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By
nationalizing nearly 80% of AIG for $85 billion, the Fed is doing a lot more
than simply flushing taxpayer money down the toilet. The greater wrong is
allowing the agency that has the power to print money to take control of a
private enterprise, especially without the approval of the company's
shareholders. The move represents the largest lurch toward socialism that
this country has ever seen, and signals the end of the vibrancy of America's once vaunted free market economy. Since there is no limit to the amount of money
the Fed can create, there is no limit to the number of assets they can
acquire.
The
"line in the sand" that the Government seemed to draw by refusing
to bail out Lehman Brothers was erased in just two days by the very next wave
of financial panic.
While
Fannie and Freddie were arguably quasi-government agencies that deserved
special protection, no such status exists with AIG. Where does the Fed get
the authority to use the money it prints to take over private companies? Congress
never gave such authority and, even if it had, it would be unconstitutional,
as Congress itself has no such authority to delegate. What about the
shareholders? Why didn't they get to vote on this acquisition? Whatever
happened to private property rights?
Where
does this stop? What other troubled companies will the Fed nationalize, and
how much will it cost? Why stop at troubled companies? If the Fed can buy
into a sick company, why not a healthy one? Now that we have allowed the Fed
to take over any asset it wants, private property rights are meaningless. When
oil prices get really high, why bother with a windfall profits tax when the
Fed can simply nationalize Exxon-Mobil with a few cranks on its printing
press. Who needs Bolsheviks when you have the Fed?
AIG is
not a bank; it is not even an investment bank. The "lender of last
resort" power was supposed to apply only to banks, to prevent runs. It
was not meant to apply to any company that had been declared "too big to
fail".
I suppose
the Fed is trying to get around some of the more obvious illegalities by
having the new AIG shares issued on behalf of the Treasury. What happened to
the concept of an independent Fed? Here you have the Fed seizing a private
company and ceding control to the U.S. Treasury. Rather then acting
independently, the Fed and the Government are merely partners in crime.
On the
economic side, the Fed expects us to believe this is a smart investment. Does
anyone really think that officials at the Fed and Treasury are suddenly
private equity experts? These are the guys who missed both the tech and
housing bubbles, and who assured us that subprime problems were contained. I
would not trust them to run a lemonade stand, let alone one of the largest
insurance companies in the world.
The idea
that this bailout was necessary given that the alternative would be worse
should by now be fully discredited. All of today's financial problems are the
direct consequence of Fed policy that was designed to weaken the recession
that followed the bursting of the tech bubble and the shock of September
11th. Of course, the tech bubble itself resulted from the Fed's actions to
sooth the pain following the collapse of LTCM, the Russian debt default, the
Asian crisis, and Y2K.
I suppose
the precedent for all of these actions was established back in 1979 when the
government guaranteed Chrysler's debt. It sure would have been a lot better
and a whole lot cheaper if we had simply let Chrysler fail. The road to
financial hell, or in this case socialism, is certainly paved with
"good" intentions. Today's historic surge in the price of gold
shows that at least a few investors are refusing to march in the parade.
For a
more in depth analysis of our financial problems and the inherent dangers
they pose for the U.S. economy and U.S. dollar denominated investments, read
Peter Schiff's book "Crash Proof: How to Profit from the Coming
Economic Collapse." Click here to order
a copy today.
More
importantly, don't wait for reality to set in. Protect your wealth and preserve
your purchasing power before it's too late. Discover the best way to buy gold
at www.goldyoucanfold.com,
download our free research report on the powerful case for investing in
foreign equities available at www.researchreportone.com, and subscribe to
our free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp.
Peter D. Schiff
President/Chief Global Strategist
Euro Pacific Capital, Inc.
20271 Acacia Street, #200 Newport Beach, CA 92660
Toll-free: 888-377-3722 / Direct: 203-972-9300 Fax: 949-863-7100
www.europac.net
pschiff@europac.net
For a more in depth analysis of the tenuous position of
the American economy, the housing and mortgage markets, and U.S. dollar
denominated investments, read my new book "Crash Proof: How to Profit
from the Coming Economic Collapse." Click
here to order a copy today.
More importantly take action to protect your wealth and
preserve your purchasing power before it’s too late. Protect your
wealth and preserve your purchasing power before it’s too late.
Discover the best way to buy gold at www.goldyoucanfold.com
, download my free research report on the powerful case for investing in
foreign equities available at www.researchreportone.com
, and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp
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