Bail outs

The US government, being the leader of the market capitalism ideology has done the unthinkable in the last few months - bailing out big private companies. The ideology that has been used to demonised socialism is now seen as a fraud by some. When it comes to big capital, losses are absorbed by the public while profits remained private.

Despite the US government agreeing to provide a $85bn loan facility to AIG in return of 80% of its equity, a number of key Republican politicians have voiced out their disapproval over such action. In their opinion, the Congress should at least be consulted and taxpayers monies should not be used to fund failing corporate giants that put greed before responsibility. They are strongly against using tax payers dollars to bail out private companies and are furious that the US government is sending out inconsistent messages by refusing to save Lehman Brothers. They also question the discretion of which companies get rescued and which ones not.

However, those who worked out the AIG rescue package have defended their position, stating that "AIG is too big to fail" and that failure of AIG will have too serious an impact on America's financial system. Furthermore, they argued that AIG has quality assets as most of their subsidiaries are profitable and desirable. If AIG was allowed to file for Chapter 11, these profitable units within AIG would have been sold at a far lower value in the fire sale. The loan would allow AIG time to sell of some of its business units at more reasonable prices. They argued that the tax payers will benefit from the profits generated by AIG eventually.

Many signs are pointing to the failing of American capitalism and profit system. Very soon the credit-worthiness of US Treasury Bonds may come into question.

From the Wall Street Journal: Some investors are even betting they may profit from weighing the unthinkable question: "Could the US government default?"

Too much greed is bad.