WASHINGTON, D.C., March 18, 2009 — Martin D. Weiss, Ph.D., chairman of Weiss Research, Inc., was in Washington today warning policy makers about the dangers of federal bailouts such as AIG and the enormous consequences to taxpayers of blanket bailouts made more disastrous with the lack of federal controls.
AIG's recently announced bonuses have prompted public indignation and anger, but they are only a symptom of the more grave results of the government's response to the financial crisis. Weiss issued the latest warning the day before he is to release a white paper on the subject.
"AIG's egregious bonuses, to executives in the very division that brought down the nation's largest insurer and threatens the global financial system, are a sad metaphor for the dangerous unintended consequences of federal bailouts," said Dr. Weiss.
The Weiss Research white paper, "Dangerous Unintended Consequences: How Banking Bailouts, Buyouts and Nationalization Can Only Prolong America's Second Great Depression and Weaken Any Subsequent Recovery," will be issued on Thursday, March 19 at 10 a.m. in the Murrow Room of the National Press Club.
"Tried and tested practices, such as a bankruptcy or a takeover by state insurance commissioners, would have triggered the suspension of most contracts to creditors and employees, pre-empting this issue," Dr. Weiss continued. "But with the federal bailout of AIG, the U.S. government let this issue fall through the cracks. Although it could be argued that federal authorities did not have adequate time to conduct a thorough review of contractual obligations prior to the first round of emergency funding to AIG in September of last year, missing this critical step prior to subsequent rounds of emergency funding was a great oversight."
Weiss Research issued a white paper on September 25, 2008, entitled, "Proposed $700 Billion Bailout Is Too Little, Too Late to End the Debt Crisis; Too Much, Too Soon for the U.S. Bond Market," in which the company argued that:
The $700 billion requested by the Bush administration — and subsequently granted by Congress — to rescue the nation's banks and other financial institutions would be vastly inadequate to cover the known and probable losses in America's vast credit markets.
The burden of such massive rescues would make it increasingly expensive and difficult for the U.S. government to sell its bonds.
"In the half-year that has elapsed since our paper's publication, an abundance of new evidence makes it plainly evident that our first argument was, if anything, understated," said Dr. Weiss. "Meanwhile, information validating our second argument, regarding potential U.S. government funding difficulties, is just now coming to light."
About Weiss Research
Weiss Research, Inc., a subsidiary of industry-leading Weiss Group is one of the largest, most reputable sources of global investment information. Martin D. Weiss, Ph.D., along with Weiss analyst Mike Larson, are the only analysts in the U.S. who have specifically named nearly all of the major institutions that have suffered a financial failure in this crisis, whether in the form of a forced buyout, a government bailout or outright bankruptcy. Moreover, Weiss' failure warnings were issued without ambiguity and with months of advance lead time, giving the public ample time to escape the dangers.
Weiss predicted the demise of Bear Stearns 102 days prior to its failure, Lehman Brothers (182 days prior), Fannie Mae (eight years prior), and Citigroup (110 days prior). Similarly, the U.S. Government Accountability Office (GAO) reported that, in the 1990s, Weiss greatly outperformed Moody's, Standard & Poor's, A.M. Best and D&P (now Fitch) in warning of future insurance company failures. (See http://archive.gao.gov/t2pbat2/152669.pdf.)