Financial Crisis

Date: 11th Nov. Indian Express

The US Federal Reserve hiked its support for insurer American International Group (AIG) Inc to about $150 billion on Monday after an initial bailout attempt failed to stem massive losses. Under the new plan, the government is putting $150 billion at AIG’s disposal, $27 billion more than it extended previously. But the new package will leave the government exposed to billions of dollars of potential losses. AIG shares rose 24 per cent to $2.62 in premarket trade after the new rescue plan was dis closed. The restructured bailout was announced as AIG posted a $24.47 billion third-quarter loss, the largest in the company’s 89-year history, hurt by massive losses on investments and billions of dollars of insurance claims from hurricanes that battered the US Gulf Coast earlier this year. The Fed will buy $40 billion of AIG preferred shares through the Treasury’s Troubled Asset Relief Program (TARP), lend it $60 billion under a credit facility, and provide $50 billion to buy distressed securities and backstop AIG’s securities lending portfolio.

Analysis:

This small article demonstrates the ‘Incremtalism: Polcicy model of Decision making’. Incrementalism views a public policy as a continuation of past government activities with only incremental modifications. Here in US economy due to financial crisis happened recently demanded financial adjustments from the government. As pointed out by many political thinkers incrementalism is essentially remedial and focuses on improvement of present social imperfections rather than promotion of futuristic goals. Here in case of US Economy economic imperfections should be corrected by interfering in the market. There is no time and need to bring out a long term planned changes or structural changes. Hence government focuses on policies like Treasury’s Troubled Asset Relief Program (TARP) to support industries suffering from the capital crisis. These policies are additional to the existing policies to correct the imperfections.