Socialism, 21st Century Style

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The government Tuesday nationalized the American International Group, the financial giant that could not find anyone else willing to lend it the billions of dollars it needed to stay afloat.

That is not the official version. Fed staffers, who briefed reporters at 9:15 Tuesday night, don’t even want us to say the government will control A.I.G. The government will name new management, and will have veto power over all important decisions. And it will have a warrant allowing it to take 79.9 percent of the stock whenever it wants. But they contend there is no control until the warrant is exercised.

President Truman once tried to nationalize the steel industry, arguing that a strike that halted production in wartime created a national emergency. The Supreme Court ruled that was illegal. This time, however, the company agreed to the nationalization. It was the only way to get the cash it desperately needs.

The Federal Reserve and the Bush administration believe the threat of defaults by A.I.G. on a lot of unregulated derivative contracts creates a national emergency. It’s too bad they didn’t think of that when they were opposing any efforts to regulate those markets. That would have been interfering with free enterprise. This move, somehow, is not.

The official line is also that taxpayer money is not being put at risk, since the $85 billion loan is well collateralized. No group of banks was willing to make such a loan, so you have to wonder if the collateral is really that good. And the government will not say if it will loan more should that be needed to keep A.I.G. from collapsing.

It was said that only a conservative anti-communist such as Richard Nixon could overcome domestic opposition to talking to what was then called Red China. Perhaps something similar is at work here. Can you imagine what conservatives would say if a liberal Democrat had moved to nationalize major financial companies?