Bill Seidman had a short comment in the Washington Post this morning regarding the government’s failing approach towards AIG and other pseudo-nationalizations:
L. WILLIAM SEIDMAN
Founding chairman of the Resolution Trust Corp.; chief commentator for CNBC
The AIG episode proves that the government should take over and run failed financial institutions rather than be a part owner while trying to have the institutions run themselves. It also shows that the government should take more time. We paid off huge debts that AIG had in the swaps market, which we probably did not have to do. We honored AIG’s bonus agreements, which we probably did not have to do. We bought a number of assets from AIG at high prices, which we probably did not have to do. That kind of haste with that kind of taxpayer money is ill-considered.
The government is a long way down the trail now, and at this point there’s not much we can do differently. We have already committed to buying AIG’s assets. We have already paid out all the swaps to foreigners. The big lesson? Don’t rush into these disasters.
Of course Seidman is correct. He ran the extremely successful RTC, which was the closest thing to the Swedish Model that the U.S. has ever seen. We should be guaranteeing the debt of failed firms after they are taken into government receivership. This attempt to save companies without punishing current shareholders is clearly a failed approach.