Note, this is a conspiracy theory with no proof to back it up.
It's interesting to speculate why AIG was bailed out while Bear Stearns and Lehman are left to fail? Conspiracy theorists trace AIG back to Goldman Sachs. If AIG fails, Goldman Sachs is exposed to huge losses because of their bilateral transactions with the company. More than likely, an AIG failure means a Goldman Sachs failure. That event would hit Hank Paulson personally and financially. Paulson has a trust set up containing his Goldman shares. Plus he has personal friends at Goldman. Friends don't let friends fail, do they? Is the AIG bailout sound fiscal policy or old school Washington DC cronyism?
Friday, October 10, 2008
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Hooray, I love conspiracy theories! The question I'm wrestling with is why they let Lehman Brothers fail. Check this out, which was written on 9/14/08, before Lehman fell:
"...Which brings us to Lehman, which has suffered large real-estate-related losses, and faces a crisis of confidence. Like many financial institutions, Lehman has a huge balance sheet — it owes vast sums, and is owed vast sums in return. Trying to liquidate that balance sheet quickly could lead to panic across the financial system. That’s why government officials and private bankers have spent the weekend huddled at the New York Fed, trying to put together a deal that would save Lehman, or at least let it fail more slowly.
But Henry Paulson, the Treasury secretary, was adamant that he wouldn’t sweeten the deal by putting more public funds on the line. Many people thought he was bluffing. I was all ready to start today’s column, “When life hands you Lehman, make Lehman aid.” But there was no aid, and apparently no deal. Mr. Paulson seems to be betting that the financial system — bolstered, it must be said, by those special credit lines — can handle the shock of a Lehman failure. We’ll find out soon whether he was brave or foolish." - Paul Krugman
He was loath to 'put public funds on the line' to bail out Lehman, but only a few weeks later him and Bernanke are asking for $700 BILLION to bail out everyone that's still left! Why aren't people calling for Paulson's head!?
At the very least a rationale should be given for the decision to give AIG public funding. The AIG books should be open to the public for scrutiny. And any conflict of interest that Paulson may have should be fully explored. The approval to authorize spending huge sums of money by the government must be vetted before it is given to the private sector.
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