Up until late last night it looked as if AIG was a dead man walking. Then the US government stepped in and effectively nationalised it, the second time in a fortnight that the right wing Bush administration has played the public ownership card, following the bale out of Fannie Mae and Freddie Mac. It is a measure of the chaos in financial markets that both moves have been greeted with big upswings on the world's stock markets.
It used to be part of the mantra of the left of the Labour Party when socialism was still alive that it would nationalise the "commanding heights of the economy", including banks and insurance companies. Now that is a reality in the country that always liked to paint itself as the home of free markets and unfettered capitalism.
But, as we know all too well, state ownership of commercial businesses does not work. I am sure the US government knows that too which is why it is totally mistaken to paint this move as the saving of AIG. It is far from it. It will be dismembered and parts sold off as quickly as is decent and practical. It is also hard to see how its revenues, certainly from insurance business, will stand up. How can any broker recommend placing business with an insurer that would be bust if it wasn't for a huge state subsidy? Surely, its new premium income will nosedive? At best, AIG is living on a life support machine that, one day, will be turned off. At worst, it is a dead man in chains.
There is, however, something rather fitting about governments having to dig deep into public funds to prop up the financial services sector – we mustn't forget that the UK government nationalised Northern Rock last year too. For the best part of 20 years, governments around the world have allowed themselves to be mesmerised by to so-called Masters of the Universe that run (ran) the major financial institutions and passed far too much responsibility for the running of financial markets to them. Now they are having to pick up the tab for that reckless abdication of political responsibility as the one time masters are revealed as the Muppets of the Universe.
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