Bailout A Positive? Shhh...

Bailout, an evil, insane idea. The very reason for the economic fiasco right? Not convinced yet, see copious political cartoons showing the pure idiocy of these government loans. The media spoke against them, rallies were held, in fact they are even partially responsible for the formation of the Tea Party! What on earth was this government thinking?

So I need to preface this next part with this: please don't shoot until you finish the article. Maybe all the bailouts weren't a bad idea (cringing waiting to hear the gunshot in my general direction). Let me explain a little so I can stop looking over my shoulder for someone to come at me with a baseball bat. The majority of the bailouts were unbelievably awful, terrible economically suicidal bailouts. However there was one bailout that needed to happen, AIG.

Let's put AIG into perspective as compared to the other bailouts. The auto bailouts were idiotic. Why were they and AIG not? Well, what caused the automotive companies to go broke? Terrible management and the unions. The unions are killing this country, and the automotive industry is a prime example. People continued to demand higher wages for a job that they were lucky had not been given to robots, then they demanded higher pensions. With every year companies like Ford and GM were going more and more into debt with every employee who retired and every new person they hired. A terrible business model that has not been fixed. The conclusion, the money sent to them was completely wasted.

I could next go into Fannie May and Freddie Mac. However, there's really only one thing to say about them. They were ran by criminals, idiots and morons and should be thrown in jail. That's all I care to say about them.

So, let's discuss the reason AIG was in such financially troubled waters because a lot of people really don't know the truth. See, AIG was not a company that was hurting for money, they weren't a gigantic corrupt organization from top to bottom that stole money and spent it thriftlessly. No, what happened with AIG is something very simple. Their credit score was lowered below "AA" level. There's no need to get into the fine details of what that means but here is what you do need to know. At the highest credit level (which is what they were at) you do not need to post collateral when trading with other parties. However when they dropped just below that level things changed. Collateral is required, and when you are doing deals as big as AIG that collateral is massive, so massive that AIG was forced to put up millions and millions of dollars to continue to do business. The result, AIG went into a liquidity crisis. The kicker to this part, who put in the requirements for collateral in businesses, the government. Thats right, the government is what forced AIG into a downfall and then subsequently bailed them out.

Ok, so maybe the drop in credit score means they were doing something wrong right? Maybe they deserved to struggle and to some of the extremists out there a drop in credit score means they should go under (of course everyone has perfect credit and never dropped a single point in their life). Here's a bit of info for you. In 2005 a man named Greenberg was the CEO for AIG. Unfortunately he was not the best choice. He was a corrupt man who committed fraud and put a damper on the company. AIG promptly replaced him when his actions were discovered. However the damage was done. It should not be a big surprise that, despite resolving the issue, their credit score took an initial hit. While I will not attribute all of the credit drop to this point, it did play a large role.

By now we have a general idea of what nearly caused AIG's collapse. Some may be convinced that their crisis was not entirely their fault and they are not criminals for it, others may not care either way and still think the bailout was a terrible idea. That's ok because there story doesn't end there, hold off on the beating with baseball bats for another minute.

Next let's get something straight. The bailout was not the government simply giving away this money. Far from it in fact. If anything, the government stood to make a huge return on their investment, which is what it was, an investment. The numbers: an initial loan of $85 billion (lot of money, yes, but not when compared to the grand scheme of things) but in return they were granted an 80% stake in the company! That's huge. You cannot get better than that in a business deal.

I realize there are plenty of people out there who do not care in the slightest about any of this and say "The government is investing our money without our permission and ruining the country". Fine, allow me to now demonstrate why the AIG bailout was necessary.

AIG is (or at least was at the point of my knowledge and research) the largest underwriter of commercial and industrial insurance as well as American General Life Insurance in the United States. Not to mention they have a staff of 116,000 United States citizens. What does that mean to you? It means that statistically either you or a family member have some tie to AIG through investments, your insurance or your job. In other words, if AIG goes down in flames, like some people begged the government to allow to happen, it would have destroyed you or a family member. I'm not talking having your stock go down five points. I am talking all the money you have paid towards insurance, invested for the future and for 116,000 people their entire career going up in flames. The stock market is a gamble, Las Vegas is a gamble and for all intents and purposes even flood/fire/home insurance are gambles. Something like life insurance is not suppose to be, you're going to die, face it. And for the gambles on all your other insurance purchases, the gamble is suppose to be will you ever need fire or flood insurance not will company will be bankrupt should you need to file a claim.

The biggest gamble we could have taken would have been to not bail out AIG. To allow millions to lose their insurance, jobs and everything they have worked so hard for. While AIG is not a perfect company, it's become a vital part of our society because of the millions it affects. For all those people who wish we would have let them burn, I ask that you realize just exactly who gets burned by AIG going down. The top level employees were still going to be rich, would have left heads held high and pockets full. It's people like you and I that would have been burned and left in the gutter.