Takeovers of AIG, Fannie and Freddie raise business and political questions
The federal government is entering uncharted territory. Lawmakers and experts wonder whether it is up to the job of running large corporations.
WASHINGTON — Uncle Sam is turning into Uncle CEO. But will the new corporate suit be a good fit?
By agreeing to bail out insurance giant American International Group Inc. and mortgage lenders Fannie Mae and Freddie Mac, the federal government has put itself in the unprecedented position of running huge private companies. In the case of American International Group, or AIG, the government is now the majority shareholder, acquiring 80% of the company in exchange for lending it as much as $85 billion over two years to keep the business out of bankruptcy as it is dismantled.
But some lawmakers and financial experts wonder whether U.S. officials are up to the task of directing large corporations through such turbulent times. AIG, for instance, has 116,000 employees and does business in about 100 countries. Fannie Mae and Freddie Mac together hold or guarantee $5.4 trillion of mortgages, about half of the nation's home loans.
"The government does not have a core competency to run an insurance company of the magnitude of an AIG," said David M. Walker, former head of the Government Accountability Office, the congressional watchdog agency. "It's clearly not going to be able to effectively manage AIG and do what needs to be done."
Top Bush administration officials say they authorized the controversial bailouts to prevent corporate failures that could have crippled the U.S. economy. But many details about how the government will run the companies, and for how long, are still being worked out.
Some critics of the bailouts are heartened that federal officials moved quickly to place seasoned, private-sector executives into key leadership positions at the companies. For example, Edward M. Liddy, former chairman and chief executive of Allstate Corp., was installed as the new head of AIG and told employees that he didn't think the government intended to "hamstring" the company.
Yet questions remain about what influence federal officials such as Treasury Secretary Henry M. Paulson -- who reportedly sought the ouster of AIG Chief Executive Robert Willumstad as a condition of the bailout -- will exert over the companies, and what role politics might play in their operation.
"When you have these things going on behind closed doors, it's a little disconcerting," said Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning think tank in Washington. "When you do have sell-offs of the parts of AIG, we want to make sure that is done on a fair-market basis. You don't want to have sweetheart deals."
