US govt's ability to run private companies questioned

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(Xinhua)
Updated: 2008-09-22 11:31

LOS ANGELES -- The US government's massive bailout packages to salvage troubled private companies prompted critics to question whether US officials are up to the task of directing large corporations through such turbulent times, it was reported on Sunday.

US President George W. Bush (R) makes remarks on the economy with Federal Reserve Chairman Ben Bernanke in the Rose Garden at the White House in Washington September 19, 2008. [Agencies]

"By agreeing to bail out insurance giant American International Group Inc. and mortgage lenders Fannie Mae and Freddie Mac, the federal government has put itself in the unprecedented position of running huge private companies," the Los Angeles Times said.

American International Group (AIG), for instance, has 116,000 employees and business operations in about 100 countries. Fannie Mae and Freddie Mac together hold or guarantee 5.4 trillion dollars of mortgages, about half of the nation's home loans, the paper said.

The US government is now the majority shareholder of AIG, acquiring 80 percent of the company in exchange for lending it as much as US$85 billion over two years to keep the business out of bankruptcy as it is dismantled, said the paper.

"The government does not have a core competency to run an insurance company of the magnitude of an AIG," David M. Walker, former head of the Government Accountability Office, the congressional watchdog agency, was quoted as saying. "It's clearly not going to be able to effectively manage AIG and do what needs to be done."

Top Bush administration officials say they authorized the controversial bailouts to prevent corporate failures that could have crippled the US economy. But many details about how the government will run the companies, and for how long, are still being worked out.

Critics raised questions about what influence federal officials such as Treasury Secretary Henry M. Paulson, who reportedly sought the ouster of AIG Chief Executive Robert Willumstad as a condition of the bailout, would exert over the companies, and what role politics might play in their operation, the paper said.

"When you have these things going on behind closed doors, it's a little disconcerting," said Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning think tank in Washington.

"When you do have sell-offs of the parts of AIG, we want to make sure that is done on a fair-market basis. You don't want to have sweetheart deals."

In previous government bailouts, the government did not take control of the companies but simply provided guarantees for loans.

The bailouts of AIG, Fannie Mae and Freddie Mac are new territory, fueled by an attempt to avoid a global financial disaster, the paper noted.