The US has always been a global beacon of free market capitalism. But what does the latest bailout of the Fed of the ailing American insurer AIG say to the global financial community? That unfettered capitalism doesn’t work. The most aggressive companies acting on Wall Street act like broncos. When things don’t work out for them, they let the government bail them out. Wall Street won’t learn if the Fed continues with its policies, but what choice did it have? If AIG fails, it would disastrous for the US economy.
AIG is best known for selling conventional products like insurance polices and annuities, products that are overseen by state and federal regulators. The problem is that AIG is also deeply involved in the risky, opaque market for financial derivatives and other complicated financial instruments, which are unregulated.
“It’s pure crisis management,” Mr. Chernow said. “It’s the Treasury and the Federal Reserve lurching from crisis to crisis without a clear statement on how financial failures will be handled in the future. They’re afraid to articulate such a policy. The safety net they are spreading seems to widen every day with no end in sight.”