Federal Government Buys AIG; Creeping Socialism

September 16, 2008 at 7:18 pm  ·  Category: Federal Reserve, Market Commentary, Politics, Stocks

The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act.

FOMC Statement on AIG Credit Line

At the time of economic crisis, when critical extensions of governmental power are likely to occur… there is little opportunity for a meaningful vote on whether or not, as a matter of principle, the powers of the state should be extended.  Instead, there is likely to be an insistent demand for emergency action of some sort and relatively little consideration of what the permanent effect will be.

– Calvin Hoover, The Economy, Liberty, and the State (1959), quoted in Robert Higgs, Crisis And Leviathan: Critical Episodes in the Growth of American Government (1987), Chapter 1

This evening at 9pm EST the Federal Reserve announced that they will be extending an $85 billion line of credit to troubled insurance giant American International Group (AIG) at a rate of 3 month Libor plus 850 basis point and in exchange for a 79.9% equity stake in AIG.

The government now owns Fannie Mae and Freddie Mac, which own or guarantee $5 trillion or 50% of the national mortgage market, and Dow component AIG, one of the largest insurers in the country.

The market is probably going to love it tomorrow.  But this is Socialism!

Posted by Greg Feirman  ·  Trackback URL  ·  Link