Kevin Drum is right:
taxpayers, are now the owner of AIG, you're also the main sponsor of
the Manchester United football club. The last time I mentioned this,
the season was young and our club was mired in 14th place. But I'm
happy to report that since the U.S. takeover of AIG in September, our plucky lads have been playing well and Man U now leads the Premier League.
The more general point is that nationalizing AIG, or quasi-nationalizing AIG, hasn't solved the basic problems there. Nationalization is hardly to blame for these problems, but the post-collapse AIG has been a mess, bleeding money and lacking accountability. You might claim: "they didn't nationalize it the right way" and maybe they didn't. Still, once you proceed down the nationalization path, you have to live with the nationalizations you will get, not the nationalizations as a professor might recommend they be done. The AIG transition was overseen by Bernanke and Geithner and of course Congress isn't nearly as smart or as well-informed as those two guys.
Beware. The mere ability to write, from the sidelines, "it should be done like X" doesn't eliminate the lessons of public choice economics.
Wha? When has Man U been “mired” this season, or any in recent campaigns? Hope Drum isn’t confusing the two Manc teams…
The only thing “nationalized” with AIG were the losses. Control is still firmly in the original board and management, who are beholden, if to anyone other than themselves, only to current stockholders. The market cap of AIG is merely $3bn.
“[O]nce you proceed down the nationalization path, you have to live with the nationalizations you will get, not the nationalizations as a professor might recommend they be done.† This assumes the only decision *I* can make is: nationalize or don’t nationalize. (And if I decide against nationalization, I will have to “live with the non-nationalizations I will get.†) But why can’t I (“the professor†) make a much more specific decision/recommendation, to nationalize in *some specific way*? On the other hand, couldn’t I recommend *non-nationalization* in some specific way–for example, with private agents selflessly serving the public interest *without governmental coercion*? This would be “utopian,† but so what? It’s a recommendation, not a prediction. I may be ignoring “the lessons of . . . economics† (public choice or otherwise), with its assumption of self-interested behavior; but, then, why can’t I recommend *non-self-interested behavior*?
In the same way, I might advise against fiscal stimulus, even though I know my advice won’t be followed. Que sera, sera; but I am still entitled to my view about how things *should* go. As soon as my recommendation departs from what will actually happen, I have taken at least a step toward the utopian; how many steps would be *too many*?
Of course this is not directly relevant to the post subject, but:
One thing I don’t understand about the stimulus plan is that, how is spending on infrastructure and other thing like that going to repair the broken financial system and housing market? I just don’t understand the relationship, and I thing there is a methodological error in working with aggregates in coming to such conclusions as that making roads and bridges and inducing demand in one section is going to help other sections. What the hell do roads have to do with stock markets?!
Why not stimulate the economy by removing burdens on American enterprises that make them less productive?
For example, an obvious way to increase productivity would be to declare that all American firms competing on the world market — with over, say, one quarter their value added going to export markets — are now exempt from persecution by the Equal Employment Opportunity Commission and the Justice Department on discrimination grounds. You can keep quotas for local monopolists like police departments, but what Beckerian justification is there for discrimination inquisition into a firm competing against Chinese firms? If they are irrationally discriminating in hiring, they will be punished by the competition. If they are not irrationally discriminating in hiring, then why should they be punished by the federal government?
The fact that Man U now leads the tables (*) after the US gov’t nationalized AIG is one reason more to become a libertarian.
Yep. Very sure about that.
(*) Together with Liverpool which played 1 game more than Man U: Let’s see if the Manchurians can hold their liquor, mind you!
No, I’m just taking an insight that Milton Friedman suggested for Gary Becker’s U. of Chicago thesis (later published as Becker’s “Theory of Discrimination” in 1957). Competition makes irrational discrimination costly. Monopolies don’t compete in markets, so they can discriminate at little cost to themselves, but firms in highly competitive markets have incentives not to discriminate.
Therefore, any firm that is competing heavily in the global market is in a competitive market, so why should they be burdened with the burden of proof to have a high enough quota of legally protected workers to avoid expensive government lawsuits charging discrimination based on employment statistics?
Back when slummy houses in California were selling for a half million bucks, maybe we could afford this kind of productivity-killing luxuries, but now we know we need to get more efficient. The most obvious way is to get the government out of the way of internal human resources management of companies competing on the world market.
I must be missing something here. I thought plans for nationalization involved doing it temporarily, that is, seizing the firm and selling it off as quickly as possible, shorn of its bad assets and blessed (perhaps) with some government guarantee. The appeal is that while the move probably would bestow economic rents on someone, at least it wouldn’t benefit the people who got us into this mess, which is what the current plan does. Schadenfreude aside, this presumably would eliminate the moral hazard problem, although of course it could set a worrisome precedent (which almost every other proposal would do, too). Why is this not possible?
For example, an obvious way to increase productivity would be to declare that all American firms competing on the world market — with over, say, one quarter their value added going to export markets — are now exempt from persecution by the Equal Employment Opportunity Commission and the Justice Department on discrimination grounds.
Fair enough, I’ve always found the application of anti-discrimination laws to be dubious in many cases. Along with this, how about we relax restrictions on foreign nationals with advanced qualifications or professional work experience, adopting something similar to the UK’s or Singapore’s skilled immigration schemes. After all, the alternative to importing skilled labor is importing goods and services from countries that would otherwise supply us with the skilled labor. What say you, Steve?
And Obama appoints as Treasury Secretary a fellow who believes that taxpayers should hand over 100′s of billions to pay off bond insurance speculators on Wall Street, AKA the AIG bailouts.
This is one huge no-lose money machine and it goes like this:
1.) Pay Moody’s and Standard & Poor’s to fraudulently rate mortgage backed securities (MBS) and other CDO’s that you then sell for billions and billions.
2.) Get the head of one of the largest investment banks that is playing this game appointed to head of Treasury so the scam continues unabated.
3.) As you know what toxic garbage these securities are, take out insurance on them. And no, you don’t even have to own them, you can actually insure garbage that you sold to some sucker for billions and that you no longer own.
4.) When the fraudulent Triple A ratings are reversed, and you no longer own this garbage, contact the bond insurer and ask to be paid billions and billions on the insurance policies you took out on this garbage.
5.) When the insurer – AIG – can’t pay anymore, get the head of the NY Fed to have taxpayers pay. $85 billions plus $40 billion so far.
6.) Get the head of the NY Fed – Geithner – appointed as the new head of the Treasury.
7.) Lather, rinse, repeat.
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