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We Must Prevent Another AIG
By: Bradley A. Blakeman
Monday, April 6, 2009
America in the late 1800s was faced with a new and menacing challenge to its
financial well-being. We needed at that time, new laws to stop and prevent a
single company from owning or controlling all or nearly all of the market of
a product or service, thereby creating a monopoly.
In 1890, antitrust laws were created federally with the enactment of the
Sherman Antitrust Act. The Sherman Act was enacted in large part because
Standard Oil of Ohio sought to control an industry by buying up stock and
getting control of competing companies to create a monopoly over that
industry.
President Theodore Roosevelt, during his 1901-1909 tenure in office, became
known as the “trust-buster.” Roosevelt knew how dangerous monopolies were to
the nation’s economy, and he worked hard to bust them up before the damage
could be done.
Today, we face a new and more dangerous threat to our national financial
security through the hybrid of the monopoly; what I have termed the
“octopoly.”
An octopoly is a supersuccessful core competent business that grows, (like
octopi tentacles), non-core competent businesses from it, and collectively
becomes so indispensable to the healthy operation of a free-market national
economy that their risk of failure threatens the economy’s very survival.
Where the monopoly seeks to control a specific product or service, the
octopoly knowingly by its sheer size and marketplace power controls or
influences an entire national economy.
The economic crisis we are facing today is a direct result of an octopoly.
AIG (American International Group), the most infamous octopoly, started out
in 1919 in Shanghai China selling personal insurance.
It grew quickly over the years and had great successes as an international
insurance company branching out on multiple continents. In 1962, management
of AIG’s U.S. holdings was given to New York businessman Hank Greenberg.
Greenberg grew the company away from personal insurance and more toward
high-margin corporate insurance. He took AIG public in1969.
Thereafter, AIG grew into the world’s largest insurance company.
Over the years, AIG grew tentacles of non- core competent businesses from
its successful insurance company parent and formed the following: AIG
Retirement Services; AIG Asset Management; AIG Financial Services which
includes its mortgage capital business, equities, private equities, fixed
incomes, and hedge funds. AIG’s Financial Services division alone is one of
the world’s biggest with a reported $678 billion in assets under management
before receiving U.S. government bailouts.
AIG was allowed to get so big and so “diversified” that, when their risk of
total collapse was threatened, many of our national leaders from presidents
to senators to congressman to the Fed chair, pronounced that AIG was too big
to fail and that if it were to fail, it would mean financial disaster to our
national economy the likes of which had not been seen since the Great
Depression.
Something has gone terribly wrong. Like 1890, we find our country in need of
sweeping legislation and regulation to prevent any one company from growing
into an octopoly and thereby threatening the collapse of our financial
markets and our national economy. Only through new antitrust legislation,
congressional oversight, and independent agency regulation and review, can
we prevent the AIG’s of the world from achieving octopoly status.
Not only must the president deal with the current financial crisis, he must
also work to prevent the root causes of it. The American people deserve to
know that, if they are being told they must bail businesses out of their
mess that at least their government is doing something to affirmatively
prevent it from happening again.
Bradley A. Blakeman was the deputy assistant to President George W. Bush
from 2001-2004.
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