The federal government has bailed out many industries, including banking, mortgage lenders, insurers, money market funds, automakers, credit card issuers, home builders, the states and so on. This invites ongoing gambling at public expense by any business or entity that can reasonably expect a bailout. Moreover, this is a prescription for fiscal insolvency, which could culminate in hyperinflation, says Laurence J. Kotlikoff, an economics professor at Boston University and a senior fellow with the National Center for Policy Analysis.
AIG was effectively nationalized on September 16, 2008, at a cost of $85 billion to taxpayers. Since AIG’s nationalization, the government has engaged in a massive and potentially more expensive policy. The policy entails providing systemic risk insurance to the financial sector — that is, insurance against system-wide collapse. Indeed, the federal government has already handed out, or publicly committed to hand out, more than $12 trillion to the financial sector, says Kotlikoff.