Last night, “in an unprecedented move,” the Federal Reserve announced that it would lend troubled insurance giant AIG $85 billion. In return, “the federal government will receive a 79.9% stake in the company.”
This comes just ten days after the federal government, in “one of the most sweeping government interventions in private financial markets in decades,” placed mortgage companies Fannie Mae and Freddie Mac under “conservatorship,” and six months after the federal bailout of investment bank Bear Stearns.
At the helm of the Bush administration’s response to the chaos on Wall St. is Treasury Secretary Henry Paulson. For months, Paulson has repeatedly given assurances that the American banking system is just fine. Two days ago, in fact, he declared that “our banking system is safe and sound”:
- “I’ve got to say our banking system is a safe and a sound one…The American people can remain very, very confident about their accounts and our banking system.” [The Hill, 9/15/08]
- “The American people can remain confident in the soundness and the resilience of our financial system.” [CNN Money, 9/15/08]
- “Let me say, our banking system is a safe and a sound one.” [CNN's Late Edition, 7/20/08]
- “We have a safe and sound banking system in the United States of America.” [CBS's Face the Nation, 7/20/08]
- “Our economy, like any other, has its ups and downs. It’s structurally sound. The long-term fundamentals are healthy. The risks are to the downside right now, but the long-term fundamentals are healthy.” [San Fransisco Chronicle, 3/8/08]
- Paulson said “The US banking system is well-capitalized and ‘we have a strong deposit insurance system that provides good coverage for the savings of hard-working Americans.’” [Forbes, 12/7/07]
Now, Paulson is having to work overtime to bailout a banking system that is most certainly not safe and sound.