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If the government can bail out AIG, why aren’t everyone’s debts also canceled?
It’s a good question, but is it a good idea?
How Did We Get Into This Mess Anyway?
Some say there is a mortgage crisis because greedy Americans purchased more homes than they could afford.
Some say there is a mortgage crisis because banks lowered their standards, since they were only going to sell the loans anyway so they had no reason to be diligent.
Some say there is a mortgage crisis because too many American jobs have gone overseas or just gone away, and so a great deal of the American public are unable to make the same mortgage payments they paid just 5 years ago. Actually, I said that.
AIG’s Role In The Mortgage Crisis
Regardless of how mortgages got messed up and why banks are asking for help out of a problem they helped create, AIG got involved and provided insurance against these debts failing.
Well surprise, surprise. In the same way that San Francisco burned after the great earthquake of 1906, so did the mortgage industry, and therefore the insurance companies failed.
The San Francisco fire was the worst single incident for the insurances industry before the Sept 11, 2001 attacks.
As explained by NPR, “AIG got involved in a new aspect of the financial system. It joined in the selling of so-called credit default swaps. A credit default swap, or CDS, is essentially insurance on debt.”
What About People Like You And Me?
At this point, many of us are upset because Uncle Sam is helping big business and doing little to help those who are losing their homes and jobs.
Here is what you might not realize:
In the case of American International Group, or AIG, the government is now the majority shareholder, acquiring 80% of the company in exchange for lending it as much as $85 billion over 2 years to keep the business out of bankruptcy as it is dismantled. Source
If the government did this for everyone, they would also own 80% of our homes. We would have only an 80% interest in our homes and would basically be renting our homes from Big Brother.
Likewise, when the government bought out Fannie Mae, “the government placed Fannie Mae and Freddie Mac into a conservatorship run by the Federal Housing Finance Agency, a body created by Congress this summer. Treasury Secretary Henry M. Paulson said having a government-appointed conservator was the only way he would commit taxpayer money to the bailout.”
Read more about the Lehman Brothers bankruptcy and how the latest collapses could affect you.
The Sun Sentinel’s Harriet Johnson Brackey explains how AIG and the bailout will hurt the public:
After the announcement that the almost $65 billion Primary Fund, a money market fund that was part of The Reserve Fund, would no longer be able to pay off its investors at 100 cents on the dollar, it became clear the their investments, their holdings, were not worth what they thought.
Many of these investors were people putting away modest savings for their retirement.
Anyone who is ready to retire now may want to work a few more years. If for some reason the bailout does not go as expected, you may want to look into working beyond retirement.
I have been a certified tightwad striving for financial freedom since I became pregnant with my first child — and I decided to find a way to stay home with him full-time. I enjoy sharing my personal experiences in my journey back to financial health and planning for a future — which will include sending 2 kids to college and early retirement.