I felt like I was watching a bad horror movie this morning as Fed Chairman Ben Bernanke testified before Congress. Bernanke said the government was trying to "defang" AIG, so it wouldn't be such a risk to the financial system. But he said AIG was not a "zombie" institution. So, just to be clear. AIG is not a zombie, but it is a vampire, and its thirst for more taxpayer money seemingly cannot be quenched.
By the way, "zombie" is a term that was used during Japan's meltdown in the 1990's. It referred to financial companies that were kept alive by the government even though they were essentially dead and banks weren't lending. More on the subject in this evening's Marketplace PM story.
Bernanke said in this case, banks are making loans. In fact, he said, "They're all lending. They're all viable."
When he said that, I wanted to run screaming from the room. I don't like this horror movie because I don't know what to believe anymore. But I stayed in my seat and clamped my hands to the chair. Thus, I can tell you what else happened. Bernanke said the government had no choice but to save AIG because the financial system could not cope with its death. The cost would be measured in trillions of dollars.
Members of the Senate Budget Committee didn't seem entirely convinced. After Bernanke chronicled the government infusions into AIG, Republican Jim Bunning of Kentucky told him, "We're no better off now - you may think we are."
I think that's how a lot of people feel. We're being told the vampire's death would be catastrophic but we're being asked to take it on faith that we need to save it. Someone asked me the other day, what would happen if AIG or Citigroup failed? Would I spontaneously combust or something? A lot of people seriously don't understand what a collapse would mean. And honestly, besides what Bernanke is telling us, I don't either.
Bernanke also said nothing makes him more angry than the way AIG has been run. It's really the first time we've seen him express a strong emotion about all this. He generally testifies like, well, a zombie. I was glad to see it. There's been far too little humanity in the government's response, and this was after all, a failure of human beings, not financial instruments.
Marketplace reporter Steve Henn pointed out to me the per person cost of the AIG bailout. Roughly $600 per person. So, for his family of five, that's around $3,000, about the rental price for a very nice beach house for a week. Steve emails:
"I'm sure the AIG executives who raked in bonuses during the good years are sitting on a nice selection of houses like that. What do you think - should I just pick a nice one and show up in mid-August with my kids in tow and claim my week?"
Sure, why not? But if you do, Steve, make sure you bring some garlic.