Nationalization Works? For Whom?

Saving insurance giant AIG only worked for AIG. The economy as a whole isn’t better off.

The United States Treasury Department announced early last month that it had made a $7.6 billion profit for the taxpayer after selling its last shares in the insurance company AIG which was 80 percent nationalized during the financial crisis of 2008. So was the rescue a success?

Economist James Kwak thinks so. He writes at Baseline Scenario,

The point of nationalizing AIG wasn’t to make money; it was supposedly to save the global economy. In any case, things have worked out pretty well: the global economy is intact, though still not healthy, and AIG is a private company again.

Indeed, the global economy is still not healthy. Neither is the American financial industry and that’s entirely due to efforts that saved AIG. By propping up banks and insurance companies that should have gone bankrupt in 2008, the United States government prevented a necessary correction in the market that would have allowed financially sound as well as new companies to take their place.

Kwak reveals his ignorance of the unseen costs of government intervention when he wonders, “isn’t AIG looking like a better company today” than ones that weren’t nationalized?

It is. But what of the companies that could have taken its place? Didn’t they deserve the chance to satisfy AIG’s consumers and contribute to a more stable and sane financial industry? Instead, the United States still have an unstable if not insane financial industry that holds the entire economy back.

Nationalization worked — for AIG. The economy at large isn’t better off because of it.