The Auto Economy

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That flushing sound

toilet - That flushing sound

AIG posted a nearly $62 billion fourth quarter loss. So far, AIG has received $150 billion in taxpayer money and as of a plan announced today will receive and additional $30 billion of your dollars.

But these aren’t loans. These are gifts to AIG meant to help free up lending and spur the financial system. Here’s why it won’t: AIG’s total liabilities as of September 30 2008 were $951 billion. They can’t write new insurance policies because they don’t have the capital to back them up. No more streams of income, no way of paying that debt. The only way to pay their debts is to sell pieces of themselves off at decidedly above market prices.

Watch those dollars swirl round and round as they go down the drain.

To put the size of this in perspective. The government could have purchased 98% of General Motor’s liabilities for the same amount it has given to AIG. At least GM has a chance of surviving.

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