Why Are Companies Allowed To Get Big Enough To Pose A 'Systemic Risk'?

Well, it just gets more and more interesting as it unravels, doesn't it? Seems to me we shouldn't allow companies to get big enough to pose a "systemic risk" - a term that's now synonymous with "Uncle Sugar to the rescue":

An AIG report to the Treasury Department last month warned that if the government didn't come to its rescue again, its collapse would trigger a "chain reaction of enormous proportion" that would "potentially bankrupt or bring down the entire system" and make it impossible for AIG to repay the billions it already owed the U.S. government.

I believe the correct term here is "extortion."

A draft report, obtained by ABC News, and marked "strictly confidential," said, "the failure of AIG would cause turmoil in the US economy and global markets, and have multiple and potentially catastrophic unforeseen consequences."

The draft was dated Feb. 26. On March 2, the Treasury Department and the Federal Reserve system announced that AIG, which lost $61.7 billion in the fourth quarter of 2008, would receive $30 billion in new government help.

AIG warns in its report of the "systemic risk" that a potential collapse posed. It describes a "systemic risk" as one that "could potentially bankrupt or bring down the entire system or market."

The company said, "What happens to AIG has the potential to trigger a cascading set of further failures, which cannot be stopped except by extraordinary means."

[...] The Treasury Department told ABC News it would have no comment on the report, and the White House referred questions to the Treasury Department.

Oh, and as Jane Hamsher points out, Timothy Geithner had a little something to do with the AIG mess back when he was the NYC Fed chairman. Hmmm.

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