The ironies are rich.
In extending a last-minute $85 billion lifeline to American International Group, the troubled insurer, Washington has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, but it has also probably undercut future American efforts to promote such policies abroad.
The failures here in the US are huge.
“I fear the government has passed the point of no return,” said Ron Chernow, a leading American financial historian. “We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams.”
Bush makes Clinton look conservative, no?
“For opponents of free markets in Europe and elsewhere, this is a wonderful opportunity to invoke the American example,” said Mario Monti, the former antitrust chief at the European Commission. “They will say that even the standard-bearer of the market economy, the United States, negates its fundamental principles in its behavior.”
And they will be right, won't we?
Mr. Monti said that past financial crises in Asia, Russia and Mexico brought government to the fore, “but this is the first time it’s in the heart of capitalism, which is enormously more damaging in terms of the credibility of the market economy.”
Credibility? Any left?
In France, where the government has long supported the creation of “national champions” and worked actively to protect select companies from the threat of foreign takeover, politicians were quick to point out the paradox of what is essentially the nationalization of the largest American insurance company.
Essentially? Why quibble? Call a nationalization by its proper name.
“Today the actions of American policy makers illustrate the need for economic patriotism,” said Bernard Carayon, a lawmaker of President Nicolas Sarkozy’s center-right governing party, UMP. “I congratulate them.”
I can hear the gloating.
For the “evangelists of the market, this is a painful lesson,” he added.
Words well chosen.
In parts of Asia, the bailouts stirred bitter memories of the different approach the United States and the International Monetary Fund adopted during the economic crises there a decade ago. When the I.M.F. pledged $20 billion to help South Korea survive the Asian financial crisis of the late 1990s, one of the conditions it imposed was that the Korean government allow ailing banks and other companies to collapse rather than bail them out, recalled Yung Chul Park, a professor of economics at Korea University in Seoul, who was deeply involved in the negotiations with the I.M.F.
So why did the US treat itself different?
While Mr. Park says the current crisis is different — it is global rather than limited to one region — “Washington is following a different script this time.” “I understand why they do it,” he added. “But they’ve lost credibility to some extent in pushing for opening up overseas markets to foreign competition and liberalizing economies.”
More lost credibility. Great work, W.
The ramifications of the rescue of A.I.G. will be felt for years within the United States, too. While the company, based in New York, is better known for selling conventional products like insurance policies and annuities overseen by state regulators in the United States, it is also deeply involved in the risky, opaque market for derivatives and other complicated financial instruments that operate largely outside regulation.
Outside regulation, key words.
“It’s pure crisis management,” Mr. Chernow said. “It’s the Treasury and the Federal Reserve lurching from crisis to crisis without a clear statement on how financial failures will be handled in the future. They’re afraid to articulate such a policy. The safety net they are spreading seems to widen every day with no end in sight.”
Improvising economic policy while the President remains silent.