Shall we see yet more national socialism?: When market intervention isn’t just unwise, but morally reprehensilble

A headline from the New York Times‘s Deal Book web-log:

“A.I.G. Seeks $40 Billion in Fed Aid to Survive”

The American International Group is seeking a $40 billion bridge loan from the Federal Reserve, as it faces a potential downgrade from credit ratings agencies that could spell its doom, a person briefed on the matter said Sunday night.

Ratings agencies threatened to downgrade the insurance giant’s credit rating by Monday morning, allowing counterparties to withdraw capital from their contracts with the company. One person close to the firm said that if such an event occurred, A.I.G. may survive for only 48 hours to 72 hours.

[ . . . ]

A.I.G.’s extraordinary move of reaching out to the Fed for help may spur other non-investment banks to try a similar move. Companies ranging from General Electric to GMAC have been hurting badly and would desperately love the liquidity that the Fed would provide.

Yet it isn’t clear whether the Fed would acquiesce to A.I.G.’s request.

Why am I pessimistically convinced that the Fed will bail out yet another Wall Street Brobdingnagian, leaving the languishing tax-payer to foot the bill for yet another struggling financial company. It almost compels one to reject his liberal-conservative, Distributist leanings for all-out, get-the-government-the-hell-out-of-here libertarianism. Almost.

Update: New York State steps in to aid A.I.G.:

New York State officials stepped in Monday to try and help the world’s largest insurance company, A.I.G., as it sought financial assistance in the face of a potential downgrade from credit ratings agencies.

Gov. David A. Paterson said the state would allow A.I.G. to borrow $20 billion from its subsidiaries to bolster its capital as it faces potentially disastrous credit downgrades.

Paterson reveals that his blindness extends beyond physical vision.

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