‘Systemic Risk’ is all nonsense

“The failure of big companies causes Systemic Risk” is all nonsense. There are a lot of companies who did the Right Thing & who should be allowed to benefit from the collapse of the big companies. But the government is not allowing this to happen by supporting people who behaved recklessly. Companies which have taken too much risk & have made bad decisions must be removed from our system.

This is of course not the end of our system.  Other companies who have been waiting for this to happen will come in and will have the chance to increase their market share and recruit people.

Horrible Economics

The USA and many other countries are practicing horrible economics. The US of A bailed out AIG which is an insurance company. The very purpose of the existence of insurance companies is to mitigate risk for others. And AIG has miserably failed at it. They themselves don’t know how to handle risk. How are they going to manage risk for others?

The US government’s pretext for bailing out AIG was that “it is too big to let it fall”. Agreed that it would have devastating consequences on all the people affected by it. But at least the people who had signed papers accepting the contracts (and the risk associated with it) would be affected. These are the people who knew that there was risk, however small it might be. And it is perfectly fair. Now, the people who took risk have been bailed out & they have not lost anything. But the people who bailed them out have to now pay the price for it – may not be directly from their pocket – but through inflation.

Some people argue that if AIG was not bailed out there would be tons of job losses. According to me they are looking at only the first level cascading effect. The second level cascading effect is the people who are competent will come forward and be able to start new companies providing insurance services. That is how the free market has worked all the time.

Why should the incompetent folks at AIG make mistakes & get bailed out, while the competent folks outside not even get a chance to use their skills?

GM Bankruptcy

We have been getting this news for a couple of weeks now. The US Treasury department has directed Government Motors (previously General Motors) to prepare for bankruptcy. This effectively flushes all the money that the government had put in GM earlier to go down the drain.