American tax payers are about to start bearing the burden of bad credit bets placed by big banks and insurance companies.
I have been more than amazed by the events in the US in recent weeks during the financial crisis. Creating a pseudo guarantee structure for big American companies like AIG is just pure protectionism. This is capitalism gone wrong and it feels like it is just the start of placing losing bets into the hands of taxpayers who never participated in the upside of those companies during the boom. What do you call that? What kind of social justice is that?
By doing this the US government is sending a signal to stock holders that their bets have an implied guarantee to some degree. Last nights massive stock market rally was just that. It was the market starting to price in protectionism into US banking and insurance equity valuations. If you can buy into a big insurer like AIG and have some certainty that they might be bailed out then it’s a damn good bet.
America’s corporate obese won’t be helped by feeding them more liquidity biscuits.
