Thursday, March 19, 2009

The truth about AIG's payments to "foreigners," and Glenn Beck is a moron

Conservatives are up in arms about AIG paying tens of billions to foreign banks. Conservatives are wont to do that when they think wealth is leaving the country. Glenn Beck blathered, in a perfect impersonation of protectionist Pat Buchanan:
GLENN: $58 billion has gone to foreign banks. Now, why isn't America outraged by that? Because America doesn't know that fact. America isn't talking about that fact. If we would have let AIG fail, then these other banks would have had to come to us and said, hey, what are you going to do on these. And we would have then had to have the discussion, do we send money over to France, do we send money over to Germany, do we send money over to England? And that we couldn't have won. The people in Washington, they would have never gotten that past you.

STU: We're not that into stimulating.

GLENN: We're not that into stimulating. We're not into shifting wealth from our continent to other continents.

STU: That's where we draw the line.

GLENN: That's where we draw the line.

STU: Of all the stuff we do, that's where we draw the line.
Beck is nothing more than a 21st century mercantilist, who thinks that keeping "wealth" within one's country is the way to prosperity. He doesn't understand that international trade, from goods to financing, allows everyone to prosper. He doesn't even understand that when he talks about "wealth," he's confusing it with "money."

As I explained first here, AIG paying foreign banks was not money laundering. Does Beck even know what money laundering is? He obviously doesn't understand what AIG was doing.

Like any insurer, AIG writes lots of policies. But AIG's unprecedented woes are because, unlike most insurers, it sold a lot of policies, specifically credit default swaps, that it couldn't cover. Its people knew they couldn't cover them, actually: they figured that while the economy was good, and bank revenues and tax receipts stayed high, AIG could collect nice premiums and not have to pay out relatively much. But despite their stupidity, the fact remains that AIG had to meet its contractual obligations to everyone, regardless of nationality. No money was being "hidden" at any time, so there was no money laundering done.

It's immoral to make the U.S. taxpayer pay for AIG's massive losses, but I'm putting that aside here to talk strictly about the nature of AIG's debts. AIG just happened to owe more to foreign banks than it did to American ones, that's all. If the bailout had been accomplished privately, AIG still would have had to pay foreign firms. Can you imagine if AIG had paid American creditors first, and foreign firms with whatever was left (if anything)? Any firm who does this will find its reputation quickly shot to hell, and it would soon cease doing business internationally. Foreign firms and governments would start retaliating by pulling business from the United States, exacerbating things for everybody.

Were it UBS that owed tens of billions to non-Swiss banks in a similar situation, would Beck be so adamant about defending it if it said it wouldn't pay American creditors?

I didn't think so.

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Blogger RogMcF said...

I agree with you that Glenn Beck’s analysis of AIG’s payments to foreign banks wasn’t exactly lucid. Beck’s strengths lie in his skills in rhetoric – he is obviously not an economist. He is able to bring a large piece of American society back into politics – people that have become disconnected, but have a sense of what is right and should be involved again in American politics. Not all of the people he appeals to are isolationists. I agree with you that he should be more careful in his fact checking and reporting, but I wouldn’t call him a moron. Beck’s power is in his ability to move people to action. By the way, I’ve been following your blog for the last few weeks – great writing and insight. Thanks for your great work.

Monday, March 23, 2009 11:21:00 PM  

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