9.14.2008

Moral hazard

When the Fed tells everyone it's handing out free money, don't expect people to get financing from more traditional sources:
During a weekend scramble to shore up its finances, AIG turned down a capital infusion from a group of private-equity firms because it would have effectively given them control of the company, an 89-year-old giant that does business in nearly every corner of the world.

When AIG's board rejected the capital infusion, the company's recently appointed chairman and chief executive, Robert Willumstad, took the extraordinary step of reaching out to the Federal Reserve for help.

Paulson lied. True, Treasury didn't guarantee Lehman's debt. But the Fed did the next worst thing: promised free money for everybody for an indefinite period.

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More academic malpractice against gold

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