIG company is not hurting, just a specific area. In fact, AIG's life insurance sector is still prominent and successful. Taking away funds from AIG as a whole would indirectly take away from its flourishing sector.

Although I understand why the bailouts continue to go to AIG, I am not happy about it, nor do I believe it is fair. Fair would be providing minor bailouts for those smaller companies who have acted responsibly. We should help those who have taken necessary steps to aid this financial crisis, place themselves in a better position, but just need a little financial boost. Instead, we are throwing $30 billion on top of the $150 billion to AIG, a company that persists on doing whatever it wants. Senator John McCain supported Bush in the $700 billion bailout, yet he is still shocked at how AIG gave 1/3 of the original $150 billion to companies such as Goldman Sachs and Merrill Lynch. I'm sorry, but isn't Goldman Sachs another company who received a US bailout? Isn't Merrill Lynch a firm that was just acquired by Bank of America? It seems as if AIG is just throwing this money around, when instead, they should be finding ways to create money from its bailout funds. However, the company is still heading down the wrong lane. With a lost of $61.7 billion in the last quarter, another bailout was necessary. McCain isn't the only one upset about the AIG situation. US Federal Reserve Chairman Ben Bernanke is not happy about the circumstance either, but he must still defend the country's decision. Simply put, Bernanke states, "There was no other alternative. We really had no choice" AIG has a strong relationship with banks worldwide, and a failure for the company could lead to a disaster around the globe.

This AIG bailout situation is placing us in a bad position. So many firms and small businesses in need of a financial break, and yet we still provide giants like AIG with billions of dollars. It will be only a matter of time before Americans get tired of paying more tax money to help the irresponsible companies out. It was said by some that AIG was "too big to fail." Well now we all know different. No matter the size of the company, no matter how rich the company, no matter how popular the company, horrible financial choices will lead to disaster. The country is already in a deficit of trillions of dollars; if we continue to bailout out companies like AIG, who knows what this number could grow to.

Sources:
1. Puzzanghera, Jim. "Why AIG is Still Getting Rescue Funds, According to LA Times." Insurance News Net. LA Times. 9 March 2009. 9 March 2009 <http://www.insurancenewsnet.com/article.asp?a=top_news&id=104037>.

2. Reuters. "US had no choice." Straits Times. 4 March 2009. 9 March 2009 <http://www.straitstimes.com/Breaking%2BNews/Money/Story/STIStory_345649.html>.

3. Scaliger, Charles. "AIG, Bailouts, and the Banks." New American. 9 March 2009. 9 March 2009 <http://www.thenewamerican.com/economy/commentary-mainmenu-43/866-aig-bailouts-and-the-banks>.