A company fails. So, they go to the government for a bailout. Because of their willingness/need for this bailout, people lose confidence in the company. Therefore, investors pull out. The bailout funds initially received are now quite insufficient. The company goes back to the government. Repeat.
I’m sure AIG isn’t the only company headed into that loop. I’m sure the American automobile industry will head that way, soon enough (they may have already).
So what are the limits to this bailout mentality? What’s truly disturbing about it is that all of this is happening to companies that are considered to be “vital” to the American economy. So, we’re essentially bullied into forking over money that doesn’t exist–after all, we’d be heartless to let companies fail and people be out of work. However, how long can debt be run up before we just collapse because of the consequences of it?
I’m thinking the consequences of acting the way we are, if there is no interrupt of this loop, may be far greater than if we had let the likes of AIG fail.