According to the AIG web site, “American International Group, Inc. (AIG), a world leader in insurance and financial services, is the leading international insurance organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer. In addition, AIG companies are leading providers of retirement services, financial services and asset management around the world.
AIG’s common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo. ” So what does all that mean and why should the American tax payer pick up the tab for AIG’s mismanagement? Many in the finical community have said that AIG is just too big to fail. Does that mean that if it fails too many people will be unemployed, or that too many businesses will fail as a result of AIG’s failure? The answer is yes to both questions. AIG is so big that tens of thousands of people will join the ranks of the unemployed if they fail.
The businesses around the world that rely on AIG would no longer be able to stay in business and would therefore fail and create more unemployment on top of all the AIG employees who are out of work. If anyone can recall another big company that was too big, AT;T, or Ma Bell as it was called, you will see that the government broke AT;T up because it was too big. The government at the time did not want one company so big that it would have a near monopoly on an industry. So the baby bells were formed as smaller independent phone companies all around the country.
The end result was that this opened the local phone industry to start ups that would have never been able to get a start when AT;T was the only phone company in town. AIG is essentially the biggest and most powerful insurer and has very few competitors. If it fails, its smaller rivals can’t pick up the slack and you have a domino effect with more and more businesses failing. Because the government failed to act and break up AIG like they broke up AT;T, the government has in essence allowed AIG to become too big to fail.
So now the government has no choice but to loan AIG the money and become the largest stake holder in AIG. The U. S. Government has for all practical purposes become AIG. That means that the $180-200 billion is coming from the U. S. taxpayer. Now with the U. S. Government owning up to 80% of AIG, if they file for bankruptcy, that will mean that the U. S. Government is bankrupt. If that were the case, you could see the collapse of many European governments as well as the fall of the U. S. Government. Of course this is something that cannot and will not be allowed to happen.
Therefore it is necessary for the U. S. Government to raise it debt by trillions of dollars to bail out not only AIG but many other companies that are also too big to fail. General Motors and Citi Group just to name 2. Now the government must ask itself it if AIG will continue to do business as usual or will it change the way it does business. After all now they are dealing with the American tax payers money. Will this be the beginning of an era where the government starts to break up companies so we never have to worry about a company being too big to fail?