Mohacsy's Safe Portfolio Member Forum

[RichardTC]

For me it's an issue of pragmatism vs idealism. I think government guarantees/bridge loans/bailouts are fundamentally anti-free markets/anti-capitalist. They're effectively a tax payer provided put option on very large companies (aka "too big to fail"). However, the Federal Reserve exists partly to safeguard the health/viability of the US/world financial system. Consequently, they have an obligation to intervene whenever the health of one company seriously threatens the health of the global financial system.

However, I think that intervention should have occurred earlier and taken the form of reductions in leverage/derivatives exposure, increased capital requirements and tighter scrutiny of marks. They didn't do that and were left with one option: a government bailout. The AIG deal likely prevented a global financial meltdown and will probably be a moneymaker for the US taxpayer, but that doesn't make it the right thing to do.