By: Leland C. Abraham, Esq.
Recently, America has seen a crisis arise in its financial market. One of the first companies to have trouble was American International Group, Inc. (AIG). When AIG showed signs of financial collapse, the federal government decided to lend AIG $80 billion to stabilize the corporate giant. Generally, those who feel that government should not get involved softened their stance when it came to AIG as most people realize if AIG goes under, all Americans will have to pay for it in some form or another. One of the most curious aspects of the AIG debacle is that the federal government decided to use mortgage backed securities as collateral for the $80 billion loan. This is a questionable tactic in an already volatile real estate market. The next eight (8) months to two (2) years will be very telling for our federal government’s decision to do this.
While AIG in America has experienced significant difficulty, AIG in Africa has seen stability despite the volatility of the global market. Specifically, AIG Uganda Ltd. maintains that is has been able to remain adequately capitalized and able to meet its obligations to policy holders, including payment of claims.
Insurance policies written by AIG Uganda are obligations of the locally registered company attempting to break the grip of a worsening global credit crisis. In contrast, the Federal Reserve stepped up its action last week by pumping billions into the financial markets in the U. S. and abroad. The Federal Reserve Bank of New York, in two separate operations, injected $55 billion into temporary reserves in the United States. This move was aimed at easing a financial system in danger of freezing up.
While it has not yet been determined why AIG Uganda has been insulated from the global market crisis, the answer is most likely in the lack of borrowing that occurs in the African market. The U. S. economy runs on a deficit and it appears to borrow money at an increasing rate. This makes the stability of the U. S. market volatile as investor confidence in the stability of the market decreases as the country continues to borrow. The unfortunate factor in this situation is that America needs to borrow money in order for the economy to function properly. The U. S. spends billions per month for the war in Iraq. Generally, war has been a good thing for the American economy. However, this has not been the case for this recent war in Iraq. Under the Bush administration, the federal government spending has increased without any increase in revenues to offset the spending spree. The federal government, especially with the inclusion of quasi-government and now fully government run Fannie Mae and Freddie Mac who are at the heart of the subprime mortgage crisis along with AIG, has placed too much of a burden on the federal government and as a consequence the American taxpayer. While Africa does have wars that take place within its county, it does not borrow a lot of money to fight these wars. Most of Africa’s wars involve local governments that are fighting against rebel militias. This lessens the sophistication of the war and the fact that Africa is not involved in any significant conflicts outside of its borders has allowed them to refrain from significant borrowing.
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