Lehman Brothers is bankrupt, Merrill Lynch has been sold off and now AIG, the largest insurer in the country, is on the ropes. Lehman’s bankruptcy was the largest in history and its ramifications will be hard felt in the financial world, but an AIG failure will be even worse. If you read the headlines this morning, it is amusing to see every Wall Street person say AIG is “too big to fail.” Of course they don’t want it to fail because it is going to have a huge impact on the market. AIG insures financial products, and “'I don't know of a major bank that doesn't have some significant exposure to AIG,’'' said Kenneth Lewis, chief executive officer of Bank of America, in a CNBC interview,” as Bloomberg reported.
Yesterday in the blog, I applauded the government for letting Lehman fail, and I hope they are willing to do the same with AIG. Sure, it will be tough, and in the short term things will get worse, but over the long haul, we will be glad we did it. Lessons have to be learned these organizations have to make fundamental changes to the way they are doing business.
Bloomberg reported this morning that, “Republican presidential nominee John McCain told CNBC today that there is a ‘moral hazard’ in forcing taxpayers to be responsible for the poor performance of companies. Asked whether regulators should allow AIG to fail, McCain said, ‘I think you have to.’'' I want to applaud McCain on this statement, and I sincerely hope that the rest of the government feels the same way.
For investors, times like this are extremely confusing and dangerous. The stock market has already taken a huge hit, and it is likely to drop even further. Even bank deposits are in question with many financial institutions on the rocks and the FDIC seemingly underfunded at the moment. You could look to other countries for safety, but it doesn’t appear that you will find any solace there, either, in this truly global financial crisis. Gold has been extremely volatile of late and many investors are wary of investing in it as prices have plunged. Real estate continues to fall, not really offering any comfort either. So again, where should people be investing?
I’m curious to hear what all of you have to say on the subject, so I would encourage you to let us know what you think the best investment is right now and why.