Save me! I'm Drowning! Yah, So Why Did You Go Out Into Such Deep Water When You Couldn't Swim?

It now looks like the government will be bailing out the huge insurance company AIG that has been threatened by bankruptcy. The government will effectively nationalize AIG, with an 85% ownership share (I don't know whether this is temporary or what), in return for a line of credit of some $80-90 billion. Whether or not this will stem the tide of institutional failures, only time will tell. After all, just a week or two ago, when Fannie Mae and Freddie Mac were being bailed out, who would have thought we would see what has happened the last couple of days. But this afternoon you could almost hear a great sigh of relief spreading throughout Wall Street, Washington, D.C., and the rest of the nation, the kind of relief you feel after a shot of morphine when in extreme pain. This could delay any more great losses in the stock market for a while, but things are still so fundamentally bad with the housing market that it could start anytime again. Another unknown is what falling energy prices will do to the mix.

I would think that all of this government intervention to save the financial markets from themselves and their excesses would demolish any further argument for the kind of deregulation that has been the order of the day for the last 20-25 years, advocated and pushed by the likes of former Senator Phil Gramm and others like him. This tenet of conservative ideology should by now be thoroughly discredited. It turns out that investment banks, insurance companies, mortgage brokers, and other large financial organizations cannot be left to do whatever they want. There must be effective public oversight and regulation. And we need to get the huge amounts of money given by those banks out of politics. They corrupt everyone.

This is not a paean for socialism or for public ownership. I am just advocating the kind of regular, consistent private/public cooperation and oversight that was put into place, for very good reason, after the Great Depression, and that contributed to the prosperity and relative stability after WW II.