Government’s Rescue of AIG Fails to Calm Nervous Investors

GWEN IFILL:

Now, the rationale behind the government's decision and possible fallout yet to come. Ray Suarez picks up on that part of the story.

RAY SUAREZ:

And for that, we get two views. Allan Meltzer is a professor of political economy and public policy at Carnegie Mellon University. He's also a visiting scholar at the American Enterprise Institute.

And Michael Lewitt is president of Harch Capital Management, a money management firm.

And, Michael Lewitt, let's start with you. AIG was teetering on the brink. The Federal Reserve stepped in. Was the right decision made to move in, in this way?

MICHAEL LEWITT, Harch Capital Management:

It was the right decision. I think that, if AIG had failed, it would have caused catastrophic losses throughout the global financial system.

AIG is a uniquely global company. It has relationships with virtually every other financial institution in the world. And its failure, its inability to meet its obligations would have caused a cascade of troubles for other financial institutions. It would have caused potentially other hedge funds and other companies to fail.

And I don't know if the losses could have been contained if the government had not stepped in.

RAY SUAREZ:

Professor Meltzer, did the Fed do the right thing?

ALLAN MELTZER, Carnegie Mellon University:

No. There were bids on the floor for AIG. AIG it didn't take the bids. It thought it could get a better deal from the government. That's a bad way to run the system.

We can't afford to run a system and we won't be able to where the bankers make the profits and the public takes the losses. That just is not viable.