> I think the government is making a huge mistake by bailing > out companies, due to the moral hazard that is being created. If investors > were more concerned about going broke by investing in such risky > companies, then it is quite likely that the companies would take fewer > risks. Instead, we have the government bailing out those who took the > worst risks
Hmm, how is this happening. Let's say I took a stupid risk (I didn't, but let's say I did) and bought AIG one year ago. I would have bought it for just under $70. Today's value is $3.00. I would have lost over 95% of my investment. I'll tend to agree with you that that, by rights, that should be 100%. But, 95% loss is close enough for me. By keeping AIG going, the Federal government eliminated the possibility that many who traded with AIG would be in a "oh shit" position in the short term, and a number of those companies would go under...etc. The Feds. got 80% of the company, which does have assets that will be worth something besides the toxic loans. So, given the fact that a cascade effect would drop tax revenues, it was probably a good bet for the Feds. to do the deal. The moral hazard that's involved is folks who bought into AIG foolishly only lost 95% of their money instead of 100%. Well, I can deal with that. And, if AIG somehow gets back up to even $30, then the Feds make a profit. So, I agree with you, folks who invest in companies that are bailed out should lose their shirts, their officers should be shown the door with 2 weeks pay (less if that's legal), and any moral hazard should be minimized. But, the risk of a cascade effect pulling in large numbers of companies that otherwise would be able to continue working is one that I strongly wish to avoid. So, risk aversion on my part leads me to think that the 5% moral hazard of having people lose _almost_ all of their money instead of all their money is an acceptable price. Dan M. _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
